(Filed pursuant to Rule 424(b)(1))
PROSPECTUS
PARAGON ACQUISITION COMPANY, INC.
514,191 SHARES OF COMMON STOCK AND
SUBSCRIPTION RIGHTS TO PURCHASE 6,828,382 SHARES OF COMMON STOCK
This Prospectus is being furnished to holders of Common Stock of The St.
Lawrence Seaway Corporation ("St. Lawrence") by Paragon Acquisition Company,
Inc. ("Paragon") in connection with the distribution (the "Distribution") to
them of (i) 514,191 shares of Common Stock, par value $.01 per share (the
"Shares") of Paragon, and (ii) 514,191 non-transferable rights (the
"Subscription Rights") to purchase two (2) additional Shares of Paragon. See
"The Distribution." In the Distribution, each St. Lawrence stockholder will
receive one Paragon Share and one Subscription Right for each share of St.
Lawrence common stock owned, or which is subject to exercisable options and
warrants, as of March 21, 1997 (the "Record Date"). 514,191 Shares were
purchased by St. Lawrence on March 6, 1997, for aggregate consideration of
$5,141. Neither St. Lawrence nor Paragon will receive any cash or other proceeds
from the Distribution, and St. Lawrence stockholders will not make any payment
for the Shares and Subscription Rights. Paragon may receive proceeds upon the
exercise of Subscription Rights in the future. See "The Distribution."
The balance of 2,900,000 of the currently outstanding Shares of Paragon are
owned by PAR Holding Company, LLC, a Delaware limited liability company ("PAR
Holding") and were acquired for a purchase price of $.05 per share, or $150,000
(the "Initial Capital"). See "The Company" and "Certain Transactions." The
Initial Capital will be utilized for the costs of organization of Paragon, the
registration of the Shares and Subscription Rights, and for general corporate
purposes. This Prospectus, and the Registration Statement of which it is a part,
is also being used in connection with the distribution to PAR Holding of one
Subscription Right for each Share owned by PAR Holding, or, a total of 2,900,000
Subscription Rights, exercisable on the same terms and conditions as applicable
to St. Lawrence stockholders. See "The Distribution."
The Subscription Rights will not be exercisable, if at all, until after
Paragon has identified and described a Business Combination (as defined herein)
in a post-effective amendment to this Prospectus (the "Post-Effective
Amendment"). See "The Distribution -- Escrow of Securities and Funds;
Post-Effective Amendment." If and when they become exercisable, the Subscription
Rights will entitle the holder thereof to purchase from Paragon two (2)
authorized but heretofore unissued Shares of Paragon for each Subscription Right
held. The purchase price of the Subscription Rights will be established by
Paragon at the time a Business Combination is identified in the Post-Effective
Amendment, and will be not more than $2.00 per Subscription Right. See "The
Distribution -- Securities to be Distributed." Stockholders who fully exercise
their Subscription Rights will be entitled to the additional privilege of
subscribing, subject to certain limitations, for any Shares subject to
unexercised Subscription Rights. See "Over-Subscription Privilege."
THIS OFFERING WILL BE CONDUCTED IN ACCORDANCE WITH RULE 419 PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SHARES
AND ANY SHARES ISSUED UPON EXERCISE OF SUBSCRIPTION RIGHTS, WILL BE HELD IN
ESCROW AND ARE NON-TRANSFERABLE BY THE HOLDER THEREOF UNTIL AFTER THE COMPLETION
OF A BUSINESS COMBINATION (AS DEFINED HEREIN) IN COMPLIANCE WITH RULE 419. THE
SUBSCRIPTION RIGHTS SHALL ALSO BE HELD IN THE ESCROW ACCOUNT AND ARE
NON-TRANSFERABLE BY THEIR TERMS. WHILE HELD IN THE ESCROW ACCOUNT, THE SHARES
MAY NOT BE TRADED OR TRANSFERRED. THE NET PROCEEDS FROM THE EXERCISE OF THE
SUBSCRIPTION RIGHTS WILL REMAIN IN AN ESCROW ACCOUNT SUBJECT TO RELEASE UPON
CONSUMMATION OF A BUSINESS COMBINATION THAT HAS BEEN DESCRIBED IN A
POST-EFFECTIVE AMENDMENT. SEE "INVESTORS' RIGHTS AND SUBSTANTIVE PROTECTION
UNDER RULE 419."
The Distribution will be made as of the effective date of this Prospectus
(the "Distribution Date").There is no current public trading market for the
Shares and none is expected to develop, if at all, until after the consummation
of a Business Combination and the release of the Shares from escrow.
--------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. IN REVIEWING THIS
PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER THE
CAPTION "RISK FACTORS" ON PAGE 11 OF THIS PROSPECTUS.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
MAXIMUM UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO
PUBLIC(1) COMMISSIONS COMPANY
--------- ----------- -------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Per Common Share Distributed as Dividend $0.00 -0- $0.00
- ----------------------------------------------------------------------------------------------------------------
Per Exercise of Subscription Right $2.00 -0- $2.00
- ----------------------------------------------------------------------------------------------------------------
Total $6,828,382.00(2) -0- $6,828,382.00(2)
================================================================================================================
</TABLE>
- --------
(1) No consideration will be paid by St. Lawrence Stockholders in connection
with the Distribution of the Shares and the Subscription Rights.
(2) Based upon the maximum exercise price per Subscription Right.
NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT. WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE NOT REQUESTED TO SEND A PROXY.
THE DATE OF THIS PROSPECTUS IS MARCH 21, 1997
PARAGON HAS MADE APPLICATION TO REGISTER THE DISTRIBUTION OF SHARES AND NON-
TRANSFERABLE SUBSCRIPTION RIGHTS IN THE STATES OF COLORADO AND NEW YORK, HAS
FILED A NOTICE OF EXEMPTION FROM REGISTRATION IN THE STATE OF INDIANA, AND IS
RELYING UPON SELF- EXECUTING EXEMPTIONS IN THE STATES OF ALASKA, ALABAMA,
ARIZONA, ARKANSAS, CONNECTICUT, FLORIDA, GEORGIA, ILLINOIS, KANSAS, KENTUCKY,
LOUISIANA, MARYLAND, MASSACHUSETTS, MICHIGAN, MISSISSIPPI, MISSOURI, NEVADA, NEW
JERSEY, NEW MEXICO, NORTH CAROLINA, OHIO, OKLAHOMA, OREGON, SOUTH CAROLINA,
SOUTH DAKOTA, TENNESSEE, TEXAS, VIRGINIA, WASHINGTON AND WISCONSIN ("INITIAL
DISTRIBUTION STATES"). IN ADDITION, PARAGON WILL MAKE AN EFFORT TO REGISTER OR
OBTAIN AN EXEMPTION FROM REGISTRATION FOR THE DISTRIBUTION TO ST. LAWRENCE
SHAREHOLDERS RESIDING IN THE STATE OF CALIFORNIA AND PENNSYLVANIA. SHARES AND
SUBSCRIPTION RIGHTS WHICH ARE NOT TRANSFERABLE TO ST. LAWRENCE SHAREHOLDERS IN
THE STATES OF CALIFORNIA AND PENNSYLVANIA BECAUSE OF RESTRICTIONS APPLICABLE
UNDER THE BLUE SKY LAWS OF SUCH STATES THE SHARES AND SUBSCRIPTION RIGHTS WILL
BE HELD IN A SEPERATE LOCK-UP ESCROW ACCOUNT MAINTAINED BY CONTINENTAL STOCK
TRANSFER AND TRUST COMPANY (THE "ESCROW AGENT") PURSUANT TO THE TERMS AND
CONDITIONS OF RULE 419 AND A BLUE SKY LOCK-UP ESCROW AGREEMENT BETWEEN ST.
LAWRENCE, PARAGON AND THE ESCROW AGENT (SEE "RISK FACTORS-SHARES SUBJECT TO BLUE
SKY LOCK-UP ESCROW AGREEMENT"). IN ORDER TO RECEIVE SHARES AND SUBSCRIPTION
RIGHTS IN THE DISTRIBUTION, STOCKHOLDERS MUST BE RESIDENTS OF THE INITIAL
DISTRIBUTION STATES. PERSONS WHO ARE NOT RESIDENTS OF THE INITIAL DISTRIBUTION
STATES WILL NOT RECEIVE SHARES OR SUBSCRIPTION RIGHTS UNTIL DISTRIBUTION TO SUCH
PERSONS CAN BE MADE IN COMPLIANCE WITH STATE BLUE SKY LAWS APPLICABLE TO SUCH
PERSONS (SEE "RISK FACTORS-LIMITED STATE REGISTRATION"; "RESTRICTED RESALES OF
THE SECURITIES"; AND "SHARES SUBJECT TO BLUE SKY LOCK-UP ESCROW AGREEMENT"). AS
INDICATED ABOVE, THE COMPANY'S OFFERING IS SUBJECT TO THE PROVISIONS OF RULE
419. WHILE HELD IN THE ESCROW ACCOUNTS, RULE 15G-8 UNDER THE SECURITIES EXCHANGE
ACT OF 1934 MAKES IT UNLAWFUL FOR ANY PERSON TO SELL OR OFFER TO SELL THE
ESCROWED SECURITIES (OR ANY INTEREST IN OR RELATED TO THE ESCROWED SECURITIES).
THUS, INVESTORS ARE PROHIBITED FROM MAKING ANY ARRANGEMENTS TO SELL THE
DEPOSITED SECURITIES UNTIL THEY ARE RELEASED FROM THE ESCROW ACCOUNTS.
PURCHASERS OF SHARES IN ANY SECONDARY TRADING MARKET WHICH MAY DEVELOP AFTER A
BUSINESS COMBINATION HAS BEEN CONSUMMATED AND THE SHARES HAVE BEEN RELEASED FROM
ESCROW, MUST BE RESIDENTS OF THE INITIAL DISTRIBUTION STATES. PARAGON WILL SEEK
TO OBTAIN QUALIFICATION FOR RESALES OF THE SHARES IN AS MANY JURISDICTIONS AS
POSSIBLE, OR TO QUALIFY THE SHARES FOR EXEMPTIONS WHICH WILL PERMIT THEIR
RESALE, AND TO ADVISE PARAGON SHAREHOLDERS OF RESALE LIMITATIONS IN THE
POST-EFFECTIVE AMENDMENT THAT DESCRIBES A TARGET BUSINESS AND PROPOSED BUSINESS
COMBINATION.
AVAILABLE INFORMATION
Paragon has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities offered hereby. This Prospectus does not
contain all of the information contained in the Registration Statement. For
further information regarding Paragon and the securities offered hereby,
reference is made to the Registration Statement, including all exhibits and
schedules thereto, which may be inspected without charge at the public reference
facilities of the Commission's Washington, D.C. office, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Each statement contained in this Prospectus with respect
to a document filed as an exhibit to the Registration Statement is qualified by
reference to the exhibit for a complete statement of its terms and conditions.
After the Distribution, Paragon will be subject to the informational
requirements of the Securities Exchange Act of 1934 ("Exchange Act") and in
accordance therewith will file reports and other information with the Securities
and Exchange Commission ("SEC"). Reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities of the SEC, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, as well as the following Regional Offices: 7 World Trade Center, Suite
1300, New York, N.Y. 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Ill. 60661-2511. Such material can also be inspected at the New
York, Boston, Midwest, Pacific and Philadelphia Stock Exchanges. Copies can be
obtained by mail at prescribed rates. Requests should be directed to the SEC's
Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549.
Paragon intends to furnish its stockholders with annual reports containing
audited financial statements and such other reports as may be required by law.
2
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus and is qualified in its entirety by reference to, and should be
read in conjunction with, the detailed information and financial statements
contained herein. Capitalized terms not defined in this Summary are defined
elsewhere in this Prospectus.
Distributed Company .. Paragon Acquisition Company, Inc. ("Paragon") was formed
on June 19, 1996 to serve as a vehicle to seek and
effect a merger, exchange of capital stock, asset
acquisition or other business combination (a "Business
Combination") with an operating business (a "Target
Business"). PAR Holding Company, LLC ("PAR Holding")
has contributed $150,000 to Paragon in exchange for
2,900,000 shares of Common Stock (the "Shares") which
funds will be used for the costs of the organization
of Paragon, the Distribution, the Registration
Statement of which this Prospectus is a part, and for
general corporate purposes. The owners and officers of
PAR Holding are the principal officers and directors
of Paragon, and, therefore, will be principally
responsible for seeking, evaluating and consummating a
Business Combination with a Target Company.
Distributing Company . OnMarch 6, 1997, The St. Lawrence Seaway Corporation
("St. Lawrence") purchased 514,191 Shares of Paragon
for a price of $.01 per Share, and is distributing
such Shares to St. Lawrence stockholders to provide
them with the opportunity to participate in ownership
of a Target Business with which Paragon may effect a
Business Combination. (See "The Company -- Reasons for
the Distribution.") After the Distribution, St.
Lawrence will continue to be a publicly-owned company
with operations and management separate and
independent from Paragon.
Business Purpose of
Paragon............ Paragon was established to acquire a Target Business
primarily located in the United States, but its
efforts will not be limited to a particular industry.
(See "The Company -- Reasons for the Distribution.")
In seeking a Target Business, Paragon will consider,
without limitation, businesses which (i) offer or
provide services or develop, manufacture or distribute
goods in the United States or abroad, including,
without limitation, in the following areas: health
care and health products, educational services,
environmental services, consumer related products and
services (including amusement, food service and/or
recreational services), personal care services, voice
and data information processing and transmission and
related technology development, (ii) are engaged in
wholesale or retail distribution, or (iii) engage in
the financial services or similar industries. Paragon
has agreed to the terms of the Distribution with the
purpose of expanding the number and diversity of its
shareholders and thereby making Paragon a more
attractive vehicle for a merger with a Target
Business. Paragon has no present plans, proposals,
agreements, understandings or arrangements to acquire
or merge with any specific business or company, and it
has not identified any specific business or company
for investigation and evaluation. Paragon may, under
certain circumstances, seek to effect Business
Combinations with more than one Target Business.
Securities to be
Distributed......... St. Lawrence will distribute to its stockholders 514,191
Shares of Paragon and 514,191 non-transferable
Subscription Rights. Simultaneously with the
distribution to St. Lawrence stockholders, Paragon
will distribute 2,900,000 non-transferable
Subscription Rights to PAR Holding which currently
owns 2,900,000 Shares of Paragon, which Subscription
Rights are identical in all terms and conditions to
those being distributed to St.
3
Lawrence stockholders. The Subscription Rights entitle
the holder to purchase two (2) Shares of Paragon for
each Subscription Right held for a purchase price to
be established by Paragon's Board of Directors at the
time a proposed Business Combination is described in a
Post-Effective Amendment, such price to be not more
than $2.00 per Subscription Right (the "Subscription
Price").
St. Lawrence stockholders will not be required to pay
any cash or other consideration for the Shares or
Subscription Rights received in the Distribution, or
take any other action in order to receive the Shares
and Subscription Rights. The Distribution will not
effect the number of outstanding shares of St.
Lawrence common stock held by such stockholder. No
vote of St. Lawrence stockholders is required.
Distribution Conducted
in Compliance with
Rule 419............. The Company is a blank check company and consequently
this Distribution is being conducted in compliance
with Rule 419 under the Securities Act of 1933.
Accordingly, holders of Paragon Shares and
Subscription Rights have certain rights and will
receive the substantive protection provided by the
Rule. To that end, the Shares distributed hereunder,
Shares to be acquired upon the exercise of
Subscription Rights, and the Subscription Rights
(hereinafter, the "Escrowed Securities") will all be
deposited into an escrow account until an acquisition
meeting specific criteria is completed. The
Subscription Rights are non-transferable and will
either be exercised or expire while held in escrow.
The funds received upon exercise of Subscription
Rights also will be deposited in an escrow account
("Escrowed Funds"). Before the Escrowed Securities can
be released to the Stockholders and Escrowed Funds can
be released to Paragon, Paragon is required to update
its Registration Statement with a post-effective
amendment; and, within five days from the effective
date thereof, Paragon is required to furnish
Stockholders with the Prospectus produced thereby
containing the terms regarding the exercise of
Subscription Rights, the Subscription Price and
information regarding the proposed acquisition
candidate and its business, including audited
financial statements. In accordance with Rule 419,
Stockholders will have no fewer than 20 and no more
than 45 business days from the effective date of the
post-effective amendment to decide to exercise their
Subscription Rights upon the terms set forth in the
Post Effective Amendment. The right of a Stockholder
to exercise Subscription Rights held by him or her
will automatically expire within said time frame. If
Paragon does not complete an acquisition meeting the
specified criteria, none of the Escrowed Securities
will be issued and Escrowed Funds, if any, will be
returned to subscribers. (See "Investors' Rights and
Substantive Protection under Rule 419" and "The
Distribution.")
Distribution Ratio.... One Share and one Subscription Right for every one share
of St. Lawrence common stock, owned, or subject to
exercisable warrants or options, as of the Record
Date, and one Subscription Right for every one share
of Paragon owned by PAR Holding.
Distribution Agent,
Transfer Agent
and Escrow Agent.... Continental Stock Transfer & Trust Company, Telephone:
(212) 509-4000
Federal Income Tax
Consequences ........ The receipt of Shares and Subscription Rights is
expected to be taxable for federal income tax purposes
to the St. Lawrence stockholders. The income tax
considerations applicable to the Distribution are
discussed under "Federal Income Tax Consequences of
the Distribution."
4
Relationship Between
St. Lawrence and
Paragon After the
Distribution........ St. Lawrence will have no stock ownership in the Company
after the Distribution except to the extent that
certain Shares are not immediately distributable to
St. Lawrence stockholders because of regulatory or
other limitations. See "Risk Factors -- Limited State
Registration; Restricted Resales of Securities"; and
"Shares Subject to Blue Sky Lock-Up Escrow Agreement."
St. Lawrence will hold such Shares in a separate
lock-up escrow account maintained by the Escrow Agent
pursuant to the terms and conditions of Rule 419 and
Paragon will undertake reasonable efforts to obtain an
exemption from registration for the distribution of
Shares to those St. Lawrence stockholders. St.
Lawrence will not vote, sell, pledge hypothecate or
otherwise dispose of the Shares while such Shares are
held by it in the lock-up escrow account. At the time
Paragon files a Post-Effective Amendment describing a
proposed Business Combination, St. Lawrence
stockholders who have Shares held in such escrow
account will be entitled to notify Paragon in writing
that they elect to exercise their right to receive
such Shares once they are distributable to them. If
Paragon does not receive written notification from a
stockholder within 45 business days of his or her
intention to receive the Shares, the stockholder's
right to receive such Shares shall terminate, and the
Shares shall be returned to Paragon. See "Risk Factors
-- Shares Subject to Blue Sky Lock-Up Escrow
Agreement."
Principal Stockholders. After the Distribution St. Lawrence stockholders will
own 514,191 Shares of Paragon (15% of Paragon Shares),
and 514,191 Subscription Rights to purchase an
additional 1,028,382 Shares. PAR Holding currently
owns 2,900,000 Shares (85% of Paragon Shares) and
after the Distribution will own 2,900,000 Subscription
Rights to purchase an additional 5,800,000 Shares.
Risk Factors ......... The Shares and Subscription Rights distributed hereby
involve a high degree of risk. There is no public
market for the Shares and no public market is expected
to develop until such time, if ever, that a Business
Combination is completed and the Shares are released
from escrow. There can be no assurance that a public
market will develop or continue for any sustained
period of time after completion of a Business
Combination. Other risk factors include, but are not
limited to, Paragon's lack of operating history, and
limited resources and intense competition in selecting
a Target Business and effecting a Business
Combination. See "Risk Factors" and "Use of Proceeds."
Reporting Obligations...After the Distribution, Paragon will be subject to the
informational require ments of the Securities Exchange
Act of 1934 ("Exchange Act") and in accordance
therewith will file reports and other information with
the Securities and Exchange Commission ("SEC").
Reports, proxy statements and other information filed
by the Company can be inspected and copied at the
public reference facilities of the SEC, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as the following Regional Offices: 7 World
Trade Center, Suite 1300, New York, N.Y. 10048; and
Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Ill. 60661-2511. Such material can also be
inspected at the New York, Boston, Midwest, Pacific
and Philadelphia Stock Exchanges. Copies can be
obtained by mail at prescribed rates. Requests should
be directed to the SEC's Public Reference Section,
Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549.
5
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the more
detailed financial statements appearing elsewhere in this Prospectus. This
information should be read in conjunction with such financial statements,
including the notes thereto.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
ACTUAL PRO FORMA(1)
------ ------------
<S> <C> <C>
Balance Sheet Data:
Working capital $ 61,767 $ 66,908(2)
Total assets $159,440 $164,581
Total liabilities $ 17,000 $ 17,000
Stockholders' equity $142,440 $147,581
</TABLE>
- --------
(1) The effect of the exercise of Subscription Rights will be reflected in a
Post-Effective Amendment which will establish the purchase price under the
Subscription Rights.
(2) Gives effect to the purchase by St. Lawrence of 514,191 shares of Common
Stock, $.01 par value, for $5,141 in cash during March, 1997.
6
INVESTORS' RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE 419
DEPOSIT OF SECURITIES AND SUBSCRIPTION PROCEEDS INTO ESCROW
Rule 419 requires that the net proceeds received upon the exercise of
Subscription Rights (the "Escrowed Funds") and all Shares, Subscription Rights
and Shares issuable upon the exercise of Subscription Rights (the "Escrowed
Securities") be deposited into an escrow or trust account governed by an
agreement which contains certain terms and provisions specified by Rule 419.
Under Rule 419, the Escrowed Funds and Escrowed Securities will be released to
Paragon and to the Stockholders, respectively, only after Paragon has met the
following three basic conditions. First, Paragon must execute an agreement(s)
for an acquisition(s) meeting certain prescribed criteria. Second, Paragon must
file a post-effective amendment (the "Post-Effective Amendment") to its
Registration Statement which includes the terms upon which Subscription Rights
may be exercisable and contains certain conditions prescribed by Rule 419. The
Post-Effective Amendment must also contain information regarding the acquisition
candidate(s) and its business(es), including audited financial statements.
Third, Paragon must conduct the Subscription Period and satisfy all of the
prescribed conditions thereof, including the condition that a minimum amount of
proceeds raised be used to complete the acquisition. After Paragon submits a
signed representation to the escrow agent that the requirements of Rule 419 have
been met and after the acquisition(s) is consummated, the escrow agent can
release the Escrowed Funds and Escrowed Securities.
Accordingly, Paragon has entered into an escrow agreement with Continental
Stock Transfer & Trust Company (the "Escrow Agent") which
provides that:
(1) The net proceeds from the exercise of Subscription Rights are to be
deposited into an escrow account maintained by the Escrow Agent upon receipt
from subscribing Stockholders. The Escrowed Funds and interest or dividends
thereon, if any, are to be held for the sole benefit of the Stockholders and
can only be invested in bank deposits, in money market mutual funds or
federal government securities or securities for which the principal or
interest is guaranteed by the federal government.
(2) All Shares issued in connection with the Distribution, including
Shares issuable upon the exercise of Subscription Rights, and Shares issued
with respect to stock splits, stock dividends or similar rights are to be
deposited directly into the escrow account promptly upon issuance. The
identities of the Stockholders are to be included on the stock certificates
and Subscription Forms evidencing the Escrowed Securities. The Escrowed
Securities held in the escrow account are to remain as issued and deposited
and are to be held for the sole benefit of the Stockholders who retain the
voting rights, if any, with respect to the Escrowed Securities held in their
names. The Escrowed Securities held in the escrow account may not be
transferred, disposed of nor any interest created therein other than by will
or the laws of descent and distribution, or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986 or Table 1
of the Employee Retirement Income Security Act.
(3) The Subscription Rights held in the escrow account may be exercised
in accordance with their terms upon the filing of a Post-Effective Amendment
in compliance with Rule 419; provided, however, that the securities received
upon exercise of the Subscription Rights together with any cash paid in
connection with the exercise are to be promptly deposited into the escrow
account. The Subscription Rights are non-transferable by their terms and
must either be exercised or they will expire while held in escrow.
PRESCRIBED ACQUISITION CRITERIA
Rule 419 requires that before the Escrowed Funds and the Shares can be
released from escrow, Paragon must first execute an agreement to acquire a
Target Business meeting certain specified criteria. The agreement must provide
for the acquisition of a business or assets for which the fair value of the
business represents at least 80% of the maximum proceeds to be received from the
exercise of the Subscription Rights.
7
POST-EFFECTIVE AMENDMENT
Once the agreement governing the acquisition of a Target Business meeting
the above criteria has been executed, Rule 419 requires Paragon to update its
Registration Statement with a Post-Effective Amendment. The Post-Effective
Amendment must contain information about: (i) the proposed acquisition candidate
and its business, including audited financial statements; and (ii) the terms
upon which Subscription Rights can be exercised, including the Subscription
Price which cannot exceed $2.00 per Subscription Right, and the use of the funds
disbursed from the escrow account.
SUBSCRIPTION PERIOD
The Subscription Period will commence after the effective date of the
Post-Effective Amendment. In accordance with Rule 419, the terms of the
Subscription Period must include the following conditions:
(1) Each Stockholder will have no fewer than 20 and no more than 45
business days from the effective date of the Post-Effective Amendment to
notify Paragon in writing that the Stockholder elects to remain a
Stockholder, to exercise his or her Subscription Rights, and in the event
they are exercising all of their Subscription Rights, whether they elect to
exercise the Over-Subscription Privilege (defined below).
(2) If Paragon does not receive written notification from the Stockholder
within 45 business days following the effective date of the Post-Effective
Amendment, the Stockholder's right to elect to subscribe shall terminate.
(3) The proposed Business Combination will be consummated only if
Stockholders subscribe for 80% of the maximum proceeds to be received from
the exercise of Subscription Rights.
(4) If the acquisition is not consummated within six months from the date
of the Post-Effective Amendment, the Escrowed Funds held in the escrow
account, if any, shall be returned to all Stockholders on a pro rata basis
within 5 business days by first class mail or other equally prompt means and
none of the Shares shall be released from the Escrow Account.
RELEASE OF ESCROWED SECURITIES AND ESCROWED FUNDS
The Shares and Escrowed Funds may be released from escrow and delivered to
Paragon and the Stockholders, respectively, after:
(1) The Escrow Agent has received a signed representation from Paragon
and any other evidence acceptable by the Escrow Agent that:
(a) Paragon has executed an agreement for the acquisition of a
business or assets for which the fair value of the business represents at
least 80% of the maximum proceeds to be received from the exercise of
Subscription Rights, and has filed the required Post-Effective Amendment;
(b) The Post-Effective Amendment has been declared effective and the
Subscription Period has been completed.
(2) The acquisition of the business or assets with a fair value of at
least 80% of the maximum proceeds to be received from the exercise of the
Subscription Rights is consummated.
8
THE COMPANY
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Paragon Acquisition Company, Inc. ("Paragon") was incorporated under the
laws of the State of Delaware on June 19, 1996 to seek a Business Combination
with a Target Business.
Prior to the Distribution, the sole stockholders of Paragon was PAR Holding
Company, Inc., a Delaware limited liability company organized for the purpose of
acquiring and holding a majority ownership position in Paragon. The sole owners
and principals of PAR Holding currently are Mitchell M. Kuflik, Peter A.
Hochfelder and Robert J. Sobel, who are also officers and directors of Paragon
(the "PAR Principals"). See "Management."
The PAR Principals will be primarily responsible for seeking, evaluating and
consummating any Business Combination. PAR Holding has invested $150,000 in
Paragon in exchange for 2,900,000 Shares and PAR Holding will receive 2,900,000
Subscription Rights exercisable upon the same terms and under the same
conditions as Subscription Rights being distributed to St. Lawrence
stockholders. St. Lawrence stockholders are not obligated to make any payments
to Paragon or to PAR Holding in exchange for the Shares to be received and
distributed in the Distribution. Paragon Stockholders are not obligated in the
future to make any payments under the Subscription Rights or otherwise, unless,
after they have had an opportunity to evaluate a proposed Target Business
described in a Post-Effective Amendment, they elect to exercise the Subscription
Rights distributed to them.
The purchase of Shares and Subscription Rights by St. Lawrence, and the
Distribution are being made by St. Lawrence for the purpose of distributing to
St. Lawrence stockholders an equity interest in Paragon without such
stockholders being required, either directly or indirectly, to contribute any
cash or other capital in exchange for such equity interest. The cash payment of
$5,141 by St. Lawrence in exchange for the Paragon Shares and Subscription
Rights to be distributed to St. Lawrence stockholders, was determined by St.
Lawrence to represent a nominal investment in light of the potential benefits to
St. Lawrence stockholders which may be available through their ownership of the
Shares, the possible exercise of Subscription Rights to purchase additional
Shares and the fact that PAR Holding has agreed to purchase a significant number
of Shares at a price substantially higher than the price paid by St. Lawrence.
St. Lawrence believes that by acquiring for St. Lawrence stockholders such
equity interest, and the right to acquire additional ownership on the same terms
as PAR Holding, St. Lawrence stockholders will thereby have an interest in a
greater number of vehicles available to effect a merger, acquisition or other
business combination, and therefore, an increased opportunity to benefit from
such transactions.
Paragon has agreed to the terms of the Distribution with the purpose of
expanding the number and diversity of its stockholders and thereby making
Paragon a more attractive vehicle for a merger with a Target Business.
BUSINESS OBJECTIVE OF PARAGON
Paragon intends to utilize the net proceeds from the exercise of the
Subscription Rights, if any, and bank borrowings or a combination thereof, if
necessary, in effecting a Business Combination. See "Use of Proceeds." Paragon
will seek to acquire a Target Business primarily located in the United States,
but its efforts will not be limited to a particular industry. In seeking a
Target Business, Paragon will consider, without limitation, businesses which (i)
offer or provide services or develop, manufacture or distribute goods in the
United States or abroad, including, without limitation, in the following areas:
health care and health products, educational services, environmental services,
consumer related products and services (including food service, amusement and/or
recreational services), personal care services, voice and data information
processing and transmission and related technology development, (ii) is engaged
in wholesale or retail distribution or, (iii) engages in the financial services
or similar industries. Paragon has not had any negotiations with representatives
of any entity regarding a Business Combination. Paragon may, under certain
circumstances, seek to effect Business Combinations with more than one Target
Business.
9
None of Paragon's officers, directors or their affiliates, have had any
negotiations or discussions, and there are no present plans, proposals,
arrangements or understanding, with any representatives of the owners of any
business or company regarding the possibility of an acquisition or merger
transaction contemplated in this Prospectus. See "Proposed Business.")
Paragon's principal executive offices are located at 277 Park Avenue, New
York, 10017 and its telephone number is (212) 941-1400.
BUSINESS EXPERIENCE OF PARAGON MANAGEMENT AND USE OF CONSULTANTS
The PAR Principals are also the executive officers and directors of Paragon.
The PAR Principals have business experience which has provided them with skills
which Paragon believes will be helpful in evaluating potential Target Businesses
and negotiating a Business Combination. These individuals have experience in
evaluating investment opportunities and certain directors and officers have
served as managers of private investment partnerships for several years. See
"Management." Paragon may, from time to time, retain other persons or
representatives to assist in locating or evaluating a Target Business or
potential Business Combination, but currently does not have any agreement or
understanding with any consultant or advisor to provide services in connection
with any future Business Combination. Paragon does not anticipate that it will
engage consultants or advisors specializing in business acquisitions or
reorganizations, although the possibility exists that management may find it to
be beneficial to retain the services of such a consultant in the future. See
"Risk Factors -- Use of Consultants, Finders or Advisors", and "Proposed
Business -- Limited Ability to Evaluate Target Business Management."
Compensation to a consultant or advisor may take various forms, including one
time cash payments, payments based on a percentage of revenues or product sales
volume, payments involving issuance of securities (including those of Paragon)
or any combination of these or other compensation arrangements. Management
cannot estimate the amount of fees that may be paid to any such consultant or
advisor, or for how long such advisor may be retained. None of the PAR
Principals have, in the past, used any particular consultant or advisor on a
regular basis for purposes similar to the business purposes of Paragon or is
currently recommending the use of any such consultant or advisor.
NO STOCKHOLDER APPROVAL OF BUSINESS COMBINATION
The stockholders of Paragon will, in all likelihood, neither receive nor
otherwise have the opportunity to evaluate any financial or other information
which will be made available to Paragon in connection with selecting a potential
Target Business until after Paragon has entered into a definitive agreement to
effectuate a Business Combination as described in a Post-Effective Amendment. As
a result, stockholders of Paragon will be almost entirely dependent on the
judgment of management in connection with the selection of a Target Business and
the terms of any Business Combination.
Under the Delaware General Corporation Law, various forms of Business
Combinations can be effected without stockholder approval, such as where shares
of common stock are issued as consideration for the Target Business. In
addition, the form of Business Combination will have an impact upon the
availability of dissenters' rights (i.e., the right to receive fair payment with
respect to the Common Stock) to stockholders disapproving of the proposed
Business Combination. Under current Delaware law, only a merger or consolidation
may give rise to a stockholder vote and to dissenters' rights. The Delaware
General Corporation Law requires approval of certain mergers and consolidations
by a majority of the outstanding stock entitled to vote.
Even if stockholders of Paragon are afforded the right to approve a Business
Combination, no dissenters' rights to receive fair payment will be available for
stockholders if Paragon is to be the surviving corporation unless the
Certificate of Incorporation of Paragon is amended and as a result thereof: (i)
alters or abolishes any preferential right of such stock; (ii) creates, alters
or abolishes any provision or right in respect of the redemption of such shares
or any sinking fund for the redemption or purchase of such shares; (iii) alters
or abolishes any preemptive right of such holder to acquire shares or other
securities; or (iv) excludes or limits the right of such holder to vote on any
matter, except as such right may be limited by the voting rights given to new
shares then being authorized of any existing or new class.
10
RISK FACTORS
NO OPERATING HISTORY; LIMITED RESOURCES; NO PRESENT SOURCE OF REVENUES
Paragon is a development stage company and has not, as of the date hereof,
attempted to seek a Business Combination. Paragon has no operating history, and
accordingly, there is only a limited basis upon which to evaluate Paragon's
prospects for achieving its intended business objectives. To date, Paragon's
efforts have been limited to organizational activities and the preparation of
this Prospectus. Paragon has limited resources and has had no revenues to date.
In addition, Paragon will not achieve any revenues until, at the earliest, the
consummation of a Business Combination. Moreover, there can be no assurance that
any Target Business, at the time of Paragon's consummation of a Business
Combination, or at any time thereafter, will derive any material revenues from
its operations or operate on a profitable basis. See "Proposed Business."
UNSPECIFIED BUSINESS
Paragon Stockholders will be entirely dependent on the judgment of
management in connection with the selection of a Target Business. There can be
no assurance that determinations ultimately made by management will permit
Paragon to achieve its business objectives. See "Use of Proceeds" and "Proposed
Business."
None of Paragon's officers, directors or their affiliates have had any
negotiations or discussions, and there are no present plans, proposals,
arrangements or understandings, with any representatives or the owners of any
business or company regarding the possibility of an acquisition or merger
transaction contemplated in this Prospectus. See "Proposed Business."
SEEKING TO ACHIEVE PUBLIC TRADING MARKET THROUGH BUSINESS COMBINATION
While a prospective Target Business may deem a Business Combination with
Paragon desirable for various reasons, a Business Combination may involve the
acquisition of, or merger with, a company which does not need substantial
additional capital but which desires to establish a public trading market for
its shares, while avoiding what it may deem to be adverse consequences of
undertaking a public offering itself, including time delays, significant
expense, loss of voting control and compliance with various Federal and state
securities laws. Nonetheless, there can be no assurance that there will be an
active trading market for Paragon's securities following the completion of a
Business Combination or if a market does develop, as to the market price for
Paragon's securities. See "No Assurance of a Public Market."
AUTHORIZATION OF ADDITIONAL SECURITIES
Paragon has no current plans for issuing or distributing additional Shares,
Subscription Rights or other securities after the Distribution, except as may be
issued in connection with a Business Combination. The issuance of such
additional securities approved by the Board of Directors, however, is not
limited and such issuance, including in any private placement may be considered
or approved by Paragon in the future as being necessary or desirable in
connection with seeking, implementing or as a result of a Business Combination,
raising proceeds to fund Paragon's operations, to attract or retain employees or
advisors, or for other reasons not now known or contemplated. The issuance of
such additional securities may reduce or dilute the ownership interests of
Paragon Shares issued in the Distribution or pursuant to the exercise of
Subscription Rights.
LEVERAGE
Paragon may use borrowings or other debt financing to accomplish its
business purposes. In addition, a Target Business may be highly leveraged or
consummation of a Business Combination may require the use of leverage. A
business acquired through a leveraged buy-out, i.e., financing the acquisition
of the business by borrowing on the assets of the business to be acquired, is
generally profitable only if the Company generates enough revenues to cover the
related debt and expenses. This
11
practice could increase Paragon's exposure to large losses. There can be no
assurance that any business acquired through a leveraged buy-out will generate
sufficient revenues to cover the related debt and expenses. The use of leverage
to consummate a Business Combination may reduce the ability of Paragon to incur
additional debt, make other acquisitions, or declare dividends, and may subject
Paragon's operations to strict financial controls and significant interest
expense. It may be expected that Paragon will have few, if any, opportunities to
utilize leverage in an acquisition. Even if Paragon is able to identify a
business where leverage may be used, there is no assurance that financing will
be available on terms acceptable to Paragon.
NO ASSURANCES OF A PUBLIC MARKET
Pursuant to Rule 419, all securities purchased in an offering by a blank
check company, as well as securities issued in connection with an offering to
underwriters, promoters or others as compensation or otherwise, must be placed
in a Rule 419 escrow account. These securities will not be released from escrow
until the consummation of a merger or acquisition as provided for in Rule 419.
There is no present market for the Shares of Paragon and there is no assurance
that one may develop following the release of the Shares from the Rule 419
escrow account. Thus, Paragon Stockholders may find it difficult to sell their
Shares. To date, neither Paragon nor anyone acting on its behalf has taken any
affirmative steps to request or encourage any broker or dealer to act as a
market maker for the Shares Stock. Further, there have been no discussions or
understandings, preliminary or otherwise, between Paragon or anyone acting on
its behalf and any market maker regarding the participation of any such market
maker in the future trading market, if any, for the Shares. Management of
Paragon has no intention of seeking a market maker for the Shares at any time
prior to the release of Shares from escrow. The officers of Paragon after the
consummation of a Business Combination may employ consultants or advisors to
obtain such market makers. Management expects that discussions in this area will
ultimately be initiated by the management of Paragon in control of the entity
after a Business Combination is consummated. There is no likelihood of any
active and liquid trading market for Paragon's Common Stock developing until a
Business Combination is consummated, if at all.
UNCERTAIN STRUCTURE OF BUSINESS COMBINATION
The structure of a future transaction with a Target Business cannot be
determined at the present time and may take the form of a merger, an exchange of
stock or an asset acquisition. Paragon may also form one or more subsidiary
entities to effect a Business Combination and may, under certain circumstances,
distribute the securities of subsidiaries to Paragon Stockholders. There cannot
be any assurance that a market would develop for the securities of any
subsidiary distributed to Stockholders or, if it did, the prices at which such
securities might trade. The structure of a Business Combination or the
distribution of securities to Stockholders may result in taxation of Paragon,
the Target Business or Stockholders. See "Proposed Business."
UNSPECIFIED INDUSTRY AND TARGET BUSINESS; UNASCERTAINABLE RISKS
While Paragon will target industries located in the United States, Paragon
has not selected any particular industry or Target Business in which to
concentrate its Business Combination efforts. None of Paragon's directors or
executive officers have had any negotiations with any entity or representatives
of any entity regarding a Business Combination. To the extent that Paragon
effects a Business Combination with a financially unstable company or an entity
in its early stage of development or growth (including entities without
established records of revenues or income), Paragon will become subject to
numerous risks inherent in the business and operations of financially unstable
and early stage or potential emerging growth companies. In addition, to the
extent that Paragon effects a Business Combination with an entity in an industry
characterized by a high level of risk, Paragon will become subject to the
currently unascertainable risks of that industry. An extremely high level of
risk frequently characterizes certain industries which experience rapid growth.
Although management will endeavor to evaluate the risks inherent in a particular
Target Business or industry, there can be no assurance that Paragon will
properly ascertain or assess all such risks. See "Proposed Business."
12
PROBABLE LACK OF BUSINESS DIVERSIFICATION
As a result of its limited resources, Paragon, in all likelihood, may have
the ability to effect only a single Business Combination. Accordingly, the
prospects for Paragon's success will be entirely dependent upon the future
performance of a single business. Unlike certain entities which have the
resources to consummate several Business Combinations of entities operating in
multiple industries or multiple segments of a single industry, it is highly
likely that Paragon will not have the resources to diversify its operations or
benefit from the possible spreading of risks or offsetting of losses. Paragon's
probable lack of diversification may subject Paragon to numerous economic,
competitive and regulatory developments, any or all of which may have a material
adverse impact upon the particular industry in which Paragon may operate
subsequent to a Business Combination. The prospects for Paragon's success may
become dependent upon the development or market acceptance of a single or
limited number of products, processes or services. Accordingly, notwithstanding
the possibility of capital investment in and management assistance to the Target
Business by Paragon, there can be no assurance that the Target Business will
prove to be commercially viable. Paragon has no present intention of purchasing
or acquiring a minority interest in any Target Business. See "Use of Proceeds"
and "Proposed Business."
DEPENDENCE UPON BOARD OF DIRECTORS
The ability of Paragon to successfully effect a Business Combination will be
largely dependent upon the efforts of the PAR Principals. Notwithstanding the
significance of such persons, Paragon has not entered into employment agreements
or other understandings with any such persons concerning compensation or
obtained any "key man" life insurance on their respective lives. The loss of the
services of such key personnel could have a material adverse effect on Paragon's
ability to successfully achieve its business objectives. None of the PAR
Principals are required to commit even a substantial amount of their time to the
affairs of Paragon, and accordingly, such personnel may have conflicts of
interests in allocating management time among various business activities.
However, each officer and director of Paragon will devote such time as he or she
deems reasonably necessary to carry out the business and affairs of Paragon,
including the evaluation of potential Target Businesses and the negotiation of a
Business Combination. As a result, the amount of time devoted to the business
and affairs of Paragon may vary significantly, depending upon, among other
things, whether Paragon has identified a Target Business or is engaged in active
negotiation of a Business Combination. Paragon will rely upon the expertise of
such executive officers, and management does not anticipate that it will hire
additional personnel. If additional personnel are required, there can be no
assurance that Paragon will be able to retain such necessary additional
personnel. See "Proposed Business" and "Conflicts of Interest."
TIME TO BE DEVOTED BY MANAGEMENT
The officers and directors of Paragon currently are employed or engaged full
time in other positions or activities and will devote only that amount of time
to the affairs of Paragon which they deem appropriate. The amount of time
devoted by management to the affairs of Paragon will depend on the number and
type of businesses under consideration at any given time. In the face of
competing demands for their time, it should be anticipated that the officers and
directors will grant priority to their full-time positions rather than the
business affairs of Paragon. Paragon estimates that the officers and directors
of Paragon may contribute an average of 25 hours per month to Paragon matters
until such time as a Target Business has been identified, and a significantly
greater amount once a Target Business is identified and a Business Combination
is negotiated and consummated. See "Management."
LIMITED ABILITY TO EVALUATE TARGET BUSINESS MANAGEMENT
While Paragon's present management intends to scrutinize closely the
management of a prospective Target Business in connection with its evaluation of
the desirability of effecting a Business Combination with such Target Business,
there can be no assurance that Paragon's assessment of such management will
prove to be correct. While it is possible that certain of Paragon's directors or
its
13
executive officers will remain associated in some capacity with Paragon
following a Business Combination, it is unlikely that any of them will devote a
substantial portion of their time to the affairs of Paragon subsequent thereto.
Moreover, there can be no assurance that such personnel will have significant
experience or knowledge relating to the operations of the Target Business
acquired by Paragon. Paragon may also seek to recruit additional personnel to
supplement the incumbent management of the Target Business. There can be no
assurance that Paragon will successfully recruit additional personnel or that
the additional personnel will have the requisite skills, knowledge or experience
necessary or desirable to enhance the incumbent management. In addition, there
can be no assurance that the future management of Paragon will have the
necessary skills, qualifications or abilities to manage a public company
embarking on a program of business development. See "Proposed Business" and
"Management."
USE OF CONSULTANTS, FINDERS AND ADVISORS
While it is not presently anticipated that the Company will engage
unaffiliated professional firms specializing in business acquisitions or
reorganizations, such firms may be retained if management deems it in the best
interest of Paragon. Compensation to a finder or business acquisition firm may
take various forms, including one-time cash payments, payments based on a
percentage of revenues or product sales volume, payments involving issuance of
equity securities (including those of Paragon), or any combination of these or
other compensation arrangements. See "Use of Proceeds," and "Proposed Business."
In connection with its investigation of a possible business and in order to
supplement the business experience of management, Paragon may employ
accountants, technical experts, appraisers, attorneys, or other consultants or
advisors. Furthermore, it is anticipated that such persons may be engaged by
Paragon on an independent basis without a continuing fiduciary or other
obligation to Paragon. Paragon has no arrangement or understanding to employ any
of its officers or directors as outside advisors. See "Proposed Business."
CONFLICTS OF INTEREST
Management is not involved with any blank check companies other than Paragon
and currently does not expect to organize, purchase or otherwise promote any
other companies with a structure and purposes similar to Paragon's, if at all,
until after Paragon identifies a Target Business with which it seeks to effect a
Business Combination. In the event management's intention changes, or they
otherwise become affiliated with a blank check company, then conflicts of
interest may arise regarding competing searches for Business Combinations. In
general, officers and directors of a corporation incorporated under the laws of
the State of Delaware are required to present certain business opportunities to
such corporation. Accordingly, as a result of multiple business affiliations,
certain of Paragon's directors and its executive officers may have similar legal
obligations to present certain business opportunities to multiple entities.
There can be no assurance that any of the foregoing conflicts will be resolved
in favor of Paragon. See "Management."
POTENTIAL PROFIT TO BE RECEIVED BY MANAGEMENT
The executive officers and certain directors of Paragon, through PAR
Holding, currently own 85% of the Paragon Common Stock presently issued and
outstanding. The officers and directors paid an aggregate price of $150,000 for
these Shares. The PAR Principals may actively negotiate or otherwise consent to
the purchase of any portion of their Shares as a condition to or in connection
with a proposed merger or acquisition transaction. A premium may be paid on this
stock in connection with any such stock purchase transaction, and Paragon's
public Stockholders will not receive any portion of the premium that may be
paid. Furthermore, Paragon's Stockholders may not be afforded an opportunity to
approve or consent to any particular stock buy-out transaction. The fact that
such officers and directors may negotiate to receive such a premium means that
there is a potential for members of management to consider their own personal
pecuniary benefit rather than the best interests of Paragon's public
Stockholders. Such conduct may present management with conflicts of interest,
and, as a result of such conflicts, may possibly compromise management's state
law fiduciary duties to Paragon's Stockholders. Paragon has not adopted any
policy for resolving such conflicts.
14
COMPETITION
Paragon expects to encounter intense competition from other entities having
business objectives similar to those of Paragon. Many of these entities,
including venture capital partnerships and corporations, blind pool companies,
large industrial and financial institutions, small business investment companies
and wealthy individuals, are well-established and have extensive experience in
connection with identifying and effecting Business Combinations directly or
through affiliates. Many of these competitors possess greater financial,
technical, human and other resources than Paragon and there can be no assurance
that Paragon will have the ability to compete successfully. Paragon's financial
resources will be limited in comparison to those of many of its competitors.
There can be no assurance that such prospects will permit Paragon to achieve its
stated business objectives. See "Proposed Business."
UNCERTAINTY OF COMPETITIVE ENVIRONMENT OF TARGET BUSINESS
In the event that Paragon succeeds in effecting a Business Combination,
Paragon will, in all likelihood, become subject to intense competition from
competitors of the Target Business. In particular, certain industries which
experience rapid growth frequently attract an increasingly larger number of
competitors, including competitors with greater financial, marketing, technical,
human and other resources than the initial competitors in the industry. The
degree of competition characterizing the industry of any prospective Target
Business cannot presently be ascertained. There can be no assurance that,
subsequent to a Business Combination, Paragon will have the resources to compete
in the industry of the Target Business effectively, especially to the extent
that the Target Business is in a high-growth industry. See "Proposed Business."
POSSIBLE USE OF DEBT FINANCING; DEBT OF A TARGET BUSINESS
There currently are no limitations on Paragon's ability to borrow or
otherwise raise funds to increase the amount of capital available to Paragon to
effect a Business Combination. However, Paragon's limited resources and lack of
operating history will make it difficult to borrow funds. The amount and nature
of any borrowings by Paragon will depend on numerous considerations, including
Paragon's capital requirements, Paragon's perceived ability to meet debt service
on any such borrowings and the then prevailing conditions in the financial
markets, as well as general economic conditions. There can be no assurance that
debt financing, if required or sought, would be available on terms deemed to be
commercially acceptable by and in the best interests of Paragon. The inability
of Paragon to borrow funds required to effect or facilitate a Business
Combination or to provide funds for an additional infusion of capital into a
Target Business, may have a material adverse effect on Paragon's financial
condition and future prospects. Additionally, to the extent that debt financing
ultimately proves to be available, any borrowings may subject Paragon to various
risks traditionally associated with indebtedness, including the risks of
interest rate fluctuations and insufficiency of cash flow to pay principal and
interest. Furthermore, a Target Business may have already incurred borrowings,
and therefore, all the risks inherent thereto. See "Use of Proceeds" and
"Proposed Business."
DETERMINATION OF TERMS OF THE DISTRIBUTION
The terms of the Distribution, including the price to be paid by St.
Lawrence in exchange for Paragon Shares and Subscription Rights, and the terms
of the Subscription Rights, were determined by the Board of Directors of Paragon
and proposed to, and accepted by, St. Lawrence. Such terms were based upon
several factors, including the number of St. Lawrence stockholders, the absence
of a Paragon operating business, the small amount of capital available for
Paragon's operations, and the experience of Paragon's management. The terms of
the Distribution should not be considered indicative of the value of the Shares
after the Distribution or after the consummation of any Business Combination.
INVESTMENT COMPANY ACT CONSIDERATIONS
The regulatory scope of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), which was enacted principally for the purpose of
regulating vehicles for pooled investments in securities, extends generally to
companies engaged primarily in the business of investing,
15
reinvesting, owning, holding or trading in securities. The Investment Company
Act may, however, also be deemed to be applicable to a company which does not
intend to be within the definitional scope of certain provisions of the
Investment Company Act. Paragon believes that its anticipated principal
activities, which will involve acquiring control of an operating company, will
not subject Paragon to regulation under the Investment Company Act.
Nevertheless, there can be no assurance that Paragon will not be deemed to be an
investment company, particularly during the period prior to a Business
Combination. If Paragon is deemed to be an investment company, Paragon may
become subject to certain restrictions relating to Paragon's activities,
including restrictions on the nature of its investments and the issuance of
securities. In addition, the Investment Company Act imposes certain requirements
on companies deemed to be within its regulatory scope including registration as
an investment company, adoption of a specific form of corporate structure and
compliance with certain burdensome reporting, record keeping, voting, proxy,
disclosure and other rules and regulations. In the event of the characterization
of Paragon as an investment company, the failure by Paragon to satisfy such
regulatory requirements, whether on a timely basis or at all, would under
certain circumstances, have a material adverse effect on Paragon.
DIVIDENDS UNLIKELY
Paragon does not expect to pay dividends prior to the consummation of a
Business Combination. The payment of dividends after any such Business
Combination, if any, will be contingent upon Paragon's revenues and earnings,
capital requirements and general financial condition subsequent to consummation
of a Business Combination. The payment of any dividends subsequent to a Business
Combination will be within the discretion of Paragon's then Board of Directors.
Paragon presently intends to retain all earnings, if any, for use in Paragon's
business operations and accordingly, the Board does not anticipate declaring any
dividends in the foreseeable future. See "Description of Securities --
Dividends."
CONTROL BY PRESENT STOCKHOLDERS
Upon consummation of the Distribution, St. Lawrence stockholders will own
approximately 15% of the issued and outstanding Shares of Paragon, and PAR
Holding will own approximately 85% of the issued and outstanding Shares of
Paragon. Accordingly, PAR Holding will be in a position to elect all of
Paragon's directors, approve amendments to Paragon's Certificate of
Incorporation, and otherwise direct the affairs of Paragon. See "Principal
Stockholders" and "Description of Securities."
LIMITED STATE REGISTRATION; RESTRICTED RESALES OF THE SECURITIES.
Paragon has made application to register the Distribution of Shares, the
non-transferable Subscription Rights and the Shares underlying the Subscription
Rights in the States of Colorado and New York, has filed a notice of exemption
for the Distribution and exercise of Subscription Rights in the State of
Indiana, and is relying upon a self executing exemption for the Distribution and
exercise of Subscription Rights in the States of Alabama, Alaska, Arizona,
Arkansas, Connecticut, Florida, Georgia, Illinois, Kansas, Kentucky, Louisiana,
Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Jersey,
New Mexico, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, South
Dakota, Tennessee, Texas, Virginia, Washington and Wisconsin. In addition,
Paragon will make an effort to register or obtain an exemption from registration
of the Distribution in the States of California and Pennsylvania, the two
remaining States in which St. Lawrence stockholders reside. See "Shares Subject
to Blue Sky Lock-Up Escrow Agreement." While held in the Escrow Account, Rule
15g-8 under the Securities Exchange Act of 1934 makes it unlawful for any person
to sell or offer to sell the Shares (or any interest in or relating thereto).
Thus, Stockholders are prohibited from making any arrangements to sell the
Shares distributed and the Shares received upon the exercise of the Subscription
Rights. The Subscription Rights are, by their terms, non-transferable and will
therefore either be exercised or will expire while held in escrow.
Several states currently will permit secondary market sales of the shares
upon release from escrow (i) if certain financial and other information with
respect to Paragon is published in a recognized securities manual, (ii) after a
certain period has elapsed from the date of this Prospectus, or (iii) pursuant
16
to exemptions applicable to certain institutional investors. However, Paragon
does not expect to be able to be listed in any recognized securities manual
until after the consummation of the first Business Combination, if at all.
Paragon will seek to obtain qualification for resales of the Shares in as many
jurisdictions as possible, or to qualify the Shares for exemptions which will
permit their resale, and to advise Paragon stockholders of resale limitations in
the Post-Effective Amendment that describes a Target Business and proposed
Business Combination.
SHARES SUBJECT TO BLUE SKY LOCK-UP ESCROW AGREEMENT
Shares and Subscription Rights which are not distributable to St. Lawrence
stockholders in California and Pennsylvania because of restrictions applicable
under the blue sky laws of such States will be held by St. Lawrence in a
separate escrow account maintained by the Escrow Agent pursuant to the terms and
conditions of Rule 419 and a Blue Sky Lock-Up Escrow Agreement between St.
Lawrence, Paragon and the Escrow Agent (the "Lock-Up Agreement"). A total of 25
St. Lawrence stockholders (1.8%) in California and Pennsylvania entitled to
receive an aggregate of 23,169 (5.8%) Shares and Subscription Rights, will not
be permitted to receive them because of such restrictions. Pursuant to the terms
of the Lock-Up Agreement, St. Lawrence will hold the Shares and Paragon will
undertake reasonable efforts to register or obtain an exemption from
registration for the Distribution to such St. Lawrence stockholders. At the time
Paragon files a Post-Effective Amendment describing a proposed Business
Combination, St. Lawrence stockholders whose Shares are held in escrow pursuant
to the Lock-Up Agreement will be entitled to no fewer than 20 and no more than
45 business days from the effective date of the Post-Effective Amendment to
notify Paragon in writing that such stockholders elect to receive their Shares
once the Shares become distributable in California and Pennsylvania. If Paragon
does not receive written notification from a stockholder within 45 business
days, the stockholder's right to receive such Shares shall terminate and the
Shares will be returned to Paragon.
In the event a Business Combination has occurred, but at such time, the
Shares are still subject to the Lock-Up Agreement, then (i) Paragon shall
continue reasonable efforts to obtain a registration or exemption from
registration for the Distribution of such Shares until registration or an
exemption is available, and (ii) the Escrow Agent shall hold the Shares in the
lock-up escrow account until Paragon has obtained such registration or
exemption.
The Shares will be subject to Rule 419 while they are subject to the Lock-Up
Agreement. Consequently, if a Business Combination is not consummated within 18
months from the date the Shares are deposited into the lock-up escrow account,
such Shares shall be returned to Paragon and the lock-up escrow account shall be
terminated. Except as set forth above, neither St. Lawrence nor the St. Lawrence
stockholders shall be permitted to vote, sell, pledge, hypothecate or otherwise
dispose of the Shares while such Shares are held in the lock-up escrow account.
St. Lawrence stockholders located within California and Pennsylvania will be
notified by letter of the Distribution and the commitments of St. Lawrence and
Paragon contained in the Lock-Up Agreement.
In addition, Paragon will continue to keep stockholders apprised of any
substantive changes with respect to the proposed Distribution of Shares within
California and Pennsylvania, and will distribute the Post-Effective Amendment to
the stockholders and provide them with the opportunity to elect to receive their
Shares once they are distributable.
Upon written notification from St. Lawrence and Paragon that the
requirements of Rule 419 have been satisfied and registration or an exemption
has been obtained for the Distribution of the Shares held in the lockup escrow
account to St. Lawrence stockholders located within California and Pennsylvania,
the Escrow Agent shall prepare and replace such Shares held by St. Lawrence with
Paragon Shares recorded in the stockholders' names.
17
THE DISTRIBUTION
SECURITIES TO BE DISTRIBUTED
Based upon 514,191 shares of Common Stock of St. Lawrence which are issued
and outstanding or subject to exercisable options and warrants as of March 21,
1997 (the "Record Date"), St. Lawrence will distribute to its stockholders
514,191 Shares of Paragon and 514,191 Subscription Rights entitling the holder
thereof to subscribe for two (2) additional Shares at a price to be determined
by the Paragon Board of Directors, but in no event more than $2.00 per
Subscription Right (the "Subscription Price"). Each Record Date stockholder of
St. Lawrence is being issued one (1) Share of Paragon and one (1) Subscription
Right for each share of Common Stock of St. Lawrence owned on the Record Date.
The number of Shares and Subscription Rights to be issued to each stockholder
will be rounded down to the nearest whole number of shares and no fractional
Shares or Subscription Rights will be distributed. In the Distribution, PAR
Holding will also be issued 2,900,000 Subscription Rights representing one (1)
Subscription Right for each Share of Paragon owned as of the Record Date, which
Subscription Rights are identical in all terms and conditions to those being
distributed to St. Lawrence stockholders.
The Shares distributed to St. Lawrence stockholders will be fully paid for
and nonassessable, and the holders thereof will not be entitled to preemptive
rights. The Subscription Rights are non- transferable and entitle a Stockholder
to acquire at the Subscription Price, two (2) Shares for each Subscription Right
held. Subscription Rights will not be exercisable until after a Post-Effective
Amendment describing a Target Business and a proposed Business Combination is
delivered to holders, and then may be exercised at any time during the
Subscription Period (as defined herein).
In addition, any Paragon Stockholder who fully exercises all Subscription
Rights distributed to him or her shall be entitled at the same time to elect to
subscribe for Shares which were not otherwise subscribed for by other holders of
Subscription Rights (the "Over-Subscription Privilege"). Shares acquired through
such Over-Subscription Privilege are subject to allocation or increase, which is
more fully discussed below under "Over-Subscription Privilege".
No stockholder of St. Lawrence will be required to pay any cash or other
consideration for the Shares or Subscription Rights received in the Distribution
or to surrender or exchange shares of St. Lawrence Common Stock or to take any
other action in order to receive the Shares and Subscription Rights. The
Distribution will not affect the number of, or the rights attaching to,
outstanding shares of St. Lawrence common stock. No vote of St. Lawrence
stockholders is required or sought in connection with the Distribution.
The terms of the Distribution, including the price to be paid by St.
Lawrence in exchange for Paragon Shares and Subscription Rights, and the terms
of the Subscription Rights were determined by the Board of Directors of Paragon
and proposed to and accepted by St. Lawrence. Such terms were based upon several
factors, including the number of St. Lawrence stockholders, the absence of a
Paragon operating business, the small amount of capital available for Paragon's
operations, and the experience of Management. The terms of the Distribution
should not be considered indicative of the value of the Shares after the
Distribution or after the consummation of any Business Combination.
ESCROW OF SECURITIES AND FUNDS; POST-EFFECTIVE AMENDMENT
Rule 419 requires that the Shares to be distributed, the Subscription
Rights, the Shares to be received upon the exercise of Subscription Rights
(collectively, the "Escrowed Securities"), and all funds received upon the
exercise of Subscription Rights (the "Escrowed Funds") be deposited into an
escrow or trust account governed by an agreement which contains certain terms
and provisions specified by the Rule. Under Rule 419, the Escrowed Funds and
Escrowed Securities will be released to Paragon and to the Stockholders,
respectively, only after Paragon has met the following three basic conditions.
First, Paragon must execute an agreement for an acquisition meeting certain
prescribed criteria. Second, Paragon must file a Post-Effective Amendment to its
registration statement which includes the terms upon which Subscription
18
Rights may be exercisable and contains certain conditions prescribed by Rule
419. The Post-Effective Amendment must also contain information regarding the
acquisition candidate and its business, including audited financial statements.
Third, Paragon must conduct the Subscription Period and satisfy all of the
prescribed conditions, including the condition that a certain minimum number of
stockholders elect to exercise their Subscription Rights. After Paragon submits
a signed representation to the Escrow Agent that the requirements of Rule 419
have been met and after the acquisition is consummated, the Escrow Agent can
release the Shares and Escrowed Funds.
Accordingly, Paragon has entered into an escrow agreement with Continental
Stock Transfer & Trust Company (the "Escrow Agent") which provides that:
(1) The net proceeds from the exercise of Subscription Rights are to be
deposited into an escrow account maintained by the Escrow Agent upon receipt
of the Subscription Price from subscribing Stockholders. The Escrowed Funds
and interest or dividends thereon, if any, are to be held for the sole
benefit of the Stockholders and can only be invested in bank deposits, in
money market mutual funds or federal government securities or securities for
which the principal and interest is guaranteed by the federal government.
(2) All shares issued in connection with the Distribution, including
Shares issuable upon the exercise of Subscription Rights and securities
issued with respect to stock splits, stock dividends or similar rights, are
to be deposited directly into the escrow account promptly upon issuance. The
identities of the Stockholders are to be included on the stock certificates
and Subscription Forms evidencing the Escrowed Securities. The Escrowed
Securities held in the escrow account are to remain as issued and deposited
and are to be held for the sole benefit of the Stockholders who retain the
voting rights, if any, with respect to the Escrowed Securities held in their
names. The Escrowed Securities held in the escrow account may not be
transferred, disposed of nor any interest created therein other than by will
or the laws of descent and distribution, or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986 or Table 1
of the Employee Retirement Income Security Act.
(3) The Subscription Rights held in the escrow account may be exercised
in accordance with their terms upon the filing of a Post-Effective Amendment
in compliance with Rule 419; provided, however, that the Shares received
upon exercise of the Subscription Rights together with any cash paid in
connection with the exercise are to be promptly deposited into the escrow
account. The Subscription Rights are non-transferable by their terms and
must be exercised or they will expire while held in escrow.
INFORMATION TO BE PROVIDED PURSUANT TO RULE 419
Rule 419 requires that before the Escrowed Funds and the Shares held in
escrow can be released, Paragon must first execute an agreement to acquire an
acquisition candidate meeting certain specified criteria. The agreement must
provide for the acquisition of a business or assets for which the fair value of
the business represents at least 80% of the maximum proceeds to be received from
the exercise of the Subscription Rights.
In the event Paragon identifies a proposed Business Combination meeting the
above criteria which requires the investment of funds by the Company, Paragon
will take steps necessary to activate the Subscription Rights. In connection
therewith, the Board of Directors will determine a Subscription Price (as
described below), and pursuant to the requirements of Rule 419, Paragon will
file a Post-Effective Amendment to this Prospectus describing a Target Business
or assets that will constitute the business (or a line of business). See
"Proposed Business." The Post-Effective Amendment will contain information about
the Target Business and its business(es), including audited financial
statements. Within five business days after the effective date of the
Post-Effective Amendment, the Escrow Agent will send by first class mail or
other equally prompt means, to each holder of Subscription Rights, a copy of the
Prospectus contained in the Post-Effective Amendment and any amendment or
supplement thereto along with Subscription Forms.
19
SUBSCRIPTION PRICE
The Subscription Price per Share will be determined by the Paragon Board of
Directors at the time a Business Combination is described in a Post-Effective
Amendment and will not in any event exceed $2.00 per Subscription Right. Such
price will be determined based on several factors, including funds necessary to
consummate the Business Combination, expenses of such transaction, operating
expenses and working capital needs of Paragon after consummation of the Business
Combination.
SUBSCRIPTION PERIOD
The Subscription Period will commence after the effective date of the
Post-Effective Amendment. In accordance with Rule 419, the exercise of
Subscription Rights will be subject to the following conditions:
(1) Each Stockholder will have no fewer than 20 and no more than 45
business days from the effective date of the Post-Effective Amendment to
notify Paragon in writing that the Stockholder elects to remain a
Stockholder, to exercise his or her Subscription Rights and in the event
they are exercising all of their Subscription Rights, whether they elect to
exercise the Over-Subscription Privilege.
(2) If Paragon does not receive written notification from the Stockholder
within 45 business days following the effective date of the Post-Effective
Amendment, the Stockholder's right to elect to subscribe shall terminate.
(3) The acquisition will be consummated only if Stockholders representing
80% of the proceeds to be received from the exercise of Subscription Rights
elect to subscribe.
(4) If the acquisition is not consummated within six months from the date
of the Post-Effective Amendment, the Escrowed Funds held in the escrow
account, if any, shall be returned to all Stockholders on a pro rata basis
within 5 business days by first class mail or other equally prompt means and
none of the Shares shall be released from the Escrow Account.
RELEASE OF ESCROWED SECURITIES AND ESCROWED FUNDS
The Escrowed Funds and Shares held in escrow may be released to Paragon and
the Stockholders, respectively, after:
(1) The Escrow Agent has received a signed representation from Paragon
and any other evidence acceptable by the Escrow Agent that:
(a) Paragon has executed an agreement for the acquisition of a
business or assets for which the fair value of the business represents at
least 80% of the maximum proceeds received from the exercise of
Subscription Rights, and has filed the required Post-Effective Amendment;
and
(b) The Post-Effective Amendment has been declared effective, and
that the Subscription Period has been completed.
(2) The acquisition of the business or assets with a fair value of at
least 80% of the maximum proceeds received from the exercise of the
Subscription Rights is consummated.
DISTRIBUTION AGENT
The Distribution Agent for Paragon is Continental Stock Transfer & Trust
Company. The Distribution Agent is also Paragon's transfer agent and escrow
agent. Stockholders may contact the Distribution Agent at Continental Stock
Transfer & Trust Company, 2 Broadway, 19th Floor, New York, NY 10004 (212)
509-4000.
20
OVER-SUBSCRIPTION PRIVILEGE
If some Stockholders of Paragon do not exercise all of the Subscription
Rights issued to them, then any Shares for which Subscription Rights have not
been exercised will be offered by means of the Over- Subscription Privilege to
those Stockholders of Paragon who have exercised all of the Subscription Rights
issued to them and who elect at the time they subscribe, to acquire additional
Shares. Stockholders who exercise all of the Subscription Rights issued to them
will be asked to indicate on the Subscription Form how many Shares they wish to
acquire through the Over-Subscription Privilege. There is no limit to the number
of Shares that may be requested through the Over-Subscription Privilege. If
sufficient Shares remain in excess of those for which Subscription Rights are
exercised, then all requests for additional Shares will be honored in full.
All requests to purchase Shares pursuant to the Over-Subscription Privilege
are subject to allocation. To the extent that there are not sufficient Shares to
honor all over-subscriptions, the available Shares will be allocated pro-rata
among those Stockholders of Paragon who over-subscribe based on the number of
Subscription Rights originally issued. The percentage of remaining Shares each
over-subscribing Stockholder may acquire may be rounded up or down to result in
delivery of whole Shares. The allocation process may involve a series of
allocations in order to ensure that the total number of Shares available for
over-subscriptions are distributed on a pro rata basis.
LISTING AND TRADING OF THE SHARES
No current public trading market for the Shares exists. The Subscription
Rights are non- transferable. Therefore, only the underlying Shares and not the
Subscription Rights, will be freely transferable upon release from escrow. The
extent of the market for the Shares and the prices at which the Shares may trade
after the Distribution cannot be predicted. See "Risk Factors -- Limited State
Registration; Restricted Resales of the Securities."
Once released from escrow, the Shares distributed to Paragon Stockholders
will be freely transferable, except for Shares received by persons who may be
deemed to be "affiliates" of Paragon under the Securities Act of 1933, as
amended (the "Securities Act"). Persons who may be deemed to be affiliates of
Paragon after the Distribution generally include individuals or entities that
control, are controlled by or are under common control with Paragon, and
includes the directors and principal executive officers of Paragon as well as
any principal stockholder of Paragon. Persons who are affiliates of Paragon will
be permitted to sell Shares only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act, such as the exceptions afforded by Section 4(2) of the
Securities Act and Rule 144 thereunder. It is not expected that Rule 144 will be
available for the sale of Shares by affiliates of Paragon until 90 days after
the effectiveness of Paragon's Registration Statement on Form 8-A registering
the Shares under the Securities Exchange Act of 1934 (the "Exchange Act").
RESULTS OF THE DISTRIBUTION
After the Distribution, Paragon will be an independent public company.
Immediately after the Distribution, Paragon expects to have approximately 1359
holders of record of the Shares and approximately 3,414,191 Shares outstanding,
based on the number of record stockholders and outstanding shares of St.
Lawrence common stock and the number of warrants or options to acquire shares of
St. Lawrence common stock exercisable as of March 21, 1997, and the distribution
ratio of one Share for every one share of St. Lawrence common stock. The actual
number of Shares to be distributed will be determined as of the Record Date. The
Distribution will not affect the number of outstanding shares of St. Lawrence
common stock or any rights of St. Lawrence stockholders.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
St. Lawrence has not requested nor does it intend to request a ruling from
the Internal Revenue Service as to the federal income tax consequence of the
Distribution. However, based on the facts of the proposed transaction, it is the
opinion of management of St. Lawrence that the transaction will not
21
qualify as a "tax free" spin off under Section 355 of the Internal Revenue Code
of 1986, as amended. Rather, the transaction is presumed to be a taxable
Distribution to which Section 301 applies. The amount of the Distribution will
be its fair market value and will be taxable as a dividend to the extent of
current or accumulated earnings and profits of St. Lawrence. Notwithstanding the
presumed taxability of the transaction, management is also of the opinion it
will have only minimal impact on the taxable income of any stockholder of St.
Lawrence for the reasons set forth below. Since Paragon is a development stage
company and has not commenced operations, it is not expected to have earnings or
profits as of the date of the Distribution. Furthermore, because there is no
public market for the Shares, the fair market value of the Shares and hence the
amount of the Distribution, will probably be minimal on the date of
Distribution. The net book value of Paragon on the date of the Distribution is
expected to be approximately $.02 per share. This is the probable amount of the
taxable value of the Distribution per share.
This discussion is limited to domestic non-corporate stockholders of Paragon
who hold Shares as "capital assets" within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"). The 1986 Act has
increased the maximum effective tax rate on long-term capital gains of
individuals for taxable years beginning after December 31, 1987, and has
eliminated any preferential tax rate for such long-term capital gains for
taxable years beginning after December 31, 1987. The Federal Income Tax
consequences to corporate shareholders, foreign shareholders and shareholders
having special status under the Code may vary from those set forth herein.
The foregoing sets forth the opinion of management. St. Lawrence will
distribute a Form 1099 or similar form to its stockholders which will also be
filed with the Internal Revenue Service basing the amount of the Distribution as
received by each stockholder on the net book value of Paragon on the date of the
Distribution. The Internal Revenue Service is not bound thereby and no assurance
exists that it will concur with the position of management regarding the value
of the stock or other matters herein discussed. Specifically, it is possible
that the Internal Revenue Service may assert that a substantially higher fair
market value existed for the stock on the date of Distribution. If the Internal
Revenue Service were to successfully assert that a substantially higher value
should be placed on the amount of the Distribution, the taxation of the
transaction to Paragon and its Stockholders would be based on such higher value.
In such event, the tax impact would increase significantly and would not be
minimal. St. Lawrence would recognize gain to the extent the value placed on the
amount of the Distribution exceeded its adjusted basis in the stock (which
approximates the net book value of Paragon). The stockholders of St. Lawrence
would be taxed on the amount so determined for the Distribution as a dividend to
the extent of any current year or accumulated earnings and profits of St.
Lawrence and would recognize gain on the balance of the Distribution to the
extent it exceeded their adjusted basis in Paragon's Shares owned by them.
The state, local and foreign tax consequences of the Distribution may vary
from jurisdiction to jurisdiction. Accordingly, each Stockholder of Paragon is
advised to consult his/her personal advisor.
22
PROPOSED BUSINESS
INTRODUCTION
Paragon was formed on June 19, 1996 to serve as a vehicle to effect a
Business Combination with a Target Business which Paragon believes has
significant growth potential. Paragon intends to utilize the net proceeds from
the exercise of the Subscription Rights, equity securities, debt securities,
bank borrowings or a combination thereof in effecting a Business Combination.
Paragon's efforts in identifying a prospective Target Business will be limited
to businesses primarily located in the United States. Paragon has not had any
negotiations with representatives of any entity regarding a Business
Combination. Paragon may effect a Business Combination with a Target Business
which may be financially unstable or in its early stages of development or
growth.
UNSPECIFIED INDUSTRY AND TARGET BUSINESS
Paragon will seek to acquire a Target Business primarily located in the
United States but its efforts will not be limited to a particular industry. In
seeking a Target Business, Paragon will consider, without limitation, businesses
which (i) offer or provide services or develop, manufacture or distribute goods
in the United States or abroad, including, without limitation, in the following
areas: health care and health products, educational services, environmental
services, consumer related products and services (including amusement and/or
recreational services), personal care services, voice and data information
processing and transmission and related technology development, (ii) are engaged
in wholesale or retail distribution, or (iii) engage in the financial services
or similar industries. None of Paragon's directors or executive officers has had
any negotiations with any entity or representatives of any entity regarding a
Business Combination. To the extent that Paragon effects a Business Combination
with a financially unstable company or an entity in its early stage of
development or growth (including entities without established records of
revenues or income), Paragon will become subject to numerous risks inherent in
the business and operations of financially unstable and early stage or potential
emerging growth companies. In addition, to the extent that Paragon effects a
Business Combination with an entity in an industry characterized by a high level
of risk, Paragon will become subject to the currently unascertainable risks of
that industry. An extremely high level of risk frequently characterizes certain
industries which experience rapid growth. Although management will endeavor to
evaluate the risks inherent in a particular Target Business or industry, there
can be no assurance that Paragon will properly ascertain or assess all such
risks.
PROBABLE LACK OF BUSINESS DIVERSIFICATION
As a result of the limited resources of Paragon, Paragon, in all likelihood,
will have the ability to effect only a single Business Combination. Accordingly,
the prospects for Paragon's success will be entirely dependent upon the future
performance of a single business. Unlike certain entities which have the
resources to consummate several Business Combinations of entities operating in
multiple industries or multiple segments of a single industry, it is highly
likely that Paragon will not have the resources to diversify its operations or
benefit from the possible spreading of risks or offsetting of losses. Paragon's
probable lack of diversification may subject Paragon to numerous economic,
competitive and regulatory developments, any or all of which may have a material
adverse impact upon the particular industry in which Paragon may operate
subsequent to a Business Combination. The prospects for Paragon's success may
become dependent upon the development or market acceptance of a single or
limited number of products, processes or services. Accordingly, notwithstanding
the possibility of capital investment in and management assistance to the Target
Business by Paragon, there can be no assurance that the Target Business will
prove to be commercially viable. Paragon has no present intention of purchasing
or acquiring a minority interest in any Target Business.
STOCKHOLDER APPROVAL OF BUSINESS COMBINATION
The Stockholders of Paragon will, in all likelihood, neither receive nor
otherwise have the opportunity to evaluate any financial or other information
which will be made available to Paragon in connection with selecting potential a
Target Business until after Paragon has entered into a definitive agreement to
effectuate a Business Combination. As a result, Stockholders of Paragon will be
almost entirely dependent on the judgment of management in connection with the
selection of a Target Business and the terms of any Business Combination.
23
Under the Delaware General Corporation Law, various forms of Business
Combinations can be effected without stockholder approval, such as where shares
of common stock are issued as consideration for the Target Business. In
addition, the form of Business Combination will have an impact upon the
availability of dissenters' rights (i.e., the right to receive fair payment with
respect to the Common Stock) to stockholders disapproving of the proposed
Business Combination. Under current Delaware law, only a merger or consolidation
may give rise to a stockholder vote and to dissenters' rights. The Delaware
General Corporation Law requires approval of certain mergers and consolidations
by a majority of the outstanding stock entitled to vote.
Even if investors are afforded the right to approve a Business Combination,
no dissenters' rights to receive fair payment will be available for stockholders
if Paragon is to be the surviving corporation unless the Certificate of
Incorporation of Paragon is amended and as a result thereof: (i) alters or
abolishes any preferential right of such stock; (ii) creates, alters or
abolishes any provision or right in respect of the redemption of such shares or
any sinking fund for the redemption or purchase of such shares; (iii) alters or
abolishes any preemptive right of such holder to acquire shares or other
securities; or (iv) excludes or limits the right of such holder to vote on any
matter, except as such right may be limited by the voting rights given to new
shares then being authorized of any existing or new class.
LIMITED ABILITY TO EVALUATE TARGET BUSINESS MANAGEMENT
Although Paragon's present management intends to scrutinize closely the
management of a prospective Target Business in connection with its evaluation of
the desirability of effecting a Business Combination with such Target Business,
there can be no assurance that Paragon's assessment of such management will
prove to be correct, especially in light of the possible inexperience of current
key personnel of Paragon in evaluating certain types of businesses. While it is
possible that certain of Paragon's directors or executive officers will remain
associated in some capacity with Paragon following a Business Combination, it is
unlikely that any of them will devote a substantial portion of their time to the
affairs of Paragon subsequent thereto. Moreover, there can be no assurance that
such personnel will have significant experience or knowledge relating to the
operations of the Target Business acquired by Paragon. Paragon may also seek to
recruit additional personnel to supplement the incumbent management of the
Target Business. There can be no assurance that Paragon will successfully
recruit additional personnel or that the additional personnel will have the
requisite skills, knowledge or experience necessary or desirable to enhance the
incumbent management. In addition there can be no assurance that the future
management of Paragon will have the necessary skills, qualifications or
abilities to manage a public Company embarking on a program of business
development. See "Proposed Business" and "Management."
COMPETITION
Paragon expects to encounter intense competition from other entities having
business objectives similar to those of Paragon. Many of these entities,
including venture capital partnerships and corporations, blind pool companies,
large industrial and financial institutions, small business investment companies
and wealthy individuals, are well-established and have extensive experience in
connection with identifying and effecting Business Combinations directly or
through affiliates. Many of these competitors possess greater financial,
technical, human and other resources than Paragon and there can be no assurance
that Paragon will have the ability to compete successfully. Paragon's financial
resources will be limited in comparison to those of many of its competitors.
This inherent competitive limitation may compel Paragon to select certain less
attractive Business Combination prospects. There can be no assurance that such
prospects will permit Paragon to achieve its stated business objectives. See
"Proposed Business."
SELECTION OF A TARGET BUSINESS AND STRUCTURING OF A BUSINESS COMBINATION
Management of Paragon will have substantial flexibility in identifying and
selecting a prospective Target Business. As a result, stockholders of Paragon
will be almost entirely dependent on the judgment of management in connection
with the selection of a Target Business. In evaluating a prospective Target
Business, management will consider, among other factors, the following: (i)
costs associated with
24
effecting the Business Combination; (ii) equity interest in and opportunity for
control of the Target Business; (iii) growth potential of the Target Business;
(iv) experience and skill of management and availability of additional personnel
of the Target Business; (v) capital requirements of the Target Business; (vi)
competitive position of the Target Business; (vii) stage of development of the
Target Business; (viii) degree of current or potential market acceptance of the
Target Business; (ix) proprietary features and degree of intellectual property
or other protection of the Target Business; and (x) the regulatory environment
in which the Target Business operates.
The foregoing criteria are not intended to be exhaustive and any evaluation
relating to the merits of a particular Target Business will be based, to the
extent relevant, on the above factors as well as other considerations deemed
relevant by management in connection with effecting a Business Combination
consistent with Paragon's business objectives.
In connection with Paragon's acquisition of a business, the executive
officers and certain directors of Paragon may, as a negotiated element of the
acquisitions, sell a portion or all of the Shares held by them at a significant
premium over their original investment in Paragon. As a result of such sales,
affiliates of the entity participating in the business reorganization with
Paragon would acquire a higher percentage of equity ownership in Paragon.
Although PAR Holding did not acquire its Shares with a view towards any
subsequent sale in connection with a Business Combination, it is not unusual for
affiliates of the entity participating in the Business Combination to negotiate
to purchase shares held by the present stockholders in order to reduce the
number of "restricted securities" held by persons no longer affiliated with
Paragon and thereby reduce the potential adverse impact on the public market in
the Shares that could result from substantial sales of such Shares after the
restrictions no longer apply. Public Stockholders will not receive any portion
of the premium that may be paid in the foregoing circumstances. Furthermore,
Paragon's Stockholders may not be afforded an opportunity to approve or consent
to any particular stock buy-out transaction. See "Management Conflicts of
Interest."
The time and costs required to select and evaluate a Target Business
(including conducting a due diligence review) and to structure and consummate
the Business Combination (including negotiating relevant agreements and
preparing requisite documents for filing pursuant to applicable securities laws
and state "blue sky" and corporation laws) cannot presently be ascertained with
any degree of certainty. Paragon's executive officers and its directors intend
to devote only a small portion of their time to the affairs of Paragon and,
accordingly, consummation of a Business Combination may require a greater period
of time than if Paragon's management devoted their full time to Paragon's
affairs. However, each officer and director of Paragon will devote such time as
they deem reasonably necessary to carry out the business and affairs of Paragon,
including the evaluation of potential Target Business and the negotiation of a
Business Combination and, as a result, the amount of time devoted to the
business and affairs of Paragon may vary significantly depending upon, among
other things, whether Paragon has identified a Target Business or is engaged in
active negotiation of a Business Combination.
Paragon anticipates that various prospective Target Businesses will be
brought to its attention from various non-affiliated sources, including
securities broker-dealers, investment bankers, venture capitalists, bankers,
other members of the financial community and affiliated sources, including,
possibly, Paragon's executive officers and directors and their affiliates.
Paragon may elect to publish advertisements in financial or trade publications
seeking potential business acquisitions. While Paragon does not presently
anticipate engaging the services of professional firms that specialize in
finding business acquisitions on any formal basis, Paragon may engage such firms
in the future, to which event Paragon may pay a finder's fee or other
compensation.
As a general rule, federal and state tax laws and regulations have a
significant impact upon the structuring of business combinations. Paragon will
evaluate the possible tax consequences of any prospective Business Combination
and will endeavor to structure the Business Combination so as to achieve the
most favorable tax treatment to Paragon, the Target Business and their
respective stockholders. There can be no assurance that the Internal Revenue
Service or relevant state tax authorities will ultimately assent to Paragon's
tax treatment of a particular consummated Business
25
Combination. To the extent that the Internal Revenue Service or any relevant
state tax authorities ultimately prevail in recharacterizing the tax treatment
of a Business Combination, there may be adverse tax consequences to Paragon, the
Target Business and their respective stockholders. Tax considerations as well as
other relevant factors will be evaluated in determining the precise structure of
a particular Business Combination, which could be effected through various forms
of a merger, consolidation or stock or asset acquisition.
Although Paragon has no commitments as of the date of this Prospectus to
issue any shares of Common Stock other than as described in this Prospectus,
Paragon may issue a substantial number of additional shares in connection with a
Business Combination. To the extent that such additional shares are issued,
dilution to the interests of Paragon's Stockholders may occur. Additionally, if
a substantial number of shares of Common Stock are issued in connection with a
Business Combination, a change in control of Paragon may occur which may affect,
among other things, Paragon's ability to utilize net operating loss carry
forwards, if any.
There currently are no limitations on Paragon's ability to borrow funds to
effect a Business Combination. However, Paragon's limited resources and lack of
operating history may make it difficult to borrow funds. The amount and nature
of any borrowings by Paragon will depend on numerous considerations, including
Paragon's capital requirements, potential lenders' evaluation of Paragon's
ability to meet debt service on borrowings and the then prevailing conditions in
the financial markets, as well as general economic conditions. Paragon does not
have any arrangements with any bank or financial institution to secure
additional financing and there can be no assurance that such arrangements if
required or otherwise sought, would be available on terms commercially
acceptable or otherwise in the best interests of Paragon. The inability of
Paragon to borrow funds required to effect or facilitate a Business Combination,
or to provide funds for an additional infusion of capital into a Target
Business, may have a material adverse effect on Paragon's financial condition
and future prospects, including the ability to effect a Business Combination. To
the extent that debt financing ultimately proves to be available, any borrowings
may subject Paragon to various risks traditionally associated with indebtedness,
including the risks of interest rate fluctuations and insufficiency of cash flow
to pay principal and interest. Furthermore, a Target Business may have already
incurred debt financing and, therefore, all the risks inherent thereto.
In implementing a structure for a particular Business Combination, Paragon
may become a party to a merger, consolidation, or other reorganization with
another corporation or entity, joint venture, license, purchase and sale of
assets, or purchase and sale of stock, the exact nature of which cannot now be
predicted. Notwithstanding the above, Paragon does not intend to participate in
a business through the purchase of minority stock positions. On the consummation
of a transaction, it is likely that the present management and Stockholders of
Paragon will not be in control of Paragon. In addition, a majority or all of
Paragon's directors and officers may, as part of the terms of the Business
Combination transaction, resign and be replaced by new directors and officers
without a vote of Paragon's Stockholders.
FACILITIES
Paragon will use the offices of PAR Holding Company, LLC, located at 277
Park Ave, New York, NY 10017, a limited liability company controlled by
Paragon's officers.
EMPLOYEES
As of the date of this Prospectus, Paragon does not have any employees.
26
USE OF PROCEEDS
The net proceeds payable to Paragon upon the exercise of Subscription Rights
will be held in an interest-bearing escrow account maintained by Continental
Stock Transfer & Trust Company, subject to release to Paragon upon written
notification by Paragon of its need for all or substantially all of the Escrowed
Funds for the purpose of facilitating the consummation of a Business
Combination. If a Business Combination is not consummated within 6 months from
the completion of the Subscription Period, the Escrowed Funds shall be returned
by first class mail or equally prompt means to all subscribing Stockholders,
together with interest earned thereon on a pro-rata basis.
Paragon will use the Escrowed Funds together with the interest earned
thereon principally in connection with consummating the Business Combination.
Paragon has no present intention of purchasing a minority interest in any Target
Business. Paragon does not have discretionary access to income with respect to
the monies in the Escrow Account. Stockholders of Paragon will not receive any
distribution of income or have any ability to direct the use or distribution of
such income.
To the extent that Shares of Paragon are used as consideration to effect a
Business Combination, the balance of the net proceeds from the exercise of the
Subscription Rights not theretofore expended will be used to finance the
operations of the Target Business, and for other purposes described in the
Post-Effective Amendment. Paragon has not incurred any debt in connection with
its organizational activities. Accordingly, no portion of the proceeds are being
used to repay debt. No compensation will be paid to any officer or director
until after the consummation of a Business Combination. Since the role of
present management after a Business Combination is uncertain, Paragon has no
ability to determine what remuneration, if any, will be paid to such persons
after a Business Combination.
The Escrowed Funds will be invested in general debt obligations of the
United States Government or other high-quality, short-term interest-bearing
investments; provided, however, that Paragon may attempt not to invest such net
proceeds in a manner which may result in Paragon being deemed to be an
investment company under the Investment Company Act. In the event a Business
Combination is not consummated in the time allowed, the Escrowed Funds and the
interest income derived from investment of such net proceeds will be returned on
a pro rata basis, to each subscribing Stockholder within five business days
thereafter by first class mail or other equally prompt means.
DILUTION
The difference between the Subscription Price per share of Common Stock
(through the exercise of the Subscription Rights) and the pro forma net tangible
book value per share of the Common Stock of Paragon after the Subscription
Period constitutes dilution to investors of Paragon. Net tangible book value per
share is determined by dividing the net tangible book value of Paragon (total
tangible assets less total liabilities) by the number of outstanding shares of
Common Stock.
On December 31, 1996, Paragon had 2,900,000 Shares of Common Stock
outstanding and a net tangible book value of $61,767 or $.02 per share. Giving
effect to the issuance of 514,191 Shares of Common Stock to St. Lawrence for
$.01 per share as of December 31, 1996, Paragon would have 3,414,191 shares of
Common Stock outstanding and a net tangible book value of $66,908 or $.02 per
share.
The Distribution by St. Lawrence of the 514,191 Shares to St. Lawrence
stockholders will not have an effect on the net tangible book value of Paragon.
Dilution from the exercise of Subscription Rights will occur only in the event
the Board of Directors of Paragon establish a Subscription Price per share of
less than $.02. The dilutive effect to Paragon stockholders of the exercise of
Subscription Rights will be reflected in a Post-Effective Amendment which will
establish the purchase price per share under the Subscription Rights. The Board
of Directors of Paragon does not anticipate setting a Subscription Price per
share of less than $.02 and therefore, the estimated net proceeds from the
exercise of Subscription Rights will likely result in an immediate increase in
net tangible book value per share.
27
CAPITALIZATION
The effect of the exercise of Subscription Rights will be reflected in a
Post-Effective Amendment which will establish the purchase price under the
Subscription Rights. The following table sets forth the capitalization of
Paragon at December 31, 1996 and as adjusted to give effect to the purchase by
St. Lawrence of 514,191 shares of Common Stock of Paragon for a total purchase
price of $5,141 in March, 1997.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------ ---------
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 Shares authorized; none
issued or outstanding 0 0
Common Stock $.01 par value, 20,000,000 shares authorized, 2,900,000
shares issued and outstanding, 3,414,191 shares issued and
outstanding, pro forma $ 29,000 $ 34,141
Additional Paid In Capital 121,000 121,000
Deficit accumulated during the development stage (7,560) (7,560)
-------- --------
Total stockholders' equity $142,440 $147,581
======== ========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Paragon is a newly organized development stage company, the objective of
which is to acquire an operating business in the United States. To date,
Paragon's efforts have been limited to organizational activities.
In June, 1996, the Company issued 2,900,000 shares of its Common Stock for a
purchase price of $75,000 in cash and a Promissory Note for $75,000 originally
due on or before July 31, 1996. Such Promissory Note was subsequently modified
to provide for payment on demand by Paragon, in whole or in part, in amounts to
pay expenses associates with the Distribution. The Promissory Note was paid in
full on December 27, 1996. In March, 1997, the Company issued 514,191 shares of
Common Stock for an aggregate purchase price of $5,141.
Substantially all of Paragon's working capital needs subsequent to this
offering will be attributable to the identification, evaluation and selections
of a Target Business and, structuring, negotiating and consummating a Business
Combination. Such working capital needs are expected to be satisfied from the
$155,141 received by Paragon from PAR Holding and St. Lawrence.
28
MANAGEMENT
The officers and directors of Paragon, and further information concerning
them are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mitchell A. Kuflik 33 President, Assistant Secretary, Director
Peter A. Hochfelder 34 Vice President, Treasurer, Director
Robert J. Sobel 33 Vice President, Director
Joseph F. Mazzella 44 Secretary, Director
</TABLE>
Mitchell A. Kuflik has been President, Assistant Secretary and a Director of
Paragon since its inception. Mr. Kuflik has been Vice President and Secretary of
Brahman Securities, Inc., an institutional brokerage firm since December, 1987;
Vice President of Brahman Capital Corp., an investment banking firm since 1990;
and a general partner of Brahman Partners, a private limited partnership, since
1991. All of such entities are located in New York. Mr. Kuflik also serves as a
director of Covenant Insurance Company, a privately-held company in Cambridge
Massachusetts. Mr. Kuflik earned an A.B. in Economics from Harvard University in
1984.
Peter A. Hochfelder has been a Vice President, Treasurer and Director of
Paragon since inception. Mr. Hochfelder has been Vice President and Treasurer of
Brahman Securities, Inc., an institutional brokerage firm since December, 1987;
President of Brahman Capital Corp., an investment banking firm since 1990; and a
general partner of Brahman Partners, a private limited partnership, since 1991.
All of such entities are located in New York. Mr. Hochfelder earned a B.S.
degree in Economics from the University of Pennsylvania in 1984.
Robert J. Sobel has been a Vice President and a Director of Paragon since
inception. Mr. Sobel has served as President of Brahman Securities, Inc., an
institutional securities firm since 1987; Vice President of Brahman Capital
Corp., an investment banking firm since 1990; and a general partner of Brahman
Partners, a private investment partnership, since 1991. All of such entities are
located in New York. Mr. Sobel earned a bachelor's degree with a major in
International Relations and a concentration at the Wharton School of Business
from the University of Pennsylvania in 1985.
Joseph F. Mazzella has been Secretary and a Director of Paragon since
inception. Since 1985, Mr. Mazzella has been a partner at the law firm of Lane
Altman & Owens LLP in Boston, Massachusetts. Prior to joining Lane Altman &
Owens LLP in 1980, Mr. Mazzella was an attorney with the Securities and Exchange
Commission. Mr. Mazzella serves as a Director and Chairman of the Compensation
Committee of Alliant Techsystems Inc., a NYSE listed company. Mr. Mazzella
received a B.S. degree from the College of the City of New York in 1974 and
received his law degree from Rutgers University School of Law in 1977.
MANAGEMENT REMUNERATION
No director or officer of Paragon has received any cash compensation from
Paragon since its inception for services rendered. Prior to the consummation of
a Business Combination, none of Paragon's officers or directors will receive any
compensation except that Paragon may reimburse such officers or directors for
any out-of-pocket expenses incurred in connection with activities on behalf of
Paragon. None of Paragon's officers or directors will receive any consulting or
finder's fees or other compensation in connection with introducing Paragon to,
or evaluating, a Target Business or consummating a Business Combination. A law
firm of which Joseph F. Mazzella, a director of Paragon, is a partner has
performed services in connection the Distribution and may do so in connection
with a Business Combination. Paragon has no plan, agreement, or understanding,
express or implied, with any officer, director, or promoter, or their affiliates
or associates, regarding the issuance to such persons of any authorized and
unissued Share of Paragon, and Paragon is unaware of any circumstance under
which Shares would be issued to such persons. There is no understanding between
Paragon and any of its present stockholders regarding the sale of a portion or
all of the Shares currently held by them
29
in connection with any future participation by Paragon in a Business
Combination. There are no other plans, understandings, or arrangements whereby
any of Paragon's officers, directors, principal stockholders, or promoters, or
any of their affiliates or associates, would receive funds, stock or other
assets in connection with Paragon's participation in a Business Combination. No
advances have been made or contemplated by Paragon to any of its officers,
directors, principal stockholders, or promoters, or any of their affiliates or
associates.
ADVISORS AND FINDERS FEES
There are no current plans to engage a finder or consultant to identify a
Target Business. If such advisors, were used however, compensation to a finder
or business acquisition firm may take various forms, including one-time cash
payments, payments based on a percentage of revenues or product sales volume,
payments involving issuance of securities (including those of Paragon), or any
combination of these or other compensation arrangements. Consequently, Paragon
is currently unable to predict the cost of utilizing such services, but
estimates that any fees for such services paid in cash will not exceed 10% of
the gross proceeds of this offering and/or equity securities (not debt) equal to
10% of the amount of the securities issued by Paragon to acquire a business. The
Board of Directors has not accepted any policies regarding the use of advisors,
their identities or possible compensation, including any policy prohibiting the
payment, either directly or indirectly, of any finder's fee or similar
compensation to any person who has served as an officer or director of Paragon
prior to the acquisition.
CONFLICTS OF INTEREST
Each of the officers and directors of Paragon has other professional and
business interests to which he devotes his primary attentions.
Paragon has no arrangement, understanding, or intention to enter into any
transaction or participate in any business venture with any officer, director,
or principal stockholder or with any firm or business organization with which
they are affiliated, whether by reason of stock ownership, position as officer
or director, or otherwise.
In connection with Paragon's acquisition of a business, Paragon's officers
and directors, may, as a negotiated element of the acquisition, sell a portion
or all of the Shares held by them at a significant premium over their original
investment. A conflict of interest is inherent in this situation since Paragon's
officers and directors will be negotiating for the acquisition on behalf of
Paragon and for sale of Shares for their own benefit. Management has not adopted
any policy for resolving the foregoing potential conflicts, should they arise.
A conflict of interest may arise between management's personal pecuniary
interests and its fiduciary duty to the stockholders of Paragon. Investors
should note that PAR Holding will own approximately 85% of Paragon after the
Distribution is completed and would therefore have continuing control of
Paragon. Further, management's interest in their own pecuniary benefits may at
some point compromise their fiduciary duty to Paragon's stockholders. No
proceeds from this offering will be used to purchase directly or indirectly any
shares of the Common Stock owned by management or any present stockholder,
director or promoter. See "Management."
OTHER BLANK CHECK COMPANIES
Management has not been and is not involved with any blank check companies
other than Paragon and currently does not expect to organize, purchase or
otherwise promote any other companies with a structure and purposes similar to
Paragon's, if at all, until after Paragon identifies a Target Business with
which it seeks to effect a Business Combination. In the event Management's
intention changes, or they otherwise become affiliated with a blank check
company, then conflicts of interest may arise regarding competing searches for
Business Combinations.
30
PRINCIPAL STOCKHOLDERS
As of the date of this Prospectus, PAR Holding and St. Lawrence are the only
shareholders of Paragon. The following table sets forth information on March 21,
1997 and as adjusted to reflect the Distribution of Shares based on information
obtained from the persons named below, with respect to beneficial ownership of
Shares of Common Stock by (i) each person known by Paragon to be the owner of
more than 5% of the outstanding shares of Common Stock, (ii) each director and
(iii) all executive officers and directors as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
SHARES OF COMMON STOCK(1)
-------------------------
AMOUNT AND
NATURE OF
BENEFICIAL BEFORE AFTER
NAME AND ADDRESS OWNERSHIP DISTRIBUTION DISTRIBUTION(1)
---------------- ----------- ------------ ---------------
<S> <C> <C> <C>
PAR Holding Company, LLC 2,900,000 85% 85%
277 Park Avenue
New York, NY 10017
St. Lawrence Seaway Corporation 514,191 15% 0
320 N. Meridian Street
Suite 818
Indianapolis, IN 46204
Mitchell A. Kuflik(2) 2,900,000(3) 85% 85%
Peter A. Hochfelder(2) 2,900,000(3) 85% 85%
Robert J. Sobel(2) 2,900,000(3) 85% 85%
All executive officers and directors as a group
(3 persons) 2,900,000 85% 85%
</TABLE>
- --------
(1) The effect of the exercise of Subscription Rights will be reflected in a
Post-Effective Amendment.
(2) Each of the individuals listed has an address in care of Paragon.
(3) Ownership by Messrs. Kuflik, Hochfelder and Sobel is indirect as a result of
their membership interest in PAR Holding. Messrs. Kuflik, Hochfelder and
Sobel disclaim individual beneficial ownership of any Common Stock of
Paragon.
CERTAIN TRANSACTIONS
In June, 1996, Paragon issued 2,900,000 shares of its Common Stock, $.01 par
value, to PAR Holding for a purchase price of $150,000, consisting of $75,000 in
cash and a Promissory Note for $75,000 originally due on July 31, 1996. Such
Promissory Note was subsequently modified to provide for payment on demand of
Paragon, in whole or in part, in amounts to pay expenses associated with the
Distribution. The Promissory Note was paid in full on December 27, 1996. In
March, 1997, Paragon issued 514,191 Shares of its Common Stock, $.01 par value,
to St. Lawrence for a purchase price of $5,141 in cash.
31
DESCRIPTION OF CAPITAL STOCK
Paragon was organized as a Delaware corporation on June 19, 1996 with
original authorization to issue up to 100,000 shares of Common Stock and
1,000,000,000 shares of Preferred Stock. In order to reduce certain annual state
filing fees, in June, 1996 Paragon's authorized capital was reduced to
20,000,000 shares of Common Stock, par value $.01 per share, and 1,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"). The
following statements relating to the capital stock of Paragon are summaries and
do not purport to be complete. Reference is made to the more detailed provisions
of, and such statements are qualified in their entirety by reference to, the
Certificate of Incorporation (the "Certificate") and the By-laws of Paragon,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part.
COMMON STOCK
Holders of Common Stock will be entitled to one vote per share with respect
to all matters required by law to be submitted to holders of Common Stock. The
Common Stock will not have cumulative voting rights. The Certificate provides
that any action required to be taken or that may be taken at an annual or
special meeting of stockholders may be taken by written consent in lieu of a
meeting of stockholders.
Subject to the prior rights of holders of Preferred Stock, if any, holders
of the Common Stock will be entitled to receive such dividends as may be
lawfully declared by the Board of Directors of Paragon. See "Dividend Policy."
Upon any dissolution, liquidation or winding up of Paragon, whether voluntary or
involuntary, holders of the Common Stock are entitled to share ratably in all
assets remaining after the liquidation payments have been made on all
outstanding shares of Preferred Stock, if any.
Upon the Distribution, the shares of the Common Stock offered hereby will be
fully paid and nonassessable. The Common Stock will not have any preemptive,
subscription or conversion rights (except for the Subscription Rights defined
herein). Under Paragon's Certificate, the Board of Directors of Paragon has the
authority to issue additional shares of Common Stock. Paragon believes that the
Board's ability to issue additional shares of Common Stock could facilitate
certain financings and acquisitions and provide a means for meeting other
corporate needs that might arise. The authorized but unissued shares of Common
Stock will be available for issuance without further action by Paragon's
Stockholders, unless stockholder action is required by applicable law or the
rules of any stock exchange or system on which the Common Stock may then be
listed. The Board's ability to issue additional shares of Common Stock could,
under certain circumstances, either impede or facilitate the completion of a
merger, tender offer or other takeover attempt.
SUBSCRIPTION RIGHTS
Paragon will issue and distribute one non-transferable Subscription Right
for each share of Common Stock to be distributed to stockholders of St. Lawrence
pursuant to the Distribution. Until a Subscription Right is exercised pursuant
to the terms of the Distribution, the holder thereof, as such, will have no
rights as a stockholder of Paragon, including the right to vote or receive
dividends. Each Subscription Right entitles the holder thereof to subscribe for
and purchase from Paragon two (2) authorized but heretofore unissued shares of
Paragon's Common Stock for each Subscription Right held. The Subscription Rights
will be evidenced by Subscription Forms. Stockholders who fully exercise their
Subscription Rights will be entitled to the additional privilege of subscribing,
subject to certain limitations and subject to allocation or increase, for any
Shares not acquired by exercise of Subscription Rights (the "Over-Subscription
Privilege"). No fractional Subscription Rights will be issued and no fractional
shares will be issued upon exercise of Subscription Rights. Subscription Rights
are non-transferable and will not be admitted for trading or quotation on any
exchange and therefore may not be purchased or sold. Subscription Rights must be
exercised within the Subscription Period or they will expire at the end of such
period. Only persons who are stockholders of Paragon on the Record Date may hold
Subscription Rights.
32
PREFERRED STOCK
Paragon is authorized to issue up to 1,000,000 shares of Preferred Stock
without further stockholder approval. The shares of Preferred Stock may be
issued in one or more series, with the number of shares of each series and the
rights, preferences and limitations of each series to be determined by the Board
of Directors. Among the specific matters that may be determined by the Board of
Directors are dividend rights, if any, redemption rights, if any, the terms of a
sinking or purchase fund, if any, the amount payable in the event of any
voluntary liquidation, dissolution or winding up of the affairs of Paragon,
conversion rights, if any, and voting powers, if any.
The issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holder to block such a transaction, or facilitate a Business Combination by
including voting rights that would provide a required percentage vote of the
stockholders. In addition, under certain circumstances, the issuance of
Preferred Stock could adversely affect the voting power of the holders of the
Common Stock. Although the Board of Directors is required to make any
determination to issue such stock based on its judgment as to the best interests
of the stockholders of Paragon, the Board of Directors could act in a manner
that would discourage an acquisition attempt or other transaction that some, or
a majority, of the stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock over the then
market price of such stock. The Board of Directors does not at present intend to
seek stockholder approval prior to any issuance of currently authorized stock,
unless otherwise required by law or stock exchange rules. Paragon has no present
plans to issue any Preferred Stock.
DIVIDENDS
Paragon does not expect to pay dividends prior to the consummation of a
Business Combination. Future dividends, if any, will be contingent upon
Paragon's revenues and earnings, if any, capital requirements and governmental
financial conditions subsequent to the consummation of a Business Combination.
The payment of dividends subsequent to a Business Combination will be within the
discretion of Paragon's then Board of Directors. Paragon presently intends to
retain all earnings, if any, for use in Paragon's business operations and
accordingly, the Board does not anticipate declaring any dividends in the
foreseeable future.
LEGAL MATTERS
The legality of the securities being registered by this Registration
Statement is being passed upon by Lane Altman & Owens LLP, of which Joseph F.
Mazzella, a Director of Paragon, is a partner.
EXPERTS
The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the period set forth in their report appearing elsewhere herein, and is
included in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.
33
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Financial Statements:
Balance Sheet F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7 to F-8
</TABLE>
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
PARAGON ACQUISITION COMPANY, INC.
New York, NY
We have audited the accompanying balance sheet of Paragon Acquisition
Company, Inc. (a corporation in the development stage) as of December 31, 1996,
and the related statements of operations, stockholders' equity and cash flows
for the period from June 19, 1996 (inception) to December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paragon Acquisition Company
at December 31, 1996, and the results of its operations and its cash flows for
the period from June 19, 1996 (inception) to December 31, 1996 in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
New York, New York
February 28, 1997
F-2
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
ASSETS
<S> <C>
Current assets -- cash $ 78,767
Deferred registration costs 80,673
---------
$ 159,440
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities -- accrued expenses $ 17,000
---------
Commitment (Note 4)
Stockholders' equity (Notes 2, 5 and 6):
Preferred stock, $.01 par value shares -- authorized 1,000,000;
none issued --
Common stock, $.01 par value shares -- authorized 20,000,000:
outstanding 2,900,000 29,000
Additional paid-in capital 121,000
Deficit accumulated during the development stage (7,560)
---------
Total stockholders' equity $ 142,440
---------
Total liabilities and stockholders' equity $159,440
=========
</TABLE>
See accompanying notes to financial statements.
F-3
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 19, 1996
(INCEPTION) TO
DECEMBER 31, 1996
-----------------
<S> <C>
General and administrative expenses $ 7,560
-----------
Net loss for the period $ 7,560
===========
Net loss per share $ (0.00)
-----------
Weighted average common shares outstanding 2,900,000
===========
</TABLE>
See accompanying notes to financial statements.
F-4
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JUNE 19, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
------ ------ ------- ----- ------
<S> <C> <C> <C> <C> <C>
Issuance of founders' shares 2,900,000 $29,000 $121,000 -- $150,000
Net loss for the period -- -- -- $(7,560) $ (7,560)
--------- ------- -------- ------- --------
Balance December 31, 1996 2,900,000 $29,000 $121,000 $(7,560) $142,440
========= ======= ======== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-5
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 19, 1996
(INCEPTION) TO
DECEMBER 31, 1996
-----------------
<S> <C>
Cash flows from operating activities:
Net loss $ (7,560)
---------
Cash flows from financing activities:
Proceeds from sale of common stock to founding stockholders $ 150,000
Deferred registration costs $ (63,673)
---------
Net cash provided by financing activities $ 86,327
---------
Net increase in cash 78,767
---------
Cash, beginning of period --
---------
Cash, end of period $ 78,767
=========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company incurred $17,000 during the period ended December 31, 1996 in
deferred registration costs (and related accounts payable) which are non-cash
financing activities.
See accompanying notes to financial statements.
F-6
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109
("FAS 109), "Accounting for Income Taxes." FAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. The Company has net operating
loss carry forwards of approximately $7,600 available to reduce any future
income taxes. The tax benefit of these losses, approximately $3,000 has been
offset by a valuation allowance due to the uncertainty of its realization.
Deferred Registration Costs
As of December 31, 1996, the Company has incurred deferred registration
costs of $80,673 relating to expenses incurred in connection with the Proposed
Distribution (see Note 2). Upon consummation of this Proposed Distribution, the
deferred registration costs will be charged to equity. Should the Proposed
Distribution prove to be unsuccessful, these deferred costs, as well as
additional expenses to be incurred, will be charged to operations.
Net Loss Per Share
Net loss per common share is computed on the basis of the weighted average
number of common shares outstanding during the period.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ORGANIZATION AND BUSINESS OPERATIONS
Paragon Acquisition Company, Inc. (the "Company") was incorporated in
Delaware on June 19, 1996 to serve as a vehicle to effect a merger, exchange of
capital stock, asset acquisition or other business combination, the "Business
Combination") with an operating business (the "Target Business"). At December
31, 1996, the Company had not yet commenced any formal business operations and
all activity to date relates to the Company's formation and proposed fund
raising. The Company's fiscal year end is December 31.
The Company's ability to commence operations is contingent upon its ability
to identify a prospective Target Business and raise the capital it will require
through the issuance of equity securities, debt securities, bank borrowings or a
combination thereof. The Company intends to obtain adequate financial resources
through the registration of a distribution of shares of its Common Stock and
Subscription Rights to its shareholders the ("Proposed Distribution"). The
Subscription Rights will entitle the holder to purchase two (2) shares of Common
Stock of the Company for each Subscription Right held for a purchase price to be
determined by the Company's Board of Directors at the time a Business
Combination is identified, such price to be not more than $2.00 per Subscription
Right.
F-7
PARAGON ACQUISITION COMPANY, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. ORGANIZATION AND BUSINESS OPERATIONS -- (CONTINUED)
Subscription Rights will not be exercisable until after a Post-Effective
Amendment to the Form S-1 Registration Statement filed by the Company with the
Securities and Exchange Commission describes a Business Combination, establishes
the Subscription Price and the number of Subscription Rights which may be
exercised in such Subscription Period and specifies the Subscription Period
established by the Company. The Shares to be distributed to the shareholders,
the Subscription Rights and any Shares issuable upon exercise of Subscription
Rights will be held in escrow and may not be sold or transferred until the
Company has consummated a Business Combination. After the Business Combination
is consummated, the Shares will be released from escrow.
Due to the terms of the Proposed Distribution, the Company has not
established a time period within which to exercise the Subscription Rights as
such exercise is dependent upon the identification of a Target Business. The
Company anticipates that, due to the time constraints imposed on the management
of the Company, it is not possible to predict the length of the identification
process.
3. PROPOSED DISTRIBUTIONS
The Proposed Distribution calls for the Company to register the 514,191
shares of Common Stock being distributed to the stockholders of St. Lawrence
Seaway Corporation (a public corporation who will distribute the stock to its
shareholders) and 6,828,382 shares of Common Stock for issuance upon the
exercise of the Subscription Rights. The Subscription Price will be established
by the Board of Directors and will be no more than $2.00 per Subscription Right.
4. COMMITMENT
The Company presently occupies office space provided by a stockholder. Such
stockholder has agreed that, until the acquisition of a Target Business by the
Company, it will make such office space, as well as certain office and
secretarial service, available to the Company, as may be required by the Company
from time to time at no charge.
5. PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock with
such designations, voting and other rights and preferences as may be determined
from time to time by the Board of Directors.
6. COMMON STOCK
On June 25, 1996 the company issued 2,900,000 shares of Common Stock, par
value $.01 per share, to PAR Holding Company, LLC for a consideration of
$150,000. The Company intends to issue a further 514,191 shares of Common Stock,
par value $.01 per share, to St. Lawrence Seaway Corporation for a total
consideration of $5,141.
F-8
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT
BE RELIED ON AS HAVING BEEN AUTHORIZED BY PARAGON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PARAGON SINCE THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
SOLICITATION OF ANY OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL FOR ANY SUCH PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER,
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information 2
Prospectus Summary 3
Investors' Rights and Substantive Protection
Under Rule 419 7
The Company 9
Risk Factors 11
The Distribution 18
Proposed Business 23
Use of Proceeds 27
Dilution 27
Capitalization 28
Management's Discussion and Analysis of
Financial Condition and Results of Operations 28
Management 29
Principal Stockholders 31
Certain Transactions 31
Description of Capital Stock 32
Legal Matters 33
Experts 33
Index to Financial Statements F-1
</TABLE>
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UNTIL 90 DAYS AFTER THE RELEASE OF THE REGISTERED SECURITIES FROM THE ESCROW
ACCOUNT, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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PARAGON ACQUISITION
COMPANY, INC.
514,191 SHARES OF COMMON STOCK AND
SUBSCRIPTION RIGHTS TO PURCHASE
6,828,382 SHARES OF COMMON STOCK
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PROSPECTUS
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MARCH 21, 1997
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