As filed with the Securities and Exchange Commission on September 25, 1995
Registration No. 33-84222
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 5
to
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
JUDICATE, INC.
(Exact name of registrant as specified in charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
23-2257354
(I.R.S. Employer
Identification Number)
The Bellevue, 200 South Broad Street, Suite 800, Philadelphia, PA 19102
(215) 546-6200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
STEPHEN J. DRESCHER
Chief Executive Officer
The Bellevue, 200 South Broad Street, Suite 800, Philadelphia, PA 19102
(215) 546-6200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to the public: From time to
time after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
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, please 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
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<TABLE>
<CAPTION>
Title of each class
of securities to be Amount to be Proposed maximum Proposed maximum Amount of
registered registered offering price per unit aggregate offering price registration fee (1)
---------- ---------- ----------------------- ------------------------ --------------------
<S> <C> <C> <C> <C>
Common Stock 2,140,442 $1.0625 $2,274,219.625 $784.21
Total $784.21
</TABLE>
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(1) $1,299.52 previously paid.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION
September 25, 1995
JUDICATE, INC
2,140,442 shares of Common Shares
($.0001 par value)
This Prospectus relates to the possible resale on a continuous basis of up to
2,140,442 shares of Common Stock, $.0001 par value, of Judicate, Inc.
("Judicate" or the "Company"). 1,320,000 of these shares were previously
issued on conversion of the Company's Series A Preferred Shares, 618,240 of
these shares were issued upon exercise of Series II Warrants and 202,202 of
these shares were previously issued in May 1993 in a private placement. The
shares included in the Registration Statement of which this Prospectus is a
part are sometimes referred to as the "Securities". The Securities may be
offered from time to time by the selling securityholders (the "Selling
Securityholders"). THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE
SALE OF THE SECURITIES BY THE SELLING SECURITYHOLDERS.
The Securities will be offered for sale from time to time on terms to be
determined at the time of sale by the Selling Securityholders. The Securities
are listed on the NASDAQ Small Cap Market under the symbol "JUDG" and the last
reported bid and asked prices on September 22, 1995 were $1.75 and $2.0625
respectively. The Company will pay certain expenses of this offering. See
"USE OF PROCEEDS" and "PLAN OF DISTRIBUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
An investment in the Securities offered hereby involves a high degree of risk
and should be considered only by persons who can afford the loss of their
entire investment. See "RISK FACTORS" (pp. 6-13) for important information
which should be considered by prospective investors.
Although Stratton Oakmont, Inc. ("Stratton") and Biltmore Securities, Inc.
("Biltmore") are not the sole market makers in the Company's common stock,
from time to time they may be the dominant market makers in the Company's
common stock. Each of Stratton and Biltmore is involved in litigation with
the Securities and Exchange Commission and in the event that such litigations
adversely affect Biltmore and Stratton's ability to act as a market maker for
the Company's securities, the market for and liquidity of the Company's
securities may be adversely affected. There can be no assurance that Stratton
or Biltmore will continue to make a market in the Company's securities. In
the event that other broker dealers fail to make a market in the Company's
securities, the possibility exists that the market for and the liquidity of
the Company's securities may be adversely affected to such an extent that
public securityholders may not have anyone to purchase their securities when
offered for sale at any price. In such event, the market for, liquidity
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and prices of the Company's securities may not exist. For additional
information regarding Stratton and Biltmore, investors may call the National
Association of Securities Dealers, Inc. at (800) 289-9999.
---------------------
Underwriting
Price to Discounts Proceeds to
Public(1) and Commissions(2) Selling Securityholders
--------- ------------------ ------------------------
Per Share $1.91 -- $1.91
Total $4,088,244.20 -- $4,088,244.20
- ----------------
(1) Based upon the average of the last reported bid and asked prices on
September 22, 1995.
(2) Not known at this time.
The Selling Securityholders, through agents designated from time to time, or
through dealers or underwriters also to be designated, may sell the Securities
from time to time on terms to be determined at the time of sale. To the
extent required, the specific Securities to be sold, the purchase price, the
public offering price, the name of any such agent, dealer or underwriter, and
any applicable commission or discount with respect to a particular offer will
be set forth in a Prospectus Supplement. The aggregate proceeds to the
Selling Securityholders from the Securities will be the purchase price of such
Securities sold less the aggregate agents' commissions and underwriters'
discounts, if any, and other expenses of issuance and distribution not borne
by the Company. Any such Prospectus Supplement will also set forth any
additional information regarding indemnification by the Company of the Selling
Securityholders or any underwriter, dealer or agent against certain
liabilities,including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). The Selling Securityholders and any broker-dealers,
agents or underwriters that participate with the Selling Securityholders in
the distribution of any of the Securities may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission received by them
and any profit on the resale of the Securities purchased by them may be deemed
to be underwriting commissions or discounts under the Securities Act. See
"PLAN OF DISTRIBUTION" generally.
The date of this Prospectus is September , 1995.
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<PAGE>
AVAILABLE 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 periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
This Prospectus, which constitutes part of the Registration Statement,
does not contain all the information set forth in the Registration Statement
and the exhibits and schedule thereto, to which reference is hereby made, as
permitted by the rules and regulations of the Commission. Statements made in
this Prospectus or in any document incorporated or deemed to be incorporated
by reference herein as to the contents of any contract, agreement or other
document referred to are not necessarily complete and with respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. Any interested parties may
inspect the Registration Statement, the exhibits and schedules forming a part
thereof and the reports, proxy statements and other information referred to
above, without charge, at the public reference facilities of the Securities
and Exchange Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and may obtain copies of all or any part of such documents from the
Commission upon payment of the fees prescribed by the Commission. Such
documents also are available for inspection and copying at prescribed rates at
the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048; and the Northwestern Atrium Center, 500
W. Madison, Suite 1400, Chicago, Illinois 60661-2511.
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INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act (File No. 0-13324), are hereby
incorporated by reference and made a part of this Prospectus:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994, as amended by Form 10-KSB/A, No. 1,
dated March 7, 1995, Form 10-KSB/A, No. 2, dated August 28,
1995, and Form 10-KSB/A, No. 3, dated September 15, 1995.
(2) The Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1995, as amended by Form 10-QSB/A, No. 1,
dated August 28, 1995, and Form 10-QSB/A, No. 2, dated
September 15, 1995.
(3) The Company's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1995, as amended by Form 10-QSB/A, No. 1, dated
September 15, 1995.
(4) The Company's Current Report on Form 8-K dated March 31, 1995,
as amended by Form 8-K/A, No. 1, dated June 14, 1995.
(5) The Company's Current Report on Form 8-K dated August 15,
1995.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus shall
be deemed to be incorporated by reference and a part of this Registration
Statement from the date of filing of such documents. 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 statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the request of such
person, a copy of any or all documents referred to above which have been
incorporated in this Prospectus by reference, other than exhibits to such
documents. Requests for such copies should be directed to Office of the
Secretary, Judicate, Inc., The Bellevue, 200 South Broad Street, Suite 800,
Philadelphia, Pennsylvania 19102.
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THE COMPANY
Judicate, Inc. (the "Company") was incorporated in 1983 to provide a
broad range of alternative dispute resolution ("ADR") services, including
non-binding mediations (which consists of "judicial" settlement conferences
and commercial mediation) and binding arbitrations, to assist private parties
in settling civil disputes.
The increasing awareness of ADR by the legal community and the resulting
publicity of ADR has fostered a substantial number of competitors in the
Company's marketing areas. These competitive pressures have already adversely
affected the profitability of the ADR business and the Company has experienced
substantial cash flow deficits and operating losses since its formation. The
foregoing have caused the Company to explore acquisition opportunities in
unrelated lines of business and there can be no assurance as to how long the
Company will continue to operate the ADR business.
On March 31, 1995, the Company acquired, through Quest Electronic
Hardware, Inc. ("Quest"), an electronic fasteners distribution business
("Fasteners Business"). Quest, which primarily operates out of San Jose,
California, is a specialized distributor of fasteners and electronic hardware
sold to electronic equipment manufacturers. The business serves more than 250
customers in the high technology equipment manufacturers arena, including
leading names in the ranks of computer, telecommunications, and medical
instrumentation companies. The Company has limited experience in the Fastener
Business and such business does not bear any relation to the ADR business
historically conducted by the Company. (See "RECENT RESTRUCTURING AND
ACQUISITIONS")
The Company was incorporated in Delaware in 1983, and its principal
executive offices are located at The Bellevue, 200 South Broad Street, Suite
800, Philadelphia, PA 19102; (215) 546-6200.
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<PAGE>
RISK FACTORS
The Securities registered hereby are speculative in nature and involve a
high degree of risk of loss. Accordingly, in analyzing an investment in these
Securities, prospective investors should carefully consider, along with the
other matters referred to herein, the following risk factors in light of the
investor's particular financial circumstances and investment objectives:
Operating Losses; Decrease in Revenues
Since its formation, the Company has suffered substantial cash flow
deficits and operating losses. The Company has also experienced a substantial
erosion of revenue from its alternate dispute resolution ("ADR") service
business. Revenues for the fiscal year ended December 31, 1994 were $844,025
compared with $2,576,598 for the prior year, a decrease of 67%. ADR revenues
for the six months ended June 30, 1995 were $180,364 compared with $492,790
for the comparable period in the prior year, a decrease of 63%.
In view of these results, there can be no assurance that the Company will
continue its ADR operations.
Litigation Involving Market Makers
Although Stratton Oakmont, Inc. ("Stratton") and Biltmore Securities,
Inc. ("Biltmore") are not the sole market makers in the Company's stock, from
time to time they may be the dominant market makers in the Company's stock.
Each of Stratton and Biltmore is involved in litigation which may adversely
affect its ability to make a market in the Company's stock. This litigation
is described below.
Permanent Injunction Granted - Stratton Enjoined from Violating
Administrative Order and Ordered to Comply with Consultant's Report
The Company has been advised by Stratton that the Securities and Exchange
Commission (the "Commission") instituted an action on December 14, 1994 in the
United States District Court for the District of Columbia against Stratton.
The complaint alleged that Stratton was violating an Administrative Order
entered by the Commission on March 17, 1994 ("Administrative Order") by
failing to adopt the recommendations of an independent consultant. The
Administrative Order was consented to by Stratton, without admitting or
denying the findings contained therein, as settlement of an action commenced
against Stratton by the Commission in March 1992, alleging violations of the
securities laws to the extent that Stratton was alleged to have:
o engaged in and/or permitted unauthorized trading in customer
accounts;
o manipulated the market price of a company's securities by
dominating and controlling the market for those securities;
o made improper and unsupported price predictions with regard to
recommended over-the-counter securities; and
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o made material misrepresentations and omissions regarding
certain securities and its experience in the securities
industry
On February 28, 1995, the court granted the Commission's motion for a
permanent injunction and ordered Stratton to comply with the Administrative
Order, including the requirement that all telephone conversations be taped
between Stratton's brokers and their customers. The failure by Stratton to
comply with the Administrative Order or Permanent Injunction may adversely
affect its ability to conduct its business in that the court may impose
sanctions restricting the ability of Stratton to conduct its business which
may restrict Stratton's ability to act as a market maker of the Company's
securities. The effect of such action may prevent the holders of the
Company's securities from selling such securities since Stratton may be
restricted from acting as a marketmaker of the Company's securities and, in
such event, will not be able to execute a sale of such securities.
As a result of the permanent injunction, the states of New Jersey,
Massachusetts and Indiana have commenced actions seeking among other things to
revoke Stratton's license to do business in such states. The states of
Alabama, Mississippi, Delaware, North Carolina and Arkansas have also
suspended Stratton's license pending a resolution of the proceedings in those
states. The states of Minnesota, South Carolina, Vermont, Nevada,
Pennsylvania and Rhode Island have served upon Stratton Notices of Intent to
revoke Stratton's license in such states. Finally, Stratton has received an
Order Limiting License in the state of Nebraska. Such sanctions, which
ultimately may result in significant fines if any of the state actions are
successful, may adversely affect the market for and liquidity of the Company's
securities if additional broker dealers do not make a market in the Company's
securities. Moreover, should investors purchase any of the securities of this
offering prior to a revocation of Stratton's license in their state, such
investors will not be able to resell such securities in such state through
Stratton but will be required to retain a new broker dealer firm for such
purpose. The Company cannot ensure that other broker dealers will make a
market in the Company's securities. In the event that other broker dealers
fail to make a market in the Company's securities, the possibility exists that
the market for and the liquidity of the Company's securities may be adversely
affected to such an extent that public security holders may not have anyone to
purchase their securities when offered for sale at any price. In such event,
the market for, liquidity and prices of the Company's securities may not
exist. FOR ADDITIONAL INFORMATION REGARDING STRATTON, INVESTORS MAY CALL THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. AT (800) 289-9999.
Commission Complaint Against Biltmore
The Company has been advised by Biltmore that on or about May 22, 1995,
Biltmore and Messrs. Loewenstern and Bronson, principals of Biltmore, and the
Commission agreed to an offer of settlement (the "Offer of Settlement") in
connection with a complaint filed by the Commission in the United States
District Court for the Southern District of Florida alleging violations of the
federal securities laws, Section 17(a) of the Securities Act of 1933, Section
10(b) and 15(c) of the Securities Exchange Act of 1934, and Rules 10b-5, 10b-6
and 15c1-2 promulgated thereunder. The complaint also alleged that in
connection with the sale
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of securities in three (3) IPOs in 1992 and 1993, Biltmore engaged in
fraudulent sales practices. The proposed Offer of Settlement was consented to
by Biltmore and Messrs. Loewenstern and Bronson without admitting or denying
the allegations of the complaint. The Offer of Settlement was approved by
Judge Gonzales on June 6, 1995. Pursuant to the final judgment (the "Final
Judgment"), Biltmore:
o was required to disgorge $1,000,000 to the Commission, which
amount was paid in four (4) equal installments on or before
June 22, 1995;
o agreed to the appointment of an independent consultant
("Consultant").
Such Consultant is obligated, on or before October 7, 1995:
o to review Biltmore's policies, practices and procedures in six
(6) areas relating to compliance and sales practices;
o to formulate policies, practices and procedures for Biltmore
that the Consultant deems necessary with respect to Biltmore's
compliance and sales practices;
o to prepare a report devoted to and which details the
aforementioned policies, practices and procedures (the
"Report");
o to deliver the Report to the President of Biltmore and to the
staff of the Southeast Regional office of the Commission;
o to prepare, if necessary, a supervisory procedures and
compliance manual for Biltmore, or to amend Biltmore's
existing manual; and
o to formulate policies, practices and procedures designed to
provide mandatory on-going training to all existing and newly
hired employees of Biltmore. The Final Judgment further
provides that, within thirty (30) days of Biltmore's receipt
of the Report, unless such time is extended, Biltmore shall
adopt, implement and maintain any and all policies, practices
and procedures set forth in the Report.
The Final Judgment also provides that an independent auditor ("Auditor")
shall conduct four (4) special reviews of Biltmore's policies, practices and
procedures, the first such review to take place six (6) months after the
Report has been delivered to Biltmore and thereafter at six-month intervals.
The Auditor is also authorized to conduct a review, on a random basis and
without notice to Biltmore, to certify that any persons associated with
Biltmore who have been suspended or barred by any Commission order are
complying with the terms of such orders.
On July 10, 1995, the action as against Messrs. Loewenstern and Bronson
was dismissed with prejudice. Mr. Bronson has agreed to a suspension from
associating in any supervisory capacity with any broker, dealer, municipal
securities dealer, investment advisor or investment company for a period of
twelve (12) months, dating from the beginning of
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such suspension. Mr. Loewenstern has agreed to a suspension from associating
in any supervisory capacity with any broker, dealer, municipal securities
dealer, investment advisor or investment company for a period of twelve (12)
months commencing upon the expiration of Mr. Bronson's suspension.
In the event that the requirements of the foregoing judgment adversely
affect Biltmore's ability to act as a market maker for the Company's stock,
and additional brokers do not make a market in the Company's securities, the
market for and liquidity of the Company's securities may be adversely
affected. In the event that other broker dealers fail to make a market in the
Company's securities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to such an
extent that public security holders may not have anyone to purchase their
securities when offered for sale at any price. In such event, the market for,
liquidity and prices of the Company's securities may not exist. FOR
ADDITIONAL INFORMATION REGARDING BILTMORE, INVESTORS MAY CALL THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. AT (800) 289-9999.
Entry into New Line of Business
The Company acquired on March 31, 1995, through Quest Electronic
Hardware, Inc. ("Quest"), an electronic fasteners distribution business
("Fasteners Business"). The Company has limited experience in the Fastener
Business and such business does not bear any relation to the ADR business
historically conducted by the Company.
Unproven Ability to Operate Fasteners Distribution Business on a Stand
Alone Basis
The Fasteners Business which the Company has acquired was previously
operated by Arrow Electronics, Inc. ("Arrow"), a major public company with
substantially more resources and support systems than the Company. There can
be no assurance that the Company can operate this business profitably with the
more limited resources available to it.
Unproven Market
The Company was incorporated in August 1983 and commenced providing its
ADR services in 1985. To date, operations have not been profitable. Management
believes that there is a need and market for ADR services such as those
provided by the Company, but there can be no assurance the market for ADR
services provided by the Company will ever be sufficient to facilitate
profitable operations. There can be no assurance as to how long the Company
will continue to operate the ADR business.
Lack of Major Clients
Since a single party to a dispute cannot compel the other party to accept
the Company's jurisdiction absent a pre-existing agreement to do so, and
because the potential defendant in an existing dispute may have a vested
interest in exploiting the delays that may occur in the public court system,
management believes that the Company's prospects would be improved if it were
able to enter into arrangements with entities such as insurance companies,
large corporations and unions representing the employees of such corporations
pursuant to which the entities agree to
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promulgate form contracts that provide for resolution of contract disputes
through the Company. To date, the Company has not been successful in
effecting any such arrangements. Although the Company has received filings
from insurance companies on a case-by-case basis (almost exclusively at the
regional level), no insurance company has entered into a contractual
arrangement to continue to use the Company's services in the future.
Change in Company Management; Absence of Meetings of Stockholders
Over the four-month period from November 1993 to February 1994 all
members of the Company's prior Board of Directors and senior management
resigned except for one member of senior management. Almost all of the
current members of the Board and senior management have become associated with
the Company within the past 18 months and have limited experience with the ADR
business and the recently acquired fastener distribution business. In
addition, the Company has not held a meeting of stockholders for the purpose
of electing directors since December 1992. The ability of the stockholders of
the Company to change the composition of the Board of Directors will be
adversely affected in the event that stockholder meetings continue to be
infrequently held.
Reliance on Judges and Mediators
The market for the Company's ADR services depends on a perception by
potential users that the Company judges and mediators are impartial, qualified
and experienced. The Company believes that the individuals who have agreed to
serve as Company judges and mediators meet the high standards required.
However, the Company's success in marketing its services is dependent upon a
favorable perception of the Company judges and mediators by the public, of
which there can be no assurance. Moreover, the Company's ability to continue
to retain qualified Company judges and mediators, or maintain arrangements
with its present Company judges and mediators in the face of increasing
competition, is uncertain. The Company judges and mediators are retained on a
case-by-case basis and most are free to render services independently as well
as through competing ADR services. If Company judges or mediators,
particularly those who are highly regarded in their respective communities,
are unwilling or unable to continue to serve the Company, the Company's
business and operations could be materially adversely affected.
Competition
The Company's most significant competition in providing ADR services
nationally is the American Arbitration Association ("AAA"), an established
not-for-profit corporation widely accepted in the legal and business
communities. Because AAA is well-established and highly regarded, it is
difficult for the Company to compete successfully against it, particularly in
the labor dispute market. In addition, Resolute Systems of Brookfield,
Wisconsin, competes with the Company as a national ADR provider.
Moreover, in certain areas of the country, organizations similar to the
Company have been formed on a regional level, and similar companies may be
formed in the future. For example, Judicial Arbitration Mediation Services,
Inc. ("JAMS") has recently expanded its operations adding offices in Dallas,
Houston, Atlanta and New York City, and has
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considerable financial support from E.M. Warburg, Pincus & Co., Inc., an
investment banking firm.
The Company is also aware that several of its former employees have
commenced operations providing ADR services in Nassau and Suffolk counties in
New York and in Philadelphia, Pennsylvania. Although these businesses
presently occupy a small segment of the market, the Company believes that such
competition could adversely affect the business and prospects of the Company.
Furthermore, the insurance industry has continued its support for
Arbitration Forums, a not-for-profit organization created to service the
insurance subrogation market with ADR programs. It is unclear whether
Arbitration Forums or other trade-related ADR programs will have a negative
impact on the Company's business.
Experienced judges and mediators could become scarce and revenues could
decrease as a result of such competition. Moreover, the Company judges are
obtained on a case-by-case basis and may compete with the Company by rendering
services independently or through competing ADR service providers. There is
no assurance that the Company can successfully compete in the present or
future marketplace for ADR services.
In general, the ADR industry furnishes an alternative to public dispute
mechanisms, principally the public courts. The Company's marketing efforts
have been based on its belief that there exists dissatisfaction among
litigants and their counsel with the public court system. Several public
court systems have recently instituted court- coordinated ADR programs and it
is uncertain as to whether they will be effective. To the extent that the
public courts reduce case backlogs and provide effective settlement
mechanisms, the Company's business opportunities in such markets may be
significantly reduced.
Effect of Options and Warrants; Change of Control
At September 15, 1995, the Company believes that it had outstanding
options and warrants to purchase 3,256,223 shares of the Company's Common
Stock at exercise prices ranging from $0.249 to $33.75 with expiration dates
ranging from December 1994 to November 2004. In addition, as of September 15,
1995 there were 25,000 shares of Series A Preferred Stock outstanding which
are convertible into 50,000 shares of Common Stock. These options and
warrants and rights to convert, if exercised, would constitute approximately
21% of the outstanding Common Stock of the Company and may result in
substantial dilution to the other stockholders. As a part of its acquisition
of Quest, the Company issued to the Quest stockholders Common Stock of the
Company in an amount which resulted in the former stockholders of Quest owning
25% of the Company's Common Stock outstanding (on a fully diluted basis). In
addition, the Company has entered into certain agreements pursuant to which it
will be obligated to grant warrants to purchase up to 15% of the Company's
Common Stock outstanding (on a fully diluted basis) as of the date of the
closing of the Fasteners Business (March 31, 1995) at $.10 per share upon the
attainment of specified earnings targets. The issuance of the 25% interest to
the stockholders of Quest caused substantial dilution to the other
stockholders. In addition,
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warrants issued in connection therewith may result in further dilution to the
stockholders.
To the best knowledge of management, the foregoing represents
all of the outstanding options and warrants of the Company. Due to the
resignations of members of the Company's senior management team, current
management is unable to verify at this time whether additional options or
warrants may have been granted which are not reflected on the corporate
records. If such additional options or warrants exist, and are lawfully
exercised, a stockholder's interest in the Company may be further diluted.
Dependence on Bank Financing; Substantially All of Quest's Assets Pledged
In connection with its acquisition of the Fasteners Business, Quest has
entered into a security and loan agreement pursuant to which all of the shares
of stock and substantially all of the assets of Quest have been pledged to the
bank as security for such financing.
Absence of Dividends
The Company has not paid any cash dividends on the Common Stock of the
Company and does not expect to do so in the foreseeable future.
Voting Control; Potential Anti-Takeover Effect
The principal stockholders of the Company beneficially own up to
approximately 58.9% of the Company's Common Stock. Accordingly, such persons
may be able to approve major corporate transactions including amending the
Certificate of Incorporation of the Company or the sale of substantially all
of the Company's assets, to elect all of the directors of the Company and to
control the Company's affairs. Changes to the Certificate of Incorporation
currently under consideration by the Board of Directors include increasing the
authorized capital of the Company and providing for a classified board. The
Company's stockholders do not have the right to cumulative voting in the
election of directors. The Board of Directors has the authority, without
further approval of the Company's stockholders, to issue shares of Preferred
Stock, having such rights, preferences and privileges as the Board of
Directors may determine. Any such issuance of shares of Preferred Stock, under
certain circumstances, could have the effect of delaying or preventing a
change in control of the Company and could adversely affect the rights of the
holders of the shares of Common Stock of the Company. In addition, the
Company is subject to a State of Delaware statute regulating business
combinations which may also hinder or delay a change in control of the
Company.
NASDAQ Listing and Maintenance
The Company's Common Stock is listed for trading in the over-the- counter
market on the National Association of Securities Dealers' Automated Quotation
System ("NASDAQ") for Small Cap Securities. If for any reason, however, such
securities are not eligible for continued listing or an active trading in such
securities does not exist, holders of the Common Stock may have difficulty
selling their securities should they desire to do so. Under rules of the
National Association of Securities Dealers ("NASD"), in order to qualify for
continued quotation of securities on the NASDAQ Small Cap market, a company,
among other
12
<PAGE>
things, must have $2,000,000 in total assets, $1,000,000 in capital and
surplus, and a minimum bid price of $1.00 per share. There can be no
assurance that the Company's NASDAQ listing can be maintained or that an
active trading market will develop or be maintained.
Penny Stock Restrictions
If the Common Stock registered hereby is removed from NASDAQ, the shares
could be subject to a rule that imposes additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally defined as persons with assets
in excess of $1,000,000 or annual income exceeding $200,000 individually or
$300,000 together with their spouse). For transactions covered by this rule,
the broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to purchase. Consequently, the rule may restrict the ability of
broker-dealers to sell the Company's securities and may affect the ability of
holders to sell the Company's securities in the secondary market.
The Commission has also adopted regulations which define a "penny stock"
to be any equity security that has a market price (as defined) less than $5.00
per share, subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a disclosure schedule prepared by the Commission related to
the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole market
maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control of the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. While many NASDAQ
listed securities would be covered by the definition of penny stock,
transactions in a NASDAQ listed security would be exempt from all but the sole
market maker provisions for (i) issuers who have in excess of $2,000,000 in
net tangible assets ($5,000,000 if the issuer has not been in continuous
operation for three years), (ii) transactions in which the customer is an
institutional accredited investor, and (iii) transactions that are not
recommended by the broker-dealer. In addition, transactions in a NASDAQ
security directly with a NASDAQ market maker for such securities would be
subject only to the sole market maker disclosure and the disclosure with
respect to commissions to be paid to the broker-dealer and the registered
representative.
Sale of Substantial Number of Shares May Adversely Affect Market Price
Sales of substantial numbers of shares of Common Stock in the public
market pursuant to the Registration Statement of which this Prospectus is a
part or otherwise could adversely affect the market price of the Common Stock.
In addition, as noted above (see "Effect of Options and Warrants; Change of
Control"), there are a substantial number of shares issuable upon exercise of
outstanding options or warrants or in connection with the acquisiton of the
Fasteners Business. The market overhang of such substantial number of shares
may also adversely affect the market price for the stock.
13
<PAGE>
RECENT RESTRUCTURING AND ACQUISITIONS
Commencing in September 1993, the Company instituted a continuing
vigorous cost reduction program with a goal of establishing appropriate cost
relationships with revenues. This has led to substantial downsizing of the
Company's activities. During the fourth quarter of 1994, the New York sales
office was discontinued and all of the Company's operations are now handled at
the Philadelphia office. The Philadelphia office also is operating with a
substantially reduced staff of administrative and sales personnel. Some of
the Philadelphia judges have also discontinued their relationship with the
Company.
In November 1994, the Company announced that it had agreed to acquire an
electronic fasteners distribution business and as of the close of business on
March 31, 1995 the Company acquired 100% of the stock of Quest Electronic
Hardware, Inc. ("Quest"), a privately owned company, in exchange for a 25%
interest in Judicate, Inc. on a fully diluted basis. Such acquisition was
effected pursuant to a Share Acquisition Agreement, dated November 29, 1994,
by and among Gulfstream Financial Group, Inc., a Florida corporation
("Gulfstream"), Phillip D. Schwiebert, an individual ("Schwiebert"), Quest and
the Company (the "Share Agreement"). Pursuant to the Share Agreement, the
Company issued, at the closing of the transaction, to Gulfstream and
Schwiebert (the sole stockholders of Quest) 3,871,944 newly issued, fully-paid
and non-assessable shares of Common Stock of the Company, in exchange for all
of the issued and outstanding shares of common stock of Quest owned by such
stockholders. As required by the Share Agreement, this number represented 25%
of the outstanding Common Stock of the Company on a fully diluted basis. The
Company will account for such acquisition using purchase accounting.
Simultaneously with the foregoing events, Quest acquired the fasteners
distribution business (the "Fasteners Business") of Arrow Electronics, Inc., a
New York corporation ("Arrow"). Such acquisition was effected pursuant to a
Purchase of Assets Agreement, dated November 29, 1994, by and between Quest
and Arrow (the "Purchase Agreement"). Under the Purchase Agreement, Quest
acquired the assets of Arrow used exclusively in connection with Arrow's
operation of the Fasteners Business. Such assets include, but are not limited
to, machinery, equipment, furniture, motor vehicles and other personal
property and inventories. The Company is using the acquired assets to
continue the business of the Fasteners Business.
The purchase price for the acquisition of the Fasteners Business was a
negotiated fixed price. The price consisted of a cash payment of
approximately $5 million plus the assumption of certain liabilities of the
Fasteners Business. As more fully described below, the purchase price was
funded through a combination of the proceeds from the sale of the Company's
securities under a private placement, borrowing under the Loan Agreement (as
defined below) and available cash.
Under a Loan and Security Agreement, dated as of March 31, 1995, by and
between Quest and Silicon Valley Bank (the "Loan Agreement"), Quest borrowed
$2.2 million to partially fund the acquisition of the Fasteners Business. In
order to secure the obligations of Quest under the Loan Agreement, the Company
entered into a Stock Pledge Agreement, dated as of March 31, 1995, with
Silicon Valley Bank (the "Bank"). Under the terms of said agreement, the
Company pledged to the Bank the shares of
14
<PAGE>
capital stock of Quest which the Company held at such date and any shares of
Quest which the Company may thereafter acquire an interest. In addition,
Quest granted a security interest in substantially all of its assets to the
Bank.
An additional portion of the funds for the purchase price for the
Fasteners Business (approximately $1.5 million) was provided from the proceeds
of the issuance by the Company to a group of subscribers, in a private
placement, of 1,160,000 shares of Common Stock at a purchase price of $1.50
per share. The balance of the cash portion of the purchase price for the
Fasteners Business was provided by available cash.
Pursuant to a Management Advisory and Consulting Agreement, dated
November 29, 1994, between the Company and Gulfstream, Gulfstream has agreed
to provide administrative services to the Company and to act as an advisor and
consultant to the management of the Company. In consideration of its services
to the Company under said agreement, the Company is to compensate Gulfstream
at the rate of $150,000 per annum during the term of said agreement.
Additionally, pursuant to the terms of said agreement, Gulfstream may be
entitled to be awarded as incentive compensation, subject to certain
conditions and restrictions, warrants to purchase up to 10.0% of the Company's
Common Stock outstanding at March 31, 1995 (for purposes of such calculation,
the Common Stock outstanding at March 31, 1995 assumes the conversion of all
outstanding warrants, options and preferred stock), at a price of $.10 per
share, upon the attainment of certain earnings targets.
Pursuant to an Employment Agreement, dated November 29, 1994, by and
between Quest and Dominic A. Polimeni ("Polimeni"), Quest has agreed to employ
Polimeni, and Polimeni has agreed to serve, as Chairman, Chief Executive
Officer and Chief Financial Officer of Quest for a period of five (5) years
unless terminated pursuant to the terms of said agreement. In consideration
of his services to the Company under said agreement, the Company is to
compensate Polimeni at the rate of $100,000 per annum during the term of said
agreement. Polimeni is also a Director and the President of Gulfstream and
has been named a Director and the President and Chief Operating Officer of the
Company.
Pursuant to an Employment Agreement, dated November 29, 1994, by and
between Quest and Schwiebert, Quest has agreed to employ Schwiebert, and
Schwiebert has agreed to serve, as President and Chief Operating Officer of
Quest for a period of five (5) years unless terminated pursuant to the terms
of said agreement. In consideration of his services to the Company under said
agreement, the Company is to compensate Schwiebert at the rate of $100,000 per
annum during the term of said agreement. Additionally, pursuant to the terms
of said agreement, Schwiebert may be entitled to be awarded as incentive
compensation, subject to certain conditions and restrictions, warrants to
purchase up to 5.0% of the Company's Common Stock outstanding at March 31,
1995 (for purposes of such calculation, the Common stock outstanding at March
31, 1995 assumes the conversion of all outstanding warrants, options and
preferred stock), at a price of $.10 per share, upon the attainment of certain
earnings targets.
Quest, which primarily operates out of San Jose, California, is a
specialized distributor of fasteners and electronic hardware sold to
electronic equipment manufacturers. The business serves more than 250
customers in the high technology equipment manufacturers arena, including
15
<PAGE>
leading names in the ranks of computer, telecommunications, and medical
instrumentation companies. Arrow has operated the fasteners distribution
business since acquiring it in 1988, prior to which it operated as a
distributor of fasteners and electronic hardware for more than twenty years.
The Company may engage in additional acquisitions despite the fact that
earlier discussions with a manufacturer of custom-fabricated metal enclosures
for high technology manufacturers and a related company have ended. The
Company intends to identify and evaluate potential merger and acquisiton
candidates engaged in lines of business complimentary to the distribution of
fasteners and electronic hardware business conducted by Quest. While certain
of such potential acquisition opportunities are at various stages of
consideration and evaluation, none are at any definitive stage at this time,
and there can be no assurance that the transactions under consideration and
evaluation will be successfully completed.
The Company has limited prior experience in the fasteners and electronic
hardware business. This line of business bears no relation to the ADR
business historically conducted by the Company. There can be no assurance as
to how long the Company will continue to operate the ADR business.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Securities by
the Selling Securityholders.
16
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information with respect to the
Selling Securityholders. The Securities to which this Prospectus relates may
be sold from time to time in whole or in part by the Selling Securityholders.
See "PLAN OF DISTRIBUTION".
<TABLE>
<CAPTION>
Shares of Shares that may Shares of
Common Stock be offered Common Stock % of Class
Selling owned prior to pursuant to this owned after owned after
Securityholders this offering Prospectus offering(1) Offering(2)
- --------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Applebaum, Irving
4 Birnawoods Lane
St. Louis, MO 63102 20,000 20,000 0 N/A
Baretti, Phillip
Two North Fifth Street
Brooklyn, NY 11211 53,048 53,048 0 N/A
Beall, David
c/o Stratton Oakmont
1979 Marcus Ave.
Lake Success, NY 11042 2,222 2,222 0 N/A
Beckner, James
c/o Shirt Factory & Sporting Goods
Rural Route 3, Box 7
Parkersburg, WV 26101 17,777 17,777 0 N/A
Berg, Andrew
Two Bay Club Drive
Bayside, NY 11360 26,524 26,524 0 N/A
Bibicoff, Harvey
Harmony Holdings
2921 W. Alameda Avenue
Burbank, CA 91505 27,022 8,888 18,134 N/A
Braun, Elliot Y.
566 Westgate Drive
Edison, NJ 08820 40,000 40,000 0 N/A
Brown, Marcia
73 Robertsville Road
Marlboro, NJ 07746 50,000 50,000 0 N/A
Brutman, Alan P.
416 E. Balboa Blvd.
Newport, CA 92661 20,000 20,000 0 N/A
Burg, Marc
PO Box 488
West Hampton, NY 11977 22,080 22,080 0 N/A
Davis, R.E.
c/o Progressive Insurance
Services, Inc.
1315 Leestown Road
Lexington, KY 40508 20,000 20,000 0 N/A
17
<PAGE>
<CAPTION>
Shares of Shares that may Shares of
Common Stock be offered Common Stock % of Class
Selling owned prior to pursuant to this owned after owned after
Securityholders this offering Prospectus offering(1) Offering(2)
- --------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Denton, Robert
c/o Biltmore Securities
6700 N. Andrews Ave.
Ft. Lauderdale, FL 33309 23,262 23,262 0 N/A
Dillon, Bobby D.
Route 2 Box 70B
Temple, TX 76502 4,444 4,444 0 N/A
Dritz, Jim
c/o Para Partners
505 Park Avenue, 4th Floor
New York, NY 10022 26,524 26,524 0 N/A
Eimerman, John
7410 Spencer Court
McLean, VA 22102 50,000 50,000 0 N/A
Emory, John A.
1106 Delf Drive
McLean, VA 22101 18,000 18,000 0 N/A
Enslein, Spencer
20944 Bay Ct., Number 346
Aventura, FL 33180 10,000 10,000 0 N/A
General American Financial Corporation
c/o Paul Nortman
PO Box 348
Woodbury, NY 11797 100,000 100,0000 0 N/A
Goldrich, Howard
4633 Elm Terrace
Skokie, IL 60076 2,652 2,652 0 N/A
Goldrich, Jean
4633 Elm Terrace
Skokie, IL 60076 5,304 5,304 0 N/A
Goldrich, Steve
4633 Elm Terrace
Skokie, IL 60076 5,304 5,304 0 N/A
Goodrich, Robert
15-38 215th Street
Bayside, NY 11360 2,222 2,222 0 N/A
Holmquist, Bill
3430 Rocky Springs Court
Marietta, GA 30062 8,888 8,888 0 N/A
Independence Funding Corp.
485 Madison Avenue, Suite 1100
New York, NY 10022 50,000 50,000 0 N/A
Ito, Ken
2861 234th Street
Torrance, CA 90505 40,000 40,000 0 N/A
18
<PAGE>
<CAPTION>
Shares of Shares that may Shares of
Common Stock be offered Common Stock % of Class
Selling owned prior to pursuant to this owned after owned after
Securityholders this offering Prospectus offering(1) offering(2)
- --------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Iulo, Ken
165 Prospect Avenue
Passaic, NJ 07055 8,888 8,888 0 N/A
Kipperman, Neil
c/o Stratton Oakmont
1979 Marcus Avenue
Lake Success, NY 11042 2,222 2,222 0 N/A
Koock, Ken
Two Robin Hill Road
N. Caldwell, NJ 07006 153,048 103,048 50,000 N/A
Krause, Steve
Two Bay Club Drive, 5A
Bayside, NY 11360 26,524 26,524 0 N/A
Kraut, Jon
740 River Road
Trenton, NJ 08625 26,524 26,524 0 N/A
Kraut, Dr. Irving
740 River Road
Trenton, NJ 08625 625,285 406,096 219,189 1.76%
Leach, Jeff
5 Concourse Parkway, Suite 3100
Atlanta, GA 30328 4,444 4,444 0 N/A
Loewenstern, Sharon & Howard
3202/11 Hadekel Blvd.
Post Office Box 2075
Bet Shemesh, Israel 26,524 26,524 0 N/A
Lyerly, J. Edward
1416 Vendome Court
Cape Coral, FL 33904 22,000 22,000 0 N/A
McCaleb, Malcolm
77 West Wacker Drive, 49th Floor
Chicago, IL 60601 40,000 40,000 0 N/A
MH Meyerson & Co.
30 Montgomery St.
Post Office Box 260
Jersey City, NJ 07303 100,000 50,000 50,000 N/A
Morrison, Jeffrey
c/o Biltmore Securities
6700 N. Andrews Ave.
Ft. Lauderdale, FL 33309 23,262 23,262 0 N/A
Moscowicz, Alec
22620 Hatteras Street
Woodland Hills, CA 91367 4,444 4,444 0 N/A
Motti, Stelio
628 Winding Hollow Drive
Franklin Lakes, NJ 07024 84,444 34,444 50,000 N/A
19
<PAGE>
<CAPTION>
Shares of Shares that may Shares of
Common Stock be offered Common Stock % of Class
Selling owned prior to pursuant to this owned after owned after
Securityholders this offering Prospectus offering(1) offering(2)
- --------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Motti, Sergio
1534 10th Street
Fort Lee, NJ 07024 28,888 28,888 0 N/A
MSB Research
100 Wall Street
New York, NY 10005 94,444 94,444 0 N/A
Muhlgeier, Jeffrey & Lisa
c/o Atlantic Beverages
950 New Durham Road
Edison, NJ 08817 20,000 20,000 0 N/A
Notowitz, Allen
c/o Numis International
301 Broadway
Millbrae, CA 94030 36,524 36,524 0 N/A
Randazzo, Sebastian
27 First Street
Syosset, NY 11797 20,000 20,000 0 N/A
Raymer, Brett
2811 East 26th Street
Brooklyn, NY 11235 20,000 20,000 0 N/A
Reiss, Steve
58 Reyam Road
Lynbrook, NY 11563 50,000 30,000 20,000 N/A
Rinehart, Martin
6766 South Evanston
Tulsa, OK 74136-4509 106,097 106,097 0 N/A
Rothstein, Martin
400 E. 56th St., Apt 27 B
New York, NY 10022 113,048 53,048 60,000 N/A
Rough, Lee
c/o Biltmore Securities
6700 N. Andrews Ave.
Ft. Lauderdale, Fl 33309 23,262 23,262 0 N/A
Schilowitz, Matthew
5 Riverside Drive, 4C
New York, NY 10023 53,048 53,048 0 N/A
Schilowitz, Harvey
5 Riverside Drive, 4C
New York, NY 10023 39,786 39,786 0 N/A
Sherman, Victor
c/o Salco Industries
209 W. 18th Street
New York, NY 10011 10,000 10,000 0 N/A
20
<PAGE>
<CAPTION>
Shares of Shares that may Shares of
Common Stock be offered Common Stock % of Class
Selling owned prior to pursuant to this owned after owned after
Securityholders this offering Prospectus offering(1) offering(2)
- --------------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Siden, Marc
c/o Biltmore Securities
6700 N. Andrews Ave.
Ft. Lauderdale, Fl 33309 36,524 36,524 0 N/A
Silverstein, Mildred
4520 B Fiscus Tree Road
Boynton Beach, FL 33436 20,000 20,000 0 N/A
Tripoli, Ken
c/o Biltmore Securities
6700 N. Andrews Ave.
Ft. Lauderdale, FL 33309 23,262 23,262 0 N/A
Universal Solutions
PO Box 280128
Lakewood, CO 80228 50,000 50,000 0 N/A
Weiss, David
c/o Shapiro, Weiss & Co.
One Post Office Square
Boston, MA 02109 60,000 60,000 0 N/A
Wlodarski, Arthur
8237 North Ozark
Niles, IL 60648 10,000 10,000 0 N/A
--------- --------- --------
Total 2,607,765 2,140,442 467,3232
========= ========= ========
</TABLE>
- ----------------------
(1) Assuming all shares being offered pursuant to this Prospectus are
sold.
(2) If 1% or more.
Except as noted below, during the last three years, none of the Selling
Securityholders has held any position or office with the Company, nor have any
of the Selling Securityholders had any material relationship with the Company
other than their status as holders of the Company's stock. A number of the
Selling Securityholders identified above are employed by Biltmore Securities,
Inc. ("Biltmore"). Biltmore has acted as placement agent in connection with a
number of private placements by the Company and has received fees in respect
of such services. In addition, Biltmore is party to a consulting agreement
with the Company pursuant to which it has provided financial advisory services
and received compensation. Dr. Irving Kraut, listed above as a Selling
Securityholder, beneficially owns directly and through a pension plan 625,285
shares of Common Stock which represents 5.02% of the Common Stock
outstanding.
21
<PAGE>
PLAN OF DISTRIBUTION
Any and all of the Securities registered hereby may be sold from time to
time to purchasers directly by the Selling Securityholders. Alternatively,
the Selling Securityholders may from time to time sell the Securities through
brokers, underwriters, dealers or agents, who may receive compensation in the
form of underwriting discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers of Securities for whom they may act as
agent. The Selling Securityholders and any such underwriters, dealers or
agents that participate in the distribution of the Securities may be deemed to
be underwriters, and any profit on the sale of Securities by them and any
discounts, commissions or concessions received by any such underwriters,
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act of 1933. The Securities may be sold at varying
prices determined at the time of sale or negotiated prices. Such prices will
be determined by the Selling Securityholders, or by agreement between the
Selling Securityholders and underwriters or dealers.
At the time a particular sale of Securities is made, to the extent
required, a Prospectus Supplement will be prepared and distributed by the
Company based on information provided by the Selling Securityholders of the
Securities, which will set forth the number of dealers or agents, any
discounts, commissions or concessions allowed or paid to dealers, including
the proposed selling price to the public.
In order to comply with certain states' securities laws, if applicable,
the Securities will be sold in certain jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain states the Securities
may not be sold unless the Securities have been registered or qualified for
sale in such state or an exemption from registration or qualification is
available and such sale is made in compliance with the exemption.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 20,000,000 shares of Common Stock,
$0.0001 par value per share, of which 12,445,749 shares were issued and
outstanding as of September 15, 1995.
Holders of Common Stock are entitled to receive, as, when and if declared
by the Board of Directors, from time to time, such dividends and other
distributions in cash, stock or property of the Company out of assets or funds
of the Company legally available therefor, subject to the rights of holders of
preferred stock having a dividend preference over the Common Stock. The
Company has not paid any dividends on its Common Stock to date. The Company
anticipates that for the foreseeable future it will follow a policy of
retaining earnings, if any, in order to finance the expansion and development
of its business. Payment of dividends will depend upon the earnings, capital
requirements and the operating and financial condition of the Company, among
other factors.
In the event of the liquidation, dissolution or winding up of the
Company, stockholders will be entitled to share ratably in the assets
22
<PAGE>
remaining after creditors and holders of preferred stock having a liquidation
preference over the Common Stock have been paid in full.
Each share of Common Stock entitles the holder thereof to one (1) vote on
all matters submitted to stockholders. There are no preemptive, conversion,
redemption or cumulative voting rights applicable to the Common Stock. The
outstanding shares of the Common Stock are fully paid and non-assessable.
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer & Trust Company, New York, New York.
Series A Preferred Stock
The Company is authorized to issue 1,000,000 shares of Preferred Stock,
par value $.01 per share. Of these authorized shares, the Board of Directors
has established a Series A Preferred Stock. The number of shares of Series A
Preferred Stock authorized to be issued is 900,000 shares. 25,000 shares were
issued and outstanding as of September 15, 1995.
Subject to certain exceptions, summarized below, the holders of Series A
Preferred Stock are not entitled to vote on matters submitted to the
stockholders of the Company. The Company shall not without the affirmative
vote of the holders of at least a majority of the Series A Preferred Stock
outstanding, voting as a separate class: (i) authorize or create any class of
stock ranking either as to payment of dividends or distribution of assets,
prior to or on a parity with the Series A Preferred Stock; (ii) in any manner
alter or change the designations, preferences or rights or qualifications of
the Series A Preferred Stock; or (iii) grant any registration rights that
would dilute or adversely affect the registration rights relating to the
Series A Preferred Stock or the Common Stock issuable upon the conversion of
the Series A Preferred Stock. In the event of the liquidation, dissolution or
winding up of the Company, the shares of Series A Preferred Stock are entitled
to a liquidation preference before any distribution to other classes or series
of stock of $1.00 per share. Each share of Series A Preferred Stock is
convertible, without further consideration, into two (2) shares of Common
Stock. Holders of Series A Preferred Stock will be entitled to dividends when
and as declared by the Board of Directors. However, the Company has not paid
any dividends on the Series A Preferred Stock and does not expect to do so in
the foreseeable future.
Series I Warrants
Each warrant entitles the registered holder to purchase 2.511 shares of
Common Stock at a price of $1.80 per share on or before June 30, 1996. Any
warrant not exercised by that date will be null and void. As of September 15,
1995, there were 25,760 Series I Warrants outstanding.
Options
Effective January 1, 1994, Biltmore Securities, Inc. and the Company
entered into a one year consulting agreement pursuant to which the Company
issued to Biltmore an option to purchase 250,000 shares of Common Stock at a
price of $0.625 per share. Options to purchase the first
23
<PAGE>
125,000 of these shares vested and became exercisable on April 1, 1994 and the
options to purchase the remaining 125,000 shares vested and became exercisable
on July 1, 1994. These options expire on December 31, 1998. By reason of the
application of the anti-dilution provisions of such option, the adjusted
aggregate number of shares purchasable under said option is 626,956 and the
adjusted exercise price is $.249.
LEGAL MATTERS
The legality of the Securities will be passed upon for the Company by
Gould & Wilkie.
EXPERTS
The Company's Consolidated Financial Statements and Financial Statement
Schedules as of December 31, 1993 and 1992 and for the years then ended
incorporated by reference in this Prospectus and the Registration Statement
have been incorporated herein in reliance on the report of Goldenberg
Rosenthal Friedlander, independent certified public accountants, given on the
authority of such firm as experts in accounting and auditing.
The Company's Consolidated Financial Statements as of December 31, 1994
and for the year then ended incorporated by reference in this Prospectus and
the Registration Statement have been incorporated herein in reliance on the
report of Mortenson and Associates, P.C., independent certified public
accountants, given on the authority of such firm as experts in accounting and
auditing.
MATERIAL CHANGES
The Company has announced that it has made a material acquisition. See
"THE COMPANY."
Quest is in active negotiation with a prospective customer for
a multi-year contract which management believes will result in a material
increase in annual sales. While management believes that such
negotiations will be successfully completed, there can be no assurances
that such contract will be awarded to Quest or, if awarded, that it will
result in the anticipated volume of sales.
24
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses of the registration of the Common Stock concerned
herein which are payable by the Registrant are as follows:
SEC Registration Fee $ 784.21
Legal Expenses 25,000.00
Accounting Expenses 15,000.00
Miscellaneous Expenses 4,215.79
----------
Total $45,000.00
==========
Item 15. Indemnification of Directors and Officers
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware under the law of which the Company is incorporated, which
provides for indemnification of directors and officers under certain
circumstances. Provisions for indemnification of directors and officers of
the Company are also contained in the Company's By-Laws.
Item 16. Exhibits
Exhibit No. Description
2.1 Purchase of Assets Agreement dated as
of November 29, 1994 by and between
Quest Electronic Hardware, Inc. and
Arrow Electronics, Inc.*
2.2 Share Acquisition Agreement dated as of
November 29, 1994 by and among
Gulfstream Financial Group, Inc.,
Philip D. Schwiebert, Quest Electronic
Hardware, Inc. and Judicate, Inc.*
4.1 Certificate of Incorporation of
Judicate, Inc., as amended*
4.2 By-Laws of Judicate, Inc.*
5.0 Form of Opinion of Gould & Wilkie*
23.1 Consent of Goldenberg Rosenthal Friedlander**
23.2 Consent of Mortenson and Associates, P.C.**
23.3 Consent of Gould & Wilkie (see Exhibit 5.0)
* Filed with Amendment No. 1 to this Registration Statement.
** Filed with Amendment No. 4 to this Registration Statement.
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Item 17. Undertakings
(a) 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 to include material information with respect
to the plan of distribution not previously disclosed in
the registration statement or any material change to such
information in the 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 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.
(b) The undersigned 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
Securities Exchange Act of 1934 that is incorporated by reference into 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.
(c) 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. In the event that a claim for
indemnification against such liabilities (other than the payment by 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 Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
amendment to the registration statement to be signed on its behalf by the
undersigned thereunto duly authorized on September 25, 1995.
JUDICATE, INC.
By:/s/ STEPHEN J. DRESCHER
Stephen J. Drescher
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the following
persons in the capacities indicated on September 25, 1995.
/s/ STEPHEN J. DRESCHER
Stephen J. Drescher Chairman, Chief Executive Officer and
Director (Principal Executive Officer)
/s/ MILTON M. ADLER
Milton M. Adler Treasurer, Secretary and Controller
(Principal Financial and Accounting Officer)
Paul L. Burton Director
/s/ MITCHELL HYMOWITZ
Mitchell Hymowitz Director
/s/ MICHAEL MINKOFF
Michael Minkoff Director
/s/ MARC POWELL
Marc Powell Director
/s/ DOMINIC A. POLIMENI Director
Dominic A. Polimeni
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<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
2.1 Purchase of Assets Agreement dated as of
November 29, 1994 by and between Quest
Electronic Hardware, Inc. and Arrow
Electronics, Inc.*
2.2 Share Acquisition Agreement dated as of
November 29, 1994 by and among Gulfstream
Financial Group, Inc., Philip D.
Schwiebert, Quest Electronic Hardware,
Inc. and Judicate, Inc.*
4.1 Certificate of Incorporation of Judicate,
Inc., as amended*
4.2 By-Laws of Judicate, Inc.*
5.0 Form of Opinion of Gould & Wilkie*
23.1 Consent of Goldenberg Rosenthal Friedlander**
23.2 Consent of Mortenson and Associates,
P.C.**
23.3 Consent of Gould & Wilkie (see Exhibit
5.0)
* Filed with Amendment No. 1 to this Registration Statement.
** Filed with Amendment No. 4 to this Registration Statement.
