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+PROSPECTUS SUMMARY THE FOLLOWING IS A SUMMARY OF SOME OF THE INFORMATION CONTAINED IN THIS PROSPECTUS. IT MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THIS OFFERING FULLY, YOU SHOULD READ CAREFULLY THE ENTIRE PROSPECTUS, INCLUDING THE RISK FACTORS BEGINNING ON PAGE 6 AND THE FINANCIAL STATEMENTS. IN THIS PROSPECTUS THE TERMS "ASBURY," "WE," "US" AND "OUR" REFER TO ASBURY AUTOMOTIVE GROUP, INC., UNLESS THE CONTEXT OTHERWISE REQUIRES, AND ITS SUBSIDIARIES AND THEIR RESPECTIVE PREDECESSORS IN INTEREST. THIS PROSPECTUS ASSUMES THAT, IMMEDIATELY PRIOR TO THE CLOSING OF THIS OFFERING, ASBURY AUTOMOTIVE GROUP, INC. WILL BECOME THE PARENT OF THE BUSINESS OPERATED BY ASBURY AUTOMOTIVE GROUP L.L.C. THROUGH THE CONTRIBUTION OF ALL OF THE MEMBERSHIP INTERESTS IN ASBURY AUTOMOTIVE GROUP L.L.C. TO ASBURY AUTOMOTIVE GROUP, INC. AS A RESULT, ASBURY AUTOMOTIVE GROUP L.L.C. WILL BECOME A WHOLLY-OWNED SUBSIDIARY OF ASBURY AUTOMOTIVE GROUP, INC. PER SHARE DATA INCLUDED IN THIS PROSPECTUS ASSUME THAT MEMBERSHIP INTERESTS IN THE LIMITED LIABILITY COMPANY OUTSTANDING IMMEDIATELY PRIOR TO THE CONVERSION WILL BE EXCHANGED FOR SHARES OF COMMON STOCK IN THE NEW CORPORATION ON THE BASIS OF 295,000 SHARES OF COMMON STOCK FOR EACH 1% OF MEMBERSHIP INTEREST. IN REGARD TO VALUATION AND PER SHARE DATA WE HAVE ASSUMED A PER SHARE PRICE OF $16, THE MID-POINT OF THE PRICE RANGE SET FORTH ON THE COVER OF THIS PROSPECTUS. THIS PROSPECTUS INCLUDES STATISTICAL DATA REGARDING THE AUTOMOTIVE RETAILING INDUSTRY. UNLESS OTHERWISE INDICATED, SUCH DATA IS TAKEN OR DERIVED FROM INFORMATION PUBLISHED BY: - THE INDUSTRY ANALYSIS DIVISION OF THE NATIONAL AUTOMOBILE DEALERS ASSOCIATION, ALSO KNOWN AS "NADA," NADA DATA 2001. - AUTOMOTIVE NEWS 2001 MARKET DATA BOOK. - CNW MARKETING/RESEARCH. - SALES & MARKETING MANAGEMENT 2001 SURVEY OF BUYING POWER AND MEDIA MARKETS. - BUREAU OF ECONOMIC ANALYSIS. - J.D. POWER. THE SOURCES REFERENCED ARE THE MOST RECENT AVAILABLE AS OF THE DATE OF THIS PROSPECTUS. BUSINESS OUR COMPANY We are one of the largest automotive retailers in the United States, currently operating 127 franchises at 91 dealership locations. We offer our customers an extensive range of automotive products and services, including new and used vehicles and related financing and insurance, vehicle maintenance and repair services, replacement parts and service contracts. Our retail network is organized into nine regional dealership groups, which we refer to as "platforms," located in 17 market areas that we believe represent attractive opportunities. Our franchises include a diverse portfolio of 36 American, European and Asian brands, and a majority of our dealerships are either luxury franchises or mid-line import brands. We have grown rapidly in recent years, primarily through acquisition, with annual sales of $3.0 billion in 1999 and $4.0 billion in 2000, which represented a 34% increase in annual sales from 1999. For the year ended December 31, 2001, we had sales of $4.3 billion, which represented a 7.2% increase in sales from 2000. We sold a total of 158,417 new and used retail units in 2001, which represented a 3.7% increase over the 152,756 retail units sold in 2000. We compete in a large and highly fragmented industry comprised of approximately 22,150 franchised dealerships. The U.S. automotive retailing industry is estimated to have annual sales of approximately $1.0 trillion, with the 100 largest dealer groups generating less than 10% of total sales revenue. OUR STRENGTHS We believe our strengths are as follows: - EXPERIENCED AND INCENTIVIZED MANAGEMENT. The former platform owners of seven of our nine platforms, each with greater than 24 years of experience in the automotive retailing industry, continue to manage their respective platforms. Our platforms' senior management teams will collectively own approximately 23.5% of our outstanding common stock after this offering. - ADVANTAGEOUS BRAND MIX. We believe our current brand mix includes a higher proportion of luxury and mid-line import franchises to total franchises than most public automotive retailers, accounting for 66% of new retail vehicle revenue in the year 2001. Luxury and mid-line imports generate above average gross margins on new vehicles and have greater customer loyalty and repeat purchases than mid-line domestic and value automobiles. - REGIONAL CONCENTRATION AND STRONG BRANDING OF OUR PLATFORMS. Each of our platforms is comprised of between 7 and 24 franchises and on a pro forma basis for 2001, generated an average of approximately $500 million in revenues. Regional concentration and strong brand recognition allow our platforms to realize significant economies of scale. - DIVERSIFIED REVENUE STREAMS/VARIABLE COST STRUCTURE. Used vehicle sales and parts, service and collision repair generate higher profit margins than new vehicle sales and tend to fluctuate less with economic cycles. In addition, our incentive-based compensation structure helps us to manage expenses in an economic downturn. OUR STRATEGY Our objective is to be the most profitable automotive retailer in select markets in the United States. To achieve this objective, we intend to follow the outlined strategy: - CONTINUED GROWTH THROUGH TARGETED ACQUISITIONS. We will seek to establish platforms in new markets through acquisitions of large, profitable and well-managed dealership groups. We will also pursue additional dealerships within our established markets to complement our platforms. - FOCUS ON HIGHER MARGIN PRODUCTS AND SERVICES. We will continue to focus our efforts on products and services that generate higher profit margins than new vehicle sales, such as used vehicle retail sales, finance and insurance, parts, service and collision repair, from which we currently derive approximately two-thirds of our total gross profit. - DECENTRALIZED DEALERSHIP OPERATIONS. We believe that decentralized dealership operations on a platform basis, complemented by centralized technology and financial controls, enable us to provide timely market-specific responses to sales, services, marketing and inventory requirements. RISKS RELATING TO OUR BUSINESS AND TO THIS OFFERING As part of your evaluation of us, you should take into account the risks we face in our business and not solely our competitive strengths and business strategies. Our operations may be affected by prevailing economic conditions. Moreover, our future performance depends on our ability to integrate and derive expected benefits from future acquisitions and our substantial indebtedness and limited financial resources may hinder our ability to fully implement our acquisition strategy. In addition, our business is subject to risks related to our dependence on vehicle manufacturers and key personnel, as well as risks associated with the automotive industry in general. You should also be aware that there are various risks involved in investing in our common stock, including risks relating to, among other things, future sales of a substantial amount of our common stock, dilution to our investors, potential volatility of our future stock price, continuing voting control by existing shareholders and government regulation. For more information about these and other risks, see "Risk Factors" beginning on page 6. You should carefully consider these risk factors together with all of the other information included in this prospectus. ------------------------ Our principal executive offices are located at 3 Landmark Square, Suite 500, Stamford, Connecticut 06901. Our telephone number is (203) 356-4400. Our World Wide Web site address is HTTP://WWW.ASBURYAUTO.COM. Information contained on our website or that can be accessed through our website is not incorporated by reference in this prospectus. You should not consider information contained on our website or that can be accessed through our website to be part of this prospectus.

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+Prospectus Summary 1

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+SUMMARY OF THE PROSPECTUS ------------------------- You should read the following summary together with the more detailed information regarding the units being sold in this offering and our consolidated financial statements and related notes appearing elsewhere in this prospectus. Because this is only a summary, you should read the rest of this prospectus before you invest in the units. Read the entire prospectus carefully, especially the risks described under "Risk Factors." THE COMPANY Background and Products RELM Wireless Corporation designs, manufactures and markets wireless communications products, principally two-way land mobile radios (LMR) and related components. We offer products with three distinct brand names, BK Radio, RELM, and Uniden. These products are sold to two market segments. . The government and public safety market segment includes fire, rescue, law enforcement, and emergency medical personnel, as well as the military and various agencies of federal, state, and local governments. . The business and industrial market segment consists of enterprises requiring fast, inexpensive communication among a discrete group of users. Examples of some of theses types of enterprises include hotels, construction companies, schools, airports, and taxies. Prior to 2000, we were engaged in many unrelated businesses. Starting in 1996, we developed and executed a strategy to focus on wireless communications. Since that time, we have sold or otherwise discontinued businesses and product lines that were outside that focus or were under-performing. In 1999 we completed our exit from these businesses and products, and today are focused exclusively on LMR wireless communications. In concert with our exit from those businesses and product lines, we have significantly reduced our operating costs while improving quality and efficiency. These actions combined with increased revenues have resulted in profits for the past two consecutive quarters. Markets A significant growth opportunity is developing in the LMR industry as users migrate to new, standardized digital equipment This migration is primarily the result of the following two issues: . In recent years, as all forms of wireless communication have expanded, available radio spectrum has been all but exhausted. This lack of available radio spectrum has hindered have applied to list our units and warrants on the NASDAQ SmallCap Market under the symbol "RELMU" and "RELMW", respectively, where it is anticipated that they will trade for at least 30 days, after which, they may be divided at the discretion of the underwriter. We are offering any remaining units not purchased by our equity holders pursuant to a standby underwriting agreement with Noble International Investments, Inc. Noble will purchase all unsubscribed units at the closing of the offering. We will use the proceeds received from this offering as unrestricted working capital which will include the further implementation of our plan to develop our own proprietary digital radios compliant with Association of Public Communications Officials Project 25 standards. SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS TO READ ABOUT IMPORTANT FACTORS YOU SHOULD CONSIDER BEFORE BUYING THE UNITS. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------------------ The date of this prospectus is _________, 2002. LMR users. Potential new users have often been prevented from implementing systems and existing users have been unable to expand their systems. . In the public safety markets, interoperability of LMR equipment has become a critical problem. Specifically, agencies (e.g. fire, police, and emergency medical personnel) responding to an event, such as a fire, using equipment from different manufacturers are sometimes unable to reliably communicate. The Oklahoma City bombing was one example of this problem. During that crisis, emergency workers were sometimes forced to communicate using hand-carried written messages. These circumstances have been clearly documented by the U. S. Attorney General. More recently, the terrorist attacks on New York and Washington DC created new situations necessitating radio communication among users of different LMR equipment. Several years ago, to address the lack of available radio spectrum, the Federal Communications Commission (FCC) mandated that new LMR equipment utilize more spectrum-efficient technology. Accomplishing this will effectively mean that the analog LMR equipment currently in use will need to be replaced with LMR equipment that employs digital technology. To address the issue of interoperability, The Association of Public Communication Officials (APCO), in concert with several manufacturers, including RELM, recommended an industry standard for digital LMR products. The standard also meets the requirements of the FCC mandate. It is called Project 25. We believe that compliance with the standard is fast becoming the key consideration for police, fire and other public safety LMR users in selecting new equipment. We believe that the FCC mandate may fuel increased LMR market growth as users implement digital LMR communication systems and equipment. Also, the open architecture of the APCO project 25 standard effectively eliminates the ability for one large provider, such as Motorola, to lock out smaller competitors. Formerly, with proprietary analog technology, an LMR user was effectively precluded from purchasing additional equipment from a company other than the initial provider. The APCO Project 25 standard now provides an environment in which users will have the flexibility to choose from a wider selection of LMR suppliers, including RELM. Furthermore, the number of manufacturers currently offering Project 25-compliant digital equipment is very limited and the products being offered are expensive. Combined, this set of circumstances provides us with an opportunity to expand our business and market share by being an early participant in this newly-evolving market and by introducing products that are less expensive than those that are currently available. THE OFFERING This prospectus relates to the offering of up to 10,000,000 subscription rights to equity holders to purchase 2,500,000 units for a purchase price of $1.04, which was 90% of the closing bid price of $1.15 for our common stock on February 4, 2002, which units are comprised of: - up to 2,500,000 warrants to purchase a like number of shares of common stock, and You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. This prospectus may be used only where it is legal to sell these securities. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the securities. - up to 5,000,000 shares of common stock included in the units and upon exercise of the warrants. The number of units and underlying warrants and shares of common stock may be increased by 500,000 units to up to 3,000,000 units to directly reflect any re-pricing of units as a result of a decline in the purchase price from $1.04 which was 90% of our closing bid price on February 4, 2002, but in no event to less than $.84. Use of Proceeds We will use the proceeds received from this offering as unrestricted working capital, which will include the further implementation of our plan to develop our own proprietary digital radios compliant with APCO 25. Summary of the Offering Description of the rights offering Equity holders, at the close of business on February 4,2002 will receive one subscription right for every equity position owned. Each right will entitle the equity holder to subscribe for one unit, subject to pro rata reduction as a result of an oversubscription. The equity holders' rights are not transferable. Basic subscription rights Each right includes a basic subscription right entitling an equity holder to purchase one unit for each right held, at a price of $1.04 per unit which was 90% of our closing bid price on February 4, 2002. Each equity holder may exercise all or any portion of the rights it receives. 2,500,000 units are being offered and, to the extent there is an oversubscription, units will be sold pro rata and no fractional units will be sold. The number of units offered may be increased to up to 3,000,000 units in the event the units are re-priced. Re-pricing of units In the event the closing bid price for our common stock on the date your rights expire is less than $1.04, the purchase price shall be reduced to an amount equal to 90% of the closing bid price of our common stock on the date your rights to purchase units expire, but in no event, less than $0.84 per unit. In the event the units are re-priced, the number of units you receive will be increased proportionately. Duration of rights An equity holder may purchase units until 5:00 p.m. EST on ________, 2002. Terms of the units Each unit will consist of one share of common stock and one warrant to purchase one share of common stock. The units will trade on the NASDAQ SmallCap Market until ______, 2003, or such earlier date that is ten days after the date that we file a Form 8-K disclosing the press release of the announcement that our standby underwriter, Noble International Investments, Inc. declared the shares of stock and the common stock purchase warrants constituting a unit separated. Maximum offering We will accept subscriptions for 2,500,000 which may be increased up to a maximum of 3,000,000 units in the event

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+PROSPECTUS SUMMARY The following summarizes information in other sections of our Prospectus, including our financial statements, the notes to those financial statements and the other financial information appearing elsewhere in this Prospectus. You should read the entire Prospectus carefully. CECO ENVIRONMENTAL CORP. Corporate Information CECO was incorporated in New York in 1966. Effective January 11, 2002, we reincorporated to Delaware. Our common stock has been trading on the Nasdaq SmallCap Market since January 1, 1978. The principal office of CECO is 3120 Forrer Street, Cincinnati, Ohio 45209, telephone number (513) 458-2600. Our website is http://www.cecoenviro.com. This internet address is provided for informational purposes only. The information found on our website is not intended to be a part of this Prospectus. Our Business CECO Group, Inc. ("CECO Group") is a wholly-owned subsidiary of CECO. CECO Group owns 100% of the stock of The Kirk & Blum Manufacturing Company ("Kirk & Blum"), approximately 94% of the common stock of CECO Filters, Inc., a Delaware corporation ("Filters"), 100% of the stock of CECO Abatement Systems, Inc. ("CECO Abatement") and beneficially owns 100% of the stock of kbd/Technic, Inc ("kbd/Technic"). The other operating company controlled by CECO, New Busch Co., Inc. ("Busch"), is a wholly-owned subsidiary of Filters. The Company operates through its wholly-owned subsidiary, CECO Group. The terms "we", "us" and "our" in this Prospectus refer to CECO, CECO Group, Filters, and their respective subsidiaries. "CECO" or the "Company" refers to CECO Environmental Corp. Kirk & Blum, with headquarters in Cincinnati, Ohio, is a leading provider of turnkey engineering, design, manufacturing and installation services in the air pollution control industry. Kirk and Blum's business is focused on designing, building, and installing systems that remove airborne contaminants from industrial facilities, as well as equipment that control emissions from such facilities. Kirk & Blum serves its customers from offices and plants in Cincinnati, Ohio; Indianapolis, Indiana; Defiance, Ohio; Louisville and Lexington, Kentucky; Columbia, Tennessee; and Greensboro, North Carolina. In 2001, Engineering News Record ranked Kirk & Blum as the largest specialty sheet metal contractor in the country in 2000. With a diversified base of more than 1,500 active customers, Kirk & Blum provides services to a number of industries including aerospace, ceramics, metalworking, printing, paper, food, foundries, metal plating, woodworking, chemicals, tobacco, glass, automotive and pharmaceuticals. Filters is located in Conshohocken, Pennsylvania. Filters manufactures and sells industrial air filters known as fiber bed mist eliminators. The filters are used to trap, collect and remove solid soluble and liquid particulate matter suspended in an air or other gas stream whether generated in a point source emission or otherwise. The principal functions that can be performed by use of the filters are (a) the removal of damaging mists and particles (for example, in process operations that could cause downstream corrosion and damage to equipment), (b) the removal of pollutants, and (c) the recovery of valuable materials for reuse. The filters are also used to collect fine insoluble particulates. Filters' filters are used by, among others, the chemical and electronics industries; manufacturers of various acids, vegetable and animal based cooking oils, textile products, alkalis, chlorine, paper, computers, automobiles, asphalt, pharmaceutical products and chromic acid; electric generating facilities including cogeneration facilities; and end users of pollution control products such as incinerators. Busch engages in the business of marketing, selling, designing and assembling ventilation, environmental and process-related products. Busch provides a wide range of special services, including conceptual studies, application engineering, and system start-up. Busch employs an engineering staff experienced in aerodynamic, mechanical, civil, and electrical disciplines. These personnel are utilized entirely to support Busch's air systems work. Areas of expertise include turbine inlet filtration, evaporative cooling, gas absorption, scrubbers, acoustics, and corrosion control. kbd/Technic is a specialty engineering firm concentrating in industrial ventilation and dust and fume control. CECO Abatement engineers, builds and installs thermal oxidation control systems to eliminate toxic emission fumes and volatile organic compounds resulting from large-scale industrial processes. The Offering We issued 1,000,000 of the shares of common stock described in this Prospectus to certain of the selling stockholders upon the exercise of warrants. These warrants had been acquired from us on December 7, 1999 in a private transaction and are considered "restricted securities" under the Securities Act of 1933 (the "Securities Act"). In December 2001, we received gross proceeds of $2,250,000 from the exercise of these warrants. On December 31, 2001, we completed the sale of 706,668 shares of our common stock, at a price of $3.00 per share, and the issuance of warrants ("Investor Warrants") to purchase 353,334 shares of our common stock at an initial exercise price of $3.60 per share, to a group of accredited investors led by Crestview Capital Fund L.P., a Chicago-based private investment fund (the "Investors"). As a finder's fee pursuant to an agreement with The Shemano Group, we also issued warrants to purchase 14,000 shares of our common stock at an initial exercise price of $3.60 (such warrants collectively with the Investor Warrants, the "Warrants") to five of the selling shareholders (the "Shemano Holders"). All of the shares underlying the Warrants are included in this Prospectus. More information on the selling stockholders is provided in the section entitled "Selling Stockholders." The offering price of the shares will be determined at the time of sale by the selling shareholders. As of March 19, 2002, there were 9,614,087 shares outstanding, including the 706,668 shares sold pursuant to the private financing, but excluding the 367,334 shares that may be purchased by exercise of the Warrants. We will not receive any of the proceeds from the shares offered by the selling shareholders. We intend to use the proceeds from the exercise of the Warrants, if exercised, held by certain selling shareholders for working capital purposes. The selling stockholders may sell the shares in public or private transactions, on or off the Nasdaq market, at prevailing market prices, or at privately negotiated prices. The selling stockholders may sell shares directly to purchasers or through brokers or dealers. Brokers or dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholders. The selling stockholders may be deemed to be "underwriters" within the meaning of the Securities Act. Any commissions received by a broker or dealer in connection with resales of the shares may be deemed to be underwriting commissions or discounts under the Securities Act. More information is provided in the section entitled "Plan of Distribution." This Prospectus registers the shares of common stock under the Securities Act and allows for future sales by the selling stockholders to the public without restriction. We have agreed to pay for the preparation and filing of the registration statement and this Prospectus. Summary Financial Information The following table sets forth our summary historical financial information derived from our audited consolidated financial statements for the fiscal years ended December 31, 2001, 2000 and 1999 included elsewhere in this Prospectus. This summary financial information may not be indicative of our future performance. You should read the summary financial information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements and the notes to our consolidated financial statements included elsewhere in this Prospectus. <TABLE> <CAPTION> Year ended December 31, ------------------------- 2001 2000 1999 ------- ------- ------- (dollars in thousands) <S> <C> <C> <C> Statement of operations information: Net Sales................................................................... $90,994 $89,817 $22,414 Costs of sales.............................................................. 72,462 71,720 14,027 ------- ------- ------- Gross profit................................................................ 18,532 18,097 8,387 ------- ------- ------- Operating expenses: Selling and administrative.................................................. 13,207 13,933 7,216 Depreciation and amortization............................................... 2,320 2,154 729 ------- ------- ------- Total operating expenses.................................................... 15,527 16,087 7,945 ------- ------- ------- Operating income............................................................ 3,005 2,010 442 Investment income........................................................... 396 765 498 Interest expense............................................................ (3,542) (3,807) (1,221) Income tax provision (benefit).............................................. 131 (303) 152 Minority interest........................................................... 8 39 (1) Loss from discontinued operations........................................... -- -- (509) ------- ------- ------- Net Loss.................................................................... $ (264) $ (690) $ (943) ======= ======= ======= Basic and diluted net loss per share Continuing operations................................................... $ (.03) $ (.08) $ (.05) Discontinued operations................................................. $ -- $ -- $ (.06) Weighted average shares used for above per share (in thousands) calculations basic and diluted....................................................... 7,899 8,195 8,485 ======= ======= ======= Other financial data: Ratio of earnings to fixed charges(1)................................... n/a n/a n/a Deficiency(1)........................................................... $ (141) $(1,032) $ (281) Cash flows from operating activities.................................... 4,382 2,630 (846) EBITDA(2)............................................................... $ 5,325 $ 4,164 $ 1,171 </TABLE> <TABLE> <CAPTION> December 31, 2001 ---------------------- (dollars in thousands) <S> <C> Balance sheet information: Cash and cash equivalents. $ 53 Working capital........... 8,063 Short-term debt........... 2,826 Long-term debt............ 18,588 Total shareholders' equity 9,821 </TABLE> -------- (1) For purposes of determining the ratio of earnings to fixed charges, "earnings" are defined as income (loss) from continuing operations before income taxes less minority interest plus fixed charges less interest capitalized during the period. "Fixed charges" consist of interest expense of all indebtedness and that portion of operating lease rental expense that is representative of the interest factor. "Deficiency" is the amount by which fixed charges exceeded earnings. (2) EBITDA equals operating income (loss) plus depreciation and amortization expense. EBITDA is not intended to represent cash flow or any other measure of performance of liquidity in accordance with accounting principles generally accepted in the United States of America. EBITDA is included here because we believe that you may find it to be a useful analytical tool. Other companies may calculate EBITDA differently, and we cannot assure you that our figures are comparable with similarly titled figures for other companies.

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+PROSPECTUS SUMMARY The following is a summary of some of the information contained in this prospectus. We urge you to read the entire prospectus carefully, especially the risks associated with our business discussed under Risk Factors and our financial statements. Except for our historical financial statements or as otherwise indicated, we describe in this prospectus the business contributed to us by DSP Group, Inc. (see Separation of DSP Cores Licensing Business from DSP Group ), and the business acquired by us in the combination with Parthus (see Combination with Parthus Technologies plc ) as if they had been operated by ParthusCeva for all periods presented herein. We are an independent public company, and DSP Group has no continuing stock ownership in us. Accordingly, our historical financial results as part of DSP Group may not reflect our financial results in the future as an independent company or what our financial results would have been had we been a stand-alone company during the periods presented herein. Our Business ParthusCeva licenses to semiconductor companies and electronic equipment manufacturers (also known as original equipment manufacturers, or OEMs) complete, integrated intellectual property (IP) solutions that enable a wide variety of electronic devices. Our programmable digital signal processing (DSP) cores and application-level IP platforms power handheld wireless devices, global positioning system (GPS) devices, consumer audio products, automotive applications and a range of other consumer products. We intend to license complete system solutions consisting of our IP platforms built around our DSP cores technology, while also continuing to license our DSP cores and IP platforms as stand-alone offerings. ParthusCeva was formed in 2002 through the combination of Ceva, the former DSP cores licensing business of DSP Group, founded in 1991, and Parthus, a provider of platform-level IP for the consumer electronics market, founded in 1993. Our DSP cores licensing business (formerly the business of Ceva) develops and licenses designs of programmable DSP cores and DSP core-based sub-systems. A programmable DSP core is a special-purpose, software-controlled processor that, through complex mathematical calculations, analyzes, manipulates and enhances digital voice, audio and video signals. Chips incorporating these core designs as their central processor are used in a wide variety of electronic devices, including digital cellular telephones, modems, hard disk drive controllers, MP3 players, voice over packet products and digital cameras, and are critical to the performance of the electronic products in which they are used. A DSP core-based sub-system incorporates additional hardware blocks required as interfaces from the DSP core for the overall system. Our platform-level IP business (formerly the business of Parthus) develops semiconductor intellectual property for a range of consumer electronic products and licenses this technology to semiconductor manufacturers and OEMs. Our portfolio of IP platforms spans major broadband and local area wireless connectivity technologies as well as key application IP including multimedia, location and smartphone/handheld technologies. The intellectual property we license can take the form of schematics and designs for silicon chips and circuitry and software to perform particular functions on those chips. In addition, we also sell finished modules (which we refer to as Hard IP) to these customers. Strategy Our goal is to become the leading licensor of programmable DSP cores and platform-level IP solutions. In particular, we seek to establish our DSP core technology and IP solutions as the standards for high-volume and emerging applications. To meet these goals we intend to: Provide an integrated solution. We seek to maximize our competitive advantage by focusing on providing integrated solutions, both for our programmable DSP cores and our application-level IP platforms, and we intend to continue to invest in the development of technology for complete systems in our target markets. Operating expenses: Research and development 37 60 73 69 63 Sales and marketing 13 28 27 28 21 General and administrative 16 30 19 19 14 Amortization of goodwill and intangible assets 3 22 8 3 In-process research and development charge 27 Restructuring charge 2 ParthusCeva combination costs 7 Loss on disposal of facility Loss from operations (15) (63) (99) (58) (31) Other income: Interest income, net 1 16 16 19 6 Exchange gain, net 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Enhance our expertise. We seek to maximize our expertise in DSP, analog, mixed-signal and related software technology, and to capitalize on that expertise to address critical customer demands. We intend to enhance our existing DSP cores and IP platforms with additional features and performance, while developing new offerings that will focus on other emerging applications across the range of end markets we serve. Target top-tier customers. We seek to strengthen relationships and expand licensing and royalty arrangements with our existing customers and to extend our customer base with other key industry companies in order to facilitate the development of our technology. We believe that we can achieve the best results by targeting our sales and marketing activities at high-volume semiconductor companies and leading OEMs with a track record of successful end-user product deployments. Parthus and Ceva together have entered into license agreements with nine of the top ten semiconductor companies worldwide. Focus on large and fast-growing markets. We believe that our expertise in programmable DSP cores and platform-level IP allows us to target fast-growing segments within the consumer electronics market, such as wireless communications, mobile computing, automotive electronics, and consumer entertainment. We intend to strengthen our relationships and expand licensing and royalty arrangements with customers in those markets and to extend our customer base with key industry leaders within each of those segments. Take advantage of the industry shift towards open-standard architectures. We believe that the industries in which we compete are moving away from proprietary IP solutions towards open-standard architectures, and that this trend creates an opportunity for providers of licensable DSP cores and platform-level IP. As a consequence, we intend to use our expertise to create leading products and services in critical open standards fields, such as Bluetooth, GPS and multimedia, to position ourselves to take advantage of this trend. We also participate in the development of industry standards in these and other emerging technology areas. Focus on a portfolio approach to the licensing of our IP platforms. We seek to differentiate ourselves through the breadth of our IP offerings and our ability to integrate these offerings into a single solution built around our family of state-of-the-art DSP cores. In tandem with targeting top-tier customers, we intend to focus on offering a variety of solutions. Our product architecture is designed to allow multiple platforms to reside on the same piece of silicon, significantly reducing the cost and complexity of integration while simultaneously improving power dissipation and time to market for next-generation devices. This approach enables our customers to develop product solutions for next-generation devices that incorporate multiple functions. This approach will also provide our customers with the benefits of one-stop shopping and a technology roadmap for the next generation of multi-functional devices. Establish, maintain and expand relationships with key technology providers. We have established and seek to expand our close working relationships with: contract semiconductor companies, usually referred to as silicon foundries, in order to assure adequate supplies of chips for our customers who purchase our technology in chip form and in order to give our other OEM customers a means of obtaining competitive manufacturing capabilities; third-party suppliers of block-level semiconductor IP, in order to have access to their most current technologies; and developers of both application-level and system-level software so that we can continue to offer complete platform solutions. In addition, we have and seek to expand our relationships with companies that offer complementary technologies for designing system-on-a-chip applications based on our DSP core designs. We believe that these relationships will increase the markets for our products. AMENDMENT NO. 7 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Separation of the DSP Cores Licensing Business from DSP Group Ceva, Inc. was formed as a Delaware corporation and wholly-owned subsidiary of DSP Group in November 1999. The separation of the DSP cores licensing business from DSP Group, including the transfer of related assets, liabilities and intellectual property rights, was completed in October 2002. We believe that we will realize the following benefits by separating from DSP Group: We will be able to focus on developing our business and pursuing strategic opportunities in the licensing of technology to third parties, increase our research and development efforts, better target our markets, and focus our sales and support infrastructures in different markets than those of DSP Group. As a stand-alone, independent company, our management will be able to devote time and energy exclusively to our business. We plan to make our technology accessible to all potential users, free of competitive considerations faced by DSP Group. Our employees will be motivated by incentive compensation programs tied to the market performance of our common stock. As a more focused company, we expect to be able to make decisions more quickly, deploy resources more rapidly and efficiently and enhance our responsiveness to customers and partners. We expect to have direct access to the capital markets to issue debt or equity securities and to grow through acquisitions. Combination of Parthus and Ceva In October 2002, Parthus and Ceva combined their businesses under the terms and conditions of a Combination Agreement, dated as of April 4, 2002, as amended, by and among DSP Group, Ceva and Parthus. As part of the combination, Ceva changed its name to ParthusCeva, Inc., and Parthus became a wholly-owned subsidiary of ParthusCeva. Pursuant to arms-length negotiations between DSP Group and Parthus, and as set forth in the Combination Agreement, immediately following the separation and combination, approximately 50.1% of the outstanding shares of common stock of ParthusCeva were held by the stockholders of DSP Group, and approximately 49.9% were held by the former shareholders of Parthus. Our principal headquarters are located at 2033 Gateway Place, Suite 150, San Jose, CA 95110-1002, and our telephone number at this location is +1-408-514-2900. PalmDSPcore, PineDSPcore, OakDSPcore, OCEM, TeakDSPcore, Pine, Teak and Teaklite are United States registered trademarks of ParthusCeva or its affiliates. Parthus, the Parthus logo and BlueStream are European Community trademarks of ParthusCeva or its affiliates. The registration of the following trademarks is pending in the United States: ParthusCeva, the ParthusCeva logo, SmartCores, Assyst, CedarDSPcore, Parthus, the Parthus logo, MachStream, MobiStream, WarpStream, MediaStream, BlueStream, PLLXpert and NavStream. Application for the following trademarks is pending in other jurisdictions: ParthusCeva, the ParthusCeva logo, SmartCores, CedarDSPcore, Parthus, the Parthus logo, MachStream, MobiStream, WarpStream, MediaStream, InfoStream, BlueStream, PLLXpert and NavStream. The following trademarks are in use: PalmASSYST, PINE ASSYST SIMULATOR, XpertDSP, XpertPalm, OpenKey, DSCKey, VoPKey, EDP, SmartCores Enabled, CamStream, VoPStream, PDKit, ODKit, TLDKit, TDKit and In8Stream. All other trademarks and service marks appearing in this prospectus are the property of their respective owners. Total revenue 100 100 100 100 100 Cost of revenue: IP license 5 9 12 11 14 IP creation 44 26 12 15 5 Hard IP 7 5 7 CEVA, INC. (Exact name of registrant as specified in its charter) Delaware 3674 77-0556376 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code No.) (I.R.S. Employer Identification No.) 3120 Scott Boulevard Santa Clara, California 95054 (408) 986-4300 (Address and telephone number of principal executive offices and principal place of business) Eliyahu Ayalon Chief Executive Officer Ceva, Inc. 3120 Scott Boulevard Santa Clara, California 95054 (408) 986-4300 (Name, address, and telephone number of agent for service) Recent Developments DSP Cores Licensing Business Results for the Quarter Ended September 30, 2002 Total Ceva revenues for the third quarter 2002 amounted to $4.9 million compared with $7.8 million in the third quarter 2001, a decrease of 38% year-on-year. The decrease is primarily due to the continuing sustained downturn in the semiconductor industry, as well as in the wireless cell phone markets, due in part to the delayed roll-out of next generation devices in that industry. Ceva s total operating costs increased by 15% to $3.2 million in the third quarter 2002, compared with total operating costs of $2.8 million in the third quarter 2001. The increase was mainly due to higher general and administrative expenses, as well as increased research and development and marketing costs associated with the product launch of Ceva s new Cedar DSP Core. Ceva s net income for the third quarter 2002 was $981,000, and $3.2 million for the third quarter 2001. Parthus Results for the Quarter Ended September 30, 2002 Total Parthus revenue for the third quarter 2002 amounted to $9.5 million, compared with $10.4 million in the third quarter 2001, a decrease of 9% year-on-year. This reflects in part the impact of the restructuring of Parthus RF and Security Hardware Acceleration businesses announced on August 26, 2002 and the continuing sustained downturn in the semiconductor industry. Parthus gross margin grew to 81% in the third quarter 2002 from 73% in the third quarter 2001, reflecting the change in revenue mix. Higher-margin licensing and royalty revenues accounted for 90% of revenues in the third quarter 2002, compared with 79% of revenues in the third quarter 2001. Parthus total operating costs amounted to $16.9 million in the third quarter 2002, compared with Cash flows from investing activities: Purchase of property and equipment (832 ) (696 ) (1,474 ) Proceeds from sale of property and equipment 99 Investment in long term lease deposits (50 ) (103 ) Proceeds from long term lease deposits Copies to: Bruce A. Mann, Esq. S. David Goldenberg, Esq. Jaclyn Liu, Esq. Linda K. Lee, Esq. Morrison & Foerster LLP 425 Market Street San Francisco, California 94105 John A. Burgess, Esq. Wendell C. Taylor, Esq. Jessica S. Semerjian, Esq. Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Table of Contents total operating costs of $27.2 million in the third quarter 2001, a decrease of 38% year-on-year. (Excluding amortization charges of $340,000, merger costs of $4.2 million, restructuring charges of $3.8 million, and non-cash stock compensation costs of $525,000, operating costs for the third quarter 2002 amounted to $8.1 million, compared with operating costs for the third quarter of 2001 of $12.1 million, excluding amortization charges of $3.7 million, in-process research and development charges of $10.9 million, and non-cash stock compensation costs of $525,000.) This decrease reflects the ongoing cost reduction actions taken by Parthus over the last 12 months, including the streamlining of Parthus RF and Security Hardware Acceleration businesses, Parthus net loss for the third quarter 2002 was $8.7 million, representing a net loss per share of $0.015. Excluding amortization charges of $340,000, merger costs of $4.2 million, restructuring charges of $3.8 million, and non-cash stock compensation costs of $525,000, Parthus net earnings for the third quarter 2002 were $147,000. ParthusCeva Combined Company Outlook In view of the continuing weakness in our own markets and those of our customers, as well as the planned measures described below, we anticipate a decline in revenues for 2003 compared with the combined revenues of Parthus and Ceva for 2002, but are not currently in a position to estimate the extent of such decline. Under these circumstances, we believe it is important to seek to improve our combined operating margins by reducing our combined annual expenses by between $10 million and $14 million. We currently anticipate that we will seek to achieve these savings by streamlining functions across the Parthus and Ceva organizations and reducing overall expense levels. We are in the process of completing plans to meet these expense reduction objectives and intend to implement them as soon as practicable after the closing of the combination. Although specific details are still being finalized, we anticipate that the necessary restructuring will involve a reduction in force and restructuring charges of between $3.5 million and $5 million during the fourth quarter of 2002. Revenue: IP license 27% 50% 73% 65% 87% IP creation 73 39 17 22 7 Hard IP 11 10 13 Approximate date of commencement of proposed distribution: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Table of Contents

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+PROSPECTUS SUMMARY This summary highlights material information included elsewhere in this prospectus. This prospectus contains forward-looking statements which involve risks and uncertainties. You should carefully read the entire prospectus, including the risk factors which begin at page 5 and the financial statements, before deciding whether to invest in our common stock. THE COMPANY - Coastal Caribbean Oils & Minerals, Ltd., a Bermuda corporation, was founded in 1953. Our principal executive office is located at Clarendon House, Church Street, Hamilton, Bermuda HM CX. Our telephone number at that address is (441) 295-1422. Our internet web address is www.coastalcarib.com. The contents of our web site are not incorporated into this prospectus. In this prospectus, "Coastal Caribbean," "we," "us," and "our" refer to Coastal Caribbean Oils & Minerals, Ltd. and its majority owned subsidiary, Coastal Petroleum Company, unless the context otherwise dictates. References to "dollars" or "$" are to United States dollars. Our principal asset is our 59% interest in Coastal Petroleum Company. Coastal Petroleum's principal assets are its nonproducing oil, gas and mineral leases and royalty interests in the State of Florida. To date, Coastal Petroleum has made no commercial discoveries on the lands covered by these leases. Coastal Caribbean is a Passive Foreign Investment Company for United States federal income tax purposes. See "MATERIAL TAX CONSEQUENCES" page 45. OUR OPERATING HISTORY - Since the denial in 1998 of our permit application to drill an exploration well on our property offshore Florida, we have been engaged in litigation against the State of Florida, at first appealing that denial and subsequently seeking compensation for the alleged taking of Coastal Petroleum's property. Although we have been in business for many years, we are still a development stage company because our exploration for oil, gas and minerals has not yielded any significant revenues or reserves. In recent years our exploration has been extremely limited. In 1992, Coastal Petroleum filed an application for a permit to drill an exploration well on its Lease 224-A offshore Florida. In 1998 the State of Florida denied the permit application, and Coastal Petroleum commenced litigation against the State appealing the denial. When the permit denial was upheld by a Florida appeals court in July 2000, Coastal Petroleum commenced litigation in January 2001 to obtain compensation from the State of Florida for the alleged taking of Coastal Petroleum's Lease 224-A. On May 21, 2002 Coastal Petroleum filed another lawsuit to obtain compensation from the State of Florida for the alleged taking of its Lease 224-B offshore Florida on property contiguous to Lease 224-A. We incurred a loss of $554,000 for the three month period ended March 31, 2002, a loss of $6,585,000 for the year 2001, a loss of $1,386,000 for the year 2000 and a loss of $1,105,000 for the year 1999. We had a deficit accumulated during the development stage of $36,549,000 at March 31, 2002. You should also see Note 1 of our financial statements regarding the substantial doubt about the Company's ability to continue as a going concern. THE OFFERING - 10,867,082 shares of our common stock, par value $.12 per share. SUBSCRIPTION PRIVILEGE - Each shareholder will be entitled to purchase one share for every four shares of common stock held on the record date at a price of $.50 per share. OVER SUBSCRIPTION - Each shareholder who purchases the entire PRIVILEGE guaranteed allotment of shares will be permitted to subscribe pro rata for additional shares not purchased by other shareholders prior to the expiration date. The number of shares available for purchase by each individual shareholder pursuant to the over subscription privilege will be limited to the aggregate number of shares available after completion of all shareholders' basic subscription purchases and will be subject to the allocation rules described at page 42 under the heading "Terms of the Offering - How the Over-Subscription Privilege Operates." HOW TO PURCHASE SHARES - If you wish to purchase shares, you should complete the subscription card and deliver it, accompanied by full payment of the subscription price, prior to the expiration date to our subscription agent. OUR SUBSCRIPTION AGENT - American Stock Transfer & Trust Co., 59 Maiden Lane, New York, NY 10038, Telephone: (800) 937-5449. COMMON STOCK OUTSTANDING - We had 43,468,329 shares of common stock outstanding at March 31, 2002. If all shares offered are sold, there will be 54,335,411 shares outstanding. DIVIDENDS - We have never declared or paid dividends on our common stock and do not anticipate declaring or paying any dividends in the foreseeable future. We plan to retain any future earnings to reduce our deficit accumulated during the development stage of $36,549,000 at March 31, 2002 and to finance our operations. USE OF PROCEEDS - The proceeds of the offering will be used for general corporate purposes, including working capital and to continue the litigation against the State of Florida. LITIGATION - Coastal Petroleum is currently involved in litigation with the State of Florida with regard to whether the State's offshore drilling policy and its denial of Coastal Petroleum's application for an oil and gas exploration drilling permit constitute a taking of Coastal Petroleum's property for which the State must compensate Coastal Petroleum. We are also involved in litigation with the State of Florida seeking compensation for confiscation of certain royalty interest acreage off the Florida coast. See "Legal Proceedings" at page 24.

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+S-1/A Table of Contents SUMMARY This summary highlights certain information contained elsewhere in this prospectus. We urge you to read this entire prospectus carefully, including the financial data and related notes, to obtain a more complete understanding of this offering before making an investment decision. Our Company We are a leading global producer of PET, or polyethylene terephthalate, plastic containers for food and beverages. We believe that PET represents one of the most rapidly growing packaging markets worldwide. We are one of the largest North American suppliers of PET containers for conventional PET applications in soft drinks and water. We also have an expanding position in the growing custom PET market. Custom PET containers are used for food, juices, teas, sport drinks, new age beverages, beer and flavored alcoholic beverages, all of which require advanced technologies, processing know-how and innovative designs. The PET packaging market is expanding as a result of growth in the beverage and food markets and conversions into PET packaging from traditional packaging materials such as glass, metal, and paperboard. In conventional PET applications, growth is largely due to new introductions of multi-pack single serve soft drinks in supermarkets and club stores and the increased popularity of single serve bottled water. Growth in custom applications is driven by demand for single serve beverages and convenience food products, and is facilitated by consumer preferences for PET s combination of transparency, resealability, light weight, and shatter resistance. Until recently, the limited availability of commercially proven technologies constrained the growth of custom PET applications. We believe that we have the patented technology and full-service design capabilities necessary to capture expected large scale conversion opportunities for PET packaging. We provide full-service PET packaging solutions, from product design and engineering to ongoing customer support, and we work closely with our customers to deliver innovative, high-performance packaging solutions that maximize the promotional appeal of our customers products. We believe that our Oxbar oxygen-scavenging technology, which increases product shelf life by inhibiting oxygen from penetrating the packaging, is the best performing technology for the preservation of oxygen sensitive products and is cost competitive with other available technologies. We also have the expertise and patents necessary to manufacture bottles that can withstand the high temperatures at which bottles are filled in the hot-fill process. Hot-fill is a process in which beverages are heat processed during filling. Our expertise and bottle design features enable PET bottles to be filled on the same equipment as glass bottles for pasteurized beer. We intend to exploit our Oxbar, hot-fill, pasteurization and other proprietary technologies, as well as our product development capabilities, to expand our position in custom PET. Our largest customers include many of the world s leading branded consumer products companies. We believe these customers represent a large share of future opportunities for PET conversion and market growth. Our conventional PET customers include PepsiCo for the Aquafina, Mountain Dew and Pepsi brands, Coca-Cola Enterprises, Inc. for the Coca-Cola, Fanta, Schweppes and Sprite brands and The Dr. Pepper Bottling Company of Texas for the Dr. Pepper and 7Up brands. Our custom PET customers include Unilever Foods North America for the Lawry s and Wishbone brands, Ventura Foods, LLC for private label edible oil and Energy Brands, Inc. for the Glac au Vitamin Water brand. Table of Contents SUMMARY This summary highlights certain information contained elsewhere in this prospectus. We urge you to read this entire prospectus carefully, including the financial data and related notes, to obtain a more complete understanding of this offering before making an investment decision. Our Company We are a leading global producer of PET, or polyethylene terephthalate, plastic containers for food and beverages. We believe that PET represents one of the most rapidly growing packaging markets worldwide. We are one of the largest North American suppliers of PET containers for conventional PET applications in soft drinks and water. We also have an expanding position in the growing custom PET market. Custom PET containers are used for food, juices, teas, sport drinks, new age beverages, beer and flavored alcoholic beverages, all of which require advanced technologies, processing know-how and innovative designs. The PET packaging market is expanding as a result of growth in the beverage and food markets and conversions into PET packaging from traditional packaging materials such as glass, metal, and paperboard. In conventional PET applications, growth is largely due to new introductions of multi-pack single serve soft drinks in supermarkets and club stores and the increased popularity of single serve bottled water. Growth in custom applications is driven by demand for single serve beverages and convenience food products, and is facilitated by consumer preferences for PET s combination of transparency, resealability, light weight, and shatter resistance. Until recently, the limited availability of commercially proven technologies constrained the growth of custom PET applications. We believe that we have the patented technology and full-service design capabilities necessary to capture expected large scale conversion opportunities for PET packaging. We provide full-service PET packaging solutions, from product design and engineering to ongoing customer support, and we work closely with our customers to deliver innovative, high-performance packaging solutions that maximize the promotional appeal of our customers products. We believe that our Oxbar oxygen-scavenging technology, which increases product shelf life by inhibiting oxygen from penetrating the packaging, is the best performing technology for the preservation of oxygen sensitive products and is cost competitive with other available technologies. We also have the expertise and patents necessary to manufacture bottles that can withstand the high temperatures at which bottles are filled in the hot-fill process. Hot-fill is a process in which beverages are heat processed during filling. Our expertise and bottle design features enable PET bottles to be filled on the same equipment as glass bottles for pasteurized beer. We intend to exploit our Oxbar, hot-fill, pasteurization and other proprietary technologies, as well as our product development capabilities, to expand our position in custom PET. Our largest customers include many of the world s leading branded consumer products companies. We believe these customers represent a large share of future opportunities for PET conversion and market growth. Our conventional PET customers include PepsiCo for the Aquafina, Mountain Dew and Pepsi brands, Coca-Cola Enterprises, Inc. for the Coca-Cola, Fanta, Schweppes and Sprite brands and The Dr. Pepper Bottling Company of Texas for the Dr. Pepper and 7Up brands. Our custom PET customers include Unilever Foods North America for the Lawry s and Wishbone brands, Ventura Foods, LLC for private label edible oil and Energy Brands, Inc. for the Glac au Vitamin Water brand. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Table of Contents Our Competitive Strengths We believe that we are strongly positioned within the PET industry because of our: Leading Market Share In Conventional PET Applications We are one of the largest North American suppliers of conventional PET containers for soft drinks and water. We have an extensive U.S. geographic manufacturing presence. We have significant resin purchasing leverage. Opportunities To Leverage Our Strong Conventional PET Infrastructure Many of the assets and skills that we use in our conventional PET business are applicable to our custom PET business. We have established relationships with conventional PET customers that are significant potential customers for custom PET products. We can serve custom PET conversion opportunities by adding equipment to our existing plants and we do not expect to require new plant sites for several years. Technology And Product Development Expertise Our comprehensive portfolio of technologies and processes allows us to compete in a wide variety of PET container end-use markets. We believe our proprietary Oxbar and hot-fill technologies give us a competitive advantage in the custom PET market. Creative And Innovative Product Design Capability Our innovative products include award-winning Oxbar multi-layer beer bottles, vacuum absorbing multi-layer juice bottles, and the first long neck PET bottle commercialized for a hot-fill application. Our research and development expertise allows us to create new, value-added products for our customers. World Class Performance And Highly Trained Workforce We believe that we are a highly efficient manufacturer of quality PET products. We have a skilled workforce and are committed to our team-oriented World Class Performance process, a formal data-based process used to drive quantitatively measurable improvements in operations and processes. Table of Contents Our Competitive Strengths We believe that we are strongly positioned within the PET industry because of our: Leading Market Share In Conventional PET Applications We are one of the largest North American suppliers of conventional PET containers for soft drinks and water. We have an extensive U.S. geographic manufacturing presence. We have significant resin purchasing leverage. Opportunities To Leverage Our Strong Conventional PET Infrastructure Many of the assets and skills that we use in our conventional PET business are applicable to our custom PET business. We have established relationships with conventional PET customers that are significant potential customers for custom PET products. We can serve custom PET conversion opportunities by adding equipment to our existing plants and we do not expect to require new plant sites for several years. Technology And Product Development Expertise Our comprehensive portfolio of technologies and processes allows us to compete in a wide variety of PET container end-use markets. We believe our proprietary Oxbar and hot-fill technologies give us a competitive advantage in the custom PET market. Creative And Innovative Product Design Capability Our innovative products include award-winning Oxbar multi-layer beer bottles, vacuum absorbing multi-layer juice bottles, and the first long neck PET bottle commercialized for a hot-fill application. Our research and development expertise allows us to create new, value-added products for our customers. World Class Performance And Highly Trained Workforce We believe that we are a highly efficient manufacturer of quality PET products. We have a skilled workforce and are committed to our team-oriented World Class Performance process, a formal data-based process used to drive quantitatively measurable improvements in operations and processes. Our Strategy Our objective is to grow and compete profitably in the PET container packaging market. We seek to lead conversions from other packaging materials in new PET product categories, while we continue to grow with our customers and our markets in conventional or established custom PET applications. We will continue to focus on the development and commercialization of bottle design, bottle forming and technologies that allow us to further leverage our existing manufacturing and distribution infrastructure, and our strong customer relationships. This particularly applies to the significant opportunities we believe exist in the custom PET market. In support of these strategies, we plan to be a leader in all the markets we serve by: continuing to serve the demanding needs of the world s leading consumer product companies with the PET products, services, product development and reliability they need to support their markets; We are a Delaware corporation formed in 1927. From 1969 until 1992, we were an independent publicly held corporation. Crown Cork & Seal Company, Inc. acquired us in October 1992. Our principal executive offices are located at One Crown Way, Philadelphia, Pennsylvania 19154-4599 and our phone number is (215) 552-3700. Our Relationship with Crown Cork & Seal We are currently a wholly owned subsidiary of Crown. Upon the completion of this offering, Crown will own 1,500,000 shares, or 12.5%, of our outstanding common stock if the underwriters over-allotment option is not exercised and Crown will own none of our shares if the over-allotment option is exercised in full. Crown has advised us that it has no present intention of disposing of any of the shares of our common stock it will own if the underwriters do not exercise their over-allotment option in full. Upon the completion of this offering, we will enter into a number of agreements with Crown, including a transition services agreement and a non-competition agreement. Under the transition services agreement, Crown will provide us with selected corporate services, including information technology services. The transition services agreement terminates on December 31, 2003. However, Crown s provision of some services terminates earlier and we may, at our option, terminate some services at an earlier date. Under the non-competition agreement, we and Crown will agree not to compete with each other in certain product and geographic markets, generally for a five-year period following the completion of this offering. Net cash used for financing activities (28,342 ) (11,323 ) (39,665 ) Effect of exchange rate changes on cash and cash equivalents (363 ) (363 ) Net change in cash and cash equivalents 7 (4,783 ) (4,776 ) Cash and cash equivalents at beginning of period We are a Delaware corporation formed in 1927. From 1969 until 1992, we were an independent publicly held corporation. Crown Cork & Seal Company, Inc. acquired us in October 1992. Our principal executive offices are located at One Crown Way, Philadelphia, Pennsylvania 19154-4599 and our phone number is (215) 552-3700. Our Relationship with Crown Cork & Seal We are currently a wholly owned subsidiary of Crown. Upon the completion of our concurrent common stock offering, Crown will own 1,500,000 shares, or 12.5%, of our outstanding common stock if the underwriters over-allotment option is not exercised and Crown will own none of our shares if the over-allotment option is exercised in full. Crown has advised us that it has no present intention of disposing of any of the shares of our common stock it will own if the underwriters do not exercise their over-allotment option in full. Upon the completion of this offering, we will enter into a number of agreements with Crown, including a transition services agreement and a non-competition agreement. Under the transition services agreement, Crown will provide us with selected corporate services, including information technology services. The transition services agreement terminates on December 31, 2003. However, Crown s provision of some services terminates earlier and we may, at our option, terminate some services at an earlier date. Under the non-competition agreement, we and Crown will agree not to compete with each other in certain product and geographic markets, generally for a five-year period following the completion of this offering. Net cash used for financing activities (28,342 ) (11,323 ) (39,665 ) Effect of exchange rate changes on cash and cash equivalents (363 ) (363 ) Net change in cash and cash equivalents 7 (4,783 ) (4,776 ) Cash and cash equivalents at beginning of period Table of Contents The Offering Common stock offered by Crown 10,500,000 shares Common stock to be outstanding after this offering 12,015,000 shares (assuming no exercise of the underwriters over-allotment option and including 15,000 shares of restricted stock to be issued upon completion of this offering) Common stock to be held by Crown after this offering 1,500,000 shares Use of proceeds The net proceeds from the sale of our shares by Crown will be paid to Crown. We will not receive any proceeds from this offering. We will use the proceeds from the concurrent note offering and the term loan arrangement to repay intercompany indebtedness to Crown. Dividend policy We intend to retain future earnings for use in our business and do not intend to pay any cash dividends on our common stock. We are primarily a holding company and our ability to pay dividends in the future will depend on our receipt of dividends from our subsidiaries. Nasdaq National Market symbol CNST Concurrent Offering and Other Indebtedness Concurrently with this offering, we are offering to sell under a separate prospectus $175 million aggregate principal amount of our % senior subordinated notes due 2012. Simultaneously with the completion of this offering, we expect to enter into a $250 million senior secured credit facility consisting of a $150 million seven-year term loan and a $100 million five-year revolving loan facility. We expect the term loan to be issued at 99% of face value. We refer to the term loan and the loan facility together as the credit facility or the senior secured credit facility. For additional information regarding our notes and senior secured credit facility, see the section of this prospectus entitled Description of Indebtedness. The completion of the concurrent note offering and our entry into the senior secured credit facility are conditions to the completion of this offering. About this Prospectus Unless otherwise indicated, all information in this prospectus: assumes the over-allotment option for this offering has not been exercised; excludes approximately 133,000 options to purchase common stock to be issued to certain of our executive officers and approximately 92,000 options to purchase common stock to be issued to other employees upon completion of this offering, none of which are currently exercisable, at an exercise price equal to the initial public offering price; and excludes 15,000 shares of restricted stock to be issued to certain of our executive officers upon completion of this offering. We have compiled the market share, market size and competitive ranking data in this prospectus using statistics and other information from several third-party sources. The main third-party sources of information are independent research organizations. We have also formed our estimates of our market share relative to other companies in light of our experience. Table of Contents The Offering The following is a brief summary of certain terms of this offering. For a more complete description of the notes, see Description of Notes. Issuer Constar International Inc. Notes Offered We are offering $175,000,000 aggregate principal amount of % Senior Subordinated Notes due 2012 (referred to as the notes ). Maturity , 2012. Interest We will pay interest on the notes at a rate of % per year, on and of each year, commencing on , 2002. Interest on the notes will be calculated on the basis of a 360-day year of twelve 30-day months. Guarantees All of our existing and future domestic restricted subsidiaries that guarantee our senior secured credit facility will guarantee the payment of principal, premium and interest on the notes on an unsecured senior subordinated basis (referred to as the note guarantees ). The guarantees will be full and unconditional, and joint and several. Ranking The notes will be our unsecured senior subordinated obligations. Accordingly, they will rank subordinate to all of our existing and future senior indebtedness and pari passu or senior to all of our other indebtedness. The note guarantees will be the unsecured senior subordinated obligations of our domestic restricted subsidiaries. Accordingly, they will rank subordinate to all of each note guarantor s existing and future senior indebtedness and pari passu or senior to all of its other indebtedness. As of the completion of this offering, we expect to have approximately $191 million of outstanding indebtedness under our credit facility that will rank senior to the notes and will be restricted to a maximum of $250 million of indebtedness. In addition, under our senior secured credit facility we will be restricted from incurring indebtedness equal in rank to the notes unless we satisfy certain financial tests and the terms of any such indebtedness are satisfactory to the administrative agent. Optional Redemption We may not redeem the notes prior to , 2007. On and after 2007, we may redeem the notes, in whole or in part, at any time, at the redemption prices One Crown Way Philadelphia, PA 19154-4599 (215) 552-3700 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrants Principal Executive Offices) Table of Contents We supply PET bottles to various PepsiCo subsidiaries and to independent companies that bottle PepsiCo products. When we refer to PepsiCo in this prospectus, we mean PepsiCo and its subsidiaries, and not such independent companies. When we refer to we, us or our in this prospectus, we mean Constar International Inc. and its subsidiaries. All brand names and trademarks appearing in this prospectus are the property of their respective holders.

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+This summary highlights information contained elsewhere in this prospectus. Because this is a summary, it may not contain all of the information that is important to you. Therefore, you also should read the more detailed information set forth in this prospectus, including our consolidated financial statements and the related notes included in this prospectus, before you make your investment decision. Unless otherwise noted, all information in this prospectus assumes that the underwriters will not exercise the option to purchase additional shares to cover over-allotments from us in the offering. Irwin Financial Corporation We are a diversified financial services company headquartered in Columbus, Indiana with $3.1 billion in assets at September 30, 2001. We focus primarily on the extension of credit to consumers and small businesses as well as providing the ongoing servicing of those customer accounts. We currently operate five major lines of business through our direct and indirect subsidiaries. Our major lines of business are: commercial banking, mortgage banking, home equity lending, equipment leasing and venture capital. Our banking subsidiary, Irwin Union Bank and Trust Company, was organized in 1871 and we formed the holding company in 1972. Our direct and indirect major subsidiaries include Irwin Union Bank and Trust, a commercial bank, which together with Irwin Union Bank, F.S.B., conducts our commercial banking activities; Irwin Mortgage Corporation, a mortgage banking company acquired in 1981; Irwin Home Equity Corporation, a consumer home equity lending company formed in 1994; Irwin Capital Holdings Corporation, an equipment leasing subsidiary; and Irwin Ventures LLC, a venture capital company. At December 31, 2001, we and our subsidiaries had a total of 2,941 employees, including full-time and part-time employees. The following table summarizes our financial performance over the past five years and the first nine months of 2001: At or For Nine Months Ended September 30, policy statement issued by the Department of Housing and Urban Development on October 18, 2001, after the appellate court ruling in this case. HUD is the agency responsible for interpreting and implementing RESPA. The clarifying policy statement explicitly disagreed with the court of appeals' interpretation of RESPA in connection with the types of payments at issue in the Culpepper case. In addition to responding to the district court's order, Irwin Mortgage filed a petition for certiorari with the United States Supreme Court seeking review of the court of appeals' ruling and also filed a motion in the district court seeking a stay of further proceedings until the appellate court renders decisions in three other RESPA cases pending in that court. On January 22, 2002, the Supreme Court denied Irwin Mortgage's petition for certiorari. If the court finds that Irwin Mortgage violated RESPA, Irwin Mortgage could be liable for damages equal to three times the amount of that portion of payments made to the mortgage brokers that is ruled unlawful. Based on notices sent by the plaintiffs to date to potential class members and additional notices that might be sent, we believe the class is not likely to exceed 32,000 borrowers who meet the class specifications. We intend to vigorously defend this lawsuit and believe we have available numerous defenses to the claims. At this stage of the litigation we are unable to reasonably estimate the amount of potential loss we could suffer, and we have not established any reserves related to this case. We expect that an adverse outcome in this litigation could subject us to significant monetary damages and this amount could be material to our financial position. Adverse developments in this litigation, or negative publicity regarding this litigation, or the possibility of additional RESPA litigation in the mortgage industry generally and against us in particular, also could cause the trading price of our common shares to decline. Our business may be affected adversely by the highly regulated environment in which we operate. We and our subsidiaries are subject to extensive federal and state regulation and supervision. Our failure to comply with these requirements can lead to, among other remedies, termination or suspension of our licenses, rights of rescission for borrowers, class action lawsuits and administrative enforcement actions. Recently enacted, proposed and future legislation and regulations have had, will continue to have or may have significant impact on the financial services industry. Regulatory or legislative changes could cause us to change or limit some of our consumer loan products or the way we operate our different lines of business. Future changes could affect the profitability of some or all of our lines of business. Consumer loan originations are highly regulated and recent regulatory initiatives have focused on the mortgage and home equity lending markets. Federal, state and local government agencies and/or legislators have begun to consider, and in some instances have adopted, legislation to restrict lenders' ability to charge rates and fees in connection with residential mortgage loans. In general, these proposals involve lowering the existing federal Homeownership and Equity Protection Act thresholds for defining a "high-cost" loan, and establishing enhanced protections and remedies for borrowers who receive these loans. The proposed legislation has also included various loan term restrictions, such as limits on balloon loan features. Frequently referred to generally as "predatory lending" legislation, many of these laws and rules extend beyond curbing predatory lending practices to restrict commonly accepted lending activities, including some of our activities. For example, some of these laws and rules prohibit any form of prepayment charge or severely restrict a borrower's ability to finance the points and fees charged in connection with his or her loan. It is possible passage of these laws could limit our ability to impose various fees and charge what we believe are risk-based interest rates on various types of consumer loans and may impose additional regulatory restrictions on our business in certain states. Because we originate home equity loans from our banking branch in Nevada, federal law permits us to conduct our home equity lending business in compliance with Nevada law regardless of where the HELs (<=125% CLTV) 99-2 HEL 125s $ 119,978 $ 70,367 May-99 29 1.67 % 4.04 % 6.89 % 3.64 % 3.25 % 30 % 13.66 % 99-3 HEL 125s 70,658 48,642 Nov-99 23 1.45 2.78 7.80 3.09 4.71 25 14.74 2000-A1 HEL 125s 123,698 87,920 Jun-00 16 1.20 1.60 5.57 2.11 3.46 27 13.63 2000-1 HEL 125s 166,330 140,204 Sep-00 13 0.87 0.94 10.49 1.78 8.72 19 15.27 2001-1 HEL 125s 219,765 199,677 Mar-01 7 0.13 0.08 13.16 0.82 12.34 15 15.00 2001-2 HEL 125s 212,101 211,381 Sep-01 1 0.00 0.00 11.52 0.00 11.52 (dollars in billions) Owned portfolio $ 1.5 $ 2.1 $ 0.3 30-day + delinquency December 31, 2001 0.38 % 5.07 % 2.02 % September 30, 2001 0.08 4.71 2.41 December 31, 2000 0.46 4.31 1.06 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Impact of Recent Change to Regulatory Capital Rules The federal banking regulators, including the Federal Reserve, our principal regulator, have adopted revised regulatory capital standards regarding the treatment of certain recourse obligations, direct credit substitutes, residual interests in assets securitizations, and other securitized transactions. In general, the new rules require a banking institution that has certain residual assets, including assets commonly referred to as "interest-only strips," in an amount that exceeds 25% of its Tier 1 capital, to deduct the after-tax excess amount of credit-enhancing interest-only strips from Tier 1 capital for purposes of computing risk-based capital ratios. The new capital standards became effective on January 1, 2002, for new residual interests related to any transaction covered by the revised rules that settles after December 31, 2001. For transactions settled before January 1, 2002, application of the new capital treatment to the residuals created will be delayed until December 31, 2002. We believe these new rules apply to many, if not all, of the securitization transactions historically done by our home equity line of business to fund loan production. The residual assets we now own exceed the 25% concentration limit in the new capital treatment rules. On a pro forma basis adjusted to give effect to the sale of $75 million of our common shares in this offering, and assuming conservatively that all of our residual assets are subject to the new capital treatment, our residual assets as of September 30, 2001, comprised 51% of our consolidated Tier 1 capital. We are taking steps to materially reduce the levels of our residuals as a percentage of Tier 1 capital. On November 29, 2001, we sold $12.3 million of our residual interests in our home equity loans previously securitized in September 2000. This represents our fourth sale of residual assets in the last two years. See the "Capitalization" section on page 57 for a table showing our pro forma capital ratios giving effect to the new capital treatment. By the end of 2002, we expect our residual interests to have declined to approximately 35% of Tier 1 capital, falling to approximately 20% by the end of 2003. We have financed our significant growth in our home equity lending line of business to date using transaction structures that create residual assets through "gain-on-sale" accounting sales transactions accounted for under SFAS 140. To address the new rules, beginning in 2002 we will be eliminating our use of these securitization structures that require gain-on-sale accounting treatment. We believe using on-balance sheet financing rather than transactions accounted for as gain-on-sale under SFAS 140 will allow continued access to the capital markets for cost-effective, matched funding of our loan assets, while not meaningfully affecting or changing our cash flows, nor changing the longer term profitability of our home equity lending operation. Changing our securitization practices will significantly affect the financial results of our home equity line of business in 2002. The key financial impacts we expect include: By using on-balance sheet financing to fund our home equity loan originations, we will be required to change the timing of revenue recognition on these assets under generally accepted accounting principles. For assets funded on-balance sheet, we record interest income over the life of the loan, while for assets funded through transactions accounted for under SFAS 140, we have recorded revenue as trading gains at the time of sale based on the discounted present value of the anticipated revenue stream over the expected life of the loans. This different accounting treatment does not, however, affect cash flows related to the loans, and management expects that the ultimate total receipt of revenues and profitability derived from our home equity loans will be substantially unchanged by these different financing structures. Due to the anticipated delay in revenue recognition under the new financing structures we intend to pursue, we plan to reduce the rate of growth in production and related expenses in the home equity lending line of business to more closely align anticipated revenue recognition and expenses under this new model. This process is now underway. However, while we anticipate AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 continued profitability on a consolidated basis, we currently expect to report a loss in 2002 in our home equity lending line of business as we make this transition. After the initial transition period, as the portfolio of on-balance sheet home equity loans continues to grow, we should record increased levels of net interest income sufficient to cover ongoing expenses. We would then expect to be in a position to resume profitable growth in this line of business. We may also pursue selective opportunities to sell whole loans in cash sale transactions if attractive terms can be negotiated. We currently anticipate that our home equity lending line of business will return to profitability in 2003. Pro Forma Capital Relative to New Regulation on Residuals Our Tier 1 capital totaled $295.0 million as of December 31, 2001, or 6.8% of risk-weighted assets. On a pro forma basis, giving full effect to the new risk-weighted capital regulations regarding residual assets, as further adjusted to give effect to the net proceeds from this offering and prior to any residual asset reduction steps we are contemplating to reduce our concentration of residual assets or to reclassify for capital treatment purposes any of those residual assets, or any other changes, our Tier 1 capital and total capital to risk-weighted assets would be approximately 7.7% and 10.6%, respectively, as of December 31, 2001. See "Capitalization." The new capital rules do not become fully effective until December 31, 2002. Earnings Outlook Taking the factors discussed above into account, we expect consolidated net income to decline in 2002 but then to increase significantly in 2003. Management currently estimates that consolidated net income will be approximately $36 million in 2002 and approximately $54 million in 2003. These estimates include $2.7 million of after-tax interest expense on our convertible trust preferred securities, which would be added back to net income for purposes of calculating fully diluted earnings per share under generally accepted accounting principles. These estimates are based on various factors and current assumptions management believes are reasonable, including current industry forecasts of a variety of economic and competitive factors. However, projections are inherently uncertain, and our actual earnings may differ significantly from these estimates due to uncertainties and risks related to our business, including those described in the

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+SUMMARY This summary highlights selected information from this prospectus to help you understand the Healthcare SECTORS. You should carefully read the entire prospectus to fully understand the terms of the Healthcare SECTORS, as well as the principal tax and other considerations that are important to you in making a decision about whether to invest in the Healthcare SECTORS. You should, in particular, carefully review the section entitled "Risk Factors," which highlights a number of risks to determine whether an investment in the Healthcare SECTORS is appropriate for you. All of the information set forth below is qualified in its entirety by a more detailed explanation set forth elsewhere in this prospectus. The address of the Healthcare SECTORS Trust is: Healthcare SECTORS Trust, c/o Salomon Smith Barney Inc., 388 Greenwich Street, New York, New York 10013 and its telephone number is (212) 816-6000. GENERAL Healthcare SECTORS will represent your undivided beneficial ownership interest in the shares of common stock or American depositary shares held by the Healthcare SECTORS Trust on your behalf. The Healthcare SECTORS are separate from the underlying securities held by the trust. The Healthcare SECTORS Trust will hold shares of common stock or American depositary shares issued by 38 specified companies in the healthcare industry. We specify below under "-- The Healthcare SECTORS and the Underlying Securities" the number of shares of each common stock or American depositary shares held by the Healthcare SECTORS Trust with respect to each round lot of 100 Healthcare SECTORS. We refer to this group of common stocks and American depositary shares as the underlying securities. Except when a reconstitution event or a distribution of securities occurs, the underlying securities will not change and the securities of a new company will not be added to the underlying securities of the Healthcare SECTORS Trust. The term of the Healthcare SECTORS is two years and the trust will terminate on , 2004, or earlier if a termination event occurs. The term of the Healthcare SECTORS allows you to have a single, exchange listed instrument representing your undivided beneficial ownership of the underlying securities for a period of two years and, thereafter, to have the shares of the underlying securities and, thus, the ability to hold or sell such shares individually. You should refer to the description of termination events described under "Description of the Healthcare SECTORS -- Termination of the Healthcare SECTORS Trust" on page 25 of this prospectus. Upon termination of the trust, the trustee will distribute the underlying securities of the Healthcare SECTORS Trust to the beneficial owners of the Healthcare SECTORS, subject to payment of applicable fees, charges or taxes. SELECTED PURCHASE CONSIDERATIONS - DIVERSIFICATION -- Healthcare SECTORS are designed to allow you to diversify your investment in the healthcare industry through a single, exchange-listed instrument representing your undivided beneficial ownership of the underlying securities. - FLEXIBILITY -- Healthcare SECTORS allow you to hold undivided beneficial ownership interests in each of the underlying securities represented by the Healthcare SECTORS. At any time, you can cancel your Healthcare SECTORS to receive each of the underlying securities represented by the Healthcare SECTORS. - TRANSACTION COSTS -- The expenses associated with trading Healthcare SECTORS are expected to be less than trading each of the underlying securities separately. SELECTED RISK CONSIDERATIONS An investment in the Healthcare SECTORS involves significant risks. These risks are explained in more detail in the "Risk Factors" section of this prospectus beginning on page 12. Some are summarized here. - YOUR INVESTMENT IN THE HEALTHCARE SECTORS WILL RESULT IN A LOSS IF THE PRICES OF THE UNDERLYING SECURITIES DECLINE -- Since the value of the Healthcare SECTORS will depend on the prices of the underlying securities, you may lose all or a substantial portion of your investment in the Healthcare SECTORS if the underlying securities decline in price. - THE PRICE AT WHICH YOU MAY BE ABLE TO SELL YOUR HEALTHCARE SECTORS MAY BE LESS THAN THE PRICE OF THE UNDERLYING SECURITIES -- Healthcare SECTORS may trade at a discount to the aggregate value of the underlying securities. - YOUR INVESTMENT IN THE HEALTHCARE SECTORS WILL BE SUBJECT TO RISKS INHERENT IN THE HEALTHCARE INDUSTRY -- Since the value of the Healthcare SECTORS will depend on the prices of the underlying securities, your investment may be affected by general conditions of the healthcare industry, including the pharmaceutical and biotechnology industries. - YOUR INVESTMENT IN THE HEALTHCARE SECTORS MAY NOT CONTINUE TO BE A DIVERSIFIED INVESTMENT IN THE HEALTHCARE INDUSTRY -- As a result of business developments, mergers, consolidations or other corporate combinations, reorganizations or market fluctuations affecting issuers of the underlying securities, Healthcare SECTORS may not necessarily continue to be a diversified investment in the healthcare industry. - YOUR DECISION TO INVEST IN HEALTHCARE SECTORS MUST BE BASED ON YOUR EVALUATION OF THE UNDERLYING SECURITIES -- The selection criteria for the underlying securities are subjective. Therefore, while these criteria may provide useful guidelines for evaluating the selection process, they are not a substitute for your need to evaluate the underlying securities in making your investment decision. - YOU WILL HAVE TO CANCEL YOUR HEALTHCARE SECTORS AND RECEIVE ALL OF THE UNDERLYING SECURITIES IN ORDER TO MAKE AN INVESTMENT DECISION WITH RESPECT TO ANY ONE OR MORE OF THE INDIVIDUAL UNDERLYING SECURITIES -- In order to sell one or more underlying securities or to participate in a tender offer or certain reconstitution events for one or more of the underlying securities during the term of the Healthcare SECTORS, you will be required to cancel your Healthcare SECTORS and receive delivery of all the underlying securities. Cancellation of any Healthcare SECTORS will require you to pay a cancellation fee to the trustee, and any applicable taxes or governmental charges. - THE MARKET PRICE OF THE HEALTHCARE SECTORS MAY DECLINE FOLLOWING TEMPORARY PRICE INCREASES IN THE UNDERLYING SECURITIES -- Activity in the secondary trading market, including purchasing activity associated with Salomon Smith Barney Inc.'s acquisition of the underlying securities for deposit into the Healthcare SECTORS Trust, may temporarily increase the market price of the underlying securities, resulting in a higher price for the Healthcare SECTORS, including at the time of their issuance. Prices for the underlying securities and the Healthcare SECTORS may decline subsequent to these purchases as the volume of purchases subsides. THE HEALTHCARE SECTORS TRUST The Healthcare SECTORS Trust will be formed under the depositary trust agreement, dated as of , 2002, among U.S. Bank Trust National Association, as trustee, Salomon Smith Barney Inc., as initial depositor, other future depositors who receive Healthcare SECTORS in exchange for depositing the underlying securities and the owners of the Healthcare SECTORS. The Healthcare SECTORS Trust is not a registered investment company under the Investment Company Act of 1940. The Healthcare SECTORS Trust will hold shares of common stock or American depositary shares issued by 38 specified companies in the healthcare industry. Except when a reconstitution event or distribution of securities occurs, the group of companies will not change and the securities of a new company will not be added to the securities underlying the Healthcare SECTORS. The Healthcare SECTORS Trust's assets may increase or decrease as a result of deposits and withdrawals of the underlying securities during the life of the Healthcare SECTORS Trust. The Healthcare SECTORS Trust will terminate on , 2004, or earlier if a termination event occurs. The term of the Healthcare SECTORS allows you to have a single, exchange listed instrument representing your undivided beneficial ownership of the underlying securities for a period of two years and, thereafter, to have the shares of the underlying securities and, thus, the ability to hold or sell such shares individually. THE HEALTHCARE SECTORS AND THE UNDERLYING SECURITIES The Healthcare SECTORS represent undivided beneficial ownership interest in the shares of the underlying securities held by the Healthcare SECTORS Trust on your behalf. The Healthcare SECTORS themselves are separate from the underlying securities that are held by the trust. The indicative share amounts represented by each round lot of 100 Healthcare SECTORS are set forth in the chart below. The underlying securities of the Healthcare SECTORS were selected by Salomon Smith Barney Inc., based on its investment research from the following subsectors of the healthcare industry: United States pharmaceuticals, European pharmaceuticals, generic and specialty pharmaceuticals, medical devices, biotechnology and healthcare services (health maintenance organizations, hospitals and distributors). These subsectors of the healthcare industry were selected by Salomon Smith Barney Inc. based upon the subsectors represented by healthcare companies in the Standard & Poor's 500, or the S&P 500. Standard & Poor's is an independent source of market information that, among other things, classifies the securities of public companies into various Economic Sector Classifications based on its own criteria. There are 10 Standard & Poor's Economic Sector Classifications and each class of publicly traded securities of a company is given only one Sector Classification. The securities included in the Healthcare SECTORS are currently represented in the Healthcare Economic Sector. The Standard & Poor's Sector Classifications of the securities included in the Healthcare SECTORS may change over time if the companies that issued these securities change their focus of operations or if Standard & Poor's alters the criteria it uses to determine Economic Sector Classifications, or both. The weightings of each subsector within the S&P 500 were adjusted for certain factors or trends that in the opinion of Salomon Smith Barney Inc. are present or anticipated in the healthcare industry as described below: - Weighting of the United States pharmaceutical subsector was reduced from the S&P 500 because this subsector has had slowing growth, increased pricing pressure and reduced margins due to high levels of patent expirations, weak product pipelines in near term, increased competition from generic pharmaceutical and legislative reform (particularly Medicare reform). - The European pharmaceutical subsector (which is not represented in the S&P 500) was added because the growth rates of this subsector have the potential to rise in the years ahead as a result of efficiencies resulting from mergers, generally lower risk of generic competition, stronger product pipelines and less exposure to legislative reforms of the United States. - Weightings of the generic and specialty pharmaceutical subsectors were increased from the S&P 500. The generic pharmaceutical subsector was increased because this subsector has benefited from high levels of patent expirations, impact of managed care and pending legislation and attractive valuations. The specialty pharmaceutical subsector was increased because this subsector has increased appeal resulting from a need for novel delivery mechanisms (such as patches or coatings for longer acting formulas) to revitalize product portfolios and to protect against generic erosion, the availability of small market niche opportunities that have been overlooked by larger pharmaceutical companies, strong potential product pipelines and the potential for future merger and acquisition activity. - Weighting of the biotechnology subsector was increased to reflect the emergence of this subsector as a viable industry with companies that operate at a profit, possess high-margin products that meet previously unmet medical needs, have funding to sustain internal research and development efforts, have strong product pipelines, may be attractive as potential sources for marketing deals and for future merger and acquisition activity and have minimal risk from generic competitors. - Weighting of the medical devices subsector was decreased slightly from the S&P 500 primarily because of the current valuations of companies in this subsector. However, aging demographics of the United States support increased demand for medical devices resulting from medical devices being used instead of drugs, integration of internet technology to improve patient monitoring capabilities and miniaturization allowing for new uses (such as portable defibrillators or cerebral pacemakers) and this subsector has a potential for future merger and acquisition activity. - The weighting of the healthcare services subsector was increased from S&P 500 because of a reversal of prior budget cuts by state and Federal governments and its positive impact on reimbursement. An increased shift in mail order delivery of prescription drugs has improved margins for both distributors and pharmacy benefit managers. Hospitals and managed care providers are also experiencing improved cost trends as well as higher premiums. The following chart compares the weightings of the subsectors of the healthcare industry within the S&P 500 with the weightings of the subsectors represented by the securities underlying the Healthcare SECTORS Trust. For purposes of this chart, the European and United States pharmaceutical companies were combined. WEIGHTINGS S&P 500 VS. HEALTHCARE SECTORS [WEIGHTINGS BAR GRAPH] <Table> <Caption> HEALTHCARE SECTORS S&P 500 HEALTHCARE ------------------ ------------------ <S> <C> <C> U.S. and European Pharmaceuticals 36.00 52.00 Generic and Specialty 12.00 2.30 Medical Devices 22.00 29.50 Biotechnology 20.00 7.50 Healthcare Services 10.00 8.50 </Table> The underlying securities within each subsector of the healthcare industry were selected primarily based on the opinion of Salomon Smith Barney Inc. regarding the quality of the companies and their exposure to high growth and high margin areas. Selection was also based on the application in the opinion of Salomon Smith Barney Inc. of the following criteria specific to each subsector of healthcare industry: - Within the United States pharmaceutical subsector, selection of underlying securities was also based on companies with lower patent expiration risk and higher growth rates. - Within the European pharmaceutical subsector, selection of underlying securities was also based on companies with strong product pipelines and distribution capabilities. - Within the generic pharmaceutical subsector, selection of underlying securities was also based on companies with strong distribution capabilities due to importance of volume in this subsector, exposure to branded products as well as generics and potential for competitive advantage either through legal maneuvering or manufacturing advantages. - Within the specialty pharmaceutical subsector, selection of underlying securities was also based on companies with strong product pipelines and niche markets with potential for growth opportunities. - Within the biotechnology subsector, selection of underlying securities was also based on companies that currently have revenues and earnings, with strong product pipelines and that participate in certain growth areas (such as monoclonal antibody production and genomics). - Within the medical devices subsector, selection of underlying securities was also based on companies with large capitalization and selective companies with innovative technology. - Within the healthcare services subsector, selection of underlying securities was also based on companies that provide exposure to each of the significant areas of this subsector: information technology, distribution, hospital services and managed care. The determination and application of the criteria described above are subjective and the criteria were determined and applied in the sole discretion of Salomon Smith Barney Inc. The ultimate determination of the inclusion of the underlying securities in Healthcare SECTORS rested solely in the discretion of Salomon Smith Barney Inc. Salomon Smith Barney Inc. has not made any investigation or review of the issuers of the underlying securities except in connection with its investment research on the issuers, which provided information used in applying the selection criteria. Their investment research and all determinations made by Salomon Smith Barney Inc. were based solely on publicly available information, which Salomon Smith Barney Inc. did not independently verify and for the accuracy of which it takes no responsibility. The development and application of these selection criteria are not a prediction or assurance by Salomon Smith Barney Inc. of investment results. A decision by you to invest in Healthcare SECTORS must be made by you on the basis of your evaluation of the underlying securities and not on the basis of the selection criteria or the application by Salomon Smith Barney Inc. of these criteria. After the pricing date, the share amounts will not change, except for changes due to corporate events such as stock splits or reverse stock splits, stock distributions and reconstitution events. The chart set forth below provides the names of the 38 issuers of the underlying securities represented by the Healthcare SECTORS by subsector of healthcare industry, stock ticker symbols, indicative share amounts represented by each round lot of 100 Healthcare SECTORS, indicative initial weightings, target weightings and the principal market on which the underlying securities are traded. The specific share amounts and initial weightings for each round-lot of 100 Healthcare SECTORS will be determined on the pricing date so that the initial public offering price will be approximately $76.00 - $83.60 per Healthcare SECTOR. The target weightings were determined by the research department of Salomon Smith Barney Inc. Because the Healthcare SECTORS Trust will only hold whole shares of the underlying securities the initial weightings may differ from the target weightings. The actual share amounts and initial weightings will appear in the final prospectus delivered in connection with sales of the Healthcare SECTORS. Because these weightings are a function of market prices, it is expected that these weightings will change substantially over time, including during the period between , 2002 and the date the Healthcare SECTORS are first issued to the public. <Table> <Caption> INDICATIVE INDICATIVE PRIMARY SHARE INITIAL TARGET TRADING NAME OF COMPANY SYMBOL AMOUNTS WEIGHTING WEIGHTING MARKET --------------- ------ ---------- ---------- --------- ------- <S> <C> <C> <C> <C> <C> United States Pharmaceuticals Bristol-Myers Squibb Company .... BMY 8 3.18% 3.0% NYSE Eli Lilly and Company ........... LLY 4 3.77% 4.0% NYSE Merck & Co., Inc. ............... MRK 4 2.73% 3.0% NYSE Pfizer Inc. ..................... PFE 8 3.91% 4.0% NYSE </Table> <Table> <Caption> INDICATIVE INDICATIVE PRIMARY SHARE INITIAL TARGET TRADING NAME OF COMPANY SYMBOL AMOUNTS WEIGHTING WEIGHTING MARKET --------------- ------ ---------- ---------- --------- ------- <S> <C> <C> <C> <C> <C> Pharmacia Corporation ........... PHA 5 2.82% 3.0% NYSE Wyeth ........................... WYE 4 3.25% 3.0% NYSE European Pharmaceuticals AstraZeneca PLC*................. AZN 7 4.51% 4.4% NYSE Aventis S.A.*.................... AVE 3 2.54% 2.4% NYSE GlaxoSmithKline PLC*............. GSK 6 3.51% 3.4% NYSE Novartis AG*..................... NVS 5 2.48% 2.4% NYSE Schering Aktiengesellschaft*..... SHR 5 3.63% 3.4% NYSE Specialty and Generic Pharmaceuticals Barr Laboratories, Inc. ......... BRL 4 3.35% 3.0% NYSE Elan Corporation, PLC*........... ELN 14 1.96% 2.0% NYSE Forest Laboratories, Inc. ....... FRX 1 0.97% 1.0% NYSE King Pharmaceuticals, Inc........ KG 5 2.11% 2.0% NYSE Shire Pharmaceuticals Group PLC*........................... SHPGY 7 1.93% 2.0% NASDAQ Teva Pharmaceutical Industries Ltd.*.......................... TEVA 3 2.14% 2.0% NASDAQ Medical Devices Abbott Laboratories.............. ABT 4 2.69% 3.0% NYSE Baxter International Inc. ....... BAX 6 4.29% 4.0% NYSE Beckman Coulter, Inc. ........... BEC 5 3.14% 3.0% NYSE Guidant Corporation ............. GDT 4 2.00% 2.0% NYSE Johnson & Johnson................ JNJ 5 3.89% 4.0% NYSE Medtronic, Inc. ................. MDT 7 4.05% 4.0% NYSE Stryker Corporation ............. SYK 3 2.18% 2.0% NYSE Biotechnology Amgen Inc. ...................... AMGN 6 4.27% 4.0% NASDAQ Biogen, Inc. .................... BGEN 3 1.74% 2.0% NASDAQ Genentech, Inc. ................. DNA 8 3.84% 4.0% NYSE Genzyme Corporation ............. GENZ 4 2.17% 2.0% NASDAQ Gilead Sciences, Inc. ........... GILD 4 1.80% 2.0% NASDAQ Idec Pharmaceuticals Corporation ................... IDPH 5 3.86% 4.0% NASDAQ MedImmune, Inc. ................. MEDI 2 0.89% 1.0% NASDAQ Protein Design Labs, Inc. ....... PDLI 5 1.09% 1.0% NASDAQ Healthcare Services AmerisourceBergen Corporation ... ABC 2 1.74% 2.0% NYSE Cardinal Health, Inc. ........... CAH 1 0.87% 1.0% NYSE Caremark Rx, Inc. ............... CMX 8 1.89% 2.0% NYSE Patterson Dental Company......... PDCO 2 1.16% 1.0% NASDAQ Tenet Healthcare Corporation .... THC 2 1.75% 2.0% NYSE Trigon Healthcare, Inc. ......... TGH 2 1.90% 2.0% NYSE </Table> --------------- * The securities of these non-U.S. companies trade in the United States as American depository receipts. The Healthcare SECTORS Trust will only issue and cancel, and you may only obtain, hold, trade or surrender, Healthcare SECTORS in round lots of 100 Healthcare SECTORS. The Healthcare SECTORS Trust will only issue Healthcare SECTORS upon the deposit of the whole shares represented by a round lot of 100 Healthcare SECTORS. In the event of a stock split, reverse stock split or other distribution by the issuer of an underlying security that results in a fractional share becoming represented by a round lot of Healthcare SECTORS, the Healthcare SECTORS Trust may require a minimum of more than one round lot of 100 Healthcare SECTORS for an issuance so that only whole share amounts of the underlying securities are deposited with the Healthcare SECTORS Trust. The number of outstanding Healthcare SECTORS will increase and decrease as a result of deposits and withdrawals of the underlying securities. The Healthcare SECTORS Trust will stand ready to issue additional Healthcare SECTORS on a continuous basis when an investor deposits the required shares of the underlying securities with the trustee. HISTORICAL PERFORMANCE OF UNDERLYING STOCKS The following table sets forth the composite performance of all of the underlying securities represented by a single Healthcare SECTORS based upon the indicative share amounts set forth in the table starting on page 6 of this prospectus, measured at the close of each month from October 2000, the first month when all of the underlying securities were publicly traded, to present. The performance table is adjusted to reflect any stock splits and stock dividends that occurred over the measurement period. Past movements of the prices of the underlying securities are not necessarily indicative of future prices. The table also sets forth the composite amount of dividends which would have been received by the Healthcare SECTORS Trust with respect to a single Healthcare SECTORS and the amount of such dividends which would have been distributed to a holder of a single Healthcare SECTORS. <Table> <Caption> DIVIDENDS DIVIDENDS DATE CLOSING PRICE RECEIVED DISTRIBUTED ---- ------------- --------- ----------- <S> <C> <C> <C> October 2000............................ $95.89 $0.0594 $0.0594 November 2000........................... 95.01 0.0375 0.0375 December 2000........................... 98.61 0.0360 0.0160 January 2001............................ 91.12 0.0546 0.0546 February 2001........................... 92.09 0.0356 0.0356 March 2001.............................. 84.86 0.0415 0.0215 April 2001.............................. 87.93 0.0911 0.0911 May 2001................................ 91.19 0.0945 0.0945 June 2001............................... 92.27 0.0397 0.0197 July 2001............................... 92.36 0.0431 0.0431 August 2001............................. 90.21 0.0372 0.0372 September 2001.......................... 87.90 0.0439 0.0239 October 2001............................ 87.93 0.0496 0.0496 November 2001........................... 91.11 0.0414 0.0414 December 2001........................... 90.74 0.0403 0.0203 January 2002............................ 85.35 0.0715 0.0715 February 2002........................... 82.40 0.0376 0.0376 March 2002.............................. 82.95 0.0481 0.0281 April 2002 (through April 15, 2002)..... 79.87 0.1233 0.1233 </Table> PUBLIC OFFERING PRICE The initial public offering price for each round lot of 100 Healthcare SECTORS will equal the sum of the closing market price of each underlying security on the date the Healthcare SECTORS are priced for initial sale to the public multiplied by the share amount appearing in the above table, plus an underwriting fee. We expect the price range per Healthcare SECTORS to be between $76.00 and $83.60. After the initial offering, you may acquire Healthcare SECTORS in two ways: - through a deposit of the required number of shares of underlying securities with the trustee or - through a cash purchase in the secondary trading market. RECONSTITUTION EVENTS The occurrence of any of the following reconstitution events will result in the consequences described below: - If an issuer of underlying securities no longer has a class of securities registered under section 12 of the Securities Exchange Act of 1934, as amended, then its securities will no longer be an underlying security and the trustee will distribute the shares of that company to the beneficial owners of the Healthcare SECTORS. - If the Securities and Exchange Commission, or the SEC, finds that an issuer of an underlying security should be registered as an investment company under the Investment Company Act, and the trustee has actual knowledge of the SEC finding, then its securities will no longer be an underlying security and the trustee will distribute the shares of that company to the beneficial owners of the Healthcare SECTORS. - If the underlying securities of an issuer cease to be outstanding as a result of a merger, consolidation or other corporate combination, its securities will no longer be an underlying security and the trustee will distribute the consideration paid by and received from the acquiring company or the securities received in exchange for the securities of the underlying issuer whose securities cease to be outstanding to the beneficial owners of the Healthcare SECTORS only if the distributed securities have a different Standard & Poor's Economic Sector Classification than Healthcare Economic Sector at the time of the distribution or exchange or if the securities received are not listed for trading on a U.S. national securities exchange or through the NASDAQ National Market System. In any other case, the additional securities received will be deposited into the Healthcare SECTORS Trust. In the event of a merger, consolidation or other corporate combination in which the holder of the underlying security is provided an option of receiving either cash or securities, the trustee will not respond and, thus, the Healthcare SECTORS Trust will receive the default option which may be either cash or securities. If you want to receive the alternative option, you must obtain that security by surrendering your Healthcare SECTORS and receiving all of your underlying securities. - If an issuer's underlying securities are delisted from trading on a national securities exchange in the United States or through the NASDAQ National Market System and are not listed for trading on another national securities exchange in the United States or through the NASDAQ National Market System within five business days from the date such securities are delisted, then its securities will no longer be an underlying security and the trustee will distribute the shares of that company to the beneficial owners of the Healthcare SECTORS. If a reconstitution event occurs, the trustee will take the actions set forth above as promptly as practicable after the date that the trustee has knowledge of the occurrence of the reconstitution event. TERMINATION OF THE HEALTHCARE SECTORS TRUST The term of the Healthcare SECTORS is two years and the trust will terminate on , 2004, or earlier if a termination event occurs. The term of the Healthcare SECTORS allows you to have a single, exchange listed instrument representing your undivided beneficial ownership of the underlying securities for a period of two years and, thereafter, to have the shares of the underlying securities and, thus, the ability to hold or sell such securities individually. The Healthcare SECTORS have been designed with a two-year term because after that time there may be reduced investor interest in the healthcare industry or certain of the underlying securities, and/or the Healthcare SECTORS may no longer represent a diversified investment in the healthcare industry. As a result, it is expected that many of the holders of the Healthcare SECTORS may wish to retain only some of the underlying securities after two years. Any of the following will constitute a termination event: - The Healthcare SECTORS are delisted from the American Stock Exchange and are not listed for trading on another national securities exchange in the United States or through the NASDAQ National Market System within five business days from the date the Healthcare SECTORS are delisted. - The trustee resigns and no successor trustee is appointed within 60 days from the date the trustee provides notice to the initial depositor of its intent to resign. - 75% of beneficial owners of outstanding Healthcare SECTORS vote to dissolve and liquidate the Healthcare SECTORS Trust. Upon termination of the trust or if a termination event occurs, the trustee will distribute the underlying securities to you as promptly as practicable after termination or after the trustee has knowledge of the occurrence of the termination event. The beneficial owners of the Healthcare SECTORS will surrender their Healthcare SECTORS as provided in the depositary trust agreement, including payment of any fees of the trustee, and any applicable taxes or governmental charges due in connection with delivery to the owners of the underlying security. You should read the discussion under the section "Description of the Healthcare SECTORS -- Surrender and Cancellation of the Healthcare SECTORS" in this prospectus. RIGHTS RELATING TO HEALTHCARE SECTORS You have the right to withdraw the underlying securities upon request by delivering a round lot or integral multiple of a round lot of Healthcare SECTORS to the trustee, during the trustee's business hours, and paying the cancellation fees, taxes and other charges. You should receive the underlying securities no later than the business day after the trustee receives a proper notice of cancellation. The trustee will not deliver fractional shares of underlying securities. To the extent that any cancellation of Healthcare SECTORS would otherwise require the delivery of a fractional share of underlying securities, the trustee will sell the share in the market and the Healthcare SECTORS Trust will deliver cash in lieu of such share. Except with respect to the right to vote for dissolution of the Healthcare SECTORS Trust, the Healthcare SECTORS themselves will not have voting rights. RIGHTS RELATING TO THE UNDERLYING SECURITIES You will have the same rights as you would have if you beneficially owned the underlying securities outside of the Healthcare SECTORS Trust. You have the right to: - receive all shareholder disclosure materials distributed by the issuers of the underlying securities, including annual and quarterly reports; - receive all proxy materials distributed by the issuers of the underlying securities, instruct the trustee to vote the underlying securities and attend shareholder meetings yourself; and - receive dividends and other distributions on the underlying securities if any are declared and paid to the trustee by an issuer of the underlying securities net of any applicable taxes or fees. The Healthcare SECTORS are not intended to change your beneficial ownership obligations under federal securities laws, including sections 13(d) and 16(a) of the Securities Exchange Act. If you wish to participate in a tender offer for any of the underlying securities during the term of the Healthcare SECTORS, you must obtain that security by surrendering your Healthcare SECTORS and receiving all of your underlying securities. For specific information about obtaining your underlying securities, you should read the discussion under "Description of the Healthcare SECTORS" in this prospectus. LISTING We will apply to list the Healthcare SECTORS on the American Stock Exchange under the symbol " ". Trading will take place only in round lots of 100 Healthcare SECTORS. A minimum of 150,000 Healthcare SECTORS will be required to be outstanding when trading begins. Bid and ask prices will be quoted per single Healthcare SECTORS, even though investors will only be able to acquire, hold, transfer and surrender in round lots of 100 Healthcare SECTORS. THE ROLE OF SALOMON SMITH BARNEY INC. Salomon Smith Barney Inc. is the initial depositor and is also the underwriter for the offering and sale of the Healthcare SECTORS. After the initial offering, Salomon Smith Barney Inc. and/or its other broker-dealer affiliates intend to buy and sell Healthcare SECTORS to create a secondary market for holders of the Healthcare SECTORS. However, neither Salomon Smith Barney Inc. nor any of its affiliates will be obligated to engage in any market-making activities, or continue them once it has started. UNDERWRITING FEES AND OTHER FEES If you purchase Healthcare SECTORS in the initial public offering, you will pay Salomon Smith Barney Inc., in its role as underwriter, an underwriting fee of 2%. You will not be charged any issuance fee or other sales commission in connection with purchases of Healthcare SECTORS made in the initial public offering. After the initial offering, if you wish to create Healthcare SECTORS by delivering to the Healthcare SECTORS Trust the requisite shares of the underlying securities represented by a round lot of 100 Healthcare SECTORS, U.S. Bank Trust National Association, as trustee, will charge you an issuance fee of up to $10.00 for each round lot of 100 Healthcare SECTORS. If you wish to cancel your Healthcare SECTORS and withdraw your underlying securities, U.S. Bank Trust National Association, as trustee, will charge you a cancellation fee of up to $10.00 for each round lot of 100 Healthcare SECTORS. You will also be responsible for any applicable taxes or governmental charges. If you choose to deposit underlying securities in order to receive Healthcare SECTORS after the conclusion of the initial public offering, you will not be charged the underwriting fee. However, in addition to the issuance fee charged by the trustee described above, you will be responsible for paying any sales commission associated with your purchase of the underlying securities that is charged by your broker, whether it be Salomon Smith Barney Inc. or another broker. U.S. Bank Trust National Association, as trustee and as custodian, will charge you a quarterly custody fee of $2.00 for each round lot of 100 Healthcare SECTORS to be deducted from any cash dividend or other cash distributions on underlying securities received by the Healthcare SECTORS Trust. With respect to the aggregate custody fee payable in any calendar year for each Healthcare SECTORS, the trustee will waive that portion of the fee which exceeds the total cash dividends and other cash distributions received, or to be received, and payable with respect to such calendar year. U.S. FEDERAL INCOME TAXES The federal income tax laws will treat a U.S. holder of Healthcare SECTORS as directly owning the underlying securities. The Healthcare SECTORS themselves will not result in any federal tax consequences separate from the tax consequences associated with ownership of the underlying securities. You should refer to the section "United States Federal Income Tax Consequences" in this prospectus. ERISA It is our view that employee benefit plans subject to ERISA and individual retirement accounts, Keogh plans and other similar plans can, generally, purchase Healthcare SECTORS. However, each plan and account should consider whether the purchase of Healthcare SECTORS is prudent and consistent with the documents governing the plan or account. The fiduciary rules governing plans and accounts are complex and individual considerations may apply to a particular plan or account. Accordingly, any fiduciary of any plan or account should consult with its legal advisers to determine whether the purchase of Healthcare SECTORS is permissible under the fiduciary rules. Each employee benefit plan subject to the fiduciary responsibility provisions of ERISA and each individual retirement account, Keogh plan and other similar plan will be deemed to have made certain representations concerning its purchase or other acquisition of Healthcare SECTORS. You should refer to the section "ERISA Considerations" in this prospectus.

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+SUMMARY This summary highlights information contained elsewhere in this Prospectus. You should read this entire Prospectus carefully before deciding to acquire shares of our common stock. This Prospectus contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. All references to "we," "our," "us," "our company," "the Company," or "ISI" in this Prospectus refer to Interferon Sciences, Inc. and its subsidiary. The Company Interferon Sciences, Inc. is a biopharmaceutical company which studies, manufactures, and sells ALFERON N Injection(R), a pharmaceutical product based on its highly purified, multi-species, natural-source alpha interferon ("Natural Alpha Interferon"). ALFERON N Injection (Interferon Alfa-n3) is approved by the United States Food and Drug Administration ("FDA") for the treatment of certain types of genital warts and we have studied its potential use in the treatment of human immunodeficiency virus ("HIV"), hepatitis C virus ("HCV"), and other indications. ALFERON N Injection is currently being studied in cancer and we are also evaluating its use in the treatment of multiple sclerosis and certain other viral diseases. In addition, we are seeking to enter into collaborations with companies in the areas of cancer, infectious diseases, and immunology. Our strategy is to utilize our expertise in regulatory affairs, clinical trials, manufacturing, and research and development to acquire equity participations in early stage companies. In April 2001, we acquired a significant equity interest in Metacine, Inc., a company developing cancer vaccines based upon dendritic cell technology. Our principal executive offices are located at 783 Jersey Avenue, New Brunswick, New Jersey 08901, and our telephone number is (732) 249-3250. <TABLE> <CAPTION> The Offering <S> <C> Shares Offered......................28,209,006 shares of common stock to be offered by the selling stockholders named in this Prospectus. The shares include 15,069,569 shares that we will issue to the selling stockholders on exercise of warrants held by certain of them. Offering Price......................Determined at the time of sale by the selling stockholders. Shares Outstanding..................20,308,031 at December 31, 2001. Use of Proceeds.....................We will not receive any of the proceeds of the shares offered by the selling stockholders. Any proceeds we receive from the sale of shares on exercise of warrants by the selling stockholders will be used for general corporate purposes. See "Use of Proceeds." OTC Bulletin Board Symbol...........IFSC Risk Factors........................Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 4. </TABLE> <PAGE>

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+PROSPECTUS SUMMARY This summary highlights some information from this Prospectus. This summary is not complete and does not contain all of the information you should consider before investing in our common shares. You should read the entire Prospectus carefully. Throughout this Prospectus we refer to Somanetics Corporation as "Somanetics", the "Company", "we", "our" and "us". THE COMPANY THE CEREBRAL OXIMETER We develop, manufacture and market the INVOS(R) Cerebral Oximeter, the only non-invasive patient monitoring system commercially available in the United States that continuously measures changes in the blood oxygen level in the brain. We are also developing the CorRestore(TM) patch for use in cardiac repair and reconstruction, including heart surgeries called surgical anterior ventricular endocardial restoration, or SAVER. We developed the Cerebral Oximeter to meet the need for information about oxygen in the brain, the organ least tolerant of oxygen deprivation. Without sufficient oxygen, brain damage may occur within a few minutes, which can result in paralysis, severe and complex disabilities or death. Brain oxygen information, therefore, is important, especially in surgical procedures requiring general anesthesia and in other critical care situations with a high risk of the brain getting less oxygen than it needs. We target surgical procedures with a high risk of the brain oxygen imbalances, such as heart surgeries, heart blood vessel surgeries, other blood vessel surgeries and surgeries involving elderly patients. Surgeons, anesthesiologists and other medical professionals use the Cerebral Oximeter to identify brain oxygen imbalances and take corrective action, potentially improving patient outcome and reducing the cost of care. The Cerebral Oximeter is a relatively inexpensive, portable and easy-to-use monitoring system placed at a patient's bedside in hospital critical care areas, especially operating rooms, recovery rooms, intensive care units and emergency rooms. It is comprised of - a portable unit including a computer and a display monitor, - dual single-use, disposable sensors, called SomaSensors(R), - proprietary software, and - a preamplifier cable. SomaSensors can be placed on both sides of a patient's forehead to offer bi-lateral monitoring and are connected to the computer through the preamplifier cable. The computer uses our proprietary software to analyze information received from the SomaSensors and provides a continuous digital and trend display on the monitor of an index of the oxygen saturation in the area of the brain under the SomaSensors. Users of the Cerebral Oximeter will be required to purchase disposable SomaSensors on a regular basis because of their single-use nature. We began shipping the model 4100 Cerebral Oximeter in the first quarter of fiscal 1998. During the third quarter of fiscal 1999, we introduced our new model 5100 Cerebral Oximeter at an international trade show, and began international shipments of the model 5100 in August 1999. The model 5100 Cerebral Oximeter has the added capability of being able to monitor pediatric patients. In September 2000, we received clearance from the FDA to market the model 5100 Cerebral Oximeter in the United States. INVOS TECHNOLOGY The Cerebral Oximeter is based on our In Vivo Optical Spectroscopy, or INVOS, technology. INVOS analyzes various characteristics of human blood and tissue by measuring and analyzing low-intensity visible and near-infrared light transmitted into portions of the body. Optical spectroscopy was generally not useful when the substances to be measured were surrounded by, were behind or were near bone, muscle or other tissue, because they produce extraneous data that interferes with analysis of the data from the area being examined. We have developed a method of reducing extraneous spectroscopic data caused by surrounding bone, muscle and other tissue. This method allows us to gather information about portions of the body that previously could not be analyzed using traditional optical spectroscopy. BUSINESS STRATEGY Our objective is to establish the Cerebral Oximeter as a standard of care in surgical procedures requiring general anesthesia and in other critical care situations. Key elements of our strategy are - target surgical procedures with a high risk of brain oxygen imbalances, - demonstrate the clinical benefits, and promote acceptance, of the Cerebral Oximeter, - invest in marketing and sales activities, - develop additional applications of the Cerebral Oximeter, and - license our technology to medical device manufacturers. MARKETING, SALES AND DISTRIBUTION We believe that favorable peer review is a key element to a product's success in the medical equipment industry. Accordingly, we support clinical research programs with third-party clinicians and researchers intended to demonstrate the need for the Cerebral Oximeter and its clinical benefits with the specific objective of publishing the results in peer-reviewed journals. For example, a number of intervention outcome studies were presented in 2001 demonstrating the relationship between monitoring changes in regional brain blood oxygen saturation and intervening as needed and reductions in strokes, comas, other neurological complications, renal failure and hospital average length of stay. In addition, another study presented in 2001 reported that brain blood oxygenation, as monitored by the Cerebral Oximeter, declined during cardiopulmonary bypass surgery, even when blood pressure was considered to be adequate. We sell the Cerebral Oximeter in the United States through our seven direct salespersons, one clinical specialist and 10 independent sales representatives. Internationally, we have distribution agreements with six independent distributors covering 58 countries for the model 4100 Cerebral Oximeter, and our distribution agreements with four of those distributors cover 56 countries for the model 5100 Cerebral Oximeter. Our distributors include Tyco Healthcare AG, formerly Nellcor Puritan Bennett Export, Inc., part of Tyco International Ltd., in Europe, and Baxter Limited in Japan. CORRESTORE PATCH We are developing the CorRestore patch, a new cardiac implant designed by CorRestore LLC, for use in cardiac repair and reconstruction, including heart surgeries called surgical anterior ventricular endocardial restoration, or SAVER. During SAVER, the surgeon restores, or remodels, an enlarged, poor functioning left ventricle to more normal size and function by inserting an implant, in most instances, or closing the defect directly. We entered into a License Agreement as of June 2, 2000 giving us exclusive, worldwide, royalty-bearing licenses to specified rights relating to the CorRestore patch, subject to the terms and conditions of the license agreement. Our objective is to obtain regulatory clearance or approval to sell the CorRestore patch and other regulatory approvals necessary to market outside the United States and to have the patch used in SAVER surgeries. In November 2001 we received clearance from the FDA to market the CorRestore patch in the United States. Our initial target market is SAVER surgeries on patients with dilated ischemic cardiomyopathy due to a previous myocardial infarction involving the anterior wall of the ventricle. Ischemic cardiomyopathy is a damaged heart muscle caused by the obstruction of the inflow of blood from the arteries, resulting in an enlarged ventricle. Myocardial infarction is the death of an area of the middle muscle layer in the heart wall. We believe that favorable peer review is a key element to a product's success in the medical equipment industry. In May 2001, the results of a 13-center, 662-patient study evaluating the safety and effectiveness of SAVER reported improvement in patient function based on New York Heart Association classification criteria, improvement in readmission and survival rates, and improvement in ejection fraction for SAVER patients. Most of the patients in the study were severe New York Hospital Association Class III and Class IV congestive heart failure patients. Of the 355 patients for whom New York Heart Association classifications were reported at the last follow up, 91 percent improved functionally, with 61 percent classified as Class I and 30 percent as Class II. Readmission data was obtained on 658 patients. Of these patients, 88.7% were not readmitted to the hospital for congestive heart failure during the three years after their SAVER surgery. By comparison, the annual hospital admission rate for Class III and IV heart failure patients is more than 40 percent, and 24 percent are admitted two or more times each year. The overall survival rate for the study group was 89.4 percent at three years. In the first quarter of fiscal 2002, we expect to execute the initial phase of the CorRestore market launch plan, with the first implantation of our CorRestore patch in January 2002. We expect to start our broader market launch in the second quarter of 2002. ABOUT US We were incorporated in the State of Michigan on January 15, 1982. Our headquarters are located at 1653 East Maple Road, Troy, Michigan 48083-4208. Our telephone number is (248) 689-3050. Our web site is at www.somanetics.net.

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Prospectus. THE COMPANY MEDTOX Scientific, Inc., a Delaware corporation, was organized in September 1986. MEDTOX Scientific, Inc. has three wholly-owned subsidiaries, MEDTOX Laboratories, Inc., MEDTOX Diagnostics, Inc., and New Brighton Business Center LLC. We are engaged primarily in two distinct, but related businesses. The business of manufacturing and distribution of diagnostic devices is carried on by MEDTOX Diagnostics, Inc. from our facility in Burlington, North Carolina and the business of forensic and clinical laboratory services is conducted by MEDTOX Laboratories, Inc. at our facility in St. Paul, Minnesota. We have two reportable segments: "Laboratory Services" conducted by MEDTOX Laboratories, Inc. and "Products Sales" conducted by MEDTOX Diagnostics, Inc. Laboratory Services include forensic toxicology, clinical toxicology, clinical testing for the pharmaceutical industry and heavy metal analyses as well as logistics, data, and overall program management services. Product Sales include sales of a variety of point-of-collection (POC) screening devices for therapeutic drugs and drugs of abuse. For the years ended December 31, 2001, 2000, and 1999, Laboratory Services revenue accounted for 77%, 81% and 89% of our revenues, respectively. Revenue from Product Sales accounted for 23%, 19% and 11% of our total revenues for the years ended December 31, 2001, 2000 and 1999, respectively. <PAGE> THE OFFERING Shares of Common Stock Offered by: The Company.............. The Company is not offering for sale any of the Shares. Plan Shares Offered..... Includes (i) 766,831 shares available for issuance under the MEDTOX Scientific, Inc. Restated Equity Compensation Plan, (ii) 181,500 shares issuable under the MEDTOX Scientific, Inc. Qualified Employee Stock Purchase Plan and (iii) 18,334 shares available for issuance under the MEDTOX Scientific, Inc. Non-Employee Director Plan. Common Stock Outstanding.......... The Company has 4,794,458 Shares issued and outstanding. Use of Proceeds................... The Company will receive proceeds of an undeterminable amount from the sale of the Shares if and when employees choose to exercise their options and the Company issues Shares from such options. AMEX Symbol....................... TOX

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+Prospectus summary The following summary is qualified in its entirety by reference to the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus or incorporated by reference herein. This Prospectus contains certain forward looking statements concerning our operations, economic performance and financial condition. Such statements are subject to a number of risks and uncertainties. Our actual results could differ materially from those currently anticipated due to a number of factors including those identified under "Risk Factors" and elsewhere in this Prospectus. Our business We are engaged in the business of providing interactive entertainment services, electronic/on-line products and services, systems integration services, corporate services and merchant capital services. Our corporate and merchant capital businesses involve our investment in and acquisition of significant but undervalued operating companies or technologies, to which we then apply our management experience, in an effort to appreciate the value of those companies. The interactive entertainment services involve, for example, electronic sports trivia games played on computer units installed in bars, pubs and restaurants and audio-visual entertainment for the hospitality industry. Our newly acquired systems integration business provides server based computing, network design and delivery, network administration and support, procurement services, hardware support services, and storage area network services. Our revenue is primarily generated through our systems integration business through our subsidiary, Logicorp Data Systems Ltd., and our interactive entertainment services operations within two of our operating subsidiaries, being NTN Interactive Network Inc. and GalaVu Entertainment Network Inc., as well as a NTN Interactive Network subsidiary. Abbreviated references to dollar amounts contained in this Registration Statement, are denoted as "Cdn$" or "US$". "Cdn$" refers to Canadian dollars. "US$" refers to United States dollars. During the two most recent fiscal years, those ending August 31, 2000 and August 31, 2001, we sustained operating losses in the respective approximate amounts of Cdn$2,000,000 and Cdn$11,000,000. For the six-month period ending February 28, 2002, we sustained a loss from continuing operations in the amount of Cdn$2,865,603. We anticipate that we will incur additional operating losses in the immediate future as well. As a result, we expect to continue to incur operating losses and may not have enough money to satisfy our existing obligations and expand our business operations in the future. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| Calculation of registration fee <TABLE> <CAPTION> Proposed Proposed Title of maximum maximum Securities to be Amount to be offering price aggregate Amount of registered registered per share offering price registration fee ---------- ---------- --------- -------------- ---------------- <S> <C> <C> <C> <C> Common Stock, par value 6,200,385 $ 1.15(2) $7,130,442.75 $656.00 $0.0467 (1) Common Stock, par value 200,000 $ 4.375 $ 875,000 $ 80.50 $0.0467 (3) Common 1,000,000 $ 1.15(2) $ 1,150,000 $105.80 Stock, par value $0.467 (4) Total Total 7,400,385 Registration $842.30 Fee </TABLE> (1) For the account of certain Selling Shareholders. (2) Estimated solely for the purpose of calculating the registration fee. Pursuant to Rule 457(c) of the Securities Act, the registration fee has been calculated based upon the average of the high and low sale price as reported by Nasdaq for our common stock on June 6, 2002. (3) Issuable upon the exercise of Warrants issued to two consultants for services rendered. (4) Offered by us. We hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until we shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. We currently conduct our business through nine directly or indirectly wholly-owned subsidiaries and two partially owned subsidiaries. The following is a list of such subsidiaries, and which of our business segments each operates in: Wholly-owned subsidiaries Business Segment ------------------------- ---------------- o Chell Merchant Capital Group - Merchant Services o Chell.com USA Inc. - Merchant Services o NTN Interactive Network Inc. - Entertainment o GalaVu Entertainment Network Inc. - Entertainment o 348751 Canada Inc. - Corporate o Logicorp Data Systems Ltd. - Systems Integration o Logicorp Service Group - Corporate o 123557 ALBERTA LTD. - Corporate o 591360 ALBERTA LTD. - Corporate Partially Owned Subsidiaries ---------------------------- o Engyro, Inc. (approx. 8%) - Merchant Services o cDemo Inc. (14.3%) - Merchant Services According to our most recent quarter-end financial reports, our revenues by industry segment, with their percentage of our total revenue, are set forth in the table below: 6-month period ended February 28, 2002 Cdn$ amount and percentage REVENUE Entertainment 6,023,574 38.5 (%) Systems Integration 9,620,372 61.51(%) Corporate (3,057) -- Merchant Services -- -- -------------------------------------------------------------------------------- Cdn$15,640,889 No minimum amount of securities must be sold pursuant to this offering and accordingly, no minimum amount of proceeds will be raised. Therefore, investors may ultimately hold securities in a company that has failed to raise sufficient capital to continue operations and/or may have an illiquid market for its shares. SUBJECT TO COMPLETION, DATED JUNE__, 2002 PROSPECTUS 7,400,385 Shares Common Stock Chell Group Corporation This Prospectus relates to 7,400,385 shares of our common stock, of which 6,400,385 shares are being offered by certain selling shareholders and 1,000,000 shares are being offered by us. We will not receive any of the proceeds from the sale of common stock by the selling shareholders. Our stock is traded in the over-the-counter market and is quoted on the NASDAQ Small-Cap Market under the symbol CHEL. On June 6, 2002, the average of the high and low sale price of the common stock as reported by NASDAQ was $1.32. 6,400,385 shares may be offered from time to time by the selling shareholders as market conditions permit in the over-the-counter market, or otherwise, at prices and terms then prevailing or at prices related to the then-current market price, or in negotiated transactions. Up to 1,000,000 shares are being sold by us through our officers and directors, on a self-underwritten, best efforts basis, with no minimum number of shares being required to be sold to accept the shares sold for a closing. It is possible that no shares will be sold by us and accordingly, we may raise no proceeds pursuant to this offering. Our offering will commence on the date of this prospectus and will continue until the earlier of March 31, 2003, all of the shares offered are sold or we otherwise terminate the offering. The Securities offered hereby involve a high degree of risk. See risk factors commencing on page 6. These securities have neither been approved nor disapproved by the Securities and Exchange Commission nor any state securities commission. Neither the Securities and Exchange Commission nor any state securities commission has passed upon the accuracy or adequacy of this prospesctus. Any representation to the contrary is a criminal offense. The date of this Prospectus is _____, 2002 Resignation of previous auditors In October 2000, Ernst & Young LLP ("E&Y") resigned as our independent accountants. E&Y's decision to resign was based upon their belief that they could no longer rely upon the representations made by Cameron Chell, our President and Chief Executive Order, because of disciplinary actions taken against Mr. Chell by the Alberta Stock Exchange in November 1998. Mr. Chell, in an agreement with the Alberta Stock Exchange, acknowledged that he had violated certain duties of supervision, disclosure and compliance while he worked as a registered securities representative licensed by the Alberta Securities Commission. We have subsequently hired the accounting firm of Lazar, Levine & Felix, LLP as our certifying accountants. We have authorized E&Y to fully respond to any and all inquiries of Lazar, Levine & Felix, LLP concerning E&Y's resignation. The consolidated financial statements of Chell Group Corporation for the fiscal years ending August 31, 2001 and 2000 appearing in this Prospectus and Registration Statement have been audited by Lazar, Levine & Felix, LLP. TABLE OF CONTENTS Prospectus Summary ........................................................ 1 Risk Factors .............................................................. 6 Special Note Concerning Forward Looking Statements ........................ 15 Use of Proceeds ........................................................... 15 Selling Shareholder ....................................................... 15 Plan of Distribution ...................................................... 17 Description of Securities to be Registered ................................ 19 Legal Matters ............................................................. 21 Experts ................................................................... 21 Description of Business ................................................... 22 Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................. 44 Certain Relationships and Related Transactions ............................ 66 The offering Securities Offered 7,400,385 shares of common stock. This amount includes 1,000,000 shares offered by us through our directors and officers, which in the aggregate constitutes 31.3% of our total issued and outstanding shares after completion of this offering. Common Stock Outstanding Before the Offering (As of May 28, 2002) 22,477,698 shares, assuming the approval at the annual stockholders' meeting scheduled for June 28, 2002 of the issuance of shares of our common stock pursuant to the Logicorp transaction, the issuance of shares of our common stock pursuant to the conversion of the 8% convertible promissory notes and the issuance of shares of our common stock pursuant to the conversion of two promissory notes issued by us. Common Stock Outstanding After Maximum Offering 23,477,698 Shares Use of Proceeds We will not receive any proceeds from sales of our common stock by the selling shareholders. We will divide the net proceeds of our offering of 1,000,000 shares of our common stock between utilizing approximately one-half for repaying portions of certain of our loans and utilizing approximately one-half for working capital and general corporate purposes. Risk Factors Prospective investors should consider carefully certain Risk Factors, which we outline commencing on page 6, relating to making an investment in us. NASDAQ Symbol CHEL Statement of Operations Data (expressed in Canadian Dollars): <TABLE> <CAPTION> ------------------------------------------------------------------------------------------------------------ Year Ended August 31, 2001 2000 1999 1998* 1997* Cdn$ Cdn$ Cdn$ Cdn$ Cdn$ ============================================================================================================ <S> <C> <C> <C> <C> <C> Operating revenues 18,222,374 19,107,290 12,823,691 13,404,542 10,351,689 Cost of sales 6,818,111 7,204,919 4,874,768 5,030,602 3,395,898 Gross profit 11,404,263 11,902,371 7,948,923 8,373,940 6,955,791 Income (loss) from continuing operations (9,622,841) (1,466,205) (744,240) 358,492 609,387 Income (loss) from continuing operations per share (1.15) (.51) (.28) .14 0.25 Weighted average number of Shares outstanding 8,393,589 2,873,042 2,635,050 2,550,805 2,441,992 ============================================================================================================ </TABLE> * The 1998 and 1997 comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the 2001 consolidated financial statements. <TABLE> <CAPTION> Six-month period ending Six-month period ending February 28, 2002 February 28, 2001 ---------------------------------------------------------------------------------------- <S> <C> <C> Operating Revenue Cdn$15,640,889 Cdn$6,915,927 ---------------------------------------------------------------------------------------- Cost of Sales 11,312,447 2,599,049 ---------------------------------------------------------------------------------------- Gross Profit 4,328,442 4,316,878 ---------------------------------------------------------------------------------------- Income (loss) from continuing operations (2,865,603) (6,193,521) ---------------------------------------------------------------------------------------- Income (loss) from continuing operations per share (.26) (.74) ---------------------------------------------------------------------------------------- Weighted average number of shares outstanding 10,976,487 8,356,045 ---------------------------------------------------------------------------------------- </TABLE> As at August 31: <TABLE> <CAPTION> 2001 2000 1999 1998 1997 -------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Total assets 16,225,003 17,220,211 14,546,003 15,802,359 14,287,602 -------------------------------------------------------------------------------------- Long-term obligations 5,943,512 4,436,213 2,216,675 2,840,218 2,185,249 -------------------------------------------------------------------------------------- Shareholders' equity 2,248,128 9,383,419 10,792,767 11,033,178 9,488,648 -------------------------------------------------------------------------------------- </TABLE> As at February 28, 2002 ---------------------------------------------------------- Total assets 38,870,764 ---------------------------------------------------------- Long-term obligations 28,813,124 ---------------------------------------------------------- Shareholders' equity 10,057,640 ----------------------------------------------------------

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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. References in this prospectus to "Southwall Technologies," "Southwall," "we," "us," or "our" are to Southwall Technologies Inc. and its subsidiaries. You should read this entire prospectus carefully. Unless otherwise indicated, all information in this prospectus assumes that the underwriters have not exercised their option to purchase additional shares. Southwall Technologies Inc. We are a global developer, manufacturer and marketer of thin film coatings for the automotive glass, electronic display and architectural markets. We have developed a variety of products that selectively absorb, reflect or transmit light and control the flow of energy. Our products consist of transparent insulation and solar-control films for automotive and architectural glass, and anti-reflective films for computer and television screens, including flat panel and plasma displays. They also include transparent conductive films for use in touch screen and liquid crystal displays. Based upon our production capacity, we believe we are one of the world's largest producers of rolls of clear plastic, or substrates, coated with thin films. Recent advances in manufacturing processes and techniques are reducing our production costs. These reductions allow our thin film coated substrates to more cost-effectively address the following markets: Automotive glass. The thin film coated substrates we sell in this market reflect infrared heat and reduce the transmission of ultra-violet light. These coatings allow carmakers to use more glass and to increase the energy efficiency and comfort of their vehicles. We sell thin film coated substrates in this market primarily to original equipment manufacturers that produce glass for sale to European manufacturers of new cars. Our products are used in cars manufactured by Mercedes Benz, Renault, Audi, BMW, Volvo, Volkswagen and the PSA Group, among other companies. According to the Freedonia Group, the worldwide demand for new and replacement glass sold for the motor vehicle market is expected to increase from approximately 7.2 billion square feet in 1999 to approximately 8.7 billion square feet in 2009. Electronic displays. The thin film coated substrates we sell in this market primarily reduce glare caused by reflection from glass surfaces, improve contrast and image quality, and reduce energy emission from and the build up of static charge on computer display screens. Our thin film coated substrates are used in computer display tubes, or CDTs, liquid crystal and plasma displays, and in applications such as touch screens, wireless telephones and automated teller machines. The combined worldwide market for 17 inch and 19 inch flat screen computer display tubes and active matrix liquid crystal displays used for computer and handheld applications is anticipated to grow from approximately 75 million units in 2000 to approximately 155 million units in 2005, according to a 2001 Stanford Resources, Inc. research study. Architectural. The thin film coated substrates we sell in this market are primarily used to control the transmission of heat through window glass and to limit ultra-violet light damage. Glass windows are significantly responsible for heat build-up and loss in buildings. According to the Freedonia Group, the worldwide market for new and replacement glass sold for use in residential buildings is expected to increase from approximately 5.2 billion square feet in 1999 to approximately 8.0 billion square feet in 2009. Also according to Freedonia, the market for new and replacement glass for use in commercial buildings is expected to increase from approximately 16.2 billion square feet in 1999 to approximately 25.4 billion square feet in 2009. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 To address market demands, we have expanded our operations. We began manufacturing in a new facility in Dresden, Germany in January 2001. The facility presently contains two production machines. We expect that our third production machine in Dresden will begin commercial production by the first quarter of 2003. In 2000, we also increased our commercial production capacity in Tempe, Arizona by adding a second production machine. Our Competitive Advantages We believe we are well positioned for continued growth in sales of thin film coatings for the automotive glass, electronic display and architectural markets, and that our competitive advantages include: Proprietary thin film manufacturing process knowledge and control systems; Extensive thin film materials expertise and optical design capabilities; Over twenty years' experience providing large quantities of sophisticated coatings on flexible film for demanding applications and customers; The world's largest installed base of coating machinery for application of sputter coatings to flexible film; and Substantial expertise and technical support in the areas of product testing, reliability and applications. Our Strategy Our objective is to enhance our position as a global developer, manufacturer and marketer of thin film coatings on flexible substrates for the automotive glass, electronic display and architectural markets. The following are key elements of our strategy: Increase penetration and expand customer base in the automotive glass market; Increase production capacity in the automotive glass and architectural market; Use expanded production capacity and new products to increase sales in the architectural markets; Capitalize on expanding flat panel display markets; and Continue to advance thin film production technology. We were incorporated in 1979 as a Delaware corporation. Our principal executive offices are located at 1029 Corporation Way, Palo Alto, California 94303, and our telephone number is (650) 962-9111. Our corporate web site is located at www.southwall.com. The information contained in our web site is not a part of this prospectus. Recent Development On June 24, 2002, we disclosed preliminary estimates of our financial results for the quarter ended June 30, 2002, indicating that we expected revenues for the quarter to be between $19.5 million and $20.5 million and net income for the quarter to be between $1.2 million and $1.4 million. We also disclosed preliminary estimates of our financial results for the fiscal year ended December 31, 2002, indicating that we expected revenues for 2002 to be between $78.0 million and $82.0 million and net income for 2002 to be between $4.8 million and $5.2 million before including any adjustments from the sale of common stock that we are offering by means of this propectus. These estimates are, however, subject to certain assumptions, risks and uncertainties that could cause actual revenues or net income for our second quarter or 2002 to be different than the estimates presented. Amendment No. 3 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 We expect the remainder of 2002 to continue to be affected by a slowdown in sales by European automobile manufacturers. We do not anticipate a significant improvement, if any, over our first quarter sales to the automotive market for any of the remaining quarters of 2002. However, we recently announced a new ten-year distribution agreement with Globamatrix Holdings Pte. Ltd., or Globamatrix, which includes commitments by Globamatrix to purchase an annually increasing amount, subject to volume and quality standards, of our solar control products for retrofit applications to the automotive and residential and commercial architectural glass markets. As a result, we believe that we will have somewhat greater revenues from Globamatrix in 2002 than in 2001, and that this growth will continue through 2003. Our revenues from the CDT portion of our electronic display business have declined during 2002 as compared to 2001 primarily due to lower prices. During the same period, however, sales to the liquid crystal and plasma display portions of this market have increased. We recently started shipping production quantities and sizes of new films specifically designed for the liquid crystal display and plasma display panel markets that maintain optical clarity while reducing the reflection of ambient light to improve image quality. We expect the decline of the CDT portion of our electronic display business and the growth in sales of our new electronic display films to continue through 2003. Due to production capacity constraints, in the past we have not allocated resources to expanding revenues from our architectural products. Additional production capacity for architectural products has recently been created, in part, by the addition of our new Dresden facility. Our revenues from our architectural business have increased during 2002 as compared to 2001, and we expect that the availability of production capacity in 2003 will allow for continued growth in this business. However, we can give no assurances that availability of production capacity will increase our revenues from architectural products. Southwall Technologies Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 3081 (Primary Standard Industrial Classification Code Number) 94-2551470 (I.R.S. Employer Identification Number) Southwall Technologies Inc. 1029 Corporation Way, Palo Alto, California 94303 (650) 962-9111 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Thomas G. Hood President and Chief Executive Officer Southwall Technologies Inc. 1029 Corporation Way, Palo Alto, California 94303 (650) 962-9111 (Name, address, including zip code, and telephone number, including area code, of agent for service) The Offering Common stock offered by us 3,500,000 shares Common stock to be outstanding after this offering 12,086,278 shares Over-allotment option: Common stock offered by us 500,000 shares Common stock offered by selling stockholders 25,000 shares Use of proceeds To pay down existing indebtedness, capital expenditures including purchasing a new production machine, replacing our enterprise resource planning system and updating our Palo Alto and Tempe facilities, and for working capital and general corporate purposes, including possible acquisitions. Nasdaq National Market symbol SWTX The number of shares of our common stock to be outstanding after this offering is based on our shares outstanding as of May 23, 2002 and excludes 2,096,204 shares which consist of: 1,401,859 shares subject to outstanding options under our 1997 stock incentive plan with a weighted average exercise price of $5.24 per share; and 694,345 shares subject to outstanding options under our 1998 stock option plan for employees and consultants with a weighted average exercise price of $6.61 per share. Copies to: Cameron Read James W. Hackett, Jr. Choate, Hall & Stewart 53 State Street Boston, Massachusetts 02109 (617) 248-5000 Thomas P. Palmer Jeffrey S. Cronn Tonkon Torp LLP 888 SW Fifth Avenue Portland, Oregon 97204 (503) 802-2018 (In thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $ 2,713 $ 14,726 Working capital (deficit) (4,987 ) 11,632 Property, plant and equipment, net 47,326 53,326 Total assets 73,067 90,530 Term debt 13,800 9,800 Total liabilities 44,781 36,175 Total stockholders' equity 28,286 54,155 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.

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+PROSPECTUS SUMMARY" --> PROSPECTUS SUMMARY This summary highlights information that we present more fully in the rest of this prospectus. This summary does not contain all the information you should consider before buying shares in this offering. You should read the entire

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+PROSPECTUS SUMMARY This summary highlights information contained in this prospectus. This summary does not contain all of the information that you should consider. You should read this prospectus carefully when evaluating Western United Life Assurance Company and our preferred stock. WESTERN UNITED HOLDING COMPANY We are a holding company with only one wholly owned operating subsidiary, Western United Life Assurance Company. We are a wholly owned subsidiary of Metropolitan Mortgage & Securities Co., Inc. Substantially all of our operations are conducted through Western Life. Throughout this prospectus, references to the terms "we," "us," "our" and similar terms include both Western United Holding Company and Western United Life Assurance Company together. The financial information in this prospectus for dates before May 3, 2002, the date we were formed, relates solely to Western Life. Western Life is an insurance company that sells annuity and life insurance products. It is domiciled in the State of Washington and sells these products through approximately 1,475 independent sales representatives in 16 states, primarily in the western half of the United States. Western Life currently has an insurance license application pending in the State of New Mexico. We also intend to expand our operations in other states as opportunities arise. Western Life has been assigned an A.M. Best Co. rating of B (Fair), which is the 7th highest rating. A.M. Best publishes both a financial strength rating and a financial performance rating on almost 6,000 life, health, property and casualty insurance companies. A.M. Best's financial strength ratings range from A++ (Superior) to F (In Liquidation) and include 15 separate ratings (not including the S rating for "Suspended"). A.M. Best bases its rating on a number of complex financial ratios, the length of time a company has been in business, the nature and quality of investments in its portfolio, depth and experience of management and various other factors. A.M. Best's ratings are supplied primarily for the benefit of the policyholders and insurance agents. On October 25, 2001, A.M. Best announced that they were downgrading our financial strength rating from B+ (Very Good) to B (Fair). According to A.M. Best, the rating action reflected our significant investment in mortgages, mortgage backed bonds, real estate relative to surplus, decreased surrender charge protection on annuity reserves and declining risk-adjusted capitalization, as well as the weakened financial position of our parent organization, Metropolitan Mortgage. Partially offsetting these items were our historic profitability and ability to grow our core individual annuity lines of business. We anticipate that the change in ratings will result in a slight increase in our cost of funds in addition to a slight increase in surrender rates as current policies enter their surrender periods. Before the change in ratings, we changed the focus of our investment strategy away from acquiring residential real estate loans for securitization purposes as we do not intend to participate in any real estate backed securitizations in the near future. We have refocused our investment activity on acquiring and holding both residential and real estate loans and commercial loans. This change in focus has resulted in higher yields on our investments. Therefore, we expect the slight increase in our cost of funds will be more than offset by the higher yields obtained through our new investment strategy. In response to the rating downgrade, we increased Western Life capital through a $17.2 million sale of common stock to our parent, Metropolitan Mortgage, in addition to focusing on issuing liabilities with greater surrender charge protection. A.M. Best ratings are performed on an annual basis and we do not anticipate any change to our rating in the coming year. We generate nearly all of our premiums through the sale of single and flexible premium deferred annuities. We also generate premiums through the sale of whole life and term life insurance policies. During the calendar year ended December 31, 2001, approximately 91% of our deferred annuity business was produced in the states of Idaho, Montana, Oregon, Texas, Utah and Washington. Based on the latest data available, during calendar year 2001, our deferred annuity market share in these six states was 1.2%. In conjunction with Metropolitan, we invest in receivables that are cash flowing assets, consisting of obligations collateralized by real estate, structured settlements, annuities, lottery prizes and other investments. The real estate receivables primarily consist of real estate contracts and promissory notes collateralized by first position liens on real estate. We predominantly invest in receivables where the borrower or the collateral does not qualify for conventional financing or the seller or the buyer chose to use non-conventional financing. This market is commonly referred to as the non-conventional market. Obligors on our real estate receivables typically include A-, B and C credit quality persons. The evaluation, underwriting and closing operations for our receivables are performed by Metropolitan at Metropolitan's headquarters in Spokane, Washington, in accordance with management and acquisition service agreements we have with Metropolitan. In addition to investing in receivables originated by others, we began originating commercial loans collateralized by various types of commercial properties that are evaluated, underwritten and closed by an affiliate, Old Standard Life Insurance Company, in accordance with our predefined criteria. We currently expect to expand the origination of commercial loans during 2002. This expectation is in part due to our current perception that this market may be inadequately served by current lenders. We believe these lenders are inflexible in their underwriting and pricing policies and are not able to quickly underwrite and close these loans, particularly in the temporary, bridge and development commercial loan markets. In addition to our receivable investments, we invest funds in securities that predominantly consist of corporate bonds, U.S. Treasury and government agency obligations, mortgage-backed securities and other securities. These investments also include some subordinate certificates created out of receivable securitizations. We finance our business operations and growth with the proceeds from the sale of annuity and life insurance products, the sale of receivables, receivable cash flows, the sale of equity securities to affiliates, a secured line of credit agreement, reverse repurchase agreements, the sale of real estate and securities portfolio earnings. From time to time, we may acquire development properties through a purchase from Metropolitan or other third parties. We develop or improve properties for the purpose of enhancing values to increase marketability and to maximize profit potential. Our principal offices are located at 601 West 1st Avenue, Spokane, Washington 99201, and our telephone number is (509) 227-7500. ORGANIZATIONAL CHARTS The chart below lists the principal operating subsidiaries of our parent, Metropolitan. (GRAPH) Metropolitan Mortgage & Securities Co., Inc.: Metropolitan is our parent organization and invests in receivables and other investments, including real estate development, which are principally funded by proceeds from receivable investments, other investments and securities offerings. Consumers Group Holding Co., Inc.: A holding company, with its sole business activity currently being that of a shareholder of Consumers Insurance Company. Consumers Insurance Company: An inactive property and casualty insurer. Metwest Mortgage Services, Inc.: Metwest, one of our affiliates due to the common control by Metropolitan, primarily performs collection and servicing functions for us, its other affiliates and others. It is a Federal Housing Administration and U.S. Department of Housing and Urban Development licensed servicer and lender and is licensed as a Federal National Mortgage Association ("Fannie Mae") seller/ servicer. Western United Life Assurance Company: Western Life is our only operating subsidiary. Western Life is engaged primarily in the sale of annuity contracts and investing in receivables. Western Life is licensed to sell insurance in 16 states, but its sales are primarily concentrated in the western half of the United States. The chart below lists the principal operating subsidiaries of Summit Securities, Inc., one of our affiliates. (GRAPH) National Summit Corp.: The parent company of Summit; inactive except as owner of Summit Securities, Inc. National Summit is majority owned by C. Paul Sandifur, Jr., who is also president and controlling shareholder of Metropolitan. Summit Securities, Inc.: Invests in receivables and other investments that are principally funded by proceeds from receivable investments, other investments and securities offerings. Metropolitan Investment Securities, Inc. ("MIS"): Broker-dealer that is in the business of marketing securities that are offered by Summit and Metropolitan, mutual funds and general securities. MIS is the placement agent for this offering. Summit Property Development, Inc.: Provides real estate development services to others; principally to Metropolitan and its subsidiaries. Summit Group Holding Company: Inactive except as the owner of Old Standard Life Insurance Company. Old Standard Life Insurance Company: Engaged primarily in the sale of annuity contracts. Old Standard is licensed to sell insurance products in eight states, but its sales are primarily concentrated in the states of Idaho and Oregon. Old West Annuity & Life Insurance Company: Engaged primarily in the sale of annuity contracts. Old West is licensed to sell insurance in seven states, but its sales are primarily concentrated in the states of Arizona, California, Idaho, Utah and Texas. THE OFFERING Preferred stock, Series A to be offered by us.............. Up to 2,000,000 shares. Price per share............... $25.00. Number of shares of Series A preferred stock to be outstanding following the offering.................... If all of the shares of preferred stock we are offering are sold, we will have 2,000,000 shares of Series A preferred stock outstanding following completion of the offering. Dividends..................... We will pay dividends on the preferred stock on a cumulative basis from the date the shares are issued. When we pay dividends, they will be paid monthly at the annual dividend rate described under "DESCRIPTION OF PREFERRED STOCK -- Dividends." Liquidation rights............ If we were to liquidate, you will have a right to receive a liquidation preference of $25 per share, plus declared and unpaid dividends. Your liquidation rights will be paid only after all of our debts are paid. Your liquidation rights will be paid before any liquidating distributions to our common stockholders. Voting rights................. Your voting rights will be limited to the following: - you will have those voting rights expressly granted by the laws of the State of Washington; - you will have limited voting rights if the dividends payable to you on your preferred stock remain unpaid for a period of time that equals 24 monthly dividends; and - you will be entitled to vote to approve the creation of a new series of preferred stock by us if the new series ranks equally with or senior to the Series A shares. Conditions of the offering.... We will not issue any preferred stock until we have sold at least 400,000 shares of preferred stock. In addition, if the preferred stock is not approved for listing on the American Stock Exchange, we have the option not to close the offering. Plan of distribution.......... We are offering the preferred stock on a best efforts basis with conditions. If we do not sell at least 400,000 shares of preferred stock, we will not complete the offering. If the conditions to the offering are not satisfied by , 2002, the offering will terminate unless we extend the initial offering period. The offering period may not be extended past , 2002. U.S. Bank, National Association, the escrow agent, will hold all funds in an escrow account until the conditions to the offering are satisfied. No interest will be paid to investors on escrowed funds unless we do not sell at least 400,000 shares. In that case, funds will be returned to potential investors together with an estimated pro rata portion of interest determined as equitably as possible based on the subscription amount and the length of time the funds were held in the escrow account. If we sell the minimum amount of preferred stock, any remaining preferred stock in this offering will be sold on a continuous, best efforts basis without escrowing funds. Use of proceeds............... We will use the proceeds from the sales of the preferred stock (1) to invest in receivables and to make other investments, which may include investments in new business ventures or to acquire other companies, and then (2) to develop real estate we currently hold or acquire in the future. We may also use the proceeds to pay preferred stock dividends and for general corporate purposes. Stock exchange symbol......... " " Risk factors.................. You should carefully consider the matters discussed below under the heading "RISK FACTORS." SUMMARY FINANCIAL DATA The summary financial data shown below as of March 31, 2002 and 2001 and September 30, 2001 and 2000 and for the six months ended March 31, 2002 and 2001 and for the years ended September 30, 2001, 2000, and 1999, other than the ratio of earnings to fixed charges and preferred stock dividends, have been derived from, and should be read in conjunction with, the financial statements and related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in this prospectus. The financial data shown below as of September 30, 1999, 1998 and 1997 and for the years ended September 30, 1998 and 1997, other than the ratio of earnings to fixed charges and preferred stock dividends, have been derived from financial statements not included elsewhere in this prospectus. <Table> <Caption> SIX MONTHS ENDED MARCH 31 YEAR ENDED SEPTEMBER 30 ----------------------- -------------------------------------------------------------- 2002 2001 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> STATEMENTS OF INCOME DATA: Revenues....................... $ 38,903 $ 25,102 $ 67,137 $ 66,961 $ 57,278 $ 63,438 $ 64,792 ========== ========== ========== ========== ========== ========== ========== Net income..................... $ 4,415 $ (3,948) $ 16,362 $ 4,387 $ 12,156 $ 3,753 $ 4,229 Preferred stock dividends...... $ (1,609) $ (1,861) $ (3,940) $ (3,015) $ (1,028) $ -- $ -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income applicable to common stockholders................. $ 2,806 $ (5,809) $ 12,422 $ 1,372 $ 11,128 $ 3,753 $ 4,229 ========== ========== ========== ========== ========== ========== ========== Ratio of earnings to fixed charges and preferred stock dividends Excluding interest credited to policyholders........... 2.09 (1) 1.60 1.21 (1) 2.17 1.97 Including interest credited to policyholders........... 1.13 (1) 1.06 1.03 (1) 1.11 1.11 PER COMMON SHARE DATA: Basic and diluted income (loss) per share applicable to common stockholders(2)....... $ 0.84 $ (2.32) $ 4.76 $ 0.55 $ 4.45 $ 1.50 $ 1.69 ========== ========== ========== ========== ========== ========== ========== Weighted average number of shares of common stock outstanding.................. 3,346 2,500 2,609 2,500 2,500 2,500 2,500 ========== ========== ========== ========== ========== ========== ========== Cash dividends per common share........................ $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 ========== ========== ========== ========== ========== ========== ========== BALANCE SHEET DATA: Total assets................... $1,247,900 $1,095,943 $1,176,658 $1,045,025 $1,075,222 $1,041,750 $1,065,575 Debt payable................... $ 43,117 $ 23,318 $ 23,255 $ 24,983 $ 44,431 $ 1,157 $ 1,252 Surplus notes.................. -- -- -- -- $ 9,450 $ 30,800 $ 30,800 Stockholders' equity........... $ 155,573 $ 106,143 $ 136,040 $ 99,529 $ 93,371 $ 60,805 $ 57,416 </Table> ------------------------------ (1) Earnings were insufficient to meet fixed charges and preferred stock dividends for the six months ended March 31, 2001 and for the fiscal year ended September 30, 1999 by approximately $8.1 million and $0.1 million, respectively. (2) Earnings per common share, basic and diluted, are computed by deducting preferred stock dividends from net income and dividing the result by the weighted average number of shares of common stock outstanding. There were no common share equivalents or potentially dilutive securities outstanding during any period presented.

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+PROSPECTUS SUMMARY OVERVIEW Azco Mining Inc. is a mining company incorporated in Delaware. Its general business strategy is to acquire, explore and develop mineral properties. Azco's principal assets consist of the Black Canyon Mica Project in Arizona and an interest in the Piedras Verdes Project in Sonora, Mexico. Azco's interest in the Piedras Verdes Copper Project has been diluted from its original ownership of 30% as a result of its decision not to make certain funding requirements in the current year ABOUT US Our principal office is located at 7939 N. El Mirage Road, Glendale, Arizona 85307. Our telephone number is (623) 935-0774. AZCO MINING INC. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Azco Mining Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Azco Mining Inc. and its subsidiary at June 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses and negative cash flows from operations which raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ PricewaterhouseCoopers LLP September 3, 2002 ADDITIONAL COMMENTS FOR CANADIAN READERS Canadian reporting standards do not consider it appropriate to refer to going concern issues where the matter is adequately disclosed in the notes to financial statements, such as described in Note 1 to these consolidated financial statements. This report has been prepared in accordance with reporting standards in the United States of America which requires a reference in the Report of Independent Accountant, when there is substantial doubt as to an entity's ability to continue as a going concern. /s/ PricewaterhouseCoopers LLP September 3, 2002

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+Prospectus Summary 1

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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements and notes thereto appearing elsewhere in this prospectus. American United Global, Inc. We are American United Global, Inc. ("AUGI"), a Delaware corporation which owns minority equity positions in five companies. Our primary equity position is our ownership of 1,222,586 shares, or approximately 36% of Western Power & Equipment Corp. ("Western"), and we are Western's largest stockholder. Prior to November 1, 2000, we owned 59.6% of Western, and Western was our operating subsidiary, engaged primarily in the distribution, rental and servicing of construction equipment. We intend to focus our business strategy on acquisitions of, joint ventures with or limited investments in, operating businesses in various sectors, although we have not yet identified any definitive opportunities. At our annual meeting of stockholders held on August 28, 2001, our stockholders approved a reverse stock split of 1-for-15, 1-for-20 or 1-for-25 with the precise ratio to be determined by our Board of Directors. On December 7, 2001, our Board of Directors declared a 1-for-25 reverse stock split. The reverse stock split became effective on December 17, 2001 (the "Effective Date") and each 25 shares of our common stock that was issued and outstanding immediately prior to the Effective Date was changed into one validly issued, fully paid and non-assessable share of our common stock without any further action by the holders of shares of our common stock. Where appropriate, references in this registration statement give effect to the 1-for-25 reverse stock split. Such change was also effective on December 17, 2001, see "Description of Securities". In addition, our shareholders approved the cancellation of 25 million shares of authorized, unissued Class A Common Stock. Such change was effective on August 28, 2001. Our offices are located at 11108 NE 106th Place, Kirkland, Washington 98033. Our telephone number is (425) 869-7410. <TABLE> <CAPTION> The Offering <S> <C> SECURITIES OFFERED 4,500 Units, at a purchase price of $666 per Unit. Each Unit consists of a 7.5% Convertible Secured Promissory Note for a principal amount of $666, and 1,332 shares of our common stock. SUBSCRIPTION RIGHTS Each of our shareholders who own at least 100 shares of common stock as of the close of business on _________, 2002 (the "Record Date")will be granted one nontransferable right to purchase a Unit for every 100 shares of common stock owned on the Record Date. STANDBY COMMITMENT To the extent that the subscription rights are not exercised by the shareholders, the Rubin Family Irrevocable Stock Trust (the "Rubin Family Trust"), has agreed to subscribe to purchase, in addition to those Units purchased upon the exercise of its subscription rights, any remaining Units, up to a total purchase price of $1,000,000, or approximately 1,500 Units. As compensation for its standby commitment, the Rubin Family Trust will receive a fee of $100,000 payable in common stock. If the Rubin Family Trust purchases such number of Units under the standby commitment, the Rubin Family Trust will become our majority and controlling shareholder. COMMON STOCK OUTSTANDING AS OF THE RECORD DATE _____________ shares COMMON STOCK OUTSTANDING AFTER THE OFFERING ______________, assuming the sale of all the Units offered. The number of shares of common stock outstanding after the offering does not give effect to the conversion of the Notes into common stock. NO REVOCATION If you exercise any rights, you are not allowed to revoke or change the exercise or request a refund of monies paid. SUBSCRIPTION PERIOD The offering will remain open for a fifteen (15) day period from ____________, 2002 until__________, 2002, unless such period is extended by us, in our sole discretion, for up to an additional 30 days. Shareholders who wish to exercise their subscription rights must return the completed subscription certificates along with their payment, as instructed in the subscription certificates, to us at: PMB 549, 218 Main Street, Kirkland, Washington 98033, Attn: David M. Barnes, CFO, no later than 5:00 p.m., New York time, on __________, 2002, unless the subscription period is extended by us as described above. WITHDRAWAL, AMENDMENT AND TERMINATION We reserve the right to withdraw, amend or terminate this offering at any time for any reason. In the event that the offering is withdrawn or terminated, we will return all funds received from such subscriptions (without interest). REPAYMENT OF PRINCIPAL The Notes have a term of five years, expiring on AND INTEREST UNDER THE NOTES ______, 2007, or unless earlier re-paid in full by AUGI. Interest under the Notes is payable quarterly in arrears, on the first day of each January, April, July and October commencing on __________, 2002 until ________, 2007 unless earlier re-paid in full by AUGI. We may pay interest due under the Notes in cash or common stock in our sole discretion. In the event that we decide to pay the interest due under the Notes in common stock, the price of the common stock at which the payment will be made shall be the greater of $0.50 per share or the ten-day average closing price of the common stock, as reported on the OTCBB, prior to the date of payment. CONVERSION Shareholders will have the option to convert the principal and interest under the Notes into common stock. Each dollar of principal and interest will be convertible into two (2) shares of our common stock (the "Conversion Shares") at the option of the holder at any time after July 31, 2003, and before maturity of the Notes, unless previously repaid by AUGI. SECURITY INTEREST The Notes are secured by a lien granted by us on all of our assets, including 1,222,586 shares of Western Power & Equipment Corp. owned by us. PREPAYMENT We may elect to prepay the principal amount of the Notes at any time, plus accrued interest. ACCELERATION OF PAYMENT BY HOLDERS If an event of default occurs, the holders of at least 51% in principal amount of the Notes may accelerate maturity and demand payment in full of all unpaid amounts, plus expenses. No assurance can be given that we will be able to pay the amounts due under the Notes if an event of default occurs. USE OF PROCEEDS We intend to use the proceeds of the offering to pursue our acquisition strategy, and for working capital and general corporate purposes. LISTING FOR TRADING The Notes will not be listed for trading. The Common Stock and the Conversion Shares may be traded on the OTCBB under the symbol AUGB.

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+PROSPECTUS SUMMARY Business A.D.A.M. serves healthcare organizations, medical professionals, health-interested consumers and students as a leading publisher of visually engaging health and medical information products. A.D.A.M. products are used for learning about health, wellness, disease, clinical treatments, alternative medicine, nutrition, anatomy and general medical reference in both the healthcare and education markets. A.D.A.M. products contain physician-reviewed text, in-house developed medical graphics and multimedia interactivity to create health information solutions that offer a unique "visual learning" experience. Today, we employ a growing range of media, including Internet, software, CD-ROM, television and print, to deploy our proprietary content assets and products. Our proprietary content library, more than 16 years in the making, includes: a physician reviewed Health Encyclopedia that covers approximately 3,800 diseases and medical conditions; approximately 40,000 medical illustrations that have been drawn and compiled by A.D.A.M.; an extensive library of 3D models developed from the Visible Human Project; thousands of web-enabled animations depicting disease states and other medical conditions and topics, many of which are broadcast-quality; interactive tools; unique technology for viewing the human body's anatomy; and an advanced content management system we are implementing. For the past several years, consumer demand for accurate, credible health information has been increasing at a rapid pace. As the Internet has emerged as a significant global communications medium, it has fueled the consumer's ability to better understand, manage and play a more active role in their personal health. According to a recent Harris Interactive survey, in 2001 nearly 100 million Americans were going online in search of health information. Results from other recent surveys showed that large portions of these "health seekers" believe that the ability to find credible health information on the Internet empowers them to make more informed personal health choices. In the Harris survey for example, 70% of the survey respondents took additional healthcare actions by making a personal treatment decision, urging a family member or friend to visit a doctor, or changing their lifestyle habits. The rapid growth of the Internet as a tool for information research and the increasing appetite consumers have for health information has resulted in a proliferation of web sites offering health-related content. While this proliferation has had a positive effect for consumers, it has also raised concerns over the credibility and accuracy of the information being made available. The combined effect of consumers having access to large amounts of information that may or may not be credible is further taxing healthcare providers as they struggle to answer patient's questions or spend additional time redirecting them to other information sources. The trend for healthcare organizations today is to use health information in two ways: to increase the number of encounters with their organization by providing content that connects a consumer or patient directly to a facility's services or products; and, to improve the efficiency of the provider-patient relationship by providing relevant, credible information. 2002 $ 448 $ 38 2003 164 8 2004 23 2005 We have begun the implementation of an advanced content management system that will enable us to take full advantage of our diverse content assets. The new system is intended to enable us to produce new content products with minimal development costs, access assets more effectively, and deliver products to customers in a more efficient manner. The new system will also streamline our ability to update and maintain our products by providing more real-time update tools to our internal and external reviewers. In the twelve months ended December 31, 2001, we signed a license agreement with Interwoven, a leading content infrastructure company, which provides us with key technology components for this new system. We expect to complete implementation of the new system by the end of the second quarter of 2002. We believe we are well positioned in the market as the demand for health information grows and as content becomes an increasingly important driver for business growth within the healthcare industry. We have put in place rigorous editorial review and quality assurance processes to insure the accuracy of our products. In addition, we have undertaken technological initiatives to enable our products to be used in broader applications within the healthcare industry such as wireless healthcare delivery, electronic medical records and other point-of-care applications. We were incorporated in 1990 as A.D.A.M. Software, Inc. We changed our name to adam.com, Inc. in 1999 and to A.D.A.M., Inc. in 2001. We are headquartered at 1600 River Edge Parkway, Suite 800, Atlanta, Georgia and maintain an office in Newton, Massachusetts. Our telephone number is (770) 980-0888. Recent Development On July 17, 2002, A.D.A.M. announced the repurchase of 683,500 shares of our common stock, or approximately 9% of the outstanding shares, for $1.05 per share in a private transaction. The Offering On May 22, 2002, we entered into a common stock purchase agreement with Fusion Capital Fund II, LLC, pursuant to which Fusion Capital has agreed to purchase, on each trading day, $15,000 of our common stock up to an aggregate, under certain conditions, of $12.0 million over a 40 month period. Pursuant to the agreement, A.D.A.M. can control the size and timing of any sales of our common stock to Fusion Capital. For example, we may suspend purchases by Fusion Capital at any time, decrease and increase the daily purchase amount at any time and decrease and increase the minimum purchase price at any time. Fusion Capital, the selling shareholder under this prospectus, is offering for sale up to 3,660,000 shares of our common stock. As of May 22, 2002, there were 7,724,284 shares outstanding, including the 160,000 shares that we have issued to Fusion Capital as a commitment fee for its purchase obligations, but excluding 3,500,000 shares offered by Fusion Capital pursuant to this prospectus which have not yet been issued. The number of shares offered by this prospectus represents 47.4% of the total common stock outstanding as of May 22, 2002. If we decided to sell more than 1,352,100 shares to Fusion Capital (19.99% of our outstanding shares as of May 22, 2002, the date of the common stock purchase agreement, exclusive of the 160,000 shares issued to Fusion Capital as a commitment fee), we would first be required to seek shareholder approval of the common stock purchase agreement in order to be in compliance with Nasdaq National Market rules. We may, but shall be under no obligation to, request our shareholders to approve the transaction contemplated by the common stock purchase agreement. The number of shares ultimately offered for sale by Fusion Capital is dependent upon the number of shares purchased by Fusion Capital under the common stock purchase agreement. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

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+SUMMARY The following summary contains information about our company, the offering and the terms of the 2002 Series A Bonds and the 2002 Series B Bonds that we believe is important. You should read the entire prospectus, including the financial statements and the notes to those financial statements, for a complete understanding of our business and the offering. This prospectus contains forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, some of which are more fully described elsewhere in this prospectus. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as required by law. Explanation of Accounting Terms We are organized as a cooperative. A cooperative is a business organization owned by its members who are also its customers. As such, we use different accounting terminology than stockholder-owned corporations. In this prospectus, when we refer to assignable margins for a period, we mean revenues in excess of costs for the period. When we refer to patronage capital, we mean assignable margins we have not distributed to our members. Patronage capital constitutes our principal equity and is assigned to each member on the basis of the volume of purchases from us. Terms of the Bonds 2002 SERIES A BONDS Bonds Offered $120,000,000 principal amount of 2002 Series A Bonds due , 2012. The 2002 Series A Bonds will be issued in multiples of $1,000 denominations. Interest The 2002 Series A Bonds bear interest at % per annum. We will pay interest on the bonds on and , beginning , 2002. Redemption The 2002 Series A Bonds are not redeemable by us prior to maturity. AUCTION RATE BONDS Bonds Offered $60,000,000 principal amount of 2002 Series B Bonds due , 2012 (the "Auction Rate Bonds"). The Auction Rate Bonds will be issued in denominations of $50,000 and multiples of $50,000 thereof. Defined Terms See Appendix B--Auction Procedures (the "Auction Procedures") and "Description of the Bonds--Auction Rate Bonds--Glossary of Terms" for definitions of capitalized terms not defined in the below summary discussion. Interest The Auction Rate Bonds will bear interest from the date of original delivery to and through , 2002 at a rate established by J.P. Morgan Securities Inc. prior to their date of delivery. Afterwards, the Auction Rate Bonds will bear interest at the 28-day rate as determined by the Auction Procedures. The Auction Rate Bonds can be converted to a daily, seven-day, 28-day, 35-day, three-month or a semiannual period or a Flexible Auction Period and will bear interest at the rate established for such period through the Auction Procedures. In no event will the Auction Rate Bonds have an interest rate exceeding 15% per annum unless approved by us and the insurer of the Bonds. Auction Procedures The auction agent will establish an interest rate for each auction period sufficient to result in the sale of all of the Auction Rate Bonds most favorable to us consistent with the submission of Sufficient Clearing Bids for all the Auction Rate Bonds. The first auction will take place on , 2002. Thereafter on the business day next preceding each Interest Payment Date, an auction will be held to determine the interest rate for the Auction Rate Bonds for the next succeeding 28-day auction period. Prior to the submission deadline on the date of an auction, owners and potential owners of the Auction Rate Bonds will either themselves or through their broker, need to have submitted an irrevocable hold order, bid or sell order setting forth the principal amount of the bonds and the rate at which they are willing to hold, buy or sell. If an order for all the Auction Rate Bonds held by an existing owner is not submitted to the auction agent prior to the submission deadline, the existing owner will be deemed to have submitted a hold order covering the principal amount of Auction Rate Bonds held by such existing owner and not subject to orders submitted. On each auction date, the auction agent will assemble all orders submitted or deemed submitted to it and will determine (i) the bonds available for sale, (ii) whether there are Sufficient Clearing Bids, and (iii) the Auction Rate. The procedures for submitting orders and bids and the processes in which orders and bids will be allocated in an auction are described in Appendix B--Auction Procedures. See "Description of the Bonds--Auction Rate Bonds--Auction Procedures" for a summary description of the auction procedures. Conversion of Auction Rate Bonds to Another Interest Mode At our option, with the consent of the Bond Insurer, all of the Auction Rate Bonds may be converted to bear interest at a Daily Rate, a Weekly Rate, a Flexible Rate, a Term Rate or a Fixed Rate. On the Mode Adjustment Date applicable to the Auction Rate Bonds to be converted, the Auction Rate Bonds to be converted shall be subject to mandatory tender at a purchase price equal to 100% of the principal amount thereof, plus accrued interest. The purchase price of the Auction Rate Bonds so tendered is payable solely from the proceeds of the remarketing of such Auction Rate Bonds. In the event that the conditions of a conversion are not satisfied, including the failure to remarket all applicable Auction Rate Bonds, the Auction Rate Bonds will not be subject to mandatory tender, will be returned to their owners, will automatically convert to a seven-day auction period and will bear interest at the Maximum Auction Rate. Interest on the Auction Rate Bonds in a daily, seven-day, 28-day, 35-day, a three-month or a Flexible Auction Period of 180 days or less will be computed on the basis of a 360-day year for the actual number of days elapsed. Interest on the Auction Rate Bonds in a semiannual auction period or Flexible Auction Period of more than 180 days will be computed on the basis of a 360-day year of twelve 30-day months. Auction Agent Bankers Trust Company has agreed to act as the initial auction agent, but may resign or be replaced. The auction will be conducted without charge to the holders of the Auction Rate Bonds. Optional Redemption We may redeem the Auction Rate Bonds in whole or in part, at any time on or after , at par, plus any accrued interest. If we redeem less than all of the Auction Rate Bonds, the notes will be redeemed pro rata or any other method the trustee considers fair and appropriate. Sinking Fund Redemption The Auction Rate Bonds will be subject to annual pro-rata sinking fund redemption at a redemption price equal to 100% of the principal amount and will be redeemed commencing , and on in each year thereafter until maturity. See "Description of the Bonds--Sinking Fund Redemption Provisions." 2002 SERIES A BONDS AND AUCTION RATE BONDS Security for the Bonds The 2002 Series A Bonds and the Auction Rate Bonds (the "Bonds") initially will be secured by a first lien on substantially all of our tangible and some of our intangible properties and assets, including generation, transmission and distribution properties, with certain exceptions set forth in the Indenture of Trust, dated September 15, 1991, as amended, between us and U.S. Bank Trust National Association as trustee (the "Existing Indenture"), and subject to certain permitted encumbrances set forth in the Existing Indenture. The first lien will be automatically released on the date on which all bonds issued under the Existing Indenture prior to April 1, 2001 cease to be outstanding or their holders consent to release of the lien (the "Release Date"). We anticipate that the other series of bonds issued prior to April 1, 2001 will be retired or defeased or their holders will consent to the release of the lien prior to March 15, 2002. On the Release Date, the Amended and Restated Indenture dated April 1, 2001, between us and U.S. Bank Trust National Association, as trustee (the "Amended Indenture"), will become effective and replace the Existing Indenture. On the Release Date, the Bonds will become general unsecured obligations and will rank equally and ratably with all our other unsecured and unsubordinated obligations. See "Description of the Bonds--Security for Payment of the Obligations Prior to Release Date; Conversion to Unsecured Obligations on Release Date." When we refer to the "Indenture", we mean the Existing Indenture prior to the Release Date and the Amended Indenture on and after the Release Date. Under the Amended Indenture, we are prohibited from creating or permitting to exist any mortgage, lien, pledge, security interest or encumbrance on our properties and assets (other than those arising by operation of law) to secure the repayment of borrowed money or the obligation to pay the deferred purchase price of property unless we equally and ratably secure all bonds subject to the Amended Indenture, except that we may incur secured indebtedness in an amount not to exceed $5,000,000 or enter into sale and leaseback or similar agreements. Bond Insurance MBIA Insurance Corporation ("MBIA" or the "Bond Insurer") has issued a commitment to provide an insurance policy providing for the payment of principal and interest on the Bonds when due. As an insurer of the Bonds, MBIA (and not the holders of the Bonds) will be considered the holder of the Bonds for the purpose of approving supplemental indentures or other amendments to the Indenture, giving any other approval consent or notice to effect any waiver, exercising any remedies, and taking any other action that could be taken by the holders of Bonds in the absence of such bond insurance. See "Bond Insurance" and "Description of the Bonds--Rights of Insurer." Additional Bonds Prior to the Release Date, subject to meeting certain interest coverage tests, we may issue additional bonds from time-to-time against the cost of certain property acquisitions, the principal amount of retired or defeased bonds and deposits of cash with the trustee. After the Release Date, we may issue additional obligations under the Amended Indenture subject only to meeting certain interest coverage tests. No limitations exist on our ability to issue indebtedness other than under the Amended Indenture. See "Description of the Bonds--Additional Obligations." Rate Covenant The Existing Indenture requires us, subject to any necessary regulatory approval, to establish and collect rates reasonably expected to yield margins for interest equal to at least 1.20 times total interest expense. Margins for interest generally consist of our assignable margins plus total interest expense and income tax accruals. The Amended Indenture will require us, subject to any necessary regulatory approval, to establish and collect rates reasonably expected to yield margins for interest equal to at least 1.10 times total interest expense. Margins for interest are defined in the Amended Indenture as our assignable margins plus total interest expense on obligations to repay borrowed money or the deferred purchase price of property or services (other than from subordinated debt), income tax accruals and non-recurring charges. See "Description of the Bonds--Rate Covenant." Rate Regulation The Regulatory Commission of Alaska ("RCA") must approve the rates at which we sell electricity. We design rates to produce reasonable reserves and margins. We also recover increases in our fuel and purchased power costs through a quarterly adjustment to our rates. These adjustments are approved by the RCA and are not subject to any rate increase limits. Under Alaska law, our financial covenants in the Indenture are valid and enforceable, and rates set by the RCA must be adequate to meet those covenants. Limitations on Distributions to Members The Existing Indenture prohibits us from making any distribution of patronage capital to our customers if an event of default under the Existing Indenture then exists. Otherwise we are permitted to make distributions to our members after December 31, 1990 in the aggregate amount of $7 million plus 35 percent of the aggregate assignable margins earned after December 31, 1990. This restriction does not apply if, after the distribution, our aggregate equities and margins as of the end of the immediately preceding fiscal quarter would be equal to at least 45% of our total liabilities and equities and margins. Based on the unaudited financial statements at September 30, 2001, we could have distributed $4.95 million to our members under this formula. On November 14, 2001, our Board of Directors approved a $3 million distribution of patronage capital, which will be distributed by the end of 2001. The Amended Indenture will prohibit us from making any distribution of patronage capital to our customers if an event of default under the Amended Indenture then exists. Otherwise, we may make distributions to our members in each year equal to the lesser of 5% of our patronage capital or 50% of assignable margins for the prior fiscal year. This restriction will not apply if, after the distribution, our aggregate equities and margins as of the end of the immediately preceding fiscal quarter would be equal to at least 30% of our total liabilities and equities and margins. See "Description of the Bonds--Limitation on Distributions to Members." Reporting Obligations We do not intend to register the Bonds under Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"). We will, however, initially be subject to the reporting requirements of Section 15(d) of the Securities Exchange Act. The Indenture requires us to continue reporting under the Securities Exchange Act for so long as any of the Bonds are outstanding. Form and Denomination The Bonds will be evidenced by two or more global certificates in fully registered form without coupons, deposited with a custodian for and registered in the name of a nominee of The Depositary Trust Company. Except as described in this prospectus, beneficial interests in the global certificates will be shown on, and transfers of these beneficial interests will be effected only through, records maintained by The Depository Trust Company and its direct and indirect participants. See "Description Of The Bonds--Book-Entry System; Exchangeability." Market for Bonds We do not intend to list either series of Bonds on any securities exchange nor have them quoted on the National Association of Securities Dealers Automated Quotation System. As a result, there may not be a secondary market for the Bonds. The underwriter intends, but is not obligated, to make a market in the Bonds. See "Underwriting."

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+PROSPECTUS SUMMARY 1

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+PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING IN THE COMMON STOCK DISCLOSED UNDER "RISK FACTORS." Our Business Overview We are a focused, integrated provider of paperboard packaging solutions to multinational beverage and consumer products companies. We focus on attractive segments of the paperboard packaging market where we provide companies with paperboard packaging solutions designed to deliver significant marketing and performance benefits at a competitive cost. In doing this, we capitalize on our high quality low-cost paper mills, innovative carton designs, efficient converting plants, proprietary packaging machines and our commitment to superior customer service. We believe that providing value-added packaging products to our customers has enabled us to profitably grow our coated board business and establish and maintain long-term relationships with blue-chip customers, including Anheuser-Busch Companies, Inc., Miller Brewing Company, numerous Coca-Cola and Pepsi bottling companies, Interbrew, Asahi Breweries, Unilever and Master Foods. In 2001, we had net sales of $1.2 billion and EBITDA, as we define below, of $260.8 million, or 20.9% of net sales. We are the larger of two worldwide producers of coated unbleached kraft paperboard, or CUK board, the grade of paperboard that we use for our packaging products. CUK board is a specialized high-quality grade of paperboard with excellent strength characteristics and printability for high-resolution graphics that make it particularly well suited for a variety of packaging applications. We refer to the CUK board we produce for use in beverage multiple packaging as carrierboard and in consumer products packaging as cartonboard. BEVERAGE MULTIPLE PACKAGING. In our beverage multiple packaging business, we provide a range of packaging solutions to leading multinational beverage companies, offering them carrierboard, beverage cartons and packaging machines either as an integrated solution or separately. We produce carrierboard at our mills, print and cut, or convert, the carrierboard into beverage cartons at our converting plants and manufacture packaging machines designed to package bottles and cans using our beverage cartons. We supply beverage cartons in a variety of designs and formats, including 6, 12 and 24 multi-packs. We design our products to meet our customers' needs for beverage multi-packs. We provide packaging solutions that (1) are cost-effective, (2) provide convenience through ease of carrying and storage for consumers, (3) provide a smooth surface printed with high-resolution, multi-color graphics images that help our customers improve brand awareness and visibility of their products on store shelves and (4) provide durability, stiffness and wet-tear strength to ensure package integrity under conditions that are often damp or wet. Our proprietary beverage packaging machines package cans, bottles and other beverage containers into our beverage cartons at high speeds. We install these machines at customer plants under long-term leases and provide value-added support, service and advanced performance monitoring of the machines. Our packaging machines are designed to create direct pull-through demand for our CUK board. We seek to increase the use by customers of our integrated packaging solutions which, we believe, maximizes our revenue opportunities, enhances customer relationships, provides customers with greater packaging line efficiencies and overall cost benefits, and expands opportunities for us to provide value-added support and service. We converted almost 90% of our carrierboard production into beverage cartons during 2001, and are seeking to increase the already significant customer use of our packaging machines. We enter into annual or multi-year carton supply contracts with our customers. This generally results in stable pricing and revenues in our beverage multiple packaging business. In 2001, we shipped approximately 637,000 tons of carrierboard and had net sales in our beverage multiple packaging business of $827.8 million. CONSUMER PRODUCTS PACKAGING. In our consumer products packaging business, we have historically sold cartonboard to independent converters which convert the cartonboard and sell cartons to consumer products companies, such as Kraft Foods, Nestle, Unilever and Mattel. In January 2000, we organized this business as a stand-alone operating unit to target previously untapped opportunities in the non-beverage consumer products packaging market and to improve our product mix and margins. Our strategy is to capitalize on the capabilities and business model that we have developed in our beverage multiple packaging business by developing integrated packaging solutions and innovative carton designs for targeted consumer products applications and building relationships directly with consumer products companies. At the same time, we intend to maintain our relationships with independent converters of our cartonboard. We believe that the performance characteristics of our CUK board, specifically its tear strength, wet strength and stiffness, make it appropriate for applications in attractive segments of the consumer products packaging market. For example, we have developed our innovative Z-Flute-Registered Trademark- carton technology to further penetrate the frozen and dry foods and candy segments of this market, as well as other segments. In 2001, we shipped approximately 351,000 tons of cartonboard and had net sales in our consumer products packaging business of $219.5 million. CONTAINERBOARD. In our containerboard business, we manufacture linerboard, corrugating medium and kraft paper for sale in the open market. We have historically produced linerboard on paperboard machines also capable of producing CUK board. We intend to stop producing linerboard as we continue to shift production capacity to higher margin CUK board. We also produce corrugating medium and kraft paper on our two machines dedicated to these products, with combined capacity of approximately 180,000 tons annually, and will continue to do so as long as this production is economically attractive. In 2001, we shipped approximately 255,000 tons of containerboard and had net sales in our containerboard business of $93.7 million. HIGH QUALITY OPERATIONS. We produce CUK board on five machines located at our two U.S. mills, with a combined production capacity of approximately 1.2 million gross tons of CUK board annually. We operate 11 carton converting plants worldwide with a total converting capacity of approximately 660,000 gross tons annually. We also produce white lined chip board at our Swedish mill. From 1991 through 1997, we invested approximately $1.2 billion in our CUK board-related facilities, principally to convert our paper machines to CUK board production, upgrade our CUK board machines and increase converting capacity. As a result of these substantial capital investments, we have low-cost, modern, high quality production and converting plants with sufficient CUK board and converting capacity to meet our anticipated growth without having to make significant additional capital expenditures for the next few years. Our Strategies GROW OUR BEVERAGE MULTIPLE PACKAGING BUSINESS BY EXPANDING MARKET SHARE IN OUR TRADITIONAL MARKETS AND BY IDENTIFYING AND PENETRATING NEW MARKETS. We will seek to continue expanding our market share in our traditional beer and carbonated soft drink multiple packaging markets, where we have increased our global market share from approximately 43% in 1996 to approximately 48% in 2001, based on tons shipped. In addition, we are seeking to use new product innovation to increase the use of CUK board for packaging beverage containers and liquids that have not historically been packaged using CUK board. For example, we have developed a packaging carton for bottled water based on our Fridge Vendor-TM- design, which one of our customers will begin to test market in May 2002. We have also designed a CUK board product for juice pouches using our new Z-Flute-Registered Trademark- product, which is being tested by a number of beverage companies. We believe that by expanding market share in our traditional markets and penetrating large and growing markets for our CUK board we will be able to accelerate growth of our net sales. CAPITALIZE ON GROWTH OPPORTUNITIES FOR CUK BOARD IN CONSUMER PRODUCTS PACKAGING. In our consumer products packaging business, we are moving from being primarily a provider of cartonboard to independent converters to also being a provider of integrated packaging solutions directly to consumer products companies. We are developing innovative packaging solutions for segments of the non-beverage consumer products packaging market that are large and fast growing and where we intend to capitalize on our expertise in beverage multiple packaging to provide value-added packaging solutions and carton innovation to customers. Our historical lack of focus on this market, which accounted for paperboard shipments of approximately 4.7 million tons in 2001 in the U.S., has resulted in low penetration by CUK board generally and particularly by us. We believe that CUK board is appropriate for applications that represent approximately 35% of this market compared with CUK board's share of approximately 12% in 2001. We estimate that our share of this market was only approximately 6% in 2001. In addition, we are targeting our innovative Z-Flute-Registered Trademark- carton technology at selected non-beverage segments of the market for mini- and micro-flute corrugated products. We estimate that these segments generated U.S. shipments of approximately 550,000 tons in 2000. CONTINUE TO REDUCE COSTS BY FOCUSING ON OPERATIONAL EXCELLENCE. We plan to continue to reduce our operating costs by continuously improving our processes and systems. Since 1996, we have installed an experienced and dynamic management team, restructured our asset base, realigned our business into commercially-focused operating units and committed the organization to a program designed to drive continuous improvement in our processes and systems which has developed into our total quality systems, or TQS, initiative. We have reduced the annual cost of operating our business by approximately $180 million in 2001 relative to 1996 as a result of our cost-reduction initiatives implemented during the period from 1996 through 2001. While we have made significant progress, we believe that there are still significant opportunities to apply our TQS initiative to improve productivity and efficiency and realize additional cost savings. DRIVE PROFITABILITY BY CONTINUING TO SHIFT OUR PRODUCT MIX TO HIGHER MARGIN CUK BOARD PACKAGING APPLICATIONS. We will continue to focus on profitable growth by shifting to higher margin CUK board packaging applications and providing value-added packaging solutions to our customers. First, we are completing the shift of a significant amount of production capacity from low margin linerboard sales to higher margin CUK board applications. Second, we are continuing to exit lower margin areas of our CUK board business for higher margin CUK board packaging applications. Third, we intend to shift a portion of our consumer products packaging business to an integrated packaging model where we believe we can achieve higher margins by providing consumer products companies with value-added, integrated packaging solutions and carton innovation. USE ANTICIPATED FUTURE CASH FLOWS TO REDUCE OUR DEBT AND DRIVE EARNINGS GROWTH. We intend to use the net proceeds of this offering and a significant portion of our anticipated future cash flows to reduce our outstanding debt. We will continue to benefit from the significant investments that we have made in our mills and converting plants and do not anticipate having to make significant additional capital expenditures over the next several years. In addition, we will continue to employ effective working capital controls to manage the cash requirements of our operations. Finally, we expect to apply existing net operating loss carryforwards to reduce future cash income tax expenses. ------------------------ Our principal executive offices are located at 3350 Riverwood Parkway, Suite 1400, Atlanta, Georgia 30339 and our telephone number at that address is (770) 644-3000. In this prospectus, when we refer to "Riverwood Holding," we are referring to Riverwood Holding, Inc., the issuer of the common stock. When we refer to ourselves generally, we are referring to Riverwood Holding, Inc. and its subsidiaries, unless the context otherwise requires. When we refer to "RIC Holding" and "Riverwood International," we are referring to our subsidiaries RIC Holding, Inc. and Riverwood International Corporation, respectively. Related Financing Transactions Concurrently with this offering, we anticipate borrowing an additional $ million under our senior secured credit agreement through an add-on term loan and selling $ million in principal amount of senior notes, which we refer to collectively as the related financing transactions. We intend to use the net proceeds from this offering, together with the net proceeds from the related financing transactions, to repay in full our outstanding senior notes and senior subordinated notes and to repay a portion of the amounts outstanding under our revolving credit facility. We cannot assure you that either of the related financing transactions will be completed on the terms anticipated, or at all. This offering is not conditioned upon the completion of either of the related financing transactions. If we do not complete the related financing transactions, we intend to use the net proceeds of this offering to repay a portion of our outstanding debt. The following table illustrates the estimated sources and uses of funds from this offering and the anticipated related financing transactions. <Table> <Caption> Amounts Sources ------------- (in millions) <S> <C> Common stock offered hereby................................. $ Add-on senior secured term loan............................. Sale of senior notes........................................ -------- Total sources........................................... $ ======== Uses Repay senior notes and senior subordinated notes............ $ Repay revolving credit facility borrowings.................. Estimated fees and expenses................................. -------- Total uses.............................................. $ ======== </Table> The Offering <Table> <S> <C> Shares of common stock.......................... Shares of common stock outstanding after the offering...................................... Use of proceeds................................. Our net proceeds from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $ million. We intend to use the net proceeds of this offering to repay a portion of our outstanding debt. Dividends....................................... The holders of common stock will share proportionately on a per share basis in all dividends and other distributions declared by our board of directors. We currently intend to pay regular dividends on our common stock, depending on our financial results and approval by our board of directors. See "Dividend Policy." Proposed New York Stock Exchange symbol......... "RVW" </Table> Unless we specifically state otherwise, all information in this prospectus: - gives effect to the reclassification prior to the closing of this offering of all outstanding shares of our Class A common stock and our non-voting Class B common stock into shares of common stock on a one-for-one basis; - gives effect to a for one stock split by way of reclassification of our common stock to be completed prior to the closing of this offering; - assumes no exercise of the over-allotment option granted to the underwriters; and - excludes shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $ per share with exercise price ranging from $ to $ per share; of these shares, shares are subject to currently vested stock options at a weighted average exercise price of $ per share with exercise price ranging from $ to $ per share. If the underwriters exercise their over-allotment option in full, shares of common stock will be outstanding after this offering. Risk Factors You should carefully consider all the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under "Risk Factors" beginning on page 10 for risks involved with an investment in shares of our common stock. Summary Consolidated Financial Data You should read the summary consolidated financial data below in conjunction with "Capitalization," "Selected Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the accompanying notes. Share and per share data set forth below do not yet give effect to the anticipated stock split. <Table> <Caption> Year Ended December 31, -------------------------------------------------------------- 1997 1998 1999 2000 2001(a) ---------- ---------- ---------- ---------- ---------- (in thousands, except per share data) <S> <C> <C> <C> <C> <C> Statement Of Operations Data: Net sales(b)...................................... $1,207,615 $1,196,221 $1,174,665 $1,192,362 $1,249,886 Cost of sales(b).................................. 1,069,152 997,609 933,924 923,851 1,002,059 Gross profit...................................... 138,463 198,612 240,741 268,511 247,827 Selling, general and administrative............... 116,581 112,117 114,402 112,200 120,629 Research, development and engineering............. 5,171 5,570 4,078 4,554 5,111 Impairment loss................................... -- 15,694 -- -- -- Restructuring charge (credit)..................... -- 25,580 -- (2,600) -- Other expense (income), net....................... 9,799 11,973 1,798 (66,132) 24,035 Income from operations............................ 6,912 27,678 120,463 220,489 98,052 Net interest expense.............................. 172,230 178,030 179,197 181,285 158,910 Net (loss) income(c).............................. (152,473) (140,304) (54,671) 38,282 (77,896) Net (loss) income per share Basic........................................... (20.05) (18.55) (7.23) 5.06 (10.29) Diluted......................................... (20.05) (18.55) (7.23) 4.98 (10.29) Weighted average shares outstanding Basic........................................... 7,604,817 7,562,596 7,556,842 7,563,717 7,568,177 Diluted......................................... 7,604,817 7,562,596 7,556,842 7,684,664 7,568,177 Other Financial Data: Shipments (in tons) Carrierboard.................................... 544.1 640.1 639.8 611.7 637.3 Cartonboard..................................... 389.1 380.6 324.9 340.4 351.4 White lined chip board.......................... 143.0 138.2 141.0 150.4 150.4 Containerboard.................................. 421.6 278.5 327.8 319.4 255.3 Net sales Carrierboard.................................... $ 649,703 $ 750,226 $ 777,396 $ 743,569 $ 827,782 Cartonboard..................................... 346,474 281,009 211,032 209,395 219,543 White lined chip board.......................... 78,512 69,567 65,082 77,273 73,336 Containerboard.................................. 116,510 84,910 103,868 126,549 93,677 Additions to property, plant and equipment (d).... 142,314 48,551 66,018 62,062 57,670 EBITDA(e)......................................... 160,315 197,625 266,933 296,352 260,820 EBITDA margin(f).................................. 13.3% 16.5% 22.7% 24.9% 20.9% Cash flow provided by (used in) operating activities...................................... (4,196) 48,039 16,641 98,854 89,599 Cash flow provided by (used in) investing activities...................................... (160,354) 8,939 (67,756) 127,303 (72,490) Cash flow provided by (used in) financing activities...................................... 166,015 (60,200) 49,668 (223,247) (8,642) </Table> <Table> <Caption> As of December 31, 2001 --------------------------- Pro Forma Actual As Adjusted(g) ---------- -------------- (in thousands) <S> <C> <C> Balance Sheet Data: Cash and cash equivalents................................... $ 26,107 Total assets................................................ 2,057,592 Long-term debt, less current portion........................ 1,523,082 Redeemable common stock..................................... 8,061 Shareholders' equity........................................ 215,865 </Table> -------------------------- (a) Effective January 1, 2001, we consolidated into our financial statements the accounts of Rengo Riverwood Packaging, Ltd., our Japanese joint venture, since we have the ability to exercise control over Rengo's operating and financial policies. The consolidation contributed approximately $47 million in net sales and approximately $4 million in EBITDA in 2001. (b) We have reclassified the presentation of net sales and cost of sales information to conform with the current presentation format and Emerging Issues Task Force 00-10, "Accounting for Shipping and Handling Fees and Costs." Shipping and handling costs totaled $68.8 million in 1997, $60.7 million in 1998, $62.0 million in 1999, $63.7 million in 2000 and $64.9 million in 2001. (c) On October 3, 2000, we, along with our joint venture partner, completed the sale of the jointly-held Igaras Papeis e Embalagens S.A. for approximately $510 million, including the assumption of $112 million of debt by the purchaser. We recognized a gain of approximately $70.9 million, net of tax, in connection with the sale. Net (loss) income for the year ended December 31, 2001 included a charge of $0.5 million, net of tax, for the cumulative effect of a change in accounting principle for derivatives. Net (loss) income for the years ended December 31, 1997, 2000 and 2001 included an extraordinary loss on early extinguishment of debt of $2.5 million, $2.1 million and $8.7 million, respectively, net of applicable tax. Net (loss) income for the year ended December 31, 1997 included a charge of $3.1 million, net of tax, for the cumulative effect of a change in accounting principle for computer systems development project costs. Net (loss) income for the years ended December 31, 1998 and 2000 included a charge (credit) for the global restructuring program, which is focused in our European operations, of $25.6 million and of $(2.6) million, respectively. (d) Includes amounts invested in packaging machinery and capitalized interest. (e) EBITDA represents income (loss) from operations before depreciation and amortization expense, loss (gain) on asset write-downs/unusual asset disposals, loss on impairment of assets and LIFO related expenses (credits) plus dividends from equity investments recorded in the period. We believe that EBITDA provides useful information regarding our ability to service debt, but should not be considered in isolation or as a substitute for our consolidated statement of operations or cash flow data. This definition of EBITDA may not be comparable to other companies' definitions of EBITDA and is not a defined term under U.S. generally accepted accounting principles. The table below sets forth a reconciliation of income from operations to EBITDA. <Table> <Caption> 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- (in thousands) <S> <C> <C> <C> <C> <C> Income from operations..................... $ 6,912 $ 27,678 $120,463 $220,489 $ 98,052 Add: Depreciation and amortization......... 137,384 146,515 142,597 143,541 137,258 Dividends from equity investments...... 5,228 6,963 4,515 5,083 710 Other non-cash charges (1)............. 10,791 16,469 (642) (72,761) 24,800 -------- -------- -------- -------- -------- EBITDA..................................... 160,315 197,625 266,933 296,352 260,820 ======== ======== ======== ======== ======== Add: Additional non-cash charges (2)....... 5,612 5,833 6,542 3,682 7,414 -------- -------- -------- -------- -------- Reported credit agreement EBITDA (2)....... $165,927 $203,458 $273,475 $300,034 $268,234 ======== ======== ======== ======== ======== </Table> (1) Other non-cash charges include non-cash loss (gain) on asset write-downs/unusual asset disposals, loss on impairment of assets and LIFO related expenses (credits) deducted in determining net income. (2) We previously reported EBITDA based on the definitions of EBITDA and U.S. generally accepted accounting principles contained in our senior secured credit agreement. For purposes of EBITDA as previously reported, we also added back to income from operations non-cash charges for pension, post-retirement and post-employment benefits, and expenses (credits) relating to changes in U.S. generally accepted accounting principles subsequent to March 1996, when we entered into the credit agreement. (f) EBITDA margin represents EBITDA as a percentage of net sales. (g) Gives effect to the borrowings of our tranche B term loan on April 23, 2002, this offering, the related financing transactions and the application of the proceeds from each of the foregoing. See "Capitalization."

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+PROSPECTUS SUMMARY About This Prospectus This summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the more detailed information regarding Data Race, Inc., the risks of purchasing our common stock discussed under "RISK FACTORS," beginning on page 4 and our financial statements and the accompanying notes. The selling shareholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this or of any sale of common stock under this prospectus. About DATA RACE, Inc. DATA RACE, Inc. ("Data Race", "we" or the "Company"), currently doing business as IP AXESS, designs, manufactures, and markets a line of innovative communications products to meet the needs of remote workers. The Company's lead product, the VocalWare(TM) IP remote access system, provides virtual presence to the corporate environment by allowing a remote worker to connect to the corporate office over a normal dial-up telephone line or a number of broadband access mediums such as digital subscriber lines (DSL), cable modems, integrated services digital networks (ISDN), asynchronous transfer modes (ATM) and frame relay, and simultaneously have full access to the corporate data network, the office phone extension, and the office fax system. Historically, the Company's revenue has come from custom modem and network multiplexer products. The Company's modem business comprised the design and manufacture of special custom modems on an original equipment manufacturer's (OEM) basis for the manufacturers of notebook computers. Today's notebook computers generally do not use such custom modems. The market for the Company's network multiplexer products has been in a state of steady decline. These units, deemed counterproductive to the future of the Company, have been either sold or discontinued. To develop a more reliable revenue base and a return to profitability, the Company is depending on the success of the VocalWare IP product line. The Company's VocalWare IP product line is intended to capitalize on the communications requirements of the rapidly growing number of "teleworkers" who need convenient simultaneous access to all of their corporate information assets -- voice, data and fax -- when working from home or on the road. With VocalWare IP, a user can be logged in from home, a hotel room, or an airport lounge, reading e-mail and browsing the web. If a call comes into his normal office phone extension, an image of his office phone pops up on the screen and rings, showing Caller ID information. He can answer the phone, conference in colleagues, and transfer the call, all while continuing his data work. At the same time, he can read faxes sent to his office or can send faxes. The Company refers to this set of capabilities as Telepresence(TM). When working at home, normal home phone calls can ring through while the data session continues, without requiring a second phone line. The Company completed its second-generation development efforts in fiscal 2001, completing the evolution of its Be There! dial-up remote access solution into a integrated dial-up and broadband access server. This second generation solution allows users to access their office voice, e-mail, data and fax resources over any access medium dial-up or broadband and works with all of the leading manufacturers of voice and data products. The Company seeks to capture a leadership position in the market for remote access solutions by capitalizing on its unique advanced technology, its patents, other intellectual property and on developing relationships with leading network and solution companies, which have influence with enterprise customers. Recent Developments Termination of Nasdaq and OTC Bulletin Board Listing. Effective July 11, 2001, our common stock was delisted by The Nasdaq National Market due to our failure to pay overdue annual and additional listing fees in the amount of $44,125 and our inability to meet the minimum bid price requirements for continued listing. Our common stock continues to be traded in the over the counter market under the symbol "RACE". Effective November 6, 2001, our common stock was delisted by the Over the Counter Bulletin Board for failure to timely file reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934. We are currently trading on the "pink sheets". Resignation of Chief Executive Officer. Michael McDonnell resigned his positions as President and Chief Executive Officer of Data Race and as a member of our Board of Directors on July 11, 2001. James G. Scogin, our chief financial officer since December 1999, has succeeded Mr. McDonnell as President. See "RISK FACTORS - Our Business Could Suffer if We Lose Key Personnel or Cannot Attract Qualified Personnel" beginning on page 6. Shareholder Litigation. On May 18, 2001, the Company, executive officers, Michael McDonnell, previously the President and Chief Executive Officer (resigned in July 2001), James Scogin, Acting President and Chief Financial Officer, and John Liviakis, one of our significant shareholders, were sued in the United States District Court for the Northern District of Illinois, Eastern Division, by Robert Plotkin, a Chicago-based attorney, and several of Mr. Plotkin's relatives and family trusts, who are all shareholders of the Company. The amount of the monetary damages being sought is $20,000,000. The complaint alleges that the plaintiffs were induced to purchase shares of our common stock based upon alleged misrepresentations and omissions of material fact. The proceeding has been moved to the United States District Court for the Eastern District of Texas, Sherman Division in October 11, 2001. Discovery has not commenced, but we believe the lawsuit is without merit and intend to vigorously defend the Company against these allegations. Recent Financing Transaction. Additional Capital. Since December 31, 2001, we have raised approximately $.3 million in additional capital in an effort to sustain our operations until we can obtain long-term financing. "SELLING SHAREHOLDERS" beginning on page 48 and "RISK FACTORS - The Issuance of Stock Pursuant to the conversion of the 6% Convertible Debentures and 10% Convertible Promissory Notes May Substantially Dilute the Interests of Other Security Holders Because the Number of Shares the Company Will Issue upon Conversion Will Depend upon the Trading Price of Our Common Stock at the Time of Conversion if the Trading Price Is Less Than the Set Price of the Debenture" beginning on page 10. Equity Line Financing. On July 26, 2001, we entered into a Common Stock Purchase Agreement creating an equity line financing with Grenville Finance Ltd., a British Virgin Islands corporation. The shares of our common stock to be issued pursuant to the equity line financing are not included for registration under this prospectus. See "RISK FACTORS -- We Will Need Additional Capital to Sustain Operations" beginning on page 5, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Financing Activities -- 19 Equity Line of Credit" beginning on page 25 and "RISK FACTORS -- The Issuance of Stock Pursuant To The Equity Line of Credit With Grenville May Substantially Dilute the Interests of Other Security Holders Because the Number of Shares the Company Will Sell Depends upon the Trading Price of the Shares During Each Draw Down Period" beginning on page 7. The Offering This prospectus covers up to 46,613,203 shares of our common stock registered on behalf of the selling shareholders identified on page 11 of this prospectus. As of April 30, 2002, the number of shares subject to this prospectus represents 132% of our issued and outstanding common stock prior to the issuance of all currently unissued shares included in this prospectus and 67% after issuance of all currently unissued shares included in this prospectus.

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+This summary highlights information contained elsewhere in this prospectus. Although this discussion summarizes the material information contained in this prospectus, it does not contain all of the information you should consider before investing in the common stock. You should read this entire prospectus carefully, especially the risks of investing in the common stock discussed under "Risk Factors" beginning on page 10 and the historical combined financial statements and notes included in this prospectus, before making an investment decision. In this prospectus, the terms "Plains Exploration & Production", "we", "us" and "our" refer to Plains Exploration & Production Company, its predecessor, Plains Exploration & Production Company, L.P. and its predecessor Stocker Resources, L.P., and subsidiaries, unless otherwise stated or the context requires. On September 18, 2002 we converted from a California limited partnership to a Delaware corporation and changed our name from "Plains Exploration & Production Company, L.P." to "Plains Exploration & Production Company" to give us greater flexibility in raising capital and make it easier for our investors to compare our business to our competitors. Please see page 87 for a glossary of oil and gas terms we use in this document. Our Company We are an independent oil and gas company primarily engaged in the upstream activities of acquiring, exploiting, developing and producing oil and gas in the United States. We are 100% owned by Plains Resources Inc. Our core areas of operation are: . onshore California, primarily in the Los Angeles Basin, and offshore California in the Point Arguello unit; and . the Illinois Basin in southern Illinois and Indiana. We own a 100% working interest in and operate all of our properties, except for offshore California, in which we own a 52.6% working interest and where we are the operator. Our reserves are generally mature but underdeveloped, have produced significant volumes since initial discovery and have significant estimated remaining reserves. We opportunistically hedge portions of our oil production to manage our exposure to commodity price risk. The following table sets forth information with respect to our oil and gas properties as of and for the year ended December 31, 2001: <TABLE> <CAPTION> California Illinois --------------- Basin and Onshore Offshore Other Total ------- -------- --------- ------ (Dollars in millions) <S> <C> <C> <C> <C> Proved reserves MMBOE........................... 211.8 5.0 22.5 239.3 Percent oil..................... 93% 98% 98% 93% Proved developed reserves (MMBOE) 112.0 3.8 13.3 129.1 Production (MBOE)................ 6,347 1,431 1,000 8,778 PV-10/(1)/....................... $577.7 $ 6.9 $ 58.6 $643.2 Standardized measure/(1)(2)/..... $384.5 </TABLE> -------- (1) Based on year-end 2001 spot market prices of $19.84 per Bbl of oil and $2.58 per Mcf of gas. The PV-10 and standardized measure have been reduced to reflect the abandonment costs of certain properties. In addition, the net cash flows realized from certain leases in our Los Angeles Basin properties, in which we hold a 100% working interest and that had proved reserves of 8.8 MMBOE at December 31, 2001, are subject to a 50% net profits interest. The reduction in future net revenues resulting from such net profits interest is reflected in the PV-10 and standardized measure. PV-10 represents the standardized measure before deducting estimated future income taxes. See "Glossary of Oil and Gas Terms" for a complete definition of PV-10. (2) Estimated future income taxes are calculated on a combined basis using the statutory income tax rate, accordingly, the standardized measure is presented in total only. See "Glossary of Oil and Gas Terms" for a complete definition of standardized measure. During the five-year period ended December 31, 2001 we drilled 561 development wells, 558 of which were successful. During this period, we incurred aggregate oil and gas acquisition, exploitation, development and exploration costs of $442.9 million, resulting in proved reserve additions of 177.9 MMBOE, at an average reserve replacement cost of $2.49 per BOE, which we believe to be among the lowest of our peer group. During that period, approximately 99% of our oil and gas capital expenditures were for acquisition, exploitation and development activities. During that same period, the average replacement cost for large domestic exploration and production companies was $6.57 per barrel. Our Competitive Strengths Quality Asset Base with Long Reserve Life. We had estimated total proved reserves of 239.3 MMBOE as of December 31, 2001, of which 93% was comprised of oil and 54% was proved developed. We have a reserve life of over 27 years and a proved developed reserve life of over 14 years. We believe our long-lived, low production decline reserve base combined with our active hedging strategy should provide us with relatively stable and recurring cash flow. As of December 31, 2001 and based on year-end 2001 spot market prices of $19.84 per Bbl of oil and $2.58 per Mcf of gas, our reserves had a PV-10 of $643.2 million and a standardized measure of $384.5 million. Efficient Operations with 100% Operatorship. We own a 100% working interest in and operate all of our properties, except for offshore California, in which we own a 52.6% working interest and where we are the operator. As a result, we benefit from economies of scale and control the level, timing and allocation of substantially all of our capital expenditures and expenses. We believe this gives us more flexibility than many of our peers to opportunistically pursue exploitation and development projects relating to our properties. Large Exploitation and Development Inventory. We have a large inventory of projects in our core areas that we believe will support at least five years of exploitation and development activity. Over the last five years, we have achieved a high success rate on these types of projects, drilling a total of 561 development wells with a 99.5% success rate. In addition, we have completed numerous other production enhancement projects, such as recompletions, workovers and upgrades. The results of these activities over the last five years have been additions to proved reserves, excluding reserves added through acquisition activities, totaling 120.6 MMBOE, or approximately 332% of cumulative net production for this period. Reserve replacement costs, excluding acquisitions, have averaged approximately $3.17 per BOE for the same period. Experienced and Proven Management and Operations Team. Our executive management team has an average of 20 years of experience in the oil and gas industry. Our Chief Executive Officer is James Flores, who founded Flores & Rucks Incorporated, a predecessor of Ocean Energy, Inc., and was President and Chief Executive Officer of Ocean Energy from July 1995 until March 1999. Mr. Flores served as Chairman of the Board of Ocean Energy from March 1999 until January 2000, and as Vice Chairman from January 2000 until January 2001. The executive management of Plains Resources is supported by a core team of 23 technical and operating managers who have worked with our properties for many years and have an average of 22 years of experience in the oil and gas industry. Strategy Our strategy is to continue to grow our cash flow from operations and to use this cash flow to increase our proved developed reserves and production, acquire additional underdeveloped oil and gas properties and make other strategic acquisitions. We intend to implement our strategy as follows: Continue Exploitation and Development of Current Asset Base. We believe that we have a proven track record of exploiting underdeveloped properties to increase reserves and cash flow. We focus on implementing improved production practices and recovery techniques, and relatively low-risk development drilling. An example of our success in exploiting underdeveloped properties can be found in our Montebello field located in the Los Angeles, or LA, Basin. Since our acquisition of this field in March 1997, our exploitation and development activities have resulted in an increase in our net average production from approximately 930 BOE per day at the time of acquisition to approximately 2,400 BOE per day during the first six months of 2002, representing a compound annual growth rate of over 20%. Pursue Additional Growth Opportunities. We believe we can continue our strong reserve and production growth through the exploitation and development of our existing inventory of projects relating to our properties. We also intend to be opportunistic in pursuing selective acquisitions of oil or gas properties or exploration projects, for example, during periods of weak commodity prices. We will consider opportunities located in our current core areas of operation as well as projects in other areas in North America that meet our investment criteria. Maintain Long-term Hedging Program. We actively manage our exposure to commodity price fluctuations by hedging significant portions of our oil production through the use of swaps, collars and purchased puts and calls. The level of our hedging activity depends on our view of market conditions, available hedge prices and our operating strategy. Under our hedging program, we typically hedge approximately 70-75% of our production for the current year, 40-50% of our production for the next year and up to 25% of our production for the following year. For example, assuming estimated fourth quarter 2002 production levels are held constant in subsequent periods, as of September 30, 2002 we had hedged approximately 78% of production for the second half of 2002, approximately 68% of production for 2003 and approximately 49% of production for 2004. Risk Factors You should carefully consider the risks described under "Risk Factors" beginning on page 10, as well as the other information contained in this prospectus. These risks include the fact that we primarily operate onshore and offshore California, some of the most highly regulated areas in the United States. Regulatory factors could therefore delay our ability to exploit our properties in the time frame we currently anticipate. In addition, through our pursuit of additional growth opportunities we will be competing with many companies larger than ourselves with greater financial and technical resources. Our hedging strategy also may not provide us with the returns and surety of returns that we expect. If one or more of these consequences occur, it could negatively impact our ability to implement our business strategy successfully. Recent Developments Spin-off Our parent is Plains Resources Inc., which, in addition to owning us, owns an aggregate 25% ownership interest in Plains All American Pipeline, L.P., or PAA, including 44% of the general partner of PAA. PAA is a publicly traded master limited partnership that is engaged in the midstream activities of marketing, transportation and terminalling of oil and marketing liquified petroleum gas. Plains Resources also owns interests in oil and gas properties in Florida, which included 17.3 MMBOE of proved oil reserves as of December 31, 2001. On May 22, 2002 Plains Resources received a favorable private letter ruling from the Internal Revenue Service, or IRS, stating that, for United States federal income tax purposes, a distribution by Plains Resources of the Plains Exploration & Production capital stock owned by it to its stockholders will generally be tax-free to both Plains Resources and its stockholders. We call this proposed distribution the "spin-off". Plains Resources has requested a supplemental private letter ruling from the IRS that this offering will not affect our earlier ruling. If we complete this offering, we expect the spin-off will occur within seven months of the date of this prospectus. The spin-off will, among other things: . generally divide Plains Resources' midstream and upstream assets into two separate platforms; . allow Plains Resources and us to focus corporate strategies and management teams for each business; and . simplify Plains Resources' and our corporate structure. Any decision to pursue the spin-off is subject to obtaining a number of regulatory and contractual third-party consents and permits, including a supplemental private letter ruling from the IRS. Accordingly, we cannot provide any assurance that the spin-off will occur. Reorganization On July 3, 2002 Plains Resources contributed to us all of the capital stock of its subsidiaries that own oil and gas properties offshore California and in Illinois. As a result, we indirectly own our offshore California and Illinois properties and directly own our onshore California properties. Plains Resources and its management will continue to manage our operations under the terms of a transition services agreement. Plains Resources also contributed to us intercompany payables that we or our subsidiaries owed to it which totalled $257.7 million at June 30, 2002. We call this series of transactions our "reorganization". Although Plains Resources has historically owned and operated the offshore California and Illinois properties through subsidiaries, our discussion in this prospectus assumes we owned and operated these properties since the time Plains Resources acquired them. For example, if Plains Resources through our subsidiaries drilled a well in 1999 on an Illinois property, in this prospectus we will state that we drilled the well in 1999. Financings On July 3, 2002 we and Plains E&P Company, our wholly owned subsidiary that has no material assets and was formed for the sole purpose of being a corporate co-issuer of certain of our indebtedness, issued $200.0 million of 8.75% senior subordinated notes due 2012. The 8.75% notes are our unsecured general obligations, are subordinated in right of payment to all of our existing and future senior indebtedness and are jointly and severally guaranteed on a full and unconditional basis by all of our existing and future domestic restricted subsidiaries. On July 3, 2002 we also entered into a $300.0 million revolving credit facility. The credit facility provides for a borrowing base of $225.0 million that will be reviewed every six months, with the lenders and us each having the right to one annual interim unscheduled redetermination, and adjusted based on our oil and gas properties, reserves, other indebtedness and other relevant factors, and matures in 2005. As of September 30, 2002 we had $90.7 million outstanding under this credit facility. Additionally, the credit facility contains a $30.0 million sub-limit on letters of credit (of which $5.2 million had been issued as of September 30, 2002). To secure borrowings, we pledged 100% of the shares of stock of our domestic subsidiaries and gave mortgages covering 80% of the total present value of our domestic oil and gas properties. We distributed the net proceeds of $195.3 million from the 8.75% Notes and $117.6 million in initial borrowings under our credit facility to Plains Resources, which used: . $287.0 million to redeem its 10.25% senior subordinated notes on August 2, 2002; . $25.0 million to repay the amounts outstanding under its credit facility; and . $0.9 million to pay fees related to its credit facility. Purchase of Additional Point Arguello Interest In August 2002 we acquired an additional 26.3% working interest in the Point Arguello unit and the various partnerships owning the related transportation, processing and marketing infrastructure. The seller retained responsibility for certain abandonment costs, including: (1) removing, dismantling and disposing of the existing offshore platforms; (2) removing and disposing of all pipelines; and (3) removing, dismantling, disposing and remediating all existing onshore facilities. We assumed the seller's share of the costs of plugging the wells and flushing the lines. As consideration for receiving the transferred properties and assuming the obligations described above we received $2.4 million in cash and $3.0 million for our share of revenues less costs for the period from April 1 to July 30, 2002. This transaction doubled our working interest in the Point Arguello unit to 52.6%. Our Executive Offices Our principal executive offices are located at 500 Dallas Street, Suite 700, Houston Texas 77002, and our telephone number at that address is (713) 739-6700. The Offering The following information assumes that the underwriters do not exercise the option we granted them to purchase additional shares of common stock in this offering. <TABLE> <S> <C> Shares offered................................. 5,000,000 shares Shares to be outstanding after this offering... 29,200,000 shares/(1)/ Shares to be held by Plains Resources after the offering..................................... 24,200,000 shares Use of proceeds................................ We estimate that the proceeds from this offering, assuming a $13.00 per share offering price, will be approximately $58.9 million, after deducting fees and estimated expenses. We intend to use these net proceeds to repay amounts outstanding under our revolving credit facility. Nasdaq National Market symbol.................. PXPC </TABLE> -------- (1)Excludes 7,000,000 shares of common stock reserved for issuance under our 2002 stock incentive plan. Plains Resources has issued options to purchase 3.9 million shares of its common stock that, upon the spin-off, will split into (1) an equal number of options to acquire Plains Resources common stock and (2) a number of stock appreciation rights, or SARs, with respect to our common stock equal to the number of original Plains Resources stock options multiplied by the spin-off distribution ratio (the number of shares of our common stock distributed in the spin-off for each share of Plains Resources common stock then outstanding). In addition, upon completion of this offering, we will issue 165,000 shares of restricted stock to certain of our employees. All of the shares described above will be issued under our 2002 stock incentive plan. SUMMARY FINANCIAL INFORMATION The following table sets forth our summary combined historical financial information that has been derived from (i) the audited combined statements of income and cash flows for our business for each of the years ended December 31, 2001, 2000 and 1999, (ii) the unaudited combined statements of income and cash flows for our business for the six months ended June 30, 2002 and 2001 and (iii) our unaudited combined balance sheet as of June 30, 2002. Pro forma information reflects (i) the reorganization, (ii) our issuance of $200 million of our 8.75% senior subordinated notes due 2012, (iii) our new $300 million revolving credit facility and our initial borrowings thereunder and (iv) the distribution of the proceeds of our notes offering and our initial borrowings under our credit facility to Plains Resources. Pro forma as adjusted balance sheet data give effect to the pro forma adjustments and this offering and the application of the net proceeds. You should read this financial information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical combined financial statements and notes and the unaudited pro forma condensed financial information and notes thereto included elsewhere in this prospectus. The information set forth below is not necessarily indicative of our future results. <TABLE> <CAPTION> Six Months Ended June 30, Year Ended December 31, ---------------------------- -------------------------------------- Pro Pro Forma Forma As As Adjusted Adjusted 2002 2002 2001 2001 2001 2000 1999 -------- -------- -------- -------- -------- -------- -------- (Amounts in thousands, except per share data) <S> <C> <C> <C> <C> <C> <C> <C> Statement of Income Data: Revenues: Oil and liquids.......................... $ 81,222 $ 81,222 $ 86,756 $174,895 $174,895 $126,434 $102,390 Gas...................................... 4,578 4,578 23,518 28,771 28,771 16,017 5,095 Other operating revenues................. 13 13 423 473 473 -- -- -------- -------- -------- -------- -------- -------- -------- 85,813 85,813 110,697 204,139 204,139 142,451 107,485 -------- -------- -------- -------- -------- -------- -------- Costs and expenses: Production expenses...................... 35,082 35,082 30,425 63,795 63,795 56,228 50,527 General and administrative/(1)/.......... 4,726 4,726 4,676 10,210 10,210 6,308 4,367 Depreciation, depletion and amortization. 13,898 13,507 11,031 24,885 24,105 18,859 13,329 -------- -------- -------- -------- -------- -------- -------- 53,706 53,315 46,132 98,890 98,110 81,395 68,223 -------- -------- -------- -------- -------- -------- -------- Income from operations..................... 32,107 32,498 64,565 105,249 106,029 61,056 39,262 Other income (expense) Interest expense......................... (9,398) (9,418) (8,548) (18,754) (17,411) (15,885) (14,912) Interest and other income................ 36 36 422 463 463 343 87 -------- -------- -------- -------- -------- -------- -------- Income before income taxes and cumulative effect of accounting change............... 22,745 23,116 56,439 86,958 89,081 45,514 24,437 Income tax expense......................... (8,882) (9,034) (21,786) (33,569) (34,388) (16,765) (5,332) -------- -------- -------- -------- -------- -------- -------- Income before cumulative effect of accounting change......................... $ 13,863 14,082 34,653 $ 53,389 54,693 28,749 19,105 ======== ======== Cumulative effect of accounting change, net of tax benefit............................ -- (1,522) (1,522) -- -- -------- -------- -------- -------- -------- Net income................................. $ 14,082 $ 33,131 $ 53,171 $ 28,749 $ 19,105 ======== ======== ======== ======== ======== Net income per common share: Basic and diluted........................ $ 0.47 $ 0.58 $ 1.37 $ 1.83 $ 2.20 $ 1.19 $ 0.79 Weighted average common shares outstanding: Basic and diluted........................ 29,200 24,200 24,200 29,200 24,200 24,200 24,200 Other Financial Data: EBITDA/(2)/................................ $ 46,005 $ 46,005 $ 75,596 $130,134 $130,134 $ 79,915 $ 52,591 Net cash provided by operating activities.. 19,776 71,619 116,808 79,464 4,609 Net cash used in investing activities...... 42,358 63,167 125,880 70,871 59,362 Net cash provided by (used in) financing activities................................ 22,576 (8,988) 8,549 (13,132) 59,690 Oil and gas capital expenditures........... 42,341 63,052 125,753 70,505 59,167 </TABLE> (footnotes on following page) <TABLE> <CAPTION> As of June 30, 2002 ------------------------------ Historical Pro Pro Forma Combined Forma As Adjusted ---------- -------- ----------- (In thousands) <S> <C> <C> <C> Balance Sheet Data: Cash and cash equivalents............ $ 7 $ 7 $ 7/(3)/ Working capital...................... (18,285) (20,398) (20,398) Total assets......................... 522,554 527,069 527,069 Total debt........................... 259,237 315,899 256,949 Combined owners'/stockholders' equity 169,130 114,870 173,820 </TABLE> -------- (1)General and administrative expenses consist of our direct expenses plus amounts allocated from Plains Resources for various operational, financial, accounting and administrative services provided to us. We estimate that as a result of our reorganization, offering and spin-off, our annual general and administrative expenses will increase by approximately $3.5 million over the amount reported for the year ended December 31, 2001, reflecting the incremental costs of operating as a separate, publicly-held company. In addition, in connection with the issuance of stock appreciation rights (SARs) to Plains Resources' employees, officers and directors as part of and at the time of the spin-off, if the exercise price of the SAR is below the fair market value of a share of our common stock on the date of the spin-off, we will be required to record a charge to earnings equal to that difference. Assuming that the value of a share of Plains Resources common stock post spin-off is equal to the closing trading price of Plains Resources common stock as of September 30, 2002 minus the value of one of our shares of common stock, we would incur the following initial charge in connection with the spin off: Estimated # SARs Plains Resources Our Share to be Charge to Effect on Basic Share Price Price Outstanding Net Income Earnings Per Share $25.78 $13.00 3.9 million $2.8 million $0.10 SARs are subject to variable accounting treatment. As a result, in subsequent periods our results of operations could be adversely affected by fluctuations in the price of our common stock. See the discussion of new Plains Resources stock options and stock appreciation rights on page 19. (2)EBITDA means earnings before interest income and expense, income taxes, depreciation, depletion and amortization and other income. EBITDA is not a measurement presented in accordance with generally accepted accounting principles, or GAAP, and should not be considered as an alternative to cash flow from operating activities as a measure of liquidity or net income as a measure of operating results in accordance with GAAP. EBITDA is presented because we believe it provides additional information with respect to our ability to meet our future debt service, capital expenditures and working capital requirements. When evaluating EBITDA, investors should consider, among other factors, (i) increasing or decreasing trends in EBITDA, (ii) whether EBITDA has remained at positive levels historically and (iii) how EBITDA compares to levels of interest expense. However, EBITDA does not necessarily indicate whether cash flow will be sufficient for such items as working capital requirements, capital expenditures or to react to changes in our industry or to the economy in general, as certain functional or legal requirements of our business may require us to use our available funds for other purposes. EBITDA, as presented herein, is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation. EBITDA includes amortization of hedge premiums of $0.4 million and $3.8 million for the six months ended June 30, 2002 and 2001, respectively, and $3.2 million and $0.9 million for the years ended December 31, 2001 and 2000, respectively. EBITDA is calculated as follows: <TABLE> <CAPTION> Six Months Ended June 30, Year Ended December 31, ------------------------- ------------------------------------ Pro Pro Forma Forma 2002 2002 2001 2001 2001 2000 1999 ------- ------- ------- -------- -------- ------- ------- (In thousands) <S> <C> <C> <C> <C> <C> <C> <C> Income before income taxes and cumulative effect of accounting change......................... $22,745 $23,116 $56,439 $ 86,958 $ 89,081 $45,514 $24,437 Interest and other income....... (36) (36) (422) (463) (463) (343) (87) Interest expense................ 9,398 9,418 8,548 18,754 17,411 15,885 14,912 Depreciation, depletion and amortization................... 13,898 13,507 11,031 24,885 24,105 18,859 13,329 ------- ------- ------- -------- -------- ------- ------- EBITDA.......................... $46,005 $46,005 $75,596 $130,134 $130,134 $79,915 $52,591 ======= ======= ======= ======== ======== ======= ======= </TABLE> (3)As the beneficial owner of 100% of our capital stock, Plains Resources has made an aggregate of $5.0 million of cash contributions to us since the date of our reorganization. In addition, on September 30, 2002 Plains Resources contributed a promissory note payable by Plains Resources to us in the amount of $7.2 million. This promissory note bears interest at the rate of 2.5% and is due on November 15, 2002. To the extent Plains Resources receives a distribution of less than $7.4 million from PAA on November 15, 2002, the principal amount due under the promissory note will be reduced by the amount of such shortfall. SUMMARY RESERVE AND PRODUCTION DATA The following table sets forth certain of our combined historical reserve and operating data. You should read the historical data in conjunction with our historical combined financial statements and notes included elsewhere in this prospectus. The information set forth below is not necessarily indicative of our future results. <TABLE> <CAPTION> Six Months Ended June 30, Year Ended December 31, --------------- ------------------------------ 2002 2001 2001 2000 1999 ------- ------- -------- ---------- ---------- (Dollars in thousands, except per unit amounts) <S> <C> <C> <C> <C> <C> Estimated proved reserves (at end of period): Oil (MBbl)........................ 223,293 204,387 195,213 Gas(MMcf)......................... 96,217 93,486 90,873 Total (MBOE)................ 239,329 219,968 210,359 Percent oil........................ 93% 93% 93% Percent proved developed........... 54% 52% 52% PV-10 (at end of period) /(1)/..... $643,220 $1,304,182 $1,106,358 Standardized measure /(1)(2)/...... 384,467 789,438 727,286 Reserve additions (MBOE)........... 28,140 17,770 92,554 Reserve life (years)............... 27.3 27.0 27.6 Production: Oil (MBbl)........................ 4,113 3,934 8,219 7,654 7,081 Gas (MMcf)........................ 1,719 1,627 3,355 3,042 3,163 Total (MBOE)................ 4,399 4,205 8,778 8,161 7,608 Costs incurred: Exploitation and development /(3)/ $40,656 $62,573 $123,778 $ 68,186 $ 54,996 Exploration....................... -- 64 286 293 796 Acquisition....................... 1,685 415 1,689 2,026 3,375 Total costs incurred........ 42,341 63,052 125,753 70,505 59,167 Reserve replacement cost per BOE... $ 4.47 $ 3.97 $ 0.64 Industry average reserve replacement cost per BOE /(4)/... 8.58 5.40 4.53 Reserve replacement ratio.......... 321% 218% 1,216% Average sales price per unit: Oil ($/Bbl)....................... $ 19.75 $ 22.05 $ 21.28 $ 16.52 $ 14.46 Gas ($/Mcf)....................... 2.66 14.45 8.58 5.26 1.61 BOE............................... 19.50 26.22 23.20 17.46 14.13 Expense per BOE: Production expenses............... $ 7.97 $ 7.24 $ 7.27 $ 6.89 $ 6.64 General and administrative........ 1.07 1.11 1.16 0.77 0.57 </TABLE> -------- (1)Based on year-end spot market prices of: (a) $19.84 per Bbl of oil and $2.58 per Mcf of gas for 2001; (b) $26.80 per Bbl of oil and $13.70 per Mcf of gas for 2000; and (c) $25.60 per Bbl of oil and $2.37 per Mcf of gas for 1999. PV-10 represents the standardized measure before deducting estimated future income taxes. (2)Our year-end 2001 standardized measure includes future development costs related to proved undeveloped reserves of $25.5 million in 2002, $58.9 million in 2003 and $45.2 million in 2004. (3)Exploitation and development costs include expenditures of $58.5 million in 2001, $20.6 million in 2000 and $10.7 million in 1999 related to the development of proved undeveloped reserves included in our proved oil and gas reserves at the beginning of each year. (4)Represents the average replacement cost for large domestic exploration and production companies.

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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our Class A common stock. We urge you to read this entire prospectus carefully, including the Risk Factors section and our consolidated financial statements and the notes to those statements. References to we, us or our refer to ManTech International Corporation and its subsidiaries, unless the context otherwise indicates. Unless otherwise indicated, information presented in this prospectus assumes no exercise of the underwriters over-allotment option. ManTech International Corporation ManTech International Corporation delivers a broad array of information technology and technical services solutions to U.S. federal government customers, focusing primarily on critical national defense programs for the intelligence community and Department of Defense. We design, develop, procure, implement, operate, test and maintain mission-critical, enterprise information technology and communication systems and infrastructures for federal government customers in the United States and 34 countries worldwide. More than 2,800 of our nearly 4,300 employees hold government security clearances, including over 1,000 with access to Top Secret Sensitive Compartmented Information, allowing us to work with our customers in highly classified environments and at front-line deployments. We have established and maintain long-standing, successful relationships with our customers, having supported many of them for 15 to 30 years. Given the critical nature of many of our services and our close relationships with our customers, we are often called upon to support our customers as they respond to crisis situations around the world. We provide comprehensive information technology and technical services solutions, separately or in combination, to our customers by drawing upon three principal areas of expertise: secure systems and infrastructure; information technology; and systems engineering. In some cases, our work under a single contract draws upon two or all three of our areas of expertise. We provide these solutions for sophisticated airborne, shipboard, satellite and tactical and strategic land-based communication and information systems and intelligence-processing activities. As part of our secure systems and infrastructure solutions, we conduct vulnerability assessments of critical infrastructures that enable our customers to identify evolving foreign and domestic threats, which may include espionage, terrorist activities and other intelligence operations, to quantify exposure to these threats and to implement prudent countermeasures. We also design, implement and maintain secure communication systems, computer networks and other information assurance programs, and develop and integrate signal processing systems that assist our government customers in their intelligence gathering activities. We also assist our customers in the development and implementation of secrecy management and security strategies to protect sensitive classified information and programs. As part of our information technology solutions, we integrate diverse technologies into customized systems that meet a variety of customer needs. We design and implement electronic data interchange systems and network infrastructures that help sustain or extend our customers existing proprietary or legacy systems and provide enhanced capabilities based on new technology platforms. We also provide systems support for customers critical information management systems. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 You should rely only on the information contained in this document. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. Table of Contents As part of our systems engineering solutions, we analyze and assist in designing, developing, integrating and installing hardware and software for communication, intelligence, electronic warfare and information systems. We also test and certify complex military systems hardware and software and orbital payloads and perform a variety of environmental research and testing functions for federal government customers. Since our founding in 1968, we have grown from supplying engineering services to the U.S. Navy to providing sophisticated information technology and technical services solutions to a wide range of federal government customers. For both the year ended December 31, 2001 and the nine months ended September 30, 2002, approximately 85.1% and 87.1%, respectively, of our revenues were derived from our customers in the intelligence community and Department of Defense. Among our intelligence community customers are a number of the 13 federal agencies and departments that the government identifies as being part of the U.S. intelligence community, including the Department of State, the National Reconnaissance Office, the Department of Energy and a number of the branches of the military within the Department of Defense. Our other Department of Defense customers include the Office of the Secretary of Defense, the Army, Navy, Air Force and Marine Corps, and a number of joint military commands. We also provide comprehensive information technology and technical services solutions to federal government civilian agencies, including the National Aeronautics and Space Administration (NASA), the Environmental Protection Agency (EPA) and the Departments of Justice, Commerce and Energy. Additionally, we provide business enterprise solutions to state and local governments and database conversion solutions to commercial customers. Our Market Opportunity The federal government has consistently increased spending on information technology each year since 1980 and is the largest purchaser of these services and products. According to Input, an independent market research firm, this trend of increased spending is expected to continue over the next five years as federal government spending on information technology increases from $37.1 billion in 2002 to $63.3 billion in 2007, a compound annual growth rate of 11.3%. For fiscal year 2003, Congress has authorized $393.0 billion in defense spending, which is the largest increase in national defense spending since the early 1980s. Of this amount, $355.0 billion has been formally appropriated by Congress and signed into law by the President, an increase of approximately $38.0 billion or 12.0% over fiscal year 2002. Moreover, this data may not fully reflect government spending on complementary technical services, which include sophisticated systems engineering and testing services. We believe that strong growth opportunities exist for information technology and technical services providers who serve the government market because the federal government is: Increasing defense spending focused on C4I (command, control, communication, computers and intelligence), homeland security and intelligence activities; Adopting commercialized procurement methods that promote the use of efficient contracting vehicles, such as government- or agency-wide pricing schedule contracts that are negotiated and awarded by the General Services Administration (GSA) and other central contracting authorities; Increasing reliance on technology service providers to deliver cost-effective solutions and to address staffing challenges facing the government; and Table of Contents Focusing on modernizing proprietary legacy information technology and communication infrastructures. Our Approach We seek to address the requirements of our customers in the intelligence community and Department of Defense through our: Comprehensive technology-based solutions; Expertise in the migration, integration, optimization and maintenance of proprietary legacy systems used by the federal government and ability to enhance the interoperability and accessibility of critical enterprise data; Expertise in supporting our customers as they respond to crisis situations around the world; More than 2,800 employees with government security clearances, which are required for work on classified programs for the intelligence community and Department of Defense; Proven track record of fulfilling our customers requirements, demonstrated by our many long-standing customer relationships; and Extensive experience of our management team and advisory board members in supporting our customers in the intelligence community and Department of Defense. As part of your evaluation of us, you should take into account the risks we face in our business and not solely our business approach and strategy. Because our business is substantially dependent upon contracts with the U.S. federal government, we are subject to a number of risks that arise from the way in which the U.S. federal government conducts business. For example, as a government contractor, our operations are subject to complex government procurement laws and regulations and may be affected by government-favorable provisions that are included in our contracts with the government, and our operations are subject to government audits and to shifts in government spending priorities. Because of the labor-intensive nature of our work, we must recruit and retain skilled employees, many of whom must obtain and maintain security clearances, and our business may be harmed if our employees do not properly perform their jobs. In addition, we depend on relationships and the reputation of members of our management team and advisory board to maintain good customer relationships and identify new business opportunities. Our Strategy Our objective is to profitably grow our business as a premier provider of comprehensive information technology and technical services solutions to the federal government, focusing primarily on customers in the intelligence community and Department of Defense. To achieve our objective, we intend to: Expand our customer base by capitalizing on our existing customer relationships and reputation and pursuing strategic acquisitions to attract new customers and to cross-sell solutions and products to existing and new customers, and by selectively hiring key individuals with additional customer relationships; Increase our profitability by focusing our contract bidding and new business development efforts on specialized services that can generate higher value-added solutions, such as threat exposure analysis and systems architecture design, and on more efficient and flexible contract vehicles, such as GSA schedule contracts; Income before provision for income taxes and minority interest 3,660 7,022 6,897 7,321 7,090 7,683 9,554 10,666 Provision for income taxes (1,647 ) (3,006 ) (2,953 ) (3,103 ) (3,021 ) (3,108 ) (3,896 ) (4,382 ) Minority interest (1 ) (7 ) (7 ) (4 ) 11 (2 ) (1 ) ManTech International Corporation 12015 Lee Jackson Highway Fairfax, VA 22033-3300 (703) 218-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents Target our service offerings in high-growth program areas, including safeguarding critical infrastructures and information assurance for the intelligence community and Department of Defense; Continue to attract and retain skilled professionals, including engineers, scientists, analysts, technicians and support specialists, who possess a wide range of technical skills and prior experience with the intelligence community or Department of Defense; and Pursue a disciplined acquisition strategy focused on businesses that support the intelligence community and Department of Defense, expand our service offerings and establish relationships with new customers. George J. Pedersen Chairman, Chief Executive Officer and President ManTech International Corporation 12015 Lee Jackson Highway Fairfax, VA 22033-3300 (703) 218-6000 Fax: (703) 218-6301 (Name, address, including zip code, and telephone number, including area code, of agent for service) (1) Includes 1,500,000 shares of common stock that prior to this offering were shares of Class B common stock. These shares will be converted into an equal number of shares of our Class A common stock immediately prior to the consummation of this offering. (2) The number of shares of our Class A common stock and Class B common stock to be outstanding after this offering is based on 9,390,713 shares of our Class A common stock and 17,131,004 shares of our Class B common stock outstanding on September 30, 2002 and excludes 2,840,379 shares of our Class A common stock reserved for issuance under our Management Incentive Plan, of which 1,128,000 shares are subject to outstanding options as of September 30, 2002. Liabilities and shareholders equity Current liabilities Line of credit (Note 4) $ 4,497 $ Accounts payable 1,479 622 Accrued compensation and related taxes (Note 8) 2,568 3,419 Accrued profit-sharing plan (Note 8) 628 (unaudited) Maximum effective federal income tax rates 42 % 42 % State income tax, net of federal income tax benefit 3 3 Other taxes 5 Copies to: Robert B. Ott Robert G. Robison Arnold & Porter Sharon L. Ferko Suite 900 Morgan, Lewis & Bockius LLP 1600 Tyson Boulevard 101 Park Avenue McLean, VA 22102 New York, NY 10178 (703) 720-7000 (212) 309-6000 Fax: (703) 720-7399 Fax: (212) 309-6273 Table of Contents

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+PROSPECTUS SUMMARY This summary highlights some basic information from this prospectus to help you understand the shares offered by this prospectus. It likely does not contain all the information that is important to you. You should carefully read this prospectus and the documents incorporated by reference to understand fully the terms of the shares, as well as other considerations that are important to you in making your investment decision. You should pay special attention to the "Risk Factors" section beginning on page 31 of this prospectus as well as our financial statements and the related notes. This prospectus also incorporates by reference important information about El Paso Energy Partners, L.P., including information about its businesses and financial and operating data, and financial information with respect to El Paso Energy Partners Company, the general partner of El Paso Energy Partners, L.P. You should also read carefully the information, including the financial statements and the footnotes to those statements, incorporated by reference in this prospectus. As used in this prospectus, the term "El Paso Energy Management" and the terms "we," "our," "us" and similar terms refer to El Paso Energy Management, L.L.C., unless the context otherwise requires. In addition, we refer to El Paso Energy Partners, L.P., together with its subsidiaries, as "El Paso Energy Partners," and we refer to El Paso Energy Partners Company, the general partner of El Paso Energy Partners and a wholly owned indirect subsidiary of El Paso Corporation, as "El Paso Energy Partners Company." As used in this prospectus, the term "common units" means the common units of El Paso Energy Partners, and the term "units" includes collectively the common units, the i-units and the Series B preference units of El Paso Energy Partners. The information presented in this prospectus assumes that the underwriters do not exercise their option to purchase additional shares from us. As used in this prospectus, the term "our shares" refers to the class of our shares offered by this prospectus. EL PASO ENERGY MANAGEMENT We are a recently formed Delaware limited liability company that will elect, effective with the closing of this offering, to be treated as a corporation for U.S. federal income tax purposes. By agreement with El Paso Energy Partners Company, we will manage the business and affairs of El Paso Energy Partners. We will use substantially all of the proceeds of this offering to acquire a new class of limited partner interests, referred to as i-units, in El Paso Energy Partners, and we will have no assets or operations other than those related to our equity interest in El Paso Energy Partners. As a result, our financial condition and results of operations will depend solely upon the performance of El Paso Energy Partners. The shares that are being sold in this offering have limited voting rights and are not entitled to vote to elect our directors. All of our shares that are entitled to elect our directors are owned by El Paso Energy Partners Company. We intend to apply to list the shares being sold in this offering on the New York Stock Exchange under the symbol " ." EL PASO ENERGY PARTNERS BUSINESS DESCRIPTION El Paso Energy Partners, a Delaware limited partnership with common units traded on the New York Stock Exchange under the symbol "EPN," was formed in 1993. El Paso Energy Partners is one of the largest publicly-traded master limited partnerships, or MLPs, in terms of market capitalization. El Paso Energy Partners currently manages a balanced, diversified portfolio of midstream energy interests and assets that includes: - offshore oil and natural gas pipelines, platforms and infrastructure in the Gulf of Mexico, primarily offshore Louisiana and Texas; - onshore natural gas pipeline assets and processing facilities in Alabama, Mississippi, New Mexico and Texas; - onshore natural gas liquids, or NGL, transportation and fractionation facilities in Texas; and - onshore natural gas and NGL storage facilities in Mississippi, Louisiana and Texas. <Table> <Caption> PAGE ---- <S> <C> If we are not fully reimbursed or indemnified for obligations and liabilities we incur in managing the business and affairs of El Paso Energy Partners, we may be unable to pay those liabilities and the value of our shares could decline................................... 33 If in the future we cease to manage the business and affairs of El Paso Energy Partners, we may be deemed to be an "investment company" for purposes of the Investment Company Act of 1940......................... 33 If a person or group, other than El Paso Corporation and its affiliates, owns 20% or more of the aggregate number of issued and outstanding El Paso Energy Partners common units and our shares, that person or group may not vote its shares; as a result, you are less likely to receive a premium for your shares in a change of control situation............................ 34 The shares you own are not entitled to vote to elect our directors, therefore, you will have little or no opportunity to influence or change our management...... 34 Unless all accretions occurring after September 2010 on El Paso Energy Partners' then-outstanding Series B preference units have been paid or the Series B preference units have been redeemed, beginning in October 2010, El Paso Energy Partners will not be permitted to make distributions to holders of its common units or increase the number of i-units we own and, therefore, the number of shares then held by you will not increase...................................... 34 Risks Related to El Paso Energy Partners' Business........ 34 El Paso Energy Partners' indebtedness could adversely restrict its ability to operate, affect its financial condition and prevent it from making distributions to unitholders............................................ 34 El Paso Energy Partners may not be able to fully execute its growth strategy if it encounters tight capital markets or increased competition for qualified assets................................................. 36 El Paso Energy Partners' growth strategy may adversely affect its results of operations if it does not successfully integrate the businesses that it acquires or if it substantially increases its indebtedness and contingent liabilities to make acquisitions............ 36 El Paso Energy Partners' actual acquisition, construction and development costs could exceed its forecast, and its cash flow from these projects may not be immediate........................................... 37 FERC regulation and a changing regulatory environment could affect El Paso Energy Partners' assets and cash flow................................................... 37 Environmental costs and liabilities and changing environmental regulation could affect El Paso Energy Partners' assets and cash flow......................... 38 A natural disaster, catastrophe or other interruption event involving El Paso Energy Partners could result in severe personal injury, property damage and environmental damage, which could curtail its operations and otherwise adversely affect its assets and cash flow.......................................... 38 The future performance of El Paso Energy Partners' midstream energy infrastructure operations, and thus its ability to satisfy its debt requirements and maintain cash distributions, depends on successful exploration and development of additional oil and natural gas reserves by others......................... 39 El Paso Energy Partners' storage businesses depend on unaffiliated pipelines to transport natural gas........ 39 El Paso Energy Partners faces competition from third parties to gather, transport, process, fractionate, store or otherwise handle oil, natural gas and other petroleum products..................................... 39 Fluctuations in energy commodity prices could adversely affect El Paso Energy Partners' business............... 40 Fluctuations in interest rates could adversely affect El Paso Energy Partners' business...................... 41 El Paso Energy Partners' use of derivative financial instruments could result in financial losses........... 41 El Paso Energy Partners' EPN Texas fractionation facilities are dedicated to a single customer, the loss of which could adversely affect us..................... 42 The interruption of distributions to El Paso Energy Partners from its subsidiaries and joint ventures may affect its ability to make cash distributions to its unitholders............................................ 42 El Paso Energy Partners cannot cause its joint ventures to take or not to take certain actions unless some or all of its joint venture participants agree............ 42 </Table> Since El Paso Corporation's 1998 acquisition of an interest in El Paso Energy Partners, El Paso Energy Partners has diversified its asset base, stabilized its cash flow and decreased its financial leverage as a percentage of total capital. El Paso Energy Partners has accomplished this through a series of acquisitions and development projects. SAN JUAN ASSET ACQUISITION AND DISTRIBUTION INCREASE On July 16, 2002, El Paso Energy Partners and El Paso Corporation entered into a letter of intent regarding the proposed acquisition by El Paso Energy Partners of a package of midstream energy assets, referred to as the San Juan assets, from El Paso Corporation for approximately $782 million, subject to adjustments. The San Juan assets include: - substantially all of El Paso Corporation's natural gas gathering, processing and treating assets in the San Juan Basin of New Mexico--specifically, its 5,300-mile San Juan Basin gathering system, including the associated compression, processing and treating facilities and contracts, and the remaining interest in the Chaco cryogenic natural gas processing plant not already owned by El Paso Energy Partners; - a 35-mile, 20-inch natural gas pipeline and a 16-mile, 12-inch oil pipeline originating on the Chevron/BHP "Typhoon" platform in the Green Canyon area of the Gulf of Mexico; and - over 570 miles of NGL pipelines and a related fractionation facility in South Texas. The acquisition is expected to be consummated simultaneously with the completion of this offering, and this offering is contingent upon the consummation of the acquisition. We will use substantially all of the net proceeds of this offering to purchase i-units from El Paso Energy Partners, and El Paso Energy Partners will use the proceeds from that purchase of i-units to, among other things, finance its acquisition of the San Juan assets and fund general business requirements, including repaying indebtedness under its revolving credit facility. The San Juan assets generated approximately $114 million of pro forma earnings before interest, taxes, depreciation and amortization, or EBITDA, during the year ended December 31, 2001, as adjusted to reflect the San Juan asset acquisition. El Paso Energy Partners approved a quarterly distribution of $0.675 ($2.70 annualized) per common unit payable in November 2002. This represented the third increase to the distribution rate announced this year. During 2002, El Paso Energy Partners has declared or approved the following quarterly distributions: <Table> <Caption> QUARTERLY INCREASE PAYMENT DISTRIBUTION OVER PRIOR DATE AMOUNT QUARTER ------- ------------- ---------- <S> <C> <C> November......................................... $0.6750 $ 0.0250 August 15........................................ $0.6500 -- May 15........................................... $0.6500 $ 0.0250 February 15...................................... $0.6250 $ 0.0125 </Table> EL PASO ENERGY PARTNERS' UNIQUE SPONSORSHIP El Paso Energy Partners continues to benefit from the unique corporate sponsorship it receives from El Paso Corporation, the indirect parent of El Paso Energy Partners Company, the general partner of El Paso Energy Partners. El Paso Corporation, a Delaware corporation with its stock traded on the NYSE under the symbol "EP," is a global energy company with operations that extend from energy production and extraction to power generation, with total assets of $49 billion at March 31, 2002. El Paso Corporation's principal operations include: - natural gas transportation, gathering, processing and storage; - natural gas and oil exploration, development and production; - energy and energy-related commodities and products marketing; - power generation; - energy infrastructure facility development and operation; <Table> <Caption> PAGE ---- <S> <C> El Paso Energy Partners does not have the same flexibility as other types of organizations to accumulate cash and equity to protect against illiquidity in the future.............................. 43 Changes of control of El Paso Energy Partners' general partner may adversely affect you....................... 43 El Paso Energy Partners will be materially and adversely affected if it cannot negotiate an extension or a replacement on commercially reasonable terms of approximately 900 miles of rights-of-way underlying the San Juan gathering system.............................. 44 El Paso Energy Partners will be materially and adversely affected if it cannot negotiate an extension or a replacement on commercially reasonable terms of three material contracts which account for approximately 70% of the volume attributable to the San Juan gathering system and which expire between 2006 and 2008................................................... 44 Arthur Andersen LLP, the public accountants that audited the 2000 financial statements of El Paso Energy Partners' joint venture Poseidon Oil Pipeline Company, L.L.C., has been convicted of a felony and has not consented to our use of their opinion, which may adversely affect the ability of Arthur Andersen LLP to satisfy any claims that may arise out of Arthur Andersen LLP's audit of Poseidon's financial statements............................................. 43 Risks Inherent in Our Investment in i-Units............... 44 El Paso Energy Partners' general partner has anti-dilution rights................................... 44 We may not have limited liability in the circumstances described below, including potentially having liability for the return of wrongful distributions............... 44 Risks Related to Conflicts of Interest and Limitations of Fiduciary Duties....................................... 45 El Paso Corporation and its subsidiaries have conflicts of interest with El Paso Energy Partners and, accordingly, you....................................... 45 The interests of El Paso Corporation may differ from our interests, and our interests may differ from the interests of limited partners of El Paso Energy Partners............................................... 47 Our limited liability company agreement restricts or eliminates a number of the fiduciary duties that otherwise would be owed by our board of directors to you.................................................... 48 We may increase the cash reserves and expenditures of El Paso Energy Partners, which would decrease cash distributions on its common units and the value of distributions of additional shares we make to you...... 48 El Paso Energy Partners' partnership agreement purports to limit its general partner's fiduciary duties and certain other obligations relating to it............... 49 INFORMATION REGARDING FORWARD LOOKING STATEMENTS............ 50 PLANNED ACQUISITION OF THE SAN JUAN ASSETS.................. 51 USE OF PROCEEDS............................................. 53 El Paso Energy Management................................. 53 El Paso Energy Partners................................... 53 DISTRIBUTIONS AND DISTRIBUTION POLICY....................... 54 Our Policy Regarding Share Distributions.................. 54 Price Range of El Paso Energy Partners' Common Units and Distributions.......................................... 54 El Paso Energy Partners' Distribution Policy.............. 55 Requirement to Distribute Available Cash............... 55 Definition of Available Cash........................... 55 Establishment of Reserves.............................. 55 Cash Distributions and Subdivision of i-Units.......... 55 Two Different Types of Distributions................... 55 General Procedures for Quarterly Distributions......... 56 Distributions of Cash from Operations.................. 57 Illustration of a Distribution of Cash from Operations.... 59 Adjustment of the Minimum Quarterly and Target Distribution Levels................................... 61 Distributions in Liquidation........................... 61 CAPITALIZATION OF EL PASO ENERGY MANAGEMENT................. 63 CAPITALIZATION OF EL PASO ENERGY PARTNERS................... 64 SELECTED FINANCIAL DATA OF EL PASO ENERGY PARTNERS.......... 66 </Table> - petroleum refining; and - chemicals production. El Paso Corporation has designated its investment in El Paso Energy Partners as its primary vehicle for growth and development of its midstream energy business. Through its subsidiaries, El Paso Corporation owns approximately 26.5%, or 11,674,245, of El Paso Energy Partners' common units and its 1% general partner interest. Additionally, El Paso Corporation, through a subsidiary, owns all 125,392 of El Paso Energy Partners' outstanding Series B preference units. As of March 31, 2002, the liquidation value of the Series B preference units was approximately $146 million. El Paso Corporation will purchase 5,300,000 shares in this offering (up to 6,095,000 if the underwriters exercise all or a portion of their over-allotment option). OBJECTIVE AND STRATEGY El Paso Energy Partners' objective is to operate as a growth-oriented MLP with a focus on increasing cash flow, earnings and return to its unitholders by becoming one of the industry's leading providers of midstream energy services. Its strategy is to maintain and grow a diversified, balanced base of strategically located and efficiently operated midstream energy assets with stable and long-term cash flows. Upon completion of its acquisition of the San Juan assets, El Paso Energy Partners will be the largest natural gas gatherer, based on miles of pipeline, in Texas and the San Juan Basin (which covers the four contiguous corners of New Mexico, Arizona, Colorado and Utah), which collectively accounted for approximately 35% of domestic natural gas production in 2001. El Paso Energy Partners is also one of the largest natural gas gatherers in the Gulf of Mexico, which accounted for approximately 27% of domestic natural gas production during 2001. These regions, especially the deeper water regions of the Gulf of Mexico -- one of the United States' fastest growing natural gas producing regions -- offer El Paso Energy Partners significant infrastructure growth potential through the acquisition and construction of pipelines, platforms, processing and storage facilities and other infrastructure. El Paso Energy Partners' strategy entails continually enhancing the quality of its cash flow by emphasizing operations and services for which the fees are not traditionally linked to commodity prices, like gathering, transportation and storage; shifting commodity price risks by using contractual arrangements, like fixed-fee contracts and hedging and tolling arrangements; and exiting the oil and gas production business by not acquiring additional properties. El Paso Energy Partners' offshore gathering and transportation arrangements tend to have longer terms, which often last for the productive life of the producing property, and its onshore gathering, transportation, processing and fractionating arrangements tend to have multiple-year terms. El Paso Energy Partners intends to execute its business strategy by: - purchasing and constructing onshore pipelines; gathering systems; storage, processing and fractionation facilities; and other midstream assets to provide a broad range of more stable, fee-based services to producers, marketers and users of energy products; - expanding its existing asset base, supported by the dedication of new discoveries and long-term commitments, to capitalize on the accelerated growth of oil and natural gas supplies from the deeper water regions of the Gulf of Mexico; - operating at a low cost by achieving economies of scale in select regions through reinvesting in and expanding its organic growth opportunities, as well as by acquiring new assets; and - continuing to strengthen its solid balance sheet by seeking to finance its growth with 50% equity so as to provide the financial flexibility to fund future opportunities. <Table> <Caption> PAGE ---- <S> <C> SELECTED PRO FORMA FINANCIAL DATA OF EL PASO ENERGY PARTNERS.................................................. 70 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 74 El Paso Energy Management................................. 74 General................................................ 74 Business............................................... 74 Liquidity and Capital Resources........................ 74 Results of Operations.................................. 75 El Paso Energy Partners................................... 75 Recent Acquisitions, Divestitures and Projects......... 77 Segment Results........................................ 82 Liquidity and Capital Resources........................ 93 Commitments and Contingencies.......................... 97 Critical Accounting Policies........................... 99 New Accounting Pronouncements Not Yet Adopted.......... 101 BUSINESS.................................................... 108 El Paso Energy Management................................. 108 El Paso Energy Partners................................... 108 El Paso Energy Partners' Objective and Strategy........... 110 Recent Developments.................................... 111 Recent Financings...................................... 112 Business Segments...................................... 115 Natural Gas Pipelines and Plants....................... 116 Regulatory Environment................................. 119 Oil and NGL Logistics.................................. 121 Regulatory Environment................................. 123 Maintenance............................................ 124 Platform Services......................................... 124 Natural Gas Storage.................................... 126 Other.................................................. 127 Regulatory Environment................................. 129 Major Encumbrances..................................... 130 Employees.............................................. 130 DESCRIPTION OF OUR SHARES................................... 132 Distributions.......................................... 132 Covenants.............................................. 134 Special Purchase Events................................ 136 Optional Purchase Events............................... 138 Limited Voting Rights.................................. 139 Merger................................................. 142 Tax Indemnity of El Paso Corporation................... 142 Anti-dilution Adjustments.............................. 143 Transfer Agent and Registrar........................... 142 Replacement of Share Certificates...................... 143 Fractional Shares...................................... 143 DESCRIPTION OF THE i-UNITS.................................. 144 Voting Rights.......................................... 144 Distributions and Payments............................. 145 Merger, Consolidation or Sale of Assets................ 145 U.S. Federal Income Tax Characteristics and Distribution Upon Liquidation of El Paso Energy Partners.............................................. 145 </Table> BUSINESS SEGMENTS El Paso Energy Partners' business and operations cover four primary business segments. This section of the prospectus summary, including the following chart, depicts El Paso Energy Partners' business segments after completion of the San Juan assets acquisition. (CHART) <Table> <Caption> OWNERSHIP <S> <C> - EPGT Texas Intrastate 100.0% - Waha Gathering System and Treating Plant 100.0% - El Paso Intrastate Alabama 100.0% - Carlsbad Gathering System 100.0% - Channel Pipeline System 50.0% - HIOS 100.0% - TPC Offshore System 100.0% - Viosca Knoll 100.0% - East Breaks 100.0% - Chaco Plant 100.0% - Indian Basin Processing Plant 42.3% San Juan Assets: - San Juan Gathering System 100.0% - Typhoon Natural Gas Pipeline 100.0% - Coyote Treating Facility 50.0% - Rattlesnake Treating Facility 100.0% </Table> <Table> <Caption> OWNERSHIP <S> <C> - Shoup Fractionator 100.0% - Armstrong Fractionator 100.0% - Delmita Fractionator 100.0% - Thompsonville Lateral 100.0% - Shilling Lateral 100.0% - SACC Mainline 100.0% - South Texas Pipeline 100.0% - Allegheny Pipeline 100.0% - Poseidon Pipeline 36.0% - Hattiesburg Propane Storage 100.0% - Anse La Butte Storage 100.0% San Juan Assets: - Almeda Fractionator 100.0% - Typhoon Oil Pipeline 100.0% - Texas NGL Pipelines 100.0% </Table> <Table> <Caption> OWNERSHIP <S> <C> - East Cameron 373 100.0% - Ship Shoal 331 100.0% - Viosca Knoll 817 100.0% - Ship Shoal 332 50.0% - Garden Banks 72 50.0% </Table> <Table> <Caption> OWNERSHIP <S> <C> - Hattiesburg 100.0% - Petal 100.0% - Wilson(1) 100.0% </Table> <Table> <Caption> OWNERSHIP <S> <C> - Viosca Knoll Block 817 100.0% - Garden Banks Block 72 50.0% - Garden Banks Block 117 50.0% - West Delta Block 35 38.8% - Garden Banks Block 73 2.5%(2) </Table> --------------- (1) El Paso Energy Partners has the exclusive right to use the Wilson natural gas storage facility under an operating lease that expires in January 2008. (2) Overriding royalty interest. <Table> <Caption> PAGE ---- <S> <C> MANAGEMENT OF EL PASO ENERGY MANAGEMENT..................... 147 Directors and Executive Officers....................... 147 Board of Directors and Committees...................... 148 Director Compensation.................................. 148 Executive Compensation................................. 148 COMPARISON OF EL PASO ENERGY PARTNERS' UNITS WITH OUR SHARES.................................................... 149 LIMITED LIABILITY COMPANY AGREEMENT......................... 153 Formation.............................................. 153 Purpose and Powers..................................... 153 U.S. Federal Income Tax Status as a Corporation........ 153 Power of Attorney...................................... 153 Members................................................ 154 Limited Liability...................................... 154 The Board.............................................. 154 Officers and Employees................................. 155 Capital Structure...................................... 155 Dissolution and Liquidation............................ 155 Merger................................................. 155 Exculpation and Indemnification........................ 155 Amendments............................................. 156 Meetings; Voting....................................... 156 Books and Records; List of Shareholders................ 156 No Removal............................................. 157 Distributions.......................................... 158 Optional and Special Purchase Events................... 158 RELATIONSHIPS AND RELATED PARTY TRANSACTIONS................ 159 Our Relationship With El Paso Corporation and El Paso Energy Partners....................................... 159 Prior to the Offering.................................. 159 Following the Offering................................. 160 Delegation Agreement................................... 161 Tax Indemnification Agreement and Purchase Agreement... 162 Additional Matters..................................... 162 CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES........ 163 Conflicts of Interest.................................. 163 Situations in Which a Conflict of Interest Could Arise................................................. 163 Fiduciary Duties Owed to Our Shareholders and to the Owners of Units....................................... 168 SHARES ELIGIBLE FOR FUTURE SALE............................. 171 MATERIAL TAX CONSEQUENCES................................... 172 Legal Opinions......................................... 172 Federal Income Tax Considerations Associated With the Ownership and Disposition of Shares................... 172 ERISA CONSIDERATIONS........................................ 178 UNDERWRITING................................................ 180 LEGAL MATTERS............................................... 182 EXPERTS..................................................... 182 WHERE YOU CAN FIND ADDITIONAL INFORMATION................... 183 INDEX TO FINANCIAL STATEMENTS............................... F-1 </Table> UNTIL , 2002, ALL DEALERS THAT BUY, SELL OR TRADE OUR SHARES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATIONS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. NATURAL GAS PIPELINES AND PLANTS El Paso Energy Partners owns interests in natural gas pipeline systems extending over 16,900 miles with a combined maximum design capacity (net to its interest) of over 10.3 billion cubic feet per day, or Bcf/d, of natural gas. El Paso Energy Partners owns or has interests in gathering and transportation systems onshore in Texas, New Mexico, Alabama and Colorado, including the EPGT system, the largest intrastate pipeline system in Texas based on miles of pipe, and the San Juan gathering system, which includes 5,300 miles of pipeline currently gathering over 1.1 Bcf/d of natural gas. In addition, El Paso Energy Partners has interests in offshore natural gas pipeline systems, which are strategically located to serve production activities in some of the most active drilling and development regions in the Gulf of Mexico, including select locations offshore of Texas, Louisiana and Mississippi, and to provide relatively low cost access to long-line transmission pipelines that access multiple markets in the eastern half of the United States. El Paso Energy Partners also owns interests in three processing and treating plants in New Mexico, with a combined maximum capacity of over 1.2 Bcf/d of natural gas and 50 thousand barrels per day, or MBbls/d, of NGLs, including the Chaco cryogenic natural gas processing plant, the third largest natural gas processing plant in the United States measured by liquids produced. OIL AND NGL LOGISTICS El Paso Energy Partners owns interests in three offshore oil pipeline systems which extend over 340 miles and have a combined maximum capacity of 580 MBbls/d of oil with the addition of pumps and the use of friction reducers. In addition to being strategically located in the vicinity of some prolific oil producing regions of the Gulf of Mexico, these oil pipeline systems are parallel to, and interconnect with, key segments of some of El Paso Energy Partners' natural gas pipeline systems and offshore platforms, which contain separation and handling facilities. This distinguishes El Paso Energy Partners from its competitors by allowing it to provide some producing properties with a unique single point of contact through which the producers may access a wide range of midstream services and assets. El Paso Energy Partners also owns NGL transportation, fractionation and storage assets. Its four fractionation plants, located in Texas, have a combined capacity of approximately 120 MBbls/d. El Paso Energy Partners also owns or has interests in more than 1,100 miles of intrastate NGL pipelines in Texas and NGL storage facilities in Louisiana, Texas and Mississippi with combined capacity of 20.1 million barrels, or MMBbls. PLATFORM SERVICES El Paso Energy Partners has interests in five multi-purpose offshore hub platforms in the Gulf of Mexico. These platforms were specifically designed to be used as deepwater hubs and production handling and pipeline maintenance facilities. These platforms allow El Paso Energy Partners to provide a variety of midstream services, such as gas separation and handling, to increase deliverability and attract new volumes into its offshore pipeline systems. NATURAL GAS STORAGE El Paso Energy Partners owns the Petal and Hattiesburg salt dome natural gas storage facilities located in Mississippi, which are strategically situated to serve the Northeast, Mid-Atlantic and Southeast natural gas markets. These facilities have a combined current working capacity of 12.65 Bcf and are capable of delivering in excess of 1.2 Bcf/d of natural gas into five interstate pipeline systems: Transcontinental Gas Pipeline Company (Transco), Tennessee Gas Pipeline, Gulf South Pipeline, Destin Pipeline and Southern Natural Gas Pipeline. Each of these facilities is capable of making deliveries at the high rates necessary to satisfy peaking requirements in the electric generation industry. In April 2002, El Paso Energy Partners acquired a leased interest in the Wilson natural gas storage facility located in Wharton County, Texas, which has a working capacity of 7.0 Bcf. This lease expires in January 2008. OTHER Currently, El Paso Energy Partners owns interests in five oil and natural gas properties in waters offshore Louisiana. Production is gathered, transported and processed through El Paso Energy Partners' pipeline systems and platform facilities and is sold to various third parties and subsidiaries of El Paso Corporation. El Paso Energy Partners intends to continue to concentrate on fee-based operations that traditionally provide more stable cash flow and de-emphasize its commodity-based activities, including its oil and natural gas producing operations. KEY STRENGTHS STABLE CASH FLOW PRIMARILY DRIVEN BY FEE-BASED REVENUES. Including the San Juan assets, El Paso Energy Partners' EBITDA is primarily derived from gathering, transportation, storage and other fee-based services, the fees for most of which are not directly affected by changes in energy commodity prices. SUPERIOR PLATFORM FOR CONTINUED EXPANSION. El Paso Energy Partners has an expansive portfolio of organic development opportunities for onshore and offshore announced projects totaling over $800 million and the expertise to continue to execute strategic transactions, as evidenced by the more than $2 billion of construction projects and accretive (in terms of cash flow per unit) acquisitions announced over the last 12 months. DIVERSIFIED PORTFOLIO OF ATTRACTIVE, STRATEGICALLY LOCATED ASSETS. El Paso Energy Partners owns a diversified portfolio of strategically located midstream assets well positioned to capture growth in some of the largest natural gas producing basins in the United States. PROVEN TRACK RECORD OF CASH FLOW DIVERSIFICATION AND LEVERAGE REDUCTION. Since 1998, El Paso Energy Partners has diversified and balanced its asset base in terms of services, businesses, customers and geography by making approximately $3 billion in capital expenditures (including the San Juan assets acquisition), while reducing its financial leverage and increasing its financial flexibility. STEADY GROWTH IN ADJUSTED EBITDA AND QUARTERLY DISTRIBUTIONS. From 1998 to 2001, El Paso Energy Partners' adjusted EBITDA increased at a compound annual growth rate of 45.6%. As a result, El Paso Energy Partners has increased its quarterly distribution rate seven times since 1998, including three increases announced in 2002. STRONG SPONSORSHIP. El Paso Corporation has designated its investment in El Paso Energy Partners as its primary vehicle for growth and development of its midstream energy business. RECENT DEVELOPMENTS COMPLETED ACQUISITIONS In accordance with its business strategy, El Paso Energy Partners has entered into transactions that have further diversified and grown its midstream asset base and expanded its sources of cash flow over the past several months. For example, in April 2002, EPN Holding Company, L.P., a wholly-owned subsidiary of El Paso Energy Partners, acquired from El Paso Corporation midstream energy assets located in New Mexico and Texas for net consideration of $735 million. The acquired assets, which are referred to as the EPN Holding assets, include: - interests in four intrastate natural gas gathering systems, including the EPGT Texas intrastate pipeline system, the largest intrastate pipeline system in Texas based on miles of pipe; - a non-operating interest in a natural gas processing and treating facility; and - a leased interest in a natural gas storage facility. The EPN Holding assets generated approximately $84.5 million of EBITDA for the year ended December 31, 2001. PROJECTS UNDER DEVELOPMENT El Paso Energy Partners also expects to continue to experience organic growth in 2002 and beyond by constructing and operating strategic midstream infrastructure assets onshore and offshore, including the following projects: - a $99 million, 60-mile takeaway pipeline, including a 9,000-horsepower compression station, connected to the Petal facility with design capacity of 1.25 Bcf/d (currently FERC-certified to 700 million cubic feet per day, or MMcf/d), completed in June 2002; - a $58 million, 5.4 Bcf expansion of the Petal natural gas storage facility, including a withdrawal facility and a 20,000 horsepower compression station, located near Hattiesburg, Mississippi, completed in June 2002; - the $28 million, 37-mile Medusa natural gas pipeline extension of El Paso Energy Partners' Viosca Knoll gathering system, expected to be in service in the first quarter of 2003; - the $53 million Falcon Nest fixed-leg platform, expected to be in service during the first quarter of 2003; - the $206 million Marco Polo tension leg platform, or TLP, expected to be in service in 2004; - the $96 million Marco Polo oil and gas pipelines, expected to be in service in 2004; and - the $450 million, 380-mile Cameron Highway Oil Pipeline, expected to be in service by the third quarter of 2004. RECENT FINANCINGS During 2002, El Paso Energy Partners has executed several financings intended to facilitate growth and help achieve its targeted capital structure, including: - raising approximately $149 million in net proceeds through the issuance of 4,083,938 common units in April; - raising approximately $230 million in net proceeds in a private offering of long-term debt securities in May; - entering into the $560 million EPN Holding acquisition and working capital facility, of which $375 million has been repaid to date; and - repaying a $95 million limited recourse term loan used to construct its Prince TLP, which El Paso Energy Partners sold to El Paso Corporation in connection with its April 2002 EPN Holding acquisition. OFFICES Our principal executive offices, and the principal executive offices of El Paso Energy Partners, are located at the El Paso Building, 1001 Louisiana Street, Houston, Texas 77002, and the phone number at this address is (713) 420-2600. SUMMARY OF RISK FACTORS You should be aware that there are various risks relating to an investment in our shares. For more information about these risks, see "Risk Factors." You should carefully consider these risk factors together with all of the other information included in this prospectus before you invest in our shares.

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+PROSPECTUS SUMMARY This summary contains basic information about this offering. It may not contain all of the information that is important to you in making a decision to invest in our common stock. Financial information we designate as "pro forma" gives effect to this offering and to the transactions described under "The Transactions" as if they had occurred on the first day of the periods specified as relates to statement of operations data and gives effect to this offering as if it had occurred on September 30, 2001 as relates to balance sheet data. For a more complete understanding of this offering, we encourage you to read this entire document and the other documents to which we refer in this prospectus. ABOUT OM GROUP, INC. OVERVIEW We are a leading, vertically integrated international producer and marketer of value-added, metal-based specialty chemicals and related materials. We apply proprietary technology to a wide variety of raw material feedstocks to manufacture, market and supply more than 625 different product offerings to more than 1,700 customers in over 30 industries. Our products typically represent a small portion of the customer's total manufacturing or processing costs and are often essential ingredients for superior product performance. For the twelve months ended September 30, 2001, on a pro forma basis, our net sales were $6,227.2 million and our net income before interest, taxes, depreciation and amortization (EBITDA) was $287.2 million. We believe we are the world's leading producer of cobalt-based specialty chemicals and a leading producer of nickel-based specialty chemicals and platinum group metal catalysts and products. During 2000, on a pro forma basis, and excluding net sales of our Metal Management segment, we derived approximately 64% of our net sales from customers in Europe, 25% from customers in the Americas and 11% from customers in Asia-Pacific. As of September 30, 2001, we operated 33 manufacturing facilities worldwide, including 13 in the Americas, 11 in Europe, 7 in Asia-Pacific and 2 in Africa, and employed approximately 4,700 employees in 23 countries. Our business is conducted through three segments: Base Metal Chemistry, Precious Metal Chemistry and Metal Management. <Table> <S> <C> <C> OM GROUP | ------------------------------------------------------- | | | BASE METAL PRECIOUS METAL METAL CHEMISTRY CHEMISTRY MANAGEMENT </Table> <Table> <S> <C> <C> <C> (DOLLARS IN MILLIONS) NET SALES (1) $887.7 $ 1,666.8 $ 3,889.1 ------ ---------- ---------- EBITDA (1) $176.6 $ 31.1 $ 26.3 ------ ---------- ---------- </Table> --------------- (1) Pro forma for the year ended December 31, 2000 Our BASE METAL CHEMISTRY segment develops, processes, manufactures and markets specialty chemicals, powders and related products from various base metals. We emphasize products that leverage our production capabilities and bring value to our customers through superior product performance. These products frequently are essential components in chemical and industrial processes where they facilitate a chemical or physical reaction and/or enhance the physical properties of end-products. Our base metal chemistry products can be found in a variety of applications for catalysts, coatings, colorants, hard metal tools, jet engines, lubricants, fuel and petroleum additives, magnetic media, metal finishing agents, petrochemicals, plastics, printed circuit boards, rechargeable batteries, stainless steel, super alloys and tires. In 2000, we sold these products to over 1,500 customers serving more than 30 industries. Specific examples of applications using our base metal chemistry products include the following: - RECHARGEABLE BATTERIES -- battery-grade mixed metal oxides, low sodium cobalt oxides, cobalt lithium dioxides and spherical nickel hydroxides improve electrical conductivity and extend battery life between charges; - HARD METAL TOOLS -- extra-fine cobalt and tungsten powders enhance strength and durability of diamond-cutting tools and microtools for printed circuit boards and construction applications; - PETROCHEMICALS -- cobalt catalysts remove impurities from oil before refining in order to reduce pollutants; - PLASTICS -- nontoxic mixed-metal, phenol-free stabilizers boost flexibility and allow greater use of polyvinyl chloride in medical applications; and - COLORANTS -- cobalt oxides provide color for pigments, earthenware and glass. We use more than 15 metals as raw materials in this segment, with the most widely used metals being cobalt, nickel and copper. Our base metal chemistry products are generally categorized as organics (produced by reacting metals with organic acids), inorganics (produced by reacting metals with inorganic acids), powders (produced by chemical reactions using heat and/or water-based technologies) and metals (produced by refining metal feedstock). These products are sold in various forms such as solutions, crystals, powders, cathodes and briquettes. Our PRECIOUS METAL CHEMISTRY segment develops, produces and markets specialty chemicals and materials, predominantly from precious metals such as platinum, palladium, rhodium, gold and silver. We also offer a variety of refining and processing services to users of precious metals. Our precious metal chemistry products are used in a variety of applications for automotive catalysts, fuel cells and fuel processing catalysts, chemical catalysts, electronics packaging and electroplating products, jewelry and glass manufacturing for high-definition televisions. In 2000, on a pro forma basis, we sold these products to over 200 customers serving more than a dozen industries. Specific examples of applications using our precious metal chemistry products include the following: - AUTOMOTIVE CATALYSTS -- platinum group metal, or PGM, catalysts reduce toxic emissions of internal combustion engines in order to meet increasingly strict environmental legislation for a wide range of fuels, including gasoline, diesel, natural gas and alternate fuels; - FUEL CELLS -- PGM-based catalysts for membrane electrode assemblies and fuel processing catalysts increase the efficiency of fuel cells and fuel processing systems; and - ELECTRONICS -- silver-based, hermetic sealing materials and ball-grid arrays used in packaging of microelectronic components enable a large number of interconnections and provide package integration. Our METAL MANAGEMENT segment acts as a metal sourcing operation for our other business segments and for our customers, primarily procuring precious metals. The Metal Management segment centrally manages metal purchases and sales by providing the necessary precious metal liquidity, financing and hedging for our other segments. STRATEGY TARGET HIGH GROWTH APPLICATIONS AND VALUE-ADDED PRODUCTS. We target applications that we believe have high growth and high margin potential for our products. For example, we have targeted the growing rechargeable battery and nickel catalyst markets through our acquisition of a nickel refinery in Harjavalta, Finland in April 2000. This acquisition has provided us with a solid base from which to vertically integrate production of nickel chemicals and powders. Other examples of value-added products used in targeted applications include stainless steel powders for automotive pressed metal parts, cobalt salts and powders for rechargeable batteries used in laptop computers and mobile phones, PGM-based catalysts for membrane electrode assemblies and fuel processing catalysts for fuel cells used in stationary and mobile applications. APPLY METAL TECHNOLOGY TO MEET CUSTOMER NEEDS AND DEVELOP NEW PRODUCTS. We are focused on increasing sales of value-added products through our emphasis on research, technology and customer service. For example, we have increased our sales of cobalt extra-fine powders and created new market opportunities in tungsten powders by applying our recycling technology to the needs of our customers in the hard metal tool industry. We also have developed several products, such as electroless nickel-gold for printed circuit boards, through continued responsiveness to customer needs and through joint product development efforts. Through our acquisition of the dmc(2) operations, we have obtained leading technology positions in the development of fuel cell components and automotive catalysts. For example, the flexibility derived from advances in catalyst technology has enabled us to significantly grow the North American sales of the dmc(2) operations by providing customers with automotive catalyst solutions based on multiple precious metals. These new technologies allow our customers the flexibility to choose the most advantageous or cost-effective catalyst solution. CONTINUE TO IMPROVE OUR COST POSITION. We have undertaken several initiatives to improve the leading cost positions we have developed in nickel and cobalt procurement and processing as a result of our vertical integration strategy. Our majority-owned Big Hill smelter facility, which we expect to reach full-scale production by the end of 2001, will expand our base of long-term, low-cost cobalt and copper raw material feedstocks. The conversion of our Harjavalta, Finland nickel refinery from the processing of commodity products to higher value-added products is designed to result in the cost-efficient, vertically integrated production of nickel inorganics and powders. We intend to continue to improve our cost positions in our other product lines as we begin to integrate base metal and precious metal separation and processing technologies. INTEGRATE dmc(2) BUSINESS AND CAPITALIZE ON ACQUISITION-RELATED OPPORTUNITIES. As part of our plan to integrate the dmc(2) business with our other operations, we are focused on combining the best practices of each organization to drive top-line growth, increase manufacturing efficiency and leverage our common technology platforms. The acquisition of the dmc(2) operations will allow us to: - use our combined experience and technical expertise in base metal and precious metal chemistry to develop new products and improve processing technology; - use the combined strength of our respective sales forces to drive growth of precious metal chemistry products in North America, accelerate the growth of our base metal chemistry products in Europe and enhance our presence in Asia; - cross-sell products to existing customers that have both base metal and precious metal chemistry needs; and - enhance our metal management operation by integrating the expertise and scale of our base metal and precious metal procurement capabilities. COMPETITIVE STRENGTHS LEADERSHIP POSITION IN EACH OF OUR CORE PRODUCTS. We believe that as a result of our high quality products, technological capabilities and focus on providing customer service and support, we have achieved leading market positions in the production of metal-based specialty chemicals, materials and powders. We believe we are the world's leading producer, refiner and marketer of cobalt and a leading worldwide producer of cobalt organics, cobalt inorganics, cobalt powders, nickel inorganics, copper powders, automotive catalysts and PGM compounds. DIVERSE GEOGRAPHIC AND CUSTOMER BASE. Following our recent acquisition of the operations of dmc(2), we offer more than 625 products to over 1,700 customers in over 30 industries, including automotive, chemicals, electronics, industrial products and stainless steel. The diversity of the metals used in our products and our worldwide presence are reflected in the following charts: <Table> <S> <C> 2000 PRO FORMA PRODUCT SALES 2000 PRO FORMA SALES BY METAL CONTAINED (1) BY GEOGRAPHY (1)(2) </Table> <Table> <Caption> Percent Percent ------- ------- <S> <C> <C> <C> Precious Metals............................. 65% Americas.................................... 25% Copper...................................... 4% Asia-Pacific................................ 11% Nickel...................................... 16% Europe...................................... 64% Cobalt...................................... 11% Other Base Metals........................... 4% </Table> --------------- (1) Excludes net sales of the Metal Management segment (2) Sales based on customer location TECHNOLOGICAL LEADERSHIP. Our research and new product development program is an integral part of our business. New products introduced in the last five years, including new chemical formulations and new concentrations of components, accounted for over 20% of our pro forma 2000 net sales (excluding net sales of the Metal Management segment). Examples of new products that we have developed and introduced to the marketplace over the last five years include the following: - an electroless nickel-gold process used in printed circuit boards to increase performance and improve product yields; - stainless steel powders used in automotive metal parts to prevent corrosion; - cobalt catalysts used in air bags to provide safety and enhance performance; and - automotive catalysts used in diesel and gasoline direct-injection engines to improve emission control. LEADING RAW MATERIAL SOURCING AND PRODUCTION CAPABILITY. We believe we are the leading producer, refiner and marketer of cobalt and the fifth largest producer of nickel in the world as a result, in part, of our vertical integration strategy. We also believe we are among the world's largest processors of PGMs. Our leading industry positions and long-term relationships with our suppliers provide us with reliable sources of key raw materials. Our major manufacturing plants, all of which have received ISO 9002 certification, are capable of efficiently producing a broad range of metals, specialty chemicals and powders. Our leading refining and metal separation capabilities give us the flexibility to work with a variety of raw materials, including low-grade feedstocks such as slag, concentrates and recycled materials, and transform them into high-quality finished products. The ability to refine and recycle these materials enables us to source many grades of feedstocks at competitive prices and offer recycling services to our customers, giving us a significant advantage in the marketplace. Through our Metal Management segment, we are one of the world's leading precious metals sourcing businesses. EXPERIENCED AND INCENTIVIZED MANAGEMENT TEAM. Our senior management team has an average of over twenty years experience in the chemical industry. Led by Chairman and Chief Executive Officer James P. Mooney, President and Chief Operating Officer Edward "Bud" Kissel and Chief Financial Officer James M. Materna, we have consistently delivered strong operating and financial performance. Our senior management team also has significant experience in executing and integrating acquisitions. Since our initial public offering in 1993, we have successfully integrated thirteen acquisitions. Our management team collectively holds roughly 6% of our common shares on a fully diluted basis, with a significant number of these shares issuable under stock option programs. RECENT DEVELOPMENTS ACQUISITION OF dmc(2) OPERATIONS AND SALE OF BUSINESSES TO FERRO On August 10, 2001, we acquired all of the operations of dmc(2) Degussa Metals Catalysts Cerdec AG from Degussa AG for E1,200.0 million, or approximately $1,072.0 million based on the exchange rate at closing. dmc(2) was a worldwide provider of metal-based functional materials for a wide variety of high-growth end markets and was a leading producer of PGM catalysts and products. On September 7, 2001, we sold the Electronic Materials and Cerdec divisions of dmc(2) to Ferro Corporation for approximately $525.5 million. AMENDMENT TO CREDIT FACILITIES AND ISSUANCE OF BRIDGE NOTES On August 10, 2001, we amended and restated our existing senior secured credit facilities to fund the acquisition of the dmc(2) operations, reduce certain borrowings under our existing revolving credit facility and provide for our ongoing working capital and other financing requirements. The amended credit facilities include $325.0 million in aggregate revolving credit facility commitments and $985.0 million in term loans. We repaid $350.0 million of term loan borrowings with proceeds from the sale of the dmc(2) divisions to Ferro and permanently reduced the related commitment under the credit facilities. In connection with the acquisition of the dmc(2) operations, we also issued $550.0 million of senior subordinated bridge notes. We repaid $173.0 million of the bridge notes with proceeds from the sale of the dmc(2) divisions to Ferro. We repaid the remaining amounts outstanding under the bridge notes with the proceeds from the debt offering described below. DEBT OFFERING On December 12, 2001, we issued $400.0 million of senior subordinated notes due 2011. The net proceeds from this debt offering were used to repay the remaining amounts outstanding under the bridge notes and to repay a portion of the outstanding indebtedness under our credit facilities. The acquisition of the dmc(2) operations, the sale of the dmc(2) divisions to Ferro, the amendments to the credit facilities, the issuance of the bridge notes and the issuance of the senior subordinated notes are collectively referred to in this prospectus as the "Transactions." OTHER ACQUISITIONS On December 21, 2001, we acquired the metal organics business from Rhodia Holdings Limited, including two manufacturing facilities in Bethlehem, Pennsylvania and Manchester, England. The acquisition complements our existing Base Metal Chemistry product offering. We financed the acquisition with debt incurred under our credit facilities. On December 27, 2001, we acquired the mineral rights and chemical processing capabilities of Centaur Mining and Exploration Ltd.'s Cawse operation in Western Australia. This will provide us with approximately 8,000 tonnes per annum of nickel feedstock and approximately 800 tonnes per annum of cobalt feedstock. We funded the acquisition with debt incurred under our credit facilities. THE OFFERING Issuer............................... OM Group, Inc. Common stock offered................. 3,500,000 shares(1) Common stock outstanding after the offering............................. 27,647,273 shares(1)(2) Use of proceeds...................... We expect to use the net proceeds from this offering to repay a portion of our outstanding indebtedness under our credit facilities. See "Use of Proceeds."

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+PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE SERIES 2002-1 CERTIFICATES, YOU SHOULD CAREFULLY READ THIS ENTIRE PROSPECTUS. THE TRUST The trust was formed by a pooling and servicing agreement, dated as of January 1, 1994, among Bombardier Credit Receivables Corporation, as depositor, Bombardier Capital Inc., as servicer and Deutsche Bank Trust Company Americas, as trustee. THE OFFERED CERTIFICATES The trust will issue a new series of certificates designated as the 'Series 2002-1 Certificates.' The new series will include the class A certificates and the class B certificates. <Table> <Caption> CLASS A CLASS B CERTIFICATES CERTIFICATES ------------ ------------ <S> <C> <C> Certificate rate: One-Month One-Month Libor + % Libor + % annually annually Ratings (S&P/Moody's): AAA/Aaa A/A2 First interest payment date: November 15, 2002 November 15, 2002 Scheduled principal payment date: September 2005 September 2005 Distribution Date Distribution Date Legal final payment date: September 2007 September 2007 Distribution Date Distribution Date </Table> The certificate rate of the Series 2002-1 Certificates will be subject to a cap based upon the interest rates of the receivables in the trust less the servicing fee rate. PRINCIPAL PARTIES Issuer: Bombardier Receivables Master Trust I will issue the Series 2002-1 Certificates. Depositor: Bombardier Credit Receivables Corporation which is a wholly-owned subsidiary of Bombardier Capital Inc. Bombardier Credit Receivables Corporation's address is P.O. Box 5544, Burlington, Vermont 05402 and its telephone number is (802) 655-2824. See 'The Depositor and the Trust -- The Depositor' in this prospectus. Servicer: Bombardier Capital Inc. services the receivables on behalf of the trust. Bombardier Capital Inc.'s address is 261 Mountain View Drive, Colchester, Vermont 05446 and its telephone number is (802) 654-8100. See 'Description of the Certificates -- Collection and Other Servicing Procedures' and 'Bombardier Capital Inc.' Trustee: Deutsche Bank Trust Company Americas, a New York banking corporation acts as trustee for the trust. Deutsche Bank Trust Company Americas' address is 100 Plaza One, Jersey City, New Jersey 07310 and its telephone number is (212) 469-8000. See 'Description of the Certificates -- The Trustee.' TRUST ASSETS The assets of the trust include: receivables arising in accounts established by inventory security agreements entered into with dealers under which the dealers receive funds to purchase or finance consumer, recreational and commercial product inventory; the receivables include those which have been added to the trust and those which will be added in the future less receivables paid or charged-off and excluding receivables generated in removed accounts or accounts which are not eligible and receivables removed from the trust from time to time; an assignment of Bombardier Credit Receivables Corporation's rights and remedies concerning the receivables under the receivables purchase agreement; all funds collected or to be collected on the receivables; all funds on deposit in all accounts of the trust, including the reserve funds, the excess funding accounts, the principal account and the collection account; any enhancement provided for the series -- the Series 2002-1 Certificates do not benefit from any enhancement for another series; and an assignment of any security interests in products, contracts or other assets securing the receivables. Interests in the trust will be evidenced by the Series 2002-1 Certificates, investor certificates of other series, the certificate held by the depositor and representing an interest which is partially subordinated to various certificates and the variable funding certificate. Bombardier Credit Receivables Corporation may, at its option, add accounts to the trust including accounts established in connection with the extension of credit to dealers to finance working capital needs and to manufacturers and distributors to finance the production, manufacturing and inventory of consumer, recreational and commercial products. If receivables in the trust fall below required levels, Bombardier Credit Receivables Corporation may be required to designate additional accounts. See 'The Floorplan Financing Business,' 'Description of the Certificates -- Addition of Accounts' and ' -- Removal of Accounts and Assignment of Receivables.' All new receivables arising under the designated accounts during the term of the trust will be transferred by Bombardier Credit Receivables Corporation to the trust. Accordingly, the aggregate amount of receivables in the trust will fluctuate daily as new receivables are generated and as existing receivables are collected, charged off as uncollectible or otherwise adjusted. PRIOR SERIES AND ISSUANCE OF NEW SERIES The trust has issued six prior series of investor certificates, three of which will be outstanding as of the date of issuance of the certificates. Bombardier Credit Receivables Corporation has summarized information concerning the outstanding prior series in Annex I to this prospectus. Annex I is incorporated by reference into this prospectus. Bombardier Credit Receivables Corporation may cause the trust to issue one or more new series of investor certificates. See 'Description of the Certificates -- New Issuances.' DISTRIBUTION DATE All distributions on your certificates will be made on the 15th day of each month or, if the 15th day is not a business day for New York banks, distributions will occur on the next business day. The first interest distribution is scheduled to be made on November 15, 2002. PAYMENT OF PRINCIPAL ON YOUR CERTIFICATES The type of period your certificates are in will determine the method used for allocating collections of receivables and the timing of principal payments to you. From the issuance date to the distribution date in September 2005, unless another period begins during this time, you will not receive principal payments on your certificates. From the September 2005 distribution date, or a later date determined by the servicer, until the amount on deposit is sufficient to pay the principal amount on your certificates unless another period begins before or during this time, a controlled portion of the monthly principal collections allocable to your certificates will be deposited into the principal account. If specified triggering events occur concerning the trust assets, the servicer or Bombardier Credit Receivables Corporation you will receive each month all principal collections allocated to your certificates until your certificates are paid in full. See 'Description of the Certificates -- Early Amortization Events' for a discussion of these triggers. ALLOCATIONS OF COLLECTIONS OF RECEIVABLES AND DEFAULTED RECEIVABLES Varying percentages of collections and receivables in default allocable to the trust for each calendar month will be allocated to Series 2002-1. See 'Description of the Certificates -- Allocation Percentages.' Collections and receivables in default not allocated to the Series 2002-1 Certificates will be allocated to the other certificates issued by the trust. Non-principal collections and receivables in default at all times and principal collections for periods when principal is not being paid or accumulated will be allocated to the Series 2002-1 Certificates daily based on a floating percentage. Generally, this percentage for any calendar month is the percentage, which will never exceed 100%, obtained by dividing the principal amount of the Series 2002-1 Certificates as of each day by the total principal amount of receivables in the trust as of that day. Principal collections allocable to the Series 2002-1 Certificates and not necessary for any deposit or payment for the Series 2002-1 Certificates will be allocated to other certificates issued by the trust in exchange for the allocation to the Series 2002-1 Certificates of an equal interest in the receivables that are new or that would otherwise be allocable to other certificates. See 'Description of the Certificates -- Allocation Percentages,' ' -- Deposits in Collection Account,' ' -- Limited Subordination of the Retained Interest' and ' -- Distributions from the Collection Account; Reserve Fund; Principal Account.' If principal is being paid or accumulated, principal collections generally will be allocated to the Series 2002-1 Certificates based on the percentage obtained by dividing the principal amount of the Series 2002-1 Certificates on the last day when they were not being paid or accumulated by the total principal amount of receivables in the trust. See 'Description of the Certificates -- Allocation Percentages -- Principal Collections for all Series' and ' -- Distributions from the Collection Account; Reserve Fund; Principal Account -- Principal Collections.' INTEREST PAYMENTS You will receive interest monthly on each distribution date, commencing November 15, 2002. The certificates will accrue interest from and including one distribution date to but excluding the next, distribution date. In the case of the first distribution date, interest will accrue beginning on October [ ], 2002 to but excluding November 15, 2002. Interest will be calculated based on the actual number of days elapsed during the related interest period and a 360-day year. <Table> <S> <C> Subject to a variable cap, the class A certificate rate will equal: One Month Libor + % annually Subject to a variable cap, the class B certificate rate will equal: One Month Libor + % annually </Table> The certificate rate for each class of certificates will be subject to a cap based upon the interest rates on the receivables less the rate of the servicing fee. You may be reimbursed for any reduction in the amount of interest you would otherwise have been owed but for this cap on subsequent distribution dates if funds are available. See 'Description of the Certificates -- Distributions from the Collection Account; Reserve Fund; Principal Account.' Interest payments on the Series 2002-1 Certificates will be derived solely from collections other than principal collections for the related calendar month, any amount on deposit in the reserve fund, investment proceeds, if any, and a portion of the collections allocated to the BCRC Certificate. See 'Description of the Certificates -- Interest.' PRINCIPAL PAYMENTS Bombardier Credit Receivables Corporation expects the class A certificates to receive one principal distribution equal to the full principal amount of the class A certificates on the September 2005 distribution date. Bombardier Credit Receivables Corporation expects the class B certificates to receive, after the class A certificates are reduced to zero, a principal distribution equal to the full principal amount of the class B certificates on the September 2005 distribution date. The Series 2002-1 Certificates may also receive principal earlier than expected as described in 'Description of the Certificates -- Early Amortization Events.' The final principal distribution on the Series 2002-1 Certificates will be made not later than the September 2007 distribution date. In addition, on the first distribution date following the monthly period in which an early amortization event occurs, any amounts on deposit in the excess funding account will be distributed to certificateholders. See 'Description of the Certificates -- Distributions from the Collection Account; Reserve Fund; Principal Account.' EXCESS FUNDING ACCOUNT If the receivables in the trust are less than the required amount on the dates described in this prospectus, a deposit to the excess funding account will be required. Amounts in that account will be made available for payment on the Series 2002-1 Certificates as described under 'Description of Certificates -- Credit Support for the Certificates -- Excess Funding Account.' REALLOCATION OF EXCESS PRINCIPAL COLLECTIONS Principal collections and other amounts that are allocated to the Series 2002-1 Certificates and are not needed to make payment to you, may be applied to cover principal distributions to certificateholders or enhancement providers of other series. Principal collections and other amounts allocable to other series during any amortization or accumulation period to the extent they are not needed to make payment for these other series, may be applied as principal distributions or principal accumulation on your certificates. See 'Description of the Certificates -- Allocation Percentages -- Principal Collections for all Series.' CREDIT ENHANCEMENT Retained Interest: A portion of the collections allocated to the interest in the trust represented by the BCRC Certificate retained by Bombardier Credit Receivables Corporation will be available to cover amounts payable on the Series 2002-1 Certificates and the monthly servicing fee described below. See 'Description of the Certificates -- Retained Interest and Variable Funding Certificate.' If collections other than principal collections, investment proceeds, amounts in the reserve fund and other amounts allocable to the Series 2002-1 Certificates for any monthly period are not sufficient to cover: the interest payable on the Series 2002-1 Certificates on the next distribution date; the amount of overdue interest and the interest due on this amount, if any; the net servicing fee; any allocations to the Series 2002-1 Certificates of defaults on the receivables; and any amounts required to be paid by Bombardier Credit Receivables Corporation as a result of adjustments to the balances of the receivables, then a portion of the collections allocated to the interest represented by a certificate held by the depositor and representing the retained interest will be applied to make up the deficiency. Collections of receivables are allocated to our interest as well as to the interests in the trust owned by you and other holders of investor certificates. A portion of the amounts allocated to our interests is, however, subordinated and, if needed will be diverted to make payments on the investors' certificates. It is expected that this subordinated amount for the November 15, 2002 distribution date will be no less than $26,190,476. This subordinated amount for subsequent distribution dates will fluctuate as described under 'Description of the Certificates -- Limited Subordination of the Retained Interest.' Subject to limitations, the portion of our interest available to make payments on the Series 2002-1 Certificates may be increased at our option. See 'Description of the Certificates -- Limited Subordination of the Retained Interest.' Reserve Fund: A reserve fund will be established and maintained in the name of the trustee for the benefit of the Series 2002-1 Certificates. On the date the certificates are issued, Bombardier Credit Receivables Corporation will deposit in the reserve fund an amount no less than $2,250,000 plus an amount to be used to pay interest on the certificates on the first distribution date. Any amounts on deposit in the reserve fund will be withdrawn to make payments of interest on the Series 2002-1 Certificates and the net servicing fee for the Series 2002-1 Certificates and to cover the amount of defaults allocated to the Series 2002-1 Certificates if non-principal collections and investment proceeds are not sufficient. Funds withdrawn from the reserve fund may be replenished, in the circumstances described under 'Description of the Certificates -- Distributions from the Collection Account; Reserve Fund; Principal Account.' Subordination: The class A certificates have the benefit of the subordination of the class B certificates to the extent described in this prospectus. The class A certificates will receive payments of interest prior to any payment of interest to the class B certificates on any distribution date. In addition, no principal payments will be made with respect to the class B certificates until the principal balance of the class A certificates is reduced to zero. See 'Description of the Certificates.' FEDERAL INCOME TAX CONSEQUENCES The material tax consequences to you are described under 'Material Federal Income Tax Consequences.' As more fully set forth in that section, Sidley Austin Brown & Wood LLP, special U.S. tax counsel to the depositor and trust, is of the opinion that, although no transaction closely comparable to the issuance of the certificates has been the subject of any Treasury regulation, public ruling or judicial decision, for federal income tax purposes, the certificates will be characterized as indebtedness, and the trust will not be subject to an entity- level federal income tax. You will agree by accepting the certificates to treat the certificates as debt for federal income tax purposes. By purchasing the certificates, you agree to treat the certificates as indebtedness for all federal, state and local tax purposes. ERISA CONSIDERATIONS Generally, you may not acquire class A certificates or class B certificates if you are purchasing with the assets of a retirement plan, individual retirement plan or other employee benefit plan. See 'ERISA Considerations.' RATINGS The Series 2002-1 Certificates will not be offered unless they receive the ratings indicated on page 5 of this prospectus. A RATING IS NOT A RECOMMENDATION TO BUY, SELL OR HOLD SECURITIES AND EITHER RATING AGENCY CAN REVISE OR WITHDRAW ITS RATING AT ANY TIME. IN GENERAL RATINGS ADDRESS CREDIT RISK AND DO NOT ADDRESS THE LIKELIHOOD OF PREPAYMENT. See 'Risk Factors -- Reduction in the Certificate Rating of Your Certificates Could Have an Adverse Effect on the Value of Your Certificates.'

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+SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the "Risk Factors" and "Cautionary Statement Concerning Forward-Looking Statements" sections and our historical consolidated financial statements and the notes to those financial statements, before making an investment decision. As used in this prospectus, unless the context otherwise requires, references to "Travelers," "we," "us," and "our" refer to Travelers Property Casualty Corp. (formerly known as The Travelers Insurance Group Inc.), a Connecticut corporation, and its consolidated operations, and any reference to "TIGHI" refers to our wholly-owned subsidiary, Travelers Insurance Group Holdings Inc. (formerly known as Travelers Property Casualty Corp.), a Delaware corporation, and its consolidated operations. However, except where indicated, these references and the other information in this prospectus do not include those operations that will be transferred by us prior to the completion of this offering as part of our corporate reorganization described below. Unless the context otherwise requires, references to "Citigroup" refer to Citigroup Inc. and its subsidiaries other than Travelers. References to "common stock" refer collectively to our class A common stock and our class B common stock. We are a holding company and have no direct operations. Our principal asset is the capital stock of TIGHI and its insurance subsidiaries. This prospectus contains terms that are specific to the insurance industry and may be technical in nature. We have included a glossary of these terms, commencing on page G-1. OUR COMPANY We are a leading property and casualty insurance company in the United States. We provide a wide range of commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals. We conduct our operations through our wholly-owned subsidiaries in two business segments: Commercial Lines, which provides a variety of commercial coverages to a broad spectrum of business clients, and Personal Lines, which primarily offers automobile and homeowners insurance to individuals. Commercial coverages and personal coverages accounted for 58% and 42%, respectively, of our combined net written premiums for the year ended December 31, 2001. After giving pro forma effect to this offering and the concurrent offering of our convertible notes, and the use of the proceeds from the offerings, our corporate reorganization and related transactions, at December 31, 2001, we had total assets and shareholders' equity of $57.6 billion and $9.8 billion, respectively. We are an indirect wholly-owned subsidiary of Citigroup. Citigroup is a diversified holding company whose businesses provide a broad range of financial services to consumer and corporate customers around the world. COMMERCIAL LINES We are the third largest writer of commercial lines insurance in the United States based on 2000 direct written premiums as compiled and published by A.M. Best. Our Commercial Lines segment offers a broad array of property and casualty insurance and insurance-related services to our clients. Commercial Lines is organized into the following five marketing and underwriting groups, each of which focuses on a particular client base or product grouping to provide products and services that specifically address clients' needs: - National Accounts provides large corporations with casualty products and services and includes our residual market business which offers workers' compensation products and services to the involuntary market; - Commercial Accounts provides property and casualty products to mid-sized businesses, property products to large businesses and boiler and machinery products to businesses of all sizes, and includes dedicated groups focused on the construction industry, trucking industry, agribusiness, and ocean and inland marine; TABLE OF CONTENTS <Table> <S> <C> Summary..................................................... 1 Risk Factors................................................ 11 Cautionary Statement Concerning Forward-Looking Statements................................................ 21 Company History............................................. 21 Use of Proceeds............................................. 22 Dividend Policy............................................. 22 Dilution.................................................... 23 Capitalization.............................................. 24 Selected Historical Financial Information................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 27 Business.................................................... 54 Management.................................................. 83 Ownership of Common Stock................................... 101 Arrangements Between Our Company and Citigroup.............. 102 Description of Capital Stock................................ 113 Description of the Notes.................................... 123 Certain Indebtedness........................................ 125 Shares Eligible for Future Sale............................. 127 Certain United States Federal Tax Consequences to Non-U.S. Holders................................................... 129 Underwriting................................................ 131 Legal Matters............................................... 136 Experts..................................................... 136 Where You Can Find More Information......................... 136 Glossary of Selected Insurance Terms........................ G-1 Index to Consolidated Financial Statements.................. F-1 </Table> - Select Accounts provides small businesses with property and casualty products, including packaged property and liability policies; - Bond provides a wide range of customers with specialty products built around our market leading surety bond business along with an expanding executive liability practice; and - Gulf serves all sizes of customers through specialty programs, with particular emphasis on management and professional liability products. The commercial coverages which we market include workers' compensation, general liability, including product liability, multiple peril, commercial automobile, property including fire and allied lines, and a variety of other coverages. We also underwrite specialty coverages, including general liability for selected product liability risks, umbrella and excess liability coverage, directors' and officers' liability insurance, errors and omissions insurance, fidelity and surety bonds, excess SIPC protection, fiduciary liability insurance and other professional liability insurance. In addition, we offer various risk management services, generally including claims management, loss control and engineering services, to businesses that choose to self-insure some exposures, to states and insurance carriers that participate in state involuntary workers' compensation pools and to employers seeking to manage workers' compensation medical and disability costs. We distribute our commercial products through approximately 6,300 independent agencies and brokers located throughout the United States, supported by a network of approximately 80 field offices and two customer service centers. We have made significant investments in enhanced technology utilizing Internet-based applications that make doing business with us easier and more efficient for our independent agencies and brokers. For the year ended December 31, 2001, Commercial Lines generated net written premiums of approximately $5.7 billion. PERSONAL LINES We are the second largest writer of personal lines insurance through independent agents and the eighth largest writer of personal lines insurance overall in the United States, based on 2000 direct written premiums as compiled and published by A.M. Best. We write most types of property and casualty insurance covering personal risks. Personal Lines had approximately 5.4 million policies in force at December 31, 2001. The primary coverages in Personal Lines are personal automobile and homeowners insurance sold to individuals. Personal Lines products are distributed primarily through approximately 7,600 independent agencies located throughout the United States, supported by personnel in 12 marketing regions and six customer service centers. We have made significant investments in enhanced technology utilizing Internet-based applications that make doing business with us easier and more efficient for our independent agents. We also market through additional distribution channels, including sponsoring organizations such as employers' and consumer associations, and joint marketing arrangements with other insurers. For the year ended December 31, 2001, Personal Lines generated net written premiums of approximately $4.1 billion. OUR COMPETITIVE ADVANTAGES We believe that we are uniquely positioned within the property and casualty insurance industry to benefit from an improving underwriting environment. Our competitive advantages are based on: - superior financial strength as a result of strong capitalization levels and consistent operating returns; - a recognized brand name with leading market positions, broad scale and product breadth in many commercial and personal product lines and geographies; - an experienced management team with a broad complement of skills; - a consistent record of strong operating returns which are driven by a performance-based management and underwriting culture; - proprietary management information systems that support detailed attention to risk management and returns analysis in order to maximize underwriting results; - demonstrated long-term commitment to the independent agency and broker distribution system with a consistent underwriting philosophy; - industry-leading technology which enables us to cost effectively provide differentiated service to agents and customers; and - proven acquisition and integration expertise which will allow us to participate in consolidation within the property and casualty industry. OUR STRATEGY Management has established the following key strategic objectives for us: FOCUS ON CORE PRODUCT LINES USING A DISCIPLINED AND PERFORMANCE-BASED UNDERWRITING APPROACH We will continue to focus on our core property and casualty insurance product lines and markets for which we have developed selective and consistent underwriting policies that have been demonstrated to be effective over time. We emphasize a profit-oriented approach to underwriting rather than focusing on premium volume or market share. MAINTAIN FINANCIAL STRENGTH We believe that we are well capitalized and that our financial strength creates a competitive advantage in retaining and attracting business. We plan to maintain our sound financial position through selective underwriting practices and a high quality investment portfolio. ENHANCE OUR POSITION AS A COST-EFFECTIVE PROVIDER OF PROPERTY AND CASUALTY INSURANCE We believe that a critical competitive advantage in the property and casualty insurance industry is our success in controlling expense ratios. Our low expense ratios combined with superior risk selection and excellent execution allow for both competitive pricing and appropriate underwriting returns. EMPHASIZE CUSTOMER-ORIENTED FOCUS We continue to provide new products and services within our core product lines and markets to foster simpler, closer relationships with customers, including agents, brokers and insureds. We also enhance customer relations by providing timely, responsive pricing quotes and claims service. MANAGE DISTRIBUTION RELATIONSHIPS AND CAPITALIZE ON OUR BRAND NAME AND BROAD PRODUCT OFFERINGS We maintain strong relationships with our distribution force. As a result of our recognized franchise and our broad array of insurance products and services and specialized expertise, we are able to offer our agents and brokers significant product expansion opportunities. LEVERAGE TECHNOLOGY TO IMPROVE SERVICE AND ENHANCE OUR AGENCY DISTRIBUTION CHANNELS We have been a leading developer of technology-based solutions for the insurance industry, which enable our independent agents to quote and issue policies directly from their agencies. The technologies we have developed provide an ease-of-doing-business environment with our distribution force, which we believe is a significant competitive advantage. ACTIVELY PARTICIPATE IN INDUSTRY CONSOLIDATION We have successfully acquired and integrated companies as a means to grow our company. Our market presence and strong balance sheet and cash flow, together with management's demonstrated experience, create an effective platform for our participation in industry consolidation. UTILIZE SOPHISTICATED MODELING AND RAPID RESPONSE SYSTEMS TO MANAGE CATASTROPHIC EXPOSURE We control exposure in high-risk areas through a variety of underwriting approaches, including the employment of sophisticated computer modeling techniques to analyze significant natural catastrophe exposures and establish geographic limits on policy writing designed to maximize returns on catastrophe exposed business. We have also developed a state-of-the-art rapid response catastrophe claims unit. EMPLOY DEDICATED SPECIALISTS AND AGGRESSIVE RESOLUTION STRATEGIES TO MANAGE ENVIRONMENTAL AND ASBESTOS LOSS EXPOSURE Our environmental and asbestos claims are managed by a dedicated group of professionals which has operated as a separate unit since 1986. We believe that this approach gives us consistency in claims handling and policy coverage interpretation and facilitates our early identification of exposures and aggressive resolution of coverage uncertainties. COMPANY HISTORY Our predecessor companies have been in the insurance business for more than 130 years. We are a Connecticut corporation that was formed in 1979. Recently we changed our name from The Travelers Insurance Group Inc. to Travelers Property Casualty Corp. In December 1993, Citigroup acquired us. In January 1996, we formed TIGHI to hold our property and casualty insurance subsidiaries. In April 1996, TIGHI purchased from Aetna Services, Inc. all of the outstanding capital stock of Aetna's significant property and casualty insurance subsidiaries for approximately $4.2 billion in cash. In April 1996, TIGHI also completed an initial public offering of its common stock. During April 2000, we completed a cash tender offer and merger, as a result of which TIGHI became our wholly-owned subsidiary. In the tender offer and merger, we acquired all of TIGHI's outstanding shares of common stock not owned by us, representing approximately 14.8% of its outstanding common stock, for approximately $2.4 billion in cash financed by a loan from Citigroup. The "Company History" section later in this prospectus includes a discussion and analysis of the costs and benefits to Citigroup and us in connection with the tender offer and merger. DIVIDENDS PAYABLE In February 2002, our board of directors declared a dividend of $1.0 billion to Citigroup in the form of a non-interest bearing note payable on December 31, 2002. We expect to repay this note from future earnings, to the extent available. We refer to this note in this prospectus as the "2002 note." In February 2002, our board of directors also declared a dividend of $3.7 billion to Citigroup in the form of a $3.7 billion note payable in two installments. The first installment of $150 million will be payable in May 2004 and the second installment of $3.55 billion will be payable in February 2017. This note begins to bear interest after May 9, 2002 at a rate of 7.25% per annum. This note may be prepaid at any time in whole or in part without penalty or premium. We expect that substantially all of this note will be prepaid with the proceeds of the offerings. We refer to this note in this prospectus as the "special note." OUR CORPORATE REORGANIZATION Prior to the completion of this offering, we will effect a corporate reorganization, under which: - we will transfer substantially all of our assets to Citigroup, other than the capital stock of TIGHI; - Citigroup will assume all of our third-party liabilities, other than liabilities relating to TIGHI and TIGHI's active employees; - we will effect a recapitalization whereby the then outstanding shares of our common stock, all of which are owned by Citigroup, will be exchanged for at least 269,000,000 shares of class A common stock and 500,000,000 shares of class B common stock. The number of shares of class A common stock to be owned by Citigroup may be increased by up to an additional 21,000,000 shares (for a total of 290,000,000 shares of class A common stock), to the extent that the underwriters do not exercise their option to purchase class A common stock to cover over-allotments; and - we will amend and restate our certificate of incorporation and bylaws. In this prospectus, we refer to these transactions as our "corporate reorganization." In addition, we sold the stock of CitiInsurance International Holdings Inc. on February 28, 2002 to Citigroup for $403 million, its net book value. We have applied $138 million of the proceeds from this sale to repay intercompany indebtedness to Citigroup. As a result of the corporate reorganization and the sale of CitiInsurance, TIGHI and its insurance subsidiaries will be our principal asset. THE TAX-FREE DISTRIBUTION We are currently an indirect wholly-owned subsidiary of Citigroup. After the completion of this offering, Citigroup will beneficially own all of our outstanding class B common stock and 290 million shares of our class A common stock, representing 94.8% of the combined voting power of all classes of our voting securities and 79% of the equity interest in us, assuming the over-allotment option is not exercised. Citigroup has informed us that by year-end 2002 it plans to make a tax-free distribution to its stockholders of a portion of its ownership interest in us, which, together with the shares being issued in this offering, will represent approximately 90.1% of our common equity (more than 90% of the combined voting power of our then outstanding voting securities). In this prospectus, we refer to this proposed transaction as the "distribution." Following the distribution, Citigroup would remain a holder of approximately 9.9% of our common equity (less than 10% of the combined voting power of our outstanding voting securities). The distribution and Citigroup's continued ownership of shares thereafter are subject to Citigroup's receipt of a private letter ruling from the Internal Revenue Service that the distribution will be tax-free to Citigroup, its stockholders and us, as well as various other conditions. These other conditions may include receipt of any necessary third-party consents and regulatory approvals, the existence of satisfactory market conditions and the satisfaction of any conditions which may be imposed by the Internal Revenue Service. It is expected that the ruling will require Citigroup to divest the remaining shares it holds within five years following the distribution and to vote the shares it continues to hold following the distribution pro rata with the shares held by the public. We cannot assure you that the conditions to the distribution will be satisfied or that Citigroup will consummate the distribution. In any event, Citigroup has no obligation to consummate the distribution by the end of 2002 or at all, whether or not these conditions are satisfied. BENEFITS OF THE DISTRIBUTION We will be focused on the property and casualty insurance industry. Separation of our company from Citigroup will allow our management and board of directors to focus on the property and casualty industry. Strategic decisions about our business opportunities would not need to be coordinated with the strategies and opportunities of Citigroup. Management incentives can be directly aligned with shareholder interests. Management incentives can be designed with a significant equity component. As a stand-alone property and casualty company, compensation of management can be directly aligned with the performance of our common stock. We believe strongly in the performance leverage of this concept. We will have greater capital management flexibility. Separation of our company from Citigroup would also benefit us by enhancing our capital planning flexibility. We would no longer have to compete with other Citigroup operations for funding from Citigroup. We believe that the property and casualty industry is fragmented and that there will be a significant number of consolidation opportunities. As a separate company, we would be able to invest retained earnings in growing our business and in acquisitions, or alternatively, in achieving earnings per share growth through share repurchases. Our regulatory environment will be simplified. As a subsidiary of Citigroup, we comply with all insurance company regulatory requirements, as well as Bank Holding Company Act regulations. Once separate from Citigroup, we will no longer be subject to Bank Holding Company Act regulations. This will simplify our regulatory compliance and put us in a regulatory position consistent with our competition. We will benefit from the elimination of real and perceived distribution conflicts. We distribute the vast majority of our products through independent agencies and brokers. Agencies and brokers can choose from a number of insurance companies. We believe that they will be attracted to a company clearly dedicated to the property and casualty business and committed to the independent agency system. ------------------ Our principal executive offices are located at One Tower Square, Hartford, Connecticut 06183, and our telephone number is (860) 277-0111. ------------------ THE OFFERING Class A common stock: U.S. offering............... 168,000,000 shares International offering...... 42,000,000 shares Total.................... 210,000,000 shares Common stock to be outstanding after this offering........... 500,000,000 shares of class A common stock 500,000,000 shares of class B common stock Common stock to be held by Citigroup following this offering.................... 290,000,000 shares of class A common stock 500,000,000 shares of class B common stock Use of proceeds............... We will use the net proceeds to prepay intercompany indebtedness to Citigroup. Dividend policy............... We intend to pay quarterly cash dividends on all classes of our common stock at an initial rate of $0.06 per share of common stock, commencing in the first quarter of 2003, subject to financial results and declaration by our board of directors. See "Dividend Policy" for a discussion of the factors that will affect the determination by our board of directors to declare dividends, as well as other matters concerning our dividend policy. Voting rights Class A common stock........ One vote per share Class B common stock........ Seven votes per share New York Stock Exchange symbol........................ We have applied to list our class A common stock on the New York Stock Exchange under the symbol "TAP.A." CONCURRENT OFFERING We are also offering, in a concurrent offering, $850 million aggregate principal amount of our % convertible junior subordinated notes due 2032, plus up to an additional $42.5 million aggregate principal amount of notes if the over-allotment option for that offering is exercised in full. For additional information regarding our notes, see the section of this prospectus entitled "Description of the Notes." Unless otherwise indicated, all information in this prospectus: - assumes the consummation of our corporate reorganization, including the recapitalization, whereby the then outstanding shares of our common stock, all of which are owned by Citigroup, will be exchanged for at least 269,000,000 shares of class A common stock and 500,000,000 shares of class B common stock. The number of shares of class A common stock to be owned by Citigroup may be increased by up to an additional 21,000,000 shares (for a total of 290,000,000 shares of class A common stock), to the extent that the underwriters do not exercise their option to purchase class A common stock to cover over-allotments; - assumes the over-allotment option has not been exercised; - excludes approximately 16.9 million shares of class A common stock, assuming an initial public offering price at the mid-point of the offering range for the class A common stock, issuable upon the exercise of stock options to be issued on the date of this offering, none of which are currently exercisable, at an exercise price equal to the initial public offering price; - excludes an indeterminate number of shares of our restricted common stock which we may use to replace Citigroup restricted stock held by our employees and an indeterminate number of shares of common stock issuable upon the exercise of options which will be granted in exchange for Citigroup options we may assume, if and when the distribution occurs. If the distribution were to occur today, the aggregate number of restricted shares we would issue and shares subject to options we would grant in connection with the replacement and exchange of Citigroup awards would be approximately 4.6 million shares of our common stock and 86.2 million shares of our common stock, respectively; and - excludes a maximum of shares of our class A common stock that may be initially issuable in the future upon conversion of the notes being offered in the concurrent offering of notes, or a maximum of shares if the over-allotment option for that offering is exercised in full. SUMMARY FINANCIAL DATA The summary financial data for each of the fiscal years in the three-year period ended December 31, 2001 have been derived from our audited financial statements. See "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our financial statements retroactively reflect our corporate reorganization for all periods presented. All financial data and ratios presented in this prospectus have been prepared using U.S. generally accepted accounting principles, unless otherwise indicated. <Table> <Caption> YEAR ENDED DECEMBER 31, -------------------------- 2001 2000 1999 ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> INCOME STATEMENT DATA: Revenues: Premiums.................................................. $9,411 $8,462 $8,009 Net investment income..................................... 2,034 2,162 2,093 Fee income................................................ 347 312 275 Realized investment gains................................. 323 47 112 Other revenues............................................ 116 88 84 ------ ------ ------ Total revenues......................................... 12,231 11,071 10,573 ------ ------ ------ Claims and expenses: Claims and claim adjustment expenses...................... 7,765 6,473 6,059 Amortization of deferred acquisition costs................ 1,539 1,298 1,260 Interest expense.......................................... 205 296 238 General and administrative expenses....................... 1,333 1,140 1,177 ------ ------ ------ Total claims and expenses.............................. 10,842 9,207 8,734 ------ ------ ------ Income before federal income taxes, minority interest and cumulative effect of changes in accounting principles................ 1,389 1,864 1,839 Federal income taxes........................................ 327 492 479 ------ ------ ------ Income before minority interest and cumulative effect of changes in accounting principles.......................... 1,062 1,372 1,360 Minority interest, net of tax............................... -- 60 224 ------ ------ ------ Income before cumulative effect of changes in accounting principles................................................ 1,062 1,312 1,136 Cumulative effect of changes in accounting principles(a).... 3 -- (112) ------ ------ ------ Net income.................................................. $1,065 $1,312 $1,024 ====== ====== ====== Pro forma earnings per share(b)............................. $ 1.06 N/A N/A ====== ====== ====== Dividends per common share(c)............................... $ 0.53 -- -- ====== ====== ====== </Table> <Table> <Caption> YEAR ENDED DECEMBER 31, -------------------------- 2001 2000 1999 ------ ------ ------ (DOLLARS IN MILLIONS) <S> <C> <C> <C> OTHER DATA: Statutory data(d): Ratio of net premiums written to surplus.................. 1.36x 1.28x 1.07x Policyholders' surplus (at period end).................... $7,687 $6,904 $7,656 Loss and loss adjustment expense (LAE) ratio(e)........... 80.7% 75.1% 74.3% Underwriting expense ratio(e)............................. 27.3 27.0 28.8 Combined ratio before policyholder dividends(e)........... 108.0 102.1 103.1 Combined ratio(e)......................................... 108.3 102.5 103.7 Statutory industry data: Combined ratio for property and casualty insurers......... 114.4(f) 110.4 107.9 </Table> <Table> <Caption> AS OF DECEMBER 31, 2001 ------------------------- AS ACTUAL ADJUSTED(G) ------- -------------- (IN MILLIONS) <S> <C> <C> BALANCE SHEET DATA: Total investments........................................... $32,619 $32,884 Total assets................................................ 57,778 57,640 Claims and claim adjustment expense reserves................ 30,737 30,737 Total debt.................................................. 2,077 2,855 Total liabilities........................................... 46,192 46,972 TIGHI-obligated mandatorily redeemable securities of subsidiary trusts holding solely junior subordinated debt securities of TIGHI..................................................... 900 900 Shareholders' equity........................................ 10,686 9,768 Shareholders' equity excluding accumulated other changes in equity from nonowner sources........................... 10,444 9,526 </Table> --------------- (a) Cumulative effect of changes in accounting principles, net of tax (1) for the year ended December 31, 2001 includes a gain of $4 million as a result of a change in accounting for derivative instruments and hedging activities and a loss of $1 million as a result of a change in accounting for securitized financial assets; and (2) for the year ended December 31, 1999 includes a loss of $135 million as a result of a change in accounting for insurance-related assessments and a gain of $23 million as a result of a change in accounting for insurance and reinsurance contracts that do not transfer insurance risk. (b) The unaudited pro forma earnings per share amounts reflect the recapitalization we will effect as part of our corporate reorganization. Pro forma earnings per share does not include the effects of our Capital Accumulation Program and Stock Option Plan described in the section of this prospectus entitled "Arrangements Between Our Company and Citigroup -- Intercompany Transactions During the Past Three Years" as these plans utilize Citigroup common stock. Conversion of the Citigroup common stock in these plans to our common stock is contingent upon the distribution occurring. Pro forma earnings per share also does not reflect conversion of our convertible junior subordinated notes. (c) Dividends per common share amounts reflect the recapitalization we will effect as part of our corporate reorganization. (d) Our statutory data have been derived from the financial statements of our insurance subsidiaries prepared in accordance with statutory accounting practices and filed with insurance regulatory authorities. (e) The loss and LAE ratio represents the ratio of incurred losses and loss adjustment expenses to net premiums earned. The underwriting expense ratio represents the ratio of underwriting expenses incurred to net premiums written. The combined ratio represents the sum of the loss and LAE ratio and the underwriting expense ratio and, where applicable, the ratio of dividends to policyholders to net earned premiums. (f) Information provided is for the nine months ended September 30, 2001 for the companies included in the A.M. Best Industry Composite. (g) The as adjusted amounts give effect to the following transactions as if they had occurred on December 31, 2001: (1) our receipt of assumed net proceeds of $4.3 billion from the offerings and the use of these proceeds to prepay indebtedness to Citigroup, (2) the sale of CitiInsurance International Holdings Inc. to Citigroup on February 28, 2002 for $403 million and our application of $138 million of the proceeds to repay indebtedness to Citigroup, (3) the issuance of the special note to Citigroup in a principal amount of $3.7 billion in February 2002 and (4) the issuance of the $1.0 billion 2002 note to Citigroup in February 2002. If the offering is priced at or above the mid-point of the offering price range for the class A common stock, $150 million of intercompany indebtedness will remain outstanding (in addition to the $500 million outstanding under a line of credit from Citigroup and the $1.0 billion outstanding on the 2002 note). In all other cases, $400 million of intercompany indebtedness will remain outstanding (in addition to the $500 million under the line of credit and the $1.0 billion outstanding on the 2002 note.)

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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus and may not contain all of the information that is important to you. To understand this offering fully, you should read the entire prospectus carefully, including the discussion under "Risk Factors" and the financial statements and related notes, before you decide whether to buy our common stock. In this prospectus, "we," "us" and "our" refer to Movie Gallery, Inc. and its subsidiaries. Unless we state otherwise, all financial information and share and per share data in this prospectus assume that the underwriters do not exercise their over-allotment option, exclude shares reserved for issuance under our stock option plan and give effect to the two 3-for-2 stock splits effected as stock dividends paid on each of August 31, 2001 and January 3, 2002. OUR COMPANY We are the leading home video specialty retailer primarily focused on rural and secondary markets. We own and operate over 1,475 retail stores, located in 42 states and five Canadian provinces, that rent and sell videocassettes, DVDs and video games. Our target markets are small towns and suburban areas of cities with populations generally between 3,000 and 20,000 where our primary competitors are typically independently owned stores and small regional chains. Since our initial public offering in August 1994, we have grown from 97 stores to our present size through acquisitions and new store openings. We believe we are the lowest cost operator among the leading national home video specialty retail chains. We have developed and implemented a flexible and disciplined business strategy that centers on driving revenue growth, maximizing store level productivity and profitability and minimizing operating costs. By focusing primarily on rural and secondary markets, we are able to reduce our operating costs through lower rents, flexible leases, reduced labor costs and economies of scale while simultaneously offering an attractive product assortment. As a result of our competitive strengths, our operating and growth strategies and our management team, we have achieved substantial growth over the past six fiscal years. From fiscal 1995, the first full year of operations following our initial public offering, to fiscal 2001, we have grown total revenues from $149.2 million to $369.1 million, a compound annual growth rate of 16.3%, and have grown Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, non-cash compensation and nonrecurring items, less purchases of rental inventory, exclusive of new store opening inventory) from $8.8 million to $61.6 million, a compound annual growth rate of 38.4%. INDUSTRY OVERVIEW According to Adams Media Research, the domestic home video specialty retail industry grew from an estimated $15.3 billion in revenue in 1996 to $20.6 billion in 2001, representing a 6.1% compound annual growth rate, exceeding the 2.5% growth rate of the consumer price index during the same period. Adams Media expects this industry to reach $31.2 billion in revenue by 2010, fueled primarily by DVD penetration. Currently, 90% of all television households own a VCR and approximately 23% own a DVD player. According to Adams Media, the number of households owning DVD players is expected to increase from approximately 24.8 million at the end of 2001 to approximately 90.4 million by 2010. Based on our experience, we believe that for a period of time after a household purchases a DVD player, there is a direct increase in both rentals and purchases. According to Adams Media, home video is currently the largest source of domestic revenue for the movie studios, accounting for approximately 56% of the $19.7 billion of studio revenues in 2001. Only a small percentage of the movies produced are profitable from the studios' portion of theatrical box office receipts. As a result, the movie studios depend on the revenues earned from the home video industry to produce substantial revenues from not only the hit movies, but the lower grossing non-hit and made-for-video movies. Additionally, the movie studios have created an exclusive window provided to the home video industry for a period of time following the box office introduction of a film to maximize their revenue. We believe this interdependence of the movie studios with the home video industry should remain an important competitive advantage for our industry in the future. FORWARD-LOOKING STATEMENTS We make forward-looking statements in this prospectus which represent our expectations or beliefs about future events and financial performance. Forward-looking statements are identifiable by words such as "believe," "anticipate," "expect," "intend," "plan," "will," "may" and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements are subject to known and unknown risks and uncertainties, including those described under "Risk Factors" and elsewhere in this prospectus. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. In addition, actual results could differ materially from those suggested by the forward-looking statements, and therefore you should not place undue reliance on the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that could cause actual results to differ materially from our expectations include the following: - our ability to continue to expand, including our ability to successfully open new stores; - our ability to acquire new stores; - our ability to successfully integrate and improve the performance of the recently acquired Video Update stores; - changes in our method of amortizing rental inventory; - alteration of movie distribution windows; - the effects of new and existing technology; - changes in product pricing and distribution methods of movie studios; - competitive factors; - weather conditions within our geographic markets; - adequate movie and game product availability at acceptable overall per unit costs; and - adverse results from ongoing class-action lawsuits against us. In addition to DVD penetration, a number of additional trends are affecting the video rental industry, including: - greater consolidation driven by the competitive impact of larger chains on small operators; - product pricing strategies, such as revenue sharing, that maximize movie rentals and allow retailers to carry a greater number of copies of individual movie titles; and - a new hardware cycle in the video game industry. COMPETITIVE STRENGTHS We believe we have a number of competitive strengths that enable us to be the market leader in the majority of our markets, including: - our primary focus on stores in rural and secondary markets; - our efforts to be the low cost operator in each of our markets; - our flexible and disciplined business model designed to maximize revenues and reduce costs; - our proven acquisition and integration strategy; - our proprietary information system; - our focus on customer service; and - our experienced management team. GROWTH STRATEGY The key elements of our growth strategy are to: - drive same store revenues and enhance operating margins; - develop new stores in attractive markets; and - pursue opportunistic acquisitions. RECENT EARNINGS ANNOUNCEMENT On May 10, 2002, we announced our financial results for the first quarter of 2002. Our revenues for the quarter, a 13-week period ended April 7, 2002, were $123.1 million, an increase of 34.5% from $91.6 million for the first quarter of 2001, a 13-week period ended April 1, 2001. Our net income for the first quarter of 2002 increased 145.7% to $9.9 million from $4.0 million in the first quarter last year, and net income per diluted share rose 118.8% to $0.35 from $0.16. The results for the 13-week period ended April 7, 2002 include the effect of our adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. Our net income per diluted share for the 13-week period ended April 1, 2001 would have been $0.19 if Statement No. 142 had been adopted at the beginning of 2001. Our pro forma net income increased 83.1% to $10.0 million for the first quarter of 2002 from $5.5 million for the first quarter of 2001. Pro forma earnings per diluted share rose 66.7% to $0.35 from $0.21. Pro forma results for both periods exclude the income statement impact of non-cash compensation expense resulting from variable stock options. For 2001, pro forma results also exclude a nonrecurring charge related to the amendment of a supply contract. Pro forma net income per diluted share for the 13-week period ended April 1, 2001 would have been $0.24 if Statement No. 142 had been adopted at the beginning of 2001. Our Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, non-cash compensation and nonrecurring items, less purchases of rental inventory, exclusive of new store opening inventory) increased 23.7% to $19.8 million for the first quarter of 2002 from $16.0 million for the first quarter of 2001. Our consolidated financial statements for the first quarter of 2002 will be included in our quarterly report on Form 10-Q scheduled to be filed with the SEC on May 22, 2002. ---------------------- Our principal executive offices are located at 900 West Main Street, Dothan, Alabama 36301. Our telephone number is (334) 677-2108. We were incorporated in Delaware in 1994. THE OFFERING Common stock offered by us.... 3,900,000 shares Common stock offered by the selling stockholders.......... 4,350,000 shares Common stock to be outstanding after this offering........... 31,884,991 shares Use of proceeds............... We estimate that our net proceeds from this offering will be approximately $ million. We intend to use the net proceeds for the repayment of debt, working capital and general corporate purposes, including, among other things, strategic acquisitions and new store openings. With the exception of option exercise proceeds, we will not receive any proceeds from the sale of shares by the selling stockholders. See "Use of Proceeds." Risk factors.................. See "Risk Factors" and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock. Nasdaq National Market Symbol........................ MOVI The number of shares outstanding after this offering is based on 27,634,991 shares outstanding as of May 13, 2002, plus the 3,900,000 shares issued in this offering and the 350,000 shares issuable to, and to be sold by, some of the selling stockholders upon the exercise of options in connection with this offering. The number of shares outstanding after this offering does not include 3,081,671 shares of common stock issuable upon exercise of all other stock options outstanding as of May 13, 2002. SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA The summary historical consolidated financial data for fiscal years 1999, 2000 and 2001 have been derived from our audited consolidated financial statements for the respective periods included elsewhere in this prospectus. You should read this data along with "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements, the unaudited pro forma financial information on pages F-40 through F-42 relating to our acquisition of Video Update, Inc. as described in note 2 to our consolidated financial statements, and the accompanying notes included elsewhere in this prospectus. <Table> <Caption> FISCAL YEAR ENDED(1) -------------------------------------- JANUARY 2, DECEMBER 31, JANUARY 6, 2000 2000 2002 ---------- ------------ ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> STATEMENTS OF INCOME DATA: Revenues: Rentals................................................... $235,452 $271,457 $313,852 Product sales............................................. 41,493 47,479 55,279 -------- -------- -------- Total revenues..................................... 276,945 318,936 369,131 Cost of sales: Cost of rental revenues................................... 69,716 81,958 91,445 Cost of product sales..................................... 25,884 31,213 35,002 -------- -------- -------- Gross margin................................................ 181,345 205,765 242,684 Operating income(2)......................................... 14,362 19,690 27,170 Net income.................................................. $ 5,017 $ 9,486 $ 14,356 Net income per share -- basic............................... $ 0.17 $ 0.37 $ 0.56 Net income per share -- diluted............................. $ 0.17 $ 0.37 $ 0.53 Weighted average shares outstanding: Basic..................................................... 29,509 25,801 25,837 Diluted................................................... 30,083 25,868 27,220 </Table> <Table> <Caption> JANUARY 6, JANUARY 6, 2002 2002(3) ACTUAL AS ADJUSTED ---------- ----------- (IN THOUSANDS) <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents................................... $ 16,349 $ Rental inventory, net....................................... 88,424 88,424 Total assets................................................ 270,132 Long-term debt, less current maturities..................... 26,000 -- Stockholders' equity........................................ 162,182 </Table> <Table> <Caption> FISCAL YEAR ENDED(1) -------------------------------------- JANUARY 2, DECEMBER 31, JANUARY 6, 2000 2000 2002 ---------- ------------ ---------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> OTHER DATA: Number of stores at end of period........................... 963 1,020 1,415(4) Average revenues per store(5)............................... $ 313 $ 328 $ 342 Adjusted EBITDA(6).......................................... $35,494 $39,744 $61,581 Increase in same store revenues(7).......................... 0.4% 3.8% 2.7% </Table> (footnotes on next page) (1) Results for fiscal 2001 reflect a 53-week year and include 17 days of operations for Video Update, which we acquired out of bankruptcy on December 21, 2001. All other fiscal years presented reflect 52-week years. (2) Includes (i) a $1.6 million nonrecurring charge related to the amendment of our supply agreement with Rentrak Corporation in fiscal 2001 and (ii) non-cash compensation expense associated with stock options that were repriced in fiscal 2001 and are subsequently required to be accounted for as variable stock options (see note 6 to our consolidated financial statements). (3) As adjusted to give effect to the sale of 3,900,000 shares of our common stock and our receipt of $813,089 of proceeds from the exercise of options, after deducting underwriting discounts and commissions and estimated expenses payable by us, and the application of the net proceeds therefrom. See "Capitalization."

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+PROSPECTUS SUMMARY The following summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the risk factors and consolidated financial statements and related notes before deciding to invest in our common stock. THE COMPANY We are a holding company conducting business through our subsidiaries, 6543 Luxembourg S.A., a joint stock company organized in 2001 under the laws of Luxembourg, and Mymetics S.A. (formerly Hippocampe S.A.), a company organized in 1990 under the laws of France. We were incorporated in July 1994, pursuant to the laws of the Commonwealth of Pennsylvania. In November 1996, we reincorporated under the laws of the State of Delaware and changed our name to "ICHOR Corporation." In July 2001, we changed our name to "Mymetics Corporation." 6543 Luxembourg S.A. is our majority-owned subsidiary, and Mymetics S.A. is a wholly-owned subsidiary of 6543 Luxembourg S.A. We acquired 99.9% of the outstanding stock of Mymetics S.A. in March 2001, pursuant to a share exchange transaction. For more details on this share exchange transaction see our Information Statement on Schedule 14C filed with the Securities and Exchange Commission on April 26, 2001. We recently acquired the remaining 0.1% of the outstanding common stock of Mymetics S.A. pursuant to share exchanges with the remaining stockholders of Mymetics S.A. The terms of these recent share exchanges were substantially similar to the terms of the share exchange that occurred in March 2001. We currently do not make, market or sell any products or services, and thus, we have no revenues. We believe that our research and development activities, and the resulting intellectual property will lead to the creation of commercially viable products, which can generate revenues for us in the future. If financially favorable terms are available, we may license our intellectual property to third parties. If we fail to develop our intellectual property, we are unlikely to generate significant revenues. We own all of the outstanding voting stock of 6543 Luxembourg S.A. There are also 15,372 shares of Class B Exchangeable Preferential Non-Voting Stock, or Preferential Shares, of 6543 Luxembourg S.A. currently outstanding, which are convertible into 16,393,316 shares of our common stock. Holders of the Preferential Shares do not have any voting rights with respect to 6543 Luxembourg S.A. However, pursuant to a Voting and Exchange Trust Agreement dated March 28, 2001, the holders of the Preferential Shares are entitled to vote on all matters to be voted on by the holders of our common stock to the same extent as if they had converted the Preferential Shares into shares of our common stock. See "Description of Capital Stock - Preferred Stock." Our operating subsidiary, Mymetics S.A., is a biotechnology research and development company devoted to fundamental and applied research in the areas of human and veterinary biology and medicine. Our primary objective is to develop therapies to treat certain retroviruses (which are described below), including human immunodeficiency virus, or HIV, the virus that leads to acquired immunodeficiency syndrome, or AIDS. Additional applications of our research include potential treatments and/or vaccines for animal AIDS, human and animal oncoviral leukemias, multiple sclerosis and organ transplantation. To date, we have conducted our fundamental research in Europe. Our research strategy is to organize and manage a collection of public and private best-in-class research teams, each of which has its own unique focus. We have segmented our primary research into modules, each of which is then outsourced, under our direct supervision, to high-level, specialized and complementary public and private research teams. We retain all intellectual property rights on the joint research and we apply for domestic and international patents whenever justified. As agreed and coordinated by us, the joint research teams are authorized to co-publish their results. SCIENCE OVERVIEW Virus. A virus is a noncellular organism consisting of deoxyribonucleic acid, or DNA, or ribonucleic acid, or RNA, and a protein coat. During the free and infectious stage of their life cycle, viruses do not perform the usual functions of living cells, such as respiration and growth. Rather, when viruses enter a living plant, animal or bacterial cell, they utilize the host cell's chemical energy and synthesizing ability to replicate. After the replication of the viral components by the infected host cell, virus particles are released and the host cell is often destroyed. The approximately 2,450 viral species identified to date are divided into about 75 groups. One of these groups consists of retroviruses, to which HIV belongs. Retroviruses contain a reverse transcriptase that copies viral RNA back into DNA (the reverse of what usually occurs when DNA is copied into RNA). HIV. HIV is a type of retrovirus, a virus of the family Retroviridae that has RNA as its nucleic acid and uses the enzyme reverse transcriptase to copy its genome into the DNA of the host cell's chromosomes. Once inside the T cell, HIV uses the cell's machinery to copy its RNA into DNA by means of the reverse transcriptase. HIV is characterized by an inability to mount a normal immune response and is the cause of the fatal illness known as AIDS. Two strains of HIV have been identified, HIV-1 and HIV-2. The genetic material of these two strains is approximately 60% identical. Each strain contains a number of subtypes, which are slight genetic variations of the virus. At least 32 sub types have been identified to date. These variations result from the high mutation rate of HIV's genetic material. Most variations occur in the gene encoding the GP120 protein, and these mutations can alter the protein's structure. HIV-1 or Type 1 classified as a lentivirus is a subgroup of retroviruses that have been isolated and recognized as the cause of a disease that induces AIDS. HIV-1, like most viruses and all bacteria, plants and animals, has genetic codes made up of DNA, which uses RNA to build specific proteins. HIV's genetic material is the RNA itself. HIV inserts its own RNA into the host cell's DNA, preventing the host cell from performing its natural functions and transforming it into an HIV factory. AIDS. AIDS is a fatal epidemic disease caused by an HIV infection (HIV-1 or HIV-2). In most cases, HIV slowly attacks and destroys the immune system, the body's defense against disease, leaving the infected individual vulnerable to malignancies and infections that eventually cause death. Propagation of HIV results from the invasion of the host cell and its use of the host cell's protein synthesis capability. The immune system's response (antibodies and cellular immune response) is usually sufficient to temporarily delay progress of the infection and reduce levels of the virus in the blood. Virus replication continues, however, and gradually destroys the immune system by infecting and destroying critical white blood cells known as CD4 cells. The main cellular target of HIV is a special class of white blood cells critical to the immune system, known as helper T lymphocytes, or T4 helper cells. These cells play a principal role in normal immune responses by stimulating or activating virtually all of the other cells involved in immune protection. These cells include B lymphocytes, the cells that produce antibodies needed to fight infection; cytotoxic T lymphocytes, which destroy cells infected with a virus; and macrophages and other effector cells, which attack invading pathogens. Once HIV has entered the helper T cell, it can impair the functioning of or destroy the cell. A hallmark of the onset of AIDS is a drastic reduction in the number of helper T cells in the body. HIV also can infect other cells, including certain monocytes and macrophages, as well as brain cells. Among those cells are CD4, HIV's preferred target cells due to a docking molecule called cluster designation 4, or CD4, on their surfaces. Cells with this molecule are known as CD4-positive, or CD4+, cells. These cells normally orchestrate the immune response, signaling other cells in the immune system to perform their special functions. Destruction of CD4+ lymphocytes is the major cause of the immunodeficiency observed in AIDS, and decreasing CD4+ lymphocyte levels appear to be the best indicator of morbidity in these patients. As the infection progresses, the immune system's control of HIV levels weakens, the level of the virus in the blood rises and the level of critical T cells declines to a fraction of their normal level. Viral Envelope of HIV. The viral envelope of HIV is covered with mushroom-shaped spikes that enable the virus to attach itself to the target cell. The cap of each "mushroom" is comprised of GP120 molecules and its stem is comprised of GP41 molecules. GP120 is a glycoprotein that protrudes from the surface of HIV and binds to the CD4 receptor of the CD4+ T-cells. In a two-step process that allows HIV to breach the membrane of T-cells, the GP120-CD4 complex refolds to reveal a second structure that binds to CCR5 or CXCR4, one of several chemokine co-receptors used by the virus to gain entry into T cells. GP41 is a glycoprotein embedded in the outer envelope of HIV and plays a key role in HIV's infection of cells by carrying out the fusion of the viral and cell membranes. Immune System. The immune system functions to protect the body against infection and foreign substances, including viruses and bacteria. This defensive function is performed by the body's white blood cells (leukocytes) and by a number of accessory cells, including B lymphocytes, the cells that produce the antibodies needed to fight infection, and cytotoxic T lymphocytes, which destroy cells infected with viruses. When an immunocompetent cell recognizes foreign material or a biological invader presented by the macrophages, it normally induces a response. This recognition function relies on the immune system's ability to recognize specific foreign molecular configurations, generically referred to as antigens. T4 lymphocytes, as the central cells of the immune system, specifically recognize foreign invaders presented by macrophages. After specific recognition of a presented antigen, T4 lymphocytes play a major role in the immune response, producing interleukine-2, or IL-2, a central interleukine that activates all of the accessory cells previously described and the overall immune response. BUSINESS STRATEGY We have not yet developed an actual product or generated any revenues. Our current objective is to develop a platform of both therapeutic compounds and vaccines that can be commercialized either by our production of these compounds and vaccines ourselves or by licensing our intellectual property to third parties on financially favorable terms. We have made a series of discoveries about how the body's immune system responds to retroviruses, specifically HIV. The foundation of our platform technology and potential product pipeline is our discovery of a subtle mimicry between the virus and the host cells. By understanding the precise dynamics of the virus's GP41 and the host cell's IL-2, we believe we have the potential to design and develop specific therapeutic molecules and antibodies to disrupt or even prevent HIV. In addition to targeting HIV and AIDS, we hope to apply our findings to the potential treatment or even prevention of a range of additional diseases, including certain oncoviruses like leukemia. Some biotechnology firms are focusing on slowing or impeding the progress of HIV once it has infected the body's host cells. Other biotechnology firms are attempting to develop therapies that prevent the virus from fusing with host cells. If the virus cannot fuse, it cannot reproduce, and the body's immune system then succeeds in arresting the invasion. Our approach is also based on the concept of preventing viral fusion. Our scientific strategy is unique in that its design is based on a series of discoveries involving mimicry and, in particular, on the inter-reaction between the viral envelope glycoprotein GP41 and the host cell's IL-2. We have discovered that a piece of the virus closely resembles or "mimics" the host cell's IL-2. By exploiting this mimicry, the virus unlocks the host cell and gains access to the cell's machinery. The body's immune system responds to the invasion, but fails to differentiate between the viral GP41 and the host cell's IL-2. As a result, we believe that the immune system attacks the GP41 and the IL-2 with equal vigor. The unfortunate consequence is that the body, in turning on itself, undercuts its own defenses. By better understanding these precise dynamics, we believe we will be able to design and develop specific therapeutic molecules and antibodies to disrupt the mimicry, prevent HIV from entering the host cell and enable the body's immune system to recognize HIV. Our current scientific strategy is to create therapeutic peptides and antibodies to disrupt the mimicry, block the fusion, and condition the body's immune system to recognize GP41 as separate and distinct from IL-2. If this can be accomplished, the body's immune system should be able to identify and attack the virus, instead of the healthy cells. THERAPEUTIC AND VACCINAL USE OF THE MIMICRY DISCOVERY Our current research modules focus on the following four fields: - Fundamental research. We believe that our analysis of the GP41/IL-2 mimicry will enable us to explain, in large part, the main AIDS-associated disorders: drop of peripheral IL-2, decrease of non- infected T helper lymphocytes, lymphoproliferation disorders and a2 microglobulin increase and hypergammaglobulinemia. - Therapeutic molecules. We believe that, based on the host-virus autoimmune mimicry we are studying, an application involving the development of particular synthetic peptides and monoclonal antibodies (some of which have already been developed) would inhibit the fusion between HIV and its target cell in an infected subject. Well designed therapeutic molecules would prevent the virus from binding to the target cell and inhibit its attempts to reproduce. Having demonstrated that the transmission of HIV depends on the viral load, and that no transmission has been observed below 1,500 viral copies/ml., treatment with therapeutic agents may provide a strategy to control AIDS epidemicity. This application would complement available antiretroviral drugs, or may even provide a substitute for the available antiretroviral drugs. - Therapeutic and preventive vaccines. We believe that our discovery of the host-virus autoimmune mimicy opens the door to novel therapeutic and preventive vaccine strategies for both humans and animals. We also believe that specific preventive vaccines we are working to develop would be universal for both HIV-1 and HIV-2, and would provide an all-strain prevention. - AIDS cartridge. We have developed a number of therapeutic immunocartridges that might help patients infected with AIDS by reducing the viral load. These immunocartridges have been tested and approved by the Ethics Committee for the Treatment of Systemic Lupus Erythematosus and Hemophilia A. Our research has demonstrated that the anti IL-2 antibodies in HIV infected subjects recognize some sites of IL-2 that are crucial for its bioactivity. Therefore, we believe that the development of an "AIDS cartridge" could be effective in the restoration of the immune system (CD4/CD8-viral load) of HIV infected subjects. We currently have several prototypes potentially capable of commercialization, including: - Therapeutic molecules (pharmacological agents) -- administered to infected subjects to prevent cell infection by HIV. - Therapeutic vaccines (immunotherapeutic agents) -- administered to infected subjects to orient the immune system into recognizing the transmembrane glycoprotein of the virus and not the host's IL-2. - Preventive vaccines -- administered to healthy subjects to prevent infection by HIV. - AIDS cartridge -- administered to infected subjects to selectively remove the identified immunosuppressive antibodies present in the serum of AIDS patients. GENERAL INFORMATION We are incorporated under the laws of the State of Delaware. We have a registered office at 1209 Orange Street, Wilmington, Delaware, United States 19801, and a principal executive office located at 706 Giddings Avenue, Suite 1C, Annapolis, Maryland 21401-1472. Our common stock is quoted on the OTC Bulletin Board operated by the National Association of Securities Dealers, Inc. We intend to form a new United States subsidiary during the third or fourth quarter of 2002. This new subsidiary will focus on applying our research and development to target products and on business development. We believe that this tiered structure has numerous advantages, including greater access to grants, subsidies, intellectual property and public and private research teams. To date, activities such as design of the prototype molecule, synthesis and in-vitro experiments have been and will continue to be conducted mainly in Europe, while pre-clinical studies, toxicological trials, regulatory affairs, investigational new drug applications, or IND applications, Phase I, II, and III clinical trials, and new drug applications, or NDAs, will, after the creation of the United States subsidiary, be conducted mainly in North America. SECURITIES REGISTERED The securities being registered by the registration statement to which this prospectus relates are as follows: <Table> <S> <C> Securities offered.......................... 48,487,487 shares of our common stock Percentage of our outstanding shares represented by offering(1)................ 95.03% Common stock to be outstanding after the offering(1)............................... 51,024,620 Use of proceeds............................. We will not receive any proceeds from the sale of our common stock by selling stockholders. See "Use of Proceeds." Risk factors................................ An investment in the shares involves a high degree of risk. See "Risk Factors."

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+SUMMARY This summary highlights basic information about Alderwoods Group, Inc., a Delaware corporation ("Alderwoods Group" and together with its subsidiaries, the "Company"), and the shares offered by the selling security holders, but does not contain all information important to you. You should read the following summary together with the more detailed information regarding the Company, the consolidated financial statements and related notes of Alderwoods Group and the consolidated financial statements and related notes of The Loewen Group Inc., a British Columbia corporation and the predecessor of Alderwoods Group ("Loewen Group" or the "Predecessor" and together with its subsidiaries, the "Loewen Companies"), appearing elsewhere in this prospectus. ALDERWOODS GROUP The Company is the second largest operator of funeral homes and cemeteries in North America. As of June 15, 2002, we operated 794 funeral homes, 190 cemeteries and 64 combination funeral homes and cemeteries throughout North America and an additional 39 funeral homes in the United Kingdom. We provide funeral and cemetery services and products on an at-need basis (time of death) and pre-need basis. We also operate insurance subsidiaries that sell a variety of life insurance products, primarily to fund pre-need funeral services. Alderwoods Group changed its name from Loewen Group International, Inc. ("Loewen International") on January 2, 2002. Loewen International was a subsidiary of Loewen Group prior to January 2, 2002. On that date, pursuant to a series of transactions contemplated by a plan of reorganization for Loewen International, Loewen Group and certain of their subsidiaries, Alderwoods Group succeeded to the businesses previously conducted by Loewen Group. Alderwoods Group is no longer affiliated with Loewen Group. COMMON STOCK <Table> <S> <C> Number of shares of common stock offered by selling security holders............. Up to 11,577,151 shares. Nasdaq National Market symbol for the common stock............................ "AWGI". </Table>

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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding our company and the securities being registered hereby and our consolidated financial statements and related notes appearing elsewhere in this Prospectus. Because this is only a summary, you should read the rest of this Prospectus before you invest in our Securities. Read the entire Prospectus carefully, especially the risks described under "Risk Factors." THE COMPANY We operate, own and lease free-standing assisted living residences. These residences are primarily located in small, middle-market, rural and suburban communities with a population typically ranging from 10,000 to 40,000. As of March 31, 2002 we had operations in 16 states. We provide personal care and support services and make available routine nursing services (as permitted by applicable law) designed to meet the personal and health care needs of our residents. We believe that this combination of residential, personal care, support and health care services provides a cost-efficient alternative to, and affords an independent lifestyle for, individuals who do not require the broader array of medical services that nursing facilities are required by law to provide. We experienced significant and rapid growth between 1994 and 1998, primarily through the development of assisted living residences and, to a much lesser extent, through acquisition of assisted living residences, opening our last twenty residences in 1999. At the completion of our initial public offering in November 1994 we had an operating base of five leased residences located in Oregon. As of March 31, 2002, we operated 183 assisted living residences (7,076 units) of which we owned 128 residences (4,971 units) and leased 55 residences (2,105 units). For the three months ended March 31, 2002, we had an average occupancy rate of 83.1% and an average monthly rental rate of $2,117 per unit. The principal elements of our business strategy are to: - increase occupancy and improve operating efficiencies at our residences; - reduce overhead costs where possible; - establish necessary financing to meet maturing obligations; and - increase rental and service revenue. We anticipate that the majority of our revenues will continue to come from private pay sources. However, we believe that by having located some of our residences in states with favorable regulatory and reimbursement climates, we should have a stable source of residents eligible for Medicaid reimbursement to the extent that private pay residents are not available and, in addition, provide our private pay residents with alternative sources of income if their private funds are depleted and they become Medicaid eligible. Although we manage the mix of private paying tenants and Medicaid paying tenants residing in our facilities, any significant increase in our Medicaid population could have an adverse effect on our financial position, results of operations or cash flows, particularly if the states operating these programs continue to limit, or more aggressively seek limits on, reimbursement rates. See "Risk Factors -- Risks Related to our Business and the Business of our Subsidiaries -- We depend on reimbursement by government payors and other third parties for a significant portion of our revenues". REORGANIZATION On October 1, 2001, we voluntarily filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. The bankruptcy court gave final approval to the first amended joint plan of reorganization (the "Plan") on December 28, 2001, and the Plan became effective on January 1, 2002 (the "Effective Date"). Under the Plan, on the Effective Date, the Company issued general unsecured creditors their pro rata shares, subject to the reserve described below (the "Reserve"), of the following securities: - $40.25 million principal amount of Senior Notes; - $15.25 million principal amount of Junior Notes; and - 6.24 million shares of New Common Stock (representing 96% of the New Common Stock). The New Notes are secured by 57 of our properties. The remaining 4% of the New Common Stock, subject to the Reserve, was issued on the Effective Date to the Company's shareholders immediately prior to the Effective Date. Under the Plan, 1.1% of the Senior Notes, Junior Notes and New Common Stock that would otherwise have been issued on the Effective Date were held back in the Reserve to cover general unsecured claims that had not been either made or settled by the December 19, 2001 cutoff date established under the Plan. The reserved securities will be issued once all these outstanding general unsecured claims have been settled. If the Reserve is insufficient to cover these outstanding general unsecured claims, we will have no further liability with respect to these claims. If the Reserve exceeds the amount of these outstanding general unsecured claims, the excess securities in the Reserve will be distributed pro rata among the holders of all general unsecured claims, including those settled prior to the cutoff date. On the Effective Date, a new Board of Directors of the reorganized Company consisting of seven members was established as follows: W. Andrew Adams (Chairman), Andre Dimitriadis, Mark Holliday, Richard Ladd, Matthew Patrick, Leonard Tannenbaum, and Wm. James Nicol, then the President and Chief Executive Officer of the Company. Subsequent to the Effective Date, Steven L. Vick replaced Mr. Nicol as President, Chief Executive Officer and Director. We adopted fresh-start reporting, as of December 31, 2001, in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting By Entities in Reorganization Under the Bankruptcy Code (SOP 90-7). Under fresh-starting reporting, a new entity has been deemed created for financial reporting purposes. See Note 1 to the consolidated financial statements included in this Prospectus for additional information. Assisted Living Concepts, Inc. is a Nevada corporation. Our principal executive offices are located at 11835 N.E. Glenn Widing Drive, Building E, Portland, Oregon 97220-9057, and our telephone number is (503) 252-6233. THE OFFERING On January 1, 2002, the Effective Date of our Plan, we issued New Common Stock to our stockholders and Senior Notes, Junior Notes and New Common Stock to holders of general unsecured claims. The New Securities were issued in reliance on an exemption from the registration requirements of the Securities Act, afforded by Section 1145 of the Bankruptcy Code. As part of that offering, we agreed to register the New Securities on behalf of the Selling Securityholders. Under this Registration Statement, the Selling Securityholders may sell Senior Notes, Junior Notes or shares of New Common Stock in one or more offerings. We must use our best efforts to keep this Registration Statement effective until January 1, 2005, or such shorter period which will terminate when all of the New Securities have been sold pursuant to this Registration Statement or when all of the New Securities otherwise have been sold pursuant to Rule 144 or are otherwise freely tradable. This Prospectus provides you with a general description of the Senior Notes, Junior Notes and the New Common Stock that may be sold. For more detailed information, you should read the exhibits filed with the Registration Statement of which this Prospectus is a part. OUR 10% SENIOR SECURED NOTES Amount Offered............. $20,512,700 principal amount of 10% Senior Secured Notes Due 2009, of which $20,288,309 principal amount were issued on January 1, 2002. Reserve.................... The Selling Securityholders may acquire up to $224,391 principal amount of the $440,178 of Senior Notes which were reserved pending settlement of certain unsecured claims. See "Description of the Senior Notes -- Reserve." Maturity Date.............. January 1, 2009. Interest Rate.............. 10% per annum. Interest Payment Dates..... January 1 and July 1 of each year, commencing July 1, 2002. Ranking.................... The Senior Notes are senior secured obligations of ours and rank pari passu in right of payment with all of our current and future senior indebtedness. As of December 31, 2001 (after giving effect to the Plan), we had $40.5 million of senior indebtedness outstanding under the G.E. Capital Loan Agreement (as described herein) that would have ranked pari passu in right of payment to the Senior Notes. The Senior Notes rank senior to the Junior Notes and to any future subordinated indebtedness. The Senior Note Indenture with BNY Midwest Trust Company governing the Senior Notes limits our ability to take on senior or other indebtedness. Guarantees................. The Senior Notes are senior secured obligations of the Company which are guaranteed by Carriage House Assisted Living, Inc. ("Carriage House"), Home and Community Care, Inc. ("HCI") and ALC Indiana, Inc. ("ALCI"). Security................... The Senior Notes are secured by a first-priority lien, subject to certain permitted liens, on certain assisted living facilities listed herein (collectively, the "Note Collateral"). Mandatory Redemption of Senior Notes by Us......... If we receive net proceeds in excess of $1.0 million from the sale of any of the Note Collateral, we must deliver such net proceeds to the trustee, who will redeem a pro rata portion of the Senior Notes at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any. Optional Redemption of Senior Notes by Us......... At any time, upon at least 30 days' notice but not more than 60 days' notice, we may redeem the Senior Notes, in whole but not in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any. Change in Control.......... If we experience specific kinds of changes in control, we must offer to repurchase the Senior Notes (if any remain outstanding) at a repurchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any. If we experience an event that triggers this obligation, we cannot assure you that we will have enough cash to pay the purchase price for the Senior Notes, or that we could do so without violating the terms of other agreements. Offer to Repurchase by Us......................... If we sell certain assets other than Note Collateral or incur certain indebtedness, we must use the net proceeds to offer to repurchase a pro rata portion of the Senior Notes (if any remain outstanding) at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any. We are not required to make an offer to repurchase Senior Notes until the net proceeds from asset sales and debt incurrences exceed $3.0 million, either since January 1, 2002 (in the case of the initial offer to repurchase) or the date of the preceding offer to repurchase (in the case of any subsequent offer to repurchase). Use of Proceeds............ We will not receive any proceeds from the sale of the Senior Notes offered hereby. Trading.................... The Senior Notes are not listed for trading on any United States exchange or the Nasdaq Stock Market and we have no present plans to apply to list the Senior Notes on any United States exchange or the Nasdaq Stock Market. Registration Rights........ We have agreed to file this Registration Statement with respect to the resale of the Senior Notes and to use our best efforts to keep this Registration Statement effective until January 1, 2005, or such shorter period which will terminate when all of the Senior Notes have been sold pursuant to this registration statement or when all Senior Notes otherwise have been sold pursuant to Rule 144 or are otherwise freely tradable. OUR JUNIOR SECURED NOTES Amount Offered............. $10,076,310 principal amount of Junior Secured Notes Due 2012, of which $7,876,312 principal amount were issued on January 1, 2002 and up to $2,112,876 of additional principal amount will be issued in connection with the payment of non-cash interest. Reserve.................... The Selling Securityholders may acquire up to $87,122 principal amount of the $166,775 of Junior Notes which were reserved pending settlement of certain unsecured claims. See "Description of the Junior Notes -- Reserve." Maturity Date.............. January 1, 2012. Interest Rate.............. 8% per annum, compounded semi-annually in arrears, until the interest payment date immediately preceding the third anniversary of the Effective Date and thereafter until maturity at 12% per annum. Interest payable prior to such date will be capitalized and added to principal and we will not make cash interest payments prior to that date. Interest Payment Dates..... January 1 and July 1 of each year, commencing July 1, 2002. Ranking.................... The Junior Notes are subordinated in right of payment to our Senior Notes and indebtedness under the G.E. Capital Loan Agreement (as described herein). As of December 31, 2001 (after giving effect to the Plan), we had $80.7 million of senior indebtedness outstanding under the Senior Notes and the G.E. Capital Loan Agreement (as described herein) that would have been senior in right of payment to the Junior Notes. The Junior Notes rank junior to the Senior Notes and senior to all future subordinated indebtedness. The Junior Note Indenture with BNY Midwest Trust Company governing the Junior Notes limits our ability to take on other indebtedness. Guarantees................. The Junior Notes are secured obligations of the Company which are guaranteed by Carriage House, HCI and ALCI. These guarantees are subordinated to the Senior Note guarantees. Security................... The Junior Notes are secured by a second-priority lien (subject only to the first-priority lien securing the Senior Notes and certain other permitted liens) on the Note Collateral. Mandatory Redemption of Junior Notes by Us......... If we receive net proceeds in excess of $1.0 million from the sale of any of the Note Collateral, we must deliver such net proceeds to the trustee, who will redeem a pro rata portion of the Senior Notes. If any net proceeds remain after the Senior Notes have been redeemed in full, the trustee will redeem a pro rata portion of the Junior Notes at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any. Optional Redemption of Junior Notes by Us......... At any time, upon at least 30 days' notice but not more than 60 days' notice, we may redeem the Junior Notes, in whole but not in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, provided, that no Senior Notes remain outstanding or that all of the outstanding Senior Notes are redeemed concurrently with the redemption of the Junior Notes. Change in Control.......... If we experience specific kinds of changes in control, subject to the subordination provisions described below, we must offer to repurchase the Junior Notes (if any remain outstanding) at a repurchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any. If we experience an event that triggers this obligation, we cannot assure you that we will have enough cash to pay the purchase price for the Junior Notes, or that we could do so without violating the terms of other agreements. Offer to Repurchase by Us......................... If we sell certain assets other than Note Collateral or incur certain indebtedness, we must use the net proceeds to offer to repurchase a pro rata portion of the Senior Notes. If any net proceeds remain after we have repurchased all of the Senior Notes, we must offer to repurchase a pro rata share of the Junior Notes (if any remain outstanding) at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any. We are not required to make an offer to repurchase Junior Notes until the net proceeds from asset sales and debt incurrences exceed $3.0 million, either since January 1, 2002 (in the case of the initial offer to repurchase) or the date of the preceding offer to repurchase (in the case of any subsequent offer to repurchase). Use of Proceeds............ We will not receive any proceeds from the sale of the Junior Notes offered hereby. Trading.................... The Junior Notes are not listed for trading on any United States exchange or the Nasdaq Stock Market and we have no present plans to apply to list the Junior Notes on any United States exchange or the Nasdaq Stock Market. Registration Rights........ We have agreed to file this Registration Statement with respect to the resale of the Junior Notes and to use our best efforts to keep this Registration Statement effective until January 1, 2005, or such shorter period which will terminate when all of the Junior Notes have been sold pursuant to this registration statement or when all Junior Notes otherwise have been sold pursuant to Rule 144 or are otherwise freely tradable. OUR NEW COMMON STOCK Amount Offered............. 3,258,971 shares of New Common Stock, par value $0.01 per share, of which 3,223,328 shares were issued on January 1, 2002. Reserve.................... The Selling Securityholders may acquire up to 35,643 shares of the 68,241 shares of New Common Stock, which were reserved pending settlement of certain unsecured claims. See "Description of Capital Stock -- Reserve." Use of Proceeds............ We will not receive any proceeds from the sale of the New Common Stock offered hereby. Trading.................... The New Common Stock is not listed for trading on any United States exchange or the Nasdaq Stock Market but it currently trades on The OTC Bulletin Board(R)("OTC.BB"). We have no present plans to apply to list the New Common Stock on any United States exchange or the Nasdaq Stock Market. SUMMARY CONSOLIDATED FINANCIAL DATA The following table presents selected historical consolidated financial data. The consolidated statement of operations data for the years ended December 31, 1999, 2000 and 2001 and the three months ended March 31, 2001 and 2002, as well as the consolidated balance sheet data as of December 31, 2000 and 2001 and March 31, 2002, are derived from our consolidated financial statements included elsewhere in this Prospectus. Upon emergence from Chapter 11 proceedings, we adopted fresh-start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting By Entities in Reorganization Under the Bankruptcy Code. In connection with the adoption of fresh-start reporting, a new entity has been deemed created for financial reporting purposes effective December 31, 2001. Consequently, the consolidated balance sheet data at December 31, 2001 and thereafter is labeled "Successor Company," and reflects the Plan and the principles of fresh-start reporting. Periods presented prior to December 31, 2001 have been designated "Predecessor Company." Note 1 to our consolidated financial statements, included elsewhere in this Prospectus, provides a reconciliation of the Predecessor Company's consolidated balance sheet as of December 31, 2001 to that of the Successor Company which presents the adjustments that give effect to the reorganization and fresh-start reporting. You should read the selected financial data below in conjunction with our consolidated financial statements, including the related notes, and the information in "Management's Discussion and Analysis of Financial Condition and Results of Operations." <Table> <Caption> PREDECESSOR COMPANY ---------------------------------------------------- PREDECESSOR COMPANY SUCCESSOR COMPANY YEARS ENDED DECEMBER 31, ------------------- ------------------ ---------------------------------------------------- THREE MONTHS ENDED THREE MONTHS ENDED 1997 1998 1999 2000 2001 MARCH 31, 2001 MARCH 31, 2002 ------- -------- -------- -------- --------- ------------------- ------------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> <C> <C> CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenue....................... $49,605 $ 89,384 $117,489 $139,423 $ 150,678 $36,877 $37,889 Operating expenses: Residence operating expenses.................. 31,591 57,443 81,767 95,032 103,867 25,558 26,335 Corporate general and administrative............ 4,050 11,099 21,178 18,365 17,119 4,268 4,316 Building rentals............ 7,969 12,764 15,367 16,004 15,980 4,171 3,037 Depreciation and amortization.............. 3,683 6,339 8,981 9,923 10,349 2,552 1,667 Class action litigation settlement................ -- -- -- 10,020 -- -- -- Terminated merger expense... -- 1,068 228 -- -- -- -- Site abandonment costs...... -- 2,377 4,912 -- -- -- -- Write-off of impaired assets and related expenses...... -- 8,521 -- -- -- -- -- ------- -------- -------- -------- --------- ------- ------- Total operating expenses.............. 47,293 99,611 132,433 149,344 147,315 36,549 35,355 ------- -------- -------- -------- --------- ------- ------- Operating income (loss)....... 2,312 (10,227) (14,944) (9,921) 3,363 328 2,534 ------- -------- -------- -------- --------- ------- ------- Other income (expense): Interest expense............ (4,946) (11,039) (15,200) (16,363) (19,465) (4,402) (3,591) Interest income............. 1,526 3,869 1,598 786 655 148 54 Gain (loss) on sale and disposal of assets........ (1,250) (651) (127) 13 (88) -- -- Loss on sale of marketable securities................ -- -- -- (368) -- -- -- Other income (expense), net....................... (121) (1,174) (260) 67 30 31 -- ------- -------- -------- -------- --------- ------- ------- Total other expense..... (4,791) (8,995) (13,989) (15,865) (18,868) (4,223) (3,537) ------- -------- -------- -------- --------- ------- ------- Loss before debt restructure and reorganization cost, fresh-start adjustments, extraordinary item and cumulative effect of change in accounting principle..... (2,479) (19,222) (28,933) (25,786) (15,505) (3,895) (1,003) Debt restructure and reorganization cost......... -- -- -- -- (8,581) (303) (447) Fresh start adjustments....... -- -- -- -- (119,320) -- -- ------- -------- -------- -------- --------- ------- ------- Loss before extraordinary item and cumulative effect of change in accounting principle................... (2,479) (19,222) (28,933) (25,786) (143,406) (4,198) (1,450) Extraordinary item -- gain on reorganization.............. -- -- -- -- 79,520 -- -- Cumulative effect of change in accounting principle........ -- (1,523) -- -- -- -- -- ------- -------- -------- -------- --------- ------- ------- Net loss...................... $(2,479) $(20,745) $(28,933) $(25,786) $ (63,886) $(4,198) $(1,450) ======= ======== ======== ======== ========= ======= ======= </Table> <Table> <Caption> PREDECESSOR COMPANY ---------------------------------------------------- PREDECESSOR COMPANY SUCCESSOR COMPANY YEARS ENDED DECEMBER 31, ------------------- ------------------ ---------------------------------------------------- THREE MONTHS ENDED THREE MONTHS ENDED 1997 1998 1999 2000 2001 MARCH 31, 2001 MARCH 31, 2002 ------- -------- -------- -------- --------- ------------------- ------------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> <C> <C> <C> Basic and diluted net loss per common share: Loss before extraordinary item and cumulative effect of change in accounting principle................... $ (0.21) $ (1.18) $ (1.69) $ (1.51) $ (8.38) $ (0.25) $ (.22) Extraordinary item............ -- -- -- -- 4.65 -- -- Cumulative effect of change in accounting principle........ -- (0.09) -- -- -- -- -- ------- -------- -------- -------- --------- ------- ------- Basic and diluted net loss per common share................ $ (0.21) $ (1.27) $ (1.69) $ (1.51) $ (3.73) $ (0.25) $ (.22) ======= ======== ======== ======== ========= ======= ======= Basic and diluted weighted average common shares outstanding................. 11,871 16,273 17,119 17,121 17,121(1) 17,121 6,500 ======= ======== ======== ======== ========= ======= ======= </Table> --------------- (1) 6,431,759 shares of New Common Stock of the Successor Company were issued upon the cancellation of all shares of the Predecessor Company as of the Effective Date, excluding 68,241 shares subject to the Reserve that will be issued upon settlement of certain unsecured bankruptcy claims. See Note 1 to the consolidated financial statements included elsewhere herein. <Table> <Caption> PREDECESSOR COMPANY ----------------------------------------- SUCCESSOR COMPANY AT DECEMBER 31, -------------------- ---------------------------------------------------- MARCH 31, 1997 1998 1999 2000 2001 2002 -------- -------- -------- -------- -------- --------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............. $ 63,269 $ 55,036 $ 7,606 $ 7,444 $ 6,077 3,618 Working capital (deficit)............... 40,062 43,856 37 (15,911) (6,299) (5,697) Total assets.............. 324,367 414,669 346,188 336,458 222,253 222,724 Long-term debt, excluding current portion......... 157,700 266,286 233,199 231,657 161,461 162,658 Shareholders' equity...... 132,244 119,197 89,344 63,886 32,799 31,349 </Table> QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE, OCCUPANCY AND AVERAGE RENTAL DATA) <Table> <Caption> PREDECESSOR COMPANY 2000 QUARTERLY FINANCIAL DATA ------------------------------------------------- YEAR TO RESULTS OF OPERATIONS 1ST QTR 2ND QTR 3RD QTR 4TH QTR DATE --------------------- ------- ------- -------- ------- -------- <S> <C> <C> <C> <C> <C> Revenue.................................... $33,132 $34,146 $ 35,308 $36,837 $139,423 Operating income (loss).................... 28 434 (8,598) (1,785) (9,921) Net loss................................... $(3,791) $(3,821) $(12,445) $(5,729) $(25,786) Basic and diluted net loss per common share(1)................................. $ (.22) $ (.22) $ (.73) $ (.34) $ (1.51) Basic and diluted weighted average common shares outstanding(2).................... 17,121 17,121 17,121 17,121 17,121 Average monthly rental rate per unit....... $ 1,947 $ 1,974 $ 2,002 $ 2,038 $ 1,991 Average occupancy rate(3).................. 78.4% 79.8% 81.4% 83.1% 80.7% End of period occupancy rate(3)............ 79.6% 81.6% 82.6% 83.0% 83.0% </Table> <Table> <Caption> PREDECESSOR COMPANY 2001 QUARTERLY FINANCIAL DATA --------------------------------------------------- YEAR TO RESULTS OF OPERATIONS 1ST QTR 2ND QTR 3RD QTR 4TH QTR DATE --------------------- ------- ------- ------- --------- --------- <S> <C> <C> <C> <C> <C> Revenue.................................. $36,877 $37,371 $38,009 $ 38,421 $ 150,678 Operating income......................... 328 1,318 666 1,051 3,363 Net loss before extraordinary item....... (4,198) (4,611) (7,333) (127,264) (143,406) Extraordinary item-gain on reorganization......................... -- -- -- 79,520 79,520 Net loss................................. $(4,198) $(4,611) $(7,333) $ (47,744) $ (63,886) Basic and diluted net loss per common share before extraordinary item(1)..... $ (.25) $ (.27) $ (.43) $ (7.43) $ (8.38) Extraordinary item....................... -- -- -- 4.65 4.65 Basic and diluted net loss per common share(1)............................... $ (.25) $ (.27) $ (.43) $ (2.78) $ (3.73) Basic and diluted weighted average common shares outstanding(2).................. 17,121 17,121 17,121 17,121 17,121 Average monthly rental rate per unit..... $ 2,041 $ 2,056 $ 2,082 $ 2,112 $ 2,073 Average occupancy rate(3)................ 83.4% 83.9% 84.3% 84.2% 84.0% End of period occupancy rate(3).......... 83.3% 84.2% 84.9% 83.7% 83.7% </Table> SUCCESSOR COMPANY <Table> <Caption> SUCCESSOR COMPANY -------------- 2002 -------------- RESULTS OF OPERATIONS 1ST QTR --------------------- -------------- <S> <C> Revenue..................................................... $37,889 Operating income............................................ 2,534 Net loss.................................................... (1,450) Basic and diluted net loss per common share(1).............. $ (.22) Basic and diluted weighted average common shares outstanding(2)............................................ 6,500 Average monthly rental rate per unit........................ $ 2,117 Average occupancy rate(3)................................... 83.1% End of period occupancy rate(3)............................. 82.8% </Table> --------------- (1) Quarter net loss per share amounts may not add to the full year total due to rounding. (2) 6,431,759 shares of New Common Stock of the Successor Company were issued upon the cancellation of all shares of the Predecessor Company as of the Effective Date, excluding 68,241 shares subject to the Reserve that will be issued upon settlement of certain unsecured bankruptcy claims. See Note 1 to the consolidated financial statements included elsewhere herein. (3) Based upon available units.

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+PROSPECTUS SUMMARY The following summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the risk factors and the consolidated financial statements and related notes, before deciding to invest in our common stock. All information in this prospectus, unless otherwise indicated, reflects the 1-for-1.97 reverse stock split that became effective on June 19, 2002. NOMOS CORPORATION We develop, sell and service advanced medical equipment products that are designed to improve the safety and effectiveness of radiation therapy in the treatment of tumorous cancers. We pioneered the commercialization of a technology known as intensity modulated radiation therapy, or IMRT. In contrast to conventional radiation therapy, in which the patient is treated with large, uniform beams, IMRT delivers many smaller radiation beams, with the intensity and angle of these radiation beams varied, or modulated, across the target area of the patient being treated. This allows a doctor to deliver an elevated dose of radiation to the tumor, while limiting the amount of harmful radiation directed at nearby healthy tissue. Our products were used to treat the first patient ever with IMRT in 1994 and, in 1996, we introduced the first commercial IMRT planning and delivery system to the market. Although there is limited market data available, we believe that our IMRT planning products have been used to plan the treatment of a substantial majority of all IMRT patients worldwide. In addition to our IMRT products, we have products that are designed to improve 1) the verification of tumor location and 2) the accuracy and predictability of radiation doses. Our IMRT and related radiation therapy products are now used at over 200 hospitals and freestanding clinics, including some of the world's preeminent cancer institutions. Currently, our products are predominantly used in the treatment of tumors of the prostate, head, neck and spinal cord. In addition to our products, we offer our customers an experienced and knowledgeable customer support staff and high-quality customer service. We had total revenues, including service revenues, of $24.5 million in 2001 and $7.7 million during the three months ended March 31, 2002. We had net income of $76,000 in 2001 and a net loss of $29,000 during the three months ended March 31, 2002. As of March 31, 2002, we had nine U.S. patents, and two foreign patents, with one additional U.S. patent application and four foreign patent applications pending. OUR PRODUCTS AND SERVICES We offer a wide range of IMRT and related radiation therapy products that can be used together or with components produced by other manufacturers. Customers use our products in conjunction with linear accelerators, which are the machines that generate the energy beams used in radiation therapy. We do not produce linear accelerators. However, our products are designed to be compatible with all major linear accelerators currently on the market. - CORVUS. Our IMRT planning software product, CORVUS, helps improve the planning of IMRT treatments. CORVUS allows a doctor to input the desired radiation dose outcome, both for the tumor and for the surrounding healthy tissue. CORVUS then builds a plan to achieve that outcome by testing and rejecting millions of beam intensities and angles. - MIMiC. Our MIMiC product is a multileaf collimator, which is a device that defines the size, shape and intensity of the radiation beams in IMRT treatments. MIMiC was specifically designed for delivering IMRT with CORVUS, and we believe it offers a number of advantages over competing multileaf collimators. - PEACOCK. Our integrated IMRT planning and delivery system, PEACOCK, combines CORVUS and MIMiC. PEACOCK can upgrade a linear accelerator that does not have IMRT capabilities by providing it with the ability to deliver IMRT treatments. PEACOCK is typically less than half the cost of a new IMRT-equipped linear accelerator and can be installed with significantly less down time to the treatment center. - BAT. Our ultrasound-based targeting system, BAT, enables doctors to improve daily alignment and verification of tumor location and to make appropriate adjustments when the tumor has moved inside the patient's body. BAT has been predominantly used by hospitals and clinics in treating prostate cancer, as the prostate can move significantly from one treatment session to the next. BAT is used in conjunction with both IMRT and conventional radiation therapy systems. - PEREGRINE. Our radiation dose calculation software product, PEREGRINE, is designed to improve the accuracy of radiation treatment plans by adjusting for the varying radiation absorption rates of different tissue structures that surround, or are adjacent to, a tumor. PEREGRINE is designed to be used in conjunction with both IMRT and conventional radiation therapy planning systems. - Accessory Products. We also have developed and sell several accessory products that are used in conjunction with our core products to enhance their functionality. In addition to our product offerings, we generate revenues from providing customer support and services. We maintain a dedicated customer support team, the goals of which are to increase customer satisfaction and provide professional support and training resources for our customers and our sales department. OUR MARKET OPPORTUNITY It is estimated that in 2000, there were over 10 million cases of cancer in the world, excluding skin cancers. In the United States alone, approximately 1.3 million new cases of cancer, excluding many noninvasive and skin cancers, are expected to be diagnosed in 2002. Radiation therapy is the primary treatment option for localized tumorous cancers, and approximately 50% of cancer patients in the United States are treated with radiation at some time during the course of their disease. We believe that intensity modulated radiation therapy, or IMRT, represents a significant improvement over conventional radiation planning and delivery for treating several types of cancers, particularly where the tumor has an irregular shape or is adjacent to a vital organ or other sensitive tissue. We estimate that there are approximately 4,000 linear accelerators installed worldwide that currently do not have IMRT capabilities. We view each of these linear accelerators as a potential sale opportunity for PEACOCK. We estimate that there are approximately 3,800 linear accelerators installed worldwide that do have IMRT capabilities, with hundreds more being installed annually. We view each of these linear accelerators as a potential sale opportunity for CORVUS. We view each installed linear accelerator worldwide, whether it has IMRT capabilities or not, as a potential sale opportunity for BAT and PEREGRINE. OUR BUSINESS STRATEGY Our goal is to be the commercial and technological leader in the worldwide market for advanced radiation treatment planning and delivery products and services. The key elements of our strategy are to: - Educate Our Target Market and Enhance Our Brand Awareness. We intend to expand our marketing efforts and further educate our target audience on the benefits of IMRT cancer treatment in general and our IMRT and related products in particular. We consider our primary target audience to be doctors and medical physicists at leading cancer treatment institutions, hospitals and freestanding clinics, as well as cancer patients. - Expand Our Sales Capabilities and Channels. We intend to expand our sales efforts in order to further penetrate our existing and potential geographic markets. The primary focus of our sales efforts will continue to be the United States. However, we also plan to increase our sales efforts in Asia and Europe. We intend to increase the size of our internal marketing and sales staff and to expand our relationships with distributors and other key industry participants. - Provide Exceptional Customer Support and Service. We intend to continue to provide high-quality support and service to our customers and to expand the range of our services. We believe that providing exceptional customer support and service will continue to enhance our reputation in the radiation therapy marketplace, help differentiate us from our competitors and further enable us to obtain recurring service revenues from a growing installed base of products. - Maintain Our Position as a Technology Innovator. We developed the products used to treat the first patient ever with IMRT in 1994 and were the first to market with several product offerings. We plan to continue to advance our current technology and develop or acquire new or compatible technologies in order to 1) enhance the speed, accuracy and overall functionality of our existing products and 2) address or create new opportunities in the advanced radiation therapy marketplace. We plan to remain focused on identifying, developing and delivering technological innovations to the marketplace. - Expand the Application of Our Technology to Treat Different Types of Cancers. Currently, our IMRT and related products are used predominantly in the treatment of tumors of the prostate, head, neck and spinal cord. Our goals are to 1) further develop our IMRT technology to the point that the clinical results of treating other types of cancer with IMRT are demonstrated to be better than the results obtainable with conventional treatments and 2) continue to improve our IMRT products to reduce treatment times and improve their ease of use in treating these other types of cancer. - Pursue Selective Business Growth Opportunities. We plan to pursue selective acquisitions more aggressively, particularly those that could assist us in advancing our technologies and increasing our market penetration. As an alternative or in addition to acquisitions, we may choose to license complementary technologies from third parties. CORPORATE INFORMATION We were incorporated in Delaware in 1979 under the name Cybernetics, Inc. We changed our name to Medical Equipment Development Company, Inc. in 1980 and then to NOMOS Corporation in 1993. Our principal executive offices are located at 2591 Wexford Bayne Road, Sewickley, Pennsylvania 15143. Our telephone number is (724) 934-8200. NOMOS(R), PEACOCK(R), MIMiC(R), CORVUS(R), BAT(R), BEAK(R), TALON(R) and CRANE(R) are our trademarks. PEREGRINE(TM) is a trademark of The Regents of the University of California. All other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners. THE OFFERING <Table> <Caption> <S> <C> Common stock we are offering............................... 3,100,000 shares Common stock to be outstanding after this offering......... 10,220,987 shares Underwriters' over-allotment option........................ 465,000 shares Use of proceeds............................................ We intend to use our net proceeds from this offering for sales and marketing, research and development, working capital and other general corporate purposes, including potential acquisitions. Proposed Nasdaq National Market symbol..................... NMOS </Table> The number of shares of common stock to be outstanding after this offering is based on 7,120,987 shares of common stock outstanding as of March 31, 2002. This number includes shares to be issued upon conversion of all of our outstanding convertible preferred stock concurrently with the completion of this offering. It excludes: - 2,044,069 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2002, which options have a weighted average exercise price of $5.44 per share; - 140,783 shares of common stock issuable upon the exercise of warrants outstanding as of March 31, 2002, which warrants have a weighted average exercise price of $13.59 per share; and - 1,345,245 shares available for future issuance under our 2001 Stock Option Plan as of March 31, 2002. --------------------- Except where we state otherwise, the information we present in this prospectus reflects: - no exercise of the underwriters' over-allotment option; - the 1-for-1.97 reverse split of our stock that became effective on June 19, 2002; - the automatic conversion of our Series A, Series B and Series C convertible preferred stock into a total of 3,707,921 shares of common stock concurrently with the completion of this offering; and - the filing of our amended and restated certificate of incorporation concurrently with the completion of this offering. SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following summary consolidated statement of operations data are derived from, and qualified by reference to, the consolidated financial statements and related notes appearing elsewhere in this prospectus. <Table> <Caption> THREE MONTHS YEARS ENDED DECEMBER 31, ENDED MARCH 31, ----------------------------- --------------- 1999 2000 2001 2001 2002 -------- -------- ------- ------ ------ (UNAUDITED) <S> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenues...................................... $ 9,950 $ 13,362 $24,505 $4,593 $7,709 Cost of revenues.............................. 5,797 6,715 10,265 1,833 3,102 -------- -------- ------- ------ ------ Gross profit.................................. 4,153 6,647 14,240 2,760 4,607 -------- -------- ------- ------ ------ Operating expenses: Research and development.................... 3,954 4,479 4,152 927 1,328 Sales and marketing......................... 4,326 4,253 5,378 1,035 2,027 General and administrative.................. 3,827 3,296 2,951 631 1,085 Write-off of investments(1)................. 450 3,000 -- -- -- Stock-based compensation.................... -- -- 1,786 -- 218 -------- -------- ------- ------ ------ Total operating expenses...................... 12,557 15,028 14,267 2,593 4,658 -------- -------- ------- ------ ------ Loss from operations.......................... (8,404) (8,381) (27) 167 (51) Interest and other income (expense), net...... (912) (1,997) 103 (51) 22 -------- -------- ------- ------ ------ Income (loss) from continuing operations...... (9,316) (10,378) 76 116 (29) Loss from discontinued operations(2).......... (7,001) (1,155) -- -- -- -------- -------- ------- ------ ------ Net income (loss)............................. (16,317) (11,533) 76 116 (29) Less preferred dividends...................... (501) -- (1,226) (69) (416) -------- -------- ------- ------ ------ Net income (loss) applicable to common stock....................................... $(16,818) $(11,533) $(1,150) $ 47 $ (445) ======== ======== ======= ====== ====== Net income (loss) per share, basic and diluted: Continuing operations....................... $ (3.81) $ (3.71) $ (0.40) $ 0.02 $(0.14) Discontinued operations..................... (2.71) (0.41) -- -- -- -------- -------- ------- ------ ------ $ (6.52) $ (4.12) $ (0.40) $ 0.02 $(0.14) ======== ======== ======= ====== ====== Weighted average shares used in computing net income (loss) per share, basic(3)........... 2,580 2,797 2,856 2,808 3,180 Weighted average shares used in computing net income (loss) per share, diluted............ 2,580 2,797 2,856 6,516 3,180 Pro forma net income (loss) per share, basic and diluted(3)(4)........................... $ 0.01 $ 0.00 ======= ====== Shares used in computing pro forma net income (loss) per share, basic and diluted(3)(4)... 6,564 6,888 </Table> --------------- (1) APMG (1999) and Med-Tec (2000) (2) Represents the operating losses, asset write-offs and additional costs associated with the disposition of Radiation Oncology Computer Systems, Inc. (ROCS) in November 2000. See notes to the consolidated financial statements appearing elsewhere in this prospectus. (3) The information presented reflects the 1-for-1.97 reverse stock split that became effective on June 19, 2002. (4) Pro forma amounts reflect the conversion of preferred stock into 3,707,921 shares of common stock and adding back preferred dividends of $1,226,000 in 2001 and $416,000 in the three months ended March 31, 2002. Net loss per common share is computed based upon the weighted average number of common shares outstanding. Dilutive securities include options, warrants and convertible preferred stock. Shares of potentially dilutive securities totaling 1,931,388, 2,633,678 and 6,021,548 for the years ended December 31, 1999, 2000, and 2001, respectively, were excluded from basic and diluted net loss per share because of their antidilutive effect. Shares of potentially dilutive securities totaling 5,892,774 were excluded from basic and diluted net loss per share for the three months ended March 31, 2002 because of their antidilutive effect. The following table summarizes our balance sheet data at March 31, 2002: - on an actual basis; - on a pro forma basis to reflect the automatic conversion of outstanding shares of convertible preferred stock as of March 31, 2002 into 3,707,921 shares of common stock; and - on a pro forma as adjusted basis to reflect our sale of 3,100,000 shares of common stock offered by us at an assumed initial public offering price of $13.00 per share after deducting underwriting discounts, commissions and estimated offering expenses payable by us, and the application of our estimated net proceeds. <Table> <Caption> AS OF MARCH 31, 2002 -------------------------------------- (UNAUDITED) PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- --------- ----------- (IN THOUSANDS) <S> <C> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents.......................... $ 5,003 $ 5,003 $40,682 Working capital.................................... 6,083 6,083 41,762 Total assets....................................... 16,092 16,092 51,771 Long-term obligations, net of current portion...... -- -- -- Redeemable Series C preferred stock................ 6,279 -- -- Total stockholders' equity......................... 723 7,002 42,681 </Table>

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+PROSPECTUS SUMMARY The following summary may not contain all of the information that may be important to you. You should read all of the information delivered with this prospectus, including the consolidated financial statements and related notes and the risks of investing in our common stock discussed under "Risk Factors," before making an investment decision. OVERVIEW Global Preferred Holdings, Inc., through our subsidiary, Global Preferred Re Limited, provides reinsurance for life insurance and annuity products. The strength of our reinsurance business is based on our historical relationship with the independent agents of World Financial Group, Inc., which is an independent marketing organization ("IMO") that markets the products we currently reinsure. An independent marketing organization is an organization of independent agents that contracts with one or more insurance companies to distribute and market securities and insurance products. World Financial Group is an indirect subsidiary of AEGON USA, Inc. and, as of April 12, 2002, had over 7,800 associated independent registered agents licensed to sell securities and insurance products. The foundation for our strong relationship with the agents associated with World Financial Group is the equity participation that many of them have in our company. We believe that our relationship with these agents has motivated life insurance companies to enter into favorable reinsurance arrangements with us as they seek to gain preferential access to life insurance distribution channels. We believe this distinguishes us from other companies in our industry. We intend to continue to grow our reinsurance business with World Financial Group and diversify and develop new IMO relationships by offering various financial incentives, which may include stock, warrants and other forms of equity participation in our company, designed to create an ongoing economic interest in the reinsurance business that IMOs direct to us. Although the reinsurance business is directed to us through our IMO relationship, the variable universal life insurance and variable annuity policies that we currently reinsure are underwritten and issued by various life insurance companies. The life insurance companies that currently issue the policies we reinsure are: - Western Reserve Life Assurance Co. of Ohio, a subsidiary of AEGON USA, Inc. ("Western Reserve"); - American Skandia Life Assurance Corporation, an affiliate of Skandia Insurance Company, Ltd. ("American Skandia"); - Pacific Life Insurance Company, an affiliate of Pacific Mutual Holding Company ("Pacific Life"); and - Kemper Investors Life Insurance Company, an affiliate of Zurich Insurance Company ("Zurich Life"). As reported by A.M. Best, each of these companies had over $25 billion of admitted assets in the United States as of December 31, 2000. Currently, our largest reinsurance relationship is with Western Reserve, which accounted for 91% of our reinsurance premiums and reinsurance policy revenues as of March 31, 2002. This high concentration of our business with Western Reserve has its origins in the strong relationships between Western Reserve and the agents associated with World Financial Group; we believe that expanding the base of life insurance companies for which we reinsure will allow us to better diversify our risks and reduce our dependency on any single reinsurance agreement. When we reinsure a policy for a life insurance company, we continue to reinsure that policy for as long as the policy remains in effect. Although the life insurance company may have the right to cancel the reinsurance on one or more policies, this right can occur only upon certain defaults or after a period of 10 years or longer, depending on the particular reinsurance agreement. By maintaining a continued financial interest in these policies, we share the ongoing revenue streams associated with the policies. Additionally, as we reinsure new policies, we expand the base of policies in which we maintain an economic interest. For the three months ended March 31, 2002, we earned net income of $1.2 million on revenues of $8.4 million. Our total assets and stockholders' equity at March 31, 2002 were $79.1 million and $43.0 million, respectively. As of March 31, 2002, we had reinsured approximately 288,000 life insurance policies with an aggregate face value of approximately $9.2 billion and more than 48,000 annuities with aggregate contract benefits of approximately $290.9 million. INDUSTRY TRENDS AND GLOBAL PREFERRED VALUE PROPOSITION We believe that over the last few decades a number of trends in the life insurance industry have led to a misalignment of interests between the distributors of life insurance products and the life insurance companies that create those products. These trends include: Trends in the Production of Life Insurance Products - Introduction of numerous differentiated products; - Conversion of many large mutual insurance companies into publicly traded stock companies, which has increased their focus on maximizing profitability and stockholder value; and - Consolidation among life insurance companies. Trends in the Distribution of Life Insurance Products - Transition of distribution methods from dedicated sales agencies to independent marketing organizations; - Increasingly complex regulatory environment surrounding the sale of insurance products; and - Consolidation among distribution channels and the emergence of national distribution franchises. We believe that these trends have led to an environment where organizations that distribute life insurance products are distinct from those that produce these products. This has led to the distributors having increased control over the access to life insurance consumers. Additionally, we believe that these trends have resulted in a shorter-term focus among all parties, as the distribution channels continually seek to gain greater commissions that are tied to current production and insurers have become reluctant to invest in the development of products for distribution relationships that may not be long lasting. We strive to align the interests between life insurance distributors and life insurance companies by developing long-term, collaborative reinsurance relationships. We build these relationships by providing to the distribution channels meaningful financial incentives tied to the profitability of the reinsurance business directed to us. Through these collaborative relationships, both the distributors and the insurers benefit. The distributors benefit as they are able to share in the economics associated with the underlying insurance policies they sell. The insurers benefit because their distribution partners now have a greater incentive to place higher quality, persistent business with the insurers and may be less likely to move the relationship to another insurer simply to gain more commission income. GROWTH STRATEGY Our objectives are to build strong financial performance, loyal IMOs and stockholder value. We aim to achieve these objectives through the following growth strategies: - Expanding Reinsurance Coverage of Currently Reinsured Policies. A portion of our existing reinsurance agreements provides us the right to increase our reinsurance coverage of policies currently reinsured through the exercise of contractual expansion rights, allowing us to participate more fully in the ongoing revenue streams generated by these policies. - Expanding Reinsurance Coverage of New Policies Under Existing Agreements. These same reinsurance agreements also permit us to reinsure, at participation levels higher than our historic levels, certain new policies as they are written. - Broadening Existing Relationships. We will also seek to grow our business by: (1) broadening the pool of products that we reinsure for the life insurance companies with which we have existing reinsurance arrangements; and (2) establishing new reinsurance arrangements with other life insurance companies that sell products through World Financial Group. - Forming Relationships with Other IMOs. Through the use of financial incentives, which may include stock, warrants and other forms of equity in our company, we intend to form new reinsurance relationships with other IMOs distributing both variable and fixed life insurance and annuity products. The anticipated growth of our business may, however, place additional demands on our management, operational capacity and financial resources in order to manage the growth effectively. CORPORATE STRUCTURE, HISTORY AND RELATED PARTIES We incorporated in Delaware in 1995 as a holding company, owning all of the outstanding capital stock of Global Preferred Re Limited, a Bermuda company registered as a long-term Insurer under the Bermuda Insurance Act 1978 ("Global Preferred Re"). Global Preferred Re, formed during 1995 under the name of WMA Life Insurance Company Limited, commenced its reinsurance operations during 1996. We were formed principally to provide an opportunity for the independent agents associated with an independent marketing organization, World Marketing Alliance, Inc. ("WMA Agency"), to participate indirectly in the reinsurance of the policies they sold. Many of those individual agents purchased equity in Global Preferred. S. Hubert Humphrey, Jr., our founder and largest individual stockholder, owned WMA Agency, however, in June 2001, World Financial Group acquired certain of the assets of WMA Agency and substantially all of the agents formerly associated with WMA Agency became associated with World Financial Group. Effective April 12, 2002, substantially all of the securities licenses of the agents of WMA Securities, Inc., the broker-dealer affiliated with WMA Agency, were transferred to World Group Securities, Inc., the broker-dealer affiliated with World Financial Group. Prior to this offering, the independent agents associated with World Financial Group owned approximately 54.5% of our outstanding common stock. Prior to his retirement in December 2001, Mr. Humphrey served as an officer and director of both Global Preferred and Global Preferred Re. In addition to our relationships with the agents associated with World Financial Group, an indirect subsidiary of AEGON USA, Inc., we have agreements with other AEGON USA affiliates, including a $5.0 million convertible promissory note issued in 1999 to Money Services, Inc., numerous reinsurance agreements and a First Right Agreement relating to additional reinsurance with Western Reserve and a Directed Reinsurance Agreement with World Financial Group. In the third quarter of 2001, we changed our name from The WMA Corporation to Global Preferred Holdings, Inc. and our subsidiary changed its name from WMA Life Insurance Company Limited to Global Preferred Re Limited. References in this prospectus to "Global Preferred," "we," "us," "our" and "our company" refer to Global Preferred Holdings, Inc. and, unless the context otherwise requires or otherwise as expressly stated, our Bermuda subsidiary, Global Preferred Re. Our executive offices are located at 11315 Johns Creek Parkway, Duluth, Georgia 30097 and our telephone number is 770-248-3311. RECENT DEVELOPMENTS Amendments to Western Reserve Reinsurance Agreements. In general, our reinsurance agreements define the terms under which we agree to assume certain risks that a life insurance company has as a result of insurance policies the company has issued. This assumption of risks is referred to as "reinsurance." Consistent with our business plan, effective as of January 1, 2002, we amended certain of our reinsurance agreements with Western Reserve to: - Convert our reinsurance of all Western Reserve variable universal life policies and riders issued from April 1, 2001 through December 31, 2001, which had been reinsured by us on a monthly renewable term basis, under which we assumed only mortality risk on the reinsured policies, to a coinsurance and modified coinsurance basis, under which we assumed a portion of all of the risks that the life insurance company has on the reinsured policies. The percentage of the risks assumed by us on policies reinsured after this conversion, which is referred to as the "quota share rate," is 20%; - Begin reinsuring, on a coinsurance and modified coinsurance basis at a quota share rate of 20%, certain Western Reserve variable universal life policies sold by the agents associated with World Financial Group and issued from July 1, 2001 through December 31, 2001; - Increase our reinsurance on a coinsurance and modified coinsurance basis, from our current 10% quota share rate to a 14% quota share rate, of all Western Reserve variable annuity policies sold by the agents associated with World Financial Group and issued from January 1, 1999 through December 31, 2001; - Begin reinsuring, on a coinsurance and modified coinsurance basis at a quota share rate of 14%, all Western Reserve variable annuity policies sold by the agents associated with World Financial Group and issued on or after January 1, 2002; and - Cease our reinsurance of the Western Reserve Freedom Wealth Creator variable annuity products sold, after January 1, 2002, by the agents associated with the World Financial Group, due to the limited volume of new policies we anticipate to be written for this product; however, we will continue to reinsure all Freedom Wealth Creator policies we reinsured as of December 31, 2001. These amendments resulted in an increase in deferred acquisition costs of $8.1 million, an increase of $7.2 million in reinsurance balances payable and an increase of $929,000 in future policy benefits at March 31, 2002, as compared to December 31, 2001. THE OFFERING Common stock offered.............. 9,500,000 shares Common stock outstanding after this offering..................... 13,641,684 shares(1) Use of proceeds................... We estimate that the net proceeds from this offering will be $94.4 million, assuming an initial offering price of $11.00 per share. We intend to use approximately $75 million of the proceeds over the final three quarters of 2002 to effect and support our exercise of contractual rights increasing our reinsurance of Western Reserve's existing policies through the: - Conversion of our reinsurance of all Western Reserve variable universal life policies and riders, issued since January 1, 1999, reinsured on a monthly renewable term basis to a coinsurance and modified coinsurance basis; - Reinsurance of the Western Reserve Freedom Elite Builder variable universal life policies and riders, issued since July 2001, on a 20% quota share coinsurance and modified coinsurance basis; and - Increase of our quota share to the maximum percentage allowable by contract on all Western Reserve variable annuity policies currently reinsured by us. Additionally, we intend to use approximately $15 million of the net proceeds through the first quarter of 2003 to reinsure newly issued variable annuity and variable universal life products. We will use the remaining net proceeds for general corporate purposes, which may include funding efforts to develop new IMO relationships and reducing corporate debt. Proposed Nasdaq National Market symbol............................ GPHO --------------- (1) Excludes (a) 420,000 shares of common stock issuable upon the exercise of options to be granted upon completion of the offering to our active and retired directors, officers and employees; and (b) 312,750 shares of common stock issuable on conversion of a $5.0 million convertible promissory note held by Money Services, Inc., a subsidiary of AEGON USA, Inc. ------------------------------------ Unless indicated otherwise, all share and per share data in this prospectus reflects a three-for-two split of our common stock effective September 7, 2001. Additionally, all share and per share data assume the underwriters do not exercise the right we granted to them to purchase up to an additional 1,425,000 shares of common stock in the offering. SUMMARY CONSOLIDATED FINANCIAL DATA The consolidated statements of income data for each of the years ended December 31, 1999, 2000 and 2001 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of income data for the three months ended March 31, 2001 and 2002 and the consolidated balance sheet data as of March 31, 2002 have been derived from our unaudited consolidated financial statements which were prepared on the same basis as our audited consolidated financial statements and include, in our opinion, all adjustments necessary to present fairly the information presented for interim periods and the adjustments are of a normal and recurring nature. However, interim period results are not necessarily indicative of results that will be obtained for the full year. The financial data set forth below should be read along with our consolidated financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. <Table> <Caption> THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------ ----------------------- 1999 2000 2001 2001 2002 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per share data) (UNAUDITED) <S> <C> <C> <C> <C> <C> CONSOLIDATED STATEMENTS OF INCOME DATA: Premiums................................................ $ 9,692 $ 16,618 $ 19,240 $ 4,656 $ 4,557 Reinsured policy revenues............................... 13,506 12,894 11,238 2,940 3,596 Net investment income................................... 350 528 811 161 214 Net realized gain (loss) on investments................. (66) 3 45 6 8 Loss on recapture of business........................... (823) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total revenue......................................... 22,659 30,043 31,334 7,763 8,375 ========== ========== ========== ========== ========== Total benefits and expenses............................. 16,114 23,089 23,480 5,818 6,630 Income before income taxes............................ 6,545 6,954 7,854 1,945 1,745 Income tax expense.................................... (2,225) (1,821) (2,392) (654) (593) ---------- ---------- ---------- ---------- ---------- Net income............................................ 4,320 5,133 5,462 1,291 1,152 Preferred dividends................................... -- 155 267 69 -- ---------- ---------- ---------- ---------- ---------- Net income available to common stockholders............. $ 4,320 $ 4,978 $ 5,195 $ 1,222 $ 1,152 ========== ========== ========== ========== ========== Basic earnings per share................................ $ 1.15 $ 1.33 $ 1.39 $ 0.33 $ 0.28 Diluted earnings per share.............................. $ 1.15 $ 1.30 $ 1.32 $ 0.31 $ 0.28 Weighted-average common shares.......................... 3,742,610 3,742,610 3,742,610 3,742,610 4,141,684 Total weighted-average common and common equivalent shares................................................ 3,742,610 3,943,897 4,141,684 4,141,684 4,141,684 </Table> <Table> <Caption> AS OF MARCH 31, 2002 ------------------------ ACTUAL AS ADJUSTED(1) ------- -------------- (Dollars in thousands) (UNAUDITED) <S> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................. $10,457 $104,816 Fixed maturity securities................................. 11,695 11,695 Deferred acquisition costs................................ 52,319 52,319 Total assets.............................................. 79,054 173,413 Long-term debt............................................ 5,000 5,000 Total liabilities......................................... 36,014 36,014 Stockholders' equity...................................... 43,040 137,399 </Table> <Table> <Caption> AS OF MARCH 31, 2002 (Dollars in thousands) -------------- <S> <C> SUMMARY OF POLICIES REINSURED: Number of life insurance policies and riders reinsured.... 287,746 Number of annuity policies reinsured...................... 48,312 Face value of life insurance reinsured.................... $9,196,219 Annuity contract benefits reinsured....................... $ 290,949 </Table> --------------- (1) As adjusted to give effect to the sale of the 9,500,000 shares of our common stock at an assumed initial public offering price of $11.00 per share and the receipt of the estimated net proceeds.

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+PROSPECTUS SUMMARY The following summary highlights selected information from this prospectus and may not contain all of the information that is important to you. This prospectus includes a description of the terms of the notes we are offering, as well as information regarding our business and detailed financial information. We encourage you to read the entire prospectus, including the financial statements and related notes, carefully. THAXTON GROUP, INC. We are a diversified consumer financial services company that: . provides small consumer loans to borrowers with impaired credit; . finances the purchase of used automobiles and insurance premiums for borrowers with impaired credit; . serves as an independent sales agent for a wide variety of property and casualty, health and life insurance companies; and . provides a limited number of commercial loans. In February 1999, we acquired the consumer finance operations of FirstPlus Consumer Finance, Inc., including 144 consumer finance offices in seven states, 47 of which are located in Texas and 31 of which are located in South Carolina. The core business of these offices is to provide small consumer loans, real estate loans and used automobile financing loans to credit impaired borrowers. Our executive offices are located at 1524 Pageland Highway, Lancaster, South Carolina 29720, and our telephone number is 1 (888) 842-9866. As of December 2, 2002 we have a total of 215 finance offices and 15 insurance agency offices located principally in South Carolina, Texas, Mississippi, Georgia and Tennessee. THE OFFERING We are offering up to $125 million of subordinated terms notes due 1, 6, 12, 36 and 60 months and subordinated daily notes. We expect the offering to continue until the later of two years or until all $125 million of the notes are sold, unless we terminate the offering sooner. The proceeds of this offering will be used primarily to repay outstanding debt under our credit facilities. The interest rates on the notes as of the date of this prospectus are set forth in a table on the cover page of this prospectus. The interest rates vary based on the dollar amount of the note you purchase. We may change one or more of the interest rates periodically. Any change in the interest rates will be set forth in a supplement to this prospectus. The notes may be purchased by completing a note purchase agreement and furnishing us the funds required for the amount of a note you desire to purchase. You may call us at 1 (888) 842-9866 during normal business hours to obtain information about our offices where the notes are sold or to obtain information about the notes by mail. SUMMARY CONSOLIDATED FINANCIAL INFORMATION The following summary historical financial information for, and as of the end of, each of the fiscal years in the five-year period ended December 31, 2001 was derived from our audited consolidated financial statements. The summary historical financial data for, and as of the end of, the nine months ended September 30, 2001 and September 30, 2002 was derived from our unaudited consolidated financial statements. You should read the following summary in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this prospectus, and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations." <TABLE> <CAPTION> NINE MONTHS YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, ----------------------------------------------- ------------------- (UNAUDITED) 1997 1998 1999 2000 2001 2001 2002 ------- ------- ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) <S> <C> <C> <C> <C> <C> <C> <C> INCOME STATEMENT DATA: Net interest income.................... $10,870 $10,154 $41,868 $44,590 $55,256 $40,142 $47,079 Provision for credit losses............ 6,580 4,047 11,938 14,658 16,584 11,211 13,664 Net interest income after provision for credit losses........................ 4,290 6,107 29,930 29,932 38,672 28,931 33,415 Insurance commissions, net............. 5,470 6,591 12,805 17,764 18,554 10,306 11,721 Other income........................... 1,222 699 2,125 4,239 5,640 3,278 2,816 Operating expenses..................... 13,211 14,894 42,314 51,782 57,736 40,219 41,022 Income tax expense (benefit)........... (724) (467) 1,258 550 2,095 1,095 2,357 Net income (loss)--continuing operations........................... (1,506) (1,028) 1,288 (397) 3,035 1,200 4,573 Net income (loss) per common share- continuing operations................ (0.39) (0.34) 0.09 (0.16) 0.34 0.09 0.61 </TABLE> <TABLE> <CAPTION> AT YEAR ENDED DECEMBER 31, AT SEPTEMBER 30, ------------------------------------------------ ------------------ (UNAUDITED) 1997 1998 1999 2000 2001 2001 2002 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> <C> BALANCE SHEET DATA: Finance receivables........ $ 67,558 $ 73,609 $213,170 $235,906 $240,534 $229,493 $235,738 Unearned income............ (14,087) (13,299) (42,205) (46,331) (47,267) (43,646) (45,312) Allowance for credit losses (4,809) (4,711) (10,661) (11,631) (12,012) (12,021) (12,415) Finance receivables, net... 48,662 55,599 160,304 177,944 181,255 173,826 178,011 Total assets............... 60,965 78,996 234,935 247,548 242,560 229,170 242,783 Total liabilities.......... 54,996 66,067 225,132 243,789 236,275 224,547 232,286 Shareholders' equity....... 5,969 12,929 9,803 3,759 6,285 4,623 10,497 </TABLE> SUMMARY OF TERMS OF NOTES SUBORDINATED DAILY NOTES <TABLE> <C> <S> Minimum Investment $50 Interest Rate See the table on the cover page of this prospectus entitled "Interest Rates" for interest rates payable on daily notes. The interest rates vary depending upon the dollar amount of the daily note you purchase. Daily notes bear interest at a fixed rate as of the date of issuance, but the rate may be adjusted as explained below prior to redemption. We may adjust the interest rate on daily notes on the first day of the month. Any adjustments will be reflected in a supplement to this prospectus. You will be notified promptly by first class mail of any monthly adjustment in the interest rate. The notice will include with it a copy of any amendments or supplements to this prospectus. Interest Payment Payable upon redemption and compounded daily. Increases or Decreases of You may adjust the original principal amount at any time by increasing or Principal Amount by Holder decreasing the principal amount of your note. You may not, however, reduce the outstanding principal amount below $50. If you present a daily note to us, we will record any adjustments to the original principal amount, such as increases or decreases in principal amount. You may redeem daily notes, in whole or in part, at any time, without penalty. </TABLE> SUBORDINATED TERM NOTES DUE 1 MONTH <TABLE> <C> <S> Minimum Investment $100 Interest Rate See the table on the cover page of this prospectus entitled "Interest Rates" for interest rates payable on 1 month notes. The interest rates vary depending upon the total dollar amount of a 1 month note that you purchase. When you purchase a 1 month note, the interest rate is fixed until maturity. Interest Payment Payable at maturity and compounded daily. Automatic Renewal Procedure The automatic procedure for renewing 1 month notes is described below under "Automatic Renewal of Term Notes." Increases or Decreases of You may adjust the original principal amount of a 1 month note without Principal Amount by Holder extending the maturity at any time by increasing or decreasing the principal amount. You may not, however, reduce the outstanding principal amount below $100. If you present a 1 month note to us, we will record any adjustments to the original principal amount, such as increases or decreases in principal amount. If you redeem a 1 month note, in whole or in part, prior to maturity, you will forfeit all accrued interest on the redeemed amount, unless we, in our sole discretion, waive the forfeiture in whole or in part. Redemption by Thaxton Group Not redeemable prior to maturity. </TABLE> SUBORDINATED TERM NOTES DUE 6, 12, 36 AND 60 MONTHS <TABLE> <C> <S> Minimum Investment $1,000 Interest Rate See the table on the cover page of this prospectus entitled "Interest Rates" for interest rates payable on 6, 12, 36 and 60 month notes. The interest rates vary depending upon the total dollar amount of the note that you purchase. When you purchase one of these notes, the interest rate is fixed until maturity. Interest Payment At your option, payable either monthly, quarterly or at maturity and compounded daily. Automatic Renewal Procedure The automatic procedure for renewing 6, 12, 36 and 60 month notes is described below under "Automatic Renewal of Term Notes." Redemption by Holder If you redeem, in whole or in part, prior to maturity, you will forfeit part of your accrued interest equal to the difference between the amount of interest actually accrued since the date of issuance, or most recent renewal date, and the amount of interest that would have accrued had the rate of interest been 3% less than the rate in effect at the time of your initial purchase or any renewal, unless we, in our sole discretion, waive the forfeiture in whole or in part. Redemption by Thaxton Group We may redeem 6, 12, 36 and 60 month notes without premium at any time on 30 days notice. AUTOMATIC RENEWAL OF TERM NOTES NOT LATER THAN 15 DAYS BEFORE THE MATURITY DATE OF A 1 MONTH NOTE, AND 30 DAYS BEFORE THE MATURITY DATE OF A 6, 12, 36 AND 60 MONTH NOTE, WE WILL SEND YOU A RENEWAL NOTICE. IF WE HAVE AMENDED THIS PROSPECTUS OR SUPPLEMENTED IT TO REFLECT A CHANGE IN THE INTEREST RATES APPLICABLE UPON THE RENEWAL OF THE NOTES, THE NOTICE WILL INCLUDE WITH IT ANY APPLICABLE AMENDMENT OR SUPPLEMENT TO THIS PROSPECTUS. THIS NOTICE WILL ALSO ADVISE YOU OF: . THE MATURITY DATE OF THE NOTE; . THE DOLLAR AMOUNT OF YOUR NOTE AT MATURITY; . THE APPLICABLE INTEREST RATE UPON RENEWAL; . THE NEW MATURITY DATE IF YOUR NOTE IS RENEWED; AND . THE TIME WITHIN WHICH YOU MUST NOTIFY US THAT YOU WISH TO REDEEM YOUR TERM NOTE. 1 MONTH NOTES WILL BE AUTOMATICALLY RENEWED FOR A NEW ONE MONTH TERM AT THE THEN APPLICABLE INTEREST RATE, UNLESS YOU NOTIFY US WITHIN 10 DAYS AFTER THE MATURITY DATE THAT YOU DESIRE TO REDEEM. 6, 12, 36 AND 60 MONTH NOTES WILL BE AUTOMATICALLY RENEWED FOR A NEW 6, 12, 36 OR 60 MONTH TERM AT THE THEN APPLICABLE INTEREST RATE, UNLESS YOU NOTIFY US BY THE MATURITY DATE THAT YOU DESIRE TO REDEEM. YOU MAY NOTIFY US OF YOUR DESIRE TO REDEEM BY LETTER, BY CALLING US AT 1 (888) 842-9866, OR BY ADVISING ONE OF OUR EMPLOYEES AT THE OFFICE WHERE YOU PURCHASED YOUR TERM NOTE THAT YOU WISH TO REDEEM IT. IF YOU REDEEM YOUR NOTE, WE WILL PROMPTLY ISSUE YOU A CHECK FOR THE PRINCIPAL AMOUNT OF YOUR NOTE, PLUS ACCRUED INTEREST THROUGH MATURITY. </TABLE> <TABLE> <C> <S> IF YOU DECIDE NOT TO REDEEM A TERM NOTE AND IT IS AUTOMATICALLY RENEWED FOR A NEW TERM, YOU WILL BE CREDITED WITH THE FULL AMOUNT OF THE ACCRUED INTEREST ON THE TERM NOTE BEFORE YOU RENEWED IT. THIS ACCRUED INTEREST WILL NOT BE SUBJECT TO FORFEITURE IF YOU LATER DECIDE TO REDEEM YOUR RENEWED TERM NOTE PRIOR TO ITS MATURITY. OHIO RESIDENTS IF YOU ARE A RESIDENT OF OHIO, YOU MUST ALSO SIGN A NEW NOTE PURCHASE AGREEMENT TO RENEW A NOTE, WHICH WE WILL PROVIDE TO YOU ALONG WITH ANY APPLICABLE AMENDMENT OR SUPPLEMENT TO THIS PROSPECTUS. IF WE DO NOT RECEIVE A SIGNED NOTE PURCHASE AGREEMENT ON OR BEFORE THE MATURITY DATE, THE PRINCIPAL OUTSTANDING ON YOUR TERM NOTE, TOGETHER WITH ALL INTEREST ACCRUED THROUGH THE MATURITY DATE, WILL BE PAID TO YOU PROMPTLY. </TABLE> SECURITY AND RANKING OF NOTES The notes: . are general, unsecured obligations of The Thaxton Group, Inc. only; and . rank subordinate in right of payment to all existing and future senior debt of The Thaxton Group, Inc. Our subsidiaries are under no obligation with respect to the notes. The notes will not be secured by any collateral, and our obligations under the notes will not be guaranteed by any of our subsidiaries. As of December 2, 2002, we had approximately $124.8 million of debt outstanding that would have ranked senior to the notes in right of payment. The amount of senior debt outstanding may be increased at any time. RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth our consolidated ratios of earnings to fixed charges for the periods indicated. <TABLE> <CAPTION> DECEMBER 31, SEPT. 30, -------------------------- --------- 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- --------- <S> <C> <C> <C> <C> <C> <C> Ratio of earnings to fixed charges 0.56* 0.70* 1.15 1.01 1.27 1.63 </TABLE> -------- * The dollar amount of the deficiency as of December 31, 1997 and December 31, 1998 was approximately $2.2 million and $1.5 million, respectively.

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+S-1 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from the information contained in this prospectus. We and the selling stockholders are offering to sell, and seeking offers to buy, our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of when this prospectus is delivered or when any sale of our common stock occurs. Table of Contents SUMMARY This is a summary and it does not contain all the information that may be important to you. You should read this entire prospectus carefully before you decide whether to invest in the common stock that we and the selling stockholders are offering. Unless otherwise indicated, the information in this prospectus (i) assumes that the over-allotment option granted to the underwriters will not be exercised and (ii) gives effect to a for-1 stock split of our common stock to be effected in the form of a stock dividend prior to the closing of this offering. In this prospectus, unless the context indicates otherwise, the Company, we, us, and our refer to Coast Casinos, Inc. and its wholly-owned subsidiary, Coast Hotels and Casinos, Inc., a Nevada corporation, and Coast Hotels refers to Coast Hotels and Casinos, Inc. Our current corporate name is Coast Resorts, Inc., but we plan to change our corporate name prior to the consummation of this offering to Coast Casinos, Inc. THE COMPANY We own and operate four Las Vegas hotel-casinos, three of which are strategically located to capitalize on the strong demographics of the Las Vegas locals market, while the fourth is located in the center of the Las Vegas Strip. We strive to attract a significant volume of repeat gaming customers to our casinos on a daily basis by offering consistently high-quality gaming, hotel, entertainment and dining experiences at attractive prices. Since our formation in 1979, we have maintained a successful track record of building, developing and operating hotel-casinos designed to appeal to the Las Vegas locals market. Our four senior executives average more than 32 years of experience in the gaming industry, and three of our senior executives have worked together at the Company for over 20 years. Between 1979 and present, we have developed four hotel-casinos. In 2001, we generated $518.0 million in revenue, representing a 15.4% compounded annual growth rate over 1997, and $126.3 million in EBITDA, representing a compounded annual growth rate of 33.4% over 1997. Our four Las Vegas hotel-casinos are: The Suncoast Hotel and Casino, which opened in September 2000, serves one of the fastest growing areas of the Las Vegas valley and is located on approximately 50 acres in Peccole Ranch, adjacent to the master-planned community of Summerlin. The Suncoast is strategically located at the intersection of Rampart Boulevard and Alta Drive, readily accessible from most major points in Las Vegas, including downtown (approximately eight miles) and the Strip (approximately nine miles). The Orleans Hotel and Casino, which opened in December 1996, is strategically located on Tropicana Avenue, a short distance from the Las Vegas Strip and McCarran International Airport. The Orleans provides an upscale, off-Strip experience in an exciting New Orleans French Quarter-themed environment. The Gold Coast Hotel and Casino, which opened in December 1986, is located on West Flamingo Road approximately one mile west of the Las Vegas Strip and one-quarter mile west of Interstate 15, the major highway linking Las Vegas and Southern California, offering easy access from all four directions in the Las Vegas valley. The Barbary Coast Hotel and Casino, which opened in March 1979, is located at the intersection of Flamingo Road and Las Vegas Boulevard, one of the busiest intersections on the Strip, along with Caesars Palace, Bally s Las Vegas and Bellagio. As a result, the Barbary Coast s customer base is primarily visitors to the Las Vegas area. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Table of Contents FORWARD-LOOKING STATEMENTS The prospectus includes forward-looking statements within the meaning of the securities laws. All statements regarding our expected financial position, business, strategies and financing plans under the headings Summary, Risk Factors, Management s Discussion and Analysis of Financial Condition and Results of Operations, Business and elsewhere in this prospectus or the documents incorporated by reference in this prospectus are forward-looking statements. In addition, in those and other portions of this prospectus, the words anticipates, believes, estimates, seeks, expects, plans, intends and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, and have based these expectations on our beliefs as well as assumptions we have made, such expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from such expectations are disclosed in this prospectus, including, without limitation, the following factors: increased competition, both in Nevada and other states, including increased competition from California Native American gaming; dependence on the Las Vegas area and Southern California for a majority of our customers; uncertainties associated with construction projects, including the related disruption of operations and the availability of financing, if necessary; substantial leverage and uncertainty that we will be able to service our debt; changes in laws or regulations, third party relations and approvals, decisions of courts, regulators and governmental bodies; uncertainties related to the economy; the impact on the travel and leisure industry, and Las Vegas in particular, of any terrorist attack or threat of terrorist attack and of the United States response to an attack or threat; uncertainties related to employee relations and the impact on the Las Vegas economy of a strike by the culinary workers union or other unions; and uncertainties related to the cost and/or availability of electricity and natural gas. For information with respect to these and other factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see the text under the caption Risk Factors. Potential investors in the notes are urged to consider these factors carefully in evaluating the forward-looking statements, contained or incorporated by reference in this prospectus. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by our cautionary statements. The forward-looking statements included in this prospectus are made only as of the date of this prospectus. We do not intend, and undertake no obligation, to update these forward-looking statements. Totals 2,168 334,000 7,976 210 We primarily target the growing Las Vegas locals market, which is one of the most rapidly growing metropolitan areas in the U.S. According to Las Vegas Perspective 2002, the 2001 population of the Las Vegas metropolitan area was approximately 1.4 million. The average annual population growth rate of the Las Vegas metropolitan area from 1993 to 2001 was 6.3%, as compared to 1.2% for the U.S. as a whole. The growth was driven primarily by Nevada s favorable climate and tax structure, a strong economy and a well-developed infrastructure. For example, the opening in recent years of new Las Vegas Strip mega-resorts has created thousands of jobs which, together with the increasing popularity of Las Vegas as a retirement community, have contributed to population growth and expanded the market. We also target Las Vegas visitors by providing well-appointed inexpensive hotel rooms and the same high quality gaming, entertainment and dining experiences at affordable prices that appeal to locals. The most recent Clark County Residents Study prepared by the Las Vegas Convention and Visitors Authority ( LVCVA ) in 1999-2000 found that approximately 69% of Clark County adult residents said they gamble at least occasionally. Of those residents, 47% said they do so at least once per week and 41% budget at least $25 per visit. In addition, over 74% of Las Vegas resident gamblers prefer locations that are off the Strip and away from downtown Las Vegas. Based on the results of the LVCVA study, researchers estimated the total amount budgeted annually for gaming by all adult Clark County residents to be over $1.77 billion. Because the locals market depends to a lesser extent on attracting tourists or competing with other destination leisure activities, we believe it is less susceptible to market swings and cycles that affect the Strip casinos. In addition, Nevada law imposes more stringent requirements for approval of new hotel-casinos in Clark County that are not located in the vicinity of the Strip or downtown Las Vegas. We believe that this barrier to entry into the market will enable our properties to benefit from the Las Vegas locals market. Business Strategy Our business and marketing strategy is to attract a significant volume of gaming customers to our casinos on a daily basis by offering consistently high quality gaming, hotel, entertainment and dining experiences at affordable prices. We emphasize attracting and retaining repeat customers. Our primary target market for The Orleans, the Gold Coast and the Suncoast consists of value-oriented local middle-market customers who gamble frequently. The Barbary Coast s customer base is primarily composed of visitors to the Las Vegas area. While a significant portion of our customers are local residents, the same factors that appeal to local residents also appeal to visitors to Las Vegas, including better odds on slot and video poker machines and lower minimum wager limits on our table games than those traditionally found at Strip casinos. In addition to the growing locals market, Las Vegas has experienced strong growth in the number of visitors with an average annual increase of 3.4% from 1996-2001. Three of our casinos are strategically situated to benefit from the growing visitor market, with the Gold Coast and The Orleans each located within two miles of the Strip, and the Barbary Coast located at one of the busiest intersections on the Strip. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents We believe that the most important factors in successfully operating our casinos are convenient locations with easy access, a friendly atmosphere, a value-oriented approach and high quality restaurants, entertainment, guest rooms and other non-gaming amenities. Convenient, strategic locations. The Orleans and the Gold Coast are easily accessible and offer ample parking, providing our customers with convenient alternatives to the congestion on the Strip. The Suncoast has a suburban location conveniently located adjacent to the fast-growing Summerlin master-planned community. The Barbary Coast is located on the corner of the Strip and Flamingo Road. Friendly atmosphere. A key element of our strategy is to provide patrons with friendly, personal service that is designed to foster customer loyalty and generate repeat business. We believe that locals appreciate a friendly, casual gaming environment where employees make them feel at home. Value. We offer value to our gaming patrons by providing slot and video poker machines with better odds than those traditionally found at Strip casinos and slot clubs that reward frequent play. We also offer value in our many restaurants and bars, where patrons are served a variety of beverages and generous portions of quality food at attractive prices. We target the growing visitors market by also offering quality guest rooms at rates generally lower than Las Vegas Strip room rates. Entertainment, movie theaters and other non-gaming amenities. Our properties offer a number of amenities that generate significant foot traffic through our casinos, including movie theaters, bowling centers, quality restaurants and a variety of musical entertainment. We believe that this accentuates the perception of value for our customers and allows us to compete effectively with other locals-oriented casinos. Growth Strategy Our objective is to increase the value of our company through multiple growth strategies designed to increase revenue and net income. Our primary growth strategies are: Expand gaming operations and non-gaming amenities at the Suncoast. Subject to receiving required governmental approvals, we plan to commence an approximately $65.0 million expansion of the Suncoast in the first half of 2003. The project is expected to be completed in phases through the second half of 2004. The expansion is expected to feature a 70,000 square foot casino addition, including approximately 700 additional slot machines, a poker room, a new sports book, a sports bar, additional table games, a new casino bar, an approximately 1,600-car parking garage and four new restaurants. Expand gaming operations, rooms and other non-gaming amenities at The Orleans. In January 2001, we commenced an approximately $150.0 million expansion of The Orleans. The project is expected to be completed in phases through the second quarter of 2003. Featured in the expansion are an additional 2,600-car parking garage, a 586-room hotel tower, a multi-purpose special events arena with up to approximately 10,000 seats, 40,000 square feet of new gaming area and public space, six additional movie theaters, spa and fitness facilities, two restaurants and an Irish pub. Through March 31, 2002, we had spent approximately $85.1 million and had opened the parking garage, 35,000 of the additional 40,000 square feet of new gaming area and public space, the movie theaters, the restaurants and the Irish pub. Expand operations and remodel guest rooms and public areas at the Gold Coast. In the fourth quarter of 2000, we commenced an approximately $60.0 million expansion and remodel of the Gold Coast. The project is expected to be completed in phases through the fourth quarter of 2002. The expansion features a multi-station buffet, the renovation of our standard hotel guest rooms and the redesign of most of the Gold Coast s public areas, 16,000 square feet of additional meeting space, (in thousands) 2002 $ 148 2003 25,162 2004 119,177 2005 3 2006 CASH AND CASH EQUIVALENTS, at end of year $ 13 $ $ Coast Resorts, Inc. (Exact name of registrant as specified in its charter) Nevada 6719 88-0345704 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 4500 West Tropicana Avenue Las Vegas, Nevada 89103 (702) 365-7000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) We are a Nevada corporation. Our principal executive office is located at 4500 West Tropicana Avenue, Las Vegas, Nevada 89103 and our telephone number is (702) 365-7000. You may obtain additional information about us at our website, www.coastcasinos.com. Information contained on our website is not a prospectus and does not constitute part of this prospectus. MICHAEL J. GAUGHAN Chairman and Chief Executive Officer 4500 West Tropicana Avenue Las Vegas, Nevada 89103 (702) 365-7000 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) (1) Excludes shares of common stock reserved for future issuance under our stock incentive plan, of which shares were subject to outstanding options at a weighted average exercise price of $ per share as of May , 2002. Copies to: KAREN E. BERTERO, ESQ. Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, California 90071 (213) 229-7000 PAMELA B. KELLY, ESQ. Latham & Watkins 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 (213) 485-1234 (1) Financial data for 1997, 1998, 1999 and 2000 has been restated to reflect the reclassification of certain cash incentives of $1,523, $3,539, $4,207 and $10,602, respectively, in connection with the adoption of Emerging Issues Task Force Issue 00-22 ( EITF 00-22 ), which was effective as of January 1, 2001. The adoption of EITF 00-22 had no effect on either operating income or net income. Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this form, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Title of Each Class of Securities to be Registered Number of Shares to be Registered(1) Proposed Maximum Offering Price Per Share(2) Proposed Maximum Aggregate Offering Price(2) Amount of Registration Fee Table of Contents (2) Includes casino, food and beverage, hotel and other expenses. (3) Relates to the Suncoast, which opened in September 2000. (4) Includes interest income of $98 (year ended December 31, 1997), $695 (1998), $450 (1999), $470 (2000), $405 (2001), $166 (three months ended March 31, 2001) and $26 (three months ended March 31, 2002) and capitalized interest of $1,016 (year ended December 31, 1997), $58 (1998), $612 (1999), $4,511 (2000), $1,048 (2001), $62 (three months ended March 31, 2001) and $588 (three months ended March 31, 2002). (5) In connection with the repurchase of certain debt, we incurred repurchase premiums of $31.0 million. The repurchase premiums and the write-offs of unamortized debt issuance costs and original issue discount resulted in an extraordinary loss of $27.0 million in 1999, net of applicable income tax benefit of $14.5 million. (6) EBITDA means earnings before interest, taxes, depreciation, amortization, deferred (non-cash) rent expense, other non-cash expenses and certain non-recurring items, including pre-opening expenses and gains and losses on disposals of assets (for all periods presented, the only non-cash expense was deferred rent and the only non-recurring items were pre-opening expenses, gains and losses on disposal of assets and extraordinary loss on retirement of debt). EBITDA is defined in our senior secured credit facility and in the indenture governing the 9 % Senior Subordinated Notes. EBITDA is presented as supplemental disclosure because the calculation of EBITDA is necessary to determine our compliance with certain covenants under these financing agreements and because management believes that it is a widely used measure of operating performance in the gaming industry. EBITDA should not be construed as an alternative to operating income or net income (as determined in accordance with generally accepted accounting principles) as an indicator of our operating performance, or as an alternative to cash flows generated by operating, investing and financing activities (as determined in accordance with generally accepted accounting principles) as an indicator of cash flows or a measure of liquidity. All companies do not calculate EBITDA in the same manner. As a result, EBITDA as presented here may not be comparable to a similarly titled measure presented by other companies. (7) As adjusted to give effect to the sale of shares of common stock that we are offering and our use of the estimated net proceeds from the sale, as if it had occurred on March 31, 2002. Table of Contents

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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before making an investment decision. This prospectus contains forward-looking statements that involve risks and uncertainties. Our results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those in the section entitled "Risk Factors" and elsewhere in this prospectus. Except as otherwise indicated, all information in this prospectus assumes no exercise of the underwriters' overallotment option. References to "we," "us" and "our" mean and include Photon Dynamics, Inc. and its wholly owned subsidiaries, Photon Dynamics Canada Inc., formerly known as Image Processing Systems Inc., CR Technology, Inc. and Intelligent Reasoning Systems, Inc. Photon Dynamics, Inc. We are a leading provider of yield management solutions to the flat panel display industry. Our flat panel display systems are designed to collect data, analyze product quality and identify and repair product defects at critical steps in the flat panel display manufacturing process. We also offer yield management solutions for the printed circuit board assembly and advanced semiconductor packaging industry and the cathode ray tube display and high quality glass industries. Our optical and X-ray inspection systems are used to detect and identify defects on printed circuit board assemblies with advanced semiconductor packages mounted on the surfaces of these assemblies. Our optical inspection systems use high-resolution cameras and proprietary software to locate and characterize defects in cathode ray tube displays, cathode ray tube glass and automotive glass panels. Our systems are designed to help manufacturers maximize factory output with reduced material input and error, a practice known as yield management. Flat panel displays are the preferred choice for high-performance mobile electronic devices, such as notebook computers, cellular phones, personal digital assistants and portable video games, and are becoming more widely-used in stationary devices, such as televisions and desktop computers. As technological advances in microelectronics and materials science have improved performance characteristics of flat panel displays, the manufacturing process has become increasingly complex and costly, making early defect detection and repair more critical. Technological innovations have also led to the introduction of a broad array of electronic devices with increasing performance and decreasing size characteristics. These electronic devices require smaller printed circuit boards upon which increasing numbers of semiconductors are mounted, thereby requiring inspection technology to be more sophisticated and precise. Manufacturing these highly engineered products requires complex, multi-stage production processes, increasing the potential for defects and errors associated with equipment failures, contamination of materials, drift in process parameters, human error and other related factors. Manufacturing complexity also increases investment in work-in-progress inventories and lengthens production cycles. To better manage and enhance their yields, manufacturers are increasing their emphasis on automated testing, repair and inspection throughout the manufacturing process. As production processes become more complex and reducing material and labor costs becomes increasingly important, we believe that ongoing yield management provides manufacturers with an important competitive advantage. Income (loss) from operations (8,509 ) (2,338 ) (183 ) (492 ) 3,854 3,615 3,082 2,003 Interest income and other, net 685 1,066 1,577 1,680 1,672 1,627 919 Our Solution We believe our yield management solutions allow manufacturers to improve their manufacturing productivity by reducing costs, increasing throughput and improving product quality. Our systems offer a variety of benefits, including: Increased defect identification and faster error correction. Our products utilize our proprietary technologies and software to detect and identify defects during critical phases of the manufacturing processes for our target markets. Our systems allow flat panel display manufacturers to identify and repair defects at early stages of the manufacturing process before additional, costly materials are added at later stages, thereby minimizing the loss of time and materials. Extensive expertise in target markets and strong technology base. We have developed extensive application knowledge and skills in data acquisition, image analysis, high precision electromechanical and electro-optical engineering and systems engineering. Our in-depth knowledge of our target markets enables us to rapidly develop new solutions to meet the changing needs of our customers. Automation and integration. Our flat panel display systems allow manufacturers to test and repair flat panel displays with minimum handling by human operators. We also offer software that integrates our flat panel display test and repair equipment, facilitating faster and more accurate repairs. Our X-ray and optical inspection systems automate the error detection process in our other target industries as well. High data generation and detailed analysis for effective management of the manufacturing process. Our test and inspection products gather detailed data that enable manufacturers to control and fine tune their processes to improve manufacturing yields and minimize defects. This data can be recorded for management reporting, quality control analysis and product traceability and can be integrated with a manufacturer's management information system. Flexibility. Our yield management systems are typically designed to address the changing needs of our customers. Our flat panel display products can be reconfigured to test and repair the industry's largest panel sizes and advanced displays. Our X-ray and automated optical inspection systems also provide manufacturing flexibility by inspecting both visible and hidden features on complex printed circuit board assemblies. Ease of use. Our user-friendly graphical interface is a critical feature for many of our customers whose manufacturing operations must cope with fast turnaround, short production runs and workforces with limited skills and high turnover rates. Our Strategy Our goal is to be the leading global supplier of integrated yield management solutions in the markets for flat panel display products and other electronics products. Fundamental components of our strategy include: Further penetrating the markets for flat panel display products and other electronics products. Pursuing selective acquisitions to enhance our product and technology portfolio. Advancing our core technology for yield management solutions. Expanding our foreign offices to better develop complete yield management solutions and to offer enhanced customer services. Focusing on our core competencies of technology development, product design and marketing. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 We were incorporated in California in May 1986, we maintain our principal executive offices at 6325 San Ignacio Avenue, San Jose, California 95119-1202, and our telephone number is (408) 226-9900. Our web site is located on the World Wide Web at "photondynamics.com." Information contained on our web site does not constitute part of this prospectus. AMENDMENT No. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 The Offering Common stock offered by Photon Dynamics 2,000,000 shares Shares to be outstanding after the offering 15,884,354 shares Use of proceeds For general corporate purposes, including working capital, capital expenditures and potential acquisitions. See "Use of Proceeds."

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+Prospectus summary THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 11. OUR BUSINESS We are a comprehensive managed behavioral healthcare company focusing on the management of mental health services and substance abuse treatment, often referred to together as behavioral healthcare, and the operation of employee assistance programs that address current and potential behavioral healthcare problems. We also provide medical management services that target high-cost health conditions and diseases, such as high-risk pregnancy, diabetes and asthma, where we work with our members and their healthcare providers to seek reduced costs and improved outcomes of treatment in both the near and long term. Disorders covered by our managed behavioral healthcare programs range from routine stress and anxiety, to alcohol and drug abuse, to major mental health disorders, such as schizophrenia and severe depression. The managed behavioral healthcare services we provide include patient eligibility verification, patient assessment and referral, claims processing and payment, management reporting and maintenance of a network of healthcare providers that we contract with to provide necessary treatment. We also develop detailed profiles of our providers and preferentially refer members to a select group of our providers we identify based on their treatment approach, treatment outcomes, costs of care and patient satisfaction. The medical management services we perform include disease management, predictive modeling, case management, utilization management and maternity management. In both our managed behavioral healthcare and medical management lines of business, we use predictive modeling, a technique that uses statistical formulas we have developed to identify cases we believe are likely to account for a disproportionately high share of medical costs. With the early identification of these cases, we believe the involvement of our case managers can often lead to improvements in the member's health condition, positive changes in their behavior and the possible avoidance of expensive treatments and hospitalization. By employing the tools and experience we have gained in managing the costs of behavioral healthcare, we believe we can reduce the costs of care for other health conditions and diseases while improving treatment results. As many people with chronic medical conditions and diseases, such as diabetes, also require behavioral healthcare services, we believe a significant opportunity exists for us to manage treatment for both their chronic medical conditions and diseases and their behavioral healthcare needs in an attempt to improve the overall health of the patient, reduce the overall costs of care for our clients and obtain additional revenues for us from new and existing clients. The delivery of medical management services, which we have begun to provide to a greater degree than in the past, can address many of those other conditions and diseases and involves many of the same skills and types of clients as managed behavioral healthcare. With our recent acquisition of Innovative Resource Group, LLC, or IRG, we have expanded our existing expertise and capabilities in medical management. From December 31, 1997 to December 31, 2001, our revenues grew from $11.3 million to $126.3 million, a compounded average growth rate of 83% per year. During the same period, the number of our covered lives, or members, increased from approximately 2.2 million covered lives to approximately 9.8 million covered lives, a compounded average growth rate of 45% per year. If we include IRG's revenues and members, we would have had combined revenues of $173.2 million for 2001 and 11.4 million members as of December 31, 2001, with $148.1 million in revenues and 11.2 million members for managed behavioral healthcare services and employee assistance programs and $25.1 million in revenues and 836,000 members for medical management services. Based on our number of members as of December 31, 2001, we believe we are the third largest independent managed behavioral healthcare organization in the United States. Clients to which we provide services include: - commercial health plans, such as particular plans offered by Blue Cross Blue Shield organizations, Humana Inc., Kaiser Permanente, Coventry Health Care, Inc. and Christiana Care Health Plans; - employers, such as Motorola, Inc., Pfizer, Inc., Rite Aid Corp., Raytheon Company, AMP Incorporated and the States of Maryland, Montana and South Carolina; and - public sector programs, such as the non-risk Medicaid programs in the States of Georgia, West Virginia and Wisconsin, as well as an at-risk contract for a program similar to Medicaid in Puerto Rico that we previously served under a contract with two commercial health plans. We have two general types of payment arrangements for our services: - a non-risk arrangement, often referred to as an administrative services only contract, in which we agree to provide administrative and management services in return for a fixed fee based on an hourly, monthly, annual, per member or other measurement method, and our clients retain financial responsibility for all costs of treatment; and - an at-risk arrangement, in which we assume financial responsibility for all costs of treatment and administrative and management services, in return for an all-inclusive fixed fee per member. As of December 31, 2001, we had 7.5 million members under non-risk arrangements and 2.3 million members under at-risk arrangements, and our subsequent acquisition of IRG has increased the proportion of our members under non-risk arrangements. OUR INDUSTRY We target two large and growing areas of healthcare, managed behavioral healthcare and medical management. Managed behavioral healthcare companies focus on matching an appropriate level of healthcare provider, treatment setting and care with the patient in order to promote better treatment outcomes and minimize costs. Services are generally offered through licensed clinical social workers, psychologists, psychiatrists and other medical professionals. In response to rising healthcare costs, managed behavioral healthcare has become increasingly important for companies seeking to reduce expenditures while improving patients' treatment outcomes. According to OPEN MINDS, an industry publication, enrollment in managed behavioral healthcare organizations rose by 143% from approximately 86.3 million covered lives in 1993 to approximately 209.2 million covered lives in 2000. These organizations had revenues of approximately $4.4 billion in 1999, according to that publication. Medical management has become increasingly relied upon to control the rising costs of healthcare. By using such tools as predictive modeling, data analysis, practice guidelines, provider and patient education and patient assessments, medical management aims to improve patient outcomes and reduce overall costs, primarily by seeking to match the appropriate healthcare resources to patients at the appropriate time and to avoid expensive treatments and hospitalization. Disease management refers to a more specific type of medical management that uses those techniques to treat members having a specific condition or disease. The diseases and conditions that our disease management programs target account for significant healthcare costs. According to Diabetes Care, a magazine produced by the American Diabetes Association, diabetes accounts for $98 billion in medical costs in the United States each year and, according to the American Lung Association, asthma accounts for $8.1 billion in medical costs in the United States each year. Disease management provides an opportunity to reduce overall healthcare costs while simultaneously improving treatment outcomes. We expect that demand for managed behavioral healthcare and medical management services will continue to increase in keeping with the general trend in rising healthcare costs and as a result of factors specific to these services. We believe the following factors, among others, are contributing to the increasing demand for managed behavioral healthcare and medical management services: - legislation mandating comparability of coverage between mental health benefits and other health benefits, often referred to as parity legislation; - an increase in the awareness and acceptance of treatment for mental health problems; - the recognition by employers that treating behavioral healthcare disorders can lead to improved productivity, reduced absenteeism, increased employee morale and lower overall healthcare costs; - the disproportionate healthcare costs caused by the approximately 10% of the United States population that have historically accounted for nearly 70% of the healthcare costs in the United States; - increased treatment options available through advances in prescription drugs; - the response by employers to demands from employees for more comprehensive healthcare benefits; - the increase of chronic diseases in an aging population where 13% of the population in the United States is presently over age 65 and that percentage is expected to grow to 19% by 2025; and - the recognition that persons with chronic conditions and diseases have a higher likelihood of having behavioral healthcare disorders. Managed healthcare organizations have responded to the increased demand by attempting to improve member access to healthcare services and by offering clients assistance with the complexity and costs of providing these services. In addition to the increased overall demand for services, managed healthcare organizations must address the growing needs of clients and members. Many clients are requiring more customized solutions, improvements in customer service and access to a national provider network. Many members are demanding access to a broader range of providers, benefits and treatment alternatives, less intrusion in the doctor-patient relationship and more user-friendly procedures. As a result of industry consolidation, the number of national managed behavioral healthcare organizations that are not subsidiaries of health maintenance organizations, often referred to as captives, is limited. We believe only two other non-captive companies having national scope currently serve the managed behavioral healthcare market, Magellan Behavioral Health and ValueOptions Inc. We believe captives pose reduced competition to us because commercial health plans can be reluctant to use a captive of another commercial health plan, often viewing its parent organization as a competitor. In general, we believe industry consolidation has resulted in fewer choices for clients, as well as less consistent service in the industry. OUR SOLUTION In our managed behavioral healthcare line of business, we believe we differentiate ourselves from our competitors by focusing on goal-oriented therapy, quality of service and care and customizing our products and services to the client's individual needs, which we believe results in improved outcomes for both customers and providers. Goal-oriented therapy refers to a process by which a treatment plan is determined between the doctor and the patient with specific milestones and achievements throughout the therapy to monitor the treatment progress and success of the patient. To the extent progress is not made, this is quickly identified and a new course of therapy can be considered and pursued. We offer clients a comprehensive range of products to meet their individual needs for managed behavioral healthcare and medical management services. We believe our approach to providing these services results in fewer administrative hurdles for members and providers, better treatment outcomes and reduced treatment costs. We use only a few offices, or hubs, across the nation to provide our administrative services, which we believe provides better management focus, decreases the complexity of our systems, lowers our overall costs and promotes a more consistent level of service. We provide our services in accordance with reporting and other standards necessary to satisfy the needs of large employers, as well as commercial health plans seeking to comply with the requirements of the principal accrediting organization in each of the managed behavioral healthcare and medical management industries. In both our managed behavioral healthcare and medical management lines of business, we implement our solution by targeting both the member and the healthcare provider to maximize our results. For most behavioral or chronic medical diseases like diabetes, we emphasize changing member behavior by, for example, encouraging compliance with treatment programs. For more acute conditions, such as high-risk pregnancy, we focus more attention on provider behavior to monitor compliance with industry practices believed to be best. Members. We believe we have the ability to prospectively identify the small number of high cost cases that account for a disproportionately high share of behavioral healthcare and medical costs. We then seek to use behavior modification and focused member contact to increase compliance with treatment programs to reduce the overall cost of care during the duration of the disease or condition. When the symptoms of serious health conditions go untreated or treatment plans are not followed, higher medical costs and lower productivity can result. We believe that, based on our behavioral healthcare experience, we have a competitive advantage in the medical management industry through our skills in assessing the readiness of members to change their behavior and creating a positive change in their behavior. We have selectively expanded our provider network, which now allows us to provide our members with greater access to care. In addition, we have recently made significant investments in our infrastructure, including enhancing our customer service capabilities, adding personnel and introducing a single, expandable computer system, to allow us to better service our markets. Providers. We utilize provider profiling to identify a select group of our providers, based on treatment approach and results, cost of care and patient satisfaction. In our managed behavioral healthcare line of business, these providers generally utilize goal-oriented therapy for behavioral healthcare, which we believe is more effective in achieving positive treatment outcomes for patients in a cost-effective manner. In our medical management line of business, we encourage our providers to use the practices believed to be best in the industry. We seek to control costs and promote quality care and outcomes by preferentially referring members to these providers. We have also designed our operations to be less intrusive in the doctor-patient relationship by, for example, expediting our pre-authorization and subsequent review procedures in many cases. OUR STRATEGY We have developed a strategy intended to allow us to capitalize on the market opportunities in the managed behavioral healthcare and medical management industries. The major elements of our strategy include the following: - Prospectively identify and proactively manage the member population with the highest cost cases to maximize the financial impact of our management programs. Historically, we have analyzed data to help predict members that would require a high amount of behavioral healthcare within twelve to eighteen months. The identification of these high-risk members early in their illnesses allows our case managers to work with them to try to improve their condition and potentially avoid the need for hospitalization. Recently, we have also applied this approach to our medical management programs to help identify the potentially most expensive cases, with the goal of modifying patient behavior through case management. By prospectively identifying complex cases, we believe we can lower the overall costs of providing healthcare while improving the satisfaction and health of the member. - Pursue selected at-risk contracts with both large national and regional commercial health plans. We intend to pursue selected contracts with both large national and regional commercial health plans, including Blue Cross Blue Shield organizations, where we believe sufficient data exists to properly evaluate and price our program for the risks involved. - Continue to grow non-risk contracts with large employers and governmental agencies. We intend to continue our focus on administrative services only contracts with large employers and governmental agencies. We tend to avoid at-risk contracts in the public sector because of the difficulty of appropriately pricing benefits and the need for substantial reserves and start-up capital. - Market new services to attract new clients and offer expanded services to existing clients. The acquisition of IRG has provided us with growth opportunities to sell disease-focused services to new clients and to our current behavioral healthcare service clients, especially since a high percentage of persons with a chronic condition, such as diabetes, also suffer from a behavioral health disorder. Where expected to be profitable, we also intend to selectively add new services to obtain new clients and offer expanded services to existing clients, such as elder care and dependent care services. - Provide industry leading customer service. We seek to set the industry standard for customer service in the managed behavioral healthcare industry by customizing our products and services to suit each client's needs. - Acquire selected employee assistance programs and medical and disease management organizations. We seek to make acquisitions of businesses that will be complementary to our business and capable of being easily integrated into our current operations. In addition, we seek to acquire businesses that would benefit from our predictive modeling techniques to increase the quality and efficiency of their programs. IRG ACQUISITION In March 2002, we acquired Innovative Resource Group, LLC from Cobalt Corporation, a publicly traded Blue Cross Blue Shield organization, for a purchase price of $27 million, consisting of $17 million in cash and a subordinated promissory note for $10 million. Our acquisition of IRG, a provider of managed behavioral healthcare and medical management services, expands our existing capabilities in various areas of disease management, including high-risk pregnancy, diabetes and asthma. As part of the transaction, Cobalt affiliates have entered into seven-year agreements for us to provide managed behavioral healthcare and related services on an exclusive basis to approximately 500,000 members, primarily located in Wisconsin. For the year ended December 31, 2001, IRG's revenues were $46.9 million and its net income was $937,000. See "Unaudited Pro Forma Consolidated Financial Information" and "Business--Client Contracts--Cobalt."

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+PROSPECTUS SUMMARY The following summary highlights selected detailed information from this prospectus and may not contain all of the information that is important to you. You should carefully read the entire prospectus, especially the risks of investing in the common stock discussed under "Risk Factors" and the financial statements and the notes to those statements. Our consolidated financial statements and the notes to those statements appear elsewhere in this prospectus. NEWKIDCO INTERNATIONAL INC. NewKidCo develops and publishes video games for children ages 4-12 years on most of the leading video game console systems. Our business objective is to become the dominant publisher of high quality, non-violent children's video games. Our strategy is to publish video games based on popular licensed properties such as: - SESAME STREET(R) from Sesame Workshop - WINNIE THE POOH(R), MULAN(R), DOug(R) AND Goofy(R) of Disney Classic Characters from Disney Interactive, Inc. ("Disney") - TINY TOON ADVENTURES(R) anD TOM AND JERRY(R) from Warner Bros. Consumer Products, a division of AOL Time Warner Entertainment Company, L.P. ("Warner Bros") - E.T. THE EXTRA-TERRESTRIAL(R) from Universal Studios - LITTLE LEAGUE BASEBALL(R) from Little League Baseball Incorporated - MUPPETS(R) a trademark and copyright of Jim Henson Interactive, a division of The Jim Henson Company, - DRAGON TALES(R) from Sony Pictures Consumer Products Inc. - DORA THE EXPLORER(R) from MTV Networks, a division of Viacom International, Inc. - DR. SEUSS(R) from Dr. Seuss Properties 3 and Dr. Seuss Enterprises, L.P. The Company seeks to compete by focusing on a specialized niche in the industry - the young children's marketplace. The Company's strategy is to publish high quality non-violent video games for young children using the mass-market appeal of well known licensed characters. The Company intends to support these titles with its own, and in some cases shared, marketing and promotional efforts. THE OFFERING <Table> <Caption> <S> <C> COMMON STOCK TO BE OFFERED BY SELLING STOCKHOLDERS............................... 17,426,142 shares COMMON STOCK OUTSTANDING AFTER THIS OFFERING(1)................................ 36,276,737 shares USE OF PROCEEDS............................ See "Use of Proceeds." RISK FACTORS............................... See "Risk Factors" for a discussion of certain matters that you should consider carefully in considering an investment in our common stock. OTC BULLETIN BOARD SYMBOL.................. NKCIF </Table> ---------------- (1) Based on the number of shares of common stock outstanding on June 19, 2002. SUMMARY HISTORICAL FINANCIAL DATA The selected consolidated financial data below should be read in conjunction with the Financial Statements and the Notes thereto included elsewhere in this prospectus. The selected annual financial information for the years ended December 31, 2001 and 2000 is derived from and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto audited by Arthur Andersen LLP, Chartered Accountants. The selected annual financial information for the years ended December 31, 1999 and 1998 are derived from and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto audited by Deloitte & Touche, Chartered Accountants. Disclosure concerning 1997 has been omitted because we have discontinued all operations relating to all lines of business in which the Company was engaged during that year and believe the inclusion of this data could be potentially misleading. Except as noted, the financial data set forth below are presented in accordance with Canadian GAAP. These principles differ in some respect from U.S. GAAP. For a description of the principal differences between Canadian GAAP and U.S. GAAP, see "U.S. Generally Accepted Accounting Principles" in "Management's Discussion and Analysis of Financial Condition and Results of Operations." Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. <Table> <Caption> FISCAL YEARS ENDED DECEMBER 31, 2001 THREE MONTHS ENDED MARCH 31, (UNAUDITED) 2001 2000 1999 1998 2002 2001 ---- ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> <C> (in thousands of US dollars, except per share information) Total Revenue..... $17,714 $26,047 $22,468 $2,489 $1,840 $3,616 Income (Loss) before extraordinary items Continuing.... (11,648) (7,739) 506 (967) (1,555) 474 Discontinued.. 76 2,322 (8,734) --------- -------- --------- -------- -------- -------- Total........ $(11,648) $(7,663) $ 2,828 $(9,701) $(1,555) $ 474 --------- -------- --------- -------- -------- -------- --------- -------- --------- -------- -------- -------- Income (Loss) before extraordinary items Per Share (Basic) Continuing....$ (0.40) $ (0.33) $ 0.03 $ (0.07) $ (0.05) $ 0.01 Discontinued. -- -- 0.14 (0.67) --------- -------- --------- -------- -------- ------- Total....... $ (0.40) $ (0.33) $ 0.17 $ (0.74) $ (0.05) $ 0.01 --------- -------- --------- -------- -------- ------- --------- -------- --------- -------- -------- ------- Total Assets Continuing... $ 16,183 $ 28,437 $ 16,204 $ 5,321 $ 12,370 $ 18,455 Discontinued 7 372 490 --------- -------- --------- --------- -------- -------- $ 16,183 $28,444 $ 16,576 $ 5,811 $ 12,370 $ 16,183 --------- -------- --------- --------- -------- -------- --------- -------- --------- --------- -------- -------- Total long-term debt $ 591 $ 624 $ -- $ -- $ 579 $ 591 --------- -------- --------- --------- -------- -------- --------- -------- --------- --------- -------- -------- Cash dividends - per share..... $ -- $ -- $ -- $ -- $ -- $ -- --------- -------- --------- --------- -------- -------- --------- -------- --------- --------- -------- -------- </Table>

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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information and our consolidated financial statements and the notes to these statements appearing elsewhere in this prospectus. In this prospectus, "we," "us," "our company" and "our" refer to RBX Corporation and our consolidated subsidiary, RBX Industries, Inc., unless the context otherwise requires. We manufacture closed cell rubber foam products and custom mix rubber polymers. We compete in several niche markets, including the manufacturing of cross-linked polyethylene foam. Our products are used in a range of applications, including: o athletic equipment; o sports medicine wraps; o neoprene, or synthetic rubber wetsuits; o hardware center products, such as do-it-yourself insulation, tubing, gardening and construction kneepads; o other consumer products, such as computer mouse pads and beverage can insulators; o insulation for refrigeration and air conditioning systems; o automotive components; and o other industrial products. Our foam products operations, or foam group, consist of the manufacture of closed cell rubber foam and related products and cross-linked polyethylene foam. The foam group contributed approximately 72% and 73% of our net sales for the years ended December 31, 2000 and 2001, respectively. Our custom rubber mixing operations, or mixing group, mixes a variety of rubber polymers to serve a wide range of end-use markets. The mixing group contributed approximately 28% and 27% of our net sales for the years ended December 31, 2000 and 2001, respectively. We combine purchases of raw materials for both the foam group and mixing group to obtain volume discounts from our suppliers. The manufacturing of all of our products begins with the blending of synthetic compounds in a mixer. Our mixing group sells these compounds in uncured sheet or strip form to our customers. Our foam group performs additional manufacturing steps, including extruding, molding and curing, before selling products to our customers. Our History and Chapter 11 Bankruptcy Reorganization We are the surviving corporation of a recent corporate reorganization implemented in connection with the consummation of our Chapter 11 bankruptcy proceedings in August 2001. Prior to the effective date of our corporate reorganization, we were a wholly owned subsidiary of RBX Group, Inc. We are currently a holding company with no business operations and own all of the issued and outstanding stock of RBX Industries, Inc., through which all of our manufacturing and distribution activities are conducted. Our company and our former parent company, RBX Group, Inc. were formed by American Industrial Partners, or AIP, in October 1995 in connection with AIP's leveraged acquisition of RBX Investors Inc. and its subsidiaries for approximately $210 million. Following the RBX Investors acquisition, our company and our affiliates acquired the Ensolite division of Uniroyal Technologies for approximately $26 million. On December 5, 2000, certain unsecured creditors of our company filed an involuntary bankruptcy petition for reorganization of our company under Chapter 11 of Title 11 of the U.S. Code in the U.S. Bankruptcy Court for the District of Delaware, which we refer to in this prospectus as the Delaware Bankruptcy Court. On December 7, 2000, our company, RBX Group, Inc. and eight of our subsidiaries (Rubatex Corporation, Groendyk Manufacturing Company, Inc., OleTex Inc., Midwest Rubber Custom Mixing Corp., Hoover-Hanes Rubber Custom Mixing Corp., Waltex Corporation and UPR Disposition, Inc.), as debtors, each filed voluntary petitions with the Delaware Bankruptcy Court for relief under Chapter 11. By order dated as of February 2, 2001, the Delaware Bankruptcy Court transferred the cases to the U.S. Bankruptcy Court for the Western District of Virginia, Roanoke Division, or the Virginia Bankruptcy Court, where the cases were consolidated for purposes of joint administration. In July 2001, the Virginia Bankruptcy Court confirmed our second amended joint plan of reorganization. In connection with our corporate reorganization, RBX Group, Inc. merged into our company and our eight subsidiaries that also filed for relief under Chapter 11 were merged into one company, Rubatex Corporation, which was renamed RBX Industries, Inc. On August 27, 2001, which was the effective date of the plan of reorganization, our company and RBX Industries, Inc. emerged from our Chapter 11 proceedings. On that date, we entered into a $45 million secured credit facility with Congress Financial Corporation to replace our debtor-in-possession financing. In addition, we cancelled all of our equity securities that were outstanding immediately before the effective date and we issued: o 950,000 new shares of our common stock, representing a 95% equity interest in our company and new 12% secured notes in the aggregate principal amount of $25 million, to persons having a beneficial interest in our old 12% notes as of the record date determined by the Virginia Bankruptcy Court; and o 50,000 new shares of our common stock, representing a 5% equity interest in our company and 67,416 new warrants to holders of general unsecured claims against our company. As of April 15, 2002, the warrants represented the right to acquire 67,416 shares of our common stock (subject to anti-dilution adjustment) and the exercise price was $48.00 per share. The warrants are exercisable at any time on or before August 27, 2008. Our principal executive offices are located at 5221 ValleyPark Drive, Roanoke, Virginia 24019, and our telephone number at that location is (540) 561-6000. Our web site is located at www.rbxcorp.com. The Offerings Common Stock and Warrants ------------------------- <TABLE> <CAPTION> <S> <C> Common stock offered by the selling holders ......... Up to 635,576 shares Warrants offered by the selling holders ............. Up to 11,563 warrants representing the right to acquire 11,563 shares of common stock Exercise price for the warrants ..................... Each warrant entitles the holder to purchase one share of our common stock at an exercise price of $48.00 per share, subject to adjustment as provided in the warrant agreement Exercise period for the warrants .................... The warrants may be exercised at any time on or before August 27, 2008. Warrants that are not exercised by August 27, 2008 will expire. Common stock to be outstanding after the offerings .. 1,067,416 shares, assuming the full exercise of all warrants for shares of common stock issued by the company, including the warrants offered by this prospectus Notes ----- Notes offered by the selling holders ................ Up to $16,500,000 aggregate principal amount of senior secured notes Maturity date ....................................... August 15, 2006 Interest payment dates .............................. February 15 and August 15 Ranking ............................................. The notes rank equally in right of payment, except with respect to collateral, with all indebtedness of our company that is not subordinated to the notes, including borrowings under our new credit agreement. The notes rank senior to any indebtedness of our company that is subordinated to the notes. The amount of indebtedness of our company that is not subordinated to the notes as of April 15, 2002 is $21,576,000. Guarantee ........................................... All amounts payable on the notes, including principal and interest, are guaranteed by our wholly owned subsidiary, RBX Industries, Inc., and may be guaranteed in the future by other subsidiaries of our company. RBX Industries, Inc.'s guarantee ranks equally in right of payment with all indebtedness of RBX Industries, Inc. that is not </TABLE> <TABLE> <S> <C> subordinated to the guarantee, including guarantees of borrowings under our new credit agreement. RBX Industries, Inc.'s guarantee of the notes is senior to any indebtedness of RBX Industries, Inc. that is subordinated to the guarantee. The amount of our indebtedness not subordinated to the guarantee as of April 15, 2002 is $21,576,000. Security .......................................... The notes and RBX Industries, Inc.'s guarantee are secured by second priority liens on substantially all of the assets of our company and RBX Industries, Inc. and proceeds thereof, whether now owned or acquired in the future. Optional redemption ............................... We may redeem the notes at any time at our option, in whole or in part, at any time and from time to time, upon not less than 30 days but not more than 60 days notice, at 101% of the principal amount plus accrued and unpaid interest thereon to the applicable redemption date. Change of control ................................. In the event of a "Change of Control" (as defined in the indenture) of our company, our company is required to repurchase the notes at 101% of their principal amount, plus accrued and unpaid interest up to the date of repurchase. Certain covenants ................................ The indenture, among other things, restricts, with certain exceptions, the ability of our company and our subsidiaries to: o sell assets; o incur indebtedness; o create or incur liens; o pay dividends on, redeem or repurchase our or their capital stock, or make investments; and o engage in transactions with affiliates. Use of proceeds ................................... We will not receive any of the proceeds from the sale of the shares of common stock and notes offered by the selling holders but we will receive proceeds from the exercise of the warrants held by the selling holders if the warrants are in fact exercised. We intend to use any proceeds received from the exercise of warrants held by the selling holders to reduce our existing indebtedness. </TABLE> As of the date of this prospectus, we had 1,000,000 shares of common stock outstanding. This amount does not take into account any shares of common stock issuable upon exercise of 67,416 warrants that are currently outstanding. Risk Factors You should carefully consider all the information contained in this prospectus before making an investment in our common stock, warrants or notes. In particular, you should consider the risk factors described under "Risk Factors" beginning on page 8. SUMMARY CONSOLIDATED FINANCIAL DATA The following table provides summary consolidated financial data for the periods indicated. You should read the summary financial data set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and with the consolidated financial statements and the related notes thereto of our company and RBX Group, Inc. appearing elsewhere in this prospectus. The statement of operations and other data for the fiscal years ended 1999 and 2000, the statement of operations and other data for the eight months ended August 27, 2001, the four months ended December 31, 2001 and the balance sheet data as of December 31, 2000 and 2001 are derived from, and are qualified by reference to, the consolidated financial statements and related notes of RBX Group, Inc. or RBX Corporation appearing elsewhere in this prospectus which have been audited by Deloitte & Touche LLP as stated in the report of Deloitte & Touche LLP presented elsewhere in this prospectus. The balance sheet data as of December 31, 1999 is derived from, and is qualified by reference to, the consolidated financial statements of RBX Group, Inc. not appearing in this prospectus which have been audited by Deloitte & Touche LLP. The statement of operations data and other data for the three months ended March 31, 2002 and the balance sheet data as of March 31, 2002 are unaudited. In the opinion of management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited results when read in conjunction with the audited consolidated financial statements and notes thereto appearing elsewhere in this prospectus. Historical results are not necessarily indicative of results that may be expected for any future period. <TABLE> <CAPTION> | RBX RBX Group, Inc. | Corporation ----------------------------------------| ---------------------------- Eight months| Four months Three months ended | ended ended Year ended December 31, August 27, | December 31, March 31, 1999 2000 2001 (2) | 2001 (3) 2002 --------- --------- --------- | ---------------------------- (As Restated) (Unaudited) (in thousands, except per share data) Statement of operations data (1): <S> <C> <C> <C> <C> <C> Net sales ......................... $ 246,963 $ 231,503 134,097 | $ 55,683 $ 43,699 Gross profit ...................... 37,133 20,203 12,013 | 2,578 7,459 Selling, general and | administrative costs ........... 21,614 20,950 13,875 | 3,910 5,165 Operating income (loss) ........... 14,428 (30,749) 17,912 | (7,246) 1,274 Income (loss) before extraordinary | item ........................... (11,808) (56,718) 16,223 | (8,805) 177 | Net income (loss) (4) ............. (11,808) (50,514) 234,539 | (8,805) 177 Basic and diluted net income (loss) | per common share .................. NA NA NA | $ (8.81) $ 0.18 | Balance sheet data: | Net working capital ............... 16,778 25,664 | 11,865 19,563 Property, plant and | equipment, net ................. 68,432 46,740 | 53,113 52,411 Total assets ...................... 133,856 113,846 | 119,573 125,652 Total debt ........................ 220,495 -- | 40,163 46,666 Liabilities subject to compromise . -- 253,863 | -- -- Redeemable preferred stock ........ 7,634 8,534 | -- -- Stockholders' equity (deficit) .... (176,498) (227,912) | 6,356 6,533 | Other data: | Net cash provided by (used in) | operating activities ........... (6,259) 7,672 (238) | (1,575) (5,176) Net cash used in investing | activities ..................... (3,192) (3,888) (1,968) | (1,511) (273) </TABLE> <TABLE> <CAPTION> | RBX RBX Group, Inc. | Corporation -------------------------------------- | --------------------------- Eight months | Four months Three months ended | ended ended Year ended December 31, August 27, | December 31, March 31, 1999 2000 2001 (2) | 2001 (3) 2002 ---------- --------- --------- ----------- ------------ (in thousands, except per share data) (unaudited) <S> <C> <C> <C> <C> <C> Other data (continued) Net cash provided by (used in) financing activities .......... 9,423 8,005 (9,110) | 523 5,103 Capital expenditures ............. 4,985 3,085 1,973 | 1,542 496 Depreciation ..................... 7,561 7,991 3,794 | 1,037 900 Amortization ..................... 1,296 1,223 -- | -- -- Ratio of earnings to fixed charges | (unaudited) (5) ............... -- -- 8.2x | -- 1.1x </TABLE> ---------------- (1) The statement of operations data of RBX Group, Inc. for the years ended December 31, 1999 and 2000 and for the eight months ended August 27, 2001 have been restated as discussed in Note 21 to the consolidated financial statements of RBX Group, Inc. included elsewhere in this prospectus. (2) The statement of operations data and other data of RBX Group, Inc. for the period from January 1, 2001 through August 27, 2001 have been referred to herein as the statement of operations data and other data for the eight months ended August 27, 2001 for ease of reference. (3) The statement of operations data and other data of RBX Corporation for the period from August 28, 2001 through December 31, 2001 have been referred to herein as the statement of operations data and other data for the four months ended December 31, 2001 for ease of reference. (4) Net loss for the four months ended December 31, 2001 included special adjustments totaling $5.9 million. These adjustments were comprised of plant shut-down costs totaling $5.0 million, and reorganization expense items totaling $0.9 million. Net income for the eight months ended August 27, 2001 included special adjustments totaling $238.1 million. These adjustments were comprised of a gain on cancellation of debt in the amount of $218.3 million, a gain from fresh-start revaluation in the amount of $28.4 million and net reorganization expense items totaling $8.6 million. Net loss for 2000 included reorganization items totaling $27.8 million. Reorganization items for 2000 were comprised of losses on impairment of long-lived assets of $16.2 million, professional fees related to the reorganization of $4.0 million, a write-off of deferred financing fees of $3.8 million, a provision to reserve for an equity investment of $1.6 million and other charges of $2.2 million related primarily to contractual obligations associated with the abandonment of certain construction projects. (5) In computing the ratio of earnings to fixed charges, "earnings" represent income (loss) before income taxes, extraordinary items and changes in accounting principles plus "fixed charges," less redeemable preferred stock dividends and accretion for original issue discount. "Fixed charges" consist of interest expense, amortization of deferred financing fees, an estimate of interest within rental expense and redeemable preferred stock dividends and accretion for original issue discount. For the years ended December 31, 1999 and 2000 and for the four months ended December 31, 2001 earnings were insufficient to cover fixed charges by $12.9 million, $57.6 million and $8.8 million, respectively. ------------ You should rely only on the information contained in this prospectus. We have not, and the selling holders have not, authorized any other person to provide you with information that is different from that contained in this prospectus. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock, warrants or notes.

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+PROSPECTUS SUMMARY The following summary does not contain all of the information that is important to you. When deciding whether to buy our stock, we urge you to read this entire prospectus carefully. OUR COMPANY We are a specialty pharmaceutical company focused on the commercialization of branded pharmaceutical products that we develop or acquire. We have over 20 years of pharmaceutical research and development experience, with operations primarily in the United States and Europe. We have acquired three branded product lines since August 2001 which had $120.2 million of 2001 net revenues on a pro forma basis assuming these acquisitions had been completed on January 1, 2001. In addition, we are developing our own proprietary products, as well as improvements and line extensions to our acquired products, by applying our scientific expertise and our portfolio of drug-delivery technologies. Historically, we have generated our revenues by providing a comprehensive spectrum of pharmaceutical research and development services on a fee-for-service basis to a broad base of customers, including large pharmaceutical companies such as AstraZeneca PLC, Bayer AG, Eli Lilly and Company, and Novartis Corporation. In 2001, we began acquiring established, branded pharmaceutical products whose sales we believe can be increased through enhanced marketing and promotion. We seek to acquire products that we also believe we can improve by applying our significant research and development capabilities and that fall within our targeted therapeutic classes -- critical care, central nervous system, pain management, oncology, immunosuppression and cardiology. - In August 2001, we acquired from AstraZeneca the U.S. rights to the M.V.I. and Aquasol branded product lines of critical care injectable and oral nutritional products, which provide nutrients to cancer, AIDS, post-operative and nutritionally compromised patients. We acquired the M.V.I. and Aquasol brands because of their strong brand names and high market share. We believe that the M.V.I. and Aquasol brands have significant growth opportunities that we can capture through our enhanced promotional support and development of product line extensions and improvements. - In December 2001, we acquired from Novartis the U.S. rights to the Brethine branded product line, which treats asthma. We acquired Brethine because of its strong brand recognition, 25 years of clinical experience and well established safety record. Our goal is to enhance the sales of Brethine by actively promoting the brand name and using our existing relationships with hospitals and group purchasing organizations to expand Brethine's distribution channels, in addition to developing product line extensions and improvements. - In March 2002, we acquired from Eli Lilly the U.S. rights to the Darvon and Darvocet branded product lines, which treat mild to moderate pain. We acquired the Darvon and Darvocet brands because they are pain management brands we believe have high customer recognition. These product lines provide us with an established position in our targeted pain management therapeutic class. Our goal is to increase the value of these brands by actively marketing and promoting them and repositioning them through the development of product line extensions and improvements. In 2001, on a pro forma basis for these acquisitions, as if they had been completed on January 1, 2001, we would have had net revenues of $243.7 million, EBITDA of $88.4 million and net income of $23.3 million. Our product pipeline includes the following drugs that we intend to market and promote as branded drug products upon approval by the FDA: - Aquasol D, an injectable vitamin D nutritional product, for which we are awaiting FDA approval; - three new dosages of our azathioprine tablet, which treats rheumatoid arthritis and post-transplant organ rejection, for which we are awaiting FDA approval; - imidapril, an angiotensin-converting-enzyme (ACE) inhibitor for the treatment of cardiovascular disease, for which we are planning Phase III clinical trials; TRADEMARKS AND TRADE NAMES We own the U.S. rights to the following registered and unregistered trademarks: M.V.I.(R), M.V.I.-12(R), M.V.I.-Pediatric(TM), Aquasol(TM), Aquasol A(R), Aquasol E(R), Aquasol D(TM), Brethine(R), Darvon(R), Darvon-N(R), Darvocet-N(R), ProSorb(R), ProSLO(TM), ProSLO II(TM), ProCore(TM), ProSpher(TM), ProLonic(TM), ProMelt(TM), Tanatril(TM), NeoSan(TM), AzaSan(TM), aaiPharma(TM) and AAI(R). We also reference trademarks owned by other companies. Calcijex(R) is a registered trademark of Abbott Laboratories, Cataflam(R) is a registered trademark of Novartis Corporation, Imuran(R) is a registered trademark of Prometheus Laboratories, Inc., Infuvite(R) is a registered trademark of Sabex Inc., Oxycontin(R) is a registered trademark of Purdue Pharma L.P., Prilosec(R) is a registered trademark of AstraZeneca AB, Proventil(R) is a registered trademark of Schering Corporation, Prozac(R) is a registered trademark of Eli Lilly and Company, Ultram(R) is a registered trademark of Johnson & Johnson Corporation and Volmax(R) is a registered trademark of GlaxoSmithKline. All references in this prospectus to any of these terms lacking the "(R)" or "(TM)" symbols are defined terms that reference the products, technologies or businesses bearing the trademarks with these symbols. SHARE DATA AND EBITDA Unless otherwise indicated, all information in this prospectus assumes that the underwriters' option to purchase an additional 168,100 shares from us and 227,600 shares from the selling stockholders will not be exercised. In this prospectus, we present data for our earnings before interest, taxes, depreciation and amortization, or EBITDA. We have included this data because we believe that some investors will find it useful in measuring our ability to meet debt service, capital expenditure and working capital requirements. EBITDA is not a measurement of financial performance under generally accepted accounting principles and should not be considered an alternative to, or more meaningful than, income (loss) from operations or other traditional indicators of operating performance and net cash provided by (used in) operating activities determined in accordance with generally accepted accounting principles. In addition, companies define EBITDA differently, and our definition of EBITDA may not be comparable to that of other companies. - ProSorb-D, a pain management product combining diclofenac with our patented ProSorb drug-delivery technology, currently in Phase III clinical trials; and - 6-omeprazole, which is a quick-dissolving tablet for the treatment of gastrointestinal ailments, currently in prototype development. Our company is structured within three divisions: - NeoSan Pharmaceuticals. NeoSan commercializes branded pharmaceutical products in our targeted therapeutic classes. We market and promote our branded products directly through our dedicated contract sales force to high-prescribing physicians of our products and products in our targeted therapeutic classes. When we acquire products, we seek products that we believe will benefit from our sales promotion and to which we can apply the scientific expertise of our other divisions to develop product line extensions and improvements. NeoSan had $130.1 million of net revenues in 2001 on a pro forma basis assuming the acquisitions of the M.V.I., Aquasol, Brethine, Darvon and Darvocet product lines had occurred on January 1, 2001. - aaiResearch. aaiResearch provides research and development expertise and our portfolio of drug-delivery technologies and intellectual property rights, which we use to enhance and develop products that are innovative, safer or more effective, convenient or cost-efficient. This can result in renewed regulatory or patent exclusivity, adding to the commercially valuable life of the product. We apply this expertise to internally develop our own new products and improve our acquired products. In addition, we offer these product improvement, or life cycle management, activities to our customers for royalties, milestone payments and fees. Net revenues for aaiResearch in 2001 were $20.4 million. - AAI International. AAI International offers a comprehensive range of pharmaceutical product development services to our customers on an international basis. These services include formulation, development, analytical, bioanalytical and stability testing services, human clinical trials, regulatory consulting and manufacturing. These services generally are provided on a fee-for-service basis. Net revenues for AAI International in 2001 were $93.2 million. OUR COMPETITIVE STRENGTHS We believe that our competitive position is attributable to our scientific expertise and a number of our other key strengths, including the following: Established Pharmaceutical Business Infrastructure. We have a long history of assisting our customers in developing and commercializing pharmaceutical products and have an established infrastructure to do so. We offer our customers a wide range of scientific capabilities, including analytical services, biopharmaceutical services, pharmaceutical product development services, Phase I to IV clinical services, product manufacturing, and regulatory and other consulting services, in addition to product life cycle management activities. Well Recognized Brands. Each of the product lines we have acquired has been sold in the U.S. for over 18 years, and the Darvon and Darvocet products have been sold in the U.S. for over 25 years. These branded product lines have generated sales and gross profits for many years despite competition from generic and other competitive products. The acquired product lines had a gross margin of 79% in 2001, based on their 2001 pro forma net revenues. Expertise in Product Life Cycle Management. Through AAI International and aaiResearch, we can apply to our own products, and offer to our customers, a strong base of resources, expertise and ideas to better understand and improve existing products and develop new products and product line extensions. Our portfolio of patents and proprietary and in-licensed technologies may provide us, and our customers, with new formulations, delivery systems, indications and dosage forms to improve the safety, efficacy or cost effectiveness, or reduce the side effects, of the drugs. This can result in renewed regulatory or patent exclusivity, adding to the commercially valuable life of the product. Established Customer Base Enhances Product Acquisition Opportunities. We have developed strong relationships with major pharmaceutical companies through years of client service on research, product development, and product life cycle management projects. These relationships position us to acquire established, branded products that are no longer the focus of our customers' development, marketing and promotional efforts. Experienced Management Team. We have an experienced management team that is led by Frederick D. Sancilio, Ph.D., Chairman and Chief Executive Officer, Philip S. Tabbiner, D.B.A., President and Chief Operating Officer, William L. Ginna, Jr., Executive Vice President and Chief Financial Officer, David Johnston, Ph.D., President of AAI International, George E. Van Lear, Ph.D., President of aaiResearch, and David M. Hurley, President of NeoSan Pharmaceuticals. These senior executives have an average of over 20 years of experience in the pharmaceutical industry. OUR STRATEGY We believe that our ability to apply our scientific expertise to develop new and improved products and product line extensions, to leverage our marketing and promotion organization and our strong relationships with many large pharmaceutical companies, and to identify and acquire branded pharmaceutical products positions our company for continued growth. Specifically, we intend to pursue the following growth strategies: Enhance Sales of Acquired Products Through Focused Marketing and Promotion. We seek to increase sales of our acquired branded pharmaceutical products through active marketing and promotion directed at high-prescribing physicians, using one-on-one meetings, free product samples, educational programs, advertising, direct mail and website promotion. We believe that we can successfully increase sales of these products by combining the strength of their brand names with active promotion of the products. Strengthen Our Acquired Brands Through Product Life Cycle Management. We plan to strengthen our acquired branded product lines through product life cycle management activities. We plan to use our research and development expertise and our portfolio of patents and proprietary and in-licensed technologies to provide new formulations, delivery systems, indications and dosage forms that will improve the characteristics of our acquired products, such as their safety, efficacy, convenience, cost effectiveness or side effects. Launch Internally Developed Branded Products. We plan to continue to develop new drugs in our targeted therapeutic classes, with the view of marketing these products under our own brand names. Although we have successfully developed a number of products in the past, we did so with the intention of licensing or selling the products to our customers. We are currently developing several new drug products using our drug-delivery technologies that we intend to market under our own brand names. Seek Attractive Acquisition Opportunities. We intend to continue taking advantage of industry consolidation trends by identifying and selectively acquiring branded pharmaceutical products. We generally will seek attractive branded pharmaceutical products that we believe have not been actively marketed and promoted for at least several years prior to our acquiring them, and thus can benefit from enhanced sales and marketing efforts, and lend themselves to product life cycle management opportunities such as new formulations, delivery systems, indications and dosage forms. RECENT DEVELOPMENTS On March 28, 2002, we acquired the U.S. rights to the Darvon and Darvocet branded product lines and existing inventory from Eli Lilly and Company for $211.4 million in cash, subject to reduction based on the net sales of these products before and after the closing of the acquisition. The Darvon and Darvocet product lines have been sold in the U.S. for over 25 years and are used to treat mild and moderate pain. We acquired these products because we believe they have high customer recognition in the pain management therapeutic class, an area where we currently have products under development. In connection with the acquisition of Darvon and Darvocet, we entered into $175 million senior credit facilities, issued $175 million of senior subordinated notes due 2010, repaid all of the borrowings outstanding under our prior senior credit facilities, and terminated our tax retention operating lease and purchased the properties underlying that lease. THE OFFERING Common stock offered by us.... 1,500,000 shares Common stock offered by selling stockholders.......... 1,138,000 shares Common stock to be outstanding after the offering............ 19,534,068 shares Use of proceeds............... We estimate that the net proceeds from this offering to us will be approximately $45.5 million, assuming a public offering price of $32.50 per share (which is the last reported sale price of the common stock on the Nasdaq Stock Market on April 4, 2002) and after deducting the estimated underwriting discount and offering expenses payable by us. We expect to use the net proceeds from this offering to reduce the borrowings outstanding under our new senior credit facilities. We will not receive any proceeds from the shares of common stock sold by the selling stockholders. Risk factors.................. See "Risk Factors" beginning on page 6 for a discussion of risks that you should carefully consider before deciding to invest in our common stock. Nasdaq Stock Market symbol.... "AAII" ------------------------------ Our principal executive offices are located at 2320 Scientific Park Drive, Wilmington, North Carolina 28405, and our telephone number is (910) 254-7000. Our website address is www.aaipharma.com; information included or referred to on our website is not a part of or incorporated by reference into this prospectus. SUMMARY FINANCIAL DATA The summary historical consolidated financial information below is derived from our audited consolidated financial statements for 1997, 1998, 1999, 2000 and 2001. The table also contains summary unaudited pro forma consolidated financial information derived from the Unaudited Pro Forma Consolidated Financial Statements beginning on page F-2 of this prospectus, as adjusted to reflect the sale of common stock by us in this offering and our use of the proceeds as described in "Use of Proceeds." The Unaudited Pro Forma Consolidated Financial Statements beginning on page F-2 of this prospectus give effect to the acquisition of the M.V.I., Aquasol, Brethine, Darvon and Darvocet product lines and related financing transactions. <Table> <Caption> YEARS ENDED DECEMBER 31, ----------------------------------------------------------------- PRO FORMA, HISTORICAL AS ADJUSTED --------------------------------------------------- ----------- 1997 1998 1999 2000 2001 2001 -------- ------- -------- -------- -------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Net revenues........................... $ 80,105 $98,243 $102,175 $104,245 $141,073 $243,722 Direct costs........................... 42,667 50,833 56,139 50,955 70,372 89,270 Selling................................ 9,539 9,953 12,160 11,891 13,974 24,434 General and administrative............. 18,643 21,724 25,186 27,144 30,524 42,660 Research and development............... 7,791 6,130 11,072 12,221 10,851 13,501 Direct pharmaceutical start-up costs... -- -- -- -- 2,123 2,123 Transaction, integration and restructuring costs(1)............... -- -- 6,400 -- -- -- -------- ------- -------- -------- -------- -------- Income (loss) from operations.......... 1,465 9,603 (8,782) 2,034 13,229 71,734 Interest income (expense), net......... 690 270 (1,256) (2,134) (3,646) (29,419) Other income (expense), net............ 685 232 (153) 218 (444) (444) -------- ------- -------- -------- -------- -------- Income (loss) before income taxes and cumulative effect of accounting change............................... 2,840 10,105 (10,191) 118 9,139 41,871 Provision for (benefit from) income taxes................................ 342 3,567 (2,278) (441) 3,199 16,292 -------- ------- -------- -------- -------- -------- Income (loss) before cumulative effect of accounting change................. 2,498 6,538 (7,913) 559 5,940 25,579 Cumulative effect of a change in accounting principle, net of taxes... -- -- -- (961) -- -- -------- ------- -------- -------- -------- -------- Net income (loss)...................... $ 2,498 $ 6,538 $ (7,913) $ (402) $ 5,940 $ 25,579 ======== ======= ======== ======== ======== ======== Net income (loss) per share, basic..... $ 0.15 $ 0.38 $ (0.46) $ (0.02) $ 0.33 $ 1.33 ======== ======= ======== ======== ======== ======== Weighted average shares outstanding, basic................................ 17,092 17,124 17,204 17,488 17,794 19,294 ======== ======= ======== ======== ======== ======== Net income (loss) per share, diluted... $ 0.14 $ 0.37 $ (0.46) $ (0.02) $ 0.32 $ 1.29 ======== ======= ======== ======== ======== ======== Weighted average shares outstanding, diluted.............................. 17,772 17,722 17,204 17,771 18,308 19,808 ======== ======= ======== ======== ======== ======== BALANCE SHEET DATA: Cash and cash equivalents........................................................ $ 6,371 $ 6,371 Working capital.................................................................. 20,493 20,305 Goodwill and other intangibles, net.............................................. 88,504 298,504 Total assets..................................................................... 196,286 428,088 Total debt....................................................................... 78,878 271,658 Stockholders' equity............................................................. 76,364 117,643 </Table> ------------ (1) In connection with a merger with Medical & Technical Research Associates, Inc. in 1999, which we accounted for as a pooling of interests, we recorded a $6.4 million nonrecurring charge.