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As filed with the Securities and Exchange Commission on October 20, 1995
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
<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 5,817,444 $1.50 $8,726,166.00 $3,009.02
Total $3,009.02
</TABLE>
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(1) Estimated solely for purposes of calculation of the registration fee.
Pursuant to Rule 457(c), estimated on the basis of the average of the closing
bid and asked prices of the Common Stock on October 18, 1995.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION
October 20, 1995
JUDICATE, INC
5,817,444 shares of Common Stock
($.0001 par value)
This Prospectus relates to the possible resale on a continuous basis of
up to 5,817,444 shares of Common Stock, $.0001 par value, of Judicate,
Inc. ("Judicate" or the "Company"). 2,643,200 of these shares were
previously issued in November 1994 in two private placements. 61,824 of
these shares were previously issued in July 1994 as compensation for
placement agent services in connection with an exchange offer of the
Company's Series II Warrants for the Company's Series I Warrants. 250,000
of these shares were previously issued in March 1994 pursuant to a
consulting agreement. 100,464 of these shares were previously issued in
July 1994 upon the exercise of warrants granted as compensation for
placement agent services. 2,135,000 of these shares are issuable upon the
exercise of the Company's Series III Warrants. 626,956 of these shares are
issuable upon the exercise of options to purchase shares of the Company's
Common Stock granted pursuant to a consulting agreement. Such warrants and
options are to be exercised prior to the effective date of the Company's
Registration Statement of which this Prospectus is a part. The shares
included in the Registration Statement 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 COMPANY WILL RECEIVE THE PROCEEDS FROM THE
EXERCISE BY THE SELLING SECURITYHOLDERS OF THE AFOREMENTIONED SERIES III
WARRANTS AND OPTIONS AND SUCH FUNDS WILL BE USED FOR THE GENERAL WORKING
CAPITAL PURPOSES OF THE COMPANY.
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. 2,405,810
of the Securities may be sold twelve (12) months from the date of this
Prospectus, subject to earlier release at the sole discretion of Biltmore
Securities, Inc. The Securities are listed on the NASDAQ Small Cap
Market under the symbol "JUDG" and the last reported bid and asked prices
on October 18, 1995 were $1.375 and $1.625 respectively. The Securities
are being registered at the request of the Selling Securityholders. 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.
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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
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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
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 $1.50 -- $1.50
Total $8,726,166.00 -- $8,726,166.00
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(1) Based upon the average of the last reported bid and asked prices on
October 18, 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 October , 1995.
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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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<PAGE>
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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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 market
maker 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 Elliot Loewenstern and Richard 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 November 6, 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 October 18, 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
October 18, 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, warrants issued in connection therewith
may result in further dilution to the stockholders.
- 11 -
<PAGE>
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.
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, Inc. ("NASD"), in order to qualify for continued
quotation of securities on the NASDAQ Small Cap market, a company, among
other 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
- 12 -
<PAGE>
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.
The Company will receive the proceeds from the exercise by the
Selling Securityholders of the Series III Warrants and options referenced
in the Selling Securityholders' table (pp. 17-19) and such funds will be
used for the general working capital purposes of the Company.
- 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
Shares of that may Shares of % of
Common Stock be offered Common Class
owner prior pursuant Stock owned
Selling to this to this owned after after
Securityholders offering Prospectus offering(1) Offering(2)
- --------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
J2 Holdings, Inc.(3) 2,405,810(4) 2,405,810 -0- N/A
1010 Northern Blvd.
Suite 208
Great Neck, New York 11021
Irving Stitsky(5) 150,000(6) 150,000 -0- N/A
11 Holly Lane
Jericho, New York 11753
David Beall(7) 20,000(8) 20,000 -0- N/A
37 Reynolds Drive
Lido Beach, New York 11561
Howard Gelfand(9) 30,000(10) 30,000 -0- N/A
7837 Oracle Place
Potomac, Maryland 20854
Robert Koch(11) 15,000(12) 15,000 -0- N/A
15 Josephine Lane
East Islip, New York 11730
Richard Miller(13) 15,000(14) 15,000 -0- N/A
53 Acorn Pines Drive
Roslyn, New York 11576
Daniel Porush(15) 1,077,190(16) 1,077,190 -0- N/A
c/o Stratton Oakmont, Inc.
1979 Marcus Avenue
Lake Success, New York 11042
Steve Sanders(17) 75,000(18) 75,000 -0- N/A
165 High Pond Drive
Jericho, New York 11753
Jordan Shamah(19) 75,000(20) 75,000 -0- N/A
141 Firestone Circle
North Hills, New York 11030
Biltmore Securities, Inc.(21) 1,338,780(22) 1,338,780 -0- N/A
6700 North Andrews Avenue
Suite 500
Ft. Lauderdale, FL 33309
Biltmore Foundation(23) 100,464 100,464 -0- N/A
c/o Bernstein & Wasserman
950 Third Avenue
New York, New York 10022
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
Shares
Shares of that may Shares of % of
Common Stock be offered Common Class
owner prior pursuant Stock owned
Selling to this to this owned after after
Securityholders offering Prospectus offering(1) Offering(2)
- --------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Stephanie Holdings, Inc.(24) 515,200 515,200 -0- N/A
6700 North Andrews Avenue
Suite 500
Ft. Lauderdale, FL 33309
========= ========= ===
Total 5,817,444 5,817,444 -0-
</TABLE>
- ----------
(1) Assuming all shares being offered pursuant to this Prospectus are
sold.
(2) If 1% or more.
(3) J2 Holdings, Inc. is a private company owned by Jordan R. Belfort,
a former shareholder of the Company and a former principal of
Stratton Oakmont, Inc., which is a market maker in the Company's
Common Stock.
(4) This figure includes 1,202,905 shares issuable upon the exercise of
Series III Warrants to purchase Common Stock at $.35 per share.
Such warrants are to be exercised prior to the effective date of the
Company's Registration Statement of which this Prospectus is a part.
(5) Mr. Stitsky was formerly employed by Stratton Oakmont, Inc.
(6) This figure includes 75,000 shares issuable upon the exercise of
Series III Warrants to purchase Common Stock at $.35 per share.
Such warrants are to be exercised prior to the effective date of the
Company's Registration Statement of which this Prospectus is a part.
(7) Mr. Beall is an employee of Stratton Oakmont, Inc.
(8) This figure includes 10,000 shares issuable upon the exercise of
Series III Warrants to purchase Common Stock at $.35 per share.
Such warrants are to be exercised prior to the effective date of the
Company's Registration Statement of which this Prospectus is a part.
(9) Mr. Gelfand is an employee of Stratton Oakmont, Inc.
(10) This figure includes 15,000 shares issuable upon the exercise of
Series III Warrants to purchase Common Stock at $.35 per share.
Such warrants are to be exercised prior to the effective date of the
Company's Registration Statement of which this Prospectus is a part.
(11) Mr. Koch is an employee of Stratton Oakmont, Inc.
(12) This figure includes 7,500 shares issuable upon the exercise of
Series III Warrants to purchase Common Stock at $.35 per share.
- 18 -
<PAGE>
Such warrants are to be exercised prior to the effective date of the
Company's Registration Statement of which this Prospectus is a part.
(13) Mr. Miller is an employee of Stratton Oakmont, Inc.
(14) This figure includes 7,500 shares issuable upon the exercise of
Series III Warrants to purchase Common Stock at $.35 per share.
Such warrants are to be exercised prior to the effective date of the
Company's Registration Statement of which this Prospectus is a part.
(15) Mr. Porush is an employee of Stratton Oakmont, Inc.
(16) This figure includes 542,095 shares issuable upon the exercise of
Series III Warrants to purchase Common Stock at $.35 per share.
Such warrants are to be exercised prior to the effective date of the
Company's Registration Statement of which this Prospectus is a part.
(17) Mr. Sanders is an employee of Stratton Oakmont, Inc.
(18) This figure includes 37,500 shares issuable upon the exercise of
Series III Warrants to purchase Common Stock at $.35 per share.
Such warrants are to be exercised prior to the effective date of the
Company's Registration Statement of which this Prospectus is a part.
(19) Mr. Shamah is an employee of Stratton Oakmont, Inc.
(20) This figure includes 37,500 shares issuable upon the exercise of
Series III Warrants to purchase Common Stock at $.35 per share.
Such warrants are to be exercised prior to the effective date of the
Company's Registration Statement of which this Prospectus is a part.
(21) Biltmore Securities, Inc. is a market maker in the Company's Common
Stock and has acted as a consultant in connection with the Company's
securities.
(22) This figure includes 200,000 shares issuable upon the exercise of
Series III Warrants to purchase Common stock at $.35 per share granted
as compensation for placement agent services in connection with the
Company's November 1994 private placement. The figure also includes
options to purchase 626,956 shares of Common Stock at $.249 granted
pursuant to a consulting agreement between Biltmore Securities, Inc.
and the Company, dated January 26, 1994, and giving effect to
anti-dilution provisions contained therein. Such warrants and options
are to be exercised prior to the effective date of the Company's
Registration Statement of which this Prospectus is a part.
(23) Elliot Loewenstern and Richard Bronson are the trustees of the
Biltmore Foundation and are the executive officers of Biltmore
Securities, Inc. and Stephanie Holdings, Inc.
(24) Elliot Loewenstern and Richard Bronson are the executive officers
of Stephanie Holdings, Inc. and Biltmore Securities, Inc. Messrs.
Loewenstern and Bronson are also the trustees of the Biltmore
Foundation.
- 19 -
<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. The Securities are
being registered at the request of the Selling Securityholders.
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.
2,405,810 of the Securities may be sold twelve (12) months from the
date of this Prospectus, subject to earlier release at the sole
discretion of Biltmore Securities, Inc.
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 October 18, 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
- 20 -
<PAGE>
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
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 October 18,
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
October 18, 1995, there were 25,760 Series I Warrants outstanding.
- 21 -
<PAGE>
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
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.
- 22 -
<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 $ 3,009.02
Legal Expenses 3,500.00
Accounting Expenses 3,000.00
Miscellaneous Expenses 490.98
----------
Total $10,000.00
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 Registration Statement on Form S-3, File No. 33-84222.
- II-1 -
<PAGE>
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.
- II-2 -
<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 registration statement to be signed on its behalf by the undersigned
thereunto duly authorized on October 20, 1995.
JUDICATE, INC.
By: STEPHEN J. DRESCHER
Stephen J. Drescher
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on October 20, 1995.
STEPHEN J. DRESCHER Chairman, Chief Executive Officer and
Stephen J. Drescher Director (Principal Executive Officer)
MILTON M. ADLER Treasurer, Secretary and Controller
Milton M. Adler (Principal Financial and Accounting Officer)
PAUL L. BURTON Director
Paul L. Burton
MITCHELL HYMOWITZ Director
Mitchell Hymowitz
MICHAEL MINKOFF Director
Michael Minkoff
MARC POWELL Director
Marc Powell
DOMINIC A. POLIMENI Director
Dominic A. Polimeni
- II-3 -
<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 28-29
23.1 Consent of Goldenberg Rosenthal Friedlander 30
23.2 Consent of Mortenson and Associates, P.C. 31
23.3 Consent of Gould & Wilkie (see Exhibit 5.0)
* Filed with Registration Statement on Form S-3, File No. 33-84222.
<PAGE>
Exhibit 5.0
GOULD & WILKIE
One Chase Manhattan Plaza
New York, New York 10005
(212) 344-5680
October , 1995
Judicate, Inc.
The Bellevue
200 South Broad Street
Suite 800
Philadelphia, PA 19102
Dear Sirs:
Reference is made to Registration Statement on Form S-3 (the
"Registration Statement") filed on October 20, 1995 by Judicate, Inc.
(the "Company") with the Securities and Exchange Commission, for the
purpose of registering under the Securities Act of 1933, as amended, an
aggregate of 5,817,444 shares of the Company's common stock, par value
$.0001 per share (the "Shares"). 2,643,200 of these shares were
previously issued in November 1994 in two private placements. 61,824 of
these shares were previously issued in July 1994 as compensation for
placement agent services in connection with an exchange offer of the
Company's Series II Warrants for the Company's Series I Warrants. 250,000
of these shares were previously issued in March 1994 pursuant to a
consulting agreement. 100,464 of these shares were previously issued in
July 1994 upon the exercise of warrants granted as compensation for
placement agent services. 2,135,000 of these shares were issued prior to
the effective date of the Registration Statement upon the exercise of
certain of the Company's Series III Warrants. 626,956 of these shares
were issued prior to the effective date of the Registration Statement upon
the exercise of certain options to purchase shares of the Company's Common
Stock granted pursuant to a consulting agreement.
We have examined the Restated Certificate of Incorporation and By-Laws
of the Company and have examined and relied upon the originals or copies
certified to our satisfaction of such records of meetings of directors
and stockholders of the Company and such other documents as in our
judgement are necessary or appropriate to enable us to render the opinion
expressed below.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
<PAGE>
Judicate, Inc. -2- October , 1995
On the basis of the foregoing, we advise you that, in our opinion, the
Shares have been duly and validly authorized for issuance by the Company
and, upon issuance thereof and the payment therefor, will be fully paid
and non-assessable, with no personal liability attaching to the ownership
thereof.
We hereby consent to the filing of this opinion as Exhibit 5.0 to the
Registration Statement, and to the reference to us under the caption
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Sincerely,
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in to the Form S-3
Registration Statement of Judicate, Inc. (the "Company"), relating to shares of
common stock of the Company, of our report dated February 18, 1994, which is
incorporated by reference in 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. 3, and to
the use of our name, and the statements with respect to us, as appearing under
the heading "Experts" in the Prospectus.
GOLDENBERG ROSENTHAL FRIEDLANDER, LLP
formerly known as GOLDENBERG/ROSENTHAL
Jenkintown, Pennsylvania
October 19, 1995
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Form S-3
Registration Statement and Prospectus of Judicate, Inc. [the "Company"]
relating to shares of common stock of the Company, of our report dated
April 10, 1995, which is included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994, as amended by Form 10-KSB/A,
and to the use of our name, and the statements with respect to us, as
appearing under the heading "Experts" in the Prospectus.
MORTENSON AND ASSOCIATES, P.C.
Certified Public Accountants.
Cranford, New Jersey
October 18, 1995
