<PAGE> 1
As filed with the Securities and Exchange Commission on April 5, 1999
Registration No. 333-_______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ALYDAAR SOFTWARE CORPORATION
(Exact name of Registrant as specified in its charter)
NORTH CAROLINA 7372 87-0399301
- ------------------------------ --------------------------- ---------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation organization) Classification Code Number) Identification
Number)
2101 Rexford Road, Suite 250W
Charlotte, North Carolina 28211
(704) 365-2324
(Address, including zip code and telephone number,
including area code, of Registrant's
principal executive offices)
----------------------
J. Dain Dulaney
ALYDAAR SOFTWARE CORPORATION
2101 Rexford Road, Suite 250 W
Charlotte, North Carolina 28211
(704) 365-2324
(Name, address, including zip code and telephone number, including area code,
of agent for service)
----------------------
COPY TO:
Jeffrey S. Hay
McGUIRE WOODS BATTLE & BOOTHE LLP
100 North Tryon Street
Suite 2900
Charlotte, North Carolina 28202
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
<PAGE> 2
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Proposed
Maximum Proposed
Title of Each Offering Maximum
Class of Securities Amount to be Price Per Aggregate Offering Amount of
to be Registered Registered(2) Share(1) Price Registration Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock of Alydaar Software
Corporation (par value $.001 per share) 1,566,088 $5.3906 $8,442,154 $2,347
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee,
based on the average of the high and low sales prices of the
Registrant's Common Stock, par value $.001 per share (the "Common
Stock"), as reported on the Nasdaq National Market on April 1, 1999 in
accordance with Rule 457 under the Securities Act of 1933.
(2) Includes shares of Common Stock which may be offered pursuant to this
Registration Statement issuable upon conversion of $5,000,000 in
aggregate principal amount of the Registrant's 6% Convertible
Exchangeable Debentures (the "Debentures") (or shares of the
Registrant's preferred stock (the "Preferred Shares") for which the
Debentures are exchanged pursuant to their terms) and upon exercise of
warrants to purchase up to 50,000 shares of Common Stock (the
"Warrants"). The number of shares of Common Stock included in this
Registration Statement is based on 175% of the sum of (i) the number of
shares subject to the Warrants plus (ii) the estimated number of shares
of Common Stock issuable in connection with the conversion of the
Debentures or the Preferred Shares (based on an assumed conversion
price of $5.9474 which is 104% of the average closing price of the
Common Stock reported on the Nasdaq National Market for the 5
consecutive trading days ending April 1, 1999). Because of the
possibility of antidilution adjustments to the conversion price of the
Debentures (or the Preferred Shares if issued) (which is based on the
market price of the Common Stock), the number of shares of Common Stock
issuable upon such conversion or exercise and subject to this
Registration
<PAGE> 3
Statement is indeterminate and this Registration Statement relates,
pursuant to Rule 416 under the Securities Act of 1933, as amended, to
the resale of such entire indeterminate number of shares of Common
Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 4
SUBJECT TO COMPLETION, DATED APRIL 5, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
1,566,088 Shares
Alydaar Software Corporation
--------------------
Common Stock
($0.001 par value)
-------------------------------------------
This prospectus relates to the public offering of shares of our common
stock by the selling stockholder. These shares may be issued to the selling
stockholder on conversion of our debentures (or our preferred stock exchanged
for these debentures) or exercise of our warrants owned by the selling
stockholder. We will not receive any of the proceeds from the sale of the
shares. We will pay all expenses of registration incurred in connection with
this offering, but the selling stockholder will pay all of its selling
commissions, brokerage fees and related expenses.
The selling stockholder has advised us that it will sell the shares
from time to time in the open market, on the Nasdaq Stock Market, in privately
negotiated transactions or a combination of these methods, at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or otherwise as described under "Plan of
Distribution."
Our common stock is traded on the Nasdaq National Market (Nasdaq
Symbol: ALYD). On April 1, 1999, the closing price of the common stock was
$5 5/16 per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
-------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------------------------
The date of this prospectus is April __, 1999.
1
<PAGE> 5
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information that we file at the Securities
and Exchange Commission's public reference room at 450 Fifth Street N.W.,
Washington, D.C. 20549 or at its regional public reference rooms in New York,
New York and Chicago, Illinois. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the operations and
locations of the public reference rooms. Our Securities and Exchange Commission
filings are also available to the public from commercial document retrieval
services and at the Internet World Wide Web site maintained by the Securities
and Exchange Commission at "http://www.sec.gov."
This prospectus is a part of a registration statement we filed with the
Securities and Exchange Commission. As allowed by the rules of the Securities
and Exchange Commission, this prospectus does not contain all of the information
that can be found in the registration statement or in the exhibits to the
registration statement. You should read the registration statement and its
exhibits for a complete understanding of all of the information included in the
registration statement.
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this prospectus, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference becomes part of this prospectus, and information that
we file later with the Securities and Exchange Commission will automatically
update and supercede this information. We incorporate by reference the documents
listed below that we have previously filed with the Securities and Exchange
Commission:
1. Annual Report on Form 10-K for the fiscal year ended
December 31, 1998; and
2. The description of our capital stock set forth in our Form 10
filed with the Securities and Exchange Commission on March 31,
1997.
We also incorporate by reference in this prospectus additional
documents that we may file with the Securities and Exchange Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this prospectus. These include periodic reports, such as annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K.
You may obtain the documents incorporated by reference as described
above. You may also request a copy of these filings, at no cost, from us by
writing or telephoning us at:
Alydaar Software Corporation
2101 Rexford Road, Suite 250 W
Charlotte, North Carolina 28211
(704) 365-2324
2
<PAGE> 6
RISK FACTORS
In evaluating our business, prospective investors should carefully
consider the following risks in addition to the other information in this
prospectus or in the documents referred to in this prospectus. Any of the
following risks could materially adversely impact our business, operating
results and financial condition and result in a complete loss of your
investment.
The statements made in in this prospectus, including the information
incorporated by reference, that are not historical facts contain
"forward-looking information" within the meaning of the Private Securities
Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, both as amended, which can
be identified by the use of forward-looking terminology such as "may", "will",
anticipates", "expects", "projects", "estimates", "believes" or "continue", the
negative thereof, other variations or comparable terminology. Important factors,
including certain risks and uncertainties with respect to such forward-looking
statements that could cause actual results to differ materially from those
reflected in such forward looking statements include, but are not limited to,
the risk factors discussed below.
Risk Factors - Generally Applicable to Our Business
We Are Dependent On Our New Strategic Direction To Replace Revenues From Our
Year 2000 Business. Until the completion of our announced acquisitions, we will
derive substantially all of our revenues from our Year 2000 business. We
anticipate that the Year 2000 business will begin to decline, perhaps
dramatically, after December 31, 1999. In order for us to sustain our growth and
viability after December 31, 1999, we entered into agreements to acquire Data
Systems, Tumble and the Metaphoria software. The successful implementation of
the acquisitions of Data Systems, Tumble, Metaphoria software and other possible
acquisitions are dependent on a number of factors, including our ability to
assimilate the operations, personnel, and technology of the acquired companies
and technologies, and our ability to provide sufficient capital either from
internally generated revenues or external sources to properly fund the
integration and future growth of the combined entities. We may not be successful
in the integration of these entities. Also, if we do not complete any of these
acquisitions, we will need to seek other acquisitions or business combinations
to replace the revenues generated by our Year 2000 business. If we are unable to
complete the announced acquisitions or find other sources of revenues, it could
have a materially adverse affect on our stock trading price, prospects and
financial condition.
Our Future Results Will Depend On Our Ability To Manage Change. We have
experienced substantial growth and expansion in our business and operations
since our inception. We expect to continue to experience periods of rapid change
as we implement our new strategic direction and integrate acquisitions.
Continued expansion places significant demands on our administrative,
operational, financial, and other resources. The failure of our management team
to successfully manage the changing business could have a material adverse
impact on our business, results of operations and financial condition.
Our Quarterly Results Are Subject To Significant Fluctuations. We have
experienced significant quarterly fluctuations in revenues and operating
3
<PAGE> 7
results, including the fourth quarter of 1998, and expect these fluctuations to
continue in the future. These fluctuations may occur and have occurred due to a
number of factors including:
- -- the length of customer's evaluation process for our services;
- -- sales pipeline disruption caused by a major restructuring of the sales
and marketing departments during the third and early fourth quarters of
1998;
- -- changes in the mix of Y2K services from higher price remediation
services to lower price validation services;
- -- the timing and cost of new product and service introductions;
- -- the timing of any acquisitions and associated costs; and
- -- general economic conditions.
Furthermore, these fluctuations could materially and adversely affect the price
of our Common Stock in future quarters if our revenues or operating results are
below expectations.
Our Recent And Planned Acquisitions And Financing Are Dilutive To Existing
Stockholders. We will issue common stock to complete each of our recent and
planned acquisitions and in connection with our debenture financing (See
"Selling Stockholder"). Our debentures are convertible into shares of our common
stock based on the trading prices of the common stock in the future. The
conversion price of the debentures is adjusted monthly based on the trade price
of our common stock. If the trading price of the common stock is low when the
conversion price of the debentures is determined, we would be required to issue
a higher number of shares of common stock, which could cause substantial
dilution to our stockholders. In addition, if the debenture holders convert
their debentures and sell the common stock, this could result in an imbalance of
supply and demand for our common stock and reduce its price. The further our
stock price declines, the further the monthly adjustment of the conversion price
will fall and the greater the number of shares we will have to issue upon
conversion. The Data Systems acquisition is structured with a minimum price per
share of $6.00. If the average price per share for the ten trading days
immediately prior to closing of this acquisition is less than $6.00 per share,
then we are required to issue the number of shares equivalent to $9,666,282.
These transactions and any future acquisitions or financing requiring additional
issuances of our common stock could be dilutive.
Our Debenture Financing Limits Our Ability To Enter Future Transactions And The
Debenture Holders Can Require Us To Redeem The Debentures At A Premium If
Certain Events Happen. In March 1999, we raised $3 million by issuing
debentures, which are convertible into shares of our common stock. The
debentures and related agreements contain significant covenants. These covenants
may limit our ability to enter into future transactions, including financing
transactions and transactions involving a change in control or acquisition of
us. The debenture holders can require us to redeem the debentures at a premium
if certain events happen, including:
- -- If we breach the representations, warranties and covenants contained in
the debentures and related agreements;
- -- If the Securities and Exchange Commission does not declare the
registration statement covering the common stock issuable upon
conversion of the debentures effective by the 120th day after the
registration statement is filed; or
- -- If we are acquired by a third party.
4
<PAGE> 8
The redemption price will be 125% of the outstanding principal amount if certain
events within our control occur and also after certain change of control
transactions. The redemption price will be 110% if certain events not within our
control occur and following certain other change of control transactions. If the
debentures become redeemable, we may not be able to pay the redemption price.
Even if we are able to redeem the Debentures, the redemption payments could be
substantial and this could have a material adverse effect on our business and
financial condition.
We May Need To Raise Additional Capital. If we decide to expand more rapidly
than currently anticipated or we do not materially meet our revenue projections,
we may need to raise additional capital. Any additional equity financing will be
dilutive to stockholders, and debt financing will involve restrictive covenants,
which may limit our operating flexibility. If financing is not available on
acceptable terms, we may be unable to develop or enhance our products, take
advantage of future opportunities, or respond to competitive pressures, or
unanticipated requirements. The occurrence of any of these factors could have a
material adverse effect on our business, financial condition, and operating
results.
If We Are Unable To Adequately Protect Our Intellectual Property Rights Or If
Our Intellectual Property Rights Are Challenged, Our Business Could Suffer. Our
success depends significantly upon our proprietary technology. We currently
protect our proprietary rights through a combination of patent, copyright,
trademark, trade secret law, confidentiality agreements and contractual
provisions. Certain provisions of our client agreements, including provisions
protecting against unauthorized use, copying, transfer and disclosure, may be
unenforceable under the laws of certain jurisdictions. We are also required to
negotiate limits on these provisions from time to time. We may not be able to
adequately deter misappropriation of proprietary information or to detect
unauthorized use and take appropriate steps to enforce our intellectual property
rights.
In recent years, litigation involving patents and other intellectual property
rights has increased. Certain patents may cover solutions to the Y2K Problem. We
believe that we are either not using these patented solutions or have utilized
such solutions prior to the patent filing date. Regardless, we may be a party to
litigation in the future to protect our intellectual property or for allegedly
infringing other intellectual property rights. Such litigation may force us to
do one or more of the following:
- -- Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- -- Obtain from the holder of the infringed intellectual property a license
to sell or use the relevant technology, which license may not be
available on reasonable terms; and
- -- Redesign our affected products or services.
The occurrence of any of these factors could materially and adversely impact our
operations and results.
We Face Potential Liability To Clients From Our Year 2000 Business. There is
increasing litigation arising out of failures or potential failures in computer
systems arising out of the Y2K Problem. To date, we are not a party to any
litigation arising out of a Y2K failure. We have attempted to limit our
5
<PAGE> 9
liability for Y2K claims through provisions in our contracts with customers,
limiting our damages, generally providing no warranties on our services through
the Year 2000, and disclaiming all other warranties. These contractual
protections may not be enforceable in all instances, and may not otherwise
protect us from the substantial costs involved in defending a Y2K claim. We
currently self-insure against the possibility of these costs. In the event we
become a party to any such litigation, the cost of defending such litigation or
adverse outcome could materially adversely affect our business, results of
operations and financial condition.
We May Not Be Able To Respond To Rapid Technological Change. Rapid technological
change characterizes the markets for Internet professional services and Y2K
services. Our future success will depend significantly on our ability to improve
our existing services and products, offer new services, enhance our recently
acquired products and develop, acquire and market new products and services. Our
failure to adequately and timely respond to changing technology could result in
material adverse effects to our business and operations.
Our Stock Price Has Been Volatile And We Have Not Paid, And Do Not Plan To Pay,
Cash Dividends. Since our inception we have not paid, and do not intend to pay,
any cash dividends on our common stock in the foreseeable future. Historically,
our common stock's price and trading volume has fluctuated widely. We expect
this fluctuation to continue in the future for a number of reasons, including
the following:
- -- Our success or failure in meeting market expectations of our quarterly
or annual revenues, net income or earnings per share;
- -- Our or competitor's announcements regarding new services and products
or technological innovations;
- -- Stock prices for many technology companies fluctuate widely for reasons
that may be unrelated to operating results;
- -- Changing market conditions in the industry; and
- -- Announcements of unusual events such as acquisitions.
Fluctuations in the market price of our stock may, in turn, adversely affect our
ability to complete any planned acquisitions, our access to capital and
financing and our ability to attract and retain qualified personnel, all of
which could have a material adverse effect on our business.
We May Be Adversely Affected If We Lose Key Personnel. Our success depends
largely on the skills, experience and performance of some key members of our
senior management and technical personnel. The loss of one or more of these key
personnel could have a materially adverse effect on the business.
Our Results May Be Adversely Affected By Our International Operations. Our
international sales, primarily in France, England and the rest of Europe
attributed approximately 18% of our total consolidated revenues for the year
ended December 31, 1998. We anticipate that international business will account
for a significant portion of our revenues in 1999. The risks inherent in
international markets, include:
- -- unexpected changes in regulatory requirements;
- -- difficulties in staffing and managing foreign operations;
- -- political instability;
- -- potentially adverse tax consequences;
6
<PAGE> 10
- -- potentially adverse differences in business customs, practices and
norms;
- -- differences in accounting practices;
- -- longer payment cycles;
- -- problems in collecting accounts receivable;
- -- fluctuations in currency exchange rates; and
- -- seasonal reductions in business activity during the summer months in
Europe.
Any of these could adversely impact the success of our international operations.
The factors described above may have an adverse effect on our future
international revenues and, consequently, on our business, results of operations
and financial condition.
Mr. Gruder Exercises Significant Control Over Us. Mr. Gruder, our Chief
Executive Officer and Chairman of the Board, is presently the beneficial owner
of approximately 40% of our outstanding common stock. Although Mr. Gruder's
ownership will be diluted as a result of planned acquisitions and financing, Mr.
Gruder will continue to be in a position to influence the election of directors
and generally to direct our affairs including certain significant corporate
actions such as acquisitions, the sale or purchase of assets and the issuance
and sale of our securities.
We Face Intense Competition For Year 2000 Services. Our Y2K services have
intense competition from two different sources: Remediation performed in-house
and Remediation and Validation software and services offered by direct
competitors. Many of our competitors are better established, have existing
relationships with customers and have far greater resources than us. As a result
of this competition, our revenues for Y2K services could decrease which would
have a materially adverse effect on our business, financial conditions, results
of operations and prospects.
Risk Factors - New Strategic Direction
We May Be Adversely Affected If We Are Not Able To Attract And Retain Qualified
Professionals. The future success of our new strategic direction will depend on
our ability to attract, train, motivate and retain personnel who provide the
Internet strategy, technology, marketing, and creative skills required by
clients. We believe that there is a shortage of, and significant competition
for, professionals with the advanced technological skills necessary to perform
the services offered by our new Internet services. We also intend to transfer
current employees from our Y2K business to our new Internet business. The
transition will require training in new technology and new skills sets
applicable to Internet technology. Once trained, such individuals will be in
higher demand because of their new skill set. Additionally, not all of our
current personnel will be able to acquire the skills necessary to transition to
our new business. We cannot be certain that we will be successful in attracting,
assimilating, transitioning or retaining qualified technological personnel in
the future. Our failure to do so could have a materially adverse affect on our
ability to deliver and enhance our services.
We May Not Be Able to Develop Successful Products. We recently acquired and plan
to develop new software products designed to facilitate communication and
commerce over the Internet. This software is in a development stage and will
require significant expenditures of resources to complete the development
effort. These products will involve a new approach to the conduct of online
7
<PAGE> 11
business and as a result, intensive marketing and sales efforts may be necessary
to educate prospective customers regarding the uses and benefits of our
products. We cannot be certain that we will successfully develop and market new
products, new product enhancements or new products compliant with present or
emerging Internet technology standards. Any delays in developing and releasing
enhanced or new products could have a materially adverse effect on our business,
operating results and financial condition.
We Will Face Intense Competition In The Internet Market. The market for Internet
professional services and products is relatively new, intensely competitive and
subject to rapid technological change. There is competition on two distinct
levels: (i) from in-house development efforts by potential customers and (ii)
third party competitors. Our third party competitors include service vendors,
advertising and media agencies, large information technology consulting service
providers, telecommunications companies, Internet and online service providers
and software vendors. Many of our current and potential competitors have longer
operating histories, established name recognition, longer relationships with
clients and significantly greater financial, technical, marketing and public
relations resources. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to enhance their products or services. Also, businesses may not
elect to outsource the design, development and maintenance of their Websites or
utilize Internet professional services firms. All of these factors could have a
material adverse effect on our business, financial condition, results of
operations and prospects.
Future Regulations Could Be Enacted That Either Directly Restrict Our Business
Or Indirectly Impact Our Business By Limiting The Growth of Internet Commerce.
We are not aware of any legislation or regulatory requirements currently in
effect in the United States that regulate Internet commerce. Certain other
countries and political entities, however, such as the European Economic
Community, have adopted legislation and regulatory requirements that regulate
Internet commerce. As Internet commerce evolves, we expect that federal, state,
local or foreign agencies will adopt regulations covering issues such as user
privacy, pricing, content and quality of products and services, freedom of
expression, taxation, advertising, intellectual property rights, information
security or the convergence of traditional communications services with Internet
communications. If enacted, such laws, rules or regulations could restrict the
market or increase the costs for our products and services, which could
materially adversely affect our business, financial condition and operating
results.
THE COMPANY
We are presently engaged in the business of providing
software-reengineering services. These services include (i) the correction and
validation of existing mainframe computer software systems' ability to manage
the Year 2000 problem and (ii) software conversion services, such as language
translations and migrations. In October 1998, we also announced a new strategic
direction, establishing an Internet services business providing management
consulting, design, development and deployment for enterprise information
portals. Through this new strategic direction, we plan to assist organizations
in transforming their existing information systems architecture to support
scalable and flexible architecture for Internet, Intranet and Extranet
applications. Our executive offices are located at 2101 Rexford Road, Charlotte,
North Carolina 28211. Our telephone number at that address is (704) 365-2324.
8
<PAGE> 12
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares offered by
the selling stockholder.
SELLING STOCKHOLDER
The selling stockholder received or will receive the shares offered by
this prospectus upon conversion of our 6% Convertible Exchangeable Debentures
(the "Debentures") (or shares of our Series A convertible preferred stock (the
"Preferred Shares") for which the Debentures are exchanged pursuant to their
terms) or exercise of warrants (the "Warrants") to purchase common stock. The
selling stockholder holds no shares of common stock other than those offered
pursuant to this prospectus. If Preferred Shares are issued in exchange for
Debentures, the terms of the Preferred Shares and the common stock issuable on
conversion of the Preferred Shares will be the same, in all material respects,
as those described in this prospectus for the Debentures.
On March 5, 1999, we entered into an agreement with the selling
stockholder pursuant to which it agreed to invest up to $10 million in our
company. The investment will be made in up to three installments. The first
installment for $3 million was completed on March 5, 1999. The second
installment for $2 million will automatically fund upon certain conditions being
met. At our option and provided certain conditions are met, a third installment
for $5 million may be funded on September 2, 1999 or up to six months
thereafter. In exchange for the investment, the selling stockholder will receive
warrants to purchase up to 100,000 shares of our common stock and up to
$10,000,000 in principal amount of Debentures which are exchangeable, at our
option and upon shareholder approval, into Preferred Shares. In the first
installment, we issued the selling stockholder $3,000,000 in principal amount of
Debentures and Warrants to purchase 30,000 shares of our common stock. Upon the
closing of the second installment, the selling stockholder will receive an
additional $2,000,000 in principal amount of Debentures and Warrants to purchase
20,000 shares of common stock. This prospectus covers common stock issuable upon
conversion or exercise of Debentures and Warrants issued in the first
installment and upon conversion or exercise of the Debentures and Warrants to be
issued in the closing of the second installment.
The following table sets forth the aggregate number of shares of common
stock held by the selling stockholder and offered by the selling stockholder
hereunder and the percentage of all shares of common stock held by the selling
stockholder after giving effect to the offering (based on 17,610,085 shares of
common stock outstanding as of February 24, 1999). The share numbers set forth
in the table below include an aggregate of 50,000 shares of common stock
issuable upon the exercise of the Warrants held by the selling stockholder and
to be issued to the selling stockholder on the closing of the second
installment, and an estimated 844,907 shares issuable upon conversion of the
Debentures held by the selling stockholder and to be issued to the selling
stockholder on the closing of the second installment. The estimated number of
shares issuable upon conversion of the Debentures is based on an estimated
conversion price of $5.9474 per share of common stock, which would have been the
applicable conversion price of the Debentures had all of the shares been
converted into common stock on April 2, 1999 (based on the conversion price in
effect on April 2, 1999). The actual number of shares of common stock issuable
upon conversion of the Debentures currently is indeterminable, is subject to
adjustment and could be materially less or more than such estimated number
depending on factors which cannot be predicted by us at this time, including,
9
<PAGE> 13
among other factors, the future market price of the common stock. However, the
number of shares issuable upon exercise of the Warrants and conversion of the
Debentures is initially limited to 19.99% of the outstanding shares of common
stock on the date of issuance of the Debentures, or 3,520,256 shares, unless we
obtain shareholder approval of the issuance of additional shares of common stock
upon exercise of the Warrants and conversion of the Debentures. Because of the
possibility of antidilution adjustments to the conversion price of the
Debentures (which is based on the market price of the common stock), or that the
number of shares of common stock outstanding increases due to a stock split or
dividend, the number of shares of common stock issuable upon such conversion or
exercise and subject to this prospectus is indeterminate and this prospectus
relates to the resale of such entire indeterminate number of shares of common
stock. Other than the ownership of our securities, the selling stockholder has
had no material relationship with us within the past three years.
<TABLE>
<CAPTION>
Number of Shares Percent of Outstanding
Name of Selling Beneficially Owned Number of Shares Common Stock Owned After
Stockholder Before Offering (1) Offered Offering (2)
- --------------- ------------------- ---------------- ------------------------
<S> <C> <C>
Marshall Capital
Management, Inc. 894,907 (3) 1,566,088 (4)
</TABLE>
- ------------------------
(*) Less than 1%.
1. No holder of Debentures or Warrants is entitled to convert or exercise
such securities or to receive dividends thereon in shares of common
stock to the extent that such conversion, exercise or payment of
dividends would cause such holder to own beneficially more than 4.99%
of the common stock then outstanding. Accordingly, the number of shares
of common stock set forth herein and which the selling stockholder may
sell pursuant to this prospectus may exceed the number of shares of
common stock the selling stockholder beneficially owns as determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
2. Because the selling stockholder may offer all or some of the common
stock pursuant to the offering contemplated by this prospectus, no
estimate can be given as to the amount of shares of common stock that
will be held by the selling stockholder after completion of this
offering. See "Plan of Distribution."
3. Includes 844,907 shares of common stock issuable upon the conversion of
the Debentures held by the selling stockholder and to be issued to the
selling stockholder on the closing of the second installment and 50,000
shares of common stock issuable upon the exercise of Warrants held by
the selling stockholder and to be issued to the selling stockholder on
the closing of the second installment.
4. The number of shares of common stock registered pursuant to the
registration statement and the number of shares of common stock offered
hereby by the selling stockholder have been determined by agreement
between us and the selling stockholder.
10
<PAGE> 14
PLAN OF DISTRIBUTION
The selling stockholder has advised us that the common stock may be
sold or distributed from time to time by the selling stockholder, directly to
one or more purchasers (including pledgees) or through brokers, dealers or
underwriters who may act solely as agents or may acquire common stock as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, at negotiated prices, or at fixed prices,
which may be changed. The common stock may be sold by one or more of the
following distribution methods: (i) ordinary brokers' transactions, which may
include long or short sales; (ii) transactions involving cross or block trades,
or otherwise on the Nasdaq National Market; (iii) purchases by brokers, dealers
or underwriters as principal and resale by such purchasers for their own
accounts pursuant to this prospectus; (iv) "at the market" to or through market
makers or into an existing market for the common stock; (v) in other ways not
involving market makers or established trading markets, including direct sales
to purchasers or sales effected through agents; (vi) through transactions in
options, swaps or other derivatives (whether exchange-listed or otherwise);
(vii) pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"); or (viii) any combination of the foregoing, or by any other
legally available means. In addition, the selling stockholder may enter into
hedging transactions with broker-dealers who may engage in short sales of common
stock in the course of hedging the positions they assume with the selling
stockholder. The selling stockholder may also enter into option or other
transactions with broker-dealers that require the delivery by such
broker-dealers of the common stock, which common stock may be resold thereafter
pursuant to this prospectus. In connection with any sales, the selling
stockholder and any brokers or dealers participating in such sales may be deemed
to be underwriters within the meaning of the Securities Act. We will receive no
part of the proceeds of sales made hereunder.
Any broker-dealer participating in such transactions as agent may
receive commissions from the selling stockholder and/or purchasers of the shares
offered hereby (and, if it acts as agent for the purchaser of such shares, from
such purchaser). Usual and customary brokerage fees will be paid by the selling
stockholder. Broker-dealers may agree with the selling stockholder to sell a
specified number of shares at a stipulated price per share, and, to the extent
such a broker-dealer is unable to do so acting as agent for the selling
stockholder, to purchase as principal any unsold shares at the price required to
fulfill the broker-dealer commitment to the selling stockholder. Broker-dealers
who acquire shares as principal may thereafter resell such shares from time to
time in transactions (which may involve cross and block transactions and which
may involve sales to and through other broker-dealers, including transactions of
the nature described above) in the over-the-counter market, in negotiated
transactions or otherwise at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
from the purchasers of such shares commissions computed as described above.
We have advised the selling stockholder that Regulation M promulgated
under the Exchange Act may apply to its sales in the market, have furnished the
selling stockholder with a copy of this regulation and have informed it of the
need for delivery of copies of this prospectus. The selling stockholder may
indemnify any broker-dealer that participates in transactions involving the sale
of the shares against certain liabilities, including liabilities arising under
the Securities Act. Any commissions paid or any discounts or concessions allowed
to any such broker-dealers, and any profits received on the resale of such
shares, may be deemed to be underwriting discounts and commissions under the
11
<PAGE> 15
Securities Act if any such broker-dealers purchase shares as principal. We have
agreed to indemnify the selling stockholder against certain liabilities,
including liabilities under the Securities Act.
Any shares of common stock which qualify for sale pursuant to Rule 144
under the Securities Act may be sold under that Rule rather than pursuant to
this prospectus.
There can be no assurance that the selling stockholder will sell any or
all of the shares of common stock offered by them hereunder.
LEGAL MATTERS
The validity of the common stock offered pursuant to this prospectus
and certain other legal matters will be passed upon for us by McGuire, Woods,
Battle & Boothe LLP, Charlotte, North Carolina.
EXPERTS
The financial statements appearing in our Annual Report (Form 10-K) for
the year ended December 31, 1998, have been audited by Holtz Rubenstein & Co.,
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
12
<PAGE> 16
We have authorized no one to give any information or to make any representations
that are not contained in this prospectus. You should rely only on the
information incorporated by reference or provided in this prospectus. You must
not rely on any unauthorized information.
This prospectus does not offer to sell or buy any shares in any jurisdiction
where it is unlawful. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of this
document.
================================================================================
-----------------
TABLE OF CONTENTS
-----------------
Page
----
Where You Can Find More Information....................................... 2
Risk Factors.............................................................. 3
The Company............................................................... 8
Use of Proceeds........................................................... 9
Selling Stockholder....................................................... 9
Plan of Distribution...................................................... 10
Legal Matters............................................................. 11
Experts................................................................... 11
================================================================================
1,566,088 SHARES
[ALYDAAR SOFTWARE
CORPORATION]
COMMON STOCK
--------------
PROSPECTUS
--------------
APRIL ___, 1999
================================================================================
<PAGE> 17
ALYDAAR SOFTWARE CORPORATION
REGISTRATION STATEMENT ON FORM S-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item
Number
- ------
Item 14 Other Expenses of Issuance and Distribution.
The following table sets forth costs and expenses of the sale and
distribution of the securities being registered. All amounts except Securities
and Exchange Commission fees are estimates.
Registration Statement--Securities and Exchange Commission.. $2,347
Accounting fees............................................. $5,000
Legal fees ................................................. $30,000
Miscellaneous............................................... $653
Total....................................................... $38,000
Item 15 Indemnification of Directors and Officers.
Reference is made to the North Carolina Business Corporation Act, G.S.
55-8-52 and 55-8-56, which provides that unless limited by its articles of
incorporation, a North Carolina corporation must indemnify a director or officer
who has been wholly successful, on the merits or otherwise, in the defense of
any actual or threatened proceeding to which he was, or was threatened to be
made, a party because he is or was a director or officer of the corporation.
This statutory right of indemnification covers all reasonable expenses incurred
by the officer or director in connection with the proceeding, including counsel
fees.
A North Carolina corporation can eliminate an individual's statutory
right to indemnification. However, the Registrant's Bylaws provide that
directors and officers shall have the right to be indemnified "to the fullest
permitted by law" and further provide that expenses incurred by an officer or
director shall be paid in advance of the final disposition of any investigation,
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Registrant.
In addition, a North Carolina corporation may, but is not required to,
indemnify a director or officer against liability who has been named or
threatened to be named a party to a proceeding because he is or was acting in
that capacity if the officer or director (i) conducted himself in good faith,
(ii) had the reasonable belief that his conduct was in the corporation's best
interests if he was acting in his official capacity, or if not acting in an
official capacity, a reasonable belief that his conduct was not opposed to the
corporation's best interests, and (iii) in the case of a criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. A North Carolina
corporation may also purchase and maintain insurance on behalf of an officer or
director against liability incurred by him in that capacity, whether or not the
<PAGE> 18
corporation would have the power to indemnify him under the statutory provisions
of North Carolina.
Item 16 Exhibits.
Exhibit
Number
------
5.1 Opinion of McGuire, Woods, Battle & Boothe LLP.
23.1 Consent of Holtz Rubenstein & Co., LLP, independent auditors.
23.2 Consent of McGuire, Woods, Battle & Boothe LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (contained on page II-4 hereof).
Item 17 Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(a) to include any prospectus required by Section 10(a)(3) of
the Securities Act;
(b) to reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b), if in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(c) to include any material information with respect to the
plan of distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;
provided, however, that the undertakings set forth in paragraphs (a) and (b)
above shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that are incorporated by reference in
this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
<PAGE> 19
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Alydaar Software Corporation, a corporation organized and existing
under the laws of the State of North Carolina, certifies that it has reasonable
cause to believe that it meets all of the requirements for filing on Form S-3
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Charlotte, State of
North Carolina, on the 5th day of April, 1999.
ALYDAAR SOFTWARE CORPORATION
By: /s/ ROBERT F. GRUDER
-------------------------------------
Robert F. Gruder
Chief Executive Officer and Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Robert F. Gruder and Frank G. Milligan,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendment to this
Registration Statement on Form S-3, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on April 5, 1999 by the following
persons on behalf of the Registrant and in the capacities indicated.
SIGNATURE TITLE DATE
- -------------------------- -------------------------- -------------
/s/ ROBERT F. GRUDER Chief Executive Officer April 5, 1999
- ---------------------- and Chairman of the Board
(Robert F. Gruder) (Principal Executive Officer)
/s/ FRANK G. MILLIGAN President and Director April 5, 1999
- ----------------------
(Frank G. Milligan)
/s/ MICHAEL RACANIELLO Principal Financial and April 5, 1999
- ---------------------- Accounting Officer
(Michael Racaniello)
/s/ THOMAS J. DUDCHIK Senior Vice President and April 5, 1999
- ---------------------- Director
(Thomas J. Dudchik)
/s/ RICHARD J. BLUMBERG Director April 5, 1999
- ----------------------
(Richard J. Blumberg)
<PAGE> 21
INDEX TO EXHIBITS
Exhibit
Number
- ------
5.1 Opinion of McGuire, Woods, Battle & Boothe LLP.
23.1 Consent of Holtz Rubenstein & Co., LLP, independent auditors.
23.2 Consent of McGuire, Woods, Battle & Boothe LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (contained on Page II-4).
- ------------------------------
<PAGE> 1
EXHIBIT 5.1
MCGUIRE, WOODS,
BATTLE & BOOTHE LLP
2900 Bank of America Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28202
Telephone (704) 373-8999 -- Fax (704) 373-8990
April 5, 1999
Board of Directors
Alydaar Software Corporation
2101 W. Rexford Road
Charlotte, NC 28211
Ladies and Gentlemen:
We are acting as counsel to Alydaar Software Corporation, a North
Carolina corporation (the "Company"), in connection with the preparation,
execution and filing with the Securities and Exchange Commission (the
"Commission"), under the Securities Act of 1933, as amended (the "Act"), of a
Registration Statement on Form S-3 (the "Registration Statement") and the offer
and sale pursuant to the Registration Statement, by the Selling Stockholder
identified in the Registration Statement, of up to 1,566,088 shares (the
"Shares") of Common Stock, par value $0.001 per share, of Alydaar. The Shares
are issuable upon the conversion of the Company's 6% Convertible Exchangeable
Debentures (the "Debenture") and upon the exercise of Warrants (the "Warrants"),
in each case as further described in the Registration Statement. This opinion
letter is furnished to you for filing with the Commission pursuant to Item 601
of Regulation S-K promulgated under the Act.
In reaching the opinion stated in this letter, we have reviewed
originals of copies of the Registration Statement, the Articles of Incorporation
and Bylaws of Alydaar, both as amended to date, and such other documents as we
have considered relevant. We have assumed that (i) all information contained in
all documents reviewed by us is correct, (ii) all signatures on all documents
reviewed by us are genuine, (iii) all documents submitted to us as originals are
true and complete, (iv) all documents submitted to us as copies are true and
complete copies of the originals thereof, (v) each natural person signing any
document reviewed by us had the legal capacity to do so and (vi) each natural
person signing in a representative capacity any document reviewed by us had
authority to sign in such capacity.
Based upon the foregoing, it is our opinion that the Shares, when
issued in the manner described in the Registration Statement, will be duly and
validly issued, fully paid and nonassessable.
The opinion expressed above is limited to matters governed by the laws
of the State of North Carolina. We express no opinion herein about the effect of
federal or state securities laws or the laws of any other jurisdiction.
<PAGE> 2
We hereby consent to the use of this opinion letter as Exhibit 5.1 to
the Registration Statement and to the use of our name under the heading "Legal
Matters" therein. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission promulgated thereunder.
This opinion letter speaks as of the date hereof. We disclaim any duty
to advise you regarding any change subsequent to the date hereof in, or to
otherwise communicate with you with respect to, the matters addressed herein.
Very truly yours,
/s/ McGuire, Woods, Battle & Boothe LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement on Form S-3 of our report
dated February 23, 1999 (except for Note 15b, as to which the date is March 5,
1999), with respect to the consolidated financial statements of Alydaar Software
Corporation (the "Company") included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, and to the reference to us under the
heading "Experts" in the Prospectus which is part of such Registration
Statement.
/s/ HOLTZ RUBENSTEIN & CO., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
April 5, 1999
