PROSPECTUS
COMMERCE GROUP CORP.
1,398,601 Shares of Common Stock
($.10 par value)
The estimated 1,398,601 shares (the "Shares") of Common Stock, par value
$.10 per share (the "Common Stock") of Commerce Group Corp., a Delaware
corporation (the "Company") are being offered by the selling stockholders (the
"Selling Stockholders"). The Company will not receive any proceeds from the sale
of Common Stock by the Selling Stockholders. See "Selling Stockholders." The
expenses of the offering, estimated at $20,000, will be paid by the Company.
The Common Stock currently trades on the Boston Stock Exchange under the
symbol CMG or CMG.BN and on NASDAQ under the symbol "CGCO." On March 26, 1997,
the last sale price of the Common Stock as reported on NASDAQ was $2.75 per
share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PURCHASE OF THESE SECURITIES INVOLVES RISKS.
See Risk Factors.
The date of this Prospectus is March 26, 1997
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No person has been authorized in connection with this offering to give any
information or to make any representation other than as contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities covered by this Prospectus in any state or other jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such state
or jurisdiction. Neither the delivery of this Prospectus nor any sales made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company since the date hereof.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, as well as proxy statements and
other information filed by the Company with the Commission, can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its Regional
Offices located at 7 World Trade Center, New York, New York 10048, and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, Washington, D.C. 20549, during regular
business hours and from the Boston Stock Exchange. The Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding issuers such as the Company that file electronically with
the Commission at http.//www.sec.gov.
This Prospectus incorporates by reference the Company's Form 10-K for the
year ended March 31, 1996, the Company's Quarterly Reports on Form 10-Q for the
quarters ended June 30, 1996, September 30, 1996 and December 31, 1996, the
Company's Current Report on Form 8-K dated January 30, 1997, and the description
of securities included in the Company's Registration Statement on Form 10, File
No. 1-7375, and all other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c) or 14 of the Exchange Act prior to the termination of
the offering made hereby. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in its entirety by such reference. The Company will provide, without charge upon
oral or written request of any person, a copy of any information incorporated by
reference herein. Such request should be directed to the Company at 6001 North
91st Street, Milwaukee, Wisconsin 53225-1795, telephone (414) 462-5310.
INDEMNIFICATION
Pursuant to the Company's Certificate of Incorporation, as amended, the
Company may indemnify each of its directors and officers with respect to all
liability and loss suffered and reasonable expense incurred by such person in
any action, suit or proceeding in which such person was or is made or threatened
to be made a party or is otherwise involved by reason of the fact that such
person is or was a director of the Company. In addition, the Company may pay the
reasonable expenses of indemnified directors and officers incurred in defending
such proceedings if the indemnified party agrees to repay all amounts advanced
should it be ultimately determined that such person is not entitled to
indemnification.
In addition, as permitted by the Delaware General Corporation Law, the
Company's Certificate of Incorporation provides that the Company's directors
will not be held personally liable to the Company or its stockholders for
monetary damages for a breach of fiduciary duty as a director except to the
extent such exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Law. This provision does not eliminate
the duty of care, and injunctive or other forms of non-monetary equitable relief
will remain available under Delaware law. In addition, each director continues
to be liable for monetary damages for (i) misappropriation of any corporate
opportunity in violation of the director's duties, (ii) acts or omissions in bad
faith or involving intentional misconduct, (iii) knowing violations of law, (iv)
any transaction from which a director derives an improper personal
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benefit and (v) distributions (including payment of dividends or stock
repurchase or redemptions) that are not permitted under Delaware law. The
provision does not affect a director's responsibilities under any other law,
such as the federal securities laws of state or federal environmental laws.
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 Act
and is, therefore, unenforceable.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety.
The Company
Commerce Group Corp., ("Commerce" or the "Company") is a Delaware
corporation based in Milwaukee, Wisconsin, primarily engaged in the business of
developing mines and producing gold in the Republic of El Salvador, Central
America, through its Commerce/Sanseb Joint Venture ("Joint Venture"). Commerce
holds a nearly 100% interest (detailed below) in the San Sebastian Gold Mine
("SSGM") and is exploring four other potential gold prospects located in El
Salvador. There are approximately 1.7 million ounces of proven gold ore reserves
at the SSGM, and at two of the other El Salvador gold mines. There are strong
initial indications of gold ore present at the other sites.
Commerce is currently producing gold at a facility referred to in this
report as the San Cristobal Mill and Plant ("SCMP") by processing tailings from
the SSGM. These tailings are waste material left as the by-product of past
mining operations at the SSGM. The SCMP is located approximately 13 miles from
the SSGM. Commerce acquired this facility on February 23, 1993, and thereafter
made substantial renovations and modifications to the plant and equipment before
and after placing this facility in operation. Production began on March 31,
1995, and during the fiscal year ending March 31, 1996, 5,993 ounces of bullion
containing 3,161 ounces of gold and 1,489 ounces of silver were produced at this
facility from these tailings. In the nine months ended December 31, 1996, 2728
ounces of bullion containing 1527 ounces of gold and 361 ounces of silver were
produced. Revenues from this production were used primarily to fund further
exploration of virgin ore reserves at the SSGM, to fund the development of the
four other mining prospects, and to fund improvements at the SCMP.
Commerce's current business plan is to secure sufficient capital to
substantially increase its production of gold to at least 40,000 ounces per year
and to develop additional gold ore reserves. The Company expects to increase
production by developing an open-pit mine and a heap-leach operation on site at
the SSGM and by acquiring additional mining equipment recently purchased which
will permit it to process virgin ore at the SCMP. The heap-leach operation will
have the capability of producing (through processing a higher volume of ore)
significantly more gold than could be produced at the SCMP, which has a present
maximum capacity of 400 tons per day. Commerce will also continue to drill test
holes at previously unexplored areas at the site of the SSGM and its four other
potential mining prospects.
Aside from its mining operations, Commerce independently and through
its partially and wholly-owned subsidiaries conducts other business activities,
which at present are substantially less significant than its gold production and
exploration in El Salvador: (1) land acquisition and real estate development
through its wholly-owned subsidiaries, San Luis Estates, Inc. ("SLE") and
Universal Developers, Inc. ("UDI"); (2) real estate sales, through its
wholly-owned subsidiary, Homespan Realty Co., Inc. ("Homespan"); (3) the
operation of a 331-acre campground known as Standing Rock Campground, which is
owned by Homespan and operated by the Company; and (4) advertising, through its
wholly-owned subsidiary, Piccadilly Advertising Agency, Inc. ("Piccadilly").
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Commerce was incorporated in Wisconsin in September 1962, and it merged
into a Delaware corporation in 1971. Its common shares have been publicly traded
since 1968. Commerce acquired 82-1/2% of the authorized and issued shares of San
Sebastian Gold Mines, Inc. ("Sanseb"), a Nevada corporation. The balance of
Sanseb's shares are held by approximately 200 unrelated shareholders. From 1969
forward, Commerce has provided substantially all of the capital required to
develop a mining operation at the SSGM, to fund exploration, and to acquire and
refurbish the SCMP. On September 22, 1987, Commerce and Sanseb entered into a
joint venture agreement (named the "Commerce/Sanseb Joint Venture" and sometimes
referred to herein as the "Joint Venture" or "Comseb") to formalize the
relationship between Commerce and Sanseb with respect to the mining venture and
to divide profits commensurately with Commerce's substantial investment. The
terms of this agreement authorize Commerce to supervise and control all of the
business affairs of the Joint Venture. Under this agreement 90% of the net
pre-tax profits of the Joint Venture will be distributed to Commerce and 10% to
Sanseb, and because Commerce owns 82-1/2% of the authorized and issued shares of
Sanseb, Commerce in effect has an over 98% interest in the Activities of the
Joint Venture.
The Joint Venture leases the SSGM from a 52% owned subsidiary, Mineral
San Sebastian, S.A. de C.V. ("Misanse"), an El Salvador corporation. Although
Misanse owns the real estate comprising the site of the SSGM, the lease
agreement grants Comseb the right to all gold produced in exchange for a 5%
royalty over a term of 25 years beginning on the first day gold is produced,
which Comseb may, at its option, extend for an additional 25 years. Because
Commerce owns 52% of Misanse, Comseb in effect pays a royalty amounting to less
than 2-1/2% of its gold production to parties other than its own shareholders.
As of March 31, 1996, the total investment in the El Salvador mining
projects by Commerce, three of Commerce's wholly-owned subsidiaries, Sanseb, and
the Joint Venture amounted to $36,318,848. The profitability and viability of
the Joint Venture is dependent upon, not only the price of gold in the world
market (which can be unstable), but also upon the political stability of El
Salvador and the availability of adequate funding for either the SCMP operation
or the SSGM open-pit, heap-leaching operation or for the four other exploration
projects.
The Company's principal executive offices are located at 6001 North
91st Street, Milwaukee, Wisconsin 53225-1795. Its telephone number is (414)
462-5310 and its fax number is (414) 462-5312. The Company's e-mail address is
[email protected] and its website is http://www.execpc.com/~comgroup/
The Offering
Securities Offered:....
..... An estimated 1,398,601 shares of Common Stock, $.10
par value per share, issuable upon conversion of 2,500
shares of Series A Preferred Stock ("Preferred Stock")
at a conversion price per share of Preferred Stock equal
to $1,000 divided by the lower of (a) $2.90 or (b) 65%
of the average closing bid price of the Common Stock
on the five trading days prior to conversion.
Common Stock Outstanding(1) Before Offering:............. 8,323,415(1) shares
Common Stock Outstanding After Offering:................. 9,722,016(1)(2) shares
NASDAQ symbol............................................ CGCO
Boston Stock Exchange.................................... CMG or CMG.BN
(1) Based on shares outstanding as of December 31, 1996.
(2) Based on an assumed conversion at $1.7875 per share.
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Risk Factors
Investment in the Shares offered hereby involves a high degree of risk,
including the limited operating history of the Company and competition.
Investors should carefully consider the various risk factors before investing in
the Shares. This Prospectus contains forward looking statements which may
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors." See "Risk Factors."
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Summary Financial Information
Set forth below is selected financial data with respect to the Company
(i) as of December 31, 1996 and the nine months ended December 31, 1996 and
1995, (ii) for the five fiscal years ended March 31, 1996.
<TABLE>
<CAPTION>
Consolidated Operating Statement Data:
Nine Months Ended
December 31, Year Ended March 31,
1996 1995 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue $1,192,508 $ 984,656 $ 1,345,260 $ 823,181 $ 507,964 $ 403,242 $ 364,747
Income from
continuing
operations 729,569 587,085 787,802 274,747 66,852 41,970 22,583
Income (loss)
from continuing
operations per
share:
Primary .09 .08 .11 .046 .01 .01 .01
Fully diluted .09 .08 .11 .045 .01 .01 .00
Cash dividends
declared per
common share 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data:
As of
December 31, As of March 31,
1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Total Assets $ 22,980,869 $ 20,513,115 $ 17,617,423 $ 14,204,563 $ 13,158,374 $ 12,156,852
Long-term notes
payable -- 20,259 120,000 245,000 245,000 0
Convertible
preferred stock 0 0 0 0 0 0
Total long-term
obligations and
convertible
preferred stock -- 20,259 120,000 245,000 245,000 250,000
</TABLE>
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RISK FACTORS
The securities offered hereby are speculative and involve a high degree
of risk. Prospective investors should carefully consider the following risk
factors relating to the business of the Company and this offering, together with
the information and financial data set forth elsewhere in this Prospectus,
before investing in the Shares offered hereby.
Sufficiency of Funds
The acquisition, exploration, development, and exploitation of gold ore reserves
requires substantial capital expenditures. The Company estimates that it
requires an additional $15 million in order to carry out its business plan. The
Company has not entered into any agreement for debt or equity under which it
might raise such additional $15 million. The availability of such funding will
depend on the profitability of the Company, the condition of the market for
financing, the price of gold, the then current political climate of the country
of El Salvador, and other unknown factors, and there can be no assurance that
the Company will be able to obtain financing nor whether the terms of such
financing will not excessively dilute the existing shareholders.
Unforeseen Natural Occurrences
Mining and extraction of precious metals are subject to unforeseen natural
occurrences, including, but not limited to, earthquakes, volcanos, storms, and
droughts. Any one or more of such events could prevent or delay the operation of
the Joint Venture and adversely affect the operations of the Company.
Security Risks
The precious nature of gold gives rise to the risk of theft and other loss
involving violence, vandalism and unexplained disappearance. To reduce its risk
of loss, the Company has employed tight security at the site of its operations
and has retained professional security services to transport its gold from El
Salvador to the United States. The Company also controls security risks on site
by restricting employee access to the section of its plant where gold is
recovered from concentrated chemical solutions at the final stage of extraction.
Prior to that stage of the recovery process, the gold being recovered is
diffused in ore or other media, and consequently, is difficult to steal.
Availability of Water
Water is essential in most phases of the exploration for and development of
mineral properties. It is used in such processes as exploration, drilling,
leaching and testing and various forms of processing. While planned operations
will likely have ample water resources, there is no guarantee such resources
will be consistently adequate for the operation of the Joint Venture.
Environmental Regulations
The Company's operations are located in El Salvador, where up to this time there
have existed limited environmental regulations. The Company has designed its
facilities to avoid environmental hazards and is of the opinion that its designs
would comply with U.S. standards. The Company expects to expend financial and
managerial resources to protect the environment and comply with any
environmental laws and regulations. Although such expenditures have historically
not been material to the Company, the fact that environmental law and
regulations change makes it impossible for the Company to predict the cost or
impact of such laws and regulations on its future operations.
Market Fluctuations
The market prices of mineral products, especially precious metals, are often
unstable and is a function of factors over which the Company will have no
control. The price of gold has fluctuated within a wide range during the recent
past. It is possible that the considerable resources presently being employed to
discover sources or methods of recovery of gold could, if successful,
substantially increase the supply and reduce the price of gold. Furthermore,
there could be adverse economic conditions such as worldwide inflation,
deflation and variable energy costs, all of
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which would affect the price of precious metals in unpredictable ways, including
making mining methods contemplated hereunder not feasible. The price instability
of precious metals and the markets made in these commodities could adversely
affect the results of the Company's operations. In addition, in recent years the
stock market has experienced large price and volume fluctuations, which often
have been unrelated to the operating performance of specific companies or market
sectors. These broad market fluctuations may adversely affect the market price
of the Common stock.
Reliance on Management
The success of the Company will depend, to a large extent, on the experience and
quality of its management. Although the Company's management will devote as much
time as is necessary to the affairs of the Company, members of management may
devote their time to other business activities in which they are or may become
engaged. A shareholder does not have the right to take significant part in the
control or management of the business of the Company. A shareholder who may be
dissatisfied with the manner in which the Company is managing the business may
have no effective means of compelling a change in management policies.
Accordingly, no person should purchase any of the Securities unless he has
evaluated the Company's capabilities to manage all aspects of the Company's
business and is willing to entrust such functions to the Company and its
management.
Lack of High Volume Operating History
The Company has no history of operating the type of mineral extraction and
processing operation at the volume of production contemplated herein. The
results of operations of the Joint Venture will be largely dependent upon the
extent to which management will be able to commence and operate its mining
operations in accordance with its business plan.
Competition
The Joint Venture will be subject to various technological changes and will be
operating in a marketplace with organizations having established methods of
operations, active mining properties and operating experience as well as
financial resources substantially greater than those of the Company.
Numerous other companies and organizations are engaged in the gold mining
business worldwide. While the Company believes that the Joint Venture is
competitive primarily because of the quantity and grade of ore to be extracted,
there can be no assurance that such distinction can be maintained. Furthermore,
other companies and organizations may be more successful in producing gold than
the Company, whether or not said projects are superior to the Company's Project.
Many of the Company's actual and potential competitors are larger, have records
of successful operations, greater financial and other resources, more employees,
and more extensive facilities than the Company now has or will have in the
foreseeable future.
Key Employees
The management of the Company rests with its officers and directors. In the
event of death or disability of any or all of them, the Company's ability to
perform as contemplated herein would be severely impaired. The Company does not
maintain key-man life insurance on any of its officers and directors, and has no
present plans to maintain such insurance.
Management of Growth
The Company's growth and success depends on the ability of its officers and key
employees to manage increased operations effectively, to attract and retain
skilled employees and to expand the mining and processing capabilities of the
Company. There can be no assurance that the Company will be successful in
managing its expansion, and the failure to do so would adversely affect the
Company's financial position and results of operations.
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Dividends
The Company has not paid any cash dividends on the Common Stock and it is not
anticipated that it will do so in the foreseeable future.
Preferred Stock Provisions; Anti-Takeover Measures
The Board of Directors has authority to issue up to 247,500 additional shares of
preferred stock and to fix the rights, preferences, privileges and limitations,
including voting rights, of the preferred stock without further vote or action
by the Company's stockholders. The Company intends to issue additional preferred
shares convertible into Common Stock to finance its operations. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued for
adequate consideration in the future. The Company may issue additional shares of
preferred stock to raise capital in the future, and preferred stock may be
issued in connection with possible acquisitions and for other corporate
purposes, and could also have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company or
obtain a change in control of the Board of Directors of the Company.
MARKET PRICE OF COMMON STOCK
The Company's Common Stock has been listed on the Boston Stock Exchange
under the symbol "CMG" or "CMG.BN" since November 29, 1974, and on the Automated
Quotation System of the National Association of Securities Dealers, Inc.
(NASDAQ) Small-Cap Market under the symbol "CGCO" since March 23, 1987. As of
March 26, 1997 the last sale price as reported on NASDAQ was $2.75.
The following table sets forth the high and low bid prices for the
Common Stock as reported on NASDAQ since April 1, 1994 for the periods
indicated. Such information reflects inter dealer prices without retail mark-up,
mark down or commissions and may not represent actual transactions.
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Quarter Ended High Low
June 30, 1994 $ 2.75 $ 1.63
September 30, 1994 3.50 2.63
December 31, 1994 3.13 2.38
March 31, 1995 4.50 3.50
June 30, 1995 4.63 3.75
September 30, 1995 3.75 3.00
December 31, 1995 3.25 2.63
March 31, 1996 3.25 2.75
June 30, 1996 3.13 2.38
September 30, 1996 3.25 2.38
December 31, 1996 3.25 1.88
March 31, 1997
(through January 31, 1997) 3.88 1.88
The Company has not paid any dividends on its Common Stock.
The Company currently intends to retain any earnings for use in its business,
and therefore does not anticipate paying cash dividends in the foreseeable
future.
As of January 31, 1997, there were approximately 3,000 record
holders of Company Common
Stock.
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SELLING STOCKHOLDERS
The shares of Common Stock of the Company offered by the Selling
Stockholders (the "Shares") will be offered at market prices, as reflected on
NASDAQ or the Boston Stock Exchange. The Shares are being offered by the holders
upon conversion of the Preferred Stock. The number of shares offered for resale
will be based on the conversion rate in effect at the time of conversion. It is
anticipated that registered broker-dealers will be allowed the commissions which
are usual and customary in open market transactions.
The number of shares of Common Stock issuable upon conversion each of
the 2,500 shares of Preferred Stock, and the consequent number of shares of
Common Stock available for resale under this Prospectus, is based upon a
conversion ratio which is $1,000 divided by the lower of (a) $2.90 or (b) 65% of
the closing bid price of the Common Stock on NASDAQ averaged over the five
trading days immediately prior to the date of conversion. The number of shares
in the table below is based upon the conversion rate of $1,000 divided by
$1.7875, or approximately 559.4 shares of Common Stock per share of Preferred
Stock. The Selling Stockholders do not own any Common Stock except as registered
hereby and will own no shares after the completion of the offering. The Company
has the right to redeem each share of Preferred Stock within 24 hours of receipt
of notice of conversion at a price of $1,350 per share.
<TABLE>
<CAPTION>
Percent of
Common Stock
Number of Number of Before
Name Preferred Shares Common Shares Offering
<S> <C> <C> <C>
Nostradamus, SA 500 279,720 3.3
UFH Endowment 250 139,860 1.6
Mary Park Properties 200 111,888 1.3
Austost Anstalt Schaan 250 139,860 1.6
FT Trading 200 111,888 1.3
Albert Yanni 100 55,944 *
Lampton, Inc. 200 111,888 1.3
Paril Holding 200 111,888 1.3
Leitinger Corporation 100 55,944 *
Barry Seidman 500 279,720 3.3
2,500 862,000 16.4%
</TABLE>
*less than 1%
DESCRIPTION OF SECURITIES
Common Stock
The Company's Certificate of Incorporation authorizes the issuance of
15,000,000 shares of Common Stock, $.10 par value per share, of which 8,323,415
shares were outstanding as of December 31, 1996. Holders of shares of Common
Stock are entitled to one vote for each share on all matters to be voted on by
the shareholders. Holders of Common Stock have no cumulative voting rights.
Holders of shares of Common Stock are entitled to share ratably in dividends, if
any, as may be declared, from time to time by the Board of Directors in its
discretion, from funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of shares of
Common Stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities. Holders of Common Stock have no preemptive rights to
purchase the Company's Common Stock. There are no conversion rights or
redemption or sinking fund provisions with respect to the Common Stock. All of
the outstanding shares of Common Stock are validly issued, fully paid and
non-assessable.
The transfer agent for the Common Stock is Nevada Agency and Trust
Company, 50 West Liberty Street, Suite 880, Reno, Nevada 89501.
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Preferred Stock
The Company's Certificate of Incorporation authorize the issuance of
250,000 shares of preferred stock, $.10 par value, of which 2,500 shares of
Series A Convertible Preferred Stock are outstanding. The Convertible Preferred
Stock is convertible into shares of common stock (see "Selling Stockholders").
The Company may issue additional preferred stock in the future. The Company's
Board of Directors has authority, without action by the shareholders, to issue
all or any portion of the authorized but unissued preferred stock in one or more
series and to determine the voting rights, preferences as to dividends and
liquidation, conversion rights, and other rights of such series.
The Company considers it desirable to have preferred stock available to
provide increased flexibility in structuring possible future acquisitions and
financings and in meeting corporate needs which may arise. If opportunities
arise that would make desirable the issuance of preferred stock through either
public offering or private placements, the provisions for preferred stock in the
Company's Articles of Incorporation would avoid the possible delay and expense
of a shareholder's meeting, except as may be required by law or regulatory
authorities. Issuance of the preferred stock could result, however, in a series
of securities outstanding that will have certain preferences with respect to
dividends and liquidation over the Common Stock which would result in dilution
of the income per share and net book value of the Common Stock. Issuance of
additional Common Stock pursuant to any conversion right which may be attached
to the terms of any series of preferred stock may also result in dilution of the
net income per share and the net book value of the Common Stock. The specific
terms of any series of preferred stock will depend primarily on market
conditions, terms of a proposed acquisition or financing, and other factors
existing at the time of issuance. Therefore, it is not possible at this time to
determine in what respect a particular series of preferred stock will be
superior to the Company's Common Stock or any other series of preferred stock
which the Company may issue. The Board of Directors may issue additional
preferred stock in future financings.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Further, certain provisions of Delaware law could delay or
make more difficult a merger, tender offer or proxy contest involving the
Company. While such provisions are intended to enable the Board of Directors to
maximize stockholder value, they may have the effect of discouraging takeovers
which could be in the best interest of certain stockholders. There is no
assurance that such provisions will not have an adverse effect on the market
value of the Company's stock in the future.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Hand & Hand, a law corporation, Dana Point, California.
EXPERTS
The consolidated balance sheets as of March 31, 1996 and 1995 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years ended March 31, 1996 and 1995 included in this
Prospectus have been so included in reliance on the report of Redlin and
Associates, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
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No dealer, salesman or other person is authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made hereby, and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell or a solicitation
to an offer to buy the securities offered hereby to any person in any state or
other jurisdiction in which such offer or solicitation would be unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information contained herein
is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
Page
Additional Information...................... 2
Indemnification............................. 2
Prospectus Summary.......................... 3
Risk Factors................................ 7
Market Price of Common Stock................ 9
Selling Stockholders........................ 11
Description of Securities................... 11
Legal Matters............................... 12
Experts..................................... 12
