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Filed pursuant to
Rule 424(b)(3),
Registration No. 333-60891
PROSPECTUS
QUARTERDECK CORPORATION
COMMON STOCK
($.001 PAR VALUE)
44,264,024 SHARES
This Prospectus relates to 44,264,024 shares, subject to certain
anti-dilution and other adjustments (the "Shares"), of Common Stock, par value
$.001 per share ("Common Stock"), of Quarterdeck Corporation, a Delaware
corporation (the "Company"), issuable upon conversion of (i) 29,000 shares of
the Company's Series C Convertible Preferred Stock, par value $.001 per share
("Series C Preferred Stock"), issued in a private placement between September
and November 1997 (the "Private Placement") and (ii) 2,900 shares of Series C
Preferred Stock issuable upon the exercise of warrants (the "Series C Preferred
Stock Warrants") issued in connection with the Private Placement. 24,933,158 of
such shares were previously registered and covered by a prospectus which is
superseded by this Prospectus. The Shares may be offered for sale from time to
time by the holders thereof listed herein (the "Selling Stockholders").
As of July 23, 1998, approximately 24,512 shares of Series C Preferred
Stock have been converted into approximately 19,637,358 shares of Common Stock.
Based on a $.30 conversion price, the remaining shares of Series C Preferred
Stock (including the shares of Series C Preferred Stock underlying the Series C
Preferred Stock Warrants) would be convertible into approximately 24.5 million
additional shares of Common Stock. Because the conversion ratio of the Series C
Preferred Stock is dependent upon the market price of the Common Stock (as
defined), the actual number of shares of Common Stock offered hereby is subject
to adjustment and could be materially more or less depending on factors that
cannot be predicted by the Company at this time, including, among others,
application of the conversion provisions based on market prices prevailing
immediately before the date of conversion. See "Risk Factors Effect of
Conversion of Series C Preferred Stock."
The Company will not receive any proceeds from sales of the Shares. The
Company will pay all of the expenses associated with the registration of the
Shares, estimated to be approximately $34,530.
The Common Stock is quoted on the Nasdaq National Market under the
symbol "QDEK." On August 6, 1998, the last reported sale price per share of the
Common Stock, as quoted on the Nasdaq National Market, was $.50.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FACTORS SET FORTH UNDER THE CAPTION "RISK FACTORS" ON PAGES 3
THROUGH 9 OF THE PROSPECTUS
-----------------------------
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 UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 10, 1998.
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AVAILABLE INFORMATION
Statements contained in this Prospectus as to the content of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of the contract or other document filed as an
exhibit to this Registration Statement on Form S-3 (the "Registration
Statement") filed with the Securities and Exchange Commission (the
"Commission"), each statement being qualified in all respects by such reference
and the exhibits and schedules hereto, which may be inspected without charge at
the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
and copies of the Registration Statement or any part thereof may be obtained
from such office, upon payment of the fees prescribed by the Commission.
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, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed with
the Commission by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
500 West Madison Street, Room 1400, Chicago, Illinois 60606 and at the Jacob K.
Javits Federal Building, 75 Park Place, New York, New York 10278. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission, the address of which is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are by
this reference incorporated in and made a part of this Prospectus: (i) the
Annual Report on Form 10-K for the fiscal year ended September 30, 1997, (ii)
the Current Reports on Form 8-K dated October 3, 1997, October 7, 1997, March 9,
1998, April 2, 1998, June 25, 1998, July 8, 1998 and August 4, 1998 (iii) the
Quarterly Reports on Form 10-Q for the quarters ended December 31, 1997 and
March 31, 1998 (iv) the Registration Statement on Form 8-A filed April 26, 1991,
and (v) all documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
filing of a post-effective amendment which indicates that all Securities offered
hereby have been sold or which deregisters all Securities then remaining unsold.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
Copies of all documents that are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents or into this Prospectus) will be
provided without charge to each person, including any beneficial owner, to whom
this Prospectus is delivered, upon a written or oral request to Quarterdeck
Corporation, Attention: Corporate Secretary, 13160 Mindanao Way, Third Floor,
Marina del Rey, California 90292, telephone number (310) 309-3700.
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THE COMPANY
The Company develops, markets and supports computer software that
enhances the performance, user productivity and cost-effectiveness of personal
computing in standalone and networked environments. The Company provides its
software solutions to individual, business, and government/education users
through retail distribution, resellers, direct marketing operations and Internet
downloads.
The Company was incorporated in California in 1982 as Quarterdeck
Office Systems. In June 1991, the Company changed its state of incorporation
from California to Delaware and in February 1995 changed its name to Quarterdeck
Corporation.
The principal offices of the Company are located at 13160 Mindanao Way,
Third Floor, Marina del Rey, California 90292, telephone number (310) 309-3700.
RISK FACTORS
The Securities offered hereby are speculative in nature and involve a
high degree of risk. In addition to the other information included elsewhere in
this Prospectus and in the Company's filings with the Commission, the following
factors should be considered carefully in evaluating an investment in the
Securities offered by this Prospectus.
DECLINING REVENUES, LOSSES AND LIQUIDITY
The Company suffered a net loss of approximately $18.4 million for the
fiscal year ended September 30, 1997. The Company suffered a net loss of
approximately $7 million for the quarter ended March 31, 1998 and a net loss of
$14.7 million for the quarter ended June 30, 1998. Net revenues for the nine
months ended June 30, 1998 were $42 million compared to $68.5 million for the
nine month period ended June 30, 1997. Past losses have resulted in the Company
suffering negative net worth and significant decreases in its working capital
and cash position. There can be no assurance that the Company will not suffer
additional losses in the future (including additional write-downs of assets),
that adequate operating funds will be internally generated, or that additional
financing, if necessary, will be available, or if available, will be available
on acceptable terms.
DEPENDENCE ON NEW PRODUCTS AND ADAPTATION TO TECHNOLOGICAL CHANGE
The computer software industry is subject to rapid technological change
often evidenced by new competing products, improvements in existing products and
improvements and/or upgrades to operating systems. The Company depends on the
successful development or acquisition and resulting sales of new products,
including upgrades of existing products, to replace revenues from products
introduced in prior years that have begun to experience reduced revenues or have
become obsolete. If the Company's leading products become outdated or are
rendered obsolete as a result of improvements in operating systems, hardware or
technology generally and lose market share faster than those revenues are
replaced by new products or if new products or existing product upgrades are not
introduced in a timely manner or do not achieve the revenues anticipated by the
Company, the Company's operating results could be materially adversely affected.
Even with normal development cycles, the market environment can change so
quickly that features in certain products can become outdated soon after market
introduction. These events may occur in the future and may have an adverse
effect on future revenues and operating results.
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The Company is focusing significant efforts on evolving its core
utilities and communication product lines into a set of products designed to
enhance user performance, simplify system management and reduce the ongoing cost
of ownership for networked personal computing. As part of this effort, the
Company is developing new products and adapting its current technology into
these products and has made and may continue to make strategic acquisitions and
divestitures. There is no assurance these efforts will be successful. Other
significant risks associated with the Company's focus on this category of
products include the timing of releases in relation to competitive products,
uncertainties surrounding the rate and extent of development of this new market
and one-time losses and charges that may result from divestitures of non-core
assets.
The Company is also devoting substantial efforts to the development of
software products that are designed to operate on Microsoft's Windows 95,
Windows 98 and Windows NT. Microsoft Corporation may incorporate advanced
utilities or other features in Windows 95 and/or Windows NT and/or their
successors that may decrease the demand for certain of the Company's products
including those under development. Should the Company not be able to timely
develop and successfully market products that offer perceived value to users of
these operating systems beyond that which is offered in the base operating
system, future revenues would be adversely affected. In addition, Microsoft may
introduce new or upgraded versions of their operating systems to replace
currently available versions.
COMPETITION
The personal computer market is intensely competitive, subject to
strategic alliances of hardware and software companies and characterized by
rapid changes in technology and frequent introductions of new products and
features. The Company's competitors include developers of operating systems,
applications and utility software and personal computer manufacturers that
develop their own software products. The Company expects to encounter continued
competition both from established companies and from new companies that are now
developing, or may develop, competing products. Many of the Company's existing
and potential competitors have financial, marketing and technological resources
significantly greater than those of the Company.
Future competitive product releases may cause disruptions in orders for
the Company's products while users and the marketplace evaluate the competitive
products. The extent of the disruption in orders and the impact on future orders
of the Company's products will depend on various factors that are not fully
known at this time, including the level of functionality, performance and
features included in the final release of these competitive products and the
price thereof and the market's evaluation of competitive products compared to
the then current functionality, performance, features and price of the Company's
products.
The Company anticipates that the type and level of competition
experienced to date will continue, and may increase, and future sales of its
products will be dependent upon the Company's ability to timely and successfully
develop or acquire new products or enhanced versions of its existing products
for Windows 95, Windows 98 and Windows NT and/or other operating systems that
may gain market acceptance. In addition, the Company must demonstrate to the
user a need for the Company's products while developers of operating systems and
competitive software products continue to enhance their products. To the extent
that operating system enhancements, competitive products or bundling of
competitive products with operating systems or computer hardware reduce the
number of users who perceive a benefit from the Company's products, sales of the
Company's products in the future would be adversely impacted.
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The Company believes that the primary competitive factors in the
personal computer software market are product features and performance, time to
market, product reliability, ease of use, product and vendor reputation, price,
timeliness of product upgrades and the quality of customer support and service.
Of these, time to market and price are becoming increasingly significant
factors.
The Company also competes with other companies in the personal computer
software market for distributors and dealers, as well as for alliances with
hardware and software vendors. The Company competes for distributors and dealers
on the basis of the revenue opportunities presented by the Company's products,
in addition to discounts, credit terms and promotional support.
NASDAQ LISTING
The Company currently does not meet the continued listing requirements
for trading on the Nasdaq National Market. The Company is exploring different
steps it may take to achieve compliance with such requirements or to meet the
listing requirements for and maintain a listing on the Nasdaq SmallCap Market.
There can also be no assurance that the Company will be able to meet or continue
to meet the listing requirements for the Nasdaq National Market or the Nasdaq
SmallCap Market. In the event that the Company's Common Stock is delisted from
the Nasdaq National Market and is ineligible to be listed on the Nasdaq SmallCap
Market, sales of the Company's Common Stock would likely only be conducted in
the over-the-counter market. This could negatively impact the liquidity of the
Common Stock and investors could find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, the Company's Common
Stock.
DEPENDENCE ON AND INTENSE COMPETITION FOR KEY PERSONNEL
Recruitment of personnel in the computer software industry is highly
competitive. The Company's success depends to a significant extent upon the
performance of its executive officers and other key personnel. The Company
believes its ability to attract and retain highly qualified personnel has been
adversely affected by the Company's recent restructurings and financial
performance. As a result, there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The loss of the services
of key individuals or the inability to attract and retain highly qualified
personnel, including developers, could have a material adverse effect on the
Company.
SUBSTANTIAL DEPENDENCE ON DISTRIBUTION CHANNELS
A substantial portion of the Company's domestic and international sales
are made through a limited number of personal computer hardware and software
distributors which represent the Company on a non-exclusive basis. If the
Company were to lose all or a significant portion of the revenue attributable to
any of its principal distributors, or if its principal distributors were to lose
sales of the Company's products to any of their principal accounts, the loss
could have a material adverse affect on the Company's operating results. In
addition, there has been a trend toward consolidation of distributors and
retailers of personal computer hardware and software products. A reduction in
the number of software distributors and retailers will increase the Company's
dependence upon the remaining distributors and retailers and could affect their
willingness to distribute, carry and promote products of the Company. The
Company has recently begun to reduce the resources it commits to direct
marketing of its products to end users through mail and telephone campaigns, in
part to avoid conflicts among its sale channels and in part to make better use
of these resources in other sales channels. There can be no assurance that the
reduction in sales and profits through the direct marketing channel will be
replaced by sales and profits in other channels.
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"CHANNEL FILL" AND PRODUCT RETURNS
Channel fill occurs when a product shipped into retail distribution
does not sell-through to end users at expected rates, resulting in larger than
expected product returns from retailers or distributors, in-channel price
reductions that the Company must reimburse, and/or lower than expected future
sell-in rates for these same products, all of which can adversely affect net
revenue recognized in future periods. The Company seeks to take adequate
reserves against these contingencies at the point it sells product into retail
distribution, but these reserves are sized against expected sell-through rates
and no assurance is possible that actual sell-through rates will accord with
these expectations. Quarterdeck's return policy generally allows its
distributors, subject to certain limitations, to return purchased products in
exchange for new products or for credit toward future purchases. However,
competitive factors and/or market conditions often require the Company to offer
expanded rights of return for products that distributors or retailers are unable
to sell. The Company also provides price protection rights to its distributors
which generally give distributors credit for price decreases on products
remaining in the distributors' inventory and on products remaining in retail
customers' inventory.
EFFECT OF CONVERSION OF SERIES C PREFERRED STOCK
The Company's Series C Preferred Stock is convertible into shares of
Common Stock. Each share of Series C Preferred Stock is convertible into the
number of shares of Common Stock equal to the quotient of (i) $1000.00 divided
by (ii) the Conversion Price. Subject to the maximum Conversion Price specified
below, the Conversion Price is equal to 101% of the average of the three lowest
daily trading prices for the 22 consecutive trading days immediately preceding
the date of conversion (the "Conversion Date"). The maximum Conversion Price is
$5.125 until March 31, 1999, and thereafter will be the lesser of (i) $5.125,
(ii) 101% of the average daily low trade prices of the Common Stock for all
trading days in March 1999, (iii) 101% of the average daily low trade prices of
the Common Stock for all trading days in September 1999 and (iv) 101% of the
average daily low trade prices of the Common Stock for all trading days in March
2000. As of July 23, 1998, approximately 24,512 shares of Series C Preferred
Stock have been converted into approximately 19,637,358 shares of Common Stock
and approximately 7,388 shares of Series C Preferred Stock (including warrants)
remain outstanding. The exact number of shares of Common Stock ultimately
issuable upon conversion of all of the Series C Preferred Stock and offered
hereby cannot currently be estimated but, generally, such issuances of Common
Stock, respectively, will vary inversely with the market price of the Common
Stock. The holders of Common Stock have been and may in the future be materially
diluted by conversion of the Series C Preferred Stock which dilution will depend
on, among other things, the future market price of the Common Stock and the
decisions by holders of shares of Series C Preferred Stock as to when to convert
such shares. The Company's Common Stock has experienced wide fluctuations in its
stock price and stock market volatility, whether related to the stock market
generally or the Company specifically. Such fluctuations, if coincident in time
with conversions of Series C Preferred Stock, will impact directly the number of
shares of Common Stock issuable upon conversion thereof. The terms of the Series
C Preferred Stock do not provide for any limit on the number of shares of Common
Stock which the Company may be required to issue in respect thereof.
SHARES ELIGIBLE FOR FUTURE SALE
As of July 23, 1998, there are approximately 62.7 million shares of
Common Stock and approximately 7,388 shares of Series C Preferred Stock
(including Series C Preferred Stock issuable upon exercise of Warrants) issued
and outstanding, $25 million in notes outstanding which are convertible into
approximately 1.2 million shares of Common Stock, and employee stock options and
other securities which are either convertible into or which may be exercised for
an aggregate of approximately 6 million shares of Common Stock. No prediction
can be made as to effect, if any, that future sales of Common
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Stock, or the availability of shares for future sale, will have on the market
price of Common Stock prevailing from time to time. Sales or issuances of
substantial amounts of Common Stock (including shares issued upon conversion of
Series C Preferred Stock or upon the exercise or conversion of stock options or
any warrants or debt securities), or the perception that such sales or issuances
could occur, could adversely affect prevailing market prices for the Common
Stock.
EFFECT OF STRATEGIC TRANSACTIONS
During fiscal 1995 and fiscal 1996, Quarterdeck consummated a number of
acquisitions which broadened the Company's product portfolio and sales
distribution channels. At the end of fiscal 1996 and during fiscal 1997, the
Company implemented a comprehensive, corporate-wide restructuring plan to focus
the Company in the utilities and communications software categories. The
Company's results for fiscal 1996 and fiscal 1997 were negatively impacted by
the costs of integrations and acquisitions, including severance payments and
asset devaluations. In June 1998, the Company announced that it is reducing
costs and worldwide employee headcount. Implementation of these strategic
transactions will result in substantial additional charges.
In addition, there are significant business risks associated with
acquisitions, including the successful integration of the companies in an
efficient and timely manner, the coordination of research and development and
sales efforts, the retention of key personnel, the diversion of management's
attention from day to day matters and the integration of acquired products.
Acquisitions may result in the Company competing with companies and in markets
where the Company had not previously competed. There may also be an adverse
impact on the revenues of acquired companies due to the transition of products
sales and marketing and research and development activities.
PATENTS AND PROPRIETARY INFORMATION
The Company relies on a combination of trade secret, patent, copyright
and trademark laws, license agreements and non-disclosure agreements to protect
its rights to its products. The Company provides its products to end users under
a non-exclusive license that by its terms limits the warranties provided by and
liability of the Company. The ability of software companies to enforce such
licenses has not been finally determined by the U.S. Supreme Court. The use and
registration by the Company of its trademarks and servicemarks do not assure
that the Company has superior rights to others that may have registered or used
identical or related marks on related goods or services, nor that such
registrations or uses by others will not be used to attempt to foreclose use of
a particular mark by the Company.
The extent to which U.S. and foreign copyright and patent laws protect
software has not been fully determined. In addition, changes in the
interpretation of copyright and patent laws could expand or reduce the extent to
which the Company or its competitors are able to protect their software and
related intellectual property.
Policing the unauthorized use of computer software is difficult and
software piracy is expected to continue to be a persistent problem for the
packaged software industry, particularly in certain international markets, and
therefore for the Company.
Over the last several years, the number of software-related patents
issued by the United States Patent and Trademark Office has increased
dramatically. The Company does not know all of the patents that have issued or
that may be pending that could cover any of its products. Accordingly, the
Company may not have, or may at any time lose, the right to develop, use or
distribute one or more of its products. Any patent that precludes the Company
from developing, using or distributing one or more of its products, that forces
the Company to pay substantial royalties or substantial attorneys fees and other
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litigation costs, or that casts doubt on the Company's right to develop, use or
distribute any product could have a material adverse effect on the Company.
LITIGATION
In October 1997, a complaint was filed in the United States District
Court for the District of Utah on behalf of PowerQuest Corporation against the
Company. The complaint alleges that the Company's partitioning software
(Partition-It) violates a patent held by PowerQuest. In January 1998, PowerQuest
obtained a second patent relating to partitioning and has amended its complaint
to allege infringement of that patent as well. The plaintiff seeks an injunction
against distribution of Partition-It and damages. Although the Company believes
the patents are invalid, there can be no assurance as to the actual outcome of
this matter. The ultimate disposition of this matter could have a material
adverse effect on the Company.
The Company is a defendant in various other pending claims and
lawsuits. Although there can be no assurances, management believes that the
disposition of such matters will not have a material adverse impact on the
results of operations or financial position of the Company. From time to time,
the Company has received communications from third parties asserting that
certain Company trademarks, packaging or advertising materials may infringe upon
the intellectual property rights of others. There can be no assurance that
existing or future infringement claims against the Company with respect to
current or future trademarks, packaging or advertising materials will not result
in costly litigation or require the Company to discontinue use of such
trademarks, packaging or advertising materials.
FLUCTUATIONS IN OPERATING RESULTS AND STOCK PRICE
The Company's future operating results and stock price could be subject
to significant fluctuations and volatility. The Company's revenues and quarterly
operating results may experience significant fluctuations and be unpredictable
as the result of a number of factors including, among others, introduction of
new or enhanced products by the Company or its competitors, rapid technological
changes in the Company's markets, seasonality of revenues, changes in operating
expenses and general economic conditions. The Company's net revenues and net
income (loss) have fluctuated significantly from year to year and from quarter
to quarter since the Company's initial public offering in June 1991.
The Company also has experienced wide fluctuations in its stock price,
which may be subject to significant fluctuations in the future over a short
period of time. The trading price of the Common Stock increased from
approximately $3.00 in January 1995 to a high of approximately $39.00 in
December 1995 to a low of approximately $.56 in July 1998. Fluctuations may be
due to factors specific to the Company, to changes in analysts' estimates or to
factors affecting the computer industry or the securities markets in general. In
addition, the existence or conversion of any outstanding convertible securities,
any decline in revenues or quarterly operating results, or the failure to meet
market expectations, could have an immediate and significant effect on the
trading price of the Common Stock in any given period.
INTERNATIONAL OPERATIONS
The Company's non-U.S. operations are subject to certain risks common
to international activities, such as changes in foreign governmental
regulations, tariffs and taxes, export license requirements, the imposition of
trade barriers, difficulties in staffing and managing foreign operations, and
political and economic instability.
Because it conducts business in various foreign currencies, the Company
is subject to the transaction exposures that arise from foreign exchange rate
movements between the dates that foreign
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currency transactions are recorded and the date that they are consummated. The
Company is also subject to certain exposures arising from the translation and
consolidation of the financial results of its foreign subsidiaries. The Company
does not hedge either its translation risk or its economic risk. There can be no
assurance that changes in currency exchange rates will not have a material
impact on the Company's future operating results.
Documents incorporated by reference in this Prospectus contain
disclosure regarding certain risk factors with respect to the Company and an
investment therein. Potential investors are urged to consider such risk factors
prior to making an investment decision with respect to the Common Stock.
FORWARD LOOKING STATEMENTS
This Prospectus as well as documents incorporated by reference in this
Prospectus contain forward looking statements which are made pursuant to the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
Expressions of future goals and similar expressions reflecting something other
than historical fact are intended to identify forward-looking statements, but
are not the exclusive means of identifying such statements. These
forward-looking statements involve a number of risks and uncertainties,
including the timely development and market acceptance of products and
technologies, the ability to attract and retain key personnel, successful
integration of acquisitions, the ability to secure additional sources of
financing, the ability to reduce operating expenses and other factors described
in such documents. The actual results that the Company achieves may differ
materially from any forward-looking statements due to such risks and
uncertainties. The Company undertakes no obligations to revise or update any
forward-looking statements in order to reflect events or circumstances that may
arise after the date of this Prospectus.
SELLING STOCKHOLDERS
The following table sets forth certain information, as of July 23,
1998, regarding the beneficial ownership of shares of Series C Preferred Stock
and the number of shares of Common Stock issuable upon conversion of the Series
C Preferred Stock assuming a $.30 conversion price. The actual number of shares
of Common Stock offered hereby is subject to adjustment and could be materially
less or more than the estimated amount indicated depending upon factors which
cannot be predicted by the Company at this time, including, among others,
application of the conversion provisions based on market prices prevailing at
the actual date of conversion. This presentation is not intended to constitute a
prediction as to the future market price of the Common Stock or as to when, if
ever, holders will elect to convert shares of Series C Preferred Stock into
shares of Common Stock. See "Risk Factors--Effect of Conversion of Series C
Preferred Stock." As of such date, Larry Fleischman, Theodore Meisel, Natalie
Meisel, and Barry Meisel beneficially own 800, 95, 66, and 65 shares of Common
Stock, respectively, which may be sold by such Selling Shareholders hereunder.
Such information has been provided to the Company by such Selling Stockholders.
Except as otherwise indicated, to the knowledge of the Company, all persons
listed below have sole voting and investment power with respect to their
securities, except to the extent that authority is shared by spouses under
applicable law or as otherwise noted below. Information concerning such Selling
Stockholders may change from time to time and any changes of which the Company
is advised will be set forth in a Prospectus Supplement to the extent required.
See "Plan of Distribution." The registration of the Shares does not necessarily
mean that all or any of the Shares will be sold by the Selling Stockholders
hereunder.
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<TABLE>
<CAPTION>
Common Shares
Shares of Series to be Sold in
C Preferred Stock the Offering
----------------- --------------------------
Name of Selling Shareholder Number Number Percent
- --------------------------- ------ ------ -------
<S> <C> <C> <C>
Linda S. Cappello 914 3,046,666 4.6%
KA Investments, LDC 825 2,750,000 4.2%
Leonardo, L.P. 763 2,543,333 3.9%
Marubeni Corporation 750 2,500,000 3.8%
Stark International 483 1,610,000 2.5%
Shepherd Investments 483 1,610,000 2.5%
International Ltd.
SIL Nominees Ltd. 300 1,000,000 1.6%
James W. Montgomery 295 983,333 1.5%
Kim Enterprises, LP 284 946,666 1.5%
Earl E Gales, Jr 250 833,333 1.3%
CC Investments LDC 233 776,666 1.2%
GPZ Trading, LLC 228 760,000 1.2%
Paul Rajewski 183 610,000 *
Omicron Partners L.P. 166 553,333 *
Gerard K. Cappello 161 536,666 *
Raphael, L.P. 125 416,666 *
Crisostomo B. Garcia Trust 100 333,333 *
Olympus Securities, Ltd. 97.5 325,000 *
Ramius Fund, Ltd. 95 316,666 *
Steven Amos 94 313,333 *
Larry K. Fleischman 81 270,000 *
Nelson Partners 80.5 268,333 *
AG Super Fund International 63 210,000 *
Partners, L.P.
Jeffrey C. Ullman Living Trust 63 210,000 *
GAM Arbitrage Investments, Inc. 63 210,000 *
James Scott Watt 38 126,666 *
Laredo Capital Partners 25 83,333 *
Theodore Meisel 25 83,333 *
David Balfour 25 83,333 *
Alfred Romano 19 63,333 *
Kenneth L. Staub Trust 19 63,333 *
NY-DBL Diamond Group 13 43,333 *
Lisa G. Shine 10 33,333 *
Loretta Hirsh Shine 10 33,333 *
John M. Bendheim, Jr 10 33,333 *
Natalie Meisel 7 23,333 *
Barry Meisel 7 23,333 *
----- ----------
Totals 7,388 24,626,666(1)
</TABLE>
* Less than 1%.
(1) Includes fractional shares.
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USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Common Stock offered hereby.
PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that the sale or
distribution of the Common Stock may be effected directly to purchasers by the
Selling Stockholders or by pledgees, donees, transferees or other successors in
interest, as principals or through one or more underwriters, brokers, dealers or
agents from time to time in one or more transactions (which may involve crosses
or block transactions) (i) on any stock exchange, in the Nasdaq National Market,
or in the over-the-counter market, (ii) in transactions otherwise than on any
stock exchange or in the over-the-counter market, or (iii) through the writing
of options (whether such options are listed on an options exchange or otherwise)
on, or settlement of short sales of, the Common Stock made within 3 days prior
to conversion of Series C Convertible Preferred Stock in an amount not greater
than the number of shares issuable upon such conversion. Any of such
transactions may be effected at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at varying prices determined at
the time of sale or at negotiated or fixed prices, in each case as determined by
the Selling Stockholder or by agreement between the Selling Stockholder and
underwriters, brokers, dealers or agents, or purchasers. If the Selling
Stockholders effect such transactions by selling common Stock to or through
underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or
agents may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders or commissions from purchasers or
Common Stock for whom they may act as agent (which discounts, concessions or
commissions as to particular underwriters, brokers, dealers or agents may be in
excess of those customary in the types of transactions involved). The Selling
Stockholders and any brokers, dealers or agents that participate in the
distributions of the Common Stock may be deemed to be underwriters, and any
profit on the sale of Common Stock by them and any discounts, concessions or
commissions received by any such underwriters, brokers, dealers or agents may be
deemed to be underwriting discounts and commissions under the Securities Act.
Under the securities laws of certain states, the Common Stock may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in certain states the Common Stock may not be sold unless the Common
Stock has been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
The Company has informed the Selling Stockholders that the
anti-manipulation provisions of Regulation M under the Exchange Act may apply to
purchases and sales of the Common Stock by the Selling Stockholders, and that
there are restrictions on market-making activities by persons engaged in the
distribution of the Common Stock. The Company has also advised the Selling
Stockholders that if a particular offer of Common Stock is to be made on terms
constituting a material change from the information set forth above with respect
to the Plan of Distribution, then to the extent required, a Prospectus
Supplement must be distributed setting forth such terms and related information
as required.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Schwartz &
Associates, Los Angeles, California.
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MISCELLANEOUS
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE 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 A SOLICITATION OF ANY OFFER TO BUY, COMMON STOCK
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
12
