<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
USOCDT MERGER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7373, 3661 TO BE APPLIED FOR
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
OF INCORPORATION OR
ORGANIZATION)
13873 PARK CENTER ROAD
SUITE 353
HERNDON, VIRGINIA 22071
(703) 834-9480
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ALBERT N. WERGLEY, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
13873 PARK CENTER ROAD
SUITE 353
HERNDON, VIRGINIA 22071
(703) 834-9480
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
THE COMMISSION IS REQUESTED TO SEND COPIES OF
ALL COMMUNICATIONS TO:
DAVID M. CARTER THOMAS L. FAIRFIELD
HUNTON & WILLIAMS LEBOEUF, LAMB, GREENE & MACRAE,
RIVERFRONT PLAZA, EAST TOWER L.L.P.
951 EAST BYRD STREET GOODWIN SQUARE
RICHMOND, VIRGINIA 23219 225 ASYLUM STREET
----------------HARTFORD, CONNECTICUT 06103
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share....... 32,536,857 shares (1) $306,369,874(2) $105,645(2)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Not applicable.
(2) This Registration Statement covers shares of the common stock of USOCDT
Merger Corporation ("Newco"), into which shares of the common stock of US
Order, Inc. ("US Order") and Colonial Data Technologies Corp. ("Colonial
Data") will be converted pursuant to the terms of the Merger described
herein at an exchange ratio of one share of Newco common stock for each
outstanding share of US Order common stock and one share of Newco common
stock for each outstanding share of Colonial Data common stock. This
Registration Statement covers the maximum number of shares of Newco common
stock that may be issued in exchange for up to 17,000,000 shares of US
Order common stock and up to 15,536,857 shares of Colonial Data common
stock. Pursuant to Rule 457(f) under the Securities Act of 1933, as
amended (the "Securities Act"), the registration fee is based on the
average of the high ($9 7/8) and low ($9 3/8) sale prices of the common
stock of US Order on August 26, 1996, as reported on The Nasdaq National
Market and the average of the high ($9 3/8) and low ($9) sale prices of
the common stock of Colonial Data on August 26, 1996, as reported on The
Nasdaq National Market.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
USOCDT MERGER CORPORATION
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NUMBER CAPTION CAPTION IN PROSPECTUS
------ ------- ---------------------
<C> <S> <C>
1 Forepart of Registration
Statement and Outside
Front Cover Page of
Prospectus................ Outside Front Cover Page
2 Inside Front and Outside
Back Cover Pages of
Prospectus................ Available Information; Incorporation of
Certain Documents by Reference; Table of
Contents
3 Risk Factors, Ratio of
Earnings to Fixed Charges
and Other Information..... Summary; The Meetings; The Mergers
4 Terms of the Transaction... Summary; The Mergers; Certain Federal
Income Tax Consequences; Comparison of
Stockholders' Rights; Annex I; Annex II;
Annex III; Annex IV
5 Pro Forma Financial
Information............... Index to Financial Information
6 Material Contacts with the
Company Being Acquired.... Summary; The Mergers
7 Additional Information
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters........ Not Applicable
8 Interests of Named Experts
and Counsel............... Not Applicable
9 Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............... Not Applicable
10 Information with Respect to
S-3 Registrants........... Available Information; Incorporation of
Certain Documents by Reference; Summary;
Business of US Order
11 Incorporation of Certain
Information by Reference.. Incorporation of Certain Documents by
Reference
12 Information with Respect to
S-2 or S-3 Registrants.... Not Applicable
13 Incorporation of Certain
Information by Reference.. Not Applicable
14 Information with Respect to
Registrants other than S-2
or S-3 Registrants........ Not Applicable
15 Information with Respect to
S-3 Companies............. Available Information; Incorporation of
Certain Documents by Reference; Summary;
Business of Colonial Data
16 Information with Respect to
S-2 or S-3 Companies...... Not Applicable
17 Information with Respect to
Companies other than S-2
or S-3 Companies.......... Not Applicable
18 Information if Proxies,
Consents or Authorizations
are to be Solicited....... Outside Front Cover Page; Incorporation of
Certain Documents by Reference; Summary;
The Meetings; The Mergers
19 Information if Proxies,
Consents or Authorizations
are not to be Solicited or
in an Exchange Offer...... Not Applicable
</TABLE>
<PAGE>
[LETTERHEAD OF US ORDER APPEARS HERE]
October , 1996
Dear US Order Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
US Order, Inc. ("US Order") to be held at , on October , 1996, at
: a.m., local time. At this meeting, you will be asked to consider and vote
on an Agreement and Plan of Merger (the "Merger Agreement") between US Order
and Colonial Data Technologies Corp. ("Colonial Data"), pursuant to which US
Order will merge with and into USOCDT Merger Corporation, a Delaware
corporation ("Newco"). On the same day, stockholders of Colonial Data will
consider at a special meeting a proposal pursuant to which Colonial Data also
will merge with and into Newco.
The Merger Agreement generally provides for a tax-free exchange in which US
Order common stockholders will receive one share of Newco common stock for
each US Order share held, and Colonial Data common stockholders will receive
one share of Newco common stock for each Colonial Data share held. Immediately
following the mergers, former holders of US Order common stock collectively
will hold approximately 51% of the outstanding common stock of Newco and
former holders of Colonial Data common stock collectively will hold
approximately 49% of the outstanding common stock of Newco, assuming that
existing warrants and options of US Order and Colonial Data are not exercised
before the mergers.
The Merger Agreement has been unanimously approved by the Board of Directors
of US Order and Colonial Data and recommended by each of their Boards to their
respective stockholders. US Order's Board of Directors and management believe
that the proposed mergers of US Order and Colonial Data with and into Newco
will result in significant benefits to US Order and its stockholders.
WorldCorp, Inc. and certain directors and executive officers of US Order, who
collectively own approximately % of the outstanding shares of common stock of
US Order, have agreed to vote all of their shares of common stock of US Order
for approval of the Merger Agreement.
The Newco Board of Directors will consist of nine persons, five of whom have
been designated by US Order and four of whom have been designated by Colonial
Data. The new Board of Directors will consist of members from the existing
Boards of US Order and Colonial Data. Robert J. Schock, Colonial Data's
Chairman of the Board, President and Chief Executive Officer will be Chief
Executive Officer and Vice Chairman of Newco, which will be headquartered in
. I will be Chairman of Newco.
The enclosed Notice of Meeting and Joint Proxy Statement/Prospectus explain
the proposed mergers and provide specific information concerning the Special
Meeting. Please read these materials carefully and thoughtfully consider the
information contained in them.
Whether or not you plan to attend the Special Meeting, you are urged to
complete, sign and return promptly the enclosed proxy card to assure that your
shares will be voted at the meeting. The merger is an important and historic
step for US Order and its stockholders. On behalf of the Board of Directors, I
urge you to vote FOR approval of the merger.
Sincerely,
William F. Gorog
Chairman of the Board and Chief
Executive Officer
<PAGE>
[LETTERHEAD OF COLONIAL DATA APPEARS HERE]
October , 1996
Dear Colonial Data Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Colonial Data Technologies Corp. ("Colonial Data"), to be held at ,
on October , 1996, at : a.m., local time. At this meeting, you will be
asked to consider and vote on an Agreement and Plan of Merger (the "Merger
Agreement"), between Colonial Data and US Order, Inc. ("US Order"), pursuant
to which Colonial Data will merge with and into USOCDT Merger Corporation, a
Delaware corporation ("Newco"). On the same day, stockholders of US Order will
consider at a special meeting a proposal pursuant to which US Order also will
merge with and into Newco.
The Merger Agreement generally provides for a tax-free exchange in which
Colonial Data common stockholders will receive one share of Newco common stock
for each Colonial Data share held, and US Order common stockholders will
receive one share of Newco common stock for each US Order share held.
Immediately following the mergers, former holders of Colonial Data common
stock collectively will hold approximately 49% of the outstanding common stock
of Newco and former holders of US Order common stock collectively will hold
approximately 51% of the outstanding common stock of Newco, assuming that
existing warrants and options of US Order and Colonial Data are not exercised
before the mergers.
The Merger Agreement has been unanimously approved by the Board of Directors
of each of Colonial Data and US Order and recommended by each of their Boards
to their respective stockholders. Colonial Data's Board of Directors and
management believe that the proposed mergers of US Order and Colonial Data
with and into Newco will result in significant benefits to Colonial Data and
its stockholders. Certain stockholders, directors and officers of Colonial
Data, who collectively own approximately % of the outstanding shares of
common stock of Colonial Data, have agreed to vote all of their shares of
common stock of Colonial Data for approval of the Merger Agreement.
The Newco Board of Directors will consist of nine persons, four of whom have
been designated by Colonial Data and five of whom have been designated by US
Order. The new Board of Directors will consist of members from the existing
Boards of Colonial Data and US Order. William F. Gorog, US Order's Chairman
and Chief Executive Officer will be Chairman of Newco, which will be
headquartered in . I will be Chief Executive Officer and Vice
Chairman of Newco.
The enclosed Notice of Meeting and Joint Proxy Statement/Prospectus explain
the proposed mergers and provide specific information concerning the Special
Meeting. Please read these materials carefully and thoughtfully consider the
information contained in them. Your vote on the Merger Agreement is of great
importance.
Whether or not you plan to attend the Special Meeting, you are urged to
complete, sign and return promptly the enclosed proxy card to assure that your
shares will be voted at the meeting. The merger is an important and historic
step for Colonial Data and its stockholders. On behalf of the Board of
Directors, I urge you to vote FOR approval of the merger.
Sincerely,
Robert J. Schock
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
US ORDER, INC.
13873 PARK CENTER ROAD, SUITE 353
HERNDON, VIRGINIA 22071
----------------
NOTICE TO STOCKHOLDERS OF SPECIAL MEETING
TO BE HELD OCTOBER , 1996
----------------
To the Stockholders of US Order, Inc.:
Notice is Hereby Given that a Special Meeting of Stockholders (the "US Order
Meeting") of US Order, Inc. ("US Order") will be held at , on
October , 1996, at : a.m., local time for the following purposes:
1. To consider and vote upon an Agreement and Plan of Merger, dated as of
August 5, 1996 (the "Merger Agreement"), by and between Colonial Data
Technologies Corp., a Delaware corporation ("Colonial Data"), and US
Order pursuant to which US Order and Colonial Data will be merged with
and into USOCDT Merger Corporation, a Delaware corporation ("Newco").
The Merger Agreement provides that each outstanding share of common
stock of US Order will be converted into the right to receive one share
of common stock of Newco and each outstanding share of common stock of
Colonial Data will be converted into the right to receive one share of
common stock of Newco. The respective mergers of US Order and Colonial
Data with and into Newco will become effective simultaneously with Newco
being the surviving corporation. A copy of the Merger Agreement is
attached to the accompanying Joint Proxy Statement/Prospectus as
Appendix I.
2. To transact such other business as may be properly brought before the US
Order Meeting or at any and all adjournments or postponements thereof.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER
AGREEMENT FOR THE REASONS SET FORTH IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.
PLEASE READ THE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY.
Only stockholders of record at the close of business on September , 1996,
are entitled to notice of, and to vote at, the US Order Meeting. Whether or
not you plan to attend the US Order Meeting in person, you are requested to
sign, date and return the enclosed proxy card in the enclosed prepaid envelope
as soon as possible. PLEASE DO NOT SEND STOCK CERTIFICATES WITH THE ENCLOSED
PROXY CARD. Stockholders attending the US Order Meeting may vote in person
even if they have returned a proxy card.
By Order of the Board of Directors,
Albert N. Wergley
Secretary
Herndon, Virginia
October , 1996
-----------------------------------------------------
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IMMEDIATELY.
-----------------------------------------------------
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
80 PICKETT DISTRICT ROAD
NEW MILFORD, CONNECTICUT 06776
----------------
NOTICE TO STOCKHOLDERS OF SPECIAL MEETING
TO BE HELD OCTOBER , 1996
----------------
To the Stockholders of Colonial Data Technologies Corp.:
Notice is Hereby Given that Special Meeting of the Stockholders (the
"Colonial Data Meeting") of Colonial Data Technologies Corp. ("Colonial Data")
will be held at , on October , 1996, at : a.m., local time for
the following purposes:
(1) To consider and to vote upon an Agreement and Plan of Merger, dated as
of August 5, 1996 (the "Merger Agreement"), by and between Colonial
Data and US Order, Inc., a Delaware corporation ("US Order"), pursuant
to which Colonial Data and US Order will be merged with and into USOCDT
Merger Corporation, a Delaware corporation ("Newco"). The Merger
Agreement provides that each outstanding share of common stock of
Colonial Data will be converted into the right to receive one share of
common stock of Newco and each outstanding share of common stock of US
Order will be converted into the right to receive one share of common
stock of Newco. The respective mergers of US Order and Colonial Data
with and into Newco will become effective simultaneously with Newco
being the surviving corporation. A copy of the Merger Agreement is
attached to the accompanying Joint Proxy Statement/Prospectus as
Appendix I.
(2) To transact such other business as may be properly brought before the
Colonial Data Meeting or at any and all adjournments or postponements
thereof.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER
AGREEMENT FOR THE REASONS SET FORTH IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.
PLEASE READ THE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY.
Only stockholders of record at the close of business on September , 1996,
are entitled to notice of, and to vote at, the Colonial Data Meeting. Whether
or not you plan to attend the Colonial Data Meeting in person, you are
requested to sign, date and return the enclosed proxy card in the enclosed
prepaid envelope as soon as possible. PLEASE DO NOT SEND STOCK CERTIFICATES
WITH THE ENCLOSED PROXY CARD. Stockholders attending the Colonial Data Meeting
may vote in person even if they have returned a proxy card.
By Order of the Board of Directors,
John N. Giamalis
Secretary
New Milford, Connecticut
October , 1996
-----------------------------------------------------
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IMMEDIATELY.
-----------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 29, 1996
JOINT PROXY STATEMENT
US ORDER, INC.
AND
COLONIAL DATA TECHNOLOGIES CORP.
----------
PROSPECTUS
USOCDT MERGER CORPORATION
COMMON STOCK
This Joint Proxy Statement/Prospectus is being furnished (a) to holders of
common stock of US Order, Inc., a Delaware corporation ("US Order"), in
connection with the solicitation of proxies by the Board of Directors of US
Order (the "US Order Board") for use at the Special Meeting of Stockholders of
US Order, or any adjournment or postponement thereof (the "US Order Meeting"),
which is to be held on October , 1996, at : a.m., local time, at and (b) to
holders of common stock of Colonial Data Technologies Corp., a Delaware
corporation ("Colonial Data"), in connection with the solicitation of proxies
by the Board of Directors of Colonial Data (the "Colonial Data Board" and
together with the US Order Board, the "Boards") for use at the Special Meeting
of Stockholders of Colonial Data or any adjournment or postponement thereof
(the "Colonial Data Meeting" and, together with the US Order Meeting, the
"Meetings"), which is to be held on October , 1996, at : a.m., local time,
at . At the Meetings, stockholders of US Order and Colonial Data will
be asked to consider and vote upon a proposal to approve an Agreement and Plan
of Merger, dated as of August 5, 1996 (the "Merger Agreement," a copy of which
is attached hereto as Appendix I), by and between US Order and Colonial Data,
and certain transactions contemplated thereby. The transactions contemplated by
the Merger Agreement are referred to herein collectively as the "Mergers."
The Merger Agreement provides, among other things, for (a) the merger of US
Order with and into USOCDT Merger Corporation, a Delaware corporation
("Newco"), and (b) the merger of Colonial Data with and into Newco each in
accordance with the Merger Agreement. As a result of the Mergers, each of US
Order and Colonial Data will merge with and into Newco, and stockholders of US
Order and Colonial Data will become stockholders of Newco, on the terms
described in this Joint Proxy Statement/Prospectus. The Mergers will become
effective simultaneously at the date and time specified in the certificates of
merger to be filed with the Secretary of State of Delaware (the "Effective
Time"). See "The Mergers--The Merger Agreement."
Newco has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), covering up to
32,536,857 shares of common stock of Newco, $.001 par value per share (the
"Newco Common Stock"), that may be issued in accordance with the Merger
Agreement to holders of outstanding shares of common stock of US Order, $.001
par value (the "US Order Common Stock") and to holders of outstanding shares of
common stock of Colonial Data, $.01 par value (the "Colonial Data Common
Stock"). The Newco Common Stock will be included on The Nasdaq National Market
("Nasdaq") under the symbol " ", subject to official notice of issuance. This
Joint Proxy Statement/Prospectus also constitutes the Prospectus of Newco filed
as part of the Registration Statement.
If the Mergers are approved, immediately following the Effective Time, former
holders of US Order Common Stock will hold approximately 51% of the outstanding
shares of Newco Common Stock and former holders of Colonial Data Common Stock
will hold approximately 49% of the outstanding shares of Newco Common Stock,
assuming that existing warrants and options of US Order and Colonial Data are
not exercised before the Mergers.
This Joint Proxy Statement/Prospectus, the Notice of Special Meeting of
Stockholders of US Order, the Notice of Special Meeting of Stockholders of
Colonial Data and the accompanying proxy cards are first being mailed to the
respective stockholders of US Order and Colonial Data on or about October ,
1996.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS JOINT PROXY
STATEMENT/PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY THE STOCKHOLDERS OF US ORDER AND COLONIAL DATA.
NEITHER THE MERGERS NOR THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT
PROXY STATEMENT/PROSPECTUS HAVE 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 JOINT PROXY
STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS OCTOBER , 1996.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++
<PAGE>
AVAILABLE INFORMATION
US Order and Colonial Data are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
following Regional Offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. The Commission maintains a Web Site
on the Internet that contains reports, proxy and information statements and
other information regarding US Order and Colonial Data. The Commission's Web
Site address is (http://www.sec.gov).
Shares of US Order Common Stock and Colonial Data Common Stock are included
on Nasdaq, and proxy statements, reports and other information concerning US
Order and Colonial Data can be inspected and copied at the offices of the
National Association of Securities Dealers, Inc. (the "NASD"), 1735 K Street,
N.W., Washington, D.C. 20006.
Newco has filed the Registration Statement with the Commission with respect
to the Newco Common Stock to be issued in the Mergers. This Joint Proxy
Statement/Prospectus does not include all of the information set forth in the
Registration Statement, as permitted by the rules and regulations of the
Commission. The Registration Statement, including any amendments, schedules
and exhibits filed or incorporated by reference as a part thereof, is
available for inspection and copying as set forth above. Statements contained
in this Joint Proxy Statement/Prospectus or in any document incorporated
herein by reference as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other document, and
each such statement shall be deemed qualified in its entirety by such
reference.
The information contained herein with respect to US Order before the Mergers
has been provided by US Order, and the information contained herein with
respect to Colonial Data before the Mergers has been provided by Colonial
Data.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF
PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY US ORDER OR COLONIAL DATA. THIS JOINT PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES COVERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS OR A SOLICITATION
OF A PROXY IN ANY JURISDICTION WHERE, OR TO OR FROM ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF US ORDER OR COLONIAL DATA SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
i
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by US Order with the Commission
under the Exchange Act are incorporated herein by reference:
(a) US Order's Annual Report on Form 10-K for the year ended December 31,
1995;
(b) US Order's Quarterly Reports on Form 10-Q for the quarters ended June
30, 1996 and March 31, 1996; and
(c) US Order's Current Report on Form 8-K filed with the Commission on
August 5, 1996.
The following documents previously filed by Colonial Data with the
Commission under the Exchange Act are incorporated herein by reference:
(a) Colonial Data's Annual Report on Form 10-K for the year ended
December 31, 1995;
(b) Colonial Data's Quarterly Reports on Form 10-Q for the quarters ended
June 30, 1996 and March 31, 1996; and
(c) Colonial Data's Current Report on Form 8-K filed with the Commission
on August 5, 1996.
All documents filed by US Order and Colonial Data pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint
Proxy Statement/Prospectus and prior to the Meetings shall be deemed to be
incorporated by reference into this Joint Proxy Statement/Prospectus and to be
a part hereof 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 hereof to the extent that a statement contained herein (or in any
subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN
OR ORAL REQUEST BY ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS
HAS BEEN DELIVERED, IN THE CASE OF DOCUMENTS RELATING TO US ORDER, FROM ALBERT
N. WERGLEY, VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY, 13873 PARK CENTER
ROAD, SUITE 353, HERNDON, VIRGINIA 22071 (TELEPHONE NUMBER: (703) 834-9480)
AND, IN THE CASE OF DOCUMENTS RELATING TO COLONIAL DATA, FROM JOHN N.
GIAMALIS, VICE PRESIDENT--FINANCE, CHIEF FINANCIAL OFFICER, TREASURER AND
SECRETARY, 80 PICKETT DISTRICT ROAD, NEW MILFORD, CONNECTICUT 06776 (TELEPHONE
NUMBER: (860) 210-3000). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY SUCH REQUEST SHOULD BE MADE BY OCTOBER , 1996.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... ii
SUMMARY................................................................... 1
The Companies........................................................... 1
The Meetings; Votes Required............................................ 2
The Mergers............................................................. 3
Comparison of Stockholders' Rights...................................... 6
Certain Federal Income Tax Consequences................................. 6
Stockholders' Rights of Dissent and Appraisal........................... 7
Exchange of Shares...................................................... 7
Comparative Market Price................................................ 7
Selected Historical and Pro Forma Financial Data........................ 8
RISK FACTORS.............................................................. 11
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995....................... 11
Risk Factors with Respect to Newco...................................... 11
Risk Factors with Respect to US Order................................... 14
Risk Factors with Respect to Colonial Data.............................. 16
THE MEETINGS.............................................................. 18
Times and Places; Purposes.............................................. 18
Voting Rights; Votes Required for Approval.............................. 19
Proxies................................................................. 20
THE MERGERS............................................................... 21
General; Effective Time................................................. 21
Exchange Ratios; Exchange of Shares..................................... 21
Background and Negotiation of the Mergers............................... 22
Negotiation of the Mergers.............................................. 22
Reasons for the Mergers................................................. 23
Recommendations of the Boards of Directors.............................. 25
Opinions of Financial Advisors.......................................... 25
The Merger Agreement.................................................... 32
Interests of Certain Persons in the Mergers............................. 38
Employment Agreements................................................... 38
Accounting Treatment.................................................... 41
Certain Consequences of the Mergers..................................... 41
Regulatory Matters...................................................... 41
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 41
MANAGEMENT AND OPERATION AFTER THE MERGERS................................ 43
NEWCO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION.... 47
BUSINESS OF NEWCO......................................................... 53
BUSINESS OF US ORDER...................................................... 53
General................................................................. 53
Products................................................................ 54
</TABLE>
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<TABLE>
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Marketing and Sales..................................................... 56
Competition............................................................. 58
Product Development..................................................... 59
Manufacturing........................................................... 59
Government Regulation................................................... 59
Patents, Proprietary Rights and Licenses................................ 60
Employees............................................................... 60
Properties.............................................................. 60
Legal Proceedings....................................................... 60
BUSINESS OF COLONIAL DATA................................................. 61
General Overview........................................................ 61
Industry Background..................................................... 61
Emergence of ADSI-Based Network Services................................ 62
Products................................................................ 62
Services................................................................ 63
Marketing and Distribution.............................................. 63
Leasing Programs with RBOCs and other Telco Customers................... 64
Retail/Private Label Customer Sales..................................... 65
Product Development..................................................... 65
Manufacturing........................................................... 65
Competition............................................................. 66
Government Regulation................................................... 66
Patents, Proprietary Rights and Licenses................................ 67
Employees............................................................... 67
Properties.............................................................. 68
Seasonality............................................................. 68
Backlog................................................................. 68
CERTAIN TRANSACTIONS OF COLONIAL DATA SINCE DECEMBER 31, 1995............. 68
DESCRIPTION OF NEWCO CAPITAL STOCK........................................ 69
General................................................................. 69
Common Stock............................................................ 69
Preferred Stock......................................................... 70
Certain Provisions of the DGCL, Newco Certificate and Newco Bylaws...... 70
COMPARISON OF STOCKHOLDERS' RIGHTS........................................ 72
Authorized Capital Stock................................................ 72
Directors............................................................... 72
Removal of Directors.................................................... 73
Vacancies on the Board of Directors..................................... 74
Notice of Stockholder Nominations of Directors and Stockholder Propos-
als.................................................................... 74
Director Standard of Conduct............................................ 75
Limitations on Director Liability....................................... 75
Indemnification......................................................... 75
Mergers, Share Exchanges and Sales of Assets............................ 75
Anti-takeover Statutes.................................................. 76
Amendments to Articles of Incorporation................................. 76
Amendments to Bylaws.................................................... 76
Dissenters' Rights...................................................... 77
Transfer Restrictions................................................... 77
</TABLE>
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<TABLE>
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<S> <C>
OWNERSHIP OF US ORDER COMMON STOCK....................................... 79
OWNERSHIP OF COLONIAL DATA COMMON STOCK.................................. 79
LEGAL MATTERS............................................................ 80
EXPERTS.................................................................. 80
STOCKHOLDER PROPOSALS.................................................... 80
OTHER MATTERS............................................................ 80
SIGNATURES............................................................... II-4
INDEX TO EXHIBITS........................................................ II-5
APPENDICES:
Appendix IAgreement and Plan of Merger, dated August 5, 1996, by and
between US Order, Inc. and Colonial Data Technologies
Corp....................................................... A-1
Appendix IIOpinion of Salomon Brothers Inc............................... B-1
Appendix IIIOpinion of First Albany Corporation.......................... C-1
Appendix IVCertificate of Incorporation of USOCDT Merger Corporation..... D-1
Appendix VBylaws of USOCDT Merger Corporation............................ E-1
</TABLE>
v
<PAGE>
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Joint Proxy Statement/Prospectus. This summary is
not intended to be complete and is qualified in its entirety by the more
detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated by
reference or otherwise referred to herein. Stockholders are urged to review
this entire Joint Proxy Statement/Prospectus carefully, including the
Appendices hereto. Unless expressly stated herein, all statements assume that
existing stock options and warrants of US Order and Colonial Data,
respectively, are not exercised before the Effective Time.
THE COMPANIES
Newco
USOCDT Merger Corporation, a newly-formed Delaware corporation ("Newco"), has
not, to date, conducted any significant activities other than those incident to
its formation, its execution of the Merger Agreement and its participation in
the preparation of this Joint Proxy Statement/Prospectus and certain other
matters contemplated by the Merger Agreement. As a result of the Mergers, US
Order and Colonial Data will merge with and into Newco, and Newco will continue
the businesses currently conducted by US Order and Colonial Data. The mailing
address and telephone number of Newco's principal executive offices are
( ) - . See "Business of Newco."
US Order
US Order, Inc., a Delaware corporation ("US Order"), develops and markets
products and services for the financial services and telecommunications
industries in two target markets: home banking and intelligent
telecommunications network services. US Order's financial service products
allow consumers to pay bills, check account balances and receive other bank
information from their homes through bank-branded customer service, voice
response systems and data translation systems. US Order's telecommunications
products include the Telesmart 4000/Intelifone 2000 smart telephone, which has
been developed in conjunction with Colonial Data Technologies Corp., and a
complete package of interactive applications. Smart telephones are telephones
with a central processing unit, an integrated display screen and memory which
allow consumers to send and receive text information. Over 50 banks and
telephone companies currently use US Order's products and services. US Order
has a strategic alliance with Visa Interactive, Inc. ("Visa InterActive"), a
wholly-owned subsidiary of Visa International Service Association, Inc.
("Visa"), in the financial services market and with Colonial Data Technologies
Corp. in the intelligent network services market. The mailing address and
telephone number of US Order's principal executive offices are 13873 Park
Center Road, Suite 353, Herndon, Virginia 22071, (703) 834-9480. See "Business
of US Order."
Colonial Data
Colonial Data Technologies Corp., a Delaware corporation ("Colonial Data"),
designs, develops and markets telecommunications products that support
intelligent network services being developed and implemented by the regional
Bell operating companies and other telephone operating companies ("telcos"). In
recent years, Colonial Data has concentrated its product development and
marketing efforts on products that support Caller ID and other emerging
intelligent network services. Colonial Data and US Order have developed a smart
telephone, the Telesmart 4000/Intelifone 2000, which provides consumers call
management features and major new advances in interactive applications via
telephone. In addition, Colonial Data currently offers a line of Caller ID
adjunct units and telephones with integrated Caller ID, small business
telecommunications systems with the Landmark(R) trademark and high-end consumer
telecommunications equipment. Colonial Data also repairs and refurbishes
telecommunications products for commercial customers and provides other
services that support the
1
<PAGE>
development and implementation of intelligent network services. The mailing
address and telephone number of Colonial Data's principal executive offices are
80 Pickett District Road, New Milford, Connecticut 06776, (860) 210-3000. See
"Business of Colonial Data."
THE MEETINGS; VOTES REQUIRED
US Order
The US Order Meeting will be held at on October , 1996, at :
a.m., local time. At the US Order Meeting, holders of US Order Common Stock
will be asked to consider and vote upon a proposal to approve the Merger
Agreement, which is summarized below and described in more detail elsewhere in
this Joint Proxy Statement/Prospectus. See "The Mergers."
Holders of record of US Order Common Stock at the close of business on
September , 1996 (the "US Order Record Date"), have the right to receive
notice of, and vote at, the US Order Meeting. Each share of US Order Common
Stock is entitled to one vote on each matter that is properly presented to
stockholders for a vote at the US Order Meeting. Under US Order's Certificate
of Incorporation (the "US Order Certificate") and the Delaware General
Corporation Law, as amended (the "DGCL"), the affirmative vote of the holders
of a majority of the shares of US Order Common Stock issued and outstanding on
the US Order Record Date is required to approve and adopt the Merger Agreement.
For information with respect to the treatment of abstentions, shares held of
record by a broker, as nominee ("Broker Shares"), that are not voted and
properly executed but unmarked proxy cards, see "The Meetings--Voting Rights;
Votes Required for Approval" and "--Proxies."
As of the US Order Record Date, US Order's directors and executive officers
beneficially owned shares of US Order Common Stock, representing
approximately % of the shares of US Order Common Stock outstanding on such
date. WorldCorp Investments, Inc., the majority stockholder of US Order and a
wholly-owned subsidiary of WorldCorp, Inc. (together, "WorldCorp"), the
Chairman and Chief Executive Officer of US Order, and certain directors and
executive officers of US Order, who collectively owned approximately % of the
outstanding shares of US Order Common Stock as of the US Order Record Date,
have executed stockholder agreements with Colonial Data pursuant to which they
have agreed to vote all of their shares of US Order Common Stock for approval
of the Merger Agreement unless the Merger Agreement is terminated pursuant to
its terms, the US Order Board recommends to the US Order stockholders a
Superior Proposal (as defined below under "The Mergers--Termination; Amendment
and Waiver") or otherwise, in the exercise of its fiduciary duties upon the
advice of counsel, withdraws, amends or modifies in any manner adverse to
Colonial Data its favorable recommendation of the Merger Agreement. The vote of
such persons in accordance with the stockholder agreements would be sufficient
to approve the Merger Agreement on the part of US Order without any action on
the part of any other holder of US Order Common Stock.
Colonial Data
The Colonial Data Meeting will be held at on October , 1996, at :
a.m., local time. At the Colonial Data Meeting, holders of Colonial Data Common
Stock will be asked to consider and vote upon a proposal to approve the Merger
Agreement, which is summarized below and described in more detail elsewhere in
this Joint Proxy Statement/Prospectus. See "The Mergers."
Holders of record of Colonial Data Common Stock at the close of business on
September , 1996 (the "Colonial Data Record Date"), have the right to receive
notice of, and vote at, the Colonial Data Meeting. Each share of Colonial Data
Common Stock is entitled to one vote on each matter that is properly presented
to stockholders for a vote at the Colonial Data Meeting. Under Colonial Data's
Certificate of Incorporation (the "Colonial Data Certificate") and the DGCL,
the affirmative vote of the holders of a majority of the shares of Colonial
Data Common Stock issued and outstanding on the Colonial Data Record Date is
required to approve
2
<PAGE>
and adopt the Merger Agreement. For information with respect to the treatment
of abstentions, Broker Shares that are not voted and properly executed but
unmarked proxy cards, see "The Meetings--Voting Rights; Votes Required for
Approval" and "--Proxies."
As of the Colonial Data Record Date, Colonial Data's directors and executive
officers beneficially owned shares of Colonial Data Common Stock,
representing approximately % of the shares of Colonial Data Common Stock
outstanding on such date. Certain stockholders of Colonial Data, including the
Chairman and Chief Executive Officer of Colonial Data, and certain directors
and officers of Colonial Data, who collectively owned approximately % of the
outstanding shares of Colonial Data Common Stock as of the Colonial Data Record
Date, have executed stockholder agreements with US Order pursuant to which they
have agreed to vote all of their shares of Colonial Data Common Stock for
approval of the Merger Agreement, unless the Merger Agreement is terminated
pursuant to its terms, the Colonial Data Board recommends to the Colonial Data
stockholders a Superior Proposal (as defined below under "The Mergers--
Termination, Amendment and Waiver") or otherwise, in the exercise of its
fiduciary duties upon the advice of counsel, withdraws, amends or modifies in
any manner adverse to US Order its favorable recommendation of the Merger
Agreement.
THE MERGERS
Overview; Exchange Ratio
Pursuant to the Merger Agreement, US Order and Colonial Data will be merged
with and into Newco. Newco will be the surviving corporation of the Mergers,
and Colonial Data's subsidiaries will become direct and indirect subsidiaries
of Newco. Upon consummation of the Mergers, each outstanding share of US Order
Common Stock will be converted into one share of Newco Common Stock and each
outstanding share of Colonial Data Common Stock will be converted into one
share of Newco Common Stock (individually, the "Exchange Ratio" and
collectively, the "Exchange Ratios"). See "The Mergers--Exchange Ratios;
Exchange of Shares." For a description of the Newco Common Stock, see
"Description of Newco Capital Stock--Common Stock."
Immediately following the Effective Time, (a) former holders of US Order
Common Stock collectively will hold approximately 51% of the outstanding shares
of Newco Common Stock and (b) former holders of Colonial Data Common Stock
collectively will hold approximately 49% of the outstanding shares of Newco
Common Stock, assuming that existing warrants and options of US Order and
Colonial Data, respectively, are not exercised before the Effective Time. On a
fully diluted basis, former US Order stockholders will hold approximately 54%
of the outstanding shares of Newco Common Stock and former Colonial Data
stockholders will hold approximately 46% of the outstanding shares of Newco
Common Stock immediately after the Effective Time. Pursuant to the Merger
Agreement, each outstanding option and warrant to purchase shares of common
stock of US Order or shares of common stock of Colonial Data, respectively,
will be assumed by Newco. See "The Mergers--The Merger Agreement--Stock Options
and Warrants."
Effective Time
It is presently expected that the Effective Time will occur as soon as
practicable following approval of the Merger Agreement by the US Order
stockholders and by the Colonial Data stockholders and, in any event, no later
than February 28, 1997. See "The Mergers--General; Effective Time."
Recommendations; Reasons for the Mergers
The US Order Board and the Colonial Data Board believe that the Merger
Agreement is fair to and in the best interests of the stockholders of their
respective companies. The Boards have unanimously approved the Merger Agreement
and the transactions contemplated thereby. The US Order Board recommends that
the
3
<PAGE>
stockholders of US Order vote for approval of the Merger Agreement. The
Colonial Data Board recommends that the stockholders of Colonial Data vote for
approval of the Merger Agreement.
The US Order Board and the Colonial Data Board each believe that the Mergers
will achieve full integration of the companies' activities and alignment of
interests to better respond to changes and provide customer solutions in the
emerging markets for intelligent network and interactive communication
services. The recommendations of the Boards are based on the ability of US
Order and Colonial Data to capture more fully the markets for home banking,
intelligent communications network products and interactive services; the
combination of technology, manufacturing, distribution and management
capabilities of US Order and Colonial Data into a single entity; and the
ability to distribute a full product and service line to telephone companies
and retailers through a combination of the companies, and, in part, the receipt
by the US Order Board of a fairness opinion from its financial advisor, Salomon
Brothers Inc ("Salomon"), and, in part, the receipt by the Colonial Data Board
of a fairness opinion from its financial advisor, First Albany Corporation
("First Albany"). See "The Mergers--Reasons for the Mergers" and "--Opinions of
Financial Advisors."
Opinions of Financial Advisors
On August 2, 1996, prior to the execution of the Merger Agreement, Salomon
rendered to the US Order Board its written opinion to the effect that, as of
such date, the Exchange Ratio was fair, from a financial point of view, to
holders of US Order Common Stock. One-half of the fees payable by US Order to
Salomon are conditioned upon consummation of the Mergers. See "The Mergers--
Opinions of Financial Advisors--Salomon."
On August 2, 1996, prior to the execution of the Merger Agreement, First
Albany rendered to the Colonial Data Board its written opinion to the effect
that, as of such date, the consideration to be received by the stockholders of
Colonial Data pursuant to the Merger Agreement was fair, from a financial point
of view, to holders of Colonial Data Common Stock. A portion of the fees
payable by Colonial Data to First Albany are conditioned upon consummation of
the Mergers. See "The Mergers--Opinions of Financial Advisors--First Albany."
US Order and Colonial Data stockholders are urged to read carefully the
opinion of Salomon, dated as of August 2, 1996, and the opinion of First
Albany, dated as of August 2, 1996, which are set forth in their entirety as
Appendices II and III, respectively, to this Joint Proxy Statement/Prospectus,
for a description of the factors considered and assumptions made by Salomon and
First Albany in rendering their respective opinions. See "The Mergers--Opinions
of Financial Advisors."
Interests of Certain Persons in the Mergers
Certain of the officers and directors of US Order and Colonial Data have
interests in the Mergers in addition to their interests as stockholders. Those
additional interests include, among other things, provisions in the Merger
Agreement relating to the management of Newco following the Mergers,
indemnification of directors and officers, eligibility for certain Newco
employee benefits and the assumption of outstanding employee stock options with
respect to Newco Common Stock held by directors, officers and employees of US
Order and Colonial Data, respectively. Newco will assume the employment
agreements between Robert J. Schock and Colonial Data and between John C.
Backus, Jr. and US Order and will enter into employment agreements with Timothy
R. Welles and Joseph E. Smith. See "The Mergers--Interests of Certain Persons
in the Mergers." In connection with the formation of Newco, Newco has adopted
the following stock option plans in which directors, officers and employees of
Newco and its affiliates who are eligible may participate in the future: (i)
the Newco Incentive Plan, (ii) the Newco Non-employee Directors' Stock Option
Plan and (iii) the Newco Employee Stock Purchase Plan. See "Management and
Operation After the Mergers."
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<PAGE>
Board of Directors, Management and Headquarters of Newco
It is expected that the Newco Board, at the Effective Time, will consist of
nine persons: T. Coleman Andrews, III, William F. Gorog, John C. Backus, Jr.,
Patrick F. Graham and Wesley C. Tallman (the "US Order Designees") and Robert
J. Schock, Walter M. Fiederowicz, Timothy R. Welles and Constantine S.
Macricostas (the "Colonial Data Designees"). The Newco Board will be divided
into three classes, with the initial term of office of the first, second and
third classes expiring at the first, second and third annual meetings of the
stockholders of Newco, respectively. Newco will take all action necessary to
cause the US Order Designees and the Colonial Data Designees to serve in nearly
equal numbers in each of Newco's three classes of directors. If any of US
Order's Designees or Colonial Data's Designees, respectively, declines or is
unable to serve as a director prior to the Effective Time, US Order (if such
person was a US Order Designee) or Colonial Data (if such person was a Colonial
Data Designee), as the case may be, will nominate another person to serve in
such person's stead, subject to the other party's designees' approval. If any
of the US Order Designees or Colonial Data Designees declines or becomes unable
to serve as a director during his initial term following the Effective Time,
the remaining US Order Designees (if such person was a US Order Designee) or
the remaining Colonial Data Designees (if such person was a Colonial Data
Designee), as the case may be, will nominate another person to serve in such
person's stead, which such person will be subject to the other party's
designees' approval. See "Management and Operation After the Mergers."
At the Effective Time, the Newco Board will have an Executive Committee, a
Compensation Committee, an Audit Committee and a Nominating Committee, on each
of which there will be an equal representation of US Order Designees and
Colonial Data Designees. The Executive Committee will initially consist of
William F. Gorog and John C. Backus, Jr., as the US Order Designees, and Robert
J. Schock and Timothy R. Welles, as the Colonial Data Designees, each to serve
until the next annual meeting of stockholders of Newco at which such Executive
Committee member first stands for reelection to the Newco Board. The members of
the other committees will be selected by the full Newco Board.
The principal officers of Newco at the Effective Time will be: (i) Robert J.
Schock, Chief Executive Officer and Vice Chairman of the Newco Board; (ii)
William F. Gorog, Chairman of the Newco Board; (iii) John C. Backus, Jr.,
President and Chief Operating Officer of Newco; (iv) Timothy R. Welles,
Executive Vice President of Newco; (v) Joseph E. Smith, Executive Vice
President of Newco; (vi) Albert N. Wergley, Vice President, General Counsel and
Secretary of Newco; (vii) Mark S. Lynch, Vice President--Corporate Development
of Newco; and (viii) John N. Giamalis, Vice President, Treasurer and Chief
Financial Officer of Newco. Between six and nine months from the Effective
Date, Mr. Schock will become Chairman of the Newco Board, Mr. Gorog will become
Vice Chairman of the Newco Board and Mr. Backus will become President and Chief
Executive Officer of Newco.
The headquarters of Newco will be located in . See "Management and
Operation After the Mergers."
Indemnification
The Merger Agreement provides that Newco shall indemnify the former
employees, agents, directors and officers of US Order and Colonial Data to the
fullest extent provided by law for a period of not less than six years after
the Effective Time with respect to matters occurring prior to the Effective
Time. See "The Mergers--The Merger Agreement--Indemnification; Insurance."
Conditions to the Mergers
The consummation of the Mergers is subject to various conditions, including
approval of the Merger Agreement by a majority of the respective stockholders
of US Order and Colonial Data, the absence of any material adverse change in
the business operations of US Order or Colonial Data and the receipt by US
Order
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<PAGE>
and Colonial Data of certain opinions regarding tax matters. See "The Mergers--
The Merger Agreement--Conditions to Consummation of the Mergers."
Termination of the Merger Agreement
The Merger Agreement is subject to termination at the option of either US
Order or Colonial Data if the Mergers are not consummated on or before February
28, 1997 (unless the failure to consummate is due to the failure of the party
seeking to terminate the Merger Agreement to fulfill any of its obligations
thereunder), and prior to such time upon the occurrence of certain events. If
the Merger Agreement is terminated in certain circumstances involving the
receipt by US Order or Colonial Data, as the case may be, of a proposal for a
transaction which the US Order Board or the Colonial Data Board, as the case
may be, believes is more favorable, to US Order's stockholders or Colonial
Data's stockholders, as the case may be, US Order will pay to Colonial Data or
Colonial Data will pay to US Order, as the case may be, a termination fee of
$3.0 million. In the event that within 12 months after the Merger Agreement is
terminated for any of the preceding reasons, the non-terminating party enters
into an agreement with respect to a Third Party Acquisition (as defined below
under "The Mergers--The Merger Agreement--No Solicitation of Transactions"),
and such Third Party Acquisition is consummated within 12 months thereafter,
then the non-terminating party will pay to the terminating party an amount
equal to $4.5 million. In the event that the Merger Agreement is terminated by
either US Order or Colonial Data because there is a willful breach of any
representation, warranty or certain covenants on the part of the other party
and such other party consummates a Third Party Acquisition within 12 months
after such termination of the Merger Agreement, then such other party shall pay
to the non-breaching party an amount equal to $7.0 million. See "The Mergers--
The Merger Agreement--Termination; Amendment and Waiver."
Accounting Treatment
The Mergers will be accounted for using the purchase method of accounting
with US Order being deemed to be the acquiror for financial reporting purposes.
See "The Mergers--Accounting Treatment."
Risk Factors
The consummation of the Mergers involves certain risks with respect to an
investment in shares of Newco Common Stock. Before voting for the Merger
Agreement, stockholders should carefully consider the information set forth in
"Risk Factors."
COMPARISON OF STOCKHOLDERS' RIGHTS
Newco, US Order and Colonial Data are each incorporated under the laws of the
State of Delaware. US Order stockholders, whose rights are currently governed
by the US Order Certificate and the US Order Bylaws, will, upon consummation of
the Mergers, become stockholders of Newco, and their rights as such will be
governed by Newco's Certificate of Incorporation (the "Newco Certificate") and
the Bylaws of Newco (the "Newco Bylaws"). Colonial Data stockholders, whose
rights are currently governed by the Colonial Data Certificate and the Colonial
Data Bylaws, will, upon consummation of the Mergers, become stockholders of
Newco, and their rights as such will be governed by the Newco Certificate and
the Newco Bylaws. See "Comparison of Stockholders' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Mergers have been structured to qualify as "reorganizations" as defined
in Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), with the result that US Order stockholders and Colonial Data
stockholders will not recognize gain or loss on the exchange of US Order Common
Stock or Colonial Data Common Stock, as the case may be, for Newco Common
Stock. A condition to consummation of the Mergers is the receipt by each of
Newco and US Order of the opinion from Hunton & Williams and the
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receipt by each of Newco and Colonial Data of the opinion from LeBoeuf, Lamb,
Greene & MacRae, L.L.P., each as of the date of the Effective Time, as to the
qualification of the Mergers as tax-free reorganizations and certain other
federal income tax consequences of the Mergers. See "The Mergers--The Merger
Agreement--Conditions to Consummation of the Mergers" and "Certain Federal
Income Tax Consequences."
STOCKHOLDERS' RIGHTS OF DISSENT AND APPRAISAL
Pursuant to the DGCL, neither holders of US Order Common Stock nor holders of
Colonial Data Common Stock have dissenters' or appraisal rights in connection
with the Mergers.
EXCHANGE OF SHARES
Promptly after the Effective Time, , or such other bank or trust
company designated by Newco (the "Exchange Agent"), will mail written
transmittal materials concerning exchange of stock certificates to each record
holder of outstanding shares of US Order Common Stock and Colonial Data Common
Stock. The transmittal materials will contain instructions with respect to the
proper method of surrender of certificates formerly representing shares of US
Order Common Stock or Colonial Data Common Stock, respectively, in exchange for
certificates representing shares of Newco Common Stock. Upon surrender to the
Exchange Agent by a US Order or Colonial Data stockholder of certificates
formerly representing shares of US Order Common Stock or Colonial Data Common
Stock, as the case may be, for cancellation, together with properly completed
transmittal materials, such stockholder will be entitled to receive a
certificate representing the number of whole shares of Newco Common Stock into
which the stockholder's shares of US Order Common Stock, or Colonial Data
Common Stock, as the case may be, have been converted. Such transmittal forms
will be accompanied by instructions specifying other details of the exchange.
See "The Mergers--Exchange Ratios; Exchange of Shares."
COMPARATIVE MARKET PRICE
Since June 2, 1995, US Order Common Stock has been included on Nasdaq under
the symbol "USOR." Since February 9, 1996, the Colonial Data Common Stock has
been included on Nasdaq under the symbol "CDTX." Prior to February 9, 1996, the
Colonial Data Common Stock was traded on the American Stock Exchange (the
"ASE"). The following table sets forth, for the periods indicated, the high and
low sales prices of US Order Common Stock on Nasdaq and Colonial Data Common
Stock on the ASE and on Nasdaq.
<TABLE>
<CAPTION>
US ORDER COLONIAL DATA
--------------- ---------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
1994
First Quarter.................................. $ * $ * $ 7 1/8 $ 3 7/8
Second Quarter................................. * * 6 5/8 4 1/8
Third Quarter.................................. * * 5 5/8 3 7/8
Fourth Quarter................................. * * 15 3/8 4 3/8
1995
First Quarter.................................. * * 19 1/8 12 1/4
Second Quarter (June 2-June 30 for US Order)... 17 1/4 14 1/4 22 3/8 14 1/8
Third Quarter.................................. 26 1/2 14 1/4 27 1/4 16 3/4
Fourth Quarter................................. 23 1/4 13 1/4 23 13 1/2
1996
First Quarter.................................. 24 1/4 16 3/4 25 1/4 15 7/8
Second Quarter................................. 22 1/2 13 23 5/8 14 7/8
Third Quarter (through September , 1996)......
</TABLE>
- --------
* No established public trading market for US Order Common Stock existed prior
to the completion of US Order's initial public offering on June 1, 1995.
7
<PAGE>
On August 2, 1996, the last trading day before US Order and Colonial Data
announced that they had signed the Merger Agreement, the last reported sale
price for US Order Common Stock was $14.00 per share and the last reported sale
price for Colonial Data Common Stock was $10.25 per share. On October , 1996,
the last reported sale price for US Order Common Stock was $ and the last
reported sale price for Colonial Data Common Stock was $ .
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following is selected consolidated financial data for US Order and
Colonial Data for the six months ended June 30, 1996 and 1995 and for each of
the five years ended December 31, 1991 through 1995. In addition, pro forma
selected consolidated financial data is included for Newco as of and for the
six months ended June 30, 1996 and for the year ended December 31, 1995. The
consolidated financial data as of and for each of the years in the five-year
period ended December 31, 1995 is derived from the audited consolidated
financial statements of US Order and Colonial Data. The consolidated financial
data for the six months ended June 30, 1996 and 1995 is derived from the
unaudited consolidated financial statements, which in the opinion of management
of US Order and Colonial Data, include all adjustments necessary for a fair
presentation. All such adjustments are of a normal and recurring nature. The
results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results of operations that may be expected for
the entire year. For pro forma information regarding the Mergers, see "Newco
Unaudited Pro Forma Condensed Consolidated Financial Information." The
information is qualified in its entirety by the detailed information and
financial statements of US Order and Colonial Data incorporated by reference in
this Prospectus.
8
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA -- US ORDER/NEWCO
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------- ------------------------------
PRO FORMA(1) PRO FORMA(1)
1991 1992 1993 1994 1995 1995 1995 1996 1996
------- ------- -------- -------- ------- ------------ ------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................ $ 1 $ 63 $ 905 $ 1,432 $ 4,186 $78,380 $ 1,692 $ 1,874 $39,242
Cost of revenue........ 23 126 908 1,013 2,471 48,706 1,397 1,271 26,398
------- ------- -------- -------- ------- ------- ------- ------- -------
Gross profit (loss).... (22) (63) (3) 419 1,715 29,674 295 603 12,844
Operating expenses..... 1,844 6,492 (2) 10,540 (2) 10,584 (3) 6,877 21,947 2,746 5,781 13,514
------- ------- -------- -------- ------- ------- ------- ------- -------
Operating income
(loss)................ (1,866) (6,555) (10,543) (10,165) (5,162) 7,727 (2,451) (5,178) (670)
Gain on sale of bill
pay operations........ -- -- -- 14,523 (4) -- -- -- -- --
Other income
(expense)............. 13 (251) (682) (575) 444 1,756 (149) (16) 1,134
------- ------- -------- -------- ------- ------- ------- ------- -------
Income (loss) before
income taxes.......... (1,853) (6,806) (11,225) 3,783 (4,718) 9,483 (2,600) (5,194) 464
Income taxes........... -- -- -- (70) -- (5,069) -- -- (542)
------- ------- -------- -------- ------- ------- ------- ------- -------
Net income (loss)...... $(1,853) $(6,806) $(11,225) $ 3,713 $(4,718) $ 4,414 $(2,600) $(5,194) $ (78)
======= ======= ======== ======== ======= ======= ======= ======= =======
Weighted average common
stock and common
equivalent shares
outstanding........... 6,090 6,090 6,090 8,243 10,772 32,739 6,420 15,833 32,739
Net income (loss) per
common share.......... $ (0.30) $ (1.18) $ (2.01) $ 0.28 (5) $ (0.50) $ 0.13 $ (0.51) $ (0.33) $ 0.00
======= ======= ======== ======== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------------------- ----------------------
PRO FORMA(1)
1991 1992 1993 1994 1995 1996 1996
------- ------- -------- -------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............. $ (198) $(1,789) $ 1,799 $ 1,628 $ 24,568 $ 19,193 $ 91,304
Net property and
equipment............. 988 2,772 2,876 1,207 1,448 2,077 13,524
Total assets........... 1,342 4,681 7,694 4,637 40,252 34,289 153,610
Notes payable to
affiliates............ -- -- 3,500 4,633 -- -- --
Redeemable preferred
stock................. -- 4,570 7,567 4,783 -- -- --
Accumulated deficit.... (2,148) (8,954) (20,178) (16,465) (21,184) (26,377) (98,337)
Total stockholders'
equity (deficit)...... 393 (3,633) (5,849) (6,465) 37,733 32,440 145,531
</TABLE>
- -------
(1) The pro forma Newco consolidated financial data gives effect to the
proposed Mergers of Colonial Data and US Order into Newco. The merger of
Colonial Data into Newco will be accounted for as a purchase of Colonial
Data by US Order. See "Newco Unaudited Pro Forma Condensed Consolidated
Financial Information."
(2) Operating expenses in 1992 and 1993 include write-downs of terminals and
terminal components of approximately $430,000 and $1.5 million,
respectively.
(3) Operating expenses in 1994 include a $3.25 million payment to certain
employees to cancel certain outstanding vested options in connection with
the sale of the Visa Bill-Pay System to Visa. Visa required that all US
Order employees who became employees of Visa InterActive cancel their
outstanding vested options to eliminate any potential conflicts of
interest. As a result, US Order's stockholders and Board of Directors
agreed to pay all active and full-time US Order employees (excluding
William F. Gorog) an aggregate of $3.25 million for the cancellation of
675,334 of their outstanding and vested options with exercise prices
ranging between $0.98 and $4.00 per share. Of the $3.25 million,
approximately $2.1 million was paid to US Order employees who became Visa
InterActive employees as of August 1, 1994.
(4) US Order sold the Visa Bill-Pay System to Visa in connection with US
Order's entry into a strategic alliance with Visa. See "US Order Business--
General."
(5) Excluding the effect of the gain on the sale of the Visa Bill-Pay System to
Visa, net income (loss) per common share in 1994 would decrease by $2.37
per share.
9
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA -- COLONIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ ----------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................ $8,006 $ 9,722 $17,439 $36,829 $74,194 $33,514 $37,608
Cost of revenue........ 5,442 6,809 12,204 24,228 44,240 19,905 24,369
------ ------- ------- ------- ------- ------- -------
Gross profit........... 2,564 2,913 5,235 12,601 29,954 13,609 13,239
Operating expenses..... 2,312 2,362 3,182 6,301 11,056 5,251 6,726
------ ------- ------- ------- ------- ------- -------
Operating income....... 252 551 2,053 6,300 18,898 8,358 6,513
Other income
(expense)............. (170) (9) (101) (132) 1,312 375 1,150
------ ------- ------- ------- ------- ------- -------
Income before income
taxes................. 82 542 1,952 6,168 20,210 8,733 7,663
Income taxes........... (35) (231) (849) (2,590) (7,687) (3,494) (2,957)
------ ------- ------- ------- ------- ------- -------
Net income............. $ 47 $ 311 $ 1,103 $ 3,578 $12,523 $ 5,239 $ 4,706
====== ======= ======= ======= ======= ======= =======
Weighted average common
stock and common
equivalent shares
outstanding........... 9,623 10,849 10,910 11,806 14,722 13,719 15,606
Net income per common
share................. $ 0.00 $ 0.03 $ 0.10 $ 0.30 $ 0.85 $ 0.38 $ 0.30
====== ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------ ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $3,902 $4,076 $ 2,326 $23,930 $68,915 $75,125
Net property and equipment...... 612 795 3,272 5,755 6,733 4,615
Total assets.................... 5,772 5,641 10,487 33,133 86,405 87,624
Total borrowings................ 646 183 2,130 2,000 1,000 --
Accumulated earnings............ 1,086 1,397 2,500 6,078 18,601 23,307
Total stockholders' equity...... 4,514 4,825 6,082 28,353 80,568 84,394
</TABLE>
10
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in evaluating the
proposals to be considered and voted upon at each of the US Order Meeting and
the Colonial Data Meeting. Set forth below are certain risk factors, among
others, with respect to Newco, US Order and Colonial Data. Following
consummation of the Mergers, the risk factors set forth below with respect to
US Order and Colonial Data will also be applicable to Newco.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Newco, US Order and Colonial Data desire to take advantage of the new "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Newco, US Order and Colonial Data wish to caution readers that the following
important factors, among others, in some cases have affected US Order's and
Colonial Data's actual results, and could affect US Order's and Colonial
Data's actual results prior to the Effective Time and Newco's actual results
following the Effective Time and could cause Newco's actual results for 1996
and beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, Newco.
RISK FACTORS WITH RESPECT TO NEWCO
Uncertainty as to Future Financial Results
US Order and Colonial Data believe that the Mergers will offer opportunities
for long-term efficiencies in operations that should positively affect future
operating results of the combined companies. However, the combined companies
will be more complex and diverse than either US Order or Colonial Data
individually, and the combination and continued operation of their distinct
business operations will present difficult challenges for each company's
management due to the increased time and resources required in the management
effort. While the managements and the US Order and Colonial Data Boards
believe that the combination can be effected in a manner that will realize the
value of the two companies, neither management group has experience in
combinations of this size. Accordingly, there can be no assurance that the
process of effecting the business combination can be effectively managed to
realize the operational efficiencies anticipated to result from the Mergers.
Following the Mergers, in order to maintain and increase profitability, the
combined companies will need to successfully integrate and streamline
overlapping functions. US Order and Colonial Data have different systems and
procedures in many operational areas that must be rationalized and integrated.
There can be no assurances that integration will be accomplished smoothly or
successfully. The difficulties of such integration may be increased by the
necessity of coordinating geographically separated organizations. The
integration of certain operations following the Mergers will require the
dedication of management resources that may temporarily distract attention
from the day-to-day business of the combined companies. Failure to effectively
accomplish the integration of the two companies' operations could have an
adverse effect on Newco's results of operation and financial condition.
History of Operating Losses
The Mergers will be accounted for using the purchase method of accounting
with US Order being deemed the acquiror for financial reporting purposes.
Because US Order as the acquiror has a financial history of operating losses,
Newco will have a financial history of operating losses. For income tax
purposes, use of US Order's net operating loss carryforwards in future years
may be limited as a result of the change in control upon completion of the
Mergers. In the future, there can be no assurance that Newco will be able to
achieve profitability and, if achieved, sustain such profitability.
11
<PAGE>
Newco Common Stock Owned by WorldCorp
As of the Effective Time, WorldCorp will beneficially own approximately 28%
of the outstanding Newco Common Stock. WorldCorp is highly leveraged, and
therefore requires substantial funds to meet debt service requirements each
year. As a result of WorldCorp's cash requirements, it may be required to sell
shares of Newco Common Stock from time to time and such sales, or the threat
of such sales, could have a material adverse effect on the market price for
the Newco Common Stock. In addition, the Newco Board has nine members, four of
whom also serve on the Board of Directors of WorldCorp. As a result of Newco
Board membership and stock ownership, WorldCorp may have a significant
influence on the decisions made by Newco.
Market Acceptance of Smart Telephones
Newco's future growth and profitability also will depend upon the consumer's
acceptance of smart telephone technologies and a significant expansion in the
consumer market for telephone-based interactive applications technologies.
Even if these markets experience substantial growth, there can be no assurance
that Newco's products or services will be successful or benefit from such
growth. Newco's smart telephone is designed to support Analog Display Services
Interface ("ADSI")-based intelligent network services such as integrated
Caller ID and Call Waiting with call disposition features, as well as new
applications such as home banking and national directory assistance. After the
Mergers, much of Newco's success in the smart telephone market depends on
Newco's ability to meet design specifications and delivery requirements for
its products and services. There can be no assurance of the timing of
introduction of, necessary regulatory approvals for, or market acceptance of
these services and applications. Newco faces competition in these markets from
other emerging interactive applications delivered through personal computers,
cable television and Integrated Service Digital Network ("ISDN"). See
"Business of US Order--Products" and "Business of Colonial Data--Products,"
and "--Services."
Fluctuations in Operating Results
Historically, US Order and Colonial Data have experienced fluctuations in
quarterly operating results, and after the Effective Time, Newco may
experience fluctuations in quarterly operating results due to a variety of
factors, some of which are beyond Newco's control. These include the size and
timing of customer orders or the royalty payments from Visa InterActive, if
any, changes in Newco's pricing policies or those of its competitors, new
product introductions or enhancements by competitors, delays in the
introduction of new products or product enhancements by Newco or by its
competitors, customer order deferrals in anticipation of upgrades and new
products, market acceptance of new products, the timing and nature of sales,
marketing, and research and development expenses by Newco and its competitors,
the timing of programs offering Caller ID or other intelligent network
services by a telco, disruptions in sources of supply, the effects of
regulation on Caller ID and other intelligent network services, the timing and
extent of promotional activities by a telco, changes in service charges by a
telco, other changes in operating expenses, personnel changes and general
economic conditions. No assurance can be given that such quarterly variations
will not occur in the future and, accordingly, the results of any one quarter
may not be indicative of the operating results for future quarters.
Technological Considerations
US Order's and Colonial Data's business activities are concentrated in
fields characterized by rapid and significant technological advances. There
can be no assurance that after the Mergers, Newco will remain competitive
technologically or that Newco's products, processes or services will continue
to be reflective of such advances. Failure to introduce new products or
product enhancements that achieve market acceptance on a timely basis could
materially and adversely affect Newco's business, operating results and
financial condition. There can be no assurance that after the Mergers, Newco
will not encounter unanticipated technical, marketing or other problems or
delays relating to new products, features or services which US Order and
Colonial Data have recently introduced or which Newco may introduce in the
future. Moreover, there can be no assurance that after the Mergers, Newco's
new products, features or services will be successful, that the introduction
of new products, features or services by Newco's competitors will not
materially and adversely affect the sales of Newco's existing products or that
Newco will be able to adapt to future changes in the telecommunications
12
<PAGE>
industry. Most of US Order's and Colonial Data's competitors and potential
competitors have significantly greater financial, technological and research
and development resources than Newco will have. See "Business of US Order--
Products," "--Product Development," "--Competition" and "--Patents,
Proprietary Rights and Licenses" and "Business of Colonial Data--Products and
Services," "--Product Development," "--Competition" and "--Patents,
Proprietary Rights and Licenses."
Dependence on Foreign Production
Colonial Data's Caller ID units and certain other products, including the
smart phone jointly developed by US Order and Colonial Data, the Telesmart
4000/Intelifone 2000, are manufactured by companies with facilities in Hong
Kong, Taiwan, and the People's Republic of China. These facilities are
supplemented, in part, by other manufacturers in Asia for certain integrated
telephone and small business system products and by limited manufacturing
facilities in Connecticut and Canada. The availability or cost of these Caller
ID units and smart telephones may be adversely affected by political, economic
or labor conditions in Hong Kong, Taiwan or the People's Republic of China,
including the 1997 return of Hong Kong to China, and by fluctuations in
currency exchange rates. In addition, a change in the tariff structure or
other trade policies of the United States or countries from which Newco will
import products could adversely affect Newco's foreign manufacturing
strategies. See "Business of US Order--Manufacturing" and "Business of
Colonial Data--Manufacturing."
Dependence on Key Employees
Newco will be highly dependent on certain key executive officers and
technical employees to fully integrate the operations and business of US Order
and Colonial Data as well as to implement the business plans of Newco on an
ongoing basis. The loss of any such key employees could have an adverse impact
on the future operations of Newco. See "Management and Operation After the
Mergers."
Regulation
In the United States, Caller ID and other intelligent network services are
subject to federal and state regulation. Caller ID and other intelligent
network services may in the future be subject to further regulation by the
federal government, state public utility commissions and other regulatory
authorities, as well as court challenges, including possible challenges due to
protests from special interest groups that object to such services on the
basis of privacy concerns. An order issued by the Federal Communications
Commission ("FCC") effective December 1, 1995, requires all United States
telephone service providers with Signaling System 7 switching architecture to
transmit to each other without charge Caller ID number information on
interstate calls within the United States (except for public pay phones and
party lines). The FCC's order also requires that telcos that offer Caller ID
service must provide to their telephone subscribers without charge a per-call
blocking mechanism to block the transmission of their Caller ID information on
interstate calls and must inform subscribers that their telephone numbers may
be identified to a called party and how to use this blocking capability.
In addition, the Telecommunications Act of 1996 and regulations or orders
promulgated thereunder may result in or accelerate changes in various aspects
of the telecommunications industry, including the competitive environment, the
delivery and pricing of various telecommunications services and possible
consolidation. Although Newco is unable to predict what effect, if any, the
Telecommunications Act of 1996 or other regulatory developments may have upon
the telecommunications industry or Newco's business, any such effects could
have a material adverse impact on the future operations of Newco.
In Canada, the Canadian Radio-television and Telecommunications Commission
regulates Caller ID and intelligent network services. Newco believes that
Canadian regulation of telecommunications devices for intelligent network
services is not more burdensome than regulation in the United States. See
"Business of Colonial Data--Government Regulation."
13
<PAGE>
Volatility of Stock Price
The market price of both the US Order Common Stock and the Colonial Data
Common Stock experiences significant volatility. There can be no assurance
that the Newco Common Stock will not also experience significant volatility.
The stock market has experienced volatility that has particularly affected the
market prices of equity securities of many high technology and developmental
stage companies and that has often been unrelated to the operating performance
of such companies. Factors such as announcements of the introduction of new
products or services by Newco or its competitors, announcements of joint
development efforts or corporate partnerships in the interactive applications
industry, market conditions in the banking, telecommunications and other
emerging growth company sectors and rumors relating to Newco or its
competitors may have a significant impact on the market price of Newco Common
Stock.
Anti-takeover Provisions; Certain Provisions of Delaware Law and Newco's
Certificate of Incorporation and Bylaws
Certain provisions of Delaware law and Newco's Certificate of Incorporation
and Bylaws and certain other contractual provisions could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of Newco. Under US Order's
agreement with Visa, which Newco will assume at the Effective Time, Newco may
not sell equity interests in Newco or a portion of its assets to major
competitors of Visa, currently including MasterCard, Discover Card, American
Express, Japan Credit Bureau and EuroPay Card, until at least December 31,
2000. Such provisions and control considerations could limit the price that
certain investors might be willing to pay in the future for shares of Newco
Common Stock. Newco's Certificate of Incorporation allows Newco to issue
shares of preferred stock of Newco with rights senior to those of Newco Common
Stock without any further vote or action by the stockholders. The issuance of
shares of preferred stock of Newco could decrease the amount of earnings and
assets available for distribution to the holders of Newco Common Stock or
could adversely affect the rights and powers, including voting rights, of the
holders of Newco Common Stock. In certain circumstances, such issuance could
have the effect of decreasing the market price of Newco Common Stock. See
"Description of Newco Capital Stock--Preferred Stock; --Certain Provisions of
DGCL, Newco Certificate and Newco Bylaws."
Dividends
Each of US Order and Colonial Data historically has not paid cash dividends
on US Order Common Stock or Colonial Data Common Stock, as the case may be.
Newco currently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future.
RISK FACTORS WITH RESPECT TO US ORDER
Minimal Revenue; History of Losses
US Order did not introduce its first commercial product until 1991 and
accordingly has a limited operating history. To date, US Order has generated
limited revenue from the sale of its products and services, has incurred
significant losses and has experienced a substantial negative cash flow. US
Order expects to incur operating losses during 1996. There can be no assurance
that US Order will be able to achieve profitability and, if achieved, sustain
such profitability, nor can there be any assurance as to when such
profitability might be achieved. US Order is subject to all of the risks
inherent in the establishment of a new business enterprise.
Developing Marketplace
Home banking and smart telephones are developing markets. Consumer
preferences in interactive technologies are difficult to predict. US Order's
future growth and profitability will depend, in part, upon consumer acceptance
of electronic home banking and smart telephone technologies and a significant
expansion in the consumer market for telephone-based interactive applications
technologies. Even if these markets
14
<PAGE>
experience substantial growth, there can be no assurance that US Order's
products and services will be commercially successful or benefit from such
growth.
Early Stage Products and Services
The continued development of the marketplace for US Order's products and
services will depend in part upon US Order's ability to create and develop
additional applications for US Order's technologies. Many of US Order's
products and services, including its smart telephones, are in the early stages
of development or marketing, and are subject to the risks inherent in the
development and marketing of new products and services. See "Business of US
Order."
Restrictions from the Visa Agreement
As a condition of Visa's acquisition of US Order's bill payment operations
and technology (the "Visa Bill-Pay System"), US Order has agreed to work
exclusively with Visa in certain areas and to refrain from certain activities
that are in competition with Visa and its affiliates. These covenants may
increase US Order's reliance upon Visa. US Order's dependence on Visa, and the
terms of the agreement between the parties, may have a material adverse effect
on US Order. See "Business of US Order."
Dependence on Strategic Alliances
US Order's business strategy has been to sell its products and services
through strategic alliances, primarily through a strategic alliance with Visa
InterActive in addition to the alliance with Colonial Data. US Order's primary
success will depend both on the ultimate success of its strategic partners as
well as on the ability of its partners to successfully market US Order's
products, services and interactive applications. There can be no assurance
that these alliance partners will view their alliance with US Order as
significant for their own businesses or that they will not reassess their
commitment to US Order at any time in the future. See "Business of US Order--
Products."
Competition
The market for interactive products and services is highly competitive and
subject to rapid innovation and technological change, shifting consumer
preferences and frequent new product introductions. US Order's home banking
products and services compete with services offered by a number of competitors
and competition may intensify as a result of new market entrants. Banks have
developed home banking products for their own customers and, in the future,
may offer these services to other banks. Non-banks also may develop home
banking products to offer to banks. Computer software and data processing
companies also offer home banking services. Visa competes with other
organizations, including MasterCard International, Inc. ("MasterCard"), which
offers its Masterbanking home banking service through CheckFree Corporation.
Many competitors exist for US Order's various banking products including other
manufacturers of touch-tone response systems, other financial software
companies and financial services software and service companies. US Order
believes that its primary competition for its customer support services will
come from financial institutions and third parties that choose to offer
customer support services either directly through Visa's customer support
messaging standard ("CSMS") product or on their own. US Order expects that
competition in all of these areas will increase in the near future. See
"Business of US Order--Competition--Home Banking."
The market for US Order's smart telephone products and services is highly
competitive and subject to rapid technological change. At present, US Order's
principal competitors in the market for smart telephones are or will be
Philips Home Services, Inc. ("Philips"), Northern Telecom Ltd. ("Northern
Telecom"), Lucent Technologies, Inc., formerly part of AT&T Corp. ("Lucent")
and CIDCO Incorporated ("CIDCO"). US Order expects competition to increase in
the future from existing and new competitors and expects new competitors to
include electronics manufacturers. US Order's competitors, including Philips
and Northern Telecom, have already introduced smart telephones that include
technological features incorporated in US Order's Telesmart
15
<PAGE>
4000/Intelifone 2000 smart phone product. US Order expects that as the market
for smart telephones grows, it will face competition from traditional personal
computer on-line service providers, as well as from personal computer software
companies. See "Business--Competition--Smart Telephones."
Reliance on Visa Royalty Payments
US Order sold the Visa Bill-Pay System to Visa on August 1, 1994, for
approximately $15 million in cash, the assumption of certain liabilities and
rights to a 72-month royalty period commencing January 1, 1995 and ending
December 31, 2000 (the "Royalty Period"). Visa subsequently transferred these
assets to Visa InterActive, its wholly owned subsidiary. The royalty
obligation is based on the number of customers who use the Visa Bill-Pay
System during the Royalty Period. The agreement with Visa expressly provides
that the royalty will apply only if the means by which a customer makes an
electronic bill payment involves the use of a "significant portion" of the
Visa Bill-Pay System. See "Business of US Order."
Royalties to US Order are calculated and paid by Visa InterActive quarterly
during the Royalty Period. Because the amount of the royalties to US Order is
dependent upon the number of customers that use the Visa Bill-Pay System on a
monthly basis during the Royalty Period, US Order cannot provide any
assurances of the amount of royalties, if any, that will be payable by Visa
InterActive to US Order. The royalty payment will be reduced for each quarter
through December 31, 1997, by an offset amount (the "Visa Offset") which is
initially set at $73,315. If the royalty payment that would otherwise be due
in respect of a quarter is smaller than the offset amount for that quarter, no
royalty payment will be made to US Order, and the difference between $73,315
and the royalty otherwise due will increase the size of the Visa Offset for
the next quarter. The aggregate amount of the Visa Offset for the Royalty
Period is $879,780. US Order did not receive any royalty revenue from Visa in
1995 due to the Visa Offset and does not expect to receive any royalty revenue
after application of the Visa Offset through at least the end of 1996.
In addition, under the terms of its agreement with Visa, Visa InterActive is
not obligated to pay royalties to US Order for active bank customers who
utilize home banking and bill payment technology independently developed by
Visa InterActive. If Visa InterActive independently develops or acquires its
own home banking and bill payment technology which does not use or build upon
US Order's technology, this could have a material adverse effect on the amount
of royalties payable by Visa InterActive to US Order. As a condition of Visa's
acquisition of the Visa Bill-Pay System, US Order has agreed to work
exclusively with Visa in certain areas and to refrain from certain activities
that are in competition with Visa and its affiliates. These covenants may
increase US Order's reliance upon Visa. See "Business of US Order--Marketing
and Sales--Home Banking--Bill Payment Channel."
RISK FACTORS WITH RESPECT TO COLONIAL DATA
Reliance on Caller ID Revenues
During the year ended December 31, 1995 and the six months ended June 30,
1996, 96% and 91%, respectively, of Colonial Data's revenues were derived from
sales and leases of its Caller ID products. The sale or lease of these
products is directly linked to the implementation and promotion of Caller ID
service by telcos. The timing of such implementation may be affected by
government regulation, by changes in the telecommunications industry resulting
from changes in the regulatory and competitive environment, by switch and
software upgrades and by other factors. There can be no assurance that telcos
will continue to introduce and promote this service successfully or that it
will gain widespread market acceptance. Delays in the introduction of Caller
ID service in local markets or failure of this service to gain widespread
market acceptance would materially and adversely affect Colonial Data's
business, operating results and financial condition. See "Business of Colonial
Data--Industry Background," "--Products and Services" and "--Government
Regulation."
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Competition
The market for Colonial Data's products is highly competitive and subject to
rapid technological change. At present, Colonial Data's principal competitors
are CIDCO, Lucent and Northern Telecom. Colonial Data's Caller ID products
also compete with Caller ID telephones offered by Panasonic Co. ("Panasonic"),
Sony Corp. ("Sony"), Thomson Consumer Electronics, Inc. ("Thomson") and US
Electronics, Inc. ("US Electronics").
The smart telephone marketed by Colonial Data through its alliance with US
Order is subject to competition from smart telephones marketed or developed by
Philips, Northern Telecom and CIDCO as well as other emerging platforms for
interactive applications delivered through personal computers and cable
television. Colonial Data expects competition to increase in the future from
existing and new competitors, possibly including telcos or other current
customers, from network switch-based services and from the increased
application of cellular technology. Colonial Data's primary current and
potential competitors in the market for products that support intelligent
network services have substantially greater financial, marketing and technical
resources than Colonial Data. Competition could materially and adversely
affect Colonial Data's results of operations through price reductions and loss
of market share.
Colonial Data competes with a large number of competitors for its repair
services and other services supporting the development and implementation of
intelligent network services. Several of Colonial Data's competitors in the
market for such services have substantially greater financial, marketing and
technological resources than Colonial Data. There can be no assurance that
Colonial Data will be able to continue to compete successfully against its
existing competitors or that it will be able to compete successfully against
new competitors. See "Business of Colonial Data--Competition."
Concentration of Distribution of Products and Services
Colonial Data sells its products and services to telcos, individual
telephone subscribers, other equipment manufacturers on a private label basis
("private label customers") and retail chains. In addition, Colonial Data
leases its products to individual telco subscribers. Sales and leases to
individual telco subscribers are largely dependent on direct fulfillment
distribution arrangements with certain Regional Bell Operating Companies
("RBOCs") and other telcos. Since Colonial Data views the telcos with which it
maintains direct fulfillment relationships as its customers, it considers its
customer base to be highly concentrated. In 1995, Colonial Data's three
largest customers (including telcos with which Colonial Data maintains direct
fulfillment relationships) accounted for 59%, of which the top two accounted
for 48%, of its revenues. In the six months ended June 30, 1996, the three
largest customers accounted for 51%, of which the top two accounted for 38%,
of Colonial Data's revenues. Colonial Data's current telco fulfillment
arrangements are not exclusive and may be terminated by either party. The loss
of any one or more of Colonial Data's major customers or the termination of
its distribution arrangements with any telco or the failure to be selected for
significant orders or programs by a telco could materially and adversely
affect Colonial Data's business, operating results, and financial condition.
In addition, consolidation in the telecommunications industry could result in
the loss of such customers or business. See "Business of Colonial Data--
Marketing and Distribution."
Management of Growth
During recent periods, Colonial Data has experienced a rapid rate of growth.
Colonial Data has responded to the growth in its business by significantly
increasing its service, support and administrative facilities and staff.
However, there can be no assurance that Colonial Data will be able on a timely
basis to anticipate its future requirements for personnel, facilities or
systems or to maintain the levels of customer service that it has provided in
the past. The inability of Colonial Data to anticipate and meet these
requirements, or a decline in the quality of Colonial Data's customer service
or delays in the delivery of Colonial Data's products could materially and
adversely affect Colonial Data's business. See "Business of Colonial Data--
Manufacturing."
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Limited Proprietary Protection
Colonial Data possesses limited patent or registered intellectual property
rights with respect to its technology. Colonial Data depends in part upon its
proprietary technology and know-how to differentiate its products from those
of its competitors. Colonial Data is relying on US Order for the design of a
new smart telephone. Colonial Data also works independently and from time to
time with third parties with respect to the design and engineering of its own
products. Colonial Data also relies on a combination of contractual rights and
trade secret laws to protect its proprietary technology. There can be no
assurance, however, that Colonial Data will be able to protect its technology
or successfully develop new technology or gain access to such technology or
that third parties will not be able to develop similar technology
independently or that competitors will not obtain unauthorized access to
Colonial Data's proprietary technology, that third parties will not misuse the
technology to which Colonial Data has granted access, or that Colonial Data's
contractual or legal remedies will be sufficient to protect Colonial Data's
interests in its proprietary technology. See "Business of Colonial Data--
Patents, Proprietary Rights and Licenses."
A portion of the messaging technology used in Colonial Data's Caller ID
products is licensed on an exclusive basis from Lucent. However, Lucent has
reserved for itself and its subsidiaries the right to use that technology for
all purposes relating to its and its subsidiaries' businesses. Certain of
Lucent's Caller ID patents are licensed by Lucent to Colonial Data and others,
including Colonial Data's competitors. If the Lucent license were terminated
and Colonial Data were unable to negotiate a new patent license agreement with
Lucent, Colonial Data would no longer be authorized to manufacture or sell
Caller ID products in the United States other than to the RBOCs and to Lucent,
and Colonial Data's business would be materially and adversely affected. See
"Business of Colonial Data--Patents, Proprietary Rights and Licenses."
Limited Sources of Supply
The key components used in Colonial Data's products are currently being
purchased from multiple sources, except for its application specific
integrated circuit ("ASIC") chips, which are purchased from a single source.
The only supply contract to which Colonial Data is a party is with the maker
of its ASIC chips. Colonial Data has no other supply contracts for its
components. Although Colonial Data believes it could develop other sources for
each of the components for its products, the process could take several
months, and the inability or refusal of any such source to continue to supply
components could have a material adverse effect on Colonial Data pending the
development of an alternative source.
THE MEETINGS
This Joint Proxy Statement/Prospectus is furnished for use in connection
with the solicitation of proxies from the holders of US Order Common Stock by
the US Order Board for use at the US Order Meeting and from the holders of
Colonial Data Common Stock by the Colonial Data Board for use at the Colonial
Data Meeting.
TIMES AND PLACES; PURPOSES
The US Order Meeting will be held at the on October , 1996, at
: a.m., local time.
The Colonial Data Meeting will be held at the on October , 1996,
at : a.m., local time.
At the US Order Meeting, the stockholders of US Order will be asked to
consider and vote upon a proposal to approve and adopt the Merger Agreement
and to transact such other matters as may properly come before the US Order
Meeting. At the Colonial Data Meeting, the stockholders of Colonial Data will
be asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement and to transact such other matters as may properly come before the
Colonial Data Meeting. A copy of the Merger Agreement is included as Appendix
I to this Joint Proxy Statement/Prospectus.
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VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
US Order
The US Order Board has fixed the close of business on September , 1996, as
the US Order Record Date for determination of holders of US Order Common Stock
entitled to notice of, and to vote at, the US Order Meeting. Only holders of
record of shares of US Order Common Stock at the close of business on the US
Order Record Date are entitled to notice of, and to vote at, the US Order
Meeting. At the close of business on the US Order Record Date, there were
shares of US Order Common Stock outstanding and entitled to vote at the US
Order Meeting. Each holder of record of US Order Common Stock as of the US
Order Record Date is entitled to cast one vote per share, in person or by
proxy, on each proposal properly presented at the US Order Meeting. A majority
of the votes entitled to be cast on each matter to be considered at the US
Order Meeting will constitute a quorum as to that matter. In accordance with
the DGCL, the affirmative vote of a majority of the votes entitled to be cast
by holders of US Order Common Stock is required to approve and adopt the
Merger Agreement. Abstentions and Broker Shares that are not voted will have
the same effect as negative votes with respect to the proposal to approve and
adopt the Merger Agreement.
As of the US Order Record Date, US Order's directors and executive officers
beneficially owned shares of US Order Common Stock, representing
approximately % of the shares of US Order Common Stock outstanding on such
date. WorldCorp, the majority stockholder of US Order, the current Chairman of
the Board and Chief Executive Officer of US Order, and certain directors and
officers of US Order, who as of the US Order Record Date collectively
beneficially owned approximately 58% of the outstanding shares of US Order
Common Stock outstanding on such date, have executed stockholder agreements
with Colonial Data in which they have agreed to vote all of their shares of US
Order Common Stock for approval of the Merger Agreement, unless the US Order
Board recommends to the US Order stockholders a Superior Proposal (as defined
below under "The Mergers--Termination; Amendment and Waiver") or otherwise, in
the exercise of its fiduciary duties upon the advice of counsel, withdraws,
amends or modifies in any manner adverse to Colonial Data its favorable
recommendation of the Merger Agreement. The vote of such persons in accordance
with such stockholder agreements would be sufficient to approve the Merger
Agreement without any action on the part of any other holder of US Order
Common Stock.
Colonial Data
The Colonial Data Board has fixed the close of business on September ,
1996, as the Colonial Data Record Date for determination of holders of
Colonial Data Common Stock entitled to notice of, and to vote at, the Colonial
Data Meeting. Only holders of record of shares of Colonial Data Common Stock
at the close of business on the Colonial Data Record Date are entitled to
notice of, and to vote at, the Colonial Data Meeting. At the close of business
on the Colonial Data Record Date, there were shares of Colonial Data
Common Stock outstanding and entitled to vote at the Colonial Data Meeting.
Each holder of record of Colonial Data Common Stock as of the Colonial Data
Record Date is entitled to cast one vote per share, in person or by proxy, on
each proposal properly presented at the Colonial Data Meeting. A majority of
the votes entitled to be cast on each matter to be considered at the Colonial
Data Meeting will constitute a quorum as to that matter. In accordance with
the DGCL, the affirmative vote of a majority of the votes entitled to be cast
by holders of Colonial Data Common Stock is required to approve and adopt the
Merger Agreement. Abstentions and Broker Shares that are not voted will have
the same effect as negative votes with respect to the proposal to approve and
adopt the Merger Agreement.
As of the Colonial Data Record Date, Colonial Data's directors and executive
officers owned shares of Colonial Data Common Stock, representing
approximately % of the shares of Colonial Data Common Stock outstanding on
such date. Certain stockholders of Colonial Data, including the current
Chairman of the Board and Chief Executive Officer of Colonial Data, and
certain directors and officers of Colonial Data, who as of the Colonial Data
Record Date collectively beneficially owned % of the outstanding shares of
Colonial Data Common Stock outstanding on such date, have executed stockholder
agreements with US Order in which they have agreed to vote all of their shares
of Colonial Data Common Stock for approval of the Merger
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Agreement, unless the Colonial Data Board recommends to the Colonial Data
stockholders a Superior Proposal (as defined below under "The Mergers--
Termination; Amendment and Waiver") or otherwise, in the exercise of its
fiduciary duties upon the advice of counsel, withdraws, amends or modifies in
any manner adverse to US Order its favorable recommendation of the Merger
Agreement.
PROXIES
All shares of US Order Common Stock and Colonial Data Common Stock
represented by properly executed proxy cards received prior to or at the US
Order Meeting or Colonial Data Meeting, respectively, and not revoked, will be
voted in accordance with the instructions indicated in such proxy cards. If no
instructions are indicated on properly executed proxies representing shares of
US Order Common Stock, such proxies will be voted FOR approval and adoption of
the Merger Agreement. If no instructions are indicated on properly executed
proxies representing shares of Colonial Data Common Stock, such proxies will
be voted FOR approval of the Merger Agreement. A properly executed proxy card
representing shares of US Order Common Stock marked "ABSTAIN" with respect to
any proposal, although counted for purposes of determining whether there is a
quorum present and for purposes of determining the aggregate number of Shares
represented and entitled to vote at the US Order Meeting, will not be voted on
that matter. A properly executed proxy card representing shares of Colonial
Data Common Stock marked "ABSTAIN" with respect to any proposal, although
counted for purposes of determining whether there is a quorum present and for
purposes of determining the aggregate number of shares represented and
entitled to vote at the Colonial Data Meeting, will not be voted on that
matter.
If any other matters are properly presented for consideration at the US
Order Meeting or Colonial Data Meeting, the persons named in the US Order
proxy card and Colonial Data proxy card, respectively, will have discretionary
authority to vote on such matters. If necessary, and unless the shares
represented by the proxy were voted against the applicable proposals therein,
the holders of the proxies granted by US Order stockholders and Colonial Data
stockholders also may vote in favor of a proposal to adjourn the US Order
Meeting or Colonial Data Meeting, respectively, to permit further solicitation
of proxies in order to obtain sufficient votes to approve any of the matters
being considered at the Meetings. US Order and Colonial Data are not aware of
any matters to be presented at the US Order Meeting or Colonial Data Meeting,
respectively, other than the proposals described in this Joint Proxy
Statement/Prospectus. If any matters come before the US Order Meeting or
Colonial Data Meeting that are not directly referred to in this Joint Proxy
Statement/Prospectus or the enclosed Proxy, including matters incident to such
meetings, the proxy holders will vote the shares represented by such proxies
in accordance with the recommendations of the US Order Board or the Colonial
Data Board, respectively.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of US Order or Colonial Data, as the case may be,
a signed notice of revocation or a later dated signed proxy or by attending
the applicable Meeting and voting in person. Attendance at the US Order
Meeting or the Colonial Data Meeting will not in itself constitute the
revocation of a proxy.
All expenses of the solicitation of proxies from US Order stockholders will
be borne by US Order, and all expenses of the solicitation of proxies from
Colonial Data stockholders will be borne by Colonial Data, except that US
Order and Colonial Data have agreed that the expenses incurred in connection
with printing and mailing this Joint Proxy Statement/Prospectus will be shared
equally by US Order and Colonial Data. In addition to solicitation by mail,
officers and employees of US Order and Colonial Data may solicit proxies by
telephone, telegram or personal interviews. Such persons will receive no
additional compensation for such services. Colonial Data has retained the firm
of to assist in the solicitation of proxies at a fee estimated not
to exceed $ , plus direct out-of-pocket expenses. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to forward proxy
soliciting material to the beneficial owners of shares held of record by them
and will be reimbursed for their reasonable expenses.
STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS
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THE MERGERS
GENERAL; EFFECTIVE TIME
In the Mergers, US Order and Colonial Data will merge with and into Newco,
and stockholders of US Order and Colonial Data will receive the consideration
described below. The Mergers will become effective at the date and time
specified in the certificates of merger to be filed with the Secretary of
State of Delaware. The filing of the certificates of merger is anticipated to
take place as soon as practicable after the last of the conditions precedent
to the Mergers set forth in the Merger Agreement have been satisfied or, where
permissible, waived, which is expected to occur shortly after the Meetings.
THE FOLLOWING DESCRIPTION OF THE MERGERS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE COMPLETE TEXT OF THE MERGER AGREEMENT, WHICH IS INCORPORATED
BY REFERENCE HEREIN AND A COPY OF WHICH (EXCLUSIVE OF EXHIBITS AND SCHEDULES)
IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS APPENDIX I.
EXCHANGE RATIOS; EXCHANGE OF SHARES
Upon consummation of the Mergers, each outstanding share of US Order Common
Stock will be converted into one share of Newco Common Stock and each
outstanding share of Colonial Data Common Stock will be converted into one
share of Newco Common Stock. The Exchange Ratios were determined through arm's
length negotiations between US Order and Colonial Data after consideration of
all relevant factors, and will result in former US Order stockholders holding
approximately 51% of the outstanding shares of Newco Common Stock immediately
after the Effective Time and former Colonial Data stockholders holding
approximately 49% of the outstanding shares of Newco Common Stock immediately
after the Effective Time, assuming that existing warrants and options of US
Order and Colonial Data, respectively, are not exercised before the Effective
Time. On a fully diluted basis, former US Order stockholders will hold
approximately 54% of the outstanding shares of Newco Common Stock and former
Colonial Data stockholders will hold approximately 46% of the outstanding
shares of Newco Common Stock immediately after the Effective Time. Each share
of US Order Common Stock held by Colonial Data and each share of Colonial Data
Common Stock held by US Order prior to the Effective Time shall by virtue of
the Merger be canceled and retired and shall cease to exist and no payment
shall be made with respect thereto. See "--Background and Negotiation of the
Mergers."
Promptly after the Effective Time, the Exchange Agent will mail written
transmittal materials concerning exchange of stock certificates to each record
holder of outstanding shares of US Order Common Stock and Colonial Data Common
Stock. The transmittal materials will contain instructions with respect to the
proper method of surrender of certificates formerly representing shares of US
Order Common Stock or Colonial Data Common Stock, respectively, in exchange
for certificates representing shares of Newco Common Stock. Upon surrender to
the Exchange Agent by a US Order or Colonial Data stockholder of certificates
formerly representing shares of US Order Common Stock or Colonial Data Common
Stock, as the case may be, for cancellation, together with properly completed
transmittal materials, such stockholder will be entitled to receive a
certificate representing the number of whole shares of Newco Common Stock into
which the stockholder's shares of US Order Common Stock or Colonial Data
Common Stock, as the case may be, have been converted. Such transmittal forms
will be accompanied by instructions specifying other details of the exchange.
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Time, each certificate that evidenced US Order Common
Stock or Colonial Data Common Stock immediately prior to the Effective Time,
until so surrendered and exchanged, will be deemed, for all purposes, to
evidence only the right to receive a certificate representing the number of
shares of Newco Common Stock into which such holder's shares were converted in
the Mergers. The holder of such unexchanged certificate will not be entitled
to receive any dividends or other distributions payable by Newco until the
certificate is surrendered. Subject to applicable laws, such dividends and
distributions, if any, will be accumulated and, at the time of such surrender,
all such unpaid dividends and distributions will be paid without interest.
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BACKGROUND AND NEGOTIATION OF THE MERGERS
In January 1995, US Order and Colonial Data formed a strategic alliance to
jointly design, develop, manufacture and market a smart telephone product to
the public. In June 1995, Colonial Data and US Order consummated an agreement
whereby US Order exchanged 230,000 shares of US Order Common Stock for 170,743
shares of Colonial Data Common Stock. Such stock exchange agreement also
provides for the exchange of additional shares with a market value of $3.0
million, which exchange has been postponed pending consummation of the
Mergers. Beginning in 1996, senior management of US Order and Colonial Data
began periodically and informally to reassess the long-term strategy and
alternatives for the business and operations of US Order and Colonial Data,
respectively. As management of US Order and Colonial Data assessed these
alternatives and reviewed the history of the strategic relationship between US
Order and Colonial Data, they began to assess whether a merger of equals
between US Order and Colonial Data would enhance stockholder value through the
potential enhancement of each company's competitive position.
NEGOTIATION OF THE MERGERS
From time to time beginning in the fall of 1995, management of US Order and
Colonial Data discussed ways to expand the strategic relationship between the
two companies. In May 1996, senior management of both companies participated
in discussions concerning the idea of a combination of the companies and the
financial implications of such a possible combination. During May and early
June 1996, senior management of both companies had several discussions
regarding the strategic, technological and competitive advantages of a
combination of US Order and Colonial Data. On June 17 and 18, 1996, John C.
Backus, Jr. and Mark S. Lynch of US Order and Robert J. Schock, Timothy R.
Welles, Walter M. Fiederowicz and John N. Giamalis of Colonial Data met in
Danbury, Connecticut to discuss the overall transaction. On June 24, 1996,
Messrs. Backus, Albert N. Wergley, Lynch, Schock, Welles, Fiederowicz and
Giamalis, together with their respective accountants and legal counsel, met in
Hartford, Connecticut to discuss potential terms and conditions of a
transaction. The parties determined to continue to discuss and consider a
transaction that would merge the companies as equals and tentatively agreed to
continue such discussions with respect to the strategic relationship between
the companies and to work towards negotiating a definitive agreement based on
their preliminary meetings. At such time, the proposal being considered by
each of US Order and Colonial Data included the initial designation by each of
US Order and Colonial Data of an equal number of members to the board of
directors of the resulting corporation and exchange ratios that provided no
significant premium to the stockholders of either company. US Order and
Colonial Data then executed a confidentiality agreement pursuant to which each
agreed to keep the merger negotiations and all information received in
connection therewith confidential. On July 1 and 2, 1996, while the parties
continued to negotiate aspects of the proposed transaction, the parties and
their advisors conducted due diligence meetings at each of the respective
headquarters. On July 16, 1996, the senior management of US Order and Colonial
Data, Salomon and First Albany met in Virginia to continue to negotiate the
terms of the Merger Agreement and to conduct further due diligence. On July
18, 1996, Salomon and First Albany met with Mr. Backus of US Order and Mr.
Giamalis of Colonial Data in New York City to review financial information of
Colonial Data. Salomon, First Albany and Colonial Data thereafter conducted a
conference call with Mr. Lynch to review financial information of US Order. In
addition, First Albany subsequently interviewed the management of both
companies with respect to financial data for both companies.
On August 1, 1996, the Colonial Data Board met with management, First
Albany, legal counsel and accountants to discuss the terms of the draft Merger
Agreement and other outstanding issues. At this meeting, representatives of
First Albany presented to the Colonial Data Board an analysis of the proposed
transaction with US Order. A detailed discussion of First Albany's analysis
appears below under "--Opinions of Financial Advisors--First Albany." Counsel
to Colonial Data then presented to the Colonial Data Board an analysis of
Delaware law as it relates to the proposed transaction, discussed certain
results of their due diligence review and reviewed the terms of the draft
Merger Agreement. At the conclusion of the presentations, First Albany
indicated that, under the terms then proposed, it was prepared to deliver its
opinion that the number of shares of Newco Common Stock proposed to be offered
in exchange for each share of Colonial Data Common Stock in the
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Mergers was fair, from a financial point of view, to Colonial Data
stockholders. During the course of First Albany's presentation and afterwards,
representatives of First Albany and Colonial Data management responded to
questions from the Colonial Data Board on several topics, including the
financial conditions of Colonial Data and US Order and the impact of the
proposed transaction on Colonial Data stockholders. After further discussion,
the meeting was adjourned to the next day to allow the Colonial Data Board
members additional time to consider the materials and information presented at
the meeting.
At 5:00 p.m. on August 2, 1996, the Colonial Data Board reconvened to
reconsider the Merger Agreement. First Albany then delivered its written
fairness opinion to the Colonial Data Board. The text of First Albany's
fairness opinion is attached as Appendix III. After further discussion, the
Colonial Data Board unanimously approved the draft Merger Agreement and
authorized senior management to execute the Merger Agreement and recommended
that the stockholders of Colonial Data approve the Merger Agreement and the
merger of Colonial Data into Newco as contemplated therein.
On August 2, 1996, after the close of business, the US Order Board met with
management, Salomon, legal counsel and accountants to discuss the terms of the
draft Merger Agreement and other outstanding issues. At this meeting,
representatives of Salomon presented to the US Order Board an analysis of the
proposed transaction with Colonial Data. A detailed discussion of Salomon's
analysis appears below under "--Opinions of Financial Advisors--Salomon."
Counsel to US Order then presented to the US Order Board an analysis of
Delaware law as it relates to the proposed transaction and reviewed the terms
of the draft Merger Agreement. At the conclusion of the presentations, Salomon
orally indicated that, under the terms then proposed, it was prepared to
deliver its opinion that the Exchange Ratio was fair, from a financial point
of view, to the holders of US Order Common Stock (other than Colonial Data and
its affiliates). During the course of Salomon's presentation and afterwards,
representatives of Salomon and US Order management responded to questions from
the US Order Board on several topics, including the financial conditions of
Colonial Data and US Order and the impact of the proposed transaction on US
Order stockholders. Salomon subsequently delivered its written opinion to the
US Order Board, a copy of which is attached hereto as Appendix II, that as of
August 2, 1996, the Exchange Ratio is fair, from a financial point of view, to
the holders of US Order Common Stock (other than Colonial Data and its
affiliates). After further discussion, the US Order Board unanimously approved
the draft Merger Agreement and authorized senior management to execute the
Merger Agreement and recommended that the stockholders of US Order approve the
Merger Agreement and the merger of US Order into Newco as contemplated
therein.
On August 5, 1996, the definitive Merger Agreement was executed by US Order
and Colonial Data.
REASONS FOR THE MERGERS
US Order
The US Order Board unanimously believes that the Mergers are fair to and in
the best interests of US Order and its stockholders. Accordingly, the US Order
Board has approved the Merger Agreement and the transactions contemplated
thereby and recommends that the stockholders of US Order vote FOR approval and
adoption of the Merger Agreement. In reaching this conclusion, the US Order
Board considered the following material factors:
(a) to achieve full integration of the companies' activities and
alignment of interests to better respond to changes and provide customer
solutions in the emerging markets for intelligent network and interactive
communication services;
(b) the ability to capture in particular the markets for intelligent
communications network products and interactive services;
(c) the combination of technology, manufacturing and distribution
capabilities into a single entity;
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(d) the ability to distribute a full product and service line through
telephone companies and retailers through a combination of the companies;
(e) the enhancement of the strategic and market position of the combined
companies beyond that achievable by US Order or Colonial Data alone through
a combination of financial, operational, management, customer base and
other resources;
(f) the strategic relationship shared between US Order and Colonial Data
indicated the enhanced value of a combined entity;
(g) to diversify the future revenue bases of the companies and to provide
an existing profitable business from which cash may be supplied to fund the
development of US Order's products and services;
(h) to strengthen the company's capitalization, resulting in an improved
ability to make strategic investments in marketing, product development,
leasing programs, complementary acquisitions and other initiatives;
(i) to strengthen the management team with individuals having extensive
experience in the areas of strategic and financial planning, marketing,
research and development and other operational activities;
(j) the elimination of duplicative product development, sales and
marketing, general and administrative efforts and the reduction in
overlapping personnel and related expenses;
(k) the potential economies of scale and other synergies resulting from a
combination of US Order's and Colonial Data's operations and Newco's
resulting competitive position;
(l) historical market prices of US Order Common Stock and Colonial Data
Common Stock and their relationship on average historical base price, to
the Exchange Ratios; and
(m) the opinion that, as of August 2, 1996, the Exchange Ratio was fair,
from a financial point of view, to the holders of US Order Common Stock
(other than Colonial Data and its affiliates), and the analysis of Salomon
presented to the US Order Board on August 2, 1996, each as described under
"--Opinion of Financial Advisors--Salomon."
The foregoing is a summary of the material factors considered by the US
Order Board and does not purport to be a complete description of every matter
considered. In view of the wide variety of factors considered, the US Order
Board did not find it practicable to, and did not, quantify or assign relative
weights to any of these factors.
Colonial Data
The Colonial Data Board unanimously believes that the Mergers are in the
best interests of Colonial Data and its stockholders. Accordingly, the
Colonial Data Board has approved the Merger Agreement and the transactions
contemplated thereby and recommends that the stockholders of Colonial Data
vote FOR the approval and adoption of the Merger Agreement. In reaching this
conclusion, the Colonial Data Board considered the following material factors:
(a) to achieve full alignment of interests and thereby facilitate
marketing, pricing, product development and strategic planning while
eliminating possible conflicts of interest and other inefficiencies;
(b) to diversify the future product offerings and revenue bases of the
companies and facilitate the offering of higher margin products;
(c) the ability to distribute a broader product and service line
incorporating products supporting intelligent network technologies and
related interactive services through telephone operating companies and
retailers by combining US Order's technology, products and services with
Colonial Data's technology, products and services;
(d) the enhancement of the strategic and market position of the combined
companies beyond that achievable by US Order or Colonial Data alone through
a combination of financial, operational, customer base and other resources;
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(e) the strategic relationship shared between US Order and Colonial Data
indicated the enhanced value of a combined entity;
(f) to strengthen the company's capitalization, resulting in an improved
ability to make strategic investments in marketing, product development,
leasing programs, complementary acquisitions and other initiatives;
(g) to strengthen the management team and the overall employee base with
individuals having complementary skills, including extensive experience in
the areas of strategic and financial planning, marketing, research and
development and other operational activities;
(h) the elimination of duplicative product development, sales and
marketing, general and administrative efforts and the reduction in
overlapping personnel and related expenses;
(i) the enhancement of Colonial Data's competitive position through the
addition of technological resources and the ability to offer more complete
customer solutions for telco customers;
(j) historical market prices of US Order Common Stock and Colonial Data
Common Stock and their relationship on average historical base price, to
the Exchange Ratios; and
(k) the opinion and analysis of First Albany that, as of August 2, 1996,
the consideration to be received by stockholders of Colonial Data pursuant
to the Merger Agreement was fair from a financial point of view to the
holders of Colonial Data Common Stock, as described under "--Opinion of
Financial Advisors--First Albany."
The foregoing is a summary of the material factors considered by the
Colonial Data Board and does not purport to be a complete description of every
matter considered. In view of the wide variety of factors considered, the
Colonial Data Board did not find it practicable to, and did not, quantify or
assign relative weights to any of these factors.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
THE US ORDER BOARD AND COLONIAL DATA BOARD HAVE UNANIMOUSLY APPROVED, AND
RECOMMEND THAT THE STOCKHOLDERS OF THEIR RESPECTIVE COMPANIES VOTE FOR
APPROVAL OF, THE MERGER AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
Salomon
At the meeting of the US Order Board on August 2, 1996, at which meeting the
US Order Board approved the Merger Agreement, Salomon delivered its oral
opinion, subsequently confirmed in writing, to the effect that, as of such
date, the Exchange Ratio is fair, from a financial point of view, to the
holders of US Order Common Stock (other than Colonial Data and any of its
affiliates). No limitations were imposed by the US Order Board upon Salomon
with respect to the investigations made or the procedures followed by Salomon
in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON, DATED AS OF AUGUST 2, 1996,
IS SET FORTH AS APPENDIX II TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND SETS
FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN. HOLDERS OF US ORDER COMMON
STOCK ARE URGED TO READ THE OPINION IN ITS ENTIRETY. SALOMON'S OPINION IS
DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE EXCHANGE
RATIO AND DOES NOT CONSTITUTE A RECOMMENDATION CONCERNING HOW SUCH HOLDERS
SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT OR THE MERGERS. THE SUMMARY
OF THE OPINION OF SALOMON SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Salomon reviewed the Merger Agreement and its
related exhibits. Salomon also reviewed certain publicly available business
and financial information relating to US Order and Colonial Data,
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as well as certain other information, including financial projections,
provided to Salomon by US Order and Colonial Data. Salomon discussed the past
and current operations and financial condition and prospects of US Order and
Colonial Data with the senior management of US Order and Colonial Data,
respectively. Salomon also considered such other information, financial
studies, analyses, investigations and financial, economic, market and trading
criteria that Salomon deemed relevant.
In arriving at its opinion, Salomon assumed and relied upon the accuracy and
completeness of the information reviewed by Salomon and Salomon did not assume
any responsibility for verifying any of such information or for independent
evaluation or appraisal of the assets of US Order or Colonial Data. With
respect to the financial projections of US Order and Colonial Data, Salomon
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of
US Order or Colonial Data as to the future financial performance of US Order
or Colonial Data, respectively, and Salomon expressed no opinion with respect
to such forecasts or the assumptions on which they are based.
The following is a summary of the analyses and valuation methodologies
contained in the report (the "Salomon Report") presented by Salomon to the US
Order Board on August 2, 1996, in connection with the rendering of Salomon's
opinion:
(i) Discounted Cash Flow Valuation. Using a discounted cash flow ("DCF")
methodology, Salomon valued each of US Order and Colonial Data estimating
the present value of unlevered future free cash flows available to their
respective debt and equity holders if each of US Order and Colonial Data
were to perform on a stand-alone basis (without giving effect to the
Mergers) in accordance with the management forecasts. Free cash flow
represents the amount of cash generated and available for principal,
interest and dividend payments after providing for ongoing business
operations. For each entity, Salomon aggregated (x) the present value of
the free cash flows over the five-year forecast period with (y) the present
value of the range of terminal values described below. The range of
terminal values was generally calculated by applying a range of implied
multiples to each entity's earnings before interest, taxes, depreciation
and amortization ("EBITDA") in the final year of the forecast period. This
range of terminal values represented, for each of US Order and Colonial
Data, their respective value beyond the applicable forecast period. As part
of the DCF analysis, Salomon used discount rates reflecting each entity's
specific financial characteristics. This DCF analysis resulted in equity
value reference ranges of $11.70 to $13.00 for each share of US Order
Common Stock and $11.80 to $14.60 for each share of Colonial Data Common
Stock. Salomon also used a DCF methodology to value Newco on a pro forma
basis (after giving effect to the Mergers) in accordance with the
management forecasts. This DCF analysis utilized the method of calculating
free cash flow and terminal value described above (using discount rates
reflecting Newco's projected financial characteristics) and resulted in an
equity value reference range of $16.11 to $18.20 for each share of Newco
Common Stock.
(ii) Transaction Multiples Valuation. Salomon reviewed and analyzed
selected merger or acquisition transactions involving other companies in
the telecommunications products, network services and homebanking
industries that it deemed relevant. These transactions were: Antec
Corporation/Keptel, Inc.; Octel Communications Corporation/VMX, Inc.; ECI
Telecom Ltd./Telematics International; and Checkfree Corporation/Servantis
Systems, Inc. Among other matters, Salomon indicated that the merger and
acquisition transaction environment varies over time because of
macroeconomic factors such as interest rate and equity market fluctuations
and microeconomic factors such as industry results and growth expectations.
Salomon noted that no transaction reviewed was identical to the Mergers and
that, accordingly, an assessment of the results of the following analysis
necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of Colonial Data and
other factors that would affect the acquisition value of the companies to
which it is being compared. Salomon reviewed, for each acquired company,
the ratio of firm value to latest 12 months ("LTM") revenues, to LTM EBITDA
and to LTM earnings before interest and taxes ("EBIT"). Based on these
ratios, the prices paid in these transactions and corresponding data for
Colonial Data, Salomon calculated an implied equity value reference range
of $14.01 to $17.03 for each share of Colonial Data Common Stock.
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(iii) Comparable Company Valuation. Salomon also performed a comparable
company analysis in which it compared certain publicly available historical
financial and operating data, projections of future financial performance
(reflecting a composite of equity research analysts' estimates) and market
statistics (calculated based upon closing stock prices as of July 31, 1996)
of selected publicly traded companies in the telecommunications products,
network services and homebanking industries considered by Salomon to be
reasonably comparable to US Order or Colonial Data with similar historical
financial and operating data, projections of future financial performance
(also reflecting a composite of equity research analysts' estimates) and
market statistics (also calculated based upon closing stock prices as of
July 31, 1996) of US Order or Colonial Data, respectively. For US Order,
these companies were Intuit Inc.; Cybercash, Inc.; Checkfree Corporation;
and Affinity Technology Group, Inc. (the "US Order Selected Companies") and
for Colonial Data, these companies were Cellstar Corporation; CIDCO;
Cincinnati Microwave, Inc.; and Tessco Technologies Incorporated (the
"Colonial Data Selected Companies"). Salomon compared the common stock
prices per share of each of the US Order Selected Companies and the
Colonial Data Selected Companies, respectively, as of July 31, 1996 ("Per
Share Price"), as a multiple of LTM earnings per share ("EPS") and
estimated calendarized 1996 and 1997 EPS of each of the US Order Selected
Companies and the Colonial Data Selected Companies, respectively. Salomon
also compared the firm value (equal to the sum of equity market value (the
Per Share Price multiplied by fully diluted shares outstanding less
exercisable option proceeds), straight debt, minority interest, straight
preferred stock, and all out-of-the-money convertibles less investments in
unconsolidated affiliates and cash) as a multiple of LTM revenues, LTM
EBITDA and LTM EBIT for each of the US Order Selected Companies and the
Colonial Data Selected Companies, respectively. Based on its analysis,
Salomon calculated equity value reference ranges of $9.50 to $11.50 for
each share of Colonial Data Common Stock and $9.75 to $12.75 for each share
of US Order Common Stock. No company used in the public market valuation
analysis summarized above is identical to US Order or Colonial Data.
Accordingly, any analysis of the value of the Mergers based upon the US
Order Selected Companies and the Colonial Data Selected Companies involves
complex considerations and judgments concerning differences in the
potential financial and operating characteristics of such companies and
other factors in relation to the trading and acquisition values of such
companies.
In addition, as part of its evaluation of the Mergers, Salomon also
performed the following analyses:
(i) Pro Forma Consolidation Analysis. Salomon reviewed certain pro forma
financial effects resulting from the Mergers for each of the 12-month
periods ending December 31 in the five-year period ending December 31,
2000. Salomon estimated that, on a pro forma basis, the Mergers would be
accretive to the EPS of US Order in each of such periods.
(ii) Contribution Analysis. Salomon reviewed and analyzed the pro forma
contribution to the combined entity of each of US Order and Colonial Data
as of and for the 12-month periods ending December 31, 1996 and 1997,
respectively. Salomon reviewed, among other things, the pro forma
contribution to sales, gross profit, EBITDA, EBIT, net income, total assets
and stockholders' equity. Based on this analysis, in 1996, US Order
contributed 12.8% to pro forma combined sales, 17.2% to pro forma combined
gross profit, 28.7% to pro forma combined total assets and 26.8% to pro
forma combined stockholders' equity. Based on the Exchange Ratio, US
Order's stockholders will own approximately 54.4% of Newco Common Stock
after the Mergers, on a fully diluted basis. The results of the
contribution analysis are not necessarily indicative of the contributions
that the respective businesses may have in the future.
(iii) Historical Trading Analysis. Salomon examined the history of
trading prices for US Order Common Stock and Colonial Data Common Stock in
relation to each other and the relationship of price movements thereof as
of July 31, 1996, and over the three, six and 12 month periods ending July
31, 1996. Salomon noted that on July 31, 1996, the exchange ratio was 0.76
shares of US Order Common Stock per share of Colonial Data Common Stock.
The Salomon Report indicated average, high and low exchange ratios over the
period from three, six and 12 month periods ending July 31, 1996, to be
1.08, 1.30 and 0.76, respectively, 1.05, 1.30 and 0.76, respectively, and
0.99, 1.30 and 0.73, respectively, shares of US Order Common Stock per
share of Colonial Data Common Stock.
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The preparation of a fairness opinion is not susceptible to partial analysis
or summary descriptions. Salomon believes that its analysis and the summary
set forth above must be considered as a whole and that selecting portions of
its analyses and the factors considered by it, without considering all such
analyses and factors, could create an incomplete view of the processes
underlying the analysis set forth in its opinion and the Salomon Report.
Salomon has not indicated that any of the analyses which it performed had a
greater significance than any other. The ranges of valuations resulting from
any particular analysis described above should not be taken to be the view of
Salomon of the actual value of US Order and Colonial Data.
In performing its analyses, Salomon made numerous assumptions with respect
to industry performance, general business, financial, market and economic
conditions and other matters, many of which are beyond the control of US Order
or Colonial Data. The analyses which Salomon performed are not necessarily
indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as a part of Salomon's analysis of the fairness,
from a financial point of view, of the consideration which the holders of US
Order Common Stock would receive in the Mergers. The analyses do not purport
to be appraisals or to reflect the prices at which a company might actually be
sold or the prices at which any securities may trade at the present time or at
any time in the future.
Salomon is not affiliated with US Order or Colonial Data. Salomon has
previously rendered certain financial advisory and investment banking services
to US Order, for which Salomon received customary compensation. In the
ordinary course of its business, Salomon actively trades the equity securities
of US Order and Colonial Data for its own account and the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. Pursuant to an engagement letter dated July 1, 1996, US Order
agreed to pay Salomon for its services in connection with the Mergers a cash
fee of $750,000, of which $375,000 has been paid to Salomon and the balance of
which will be payable upon consummation of the Mergers. US Order also agreed
to reimburse Salomon for reasonable travel and out-of-pocket expenses incurred
by Salomon in connection with its engagement (including reasonable fees and
expenses of Salomon's counsel). US Order also agreed to indemnify Salomon and
certain related persons against certain liabilities, including liabilities
under the federal securities laws, relating to or arising out of its
engagement.
Salomon is an internationally recognized investment banking firm that
provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon regularly engages in the
valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and for
other purposes. The US Order Board retained Salomon based on Salomon's
expertise in the valuation of companies as well as its familiarity with US
Order and other telecommunications products, network services and home banking
companies.
First Albany
In connection with the Merger, Colonial Data retained First Albany to render
an opinion as to the fairness to Colonial Data's stockholders, from a
financial point of view, of the consideration to be received by the holders of
Colonial Data Common Stock pursuant to the Merger Agreement. On August 1,
1996, First Albany reviewed its analysis with and indicated to the Colonial
Data Board that it was prepared to deliver an opinion that the consideration
to be received is fair to Colonial Data's stockholders from a financial point
of view, and on August 2, 1996, First Albany delivered its written opinion
(the "First Albany Opinion") to such effect. First Albany did not recommend to
the Colonial Data Board that any specific amount of consideration constituted
the appropriate consideration for the Mergers. The amount of consideration set
forth in the Merger Agreement was determined through negotiations between
Colonial Data and US Order.
A COPY OF THE FIRST ALBANY OPINION IS ATTACHED HERETO AS APPENDIX III.
STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR A SUMMARY OF
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED, AND LIMITS OF
THE REVIEW BY FIRST ALBANY. THE SUMMARY OF THE FIRST ALBANY OPINION SET FORTH
IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH
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OPINION. THE FIRST ALBANY OPINION WAS PREPARED FOR COLONIAL DATA'S BOARD, IS
DIRECTED ONLY TO THE FAIRNESS TO COLONIAL DATA'S STOCKHOLDERS AS OF AUGUST 2,
1996, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY
THE HOLDERS OF COLONIAL DATA COMMON STOCK PURSUANT TO THE MERGER AGREEMENT,
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE
AT THE COLONIAL DATA MEETING.
In rendering its opinion, in connection with its analyses of the valuation
of Colonial Data or US Order or the Colonial Data Common Stock or the US Order
Common Stock, First Albany did not make or seek to obtain appraisals of
Colonial Data's or US Order's assets. First Albany relied, without independent
verification, upon the accuracy and completeness in all material respects of
all of the financial information reviewed by it. With respect to the financial
and operating forecasts (and the assumptions and bases therefor), estimates
and analyses provided to First Albany by Colonial Data and US Order, First
Albany assumed that such forecasts, estimates and analyses were reasonably
prepared in good faith and represent the best currently available estimates
and judgments of Colonial Data and US Order managements as to the future
financial performance of Colonial Data and US Order. First Albany noted, among
other things, that its opinion is necessarily based upon financial, economic
and market criteria existing as of the date of the opinion, and information
available to First Albany as of the date thereof. No limitations were imposed
by the Colonial Data Board upon First Albany with respect to the investigation
made or the procedures followed by First Albany in rendering its opinion.
In connection with and in preparation for rendering its opinion, First
Albany reviewed, analyzed and relied upon certain information bearing upon the
financial and operating condition of Colonial Data and US Order, including:
the Merger Agreement; financial statements and related information of Colonial
Data and US Order for the year ended December 31, 1995, and for the interim
periods ending June 30, 1996; publicly available information concerning the
historical prices at which the Colonial Data Common Stock has been
transferred; research reports published by equity analysts; and other
financial information concerning the business and operations of Colonial Data
and US Order, including certain internal financial and operating budgets,
analyses and forecasts of Colonial Data and US Order prepared by their
respective managements. First Albany also met with members of the senior
management of each of Colonial Data and US Order to discuss past and current
business operations, financial condition and future prospects of Colonial Data
and US Order, as well as other matters believed to be relevant to First
Albany's analysis, including, but not limited to, the following strategic
implications: (i) access to new technology, including the smart phone
platform; (ii) increased access to telco distribution channels; (iii) entry to
retail distribution channels; and (iv) the bringing together of management
teams and companies with complementary skill sets and assets. Further, First
Albany considered such other information, financial studies, analyses and
investigations, and financial, economic and market criteria which First Albany
deemed relevant to its analysis including, to the extent publicly available,
the financial terms of comparable transactions.
In rendering its opinion to the Colonial Data Board, First Albany performed
and presented certain financial information and comparative analyses, with
such other factors as it deemed relevant. The preparation of a fairness
opinion involves various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those methods to
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
First Albany did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. First Albany used information on
the financial condition of Colonial Data and US Order as of a date or dates
shortly before the Merger Agreement was executed on August 5, 1996, and stock
price information through the close of the market on August 1, 1996. Included
in the quantitative and qualitative analyses, among other things, are the
following:
Historical Financial Statement Analysis: First Albany reviewed and analyzed
selected annual and quarterly income statements and selected annual balance
sheets for both Colonial Data and US Order.
Liquidation Values: First Albany calculated the orderly liquidation value of
Colonial Data by starting with the June 30, 1996 unaudited balance sheet and
making adjustments totaling $6.1 million to total assets of $86.8
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million. The net result of these adjustments indicates a liquidation value of
$92.9 million, resulting in proceeds to its stockholders of $5.84 per share.
First Albany calculated the liquidation value of US Order by starting with
the June 30, 1996 unaudited balance sheet and making adjustments totaling $4.7
million to total assets of $35.1 million. The net result of these adjustments
indicates a liquidation value of $39.8 million, resulting in proceeds to its
stockholders of $2.50 per share.
Peer Group Comparison Analysis: First Albany analyzed certain financial
information of a group of several publicly traded companies comparable to
Colonial Data which manufacture and distribute communications components and
equipment; these companies included: CIDCO, Comdial, Inter-Tel Incorporated,
Microdyne Corporation, and Zoom Telephonics, Inc. In addition Avid
Technologies, Inc., a developer and manufacturer of computer-based video
editing systems, was included based on product/technology transition
characteristics. Such financial information included market valuation, market
value as a multiple of earnings, and market value as a multiple of revenues.
In particular, such analysis showed that, on average, as of August 1, 1996,
based on the closing prices for the respective common stocks, this group of
common stocks traded at 23.24 times the most recently reported four quarters
earnings per share, 14.17 times 1996 forecasted and 9.18 times 1997 forecasted
earnings per share (based on research analysts' estimates as reported by
Zacks, Nelsons and I/B/E/S). The price to earnings per share multiples for
Colonial Data for the comparable periods are 12.7, 11.8 and 6.9 times,
respectively (based on earnings estimates in First Albany's research analysis
published in a report dated July 3, 1996). The group, on average, traded at
0.82 times the most recently reported four quarters revenues, 0.73 times 1996
forecasted and 0.58 times 1997 forecasted revenues (based on published
research analysts' estimates). The price to revenue multiples for Colonial
Data for the comparable periods are 1.99, 1.67 and 1.04 times, respectively
(based on revenue estimates in First Albany's research analysis published in a
report dated July 3, 1996).
First Albany analyzed certain financial information of a group of several
publicly traded companies comparable to US Order, consisting of selected
companies in the home banking, electronic commerce software and related
application software industries. These companies included: Checkfree
Corporation, Cybercash, Inc. and Intuit, Inc. (home banking); Harbinger
Corporation, HNC Software, Inc., Premenos Technology Corp., Quick Response
Services, Inc., Sterling Commerce, Inc., and Verifone, Inc. (electronic
commerce software); and Transaction System Architects, Inc. (related
application software). Such financial information included market valuation,
market value as a multiple of earnings, and market value as a multiple of
revenues. In particular, such analysis showed that, on average, as of August
1, 1996, based on the closing prices for the respective common stocks, this
group of common stocks traded at 55.9 times the most recently reported four
quarters earnings per share, 47.4 times 1996 forecasted and 31.3 times 1997
forecasted earnings per share (based on research analysts' estimates as
reported by Zacks, Nelsons and I/B/E/S). The price to earnings per share
multiples for US Order for the comparable periods are negative, negative, and
75.7 times, respectively (based on earnings estimates in First Albany's
research analysis published in a report dated July 31, 1996). The group traded
at 7.01 times the most recently reported four quarters revenues, 4.99 times
1996 forecasted and 3.92 times 1997 forecasted revenues (based on published
research analysts' estimates). The price to revenue multiples for US Order for
the comparable periods are 46.1, 14.0, and 3.2 times, respectively (based on
revenue estimates in First Albany's research analysis published in a report
dated July 31, 1996).
Analysis of Selected Precedent Transactions: First Albany analyzed publicly
available information for selected and recent precedent pending or completed
acquisitions and mergers. In examining these transactions, First Albany
analyzed certain financial parameters of the acquired company relative to the
consideration offered. Financial indicators compared included the aggregate
consideration to latest 12 months revenue. For Colonial Data, First Albany
examined transactions in which the acquirors were faced with the loss of a
significant customer base. Specifically, First Albany examined Interpublic
Group's acquisition of Campbell Mithun Esty and Radius Inc.'s acquisition of
SuperMac Technologies, Inc. Such analysis resulted in a transaction valuation
of 0.8 times the most recently reported four quarters revenues.
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For US Order, First Albany examined transactions involving technology
companies that were entering emerging industries or industry segments by
either acquiring products which incorporated new technologies or combining the
technology of a new product with an existing product to deliver a better
solution. Specifically, First Albany examined Bay Networks, Inc.'s acquisition
of Xylogics, Inc., Ascend Communications, Inc.'s acquisition of NetStar, Inc.,
Cabletron Systems, Inc.'s acquisition of Network Express, Inc., CheckFree
Corporation's acquisitions of Security APL, Inc., and Servantis Systems
Holdings, Inc., Medaphis Corporation's acquisition of Health Data Sciences
Corporation, Security Dynamics Technologies, Inc.'s acquisition of RSA Data
Security, Inc., Comdial Corporation's acquisitions of Key Voice Technologies,
Inc. and Aurora Systems, Inc., CUC International Inc.'s acquisition of Sierra
On-Line, Inc., ADC Telecommunications Inc.'s acquisition of Information
Transmission Systems Corp., Sungard Data Systems, Inc.'s acquisition of NCS
Financial Systems, Inc. and MFS Communications Co.'s acquisition of UUNet
Technologies, Inc. Such analysis resulted in an average transaction valuation
of 5.1 times the most recently reported four quarters revenues.
Because WorldCorp, an existing stockholder of US Order, will own
approximately 28% of the combined company, First Albany reviewed transactions
during the period January 1, 1993 to the present in which the purchaser
acquired 20 to 30% of the outstanding capital stock of a corporation. In such
transactions, the average premium of the purchase price to the price at which
the shares were trading one week prior to the announcement of the transaction
was approximately 20%. On August 1, 1996, one share of US Order Common Stock
was trading at a premium of 26% to one share of Colonial Data Common Stock.
No company or transaction used in the above analyses is identical to
Colonial Data, US Order or the proposed transaction. Accordingly, an analysis
of the results of the foregoing is not mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading values of the companies or company to which they are
compared, including in particular the market environment in which such company
or companies operate.
Pro Forma Contribution Analysis: First Albany analyzed the pro forma
contribution of each of US Order and Colonial Data, if the Merger were to be
consummated, to historical and projected pro forma combined revenue, gross
profit, operating income, pre-tax income, net income, and earnings per share.
This analysis was based on actual results for the year ended December 31,
1995, and Colonial Data's and US Order's managements' forecasts of their
respective financial performance, based on their historical performance and
following discussions with Colonial Data and US Order. For the fiscal years
1996 and 1997 First Albany noted that Colonial Data would contribute 86.2% and
73.3% of pro forma combined revenue, respectively, 83.2% and 65.4% of pro
forma combined gross profit, respectively, 158.1% and 73.8% of pro forma
combined operating income, respectively, 152.8% and 75.9% of pro forma
combined pre-tax income, respectively, and 192.3% and 62.5% of pro forma
combined net income, respectively. For such periods, First Albany noted that
US Order would contribute 13.8% and 26.7% of pro forma combined revenue,
respectively, 16.8% and 34.6% of pro forma combined gross profit,
respectively, (58.1)% and 26.2% of pro forma combined operating income,
respectively, (52.8)% and 24.1% of pro forma combined pre-tax income,
respectively, and (92.3)% and 37.5% of pro forma combined net income,
respectively. First Albany compared these historical and projected
contribution percentages to 49.2%, the approximate pro forma ownership
(implied by the comparative shares outstanding) of the combined company by
Colonial Data stockholders. The analysis further showed that pro forma
earnings per share of the combined company, compared to Colonial Data as a
stand-alone entity, would be decreased by 69.6% for calendar year 1996 and
would be increased by 38.3% for calendar year 1997.
The summary of the First Albany analyses set forth above does not purport to
be a complete description of the presentation by First Albany to the Colonial
Board. In performing its analyses, First Albany made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Colonial Data or US
Order. The analyses performed by First Albany are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. In addition, analyses relating
to value of businesses do not purport to
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be appraisals or to reflect the prices at which businesses actually may be
sold or the prices at which the securities of the companies may be traded. The
analyses and the summary set forth above should be considered as a whole as
any consideration of only selected portions of the First Albany analyses, or
of the above summary, could create an incomplete view of the process
underlying the analyses performed by First Albany in connection with the
preparation of its opinion letter.
The Colonial Data Board selected First Albany as its financial advisor due
to its experience in acting as a financial advisor in connection with mergers
and acquisitions and its familiarity with Colonial Data and its business.
Pursuant to the letter agreement dated as of July 16, 1996, between Colonial
Data and First Albany, Colonial Data has agreed to pay First Albany: (1) a
retainer fee of $50,000 and (2) an opinion fee of $150,000 to render its
opinion as to the fairness, from a financial point of view, of the
consideration to be paid by Colonial Data pursuant to the Merger Agreement.
The retainer fee and the first half of the opinion fee have become payable to
First Albany. The second half of the opinion fee is payable upon the
completion of the Mergers and was not contingent on the favorable or
unfavorable nature of the opinion. In addition, Colonial Data has agreed to
reimburse First Albany for all of its reasonable out-of-pockets expenses,
including but not limited to legal fees and travel expenses, up to an
aggregate amount of $12,000. Colonial Data has also agreed to indemnify and
hold First Albany harmless against certain liabilities under federal
securities laws arising out of, or in connection with, its rendering of
services under the engagement letter.
First Albany provides research coverage on, and makes a market in, both the
Colonial Data Common Stock and the US Order Common Stock and may continue to
provide investment banking services to the combined company in the future. In
the course of its market-making activities, First Albany may from time to
time, have a long or short position in or buy and sell securities of Colonial
Data. Walter M. Fiederowicz, a director of Colonial Data, serves on the board
of directors of First Albany. First Albany, as part of its investment banking
activities, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. First Albany served as
the lead underwriter on Colonial Data's public offerings in October of 1994
and in July of 1995, and served as a managing underwriter on US Order's
initial public offering in June of 1995. With respect to all transactions,
First Albany has been compensated for such services in the form of customary
underwriting discounts and commissions.
THE MERGER AGREEMENT
Conditions to Consummation of the Mergers
The respective obligations of US Order and Colonial Data to consummate the
transactions contemplated by the Merger Agreement are subject to the
satisfaction or, where permissible, waiver at or prior to the Effective Time
of the following conditions: (a) approval and adoption of the Merger Agreement
and the transactions contemplated thereby by the requisite vote of the
stockholders of US Order and Colonial Data, respectively; (b) the absence of
any statute, rule, regulation, ruling, order, decree, or injunction issued by
any United States court or United States governmental authority prohibiting,
restraining, enjoining or restricting consummation of the Mergers; (c)
expiration or early termination of all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR
Act"), and filing or receipt of any other governmental or regulatory notices
or approvals required with respect to the transactions contemplated thereby;
and (d) effectiveness of the Form S-4 under the Securities Act, which shall
not be the subject of any stop order, or proceeding seeking a stop order and
obtaining all state securities laws or "blue sky" permits and authorizations
necessary to issue shares of Newco Common Stock in exchange for US Order
Common Stock and Colonial Data Common Stock in the Mergers.
The obligation of US Order to consummate the transactions contemplated by
the Merger Agreement is subject to the satisfaction or waiver at or prior to
the Effective Time of the following conditions: (a) the representations of
Colonial Data and Newco contained in the Merger Agreement or in any other
document delivered pursuant thereto shall be true and correct (except to the
extent that the breach thereof would not have a
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material adverse effect on Colonial Data or Newco), and at the closing, each
of Colonial Data and Newco shall have delivered to US Order a certificate to
that effect; (b) each of the covenants and obligations of Colonial Data and
Newco to be performed at or before the Effective Time pursuant to the terms of
the Merger Agreement shall have been duly performed in all material respects
at or before the Effective Time and at the closing each of Colonial Data and
Newco shall have delivered to US Order a certificate to that effect; (c) the
Newco Common Stock issuable to the US Order stockholders pursuant to the
Merger Agreement and such other shares required to be reserved for issuance in
connection with the Mergers shall have been authorized for listing on Nasdaq
upon official notice of issuance; (d) the opinion of Hunton & Williams,
counsel to US Order, dated the closing date and addressed to US Order and
Newco to the effect that (i) the merger of US Order with and into Newco will
be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code; (ii) each of Newco and US Order will be
a party to the reorganization within the meaning of Section 368(b) of the
Code; and (iii) no gain or loss for Federal income tax purposes will be
recognized by Newco, US Order or a stockholder of US Order as a result of the
Mergers; (e) Colonial Data shall have obtained the consent or approval of each
person whose consent or approval shall be required to consummate the
transactions contemplated under the Merger Agreement, under any loan or credit
agreement, note, mortgage, indenture, lease or other agreement or instrument,
except those for which failure to obtain such consents and approvals would
not, in the reasonable opinion of US Order, individually or in the aggregate,
have a material adverse effect on Colonial Data; and (f) there shall have been
no events, changes or effects with respect to Colonial Data or its
subsidiaries having or which could reasonably be expected to have a material
adverse effect on Colonial Data.
The obligation of Colonial Data to consummate the transactions contemplated
by the Merger Agreement is subject to the satisfaction or waiver at or prior
to the Effective Time of the following conditions: (a) the representations of
US Order and Newco contained in the Merger Agreement or in any other document
delivered pursuant thereto shall be true and correct (except to the extent
that the breach thereof would not have a material adverse effect on US Order
or Newco), and at the closing, each of US Order and Newco shall have delivered
to Colonial Data a certificate to that effect; (b) each of the covenants and
obligations of US Order and Newco to be performed at or before the Effective
Time pursuant to the terms of the Merger Agreement shall have been duly
performed in all material respects at or before the Effective Time and at the
Closing, each of US Order and Newco shall have delivered to Colonial Data a
certificate to that effect; (c) the Newco Common Stock issuable to the
Colonial Data stockholders pursuant to the Merger Agreement and such other
shares to be reserved for issuance in connection with the Mergers shall have
been authorized for listing on Nasdaq upon official notice of issuance; (d)
the opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel to Colonial
Data, dated the closing date and addressed to Colonial Data and Newco, to the
effect that (i) the merger of Colonial Data with and into Newco will be
treated for Federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code; (ii) each of Newco and Colonial Data will be a
party to the reorganization within the meaning of Section 368(b) of the Code;
and (iii) no gain or loss for Federal income tax purposes will be recognized
by Newco, Colonial Data or a stockholder of Colonial Data as a result of the
Mergers; (e) US Order shall have obtained the consent or approval of each
person whose consent or approval shall be required in order to permit the
succession by Newco pursuant to the Mergers to any obligation, right or
interest of US Order under any loan or credit agreement, note, mortgage,
indenture, lease or other agreement or instrument, except for those for which
failure to obtain such consents and approvals would not, in the reasonable
opinion of Colonial Data, individually or in the aggregate, have a material
adverse effect on US Order; and (f) there shall have been no events, changes,
or effects with respect to US Order having or which could reasonably be
expected to have a material adverse effect on US Order.
Conduct of Business Pending the Mergers
US Order has agreed, pending the Effective Time, to conduct its business in
the ordinary and usual course of business and consistent with past practice,
and to use its reasonable best efforts to preserve intact its business
organization, to keep available the services of its current officers and
employees and to preserve its relationships with customers, suppliers and
others having business dealings with it to the end that goodwill and ongoing
businesses will be unimpaired at the Effective Time. US Order has agreed that,
except as expressly provided in
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the Merger Agreement or consented to in writing by Colonial Data, it will not,
prior to the Effective Time: (a) amend its Certificate of Incorporation or
Bylaws (or other similar governing instrument); (b) amend the terms of the
warrants issued pursuant to the warrant agreement between US Order and
WorldCorp, dated as of May 1, 1993, authorize for issuance, issue, sell,
deliver or agree or commit to issue, sell or deliver any stock of any class or
any other securities (except bank loans) or equity equivalents, except for (i)
the issuance and sale of US Order Common Stock pursuant to options or warrants
previously granted under the US Order Plans or pursuant to previously executed
warrant agreements, as the case may be, or (ii) the issuance and sale of US
Order Common Stock pursuant to US Order warrants outstanding on the date of
the Merger Agreement, and (iii) the granting of stock options to employees in
the ordinary course of business and consistent with past practices of US
Order, provided that the aggregate number of shares of US Order Common Stock
issuable pursuant to such options shall not exceed 200,000; (c) split, combine
or reclassify any shares of its capital stock, declare, set aside or pay any
dividend or other distribution in respect of its capital stock, make any other
actual, constructive or deemed distribution in respect of its capital stock or
otherwise make any payments to stockholders in their capacity as such, or
redeem or otherwise acquire any of its securities; (d) adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of US Order (other
than the Mergers); (e) incur or assume any long-term or short-term debt, or
issue any debt securities except for borrowings or issuances of letters of
credit under existing lines of credit in the ordinary course of business; (f)
except as may be required by law, take certain actions regarding employee
compensation; (g) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions outside of the ordinary course
of business; (h) except as may be required as a result of a change in law or
in generally accepted accounting principles, change any of the accounting
principles or practices used by it; (i) revalue in any material respect any of
its assets, including without limitation, writing down the value of inventory
or writing-off notes or accounts receivable other than in the ordinary course
of business; (j) (i) acquire, in any manner, any corporation, partnership or
other business organization or division thereof or any equity interest therein
(other than in connection with outsourcing agreements entered into with
customers of US Order), (ii) enter into any contract or agreement other than
in the ordinary course of business consistent with past practice which would
be material to US Order, or (iii) authorize any new capital expenditure or
expenditures which, individually, is in excess of $500,000 or, in the
aggregate, are in excess of $1,000,000, provided, however, that none of the
foregoing shall limit any capital expenditure required pursuant to existing
contracts; (k) make any tax election or settle or compromise any income tax
liability material to US Order; (l) settle or compromise any pending or
threatened suit, action, or claim which either relates to the Merger Agreement
or the settlement or compromise of which could have a material adverse effect
on US Order; (m) commence any material research and development project or
terminate any material research and development project that is currently
ongoing, in either case, except pursuant to the terms of existing contracts or
in the ordinary course of business; or (n) take or agree to take any of the
actions described above which would make any of the representations or
warranties of US Order contained in the Merger Agreement untrue or incorrect.
Colonial Data has agreed, pending the Effective Time, to conduct its
business in the ordinary and usual course of business and consistent with past
practice, and to use its reasonable best efforts to preserve intact its
business organization, to keep available the services of its current officers
and employees and to preserve its relationships with customers, suppliers and
others having business dealings with it to the end that goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Colonial Data has agreed
that, except as expressly provided in the Merger Agreement or consented to in
writing by US Order, it and any of its subsidiaries will not, prior to the
Effective Time: (a) amend its Certificate of Incorporation or Bylaws (or other
similar governing instrument); (b) amend the term of the warrants issued to
purchase Colonial Data Common Stock, authorize for issuance, issue, sell,
deliver or agree or commit to issue, sell or deliver any stock of any class or
any other securities (except bank loans) or equity equivalents, except for (i)
the issuance and sale of Colonial Data Common Stock pursuant to options or
warrants previously granted under the Colonial Data Plans or pursuant to
previously executed warrant agreements, as the case may be, or (ii) the
issuance and sale of Colonial Data Common Stock pursuant to Colonial Data
warrants outstanding on the date of the Merger Agreement, and (iii) the
granting of stock options to employees in the ordinary course of business and
consistent with past practices of Colonial Data, provided that the aggregate
number of shares of Colonial Data Common Stock
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issuable pursuant to such options shall not exceed 200,000; (c) split, combine
or reclassify any shares of its capital stock, declare, set aside or pay any
dividend or other distribution in respect of its capital stock, make any other
actual, constructive or deemed distribution in respect of its capital stock or
otherwise make any payments to stockholders in their capacity as such, or
redeem or otherwise acquire any of its securities; (d) adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of Colonial Data
(other than the Mergers); (e) incur or assume any long-term or short-term
debt, or issue any debt securities except for borrowings or issuances of
letters of credit under existing lines of credit in the ordinary course of
business; (f) except as may be required by law, take certain actions regarding
employee compensation; (g) acquire, sell, lease or dispose of any assets in
any single transaction or series of related transactions outside of the
ordinary course of business; (h) except as may be required as a result of a
change in law or in generally accepted accounting principles, change any of
the accounting principles or practices used by it; (i) revalue in any material
respect any of its assets, including without limitation, writing down the
value of inventory or writing-off notes or accounts receivable other than in
the ordinary course of business; (j) (i) acquire, in any manner, any
corporation, partnership or other business organization or division thereof or
any equity interest therein (other than in connection with outsourcing
agreements entered into with customers of Colonial Data), (ii) enter into any
contract or agreement other than in the ordinary course of business consistent
with past practice which would be material to Colonial Data, or (iii)
authorize any new capital expenditure or expenditures which, individually, is
in excess of $500,000 or, in the aggregate, are in excess of $1,000,000,
provided, however, that none of the foregoing shall limit any capital
expenditure required pursuant to existing contracts; (k) make any tax election
or settle or compromise any income tax liability material to Colonial Data and
its subsidiaries taken as a whole; (l) settle or compromise any pending or
threatened suit, action, or claim which either relates to the Merger Agreement
or the settlement or compromise of which could have a material adverse effect
on Colonial Data; (m) commence any material research and development project
or terminate any material research and development project that is currently
ongoing, in either case, except pursuant to the terms of existing contracts or
in the ordinary course of business; or (n) take or agree to take any of the
actions described above which would make any of the representations or
warranties of Colonial Data contained in the Merger Agreement untrue or
incorrect.
No Solicitation of Transactions
The Merger Agreement provides that each of US Order and Colonial Data will
immediately cease any existing discussions or negotiations, if any, with any
parties with respect to the following: (i) the acquisition of US Order or
Colonial Data by merger or otherwise by any person other than US Order,
Colonial Data or Newco; (ii) the acquisition by a third party of more than 30%
of the total assets of US Order or Colonial Data; (iii) the acquisition by a
third party of 30% or more of US Order Common Stock or Colonial Data Common
Stock; (iv) the adoption by US Order or Colonial Data of a plan of liquidation
or the declaration or payment of an extraordinary dividend; (v) the repurchase
by US Order or Colonial Data of more than 20% of its outstanding shares; or
(vi) the acquisition by US Order or Colonial Data, by merger, purchase of
stock or assets, joint venture or otherwise, of a direct or indirect ownership
interest or investment in any business whose annual revenues, net income or
assets is equal or greater than 40% of its annual revenues, net income or
assets together with its subsidiaries taken as a whole (each a "Third Party
Acquisition"). The Merger Agreement does not prohibit US Order or the US Order
Board or Colonial Data or the Colonial Data Board, to the extent there is a
bona fide proposal to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, more than 50% of the shares then
outstanding or all or substantially all of the assets of US Order or Colonial
Data, as the case may be, and otherwise on terms which the US Order Board or
the Colonial Data Board, as the case may be, by a majority vote determines in
its good faith (based on written advice of Salomon or other nationally
recognized investment bank in the case of US Order or First Albany or other
nationally recognized investment bank in the case of Colonial Data) to be more
favorable to such party's stockholders than the Mergers (a "Superior
Proposal"), from providing information to, or participating in negotiations or
otherwise cooperating with, any party with respect to the foregoing. US Order
or Colonial Data, as the case may be, will promptly advise the other party of
any such proposal or offer and will inform that party of all the terms and
conditions thereof and the contents of any response thereto.
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Stock Options and Warrants
At the Effective Time, each outstanding option to purchase shares of US
Order Common Stock and shares of Colonial Data Common Stock shall be assumed
by Newco. Thus, at the Effective Time, each outstanding option to purchase US
Order Common Stock (a "US Order Stock Option" or collectively, "US Order Stock
Options"), whether vested or unvested, shall be assumed by Newco (all of such
plans or agreements pursuant to which any US Order Stock Option has been
issued or may be issued are referred to collectively as the "US Order Plans").
Each US Order Stock Option shall be deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such US Order Stock
Option, the same number of shares of Newco Common Stock as the holder of such
US Order Stock Option would have been entitled to receive pursuant to the
Mergers had such holder exercised such option in full immediately prior to the
Effective Time, at a price per share equal to (y) the aggregate exercise price
for the US Order Common Stock otherwise purchasable pursuant to such US Order
Stock Option divided by (z) the number of shares of Newco Common Stock deemed
purchasable pursuant to such US Order Stock Option; provided, however, that in
the case of any option to which section 421 of the Code applies by reason of
its qualification under section 422 of the Code ("incentive stock options" or
"ISOs"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in compliance with the requirements of section 424(a) of the Code.
At the Effective Time, each outstanding option to purchase Colonial Data
Common Stock (a "Colonial Data Stock Option" or collectively, "Colonial Data
Stock Options"), whether vested or unvested, shall be assumed by Newco (all of
such plans or agreements pursuant to which any Colonial Data Stock Option has
been issued or may be issued are referred to collectively as the "Colonial
Data Plans"). Each Colonial Data Stock Option shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Colonial Data Stock Option, the same number of shares of Newco Common
Stock as the holder of such Colonial Data Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time, at a price per share
equal to (y) the aggregate exercise price for the Colonial Data Common Stock
otherwise purchasable pursuant to such Colonial Data Stock Option divided by
(z) the number of shares of Newco Common Stock deemed purchasable pursuant to
such Colonial Data Stock Option; provided, however, that in the case of any
ISOs, the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in compliance with the requirements of section 424(a) of the Code.
Stockholder approval of the Merger Agreement will constitute authorization
of Newco to assume the existing US Order and Colonial Data stock option plans
and the options and awards outstanding thereunder.
At the Effective Time, each warrant to purchase US Order Common Stock and
each warrant to purchase Colonial Data Common Stock, which then remains
outstanding shall be deemed to constitute a warrant to purchase, on the same
terms and conditions as were applicable under such warrant, the same number of
shares of Newco Common Stock as the holder of such warrant would have been
entitled to receive pursuant to the Mergers had such holder exercised such
warrant in full immediately prior to the Effective Time, at a price per share
equal to (y) the aggregate exercise price for the US Order Common Stock or
Colonial Data Common Stock otherwise purchasable pursuant to such warrant, as
the case may be, divided by (z) the number of shares of Newco Common Stock
deemed purchasable pursuant to such warrant, as the case may be.
Indemnification; Insurance
Newco will to the fullest extent permitted by applicable law, from and after
the Effective Time, indemnify each person who is or has been or becomes prior
to the Effective Time, a director, officer or employee of US Order, Colonial
Data or Newco or any subsidiary thereof, against all losses, expenses
(including reasonable attorney fees and expenses), claims, damages or
liabilities and amounts paid in settlement arising out of certain matters and
shall provide certain other indemnifications no less favorable then those
indemnifications provided for in the US Order Certificate, the Colonial Data
Certificate, the US Order Bylaws and the Colonial Data Bylaws
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as in effect on the date of the Merger Agreement for a period of not less than
six years. For a period of three years from the Effective Time, Newco will
maintain in effect the policies of directors' and officers' liability
insurance maintained by US Order and Colonial Data for the benefit of those
persons who are covered by such policies at the Effective Time (or Newco may
substitute therefor policies of at least the same coverage with respect to
matters occurring prior to the Effective Time).
Termination; Amendment and Waiver
The Merger Agreement may be terminated and the Mergers abandoned at any time
before the Effective Time, whether before or after approval by the Colonial
Data stockholders or the US Order stockholders: (a) by mutual written consent
of Colonial Data and US Order; (b) by either Colonial Data or US Order if (i)
the Mergers have not been consummated on or before February 28, 1997, unless
the failure to consummate the Mergers is due to the failure of the party
seeking to terminate the Merger Agreement to fulfill any of its obligations
thereunder, (ii) there has been a material breach by the other party of any of
its representations, warranties, covenants or agreements materially adversely
affecting the consummation of the Mergers or materially adversely affecting
one of the other parties that is not cured within 20 business days after
receipt by the party alleged to be in breach of written notice thereof, (iii)
any court of competent jurisdiction or other competent governmental authority
has issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Mergers and such action has become
final and nonappealable, (iv) the US Order Board or the Colonial Data Board
has recommended to its stockholders a Superior Proposal or (v) the other
party's stockholders have voted on the Merger Agreement and the transactions
contemplated thereby and the requisite vote in favor is not obtained; (c) by
Colonial Data if the US Order Board fails to recommend to the US Order
stockholders approval of the Merger Agreement or withdraws such
recommendation; (d) by US Order if the Colonial Data Board fails to recommend
to the Colonial Data stockholders approval of the Merger Agreement or
withdraws such recommendation; (e) by Colonial Data if, before the Effective
Time, Colonial Data receives a Superior Proposal (as hereinafter defined),
provided, that Colonial Data does not receive, within five business days of
receiving notice of such Superior Proposal, an offer from US Order that the
Colonial Data Board believes, in good faith after consulting with its
financial advisors, is at least as favorable, from a financial point of view,
to its stockholders as such Superior Proposal; (f) by US Order if, before the
Effective Time, US Order receives a Superior Proposal (as hereinafter
defined), provided, that US Order does not receive, within five business days
of receiving notice of such Superior Proposal, an offer from Colonial Data
that the US Order Board believes, in good faith after consulting with its
financial advisors, is at least as favorable, from a financial point of view,
to its stockholders as such Superior Proposal.
In the event that the Merger Agreement is terminated by US Order because:
(i) the Colonial Data Board recommended to its stockholders a Superior
Proposal, or (ii) the Colonial Data Board withdrew, modified or changed its
approval or recommendation of the Mergers, then Colonial Data shall pay to US
Order the amount of $3.0 million within five business days after such
termination. In the event that, within 12 months after such termination of the
Merger Agreement, Colonial Data enters into and consummates a Third Party
Acquisition, then Colonial Data shall pay to US Order an additional $4.5
million. In the event that the Merger Agreement is terminated by US Order
because there is a willful breach of any material representation, warranty or
certain covenants on the part of Colonial Data and Colonial Data consummates a
Third Party Acquisition within 12 months after such termination of the Merger
Agreement, then Colonial Data shall pay to US Order $7.0 million.
In the event that the Merger Agreement is terminated by Colonial Data
because: (i) the US Order Board recommended to its stockholders a Superior
Proposal, or (ii) the US Order Board withdrew, modified or changed its
approval or recommendation of the Mergers, then US Order shall pay to Colonial
Data the amount of $3.0 million within five business days after such
termination. In the event that, within 12 months after such termination of the
Merger Agreement, US Order enters into and consummates a Third Party
Acquisition, then US Order shall pay to Colonial Data an additional $4.5
million. In the event that the Merger Agreement is terminated by Colonial Data
because there is a willful breach of any material representation, warranty or
certain covenants on the part of US Order and US Order consummates a Third
Party Acquisition within 12 months after such termination of the Merger
Agreement, then US Order shall pay to Colonial Data $7.0 million.
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Newco, US Order and Colonial Data may amend the Merger Agreement, by action
taken or authorized by their respective Boards of Directors, either before or
after approval by the US Order stockholders of the Merger Agreement and
approval by the Colonial Data stockholders of the Merger Agreement, except
that after such approval, no amendment may be made that, under Delaware law,
requires further approval by the US Order or Colonial Data stockholders, as
the case may be, without such further approval. At any time prior to the
Effective Time, either Colonial Data or US Order may extend the time specified
in the Merger Agreement for the performance of any of the obligations of the
other party, waive any inaccuracies in the representations and warranties of
the other party contained in the Merger Agreement or in any document delivered
pursuant thereto or waive compliance by the other party with any of the
agreements or conditions of such other party contained in the Merger
Agreement.
Certain Restrictions on Resale of Newco Common Stock
All shares of Newco Common Stock issuable in the Mergers will be registered
under the Securities Act and will be freely transferable, except that any such
shares received by persons who are deemed "affiliates" (as such term is
defined under the Securities Act) of US Order or Colonial Data prior to the
Mergers or of Newco upon consummation of the Mergers may be resold by them
only in transactions registered under the Securities Act or permitted by the
resale provisions of Rule 145 under the Securities Act (or Rule 144 in the
case of such persons who become affiliates of Newco) or as otherwise permitted
under the Securities Act. Persons who may be deemed to be affiliates of US
Order or Colonial Data generally include individuals or entities that control,
are controlled by, or are under common control with US Order or Colonial Data
and may include certain officers and directors of US Order or Colonial Data as
well as principal stockholders of such party. The Merger Agreement requires
each of the parties thereto to use its best efforts to cause each of its
affiliates to execute a written agreement to the effect that such person will
not offer or sell or otherwise dispose of any of the shares of Newco Common
Stock issued to such person in or pursuant to the Mergers in violation of the
Securities Act or the rules and regulations promulgated by the Commission
thereunder. See "Comparison of Stockholders' Rights--Transfer Restrictions--
Newco."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Certain of the officers and directors of US Order and Colonial Data have
interests in the Mergers in addition to their interests as stockholders. These
include, among other things, provisions in the Merger Agreement relating to
the management of Newco following the Mergers, indemnification, eligibility
for certain Newco employee benefits and the assumption of outstanding employee
stock options with respect to Newco Common Stock held by directors, officers
and employees of US Order and Colonial Data, respectively. Newco will assume
the employment agreements between Robert J. Schock and Colonial Data and
between John C. Backus, Jr. and US Order and will enter into employment
agreements with Timothy R. Welles and Joseph E. Smith. In connection with the
formation of Newco, Newco has adopted the following stock option plans in
which directors, officers and employees who are eligible may participate in
the future: (i) Newco Incentive Plan, (ii) Newco Non-employee Directors' Stock
Option Plan, and (iii) Newco Employee Stock Purchase Plan. See "Management and
Operation After the Mergers."
The Colonial Data Board has authorized the payment of a cash bonus in the
amount of $400,000 to Timothy R. Welles payable upon consummation of the
Mergers. The bonus was authorized by the Colonial Data Board in recognition of
Mr. Welles' valuable service to Colonial Data, including his efforts in
connection with the structuring and negotiation of the Mergers.
Employment Agreements
Robert J. Schock. Pursuant to the Merger Agreement, at the Effective Time,
Newco will assume Mr. Schock's employment agreement (the "Schock Employment
Agreement") with Colonial Data. Colonial Data entered into an employment
agreement with Robert J. Schock as of July 1, 1996, providing that Mr. Schock
will serve as President and Chief Executive Officer of Colonial Data until
June 30, 1997, a term which
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automatically extends in one-year increments thereafter, unless terminated
earlier. Mr. Schock is entitled to a base salary of $250,000 per year for the
first year (subject to increase by the Colonial Data Board), a bonus of up to
50% of his base salary, the right to participate in all of the other benefit
plans that Colonial Data provides to its executives and key management
employees, disability and health insurance benefits, and certain other
benefits, including a company car. Colonial Data may terminate the Schock
Employment Agreement upon Mr. Schock's death, disability or "for cause" (as
defined) upon the affirmative vote of the majority of the Colonial Data Board.
If, within two years after a "Change of Control" (as defined in the Schock
Employment Agreement) occurs, the Schock Employment Agreement is terminated by
Colonial Data, or by Mr. Schock for "Good Reason" (as defined in the Schock
Employment Agreement), Colonial Data will pay the remainder of Mr. Schock's
compensation already accrued, a lump sum equal to three times his annual base
salary, and the amount needed by Mr. Schock to purchase benefits equivalent to
those previously provided by Colonial Data for the three year period
commencing as of his termination date. The Mergers do not constitute a "Change
of Control" for purposes of the Schock Employment Agreement. Mr. Schock may
terminate the Schock Employment Agreement upon 30 days notice. In addition, if
Mr. Schock should terminate the Schock Employment Agreement for "Good Reason,"
including a diminution of responsibilities, a reduction in base salary or a
relocation of Colonial Data's offices to a location more than 30 miles from
New Milford, Connecticut, Colonial Data will pay Mr. Schock the amount of his
base salary and other compensation already accrued, pay his base salary until
the earlier of three years or through June 30, 2000, permit continued use of
his company vehicle for such period and continue to provide Mr. Schock with
the option to participate in Colonial Data's employee benefit plans.
As part of the Schock Employment Agreement, should the Schock Employment
Agreement be terminated under certain circumstances, such as termination by
either Colonial Data or Mr. Schock upon proper notice, Mr. Schock will have
the option of entering into a consulting agreement with Colonial Data. The
consulting agreement would commence simultaneously with the termination of the
Schock Employment Agreement and the election by Mr. Schock to enter into the
consulting agreement and would remain in effect for three years or until June
30, 2000, whichever comes first, unless the consulting agreement is terminated
earlier. During the time the consulting agreement is in effect, Mr. Schock
would receive an annual consulting fee equal to the base salary he was
receiving at the time the Schock Employment Agreement was terminated, and
Colonial Data would continue to provide certain benefits, such as disability
and health insurance benefits.
John C. Backus, Jr. Pursuant to the Merger Agreement, at the Effective Time,
Newco will assume Mr. Backus' employment agreement with US Order. US Order
entered into an employment agreement with John C. Backus, Jr. on August 1,
1994 (the "Backus Employment Agreement"), providing that Mr. Backus will serve
as President and Chief Operating Officer of US Order until July 31, 1997, a
term which automatically extends until December 31, 1997, unless terminated
earlier. Mr. Backus is entitled to a base salary of $250,000 per year, a bonus
of up to 75% of his base salary based on his individual performance as well as
that of US Order as determined by the US Order Board, the right to participate
in all bonus and incentive compensation plans or arrangements made available
to other US Order officers and directors and certain other benefits, including
a $5.0 million life insurance policy. Mr. Backus is entitled to receive
performance stock options in accordance with US Order's 1991 Stock Option
Agreement (the "1991 Plan"). US Order may terminate the Backus Employment
Agreement upon Mr. Backus' death, disability or for cause (as defined) upon
the affirmative vote of the majority of the US Order Board. If the US Order
Board terminates Mr. Backus without cause, Mr. Backus is entitled to receive
the remainder of the base salary and certain other compensation due under the
Backus Employment Agreement and all options granted to Mr. Backus but
unexercisable under the 1991 Plan shall become immediately exercisable for a
period of one year. Mr. Backus may terminate the Backus Employment Agreement
upon 30 days notice under certain circumstances, including a diminution of
responsibilities, a change in control (as defined) of US Order or a relocation
of its executive offices outside of the Washington, D.C. area. Upon such
termination by Mr. Backus, he is entitled to receive the remainder of his base
salary and certain other compensation due under the Backus Employment
Agreement and all options granted but unexercisable shall become immediately
exercisable for a period of one year. As part of the Backus Employment
Agreement, Mr. Backus has agreed to hold shares of US Order Common Stock
during the term of the Backus Employment Agreement. Mr. Backus has agreed to
hold 10,000, 15,000 or 20,000 shares of US Order Common Stock upon
39
<PAGE>
the earlier of April 1, 1996, April 1, 1997 and April 1, 1998 or the exercise
of 100,000, 200,000 or 300,000 options, respectively. During 1995, Mr. Backus
acquired 25,000 shares of US Order Common Stock through the exercise of stock
options and currently satisfies all of the holding requirements set forth in
the Backus Employment Agreement.
Pursuant to a stock option agreement between US Order and Mr. Backus, Mr.
Backus has been awarded options to purchase 600,000 shares of US Order Common
Stock at an exercise price of $7.13 per share. The options for 600,000 shares
of US Order Common Stock will become exercisable on May 1, 2004; however, the
exercise date will be accelerated with respect to increments of 100,000 shares
of US Order Common Stock if certain targets are achieved regarding the Common
Stock price. Pursuant to this provision, Mr. Backus will be entitled to
exercise options to purchase 100,000 shares of US Order Common Stock, at the
$7.13 exercise price, each time that the US Order Common Stock trades at a
price that is an increase of 25% over the preceding eligibility level for 20
trading days. Thus, Mr. Backus will first be entitled to exercise options for
100,000 shares of US Order Common Stock if the US Order Common Stock trades at
or above $8.91 for 20 consecutive trading days. The same entitlement would
arise for five additional blocks of 100,000 options, at the exercise price of
$7.13 per share, if the Common Stock trades at or above $11.14, $13.93,
$17.41, $21.76, and $27.20, for 20 trading days each (each of these trading
prices is 25% above the price of the US Order Common Stock at the earlier
tier). In the event that Mr. Backus is no longer employed in certain
capacities by US Order or its affiliates, options that have not become
exercisable by such time will not thereafter become exercisable, except that
upon a termination without Cause or for Good Reason (as defined therein) the
exercisability of the options shall accelerate.
Timothy R. Welles. On the date of the closing of the Mergers (the
"Commencement Date"), Newco will enter into an employment agreement with
Timothy R. Welles (the "Welles Employment Agreement") providing that Mr.
Welles will serve as an Executive Vice President of Newco for a term of one
year from the Commencement Date. Mr. Welles is entitled to a base salary of
$ per year for the first year (subject to increase by the Newco Board). The
Welles Employment Agreement also provides that Mr. Welles shall receive a
restricted stock award on the date of consummation of the Mergers of 55,000
shares of Newco Common Stock pursuant to the Newco Incentive Plan (as defined
below). Such award shall vest in full on , 1997. Pursuant to the Welles
Employment Agreement, Mr. Welles shall be entitled to participate in all of
the benefit plans that Newco provides to its executives and key management
employees, including disability and health insurance benefits. Newco may
terminate the Welles Employment Agreement upon Mr. Welles' death, disability
or "for cause" (as defined) upon the affirmative vote of the majority of the
Newco Board. Mr. Welles may terminate the Welles Employment Agreement upon
days notice.
Joseph E. Smith. On the date of the closing of the Mergers (the
"Commencement Date"), Newco will enter into an employment agreement with
Joseph E. Smith (the "Smith Employment Agreement") providing that Mr. Smith
will serve as an Executive Vice President of Newco for a term of one year from
the Commencement Date. Mr. Smith is entitled to a base salary of $225,000 per
year for the first year (subject to increase by the Newco Board). Pursuant to
the Smith Employment Agreement, Mr. Smith shall be entitled to participate in
all of the other benefit plans that Newco provides to its executives and key
management employees, including disability and health insurance benefits.
Newco may terminate the Smith Employment Agreement upon Mr. Smith's death,
disability or "for cause" (as defined) upon the affirmative vote of the
majority of the Newco Board. Mr. Smith may terminate the Smith Employment
Agreement upon days notice.
Indemnification; Insurance
For a period of up to six years after the Effective Time, Newco has agreed
to maintain certain indemnities and to maintain for up to three years,
policies of insurance in favor of US Order's and Colonial Data's directors and
officers prior to the Effective Time. See "The Mergers--The Merger Agreement--
Indemnification; Insurance" above.
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<PAGE>
ACCOUNTING TREATMENT
The Mergers will be accounted for using the purchase method of accounting
with US Order being deemed to be the acquiror for financial reporting
purposes. See "Newco Unaudited Pro Forma Condensed Consolidated Financial
Information."
CERTAIN CONSEQUENCES OF THE MERGERS
After the Mergers, the holders of US Order Common Stock and Colonial Data
Common Stock will cease to have any direct interest in US Order or its future
earnings or growth or Colonial Data or its future earnings or growth, as the
case may be, but, by virtue of their receipt of shares of Newco Common Stock
in the Mergers, they will share in the future earnings and growth of the
consolidated entity resulting from the merger of US Order and Colonial Data
with and into Newco.
The US Order Common Stock and Colonial Data Common Stock will be removed
from inclusion on Nasdaq, and the registration of US Order Common Stock and
Colonial Data Common Stock under the Exchange Act will be terminated.
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the United States
Federal Trade Commission (the "FTC"), the Mergers may not be consummated until
notifications have been given and certain information has been furnished to
the FTC and the Antitrust Division of the United States Justice Department
(the "Antitrust Division") and specified waiting period requirements have been
satisfied. The applicable waiting period under the HSR Act with respect to the
Mergers expired on September , 1996. Based on information available to them,
US Order and Colonial Data believe that the Mergers will not violate federal
or state antitrust laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
US Order has received the opinion of Hunton & Williams, counsel to US Order,
to the effect that for federal income tax purposes: (i) the merger of US Order
into Newco will constitute a reorganization within the meaning of Section
368(a) of the Code; (ii) neither US Order nor Newco will recognize any taxable
gain or loss upon consummation of the merger of US Order into Newco; and (iii)
the merger of US Order into Newco will result in the tax consequences
summarized below for US Order stockholders who receive Newco Common Stock in
exchange for US Order Common Stock pursuant to the merger. Such opinion has
been filed as an exhibit to the Registration Statement. Receipt of
substantially the same opinion as of the date of the Effective Time of the
Mergers is a condition to consummation of the Mergers.
Colonial Data has received the opinion of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., counsel to Colonial Data, to the effect that for federal income tax
purposes: (i) the merger of Colonial Data into Newco will constitute a
reorganization within the meaning of Section 368(a) of the Code; (ii) neither
Colonial Data nor Newco will recognize any taxable gain or loss upon
consummation of the merger of Colonial Data into Newco; and (iii) the merger
of Colonial Data into Newco will result in the tax consequences summarized
below for Colonial Data stockholders who receive Newco Common Stock in
exchange for Colonial Data Common Stock pursuant to the merger. Such opinion
has been filed as an exhibit to the Registration Statement. Receipt of
substantially the same opinion as of the date of the Effective Time of the
Mergers is a condition to consummation of the Mergers.
The opinions of Hunton & Williams and LeBoeuf, Lamb, Greene & MacRae, L.L.P.
are based on, and the opinions to be given as of the date of the Effective
Time of the Mergers will be based on, certain customary assumptions and
representations regarding, among other things, the existing and future
ownership of US Order capital stock and Colonial Data capital stock and the
future business plans for Newco. In addition, the opinions are based on
current law and certain other information, data, documents and materials as
such counsel deem
41
<PAGE>
necessary. No ruling will be sought from the Internal Revenue Service, and an
opinion of counsel is not binding on the Internal Revenue Service.
A US Order stockholder or a Colonial Data stockholder who receives solely
Newco Common Stock in exchange for his shares of US Order Common Stock or
Colonial Data Common Stock, as the case may be, will not recognize any gain or
loss on the exchange. A stockholder will have an aggregate tax basis in his
shares of Newco Common Stock received in the Mergers equal to his aggregate
tax basis in the shares of US Order Common Stock or Colonial Data Common
Stock, as the case may be, exchanged therefor. A stockholder's holding period
for shares of Newco Common Stock received in the Mergers will include his
holding period for the shares of US Order Common Stock or Colonial Data Common
Stock, as the case may be, exchanged therefor if they are held as a capital
asset, within the meaning of Section 1221 of the Code, at the Effective Time
of the Mergers.
THE PRECEDING DISCUSSION SUMMARIZES FOR GENERAL INFORMATION THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS TO US ORDER STOCKHOLDERS AND
COLONIAL DATA STOCKHOLDERS. IT DOES NOT DISCUSS ALL POTENTIALLY RELEVANT
FEDERAL INCOME TAX MATTERS OR CONSEQUENCES TO ANY FOREIGN OR OTHER
STOCKHOLDERS SUBJECT TO SPECIAL TAX TREATMENT, NOR DOES IT DISCUSS, AND NO
OPINION HAS BEEN REQUESTED REGARDING, ANY STATE OR LOCAL TAX CONSEQUENCES OF
THE MERGERS. THE TAX CONSEQUENCES TO ANY PARTICULAR US ORDER STOCKHOLDER OR A
COLONIAL DATA STOCKHOLDER MAY DEPEND ON THE STOCKHOLDER'S CIRCUMSTANCES. US
ORDER AND COLONIAL DATA STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH REGARD TO FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES.
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<PAGE>
MANAGEMENT AND OPERATION AFTER THE MERGERS
Newco Board
It is expected that the Newco Board, at the Effective Time, will consist of
nine persons: T. Coleman Andrews, III, William F. Gorog, John C. Backus, Jr.,
Patrick F. Graham and Wesley C. Tallman (the "US Order Designees") and Robert
J. Schock, Walter M. Fiederowicz, Timothy R. Welles and Constantine S.
Macricostas (the "Colonial Data Designees"). The Newco Board will be divided
into three classes, with the initial term of office of the first, second and
third classes expiring at the first, second and third annual meetings of the
stockholders of Newco, respectively. Newco will take all action necessary to
cause the US Order Designees and the Colonial Data Designees to serve in
nearly equal numbers in each of Newco's three classes of directors. If any of
US Order's Designees or Colonial Data's Designees, respectively, declines or
is unable to serve as a director prior to the Effective Time, US Order (if
such person was a US Order Designee) or Colonial Data (if such person was a
Colonial Data Designee), as the case may be, will nominate another person to
serve in such person's stead, subject to the other party's designees'
approval. If any of the US Order Designees or Colonial Data Designees declines
or becomes unable to serve as a director during his initial term following the
Effective Time, the remaining US Order Designees (if such person was a US
Order Designee) or Colonial Data Designees (if such person was a Colonial Data
Designee), as the case may be, will nominate another person to serve in such
person's stead, which such person will be subject to the other party's
designees' approval.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William F. Gorog.................... 71 Chairman of the Board
Robert J. Schock.................... 54 Chief Executive Officer, Vice-Chairman
of the Board and Director
John C. Backus, Jr.................. 37 President, Chief Operating Officer and
Director
Timothy R. Welles................... 37 Executive Vice President and Director
T. Coleman Andrews, III............. 42 Director
Walter M. Fiederowicz............... 50 Director
Patrick F. Graham................... 56 Director
Constantine S. Macricostas.......... 59 Director
Wesley C. Tallman................... 53 Director
</TABLE>
WILLIAM F. GOROG will be Chairman of the Newco Board. Mr. Gorog is the
founder of US Order and had served as its Chairman and Chief Executive Officer
since May 1, 1990. From October, 1987 until founding US Order, he served as
chairman of the board of Arbor International, an investment management firm.
From 1982 to 1987, he served as president and chief executive officer of the
Magazine Publishers of America, an association representing the principal
consumer publications in the United States. During the Ford Administration,
Mr. Gorog served as deputy assistant to the President for Economic Affairs and
Executive Director of the Council on International Economic Policy. Prior to
that time, he founded and served as chief executive officer of DataCorp.,
which developed the Lexis and Nexis information systems for legal and media
research and which was subsequently sold to the Mead Corporation. He currently
serves as chairman of the board of WorldCorp, the majority owner of World
Airways and US Order, and as a director of Home Financial Network, Inc.
("HomeNet").
ROBERT J. SCHOCK will be Vice-Chairman of the Newco Board and Chief
Executive Officer of Newco. Mr. Schock had served as President and Chief
Executive Officer of Colonial Data since September 1989 and as President of
Colonial Technologies Corp., a wholly-owned subsidiary of Colonial Data, since
1981. From 1977 to 1980, Mr. Schock was director of national operations for
ICOT Corporation, a telecommunications equipment manufacturer. From 1966 to
1977, Mr. Schock held a variety of positions with Xerox Corporation, including
product manager, regional sales operations manager and regional manager for
microsystems.
JOHN C. BACKUS, JR. will be President and Chief Operating Officer of Newco
and a director on the Newco Board. Mr. Backus had worked with US Order since
its inception in 1990 and has served as President, Chief
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<PAGE>
Operating Officer and a director of US Order since 1994. Prior to working with
US Order, Mr. Backus worked for six years at WorldCorp and its subsidiaries
holding a variety of executive positions including vice president of corporate
development, vice president of finance, and vice president of sales and
marketing at a WorldCorp subsidiary. Prior to joining WorldCorp, Mr. Backus
worked for Bain & Company, Inc., a worldwide strategy consulting firm with
approximately 1,200 employees, in its consulting and venture capital groups
where he focused on consumer products and services. Mr. Backus serves on the
board of directors of WorldCorp and HomeNet.
TIMOTHY R. WELLES will be Executive Vice President of Newco and a director
on the Newco Board. Mr. Welles had served as Executive Vice President and
Chief Operating Officer of Colonial Data since March 7, 1996. Prior to joining
Colonial Data, Mr. Welles was Senior Vice President of First Albany
Corporation, an investment banking firm, from January 1994 to March 1996, with
responsibilities related primarily to corporate finance activities. Prior to
joining First Albany, Mr. Welles held various positions, most recently as
Managing Director, at Advest, Inc., an investment banking firm, from August
1989 to January 1994. Prior to joining Advest, Inc., Mr. Welles practiced
securities and corporate law at Cahill Gordon & Reindel in its New York
office.
T. COLEMAN ANDREWS, III will be a director on the Newco Board. Mr. Andrews
had served as a director of US Order since 1990. He is the chief executive
officer, president and a director of WorldCorp, and chairman of the board of
World Airways, a position he has held since 1986. Prior to February 1996, Mr.
Andrews also served as chief executive officer of World Airways. From 1978
through 1986, he was affiliated with Bain & Company, Inc., an international
strategy consulting firm. At Bain, he was elected partner in 1982 and was a
founding general partner in 1984 of The Bain Capital Fund, a private venture
capital partnership. Prior to his experience with Bain, Mr. Andrews served in
several appointed positions in the Ford Administration, including serving with
Mr. Gorog in the White House.
WALTER M. FIEDEROWICZ will be a director on the Newco Board. Mr. Fiederowicz
had been Chairman of the Board of Directors of Colonial Data from August 1994
until March 1996, a director of Colonial Data since September 1989 and a
director of Colonial Technologies Corp. since 1985. From 1979 to December
1988, Mr. Fiederowicz was a partner of the law firm of Cummings & Lockwood and
served as counsel to that firm from December 1988 until September 1990. From
January 1991 until July 1994, he held various positions, including chairman,
and served as a director of Conning Corporation, the parent company of an
investment firm. He is also a director of Photronics, Inc., a photomask
manufacturer. Mr. Fiederowicz was chairman and director of Covenant Mutual
Insurance Company, a property and casualty insurance company ("Covenant") from
1989 until March 1993, and was president and chief executive officer of
Covenant from 1989 until December 1992. Covenant was placed in rehabilitation
by the Insurance Commissioner of the State of Connecticut in 1993 and
subsequently liquidated as a result of losses in connection with insurance
claims relating to Hurricane Andrew. Mr. Fiederowicz is a director of Blau
Marketing Technologies, Inc., a direct marketing firm, and First Albany.
PATRICK F. GRAHAM will be a director on the Newco Board. Mr. Graham had
served as a director of US Order since 1993. He is a director of Bain &
Company, Inc., a management consulting firm co-founded by Mr. Graham in 1973.
In addition to his primary responsibilities with Bain clients, he has served
as Bain's vice chairman and chief financial officer. Prior to founding Bain,
Mr. Graham was a group vice president with the Boston Consulting Group. Mr.
Graham currently serves as a director of WorldCorp.
CONSTANTINE S. MACRICOSTAS will be a director on the Newco Board. Mr.
Macricostas had been a director of Colonial Data since September 1989 and a
director of Colonial Technologies Corp. since 1987. Since 1974, Mr.
Macricostas has served in several positions including as chairman and chief
executive officer of Photronics, Inc., a photomask manufacturer. He also
serves as a director of Nutmeg Federal Savings and Loan Association.
WESLEY C. TALLMAN will be a director on the Newco Board. Mr. Tallman had
served as a director of US Order since June, 1995. He is the president for
products and information services of Visa, a post to which he was named in
March 1994. Previously, he held the title of executive vice president for
product and market
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<PAGE>
development for Visa's full range of credit and deposit access products. Mr.
Tallman joined Visa in April 1989 as executive vice president for debit
products. Prior to joining Visa, Mr. Tallman spent three years as president
and chief operating officer of PayChex, Inc., a national payroll processing
company in Rochester, New York. Earlier, he was a senior executive vice
president of banking of Chase Lincoln First Bank, Rochester.
At the Effective Time, the Newco Board will have an Executive Committee, a
Compensation Committee, an Audit Committee and a Nominating Committee, on each
of which there will be an equal representation of US Order Designees and
Colonial Data Designees. The Executive Committee will initially consist of
William F. Gorog and John C. Backus, Jr., as the US Order Designees, and
Robert J. Schock and Timothy R. Welles, as the Colonial Data Designees, each
to serve until the next annual meeting of stockholders of Newco at which such
Executive Committee member first stands for reelection to the Newco Board. The
members of the other committees will be selected by the full Newco Board.
Management
The principal officers of Newco at the Effective Time will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William F. Gorog.................... 71 Chairman of the Board
Robert J. Schock.................... 54 Chief Executive Officer, Vice-Chairman
of the Board and Director
John C. Backus, Jr.................. 37 President, Chief Operating Officer and
Director
Timothy R. Welles................... 37 Executive Vice President and Director
Joseph E. Smith..................... 46 Executive Vice President
Albert N. Wergley................... 49 Vice President, General Counsel and
Secretary
John N. Giamalis.................... 38 Vice President, Treasurer and Chief
Financial Officer
Mark S. Lynch....................... 33 Vice President--Corporate Development
</TABLE>
Between six and nine months from the Effective Date, Mr. Schock will become
Chairman of the Newco Board, Mr. Gorog will become Vice Chairman of the Newco
Board and Mr. Backus will become President and Chief Executive Officer of
Newco. Additional officers will be elected by the Newco Board after the
Merger.
Headquarters
The headquarters of Newco will be located in .
Newco Non-Employee Directors' Stock Option Plan
Newco has adopted the Newco Corporation Non-Employee Directors' Stock Option
Plan (the "Directors' Plan"), pursuant to which each Eligible Director will be
offered options to purchase shares of Newco Common Stock. "Eligible Directors"
are those directors of Newco who are not employees of Newco or an affiliate,
and who have not received compensation from consulting services to Newco in
excess of $100,000 during the 12 months preceding the date of grant (the
"Grant Date"). The Grant Date will be the Annual Meeting Date of Newco each
year, and the exercise price for any option granted under the Directors' Plan
will be the average closing price of the Newco Common Stock during the 30
trading days immediately preceding the date of grant. Each Eligible Director
will receive a grant of 6,000 options annually. Options granted under the
Directors' Plan vest in 12 equal monthly installments of 500 shares of Newco
Common Stock per month during the Eligible Director's continued service on the
Board. The option price may be paid in cash, by surrendering shares of Newco
Common Stock or by a combination of cash and Newco Common Stock. All options
expire 10 years after their grant. Up to 200,000 shares of Newco Common Stock
may be issued under the Directors' Plan, subject to certain adjustments. No
options have been granted under the Directors' Plan.
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<PAGE>
Newco Incentive Plan
Newco has adopted the Newco Corporation Incentive Plan (the "Incentive
Plan"). Members of the Newco Board, employees of Newco and its affiliates and
consultants to Newco or its affiliates are eligible to participate in the
Incentive Plan. Newco has reserved 1,500,000 shares of Newco Common Stock for
issuance upon the exercise of options granted to participants under the
Incentive Plan. Newco has not awarded any options under the Incentive Plan.
The Incentive Plan is designed to help Newco attract and retain key
management level employees, and to reward Newco's employees for results that
contribute to strong earnings performance and improved share values. The
number of options granted under the Incentive Plan in the case of Newco
executives will be set by the Newco Board based upon a range of factors,
including scope of responsibilities, internal equity and external
competitiveness.
The Incentive Plan permits the grant of both incentive stock options and
nonqualified stock options. The Incentive Plan is administered by the
Compensation Committee, which has the authority to select individuals to
participate in the Incentive Plan and to determine the terms of all options
awards made under the Incentive Plan.
The exercise price for options granted under the Incentive Plan may not be
less than 85% of the fair market value (as defined) of the Newco Common Stock
at the time of grant, except that the exercise price for incentive stock
options may not be less than the fair market value of the Newco Common Stock
at the time of grant. Participants may pay the exercise price in cash or
shares of Newco Common Stock already held by the participant.
Newco Employee Stock Purchase Plan
Newco has adopted the Newco Corporation Employee Stock Purchase Plan (the
"Purchase Plan") which is intended to qualify under Section 423 of the Code.
The Purchase Plan permits eligible employees to purchase Newco Common Stock
through payroll deductions at a price equal to 85% of the fair market value of
the Newco Common Stock at the beginning or at the end of each offering period,
whichever is lower. The purpose of the Purchase Plan is to provide employees
of Newco and certain subsidiaries with an opportunity to purchase Newco Common
Stock through accumulated payroll deductions. The Purchase Plan is
administered by the Compensation Committee of the Newco Board or its delegate.
Employees are eligible to participate if they have been employed by Newco (or
US Order or Colonial Data) for at least three months as of an offering date
and are regularly employed by Newco for at least 20 hours per week. Employees
who own or who are deemed to own more than five percent of the combined voting
power or value of Newco are not eligible to participate in the Purchase Plan.
The Purchase Plan is implemented by consecutive offering periods of
approximately six months, with a new offering period commencing no later than
July 1 and January 2 of each year. Shares of Newco Common Stock purchased
pursuant to the Purchase Plan shall be transferable one year following the
date of such purchase. Up to 500,000 shares of Newco Common Stock may be
issued under the Purchase Plan, subject to certain adjustments. Newco has
reserved 500,000 shares of Newco Common Stock for purchase under the Purchase
Plan.
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<PAGE>
NEWCO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information gives effect to the proposed Mergers of US Order and Colonial Data
with and into Newco. The Mergers will be accounted for as a purchase of
Colonial Data by US Order. The share exchange reflects the Exchange Ratio
approved by the US Order Board and the Colonial Data Board, respectively,
whereby at the Effective Time, one share of Newco Common Stock will be issued
for each outstanding share of US Order Common Stock and each outstanding share
of Colonial Data Common Stock.
The allocation of the purchase price of approximately $189 million is based
upon a preliminary independent appraisal of the fair market value of certain
of the assets acquired and liabilities assumed. The appraisal preliminarily
allocated $87 million to the tangible and identifiable intangible assets net
of liabilities assumed, $30 million to the cost in excess of net assets
acquired ("goodwill") and $72 million to in-process research and development.
Such in-process research and development will be expensed by Newco upon
consummation of the Mergers. The final appraisals of assets and liabilities
acquired, and other factors related to the integration of these companies, may
result in differences in the final allocation of the purchase price.
The unaudited pro forma condensed consolidated balance sheet has been
prepared as if the acquisition was consummated as of June 30, 1996. The
unaudited pro forma condensed consolidated statements of operations for the
year ended December 31, 1995 and for the six months ended June 30, 1996, give
effect to the Mergers as if each was completed as of January 1, 1995 and
combines US Order's and Colonial Data's statements of operations for each of
those periods. Such statements of operations do not include the effect of the
$72 million nonrecurring charge for in-process research and development.
However, such statements do reflect adjustments for the elimination of
historical transactions between US Order and Colonial Data, amortization of
goodwill and related income tax effects.
This method of combining historical financial statements for the preparation
of the pro forma condensed consolidated financial information is for
presentation only. Actual statements of operations of Newco will reflect the
operating results of both of the companies from the closing date of the
Mergers with no retroactive restatements. The unaudited pro forma condensed
consolidated financial information is provided for illustrative purposes only
and is not necessarily indicative of the consolidated financial position or
consolidated results of operations that would have been reported had the
Mergers occurred on the dates indicated, nor do they represent a forecast of
the consolidated financial position or results of operations for any future
period. The unaudited pro forma condensed consolidated financial information
should be read in conjunction with the historical financial statements and
accompanying notes for US Order and Colonial Data, incorporated by reference
herein.
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<PAGE>
NEWCO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------
COLONIAL
US ORDER DATA ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product sales.................... $ 1,817 $51,733 $ -- $53,550
Leases........................... -- 20,325 -- 20,325
Services......................... 2,369 2,136 -- 4,505
------- ------- ------- -------
Total revenues................. 4,186 74,194 -- 78,380
------- ------- ------- -------
Cost of sales:
Product sales.................... 1,748 34,520 629(2)(d) 36,897
Leases........................... -- 8,424 1,366(2)(f) 9,790
Services......................... 723 1,296 -- 2,019
------- ------- ------- -------
Total cost of sales............ 2,471 44,240 1,995 48,706
------- ------- ------- -------
Gross profit....................... 1,715 29,954 (1,995) 29,674
Operating expenses:
Selling, general and
administrative.................. 5,810 9,580 2,014(2)(d) 19,404
2,000(2)(e)
Research and development......... 1,067 1,476 -- 2,543
------- ------- ------- -------
Total operating expenses....... 6,877 11,056 4,014 21,947
------- ------- ------- -------
Operating income (loss)............ (5,162) 18,898 (6,009) 7,727
Other income, net.................. 444 1,312 -- 1,756
------- ------- ------- -------
Income (loss) before income taxes.. (4,718) 20,210 (6,009) 9,483
Income taxes....................... -- (7,687) 2,618(2)(h) (5,069)
------- ------- ------- -------
Net income (loss).................. $(4,718) $12,523 $(3,391) $ 4,414
======= ======= ======= =======
Weighted average shares............ 10,772 14,722 32,739
Net income (loss) per share (Note
3)................................ $ (0.50) $ 0.85 $ 0.13
======= ======= =======
</TABLE>
48
<PAGE>
NEWCO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------
COLONIAL
US ORDER DATA ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product sales................... $ 837 $29,241 $ (240)(2)(g) $29,838
Leases.......................... -- 7,417 -- 7,417
Services........................ 1,037 950 -- 1,987
------- ------- ------- -------
Total revenues................ 1,874 37,608 (240) 39,242
------- ------- ------- -------
Cost of sales:
Product sales................... 692 20,612 315 (2)(d) 21,379
(240)(2)(g)
Leases.......................... -- 3,190 683 (2)(f) 3,873
Services........................ 579 567 -- 1,146
------- ------- ------- -------
Total cost of sales........... 1,271 24,369 758 26,398
------- ------- ------- -------
Gross profit...................... 603 13,239 (998) 12,844
------- ------- ------- -------
Operating expenses:
Selling, general and
administrative................. 4,605 5,970 1,007 (2)(d) 11,582
Research and development........ 1,176 756 -- 1,932
------- ------- ------- -------
Total operating expenses...... 5,781 6,726 1,007 13,514
------- ------- ------- -------
Operating income (loss)........... (5,178) 6,513 (2,005) (670)
Other income, net................. (16) 1,150 -- 1,134
------- ------- ------- -------
Income (loss) before income
taxes............................ (5,194) 7,663 (2,005) 464
Income taxes...................... -- (2,957) 2,415 (2)(h) (542)
------- ------- ------- -------
Net income (loss)................. $(5,194) $ 4,706 $ 410 $ (78)
======= ======= ======= =======
Weighted average shares........... 15,833 15,606 32,739
Net income (loss) per share (Note
3)............................... $ (0.33) $ 0.30 $ 0.00
======= ======= =======
</TABLE>
49
<PAGE>
NEWCO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------
COLONIAL
US ORDER DATA ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 17,120 $10,996 $ -- $ 28,116
Short-term investments......... 2,500 19,100 -- 21,600
Accounts receivable............ 328 14,956 -- 15,284
Inventory...................... 714 31,908 -- 32,622
Prepaid and other.............. 366 1,395 -- 1,761
-------- ------- -------- --------
Total current assets......... 21,028 78,355 -- 99,383
Property and equipment, net...... 2,077 4,615 6,832 (2)(f) 13,524
Restricted cash.................. 4,309 -- -- 4,309
Investments, net................. 6,481 3,761 (6,048)(2)(g) 4,194
Other noncurrent assets, net..... 394 893 30,913 (2)(d) 32,200
-------- ------- -------- --------
Total assets................. $ 34,289 $87,624 $ 31,697 $153,610
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Maturities of long-term debt... $ 26 $ -- $ -- $ 26
Accounts payable............... 1,197 1,762 3,000 (2)(e) 5,959
Accrued expenses............... 626 1,468 -- 2,094
-------- ------- -------- --------
Total liabilities............ 1,849 3,230 3,000 8,079
-------- ------- -------- --------
Stockholders' equity:
Common stock................... 16 155 16 (2)(a) 31
(155)(2)(b)
(1)(2)(g)
Additional paid-in capital..... 62,333 62,106 184,182 (2)(a) 246,516
(62,106)(2)(b)
1 (2)(g)
Receivable from sale of stock.. (2,488) -- -- (2,488)
Other.......................... (1,044) 36 (36)(2)(b) (191)
853 (2)(g) --
Accumulated earnings
(deficit)..................... (26,377) 23,307 (23,307)(2)(b) (98,337)
(71,960)(2)(c)
Treasury stock, at cost........ -- (1,210) 1,210 (2)(b) --
-------- ------- -------- --------
Total stockholders' equity... 32,440 84,394 28,697 145,531
-------- ------- -------- --------
Total liabilities and
stockholders' equity........ $ 34,289 $87,624 $ 31,697 $153,610
======== ======= ======== ========
</TABLE>
50
<PAGE>
NEWCO
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS)
NOTE 1--PURCHASE PRICE
The purchase price of the acquisition of Colonial Data is computed as
follows:
<TABLE>
<S> <C>
Estimated fair value of common stock to be issued................ $181,752
Estimated fair value of employee stock options and warrants...... 2,446
Cost of previous investment in Colonial Data..................... 3,393
Estimated US Order transaction costs............................. 1,000
--------
Total.......................................................... $188,591
========
</TABLE>
The purchase price is expected to be allocated as follows:
<TABLE>
<S> <C>
Current assets................................................... $ 76,355
Lease base....................................................... 8,887
Equipment and other.............................................. 3,157
In-process research and development.............................. 71,960
Developed technology............................................. 1,258
Goodwill......................................................... 30,204
Liabilities assumed.............................................. (3,230)
--------
Total.......................................................... $188,591
========
</TABLE>
The allocation of the purchase price to tangible and identifiable intangible
assets was based on a preliminary independent appraisal of the estimated fair
value of certain of those assets. Such preliminary appraisal indicated
approximately $72 million for purchased in-process research and development,
which will be expensed by Newco upon closing, as the technology has not
reached technological feasibility and does not have alternative future uses.
The unaudited pro forma condensed consolidated statements of operations do not
include this one-time charge for purchased in-process technology as it
represents a material nonrecurring charge. The final appraisals of assets and
liabilities acquired, and other factors related to the integration of the
companies, may result in differences in the final allocation of the purchase
price.
NOTE 2--PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the unaudited pro
forma condensed consolidated financial information:
(a) Reflects the estimated fair value of Newco Common Stock issued to
effect the transaction and the estimated fair value of Colonial Data stock
options and warrants assumed by Newco. As noted above, US Order has been
deemed the acquiring company for the purpose of the purchase method of
accounting. As a result, the average market price of shares of US Order
Common Stock for a period of five trading days prior to and after the
public announcement of the Mergers has been utilized in the determination
of purchase consideration related to shares of Newco Common Stock issued to
Colonial Data's stockholders.
(b) Reflects elimination of Colonial Data's historical stockholders'
equity.
(c) Reflects one-time charge for purchased in-process research and
development.
(d) Reflects the preliminary allocation of purchase price to developed
technology and goodwill. Such developed technology is amortized on a
straight-line basis over two years; goodwill is amortized on a straight-
line basis over 15 years.
51
<PAGE>
(e) Reflects accrual of estimated transaction and other related costs.
Estimated costs incurred by Colonial Data relating to the Mergers of $2
million have been reflected as expenses in the pro forma statement of
operations for the year ended December 31, 1995.
(f) Reflects the preliminary allocation of purchase price of $6.8 million
to recognize the excess of the estimated fair market value over the
carrying amount of Colonial Data's lease base related to its leased Caller
ID units with the customers of a major telco and its amortization on a
straight-line basis over five years.
(g) Reflects the elimination of intercorporate transactions and the
elimination of intercorporate investments and cancellation of such shares.
(h) Reflects the effect of the combination of US Order's and Colonial
Data's operations and the above adjustments on income taxes. A valuation
allowance has been recognized for the pro forma net deferred tax assets of
Newco, relating primarily to operating loss carryforwards generated by US
Order prior to the Mergers, based on a preliminary assessment of the
likelihood of recoverability of such amounts. As a result of the Mergers,
the use of US Order's operating loss carryforwards may be limited in future
years.
NOTE 3--NET INCOME (LOSS) PER SHARE
US Order's historical loss per share for the year ended December 31, 1995
includes $681,000 of preferred dividend requirement which has been deducted
from historical net loss in determining net loss attributable to common
stockholders. All of US Order's series of preferred stock, including
accumulated dividends, were redeemed or converted to common stock in June
1995. The historical preferred dividend requirement has been excluded from the
computations of pro forma income per share.
The weighted average shares used in the computations of pro forma income per
share assumes that the total number of shares to be exchanged in the Mergers,
net of canceled intercorporate investment shares, were outstanding for all
periods presented. The impact of outstanding stock options and warrants of
Newco has been considered using the treasury stock method.
52
<PAGE>
BUSINESS OF NEWCO
Newco is a newly-formed Delaware corporation that has not, to date,
conducted any significant activities other than those incident to its
formation, its execution of the Merger Agreement and its participation in the
preparation of this Joint Proxy Statement/Prospectus. As a result of the
Mergers, US Order and Colonial Data will merge with and into Newco, and Newco
will continue the business and operations currently conducted by US Order and
Colonial Data.
Following the Mergers, Colonial Data and US Order intend to integrate
certain operations of the two companies, which is expected to create more
efficient operations. The combined company expects to continue offering the
full product lines of both Colonial Data and US Order subsequent to the
Mergers. Research and development, engineering and support operations will be
co-located. In the near term, however, certain research and development
activities focused on future products or new technologies may operate
independently. The companies expect that the distribution channels for the
products of the two companies will remain unchanged subsequent to the Mergers.
Certain direct sales activities will be combined and some management
consolidation will occur subsequent to the Mergers.
BUSINESS OF US ORDER
GENERAL
US Order provides products and services for two markets: home banking and
smart telephones. Home banking allows consumers to pay bills, check account
balances and receive other bank information from their homes. US Order
currently receives its home banking revenue largely from the sale of products
and services to Visa member banks. Smart telephones are telephones with a
central processing unit, an integrated display screen and memory which allow
consumers to send and receive text information. US Order currently receives
its smart telephone revenue from the sale of its products and bundled
interactive applications to companies in the home banking and
telecommunications industries. To date, US Order has generated limited revenue
from the sale of its products and services. US Order has entered into
agreements with Visa InterActive, a wholly owned subsidiary of Visa, in the
home banking market and Colonial Data in the smart telephone market.
On August 1, 1994, US Order sold the Visa Bill-Pay System to Visa for cash
and the right to future royalty payments which are based on the number of
customers utilizing the Visa Bill-Pay System. US Order's right to future
royalty payments from Visa is subject to a cumulative offset amount
aggregating $879,780 and, accordingly, US Order does not expect to begin
receiving royalty payments through at least 1996. Visa formed Visa InterActive
around the technology and personnel acquired from US Order, including 54
former US Order employees. Visa InterActive also has agreed through 2000 to
inform Visa member banks that US Order is a preferred provider of certain home
banking products and services.
In January 1995, US Order entered into an agreement with Colonial Data to
jointly develop and distribute US Order's ADSI smart telephones (telephones
which incorporate the ADSI Bellcore protocol for the simultaneous transmission
of data and voice information between an information system and a subscriber's
telephone or other communications device such as a smart telephone) and
interactive applications to Colonial Data's telephone company customers
through 1999. US Order also sells its smart telephones and interactive
applications to consumers in other markets, including the home banking market.
In October 1995, US Order completed a transaction to acquire a 40% equity
interest in HomeNet, a newly formed, development stage personal computer
company that plans to develop and deliver electronic financial products and
services to consumers via the personal computer. US Order believes that its
investment in HomeNet will complement its home banking strategy by adding a
PC-based application to the current smart telephone and touch-tone
applications that US Order offers.
53
<PAGE>
PRODUCTS
US Order's product strategy is to develop products and services for its
strategic partners and their customers. US Order strives to develop products
with broad appeal that are easy-to-use, practical, inexpensive and built
around common industry standards. US Order's products position US Order to
offer support services and interactive applications which are expected to
generate recurring monthly fee revenue. US Order's product development and
strategic marketing are organized within two markets: home banking and smart
telephones.
Home Banking
US Order's strategy in the home banking market is to support banks by
providing products and services that help them deploy home banking to their
customers. In addition, US Order supports Visa InterActive with products and
services which facilitate bill payment. US Order believes its home banking
products and services will provide it with an important source of recurring
monthly fee revenue both from ongoing customer support services for banks as
well as a royalty from Visa InterActive (based on the number of customers
using the Visa Bill-Pay System). US Order's products and services are designed
to provide consumers the ability to access and utilize their bank account
information. They are also designed to provide financial institutions with
connectivity to the Visa InterActive host computer system. The following
represent US Order's home banking products and services:
Consumer Access Products
Remote Banking Systems. The remote banking system product line, which runs
on an InterVoice platform, was developed by US Order for sale to Visa
InterActive financial institutions. US Order is an authorized value-added
reseller of InterVoice's hardware products. The remote banking system product
line is an advanced touch-tone telephone-based bill payment system with built-
in connectivity to the Visa Bill-Pay System. The products are custom-branded
for each individual bank or credit union customer. The products offer three
levels of touch-tone interaction. The first application allows a customer to
establish a list of payees identified by numerical codes. The customer then
uses the remote banking system to pay bills using the telephone by pressing
the appropriate payee code and desired payment amount. The second application
allows a customer to establish a list of payees identified by numerical codes
and record the customer's own voice identifying the payee by name. The
customer then uses the remote banking system to pay bills using the telephone
by pressing the appropriate payee code. After the customer's voice recording
confirms that the proper payee has been selected, the customer keys in the
desired amount of payment. The third application allows a customer, after
establishing a list of payees identified by numerical codes and recording the
customer's own voice identifying the payee by name, to pay bills by telephone
by speaking the name of the payee and then touching in the desired amount of
the payment.
HomeNet PC Products. HomeNet is developing, and plans to publish, simple to
use PC software designed to provide financial institutions with the ability to
deliver a wide range of electronic financial services directly to consumers at
home. The software imitates the look and feel of the familiar ATM machine and
is designed to ship without a user manual. HomeNet expects to introduce its
first products in the second half of 1996.
Support Services
Home Banking Support Services. US Order offers bank-branded, turnkey
customer service to financial institutions in support of personal computers,
smart telephones and touch-tone telephone platforms. US Order's customer
service operation is open seven days a week, 24 hours a day. If a bank chooses
US Order to provide customer service, US Order receives a start-up fee from
that bank and a monthly fee per customer. In addition, US Order offers
secondary customer service technical support as well as customer service
training. US Order also offers outbound and inbound telemarketing, data entry
and other related support services to financial institutions.
Connectivity Products
The US Order gateway connectivity product currently being developed by US
Order supports the Visa Bill-Pay System and provides a real time connection
between banks and their customers. It is a data translator which
54
<PAGE>
enables a real time connection between a customer's access device and a bank's
host data processor, allowing the customer to access all of his or her account
activity from the bank's mainframe CICS or IMS system. The product runs on a
Sun SPARC 5 platform (or larger) and can communicate with almost any mainframe
host.
US Order is currently developing automated payment systems, including a
biller workstation. The biller workstation will allow merchants to design bill
templates, transmit customized marketing information, and give customers
direct access to statement information in partnership with their financial
institutions. The product family incorporates the Visa InterActive and E-Pay
standards for electronic exchange of bill payment information with Visa banks
and supports formatting and delivery of bill information to consumers. Billers
will also be able to send and receive payment and invoice information
electronically to and from their commercial banks through the Visa Bill-Pay
System.
Smart Telephones
US Order's strategy in the smart telephone market is to build a subscriber
base for its bundle of interactive applications. US Order strives to
accomplish this strategy by designing cost-effective smart telephones, such as
its Telesmart 4000/Intelifone 2000 smart phone, that it licenses for
manufacture and sale, incorporating the BellCore ADSI protocol and US Order's
own proprietary digital signal processing ("DSP") technology. The following
represent US Order's smart telephone products and services:
ScanFone(R)
In 1992, US Order introduced the first commercially available smart
telephone, the ScanFone, with integrated Caller ID and DES encryption
capability. US Order deployed more than 20,000 ScanFones between 1992 and
1994. US Order currently has approximately 5,800 ScanFones in the field
generating service revenue for home banking services, and expects to formally
discontinue this product during 1996.
PhonePlus(R)
US Order began field-testing the PhonePlus smart phone in September 1994 and
commercially introduced the product in May 1995. New features of the PhonePlus
smart phone include 4 line by 20 character display screen, 32-bit central
processing unit ("CPU") and 48 key QWERTY keyboard. US Order has sold the
PhonePlus smart phone to GTE Communications Systems Corp., Sprint/United
Management Company ("Sprint") and several banks throughout the United States.
Telesmart 4000(TM)/Intelifone 2000
The Telesmart 4000/Intelifone 2000 smart phone (formerly referred to as the
"Falcon") was designed and developed by US Order with Colonial Data and will
be marketed under the Telesmart brand name in the telco channel and under the
Intelifone brand in the retail channel. Its design is based on a DSP
architecture. The smart phone is an ADSI telephone device that incorporates a
graphics display screen, magnetic card reader, alpha-numeric keypad, V.22
modem and a processor. The smart phone supports Caller ID (both "number only"
and "name and number"), the integration of Caller ID with call waiting
("SCWID") and visual message waiting indicator. The Telesmart 4000/Intelifone
2000 smart phone will also support the US Order protocol for information,
transaction and communication services. In May 1995, US Order executed a
contract with Sprint for the initial sale of smart phone units and, in
December 1995, NYNEX Corp. selected the smart phone to be its primary source
for ADSI phone shipments for the 1996 fiscal year. US Order expects that the
smart phone will be available for sale during the second half of 1996.
InterActive Applications
US Order's strategy is first to deploy its interactive applications on its
smart telephones and later to deploy its interactive applications on other
smart telephones and small screen devices, such as alpha-numeric pagers and
personal digital assistants ("PDAs"), manufactured by other companies. US
Order believes that it must deliver
55
<PAGE>
a limited number of interactive applications that exploit the unique
capabilities of these devices. US Order intends to sell interactive
applications to local telephone companies through Colonial Data. US Order's
current interactive applications include electronic National Directory
Assistance lookup, one-way alpha-numeric paging, one-way Internet E-Mail and a
personal directory data save and restore function. The National Directory
Assistance lookup permits users to search a national database provided by
Metromail Corporation, a subsidiary of R.R. Donnelley and Sons Company, for
residential and business information. Alpha-numeric paging and Internet E-Mail
allow the users to send notes and messages to individuals carrying a paging
device and to individuals with an internet e-mail address, respectively. The
datasave and restore service is an application that provides remote backup
capability and data retrieval for information that is stored in the smart
phone memory.
In the future, US Order expects to expand its interactive services by
offering stock quotes, horoscopes, weather, sports scores, two-way Internet E-
Mail, two-way paging and prepaid long distance. Stock quotes, horoscopes,
weather and sports scores are applications that will allow the smart phone
user to receive periodically updated application-specific information in an
on-line format. Two-way Internet E-Mail is an application which will enable
the user to not only send an e-mail message to an internet address, but also
to receive an e-mail message from an internet address. Two-way paging will
enable the user to send and receive pages. Prepaid long distance is an
application that will enable users to buy long distance service in advance at
a discounted rate from a third party long distance service provider.
MARKETING AND SALES
US Order's marketing strategy is to identify strategic partners with
established distribution channels in each of its target markets: home banking
and smart telephones.
Home Banking
------------
There are three distinct market channels within the home banking market:
bill payment, bill presentment and account access.
Bill Payment Channel
Visa InterActive selected US Order as a preferred provider of certain of US
Order's bill pay and bill presentment products and services. One of US Order's
strategies with Visa is to increase the number of subscribers for US Order's
bill pay products and services with the goal of growing monthly fee revenue.
Visa is the largest consumer payment system in the world with more than 12
million acceptance locations. As of July 31, 1996, Visa has stated that it has
more than 20,000 member financial institutions worldwide that have issued more
than 387 million credit cards, including 13,000 members that have issued 205
million credit cards in the United States.
Visa markets its bill payment and bill presentment services directly to its
member banks. Once a Visa member bank signs a commitment to deploy home
banking services through the Visa Bill-Pay System (the "Commitment Date"), an
extended roll-out period of the bank's home banking services begins.
During the first 90 days following the Commitment Date, Visa InterActive
begins technical and operational implementation of the home banking service
for the Visa member bank and the member bank determines which consumer access
devices it will offer to its customers and how it will provide customer
support services. During this period, US Order has opportunities to market its
products and services directly to the member bank. The bank may choose US
Order to provide customer support services or the bank may choose any number
of other suppliers. Typically, during the second 90 days following the
Commitment Date, the Visa member bank completes the technical trial phase and
begins a market trial of its home banking system, including any selected US
Order-provided products and services. Approximately six to 12 months following
the Commitment Date, the member bank completes its market trial and can begin
a market roll-out of its home banking services.
56
<PAGE>
In March 1996, Microsoft, Inc. ("Microsoft") entered into an agreement with
Visa InterActive to include an interface that will allow users of Microsoft's
Money personal finance software package to access Visa InterActive's
electronic bill payment system. Previously, banks working with the Money
software were only able to process bill payments through Intuit Service
Corporation ("ISC"), which is a subsidiary of Intuit Corporation. With the
signing of this agreement and the release of the next Money software upgrade,
which is expected in late 1996, banks working with the Money software will be
able to choose any back-end bill pay processor, including Visa InterActive, as
their electronic bill pay processor. Royalties due US Order from Visa will be
equal to $.666 per month per bill pay customer whose transactions are
processed by Visa InterActive's bill pay system. US Order's right to receive
these quarterly royalty payments is subject to a cumulative offset of $73,315
per quarter beginning January 1, 1995, through December 31, 1997.
As of July 31, 1996, Visa InterActive had announced commitments from more
than 90 financial institutions for the Visa Bill-Pay System. Although more
than 90 banks have committed to participate in the Visa Bill-Pay System, due
to the time necessary to install and implement the system for each bank, only
21 banks have rolled out in small, limited markets and have enrolled a
relatively small number of customers. There can be no assurances as to the
banks' ultimate success with this program or the number of customers that
ultimately will use the program. Announced customers of Visa InterActive
include First Union, Fidelity Investments, First Tennessee Bank National
Association, Bank One, Star Bank, Zions Bank and Deposit Guarantee. US Order
believes its relationship with Visa InterActive keeps US Order in close
contact with Visa, its banks and the end users of home banking services. US
Order believes that this relationship will enable US Order to continue to
develop complementary products and services, such as applications software for
Visa member banks, and potentially enable US Order to have access to Visa's
world wide member banks. There can be no assurance, however, that US Order's
marketing efforts will be successful or that Visa will not reassess its
commitment to US Order at any time in the future.
Bill Presentment Channel
US Order's marketing strategy in the bill presentment channel is to offer
its bill presentment products and services directly to financial institutions
as well as to billers. In December 1995, Visa commenced its E-PAY electronic
bill-payment programs with major U.S. financial institutions, including Banc
One Corp., Barnett Banks, The Chase Manhattan Bank, Crestar Bank, First Bank
System, First Interstate Bank, First Chicago, First Tennessee Bank, First
Union National Bank, Mellon Bank, Norwest Banks, Star Bank and U.S. Bancorp.
Visa's two-way E-PAY standard allows financial institutions to implement a
fully electronic, seamless, back-end bill payment system. The E-PAY system is
patented in the United States and is expected to significantly reduce
remittance-processing inefficiencies for participating financial institutions
and organizations that bill for goods and services. In addition, the system
will enable billers to electronically send invoices to their customers who pay
bills on-line. The system currently offers summary-invoice presentment
capability. It is expected that during 1997, the system will be able to
facilitate fully detailed, image-based, invoice-presentment services.
Account Access Channel
US Order also is developing products and services for financial institutions
who want to provide their customers with products and services that allow
customers the ability to access certain information from their banking
accounts, much as they do with touch tone telephones today, but over personal
computers and screen based telephones as well.
Smart Telephones
----------------
US Order is committed to marketing its smart telephone products and
interactive applications in the following distribution channels:
57
<PAGE>
Telecommunications Channel
US Order has formed a strategic alliance with Colonial Data. US Order's
strategy with Colonial Data is to gain access to telephone company customers
through Colonial Data's existing relationships with the RBOCs and other
telcos. Colonial Data manufactures and sells to or on behalf of its local
telephone company customers the Telesmart 4000/Intelifone 2000. Pursuant to a
strategic alliance agreement between US Order and Colonial Data dated January
1995, Colonial Data has agreed that, after introduction of US Order's
Telesmart 4000/Intelifone 2000 smart phone product and through January 17,
2000, all ADSI smart telephones that it produces and sells to local telephone
companies will be based on US Order's designs. For each such smart telephone
produced and sold by Colonial Data through December 31, 1997, Colonial Data
will pay US Order a royalty of 10% of the sale price, with the royalty
thereafter subject to annual good faith renegotiation. Under the agreement
with Colonial Data, US Order can manufacture and market ADSI-based smart
telephones outside of the telephone company market but must pay Colonial Data
a 10% royalty for each sale. In connection with this arrangement, US Order
also has authorized Colonial Data to manufacture its Telesmart 4000/Intelifone
2000 smart phone using Colonial Data's manufacturers in Hong Kong and the
People's Republic of China.
Retail Channel
US Order expects to begin selling its smart telephones and interactive
content on a wholesale basis through retail stores and related outlets. US
Order expects to begin to develop this channel towards the end of 1996.
COMPETITION
Home Banking
------------
US Order's home banking products and services compete with services offered
by a number of competitors and competition may intensify as a result of new
market entrants. Banks such as Citibank, N.A., NationsBank, N.A. and Bank of
America, N.A. have developed home banking products for their own customers
and, in the future, may offer these services to other banks. Non-banks, such
as Electronic Data Systems, Inc. and First Data Corporation, also may develop
home banking products to offer to banks. Computer software and data processing
companies, such as Intuit, Inc., also offer home banking services. Visa
competes with other organizations, including MasterCard, which offers its
Masterbanking home banking service through CheckFree Corporation. US Order's
success in home banking depends in large part on the ultimate success of Visa
and on the ability of Visa InterActive and Visa member banks to successfully
market home banking to their customers. In addition, the success of US Order's
home banking strategy depends on the ability of Visa member banks to maintain
market share in an environment of disintermediation.
Many competitors exist for US Order's various banking products, including
other manufacturers of touch-tone response systems, such as Periphonics
Corporation and Syntellect Inc., other financial software companies, such as
Braun-Simmons and ACI, and financial services software and service companies,
such as Hogan Systems, Inc. and M&I Data Services, Inc. US Order believes that
its primary competition for its customer support services to the customer will
come from financial institutions and third parties that choose to offer
customer support services either directly through Visa's customer support
messaging standard product or on their own.
US Order expects that competition in all of these areas will increase in the
near future. US Order believes that a principal competitive factor in its
markets is the ability to offer an integrated system, in conjunction with
Visa, of various home banking products and services. Competition will be based
upon price, performance, customer service and the effectiveness of marketing
and sales efforts. US Order competes in its various markets on the basis of
its relationships with strategic partners, by developing many of the products
required for complete solutions, and by building reliable products and
offering those products at reasonable prices.
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Smart Telephones
----------------
The market for US Order's smart telephone products and services is highly
competitive and subject to rapid technological change. At present, US Order's
principal competitors in the market for smart telephones are, or will be,
Philips, Northern Telecom, Lucent and CIDCO. US Order expects competition to
increase in the future from existing and new competitors and expects new
competitors to include electronics manufacturers, such as Sony Corp. and
Panasonic Company. US Order's competitors, including Philips and Northern
Telecom, have already introduced smart telephones that include technological
features incorporated in US Order's Telesmart 4000/Intelifone 2000 smart phone
product. Visa InterActive and Philips have announced that they have entered
into a letter of intent to collaborate on a series of projects, including the
development of a Visa InterActive banking application on a Philips smart
telephone. Any bill pay transaction generated by a Philips smart telephone
that is processed by Visa InterActive will potentially generate a royalty
payment due to US Order from Visa.
US Order's Telesmart 4000/Intelifone 2000 smart phone product incorporates
newer DSP technology. Although US Order is currently unaware of any efforts by
its competitors to deploy DSP technology in their smart telephones, US Order
expects that its competitors will attempt to replicate the Telesmart
4000/Intelifone 2000 smart phone DSP design if it is commercially successful.
US Order expects that as the market for smart telephones grows, it will face
competition from traditional personal computer on-line service providers, such
as America Online, Prodigy, and Compuserve, Inc., as well as from personal
computer software companies such as Intuit and Novell, Inc.
PRODUCT DEVELOPMENT
US Order's product development efforts are focused on software and systems
for the banking and smart telephone markets. In particular, US Order applies
its research and development expenditures to audio and data transaction
processing and messaging software, customer support services and smart
telephone designs. The home banking and smart telephone industries are
characterized by rapid change. To keep pace with this change, US Order
maintains an aggressive program of new product development. US Order dedicates
considerable resources to research and development to further enhance its
existing products and to create new products and technologies. During the
fiscal years 1993, 1994 and 1995 and during the first six months of 1996, US
Order expended $963,694, $1,769,029, $1,066,582 and $1,175,876, respectively,
for software and hardware design, development and project management
activities.
US Order's ability to attract and retain highly skilled research and
development personnel is important to US Order's continued success. At July
31, 1996, 36 of US Order's 120 full-time employees were engaged in product and
service development. US Order expects to increase the number of personnel
devoted to product development throughout 1996 and possibly beyond.
MANUFACTURING
US Order's manufacturing operations are limited to the sourcing, testing,
quality control, software downloading and shipping of finished products. US
Order's PhonePlus product is manufactured by VeriFone's Taiwan facility, which
is certified under the International Standards Organization 9000 series (the
"ISO 9000 series"). In addition, US Order has authorized Colonial Data to
manufacture the Telesmart 4000/Intelifone 2000 smart phone product using
Colonial Data's manufacturer located in Hong Kong and the People's Republic of
China, which are also certified under the ISO 9000 series.
US Order generally provides a one-year warranty and offers, for an
additional cost to the customer, an extended warranty against defects for its
products.
GOVERNMENT REGULATION
US Order's smart telephone products are subject to regulation by the FCC.
Among other requirements, US Order's smart telephones must comply with Parts
15 and 68 of the FCC's regulations.
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The two markets which US Order has targeted are highly regulated. The
banking industry, although it has recently undergone significant deregulation,
remains quite regulated at both the federal and state levels. Similarly, the
telecommunications industry has undergone rapid change in the past decade.
Federal and state regulations are currently undergoing constant review and
revision as evidenced by the recent passing of the Telecommunications Act of
1996. Interpretation, implementation or revision of banking and
telecommunications regulations can accelerate or hinder the ultimate success
of US Order and its products.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
As of July 31, 1996, US Order holds no patents or other restricted
intellectual property rights with respect to its products. US Order's original
patent for an automated order and payment system was sold to Visa in August
1994.
US Order has filed for patents on certain new features developed by US Order
for use in its smart telephone and certain of its bill payment and transaction
processing technology, but there can be no assurances that such patents will
be granted, or if granted, will have any commercial value.
Although US Order does not believe that its products and services infringe
on the rights of third parties, there can be no assurance that third parties
will not assert infringement claims against US Order in the future or that any
such assertion will not result in costly litigation or require US Order to
cease using, or obtain a license to use, intellectual property rights of such
parties.
EMPLOYEES
At July 31, 1996, US Order had approximately 135 employees, of whom 120 were
full-time. Of the full-time employees, 36 were engaged in research and
development, 39 were engaged in customer service and fulfillment, 16 were
engaged in sales and marketing and 29 were engaged in administration and
finance. US Order has no collective bargaining agreements with its employees
and believes that its relationship with its employees is good.
PROPERTIES
US Order is headquartered in Herndon, Virginia, where it leases 17,000
square feet of office space from unaffiliated parties under two leases
expiring in 1999. In October 1995, US Order entered into a facilities
operating lease for 30,000 additional square feet of office space in Herndon,
Virginia. The lease covers a 53-month period commencing July 1, 1996. In May
1996, US Order entered into a lease for 10,478 square feet of office space in
Herndon, Virginia, to be used for US Order's customer service organization.
This lease commences on July 6, 1996 and expires in 2001. Additionally, US
Order leases a 9,000 square foot facility in Salt Lake City, Utah for
sourcing, testing, software downloading, inventory storage and distribution.
LEGAL PROCEEDINGS
US Order is not currently a party to any litigation. From time to time, US
Order may be a party to routine litigation incidental to its business.
Management does not believe that the resolution of any or all of such routine
litigation will be likely to have a material adverse effect on US Order's
financial condition or results of operations.
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BUSINESS OF COLONIAL DATA
GENERAL OVERVIEW
Colonial Data designs, develops and markets telecommunications products that
support intelligent network services being developed and implemented by the
RBOCs and telcos. In recent years, Colonial Data has concentrated its product
development and marketing efforts on products that support Caller ID and other
emerging intelligent network services. In addition, Colonial Data and US Order
have developed a smart telephone, the Telesmart 4000/Intelifone 2000, which
provides consumers call management features and major new advances in
interactive applications via telephone. Colonial Data currently offers a line
of Caller ID adjunct units and telephones with integrated Caller ID, small
business telecommunications systems with the Landmark(R) trademark and high-
end consumer telecommunications equipment. Colonial Data also repairs and
refurbishes telecommunications products for commercial customers and provides
other services that support the development and implementation of intelligent
network services.
INDUSTRY BACKGROUND
Deregulation and technological advances have intensified competition among
existing operators of telecommunication networks and encouraged the entrance
of new service providers. In the United States, competition among RBOCs, other
telcos and long distance carriers and new service providers that have entered
the local and long distance markets, has increased and may increase further as
a result of the Telecommunications Act of 1996. RBOCs and other telcos are
responding to increasing competition by introducing value-added, intelligent
network services.
The regulatory environment relating to the telecommunications industry is
undergoing rapid and significant changes. The Telecommunications Act of 1996
(the "Telecommunications Act") has effected basic changes in the
telecommunications regulatory scheme. The intention of the Telecommunications
Act is to enhance competition in all telecommunications markets and bring new
packages, lower prices and increased innovation to U.S. telephone customers.
The FCC issued its first major order under the Telecommunications Act in
August, 1996 which constitutes the initial measures to begin implementation of
sections of the Telecommunications Act relating to interconnection among
carriers and providing access to unbundled services. Colonial Data is unable
to predict what effect, if any, the Telecommunications Act and the emerging
regulatory scheme under the Telecommunications Act will have on Caller ID
service or the Company's business generally.
In order to deploy intelligent network services, the telcos have been
upgrading their telecommunications networks to support a set of standards,
known as the Intelligent Networks ("IN"). IN supports open, distributed
switching and processing capabilities and allows the telcos to create, modify
and deploy new services quickly and economically. An important aspect of IN is
a signaling protocol called Signaling System No. 7 ("SS7").
Caller ID is a service that displays information about the incoming call
(including the number and name of the caller and the time and date of the
call) on a device located near the telephone (in the case of an adjunct unit)
or on a display screen located on the telephone (in the case of an integrated
Caller ID telephone). The actual information displayed depends on the Caller
ID equipment and whether the caller has elected to block the passage of
information. Colonial Data estimates that the current penetration rate of
Caller ID service is approximately 15% of the total subscribers in those areas
in the United States that have Caller ID capabilities.
Until December 1, 1995, the deployment of Caller ID services was limited to
transferring the calling party information between callers within the same
local calling area. Effective December 1, 1995, the FCC issued an order that
requires all telephone service providers with SS7 switching capability to
transmit calling party number information to each other on interstate calls
within the United States (except for public pay phones and party lines).
Colonial Data believes that certain aspects of Caller ID may become subject to
certain court challenges and other objections. See "--Government Regulation".
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Caller ID has been successful in Canada, where it has achieved a penetration
rate of over 30% of available lines according to certain industry estimates,
and the service is also offered in certain markets outside of the United
States and Canada. Colonial Data believes that further opportunities for
Caller ID may emerge over the long term in international markets.
EMERGENCE OF ADSI-BASED NETWORK SERVICES
In addition to services such as Caller ID, Bell Communications Research,
Inc. has developed ADSI, a standard protocol for the simultaneous transmission
of data and voice information between an information system and a subscriber's
telephone or other communications device such as a smart telephone. By
deploying the ADSI protocol in the telecommunications network, RBOCs and other
telcos will be able to offer additional intelligent network services and
third-party interactive applications.
ADSI-based services will include Caller ID with Call Waiting together with
call disposition. By subscribing to Caller ID with Call Waiting, a subscriber
who receives a call waiting signal could look at the display screen on the
smart telephone and see the name and number of the calling party before
deciding whether to answer the call, send a prerecorded message telling the
calling party to wait, forward the call to voice mail or drop the line.
Additional services are expected to include home banking, on-line directory
assistance, e-mail, paging, electronic yellow pages, stock quotations, news
and weather.
PRODUCTS
Since introducing the first commercially available Caller ID unit in 1987,
Colonial Data has developed and marketed Caller ID products with increased
functionality to meet the needs of its RBOC and other telco customers. During
the years ended December 31, 1993, 1994 and 1995 and the six months ended June
30, 1996, 84%, 90%, 96% and 91%, respectively, of Colonial Data's revenues
were derived from the sale and leasing of its Caller ID products.
Entry Level Caller ID Adjunct Devices
Colonial Data provides low-priced, entry level Caller ID devices primarily
to support RBOC marketing and promotional campaigns in which a telco may give
away or subsidize the purchase of a Caller ID adjunct device when a consumer
subscribes for the service. The units display only the number of an incoming
call and are capable of storing calling information for up to 50 calls.
Colonial Data believes that RBOCs utilize lower-priced products to reduce the
initial consumer expenditure required to obtain the service and, as a result,
may subsequently achieve higher penetration rates for Caller ID in selected
markets.
Full-Featured Caller ID Adjunct Devices
Colonial Data's full-featured products display all transmitted information
before the incoming phone call is answered and store this information in
memory. Among the features available on Colonial Data's full-featured products
are memory capacity for up to 99 calls, a "blocked call"/"new call" light, a
patented "Block the Blocker" feature, a bilingual display and a "message
waiting alert" light that indicates to a network voice mail subscriber that a
new voice mail message has been received. "Block the Blocker" is a feature
that detects when call block is used by a caller, delivers a message to that
caller that the Caller ID subscriber does not accept blocked calls and
disconnects the call. Colonial Data's full-featured Caller ID adjunct devices
have suggested retail prices of $39.99 to $79.99.
Integrated Telephones
Colonial Data offers a line of corded and cordless telephones with
integrated Caller ID functionality which have suggested retail prices of
$59.99 to $229.99.
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SCWID (Integrated Caller ID and Call Waiting)
SCWID allows a subscriber to both services, to view the directory name and
telephone number of an incoming call as the Call Waiting signal is delivered.
Colonial Data's SCWID adjunct device also allows a consumer to store
approximately 85 names and numbers in memory. Colonial Data has applied for a
patent on certain aspects of SCWID technology. The SCWID adjunct device has a
suggested retail price of $79.99.
ADSI-Compatible Smart Telephones
Colonial Data has developed an ADSI-compatible smart telephone in
conjunction with US Order. See "Business of US Order--Products".
Colonial Data believes that the marketing of smart telephones will be
actively supported by RBOCs and other telcos which are seeking to offer
intelligent network services to their customers, and by banks which are
seeking to reduce costs through the adoption by consumers of home banking
services.
Under Colonial Data's strategic alliance with US Order, Colonial Data has
agreed that, until January 17, 2000, all ADSI compatible smart telephones that
it produces and sells to telcos will be pursuant to the US Order agreement.
During the term of the agreement, Colonial Data will manufacture and
exclusively market the smart telephone to telco customers. For each such smart
telephone that Colonial Data sells or leases through December 31, 1997,
Colonial Data pays US Order a royalty of 10% of the sale or lease price, with
the royalty thereafter subject to annual good faith renegotiations. The
agreement grants US Order the right to manufacture and exclusively market
ADSI-compatible smart telephones outside of the telco market, and provides
that US Order pays Colonial Data a royalty of 10% of the sale or lease price
for each such sale or lease. Colonial Data will exclusively purchase from US
Order and resell interactive applications made available by US Order, such as
national directory assistance.
SERVICES
Colonial Data has provided telephone repair and refurbishment services to
RBOCs, other telcos and certain telephone equipment manufacturers for a wide
variety of telecommunications products, including corded and cordless
telephones, key telephone business systems, coin telephones and leased
telephone products. Colonial Data believes that its capabilities in this area
have strengthened its relationship with the RBOCs and other telcos. During the
six months ended June 30, 1996, Colonial Data's service customer base included
Southern New England Telecommunications Corp. ("SNET"), TIE/communications,
Inc. ("TIE"), Nitsuko America Corp., Conair Corp., and Motorola, Inc.
Additionally, through its joint venture with Blau Marketing Technologies,
Inc. and Worldwide Telecom Partners, Inc. ("Worldwide Telecom"), Colonial Data
markets intelligent network services to end users on behalf of RBOCs. This
joint venture has completed programs that marketed Caller ID and other
intelligent network services to Bell Atlantic Corp. ("Bell Atlantic") and
NYNEX.
In addition to repair and refurbishment services, Colonial Data offers
fulfillment services whereby Colonial Data utilizes its systems and facilities
to provide customer service, inventory handling and management, and billing
services in connection with the distribution of telecommunications equipment.
MARKETING AND DISTRIBUTION
Colonial Data markets its products and services through a direct sales force
of 22 employees, supported by its marketing department, and currently uses 28
independent sales representative firms. Colonial Data's distribution strategy
is to make its products available to potential end users through multiple
distribution channels described below. Bell Atlantic, BellSouth and US West
Communications, Inc. ("US West") each accounted for more than 10% of Colonial
Data's total revenues for 1995. US West, Pacific Bell ("PacBell") and
Ameritech Corp. ("Ameritech") each accounted for more than 10% of Colonial
Data's total revenues for the six months ended June 30, 1996.
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Direct Fulfillment Arrangements
Colonial Data sells telecommunications products to RBOC subscribers and
other telco subscribers through direct fulfillment arrangements with
Ameritech, Bell Atlantic, BellSouth, Frontier Corp., US West and NYNEX. In
most instances, the telco representatives market both Caller ID service and
Colonial Data equipment to subscribers and transmit equipment orders to
Colonial Data electronically on a daily basis. Colonial Data then ships its
equipment directly to the subscribers and bills the telco, which, in turn,
bills its subscribers directly or through a third party. As part of
promotional campaigns, some RBOCs may elect to purchase Caller ID units from
Colonial Data and distribute them to their subscribers free of charge.
Colonial Data provides an 800 number service and support to help the
subscriber understand how to utilize the Caller ID service and equipment. In
addition, Colonial Data entered into a three-year arrangement with PacBell
whereby Colonial Data supplies Caller ID units and cordless Caller ID
telephones to PacBell's direct fulfillment vendor.
Colonial Data continually seeks to strengthen its current telco marketing
alliances and to develop new alliances. Colonial Data believes that marketing
of Caller ID service and equipment is more successful when the subscriber can
subscribe to Caller ID service and purchase or lease Caller ID equipment from
a single source, especially when payment for equipment can be made either on
an installment basis or by monthly lease payments through the subscriber's
telephone bill. Colonial Data believes that subscriber satisfaction with
Caller ID service is enhanced when the subscriber receives Caller ID equipment
promptly after ordering the service and is provided an 800 number for service
and support.
Direct Marketing on Behalf of Telcos
In May 1995, Colonial Data entered into a joint venture agreement with the
direct marketing firm of Blau Marketing Technologies, Inc. The joint venture
operates through a jointly owned corporation, Worldwide Telecom, which is 50%
owned by each of the joint venturers. The joint venture agreement is
terminable by either party upon sufficient advance notice to the other to
enable Worldwide Telecom to complete performance of any outstanding contracts
with telcos.
Worldwide Telecom has provided direct marketing services to Bell Atlantic
and NYNEX under several separate programs. The first such program with Bell
Atlantic customers in New Jersey included direct mail advertising with follow-
up outbound telemarketing to potential Caller ID customers. Following the
successful completion of this first program, Worldwide Telecom has completed
additional programs for Caller ID, Call Answering and Call Waiting services.
Colonial Data supplies all Caller ID units and product management services for
Worldwide Telecom.
Direct Sales to Telcos
Through its direct sales force and sales representatives, Colonial Data
sells Caller ID units in quantity to a number of telcos, including Bell
Atlantic, BellSouth, NYNEX, and others, which units may be redistributed
either under the Colonial Data name or the respective telco's trade name.
Colonial Data, through its Canadian subsidiary, sells its products or services
directly to Bell Canada Inc. and to other telcos in Canada.
LEASING PROGRAMS WITH RBOCS AND OTHER TELCO CUSTOMERS
In 1992, Colonial Data entered into a leasing agreement with US West,
whereby Colonial Data leases Caller ID units directly to US West customers.
The leasing program enables subscribers to pay a monthly fee for the service
and the equipment and provides Colonial Data with a stream of recurring
revenues. During the fourth quarter of 1995, Colonial Data was notified by US
West that it would discontinue leasing new units under the leasing program.
Notwithstanding the discontinuation of this program, previously existing
leases remain in effect. The Company is not able to estimate the effect on
future operations of the discontinuation of this leasing program. Colonial
Data believes that leasing will be an attractive option for telcos and telco
customers for higher priced equipment, such as ADSI-compatible smart
telephones and intends to continue offering leasing programs to telcos.
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RETAIL/PRIVATE LABEL CUSTOMER SALES
Colonial Data sells Caller ID units to national, regional and local
retailers and private label customers. A substantial portion of Colonial
Data's retail sales are made through manufacturers' representatives or
distributors with the support of Colonial Data's sales personnel. Colonial
Data's retail customers include Sears and Home Depot Inc. in the United States
and Consumers Distributing Co. and Price/Costco Inc. in Canada. Colonial
Data's private label customers include Gemini Industries, Inc. and Hello
Direct, Inc.
PRODUCT DEVELOPMENT
Colonial Data's product development efforts are focused on new products that
support intelligent network services, product enhancements, international
standards compliance and the continued improvement of hardware components to
reduce manufacturing costs. Colonial Data's product development group is
experienced in engineering products for high-volume assembly, stressing low-
cost manufacturing design while maintaining quality, consistency and
reliability. Colonial Data's products utilize proprietary electrical,
mechanical and software design.
At June 30, 1996, 12 employees were engaged in product development including
nine in Colonial Data's New Milford, Connecticut facility and three in
Colonial Data's Brampton, Ontario, Canada facility. Standard
Telecommunications Ltd. ("STL") of Hong Kong, an affiliate of Colonial Data's
principal manufacturer, provides additional design, engineering and product
development support services to Colonial Data from time to time on a
subcontract basis. Colonial Data also utilizes the engineering resources of
some of its other manufacturers.
In 1993, 1994 and 1995 and for the six months ended June 30, 1996, Colonial
Data's research and development expenditures were $327,000, $782,000,
$1,476,000 and $756,000, respectively.
MANUFACTURING
Colonial Data's primary equipment manufacturer is STL and certain of its
affiliates, which have ISO 9000 series certified facilities located in Hong
Kong and the People's Republic of China, for the manufacture of its Caller ID
units, smart phones and other products. In addition, Colonial Data has
established relationships with other ISO 9000 series certified Asian
manufacturers for its integrated cordless telephones and small business
telecommunications products. The facilities of Colonial Data's suppliers are
supplemented, in part, by Colonial Data's own limited manufacturing facilities
in Connecticut and Canada. The availability or cost of Colonial Data's
products may be affected by political, economic or labor conditions in the
countries where those products are manufactured, including the 1997 return of
Hong Kong to China, by fluctuations in currency exchange rates and by other
factors. In addition, a change in the tariff structure or other trade policies
of the United States could adversely affect Colonial Data's foreign
manufacturing strategies.
Colonial Data does not have any production contracts with its assembly
contractors. Colonial Data's principal manufacturer performs comprehensive
inspection and statistical process control testing, utilizing Colonial Data's
internally designed automated testing equipment. To date, Colonial Data has
not experienced significant returns of defective products.
In the United States, Colonial Data's manufacturing operations are limited
to the testing, quality control and shipping of finished products and the
purchase and inventory management of two key components of Colonial Data's
products.
The key components used in Colonial Data's products are currently being
purchased from two sources, except for its ASIC chips, which are purchased
from a single source. The only supply contract to which Colonial Data is a
party is with the maker of its ASIC chips. Colonial Data has no other supply
contracts for its components. Although Colonial Data believes it could develop
other sources for each of the components for its products, the process could
take several months, and the inability or refusal of any such source to
continue to
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supply components could have a material adverse effect on Colonial Data
pending the development of an alternative source.
COMPETITION
The market for Colonial Data's products and services is highly competitive
and subject to rapid technological change. At present, Colonial Data's
principal competitors are CIDCO, Lucent and Northern Telecom. Colonial Data's
Caller ID products also compete with Caller ID telephones offered by
Panasonic, Sony Corp., Thomson and US Electronics. The smart telephone
intended to be marketed by Colonial Data through an alliance with US Order is
subject to competition from smart telephones marketed by Philips, Northern
Telecom and CIDCO as well as other emerging platforms for interactive
applications delivered through personal computers and cable television.
Colonial Data expects competition to increase in the future from existing and
new competitors, possibly including telcos or other current customers, from
network switch-based services and from the increased application of cellular
technology. Colonial Data's primary current and potential competitors in the
market for products that support intelligent network services have
substantially greater financial, marketing and technical resources than
Colonial Data. Increased competition could materially and adversely affect
Colonial Data's results of operations through price reductions and loss of
market share.
Colonial Data competes with a large number of competitors for its repair
services and other services supporting the development and implementation of
intelligent network services. Several of Colonial Data's competitors in the
market for such services have substantially greater financial, marketing and
technological resources than Colonial Data. There can be no assurance that
Colonial Data will be able to continue to compete successfully against its
existing competitors or that it will be able to compete successfully against
new competitors.
Colonial Data believes that the principal competitive factors in its markets
are knowledge of the requirements of the various RBOCs and other telcos,
product reliability, product design, the quality of its repair and support
services, customer service and support, and price relative to performance.
Colonial Data competes in the market for products that support intelligent
network services principally on the basis of its relationships with telcos,
product design and reliability, low product pricing and flexibility of
marketing alternatives, including leasing.
GOVERNMENT REGULATION
In the United States, Caller ID and other intelligent network services
offered by telcos are subject to federal and state regulation. Although Caller
ID is currently available in all 50 states and the District of Columbia,
during the past several years, protests by special interest groups and
regulatory concerns regarding the privacy aspects of the service have been
effective in both slowing down the regulatory approval process and, in most
states, requiring free per-call or per-line call blocking to be offered by the
telcos, thereby allowing a caller to prevent the display of his or her name
and number.
An FCC order, which rules promulgated thereunder became effective December
1, 1995 (the "FCC Order"), requires all U.S. telephone service providers with
SS7 switching architecture to transmit to each other without charge Caller ID
number information on interstate calls within the United States (except for
public pay phones and party lines). The FCC's order also requires that telcos
that offer Caller ID service must provide to their telephone subscribers
without charge a per-call blocking mechanism to block the transmission of
their Caller ID information on interstate calls and must inform subscribers
that their telephone numbers may be identified to a called party and how to
use this blocking capability.
Although the FCC Order was implemented December 1, 1995, several factors may
delay, prevent or substantially limit the implementation or market acceptance
of Caller ID. The availability of Caller ID service in a particular area
requires end-to-end interconnection of SS7 networks between telcos and other
carriers. Further, the FCC Order requires telcos to offer free per-call
blocking for interstate calls to all customers to protect privacy
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interests and permits state public utility commissions to authorize per-line
blocking for interstate calls. Such blocking, if widely adopted, could limit
the usefulness and marketability of the Caller ID service.
The California Public Utilities Commission and AT&T Corp. ("AT&T") filed
petitions for review of the FCC Order in federal court challenging portions of
the FCC Order. Although the FCC Order withstood that particular challenge,
other parties have also objected to, sought delays in the implementation of or
sought clarification of the FCC Order. In addition, in the future, Caller ID
service may be subject to additional state and federal legislation, regulation
and court challenges. Colonial Data is unable to predict what effect, if any,
further legislation, regulation, court challenges or other objections may have
on the FCC Order or Caller ID service.
In Canada, the Canadian Radio-television and Telecommunications Commission
regulates Caller ID and intelligent network services. Colonial Data believes
that Canadian regulation of telecommunications devices for intelligent network
services is not more burdensome than regulation in the United States. In
Canada, Caller ID service is available on a national and local basis on
networks with SS7 architecture.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
Colonial Data holds limited patent or registered intellectual property
rights with respect to its products. Colonial Data has been issued a patent
for its "Block the Blocker" feature. Colonial Data has also applied for a
patent on certain aspects of its SCWID product. However, there can be no
assurance that a patent will be issued to Colonial Data for its SCWID product
or that such patent, if issued, will afford effective protection of Colonial
Data's technology. Colonial Data also believes that, because of the rapid pace
of technological change in the voice and data communications market, the
knowledge, ability and experience of Colonial Data's employees, the frequency
of product enhancements and the quality of support services provided by
Colonial Data will all contribute to Colonial Data's success.
Colonial Data additionally relies on trade secret laws to establish and
maintain its proprietary rights to its products. Although Colonial Data has
obtained confidentiality agreements from its key executives and engineers in
its product development group, there can be no assurance that third parties
will not independently develop the same or similar alternative technology,
obtain unauthorized access to Colonial Data's proprietary technology or misuse
the technology to which Colonial Data has granted access.
A portion of the messaging technology used in Colonial Data's Caller ID
products is licensed from AT&T on an exclusive basis. However, AT&T reserved
to itself and its subsidiaries the right to use the technology for all
purposes relating to its and its subsidiaries' businesses. Colonial Data has
rights to practice the inventions under certain of AT&T's Caller ID patents.
These patents are also licensed to others, including Colonial Data's
competitors. AT&T receives royalties from sales and leases of Colonial Data's
Caller ID products other than to AT&T. Colonial Data incurred royalty expense
of $277,000, $684,000, $1,129,000 and $496,000 in 1993, 1994, 1995 and the six
months ended June 30, 1996, respectively. The AT&T license agreement has no
expiration date but is terminable by AT&T for breach on two months' written
notice unless within such time all specified breaches have been remedied. If
the AT&T license were terminated and Colonial Data were unable to negotiate a
new patent license agreement with AT&T, Colonial Data would no longer be
authorized to manufacture or sell Caller ID products in the United States
other than to the RBOCs and to AT&T . Additionally, under the agreement,
Colonial Data granted AT&T a non-exclusive, royalty-free license to all
patents on inventions which are improvements or modifications based upon the
technology licensed from AT&T.
EMPLOYEES
At June 30, 1996, Colonial Data employed 185 full-time persons, of whom 74
were engaged in repair and manufacturing, 12 in product development, 16 in
sales and marketing, 44 in customer service, 22 in operations, and 17 in
management, finance and administration. Colonial Data has no collective
bargaining agreement with its employees and believes that its relationship
with its employees is good.
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PROPERTIES
Colonial Data maintains its principal administrative, development and
support facility at a building located in New Milford, Connecticut which
consists of approximately 63,000 square feet. Colonial Data leases this
facility under a lease that expires in 2004. The rent is $2.20 per square foot
per year plus taxes, operating expenses and insurance. Colonial Data's lease
includes an option to purchase the building at fair market value as defined in
the lease at any time from July 1, 1999 until the expiration of the lease.
Colonial Data has entered into an agreement to acquire all of the equity
interests in the partnership which owns this facility. See "Certain
Transactions of Colonial Data since December 31, 1995."
Certain environmental contamination occurred in the part of the facility
formerly occupied by another tenant and the Connecticut Department of
Environmental Protection ("DEP") performed a clean-up and removed such
contamination. The DEP notified Cee Associates Limited Partnership, in which
Colonial Data is a general partner, in the first quarter of 1994 that it is a
responsible party for the costs of the environmental clean-up performed at the
facility and demanded payment by the partnership of $125,000. Colonial Data
has not received any notice of any violation of environmental laws by Colonial
Data or any notice of any direct claim against Colonial Data associated with
the contamination or clean-up at the facility. Colonial Data does not believe
that the foregoing will have a materially adverse effect on Colonial Data.
Colonial Data also maintains a research, sales and manufacturing facility in
Brampton, Ontario, Canada which consists of 15,750 square feet. Colonial Data
leases this facility under a sublease that expires October 31, 1996. The rent
is $5.75 (Canadian) per square foot per year plus taxes, operating expenses
and insurance.
Colonial Data believes that its facilities are suitable and adequate for the
current and foreseeable future business of Colonial Data. However, Colonial
Data will continue to assess its warehousing needs as Colonial Data expands
its business.
SEASONALITY
Colonial Data's product lines are not subject to sales seasonality to a
material extent.
BACKLOG
At June 30, 1996, Colonial Data did not have a significant backlog.
CERTAIN TRANSACTIONS OF COLONIAL DATA SINCE DECEMBER 31, 1995
Pursuant to an Agreement dated as of March 1, 1996, Colonial Data sold to
Robert J. Schock, director, Chairman, President and Chief Executive Officer,
all of the stock of a subsidiary which owned as its sole asset an airplane.
The price paid by Mr. Schock for the shares of the subsidiary was $1,250,000,
comprised of 48,780 shares of Colonial Data Common Stock valued at $20.50 per
share, and $250,000 in cash. Colonial Data determined the value of the stock
of the subsidiary based on an independent appraisal of the airplane prepared
by Bell Aviation, Inc. Colonial Data acquired the airplane on January 12, 1995
for a purchase price of $960,000 and trade aircraft priced at $70,000. Since
the sale of the subsidiary to Mr. Schock, Colonial Data has continued to
utilize the airplane for business purposes and has paid $58,000 in expenses
relating to the airplane through July 31, 1996. The Colonial Data Board has
authorized an arrangement with the corporation owned by Mr. Schock ending June
30, 1998 which provides for the use of the airplane by Colonial Data and
provides that Colonial Data will pay certain related operating and maintenance
costs related to the airplane. The above arrangement is subject to execution
of a definitive agreement.
During 1996, pursuant to arm's-length negotiations, Colonial Data purchased
from Craftsmen Management Services Inc. ("Craftsmen") certain office furniture
and other leasehold improvements totalling an aggregate of approximately
$129,000. The president and principal owner of Craftsmen is the son of
Frederick P. Masotta, Jr., a director of Colonial Data.
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Colonial Data leases its headquarters facility from Cee Associates Limited
Partnership, a limited partnership in which Robert J. Schock, Constantine S.
Macricostas and Frederick P. Masotta, Jr., each of whom are directors of
Colonial Data, are limited partners and a subsidiary of Colonial Data is the
general partner. The limited partners own a 99% interest in the partnership.
Colonial Data paid aggregate rent to the partnership from January 1, 1996 to
July 31, 1996 in the amount of $81,000. The lease contains an option to
purchase the headquarters facility at fair market value.
Colonial Data has entered into agreements to purchase the industrial
development bonds (the "Bonds") in the outstanding principal amount of
approximately $1,400,000 which were issued in connection with the financing of
its headquarters facility, and to acquire all of the limited partnership
interests in the limited partnership whose sole asset is the headquarters
facility for an aggregate consideration of $1,350,000. The Bonds are owned by
a company owned by Robert J. Schock, Constantine S. Macricostas, Frederick P.
Masotta, Jr., and Walter M. Fiederowicz, each of whom is a director of
Colonial Data. In connection with the transaction, the Bonds will be canceled
and Colonial Data and its subsidiaries will acquire ownership of all
outstanding interests in the partnership. In connection with such transaction,
it is estimated that before expenses, Robert J. Schock will receive $405,000,
Constantine S. Macricostas will receive $470,000, Frederick P. Masotta, Jr.
will receive $340,000 and Walter M. Fiederowicz will receive $135,000.
Colonial Data determined the value of the Bonds and the partnership interests
based on an independent appraisal of the headquarters facility prepared by
Lexington Hunter Associates, LLC. The closing of the transaction is subject to
fulfillment of certain closing conditions.
DESCRIPTION OF NEWCO CAPITAL STOCK
GENERAL
Immediately prior to the Effective Time, the authorized capital stock of
Newco will consist of 60,000,000 shares of Newco Common Stock and 5,000,000
shares of Newco Preferred Stock. There are presently 1,000 shares of Newco
Common Stock issued and outstanding, of which 500 shares are owned by US Order
and 500 shares are owned by Colonial Data. Pursuant to the Merger Agreement,
all of such shares will be canceled at the Effective Time. No shares of Newco
Preferred Stock are presently issued and outstanding.
Immediately following the Effective Time, (a) former holders of US Order
Common Stock collectively will hold approximately 51% of the outstanding
shares of Newco Common Stock and (b) former holders of Colonial Data Common
Stock collectively will hold approximately 49% of the outstanding shares of
Newco Common Stock, assuming that existing warrants and options of US Order
and Colonial Data, respectively, are not exercised before the Effective Time.
No shares of Newco Preferred Stock will be outstanding immediately following
the Effective Time.
COMMON STOCK
Each share of Newco Common Stock will be entitled to one vote on all matters
properly submitted to a vote at any valid meeting of stockholders. Holders of
Newco Common Stock will be entitled to receive dividends when, as and if
declared by the Newco Board out of funds legally available therefor, and, upon
liquidation, to receive pro rata all assets, if any, of Newco available for
distribution after payment of necessary expenses and all prior claims. Holders
of Newco Common Stock have no preemptive rights to subscribe for any
additional securities of any class that Newco may issue, nor any conversion,
redemption or sinking fund rights. Holders of Newco Common Stock have no right
to cumulate votes in the election of directors. The rights and privileges of
holders of Newco Common Stock are subject to any preferences provided for by
resolution of the Newco Board for any series of Newco Preferred Stock that
Newco may issue in the future.
The transfer agent and registrar for Newco Common Stock will be .
Newco Common Stock has been approved for listing, subject to official notice
of issuance, on Nasdaq under the trading symbol "[ ]".
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PREFERRED STOCK
Under the Newco Certificate, Newco may issue shares of Newco Preferred Stock
in one or more series as may be determined by the Newco Board, which may
establish, from time to time, the number of shares to be included in each
series, may fix the designation, powers, preferences and rights of the shares
of each such series and any qualifications, limitations or restrictions
thereof, and may increase or decrease the number of shares of any series
without any further vote or action by the stockholders. Any Newco Preferred
Stock so issued by the Newco Board may rank senior to the Newco Common Stock
with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding up of Newco, or both. In addition, any such shares of
Newco Preferred Stock may have class or series voting rights. Under certain
circumstances, the issuance of Newco Preferred Stock or the existence of the
unissued Newco Preferred Stock may tend to discourage or render more difficult
a merger or other change in control of Newco.
CERTAIN PROVISIONS OF THE DGCL, NEWCO CERTIFICATE AND NEWCO BYLAWS
General
A number of provisions of the DGCL, the Newco Certificate and the Newco
Bylaws deal with matters of corporate governance and the rights of
stockholders. Certain of these provisions, as well as the ability of the Newco
Board to issue shares of Newco Preferred Stock and to set the voting rights,
preferences and other terms thereof, may be deemed to have an anti-takeover
effect and may delay or prevent takeover attempts not first approved by the
Newco Board (including takeovers which certain stockholders may deem to be in
their best interests). These provisions also could delay or frustrate the
removal of incumbent directors or the assumption of control by stockholders.
Newco believes that these provisions are appropriate to protect the interests
of Newco and all of its stockholders. The following describes the principal
provisions of the DGCL, the Newco Certificate and Newco Bylaws that may be
deemed to have anti-takeover effects.
Certain Business Combinations
Certain provisions of the DGCL and the Newco Certificate will make a
takeover of Newco more difficult and may have the effect of diminishing the
possibility of certain "front-end loaded" acquisitions or other unsolicited
attempts to acquire Newco. For a description of these provisions, see
"Comparison of Stockholders' Rights--Mergers, Share Exchanges and Sales of
Assets" and "--Anti-takeover Statutes."
Provisions Regarding Newco Board
Certain provisions of the Newco Certificate with respect to the
classification of the Newco Board and the removal of directors could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, control of Newco. For a description
of such provisions, see "The Mergers--Management and Operations After the
Mergers--Newco Board."
Advance Notice Requirements for Stockholder Proposals and Director
Nominations
The Newco Bylaws establish advance notice procedures for stockholder
proposals and the nomination, other than by or at the direction of the Newco
Board or a committee thereof, of candidates for election as directors. With
respect to stockholder nominations for the election of directors, the Newco
Bylaws provide that commencing with the 1997 annual stockholders' meeting, any
stockholder entitled to vote in the election of directors generally may
nominate at a meeting one or more persons for election as a director only if
written notice of such nomination or nominations is delivered or mailed to the
secretary of Newco (a) in the case of an annual meeting of stockholders that
is called for a date that is within 30 days before or after the anniversary
date of the immediately preceding annual meeting of stockholders, not less
than 50 days nor more than 75 days prior to such anniversary date and (b) in
the case of an annual meeting of stockholders that is called for a date that
is not within 30 days before or after the anniversary date of the immediately
preceding annual meeting of stockholders, or in the case of a special meeting
of stockholders, not later than the close of business on the tenth day
following
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the day on which the notice of meeting was mailed or public disclosure of the
date of the meeting was made, whichever occurs first. Such notification must
contain the following information to the extent known by the notifying
stockholder: (a) the name, age and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the nominee's
qualifications to serve as a director; (d) the name and residence address of
the notifying stockholder; and (e) the number of shares owned by the notifying
stockholder. The secretary of Newco will deliver all such notices to the
Nominating Committee of the Newco Board, to such other committee as may be
appointed from time to time by the Newco Board for the purpose of recommending
to the Newco Board candidates to serve as directors or, in the absence of any
such committee, to the Newco Board, for review. The Nominating Committee or
such other committee will thereafter make its recommendation to the Newco
Board, and the Newco Board will thereafter make its determination, with
respect to whether such candidate should be nominated for election as a
director. Nominations not made in accordance with the foregoing provisions
will be disregarded by the chairman of the meeting and all votes cast for each
such nominee may be disregarded.
With respect to other stockholder proposals, the Newco Bylaws provide that a
stockholder desiring to make such a proposal must give notice thereof to the
secretary of Newco (a) in the case of the 1997 annual stockholders' meeting,
not later than , 1997 and (b) in the case of all subsequent annual meetings
of stockholders, not less than 60 days before the first anniversary of the
date of Newco's proxy statement in connection with the last annual meeting.
Such notice must set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to
be brought before the annual meeting and the reason for conducting such
business at the annual meeting, (b) the name and record address of the
stockholder proposing such business, (c) the class, series and number of
Newco's shares that are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. In the event that a
stockholder attempts to bring business before an annual meeting without
complying with the foregoing provisions, the chairman of the meeting may, if
the facts warrant, determine that the business was not properly brought before
the meeting in accordance with the foregoing procedures, and, if he so
determines, he will declare to the meeting that such business will not be
transacted.
The foregoing provisions may preclude stockholders from bringing matters
before other stockholders at an annual or special meeting, including making
nominations for directors.
Meeting of Stockholders
Under the Newco Bylaws, meetings of the stockholders may be called by the
chairman of the board or a majority of the Newco Board. This provision could
have the effect of delaying until the next annual stockholders' meeting
stockholder actions that are favored by the holders of a majority of the
outstanding voting securities of Newco, because such person or entity, even if
it acquired a majority of the outstanding voting securities of Newco, would be
able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders' meeting.
Amendment of Certificate and Bylaws
Subject to the DGCL, the Newco Certificate may be amended by the affirmative
vote of the holders of a majority of the outstanding votes entitled to be cast
by each voting group entitled to vote thereon. Notwithstanding the foregoing,
the amendment or repeal of certain provisions of the Newco Certificate
relating to the approval of certain business combinations as described below
and certain other matters require the affirmative vote of the holders of two-
thirds of the votes entitled to be cast by each voting group that is entitled
to vote on such amendment or repeal. See "Comparison of Stockholders' Rights--
Amendments to Articles of Incorporation" and "--Amendments to Bylaws."
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COMPARISON OF STOCKHOLDERS' RIGHTS
The following is a comparison of certain of the rights of holders of US
Order Common Stock and those of holders of Colonial Data Common Stock,
respectively, and those of holders of Newco Common Stock. Because each of
Newco, US Order and Colonial Data is organized under the laws of the State of
Delaware, the rights of holders of Newco Common Stock and that of holders of
US Order Common Stock and holders of Colonial Data Common Stock arising from
the DGCL are the same. There are, however, differing provisions of Newco's
organizational documents from that of US Order's and Colonial Data's
respective organizational documents which may affect the rights of holders of
US Order Common Stock and Colonial Data Common Stock, respectively.
The following summary does not purport to be a complete statement of the
provisions affecting, and differences between, the rights of holders of US
Order Common Stock and Colonial Data Common Stock, respectively, and those of
holders of Newco Common Stock. The identification of specific provisions or
differences is not meant to indicate that other equally or more significant
differences do not exist. This summary is qualified in its entirety by
reference to the DGCL and by the governing corporate instruments of Newco, US
Order and Colonial Data, to which stockholders are referred.
AUTHORIZED CAPITAL STOCK
Newco
Newco's authorized capital stock consists of 60,000,000 shares of Newco
Common Stock and 5,000,000 shares of Newco Preferred Stock. It is anticipated
that up to shares of Newco Common Stock and no shares of Newco Preferred
Stock will be issued and outstanding immediately following the consummation of
the Mergers.
US Order
US Order's authorized capital stock consists of 30,000,000 shares of US
Order Common Stock and 5,000,000 shares of preferred stock, $.001 par value
per share ("US Order Preferred Stock"). As of the US Order Record Date,
shares of US Order Common Stock and no shares of US Order Preferred Stock were
issued and outstanding and shares of US Order Common Stock were held in
treasury. US Order may issue shares of US Order Preferred Stock from time to
time in one or more classes or series with such voting powers, preferences,
rights and such qualifications, limitations or restrictions as shall be stated
in a resolution or resolutions adopted by the US Order Board before issuance
of such shares. The issuance of such shares does not require the approval of
the holders of US Order Common Stock.
Colonial Data
Colonial Data's authorized capital stock consists of 20,000,000 shares of
Colonial Data Common Stock. As of the Colonial Data Record Date, shares of
Colonial Data Common Stock were issued and outstanding and shares of
Colonial Data Common Stock were held in treasury.
DIRECTORS
Newco
For a description of the size and structure of the Newco Board, see
"Management and Operations After the Mergers--Newco Board." Holders of Newco
Common Stock will not have cumulative voting rights in the election of
directors.
The Newco Certificate provides that the number of directors shall be fixed
by, or in the manner provided by, the Newco Bylaws. The Newco Bylaws provide
that the number of directors of Newco shall consist of not
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less than five nor more than 15 individuals, as may be fixed or changed from
time to time, within the minimum and maximum, by the Newco Board. The Newco
Board presently consists of nine members. Members of the Newco Board shall be
elected by a plurality of the votes cast at an annual meeting of stockholders
at which a quorum is present.
The Newco Certificate and Bylaws provide that the directors are divided into
three classes, designated Class I, Class II and Class III, to serve staggered
three-year terms on the Newco Board. Each class consists, as nearly as may be
possible, of one-third of the total number of directors constituting the
entire Newco Board.
US Order
The US Order Certificate provides that the number of directors shall be
fixed by, or in the manner provided by, the US Order Bylaws. The US Order
Bylaws provide that the number of directors of US Order shall consist of not
less than six nor more than 13 individuals, as may be fixed or changed from
time to time, within the minimum and maximum, by the US Order Board. The US
Order Board presently consists of eight members. Members of the US Order Board
shall be elected by a plurality of the votes cast at an annual meeting of
stockholders at which a quorum is present.
The US Order Certificate and Bylaws provide that the directors are divided
into three classes, designated Class I, Class II and Class III, to serve
staggered three-year terms on the US Order Board. Each class consists, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire US Order Board.
Colonial Data
The Colonial Data Certificate provides that the number of directors shall be
fixed by, or in the manner provided by, the Colonial Data Bylaws. The Colonial
Data Bylaws provide that the number of directors of Colonial Data shall
consist of not less than three nor more than nine individuals, as may be fixed
or changed from time to time, within the minimum and maximum, by the Colonial
Data Board. The Colonial Data Board presently consists of five members.
Members of the Colonial Data Board shall be elected by a plurality of the
votes cast at an annual meeting of stockholders at which a quorum is present.
REMOVAL OF DIRECTORS
Newco
The Newco Certificate provides that, subject to the rights of the holders of
any class or series of Newco Preferred Stock then outstanding, a director may
be removed with or without cause at a meeting of stockholders called expressly
for that purpose at which a quorum is present by the vote of at least two-
thirds of the votes entitled to be cast by each voting group entitled to vote
in the election of directors generally.
US Order
The US Order Bylaws provides that, subject to the rights, if any, of the
holders of shares of US Order preferred stock then outstanding, members of the
US Order Board may be removed from office at any time, with or without cause,
by the affirmative vote of the holders of a majority of the outstanding shares
of US Order then entitled to vote generally in the election of directors.
Colonial Data
The Colonial Data Bylaws provide that unless otherwise provided in any
contract with the corporation, a member of the Colonial Data Board may be
removed at any time, with or without cause, by the affirmative vote of the
holders of a majority of the outstanding shares of Colonial Data then entitled
to vote generally in the election of directors.
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VACANCIES ON THE BOARD OF DIRECTORS
Newco
For a description of certain provisions of the Newco Certificate with
respect to vacancies on the Newco Board and certain committees thereof, see
"Management and Operations After the Mergers--Newco Board." In general, the
Newco Bylaws provide that the Newco Board may fill any vacancy on the Newco
Board through a majority vote of the directors then in office, even if less
than a quorum. Any director elected to fill a vacancy holds office for a term
that coincides with the term of the class to which such director was elected.
US Order
The US Order Bylaws provide that the US Order Board may fill any vacancy on
the US Order Board through a majority vote of the directors then in office,
even if less than a quorum. Any director elected to fill a vacancy holds
office for a term that coincides with the term of the class to which such
director was elected.
Colonial Data
The Colonial Data Bylaws provide that the Colonial Data Board may fill any
vacancy on the Colonial Data Board through a majority vote of the directors
then in office, though less than a quorum, or by the stockholders. A director
elected to fill a vacancy is elected for the unexpired term of his predecessor
and until his successor is duly chosen.
NOTICE OF STOCKHOLDER NOMINATIONS OF DIRECTORS AND STOCKHOLDER PROPOSALS
Newco
See "Description of Newco Capital Stock--Certain Provisions of the DGCL,
Newco Certificate and Newco Bylaws--Advance Notice Requirements for
Stockholder Proposals and Director Nominations" for a summary of provisions of
the Newco Bylaws with respect to requirements for advance notice by
stockholders who desire to nominate a candidate for election to the Newco
Board or to submit a stockholder proposal.
US Order
The US Order Bylaws provide that nominations for election as a director at
an annual meeting of stockholders or at a general meeting called for that
purpose, must be made in writing and be received by the Secretary of US Order
and (a) must be made by a holder of any outstanding class of shares of US
Order entitled to vote in the election of directors at least 90 days prior to
such meeting or (b) must be made by or at the direction of the Board of
Directors.
The US Order Bylaws provide that proposals for stockholder action by a
holder of any outstanding class of shares of US Order entitled to vote for the
election of directors shall be made in writing and be delivered or mailed to
the Secretary of US Order at the principal executive offices of US Order not
less than 60 days prior to the scheduled annual meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date. The
US Order Bylaws further provide that to be in proper written form, a
stockholder's notice to the Secretary must set forth as to each matter that
such stockholder proposes to bring before the meeting: (a) a brief description
of the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting; (b) the name and record address of
such stockholder; (c) the class and number of shares of capital stock of the
corporation which are owned beneficially or of record by such stockholder on
the date of such notice; and (d) any material interest of such stockholder in
such business. If business is brought before a meeting without complying with
these provisions, the chairman of the meeting shall declare that the business
has not been brought properly before the meeting and such business shall not
be transacted.
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Colonial Data
The Colonial Data Certificate and the Colonial Data Bylaws contain no
provisions with respect to notice of stockholder nomination of directors and
stockholder proposals.
DIRECTOR STANDARD OF CONDUCT
Newco, US Order and Colonial Data
Delaware common law requires that a director of a Delaware corporation
discharge his duties as a director in accordance with the fiduciary duties of
care and loyalty. The duty of care requires that directors, in performing
their corporate duties, exercise the care that an ordinarily prudent person
would exercise under similar circumstances. The duty of loyalty prohibits
self-dealing by directors.
LIMITATIONS ON DIRECTOR LIABILITY
The Newco Certificate, the US Order Certificate and the Colonial Data
Certificate each eliminates the personal liability of the company's respective
directors to such company or its stockholders arising out of any action for
monetary damages for any breach of fiduciary duty, except with respect to (a)
any breach of the director's duty of loyalty to the company or its
stockholders, (b) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (c) any liability for
unlawful distributions or (d) any transaction from which the director derived
an improper personal benefit.
INDEMNIFICATION
Newco, US Order and Colonial Data
The Newco Bylaws, the US Order Bylaws and the Colonial Data Bylaws require
indemnification to the fullest extent permitted by the DGCL of any person
made, or threatened to be made, a defendant or witness to any action, suit or
proceeding because he is or was a director or officer of Newco, US Order or
Colonial Data, as the case may be, or by reason of the fact that such director
or officer, at the request of Newco, US Order or Colonial Data, is or was
serving another entity. Delaware law permits indemnification in connection
with liability arising out of any action where the indemnified party acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation or, in the case of a criminal action, he
had no reasonable cause to believe his conduct was unlawful. In an action by
or in the right of the corporation in which a person has been adjudged to be
liable to the corporation, indemnification is not permitted unless and to the
extent the relevant court determines that, despite such adjudication, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper. Newco has entered into agreements with certain of its
directors and officers whereby Newco has agreed to indemnify such persons to
the fullest extent permitted by the DGCL.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
Newco
The DGCL generally requires that any merger, share exchange or sale of all
or substantially all the assets of a corporation not in the ordinary course of
business be approved by the affirmative vote of the majority of the issued and
outstanding shares of each voting group entitled to vote. The Newco
Certificate requires the affirmative vote of the majority of the votes
entitled to be cast by each voting group that is entitled to vote to approve
any merger, statutory share exchange, sale or other disposition of all or
substantially all of Newco's assets, or any sale, lease, transfer,
distribution or other disposition of any business constituting a "significant
subsidiary" of Newco for purposes of Regulation S-X under the Securities Act,
or any dissolution of Newco.
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US Order and Colonial Data
The DGCL generally requires that any merger, share exchange or sale of all
or substantially all the assets of a corporation not in the ordinary course of
business be approved by the affirmative vote of the majority of the issued and
outstanding shares of each voting group entitled to vote. Neither the US Order
Certificate nor the Colonial Data Certificate specifically address mergers,
share exchanges or sales of assets.
ANTI-TAKEOVER STATUTES
Newco and US Order
Section 203 of the DGCL regulates business combinations with interested
stockholders. Under Section 203 of the DGCL, a Delaware corporation is
prohibited from entering into a business combination with the beneficial owner
of 15% or more of the corporation's outstanding voting stock (an "interested
stockholder"), or its affiliates, for three years from the date such
stockholder became an interested stockholder unless (i) prior to the date the
stockholder became an interested stockholder, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in such person or entity becoming an interested stockholder, (ii) the
interested stockholder acquired at least 85% of such corporation's outstanding
voting stock (excluding shares owned by persons who are directors, officers
and by certain employee stock plans) in the same transaction in which such
stockholder became an interested stockholder or (iii) on or subsequent to the
date of the transaction by which the stockholder became an interested
stockholder, the business combination is approved by the board of directors
and the holders of two-thirds of the corporation's outstanding voting stock
(not including shares owned by the interested stockholder). In general, a
Delaware corporation must specifically elect, through an amendment to its
bylaws or certificate of incorporation, not to be governed by these
provisions. Each of Newco and US Order has not made such an election and,
therefore, is currently subject to these provisions of the DGCL.
Colonial Data
The Colonial Data Certificate expressly elects not to be governed by Section
203 of the DGCL which regulates business combinations with interested
stockholders.
AMENDMENTS TO ARTICLES OF INCORPORATION
Newco
The DGCL provides generally that a Delaware corporation's certificate of
incorporation may be amended by the board of directors and by the affirmative
vote of the holders of a majority of the outstanding shares entitled to vote
on the matter. The Newco Certificate provides that any amendment to the Newco
Certificate shall be approved by a majority of the votes entitled to be cast
by each voting group that is entitled to vote on the matter, except that an
amendment that affects the provisions relating to the Newco Board must be
approved by two-thirds of the votes entitled to be cast by each voting group
that is entitled to vote on the matter.
US Order and Colonial Data
The DGCL provides generally that a Delaware corporation's certificate of
incorporation may be amended by the board of directors and by the affirmative
vote of the holders of a majority of the outstanding shares entitled to vote
on the matter.
AMENDMENTS TO BYLAWS
Newco
The Newco Certificate and Bylaws provide generally that the Newco Bylaws may
be amended by the Newco Board, provided, however, that any provision of the
Newco Bylaws adopted or required to be adopted pursuant to the DGCL, by the
stockholders of Newco, may only be amended by the affirmative vote of the
majority of the holders of the outstanding capital stock of Newco entitled to
vote thereon.
76
<PAGE>
US Order
The US Order Certificate and Bylaws provide generally that the US Order
Bylaws may be amended by the US Order Board, provided, however, that any
provision of the US Order Bylaws adopted or required to be adopted pursuant to
the DGCL, by the stockholders of US Order, may only be amended by the
affirmative vote of the majority of the holders of the outstanding capital
stock of US Order entitled to vote thereon.
Colonial Data
The Colonial Data Bylaws provide generally that the Colonial Data Bylaws may
be amended by the Colonial Data Board or the stockholders of Colonial Data,
provided, however, that any proposed provision amending the Colonial Data
Bylaws by the stockholders of Colonial Data may only be amended by the
affirmative vote of the majority of the stockholders entitled to vote thereon
if notice of the proposed action was included in the notice of the meeting or
is waived in writing by a majority of the stockholders entitled to vote
thereon.
DISSENTERS' RIGHTS
Newco, US Order and Colonial Data
Under the DGCL, a stockholder of a Delaware corporation is entitled to an
appraisal by the Court of Chancery of the "fair value" of his shares in the
event of the consummation of a merger or consolidation to which the
corporation is a party, provided that either (i) approval by the stockholders
of the corporation is required for the merger pursuant to the DGCL or the
corporation's certificate of incorporation and the stockholder is entitled to
vote, or (ii) the corporation is a subsidiary being merged with its parent or
another subsidiary of the parent pursuant to a particular DGCL provision for
such transactions and all of the stock of the corporation is not owned by the
parent corporation.
With respect to shares of any class or series that are either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the NASD or held by at least
2,000 record stockholders, appraisal rights are not available to the holders
of such shares by reason of a merger or consolidation unless the holders
thereof are required by the terms of an agreement of merger or consolidation
to accept for such stock anything except (i) cash in lieu of fractional
shares, (ii) shares of the surviving corporation or shares of any other
corporation that are either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the NASD or held by more than 2,000 record stockholders or (iii) a
combination of cash in lieu of fractional shares and such shares.
A Delaware corporation may provide in its certificate of incorporation that
appraisal rights shall be available for the shares of any class or series of
its stock as a result of an amendment to its certificate of incorporation, any
merger or consolidation to which the corporation is a party or the sale of all
or substantially all of the assets of the corporation. Neither Newco, US Order
nor Colonial Data has provided for such rights in the Newco Certificate, the
US Order Certificate or the Colonial Data Certificate.
A stockholder who has the right to appraisal in connection with a
transaction and to receive payment of the "fair value" of his shares must
follow specific procedural requirements as set forth in the DGCL in order to
maintain such right and obtain such payment.
TRANSFER RESTRICTIONS
Newco, US Order and Colonial Data
Neither the Newco Certificate, the US Order Certificate nor the Colonial
Data Certificate establishes transfer restrictions on the original issuance or
transfer of shares of Newco Common Stock, US Order Common Stock or Colonial
Data Common Stock, as the case may be.
77
<PAGE>
OWNERSHIP OF US ORDER COMMON STOCK
The following table sets forth certain information with respect to
beneficial ownership of US Order Common Stock as of August 30, 1996, by (i)
each person who is known by US Order to beneficially own more than 5% of the
outstanding shares of US Order Common Stock, (ii) each of US Order's
directors, (iii) each named executive officer of US Order, and (iv) all
directors and executive officers of US Order as a group. Unless otherwise
indicated in the footnotes to the table, each person or entity has sole voting
and investment power with respect to all shares of US Order Common Stock shown
as beneficially owned by such person or entity.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------------
NUMBER OF
NAME OF STOCKHOLDER SHARES PERCENT
------------------- ------------ ---------
<S> <C> <C>
WorldCorp, Inc. .................................... 9,179,273(1) 56.5%
13878 Park Center Road
Suite 490
Herndon, Virginia 22071
John Hancock Advisers, Inc. ........................ 980,328(2) 6.0%
101 Huntington Avenue
Boston, Massachusetts 02199
John C. Backus, Jr.................................. 705,550(3) 4.2%
William F. Gorog.................................... 481,212(4) 2.9%
Peter W. Costello................................... 84,330(5) *
Scott A. Corzine.................................... 61,712(6) *
Mark S. Lynch....................................... 26,944(7) *
Joseph E. Smith..................................... *
Albert N. Wergley................................... 14,965(8) *
T. Coleman Andrews, III............................. 11,500(9) *
Patrick F. Graham................................... 9,875(10) *
L. William Seidman.................................. 8,499(11) *
Geoffrey S. Rehnert................................. 8,333(12) *
Ross Jones.......................................... 1,000 *
Wesley C. Tallman................................... 1,041(13) *
Directors and executive officers as a Group (13 per-
sons).............................................. 1,414,961(14) 8.1%
</TABLE>
- --------
* Less than 1%.
(1) Includes 8,832,844 shares owned by WorldCorp Investments, Inc., a wholly
owned subsidiary of WorldCorp.
(2) As reported in the Schedule 13G filed with the Commission, includes
973,500 shares owned by John Hancock Advisers, Inc. and 6,828 shares held
in customer accounts with Tucker Anthony Incorporated, which are both
indirect wholly owned subsidiaries of John Hancock Mutual Life Insurance
Company.
(3) Includes 662,495 shares of US Order Common Stock issuable upon the
exercise of options and options to purchase 18,055 shares transferred by
Mr. Backus to his son, John C. Backus, III.
(4) Includes 400,000 shares of US Order Common Stock issuable upon the
exercise of options and 10,000 shares held by Mr. Gorog's wife. Does not
include 9,179,273 shares of US Order Common Stock held by WorldCorp, of
which Mr. Gorog serves as chairman of the board. Mr. Gorog disclaims
beneficial ownership of such shares.
(5) Includes 84,330 shares of US Order Common Stock issuable upon the
exercise of options.
(6) Includes 61,712 shares of US Order Common Stock issuable upon the
exercise of options.
(7) Includes 24,444 shares of US Order Common Stock issuable upon the
exercise of options.
(8) Includes 14,965 shares of US Order Common Stock issuable upon the
exercise of options.
(9) Does not include 9,179,273 shares of US Order Common Stock beneficially
held by WorldCorp, of which Mr. Andrews serves as chief executive
officer, president and director. Mr. Andrews disclaims beneficial
ownership of such shares.
(10) Includes 9,374 shares of US Order Common Stock issuable upon the exercise
of options.
(11) Includes 7,499 shares of US Order Common Stock issuable upon the exercise
of options.
(12) Includes 8,333 shares of US Order Common Stock issuable upon the exercise
of options.
(13) Includes 1,041 shares of US Order Common Stock issuable upon the exercise
of options.
(14) Includes 1,292,248 shares of US Order Common Stock issuable upon the
exercise of options.
78
<PAGE>
OWNERSHIP OF COLONIAL DATA COMMON STOCK
The following table shows, as of August 30, 1996 (except as provided below),
the direct and indirect beneficial ownership of shares of Colonial Data Common
Stock by (i) each person who is known by Colonial Data to beneficially own
more than 5% of the outstanding shares of Colonial Data Common Stock, (ii)
each of Colonial Data's directors of Colonial Data, (iii) each executive
officer of Colonial Data, (iv) all directors and executive officers of
Colonial Data as a group. Unless otherwise indicated in the footnotes to the
table, each person or entity has sole voting and investment power with respect
to all shares of Colonial Data Common Stock shown as beneficially owned by
such person or entity.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------
NUMBER OF
NAME OF STOCKHOLDER SHARES PERCENT
------------------- ------------ ---------
<S> <C> <C>
Robert J. Schock..................................... 710,515(1) 4.6%
Constantine S. Macricostas........................... 65,590(2) *
Frederick P. Masotta, Jr............................. 648,284 4.2%
Walter M. Fiederowicz................................ 50,916(3) *
Timothy R. Welles.................................... 0 *
William L. Nutter.................................... 133,100(4) *
Daniel V. Cusack..................................... 235,340(5) 1.5%
Joseph W. Cline...................................... 8,333(6) *
John N. Giamalis..................................... 6,000(7) *
Directors and executive officers as a group (9
persons)............................................ 1,858,078(8) 12.0%
</TABLE>
- --------
* Less than 1%.
(1) Includes 185,295 shares held by his wife as to which Mr. Schock may be
deemed to share voting and investment power. Mr. Schock disclaims
beneficial ownership of such shares held by his wife.
(2) Does not include 604,755 shares held by Photronics, Inc., of which Mr.
Macricostas is chairman of the board of directors, chief executive officer
and a stockholder. Mr. Macricostas disclaims beneficial ownership of such
shares.
(3) Includes 50,916 shares held by his wife as to which Mr. Fiederowicz may be
deemed to share voting and investment power. Mr. Fiederowicz disclaims
beneficial ownership of such shares held by his wife.
(4) Includes 25,000 shares for which Mr. Nutter holds options exercisable
within 60 days and 1,500 shares held by his children as to which he may be
deemed to share voting and investment power. Mr. Nutter disclaims
beneficial ownership of shares held by his children.
(5) Includes 31,500 shares held by his wife as to which Mr. Cusack may be
deemed to share voting and investment power. Mr. Cusack disclaims
beneficial ownership over such shares held by his wife.
(6) Includes 8,333 shares for which Mr. Cline holds options exercisable within
60 days.
(7) Includes 6,000 shares for which Mr. Giamalis holds options exercisable
within 60 days.
(8) Includes 39,333 shares for which executive officers hold options
exercisable within 60 days.
79
<PAGE>
LEGAL MATTERS
The validity of the Newco Common Stock to be issued in connection with the
Mergers is being passed upon by Hunton & Williams, Richmond, Virginia.
Certain of the tax consequences of the Mergers will be passed upon as of the
Effective Time, as a condition to the Mergers, by Hunton & Williams, Richmond,
Virginia, as counsel to US Order and Newco and LeBoeuf, Lamb, Greene & MacRae,
L.L.P., Hartford, Connecticut, as counsel to Colonial Data and Newco.
EXPERTS
The financial statements and schedule of US Order as of December 31, 1995
and 1994, and for each of the years in the three-year period ended December
31, 1995, incorporated by reference herein and in the Registration Statement,
have been incorporated by reference herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Colonial Data as of December 31,
1995 and 1994, and for each of the fiscal years in the three-year period ended
December 31, 1995, incorporated by reference herein and in the Registration
Statement, have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the proxy statement and form of
proxy to be used in connection with US Order's 1997 Annual Meeting of
Stockholders, if such meeting is held, stockholder proposals must be received
by the Secretary of US Order no later than December 17, 1996. See "Comparison
of Stockholders' Rights--Notice of Stockholder Nominations of Directors and
Stockholder Proposals."
In order to be considered for inclusion in the proxy statement and form of
proxy to be used in connection with Colonial Data's 1997 Annual Meeting of
Stockholders, if such meeting is held, stockholder proposals must be received
by the Secretary of Colonial Data no later than November 8, 1996. See
"Comparison of Stockholders' Rights--Notice of Stockholder Nominations of
Directors and Stockholder Proposals."
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus (i) US Order
management knows of no business that will be presented for consideration at
the US Order Meeting other than as specified in the US Order notice, and (ii)
Colonial Data management knows of no business that will be presented for
consideration at the Colonial Data Meeting other than that stated in the
Colonial Data notice. As to other business, if any, and matters incident to
the conduct of the US Order Meeting or the Colonial Data Meeting, as the case
may be, that may properly come before such meeting, it is intended that
proxies in the accompanying forms will be voted in respect thereof in
accordance with the recommendations of the US Order Board and the Colonial
Data Board, respectively.
80
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 5, 1996
BETWEEN
US ORDER, INC.
AND
COLONIAL DATA TECHNOLOGIES CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1. The Merger................................................. A-1
Section 1.1. The Merger........................................... A-1
Section 1.2. Effective Time....................................... A-1
Section 1.3. Closing of the Merger................................ A-1
Section 1.4. Effects of the Merger................................ A-1
Formation of Newco; Certificate of Incorporation and
Section 1.5. Bylaws............................................... A-1
Section 1.6. Board of Directors and Officers of Newco............. A-2
Section 1.7. Conversion of Shares................................. A-3
Section 1.8. Exchange of Certificates............................. A-3
Section 1.9. Stock Options........................................ A-5
Section 1.10. Taking of Necessary Action; Further Action........... A-6
ARTICLE 2. Representations and Warranties of USO...................... A-6
Section 2.1. Organization and Qualification....................... A-7
Section 2.2. Capitalization of USO................................ A-7
Authority Relative to this Agreement; Recommenda-
Section 2.3. tion................................................. A-8
Section 2.4. SEC Reports; Financial Statements.................... A-8
Section 2.5. Information Supplied................................. A-8
Section 2.6. Consents and Approvals; No Violations................ A-9
Section 2.7. No Default........................................... A-9
Section 2.8. No Undisclosed Liabilities; Absence of Changes....... A-9
Section 2.9. Litigation........................................... A-10
Section 2.10. Compliance with Applicable Law....................... A-10
Section 2.11. Employee Benefit Plans; Labor Matters................ A-10
Section 2.12. Environmental Laws and Regulations................... A-11
Section 2.13. Tax Matters.......................................... A-11
Section 2.14. Title to Property.................................... A-12
Section 2.15. Intellectual Property................................ A-12
Section 2.16. Insurance............................................ A-12
Section 2.17. Vote Required........................................ A-12
Section 2.18. Tax Treatment........................................ A-12
Section 2.19. Affiliates........................................... A-12
Section 2.20. Certain Business Practices........................... A-13
Section 2.21. Insider Interests.................................... A-13
Section 2.22. Opinion of Financial Adviser......................... A-13
Section 2.23. Brokers.............................................. A-13
Section 2.24. Disclosure........................................... A-13
Section 2.25. No Existing Discussions.............................. A-13
Section 2.26. Material Contracts................................... A-13
ARTICLE 3. Representations and Warranties of CDT...................... A-14
Section 3.1. Organization and Qualification....................... A-14
Section 3.2. Capitalization of CDT................................ A-14
Authority Relative to this Agreement; Recommenda-
Section 3.3. tion................................................. A-15
Section 3.4. SEC Reports; Financial Statements.................... A-15
Section 3.5. Information Supplied................................. A-16
Section 3.6. Consents and Approvals; No Violations................ A-16
Section 3.7. No Default........................................... A-16
Section 3.8. No Undisclosed Liabilities; Absence of Changes....... A-17
Section 3.9. Litigation........................................... A-17
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 3.10. Compliance with Applicable Law....................... A-17
Section 3.11. Employee Benefit Plans; Labor Matters................ A-17
Section 3.12. Environmental Laws and Regulations................... A-18
Section 3.13. Tax Matters.......................................... A-19
Section 3.14. Title to Property.................................... A-19
Section 3.15. Intellectual Property................................ A-19
Section 3.16. Insurance............................................ A-20
Section 3.17. Vote Required........................................ A-20
Section 3.18. Tax Treatment........................................ A-20
Section 3.19. Affiliates........................................... A-20
Section 3.20. Certain Business Practices........................... A-20
Section 3.21. Insider Interests.................................... A-20
Section 3.22. Opinion of Financial Adviser......................... A-20
Section 3.23. Brokers.............................................. A-20
Section 3.24. Disclosure........................................... A-20
Section 3.25. No Existing Discussions.............................. A-20
Section 3.26. Material Contracts................................... A-20
ARTICLE 4. Covenants.................................................. A-21
Section 4.1. Conduct of Business of USO........................... A-21
Section 4.2. Conduct of Business of CDT........................... A-23
Section 4.3. Preparation of S-4 and the Proxy Statement........... A-24
Section 4.4. Other Potential Acquirers............................ A-24
Section 4.5. Meetings of Stockholders............................. A-25
Section 4.6. Nasdaq Listing....................................... A-26
Section 4.7. Access to Information................................ A-26
Section 4.8. Additional Agreements; Reasonable Efforts............ A-26
Employee Benefits; Stock Option and Employee Purchase
Section 4.9. Plans................................................ A-27
Section 4.10. Public Announcements................................. A-27
Section 4.11. Indemnification...................................... A-27
Section 4.12. Notification of Certain Matters...................... A-28
Section 4.13. Affiliates........................................... A-28
ARTICLE 5. Conditions to Consummation of the Merger................... A-29
Conditions to Each Party's Obligations to Effect the
Section 5.1. Merger............................................... A-29
Section 5.2. Conditions to the Obligations of USO................. A-29
Section 5.3. Conditions to the Obligations of CDT................. A-30
ARTICLE 6. Termination; Amendment; Waiver............................. A-30
Section 6.1. Termination.......................................... A-30
Section 6.2. Effect of Termination................................ A-31
Section 6.3. Fees and Expenses.................................... A-31
Section 6.4. Amendment............................................ A-33
Section 6.5. Extension; Waiver.................................... A-33
ARTICLE 7. Miscellaneous.............................................. A-33
Section 7.1. Nonsurvival of Representations and Warranties........ A-33
Section 7.2. Entire Agreement; Assignment......................... A-33
Section 7.3. Validity............................................. A-33
Section 7.4. Notices.............................................. A-33
Section 7.5. Governing Law........................................ A-34
Section 7.6. Descriptive Headings................................. A-34
Section 7.7. Parties in Interest.................................. A-34
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 7.8. Certain Definitions.................................... A-34
Section 7.9. Personal Liability..................................... A-34
Section 7.10. Specific Performance................................... A-35
Section 7.11. Counterparts........................................... A-35
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of August 5,
1996, is between US Order, Inc., a Delaware corporation ("USO"), and Colonial
Data Technologies Corp., a Delaware corporation ("CDT").
Whereas, the Boards of Directors of USO and CDT each have, in light of and
subject to the terms and conditions set forth herein, (i) determined that the
Merger (as defined below) is fair to their respective stockholders and in the
best interests of such stockholders and (ii) approved the Merger in accordance
with this Agreement;
Whereas, for Federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
Whereas, USO and CDT desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
Now, therefore, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, USO and CDT hereby agree as follows:
ARTICLE 1
The Merger
Section 1.1. The Merger. At the Effective Time (as defined below) and upon
the terms and subject to the conditions of this Agreement and in accordance
with the General Corporation Law of the state of Delaware (the "DGCL"), USO
and CDT shall each be merged with and into Newco (as defined below) (the
"Merger"). Following the Merger, Newco shall continue as the surviving
corporation (the "Surviving Corporation"), shall continue to be governed by
the laws of the jurisdiction of its incorporation or organization and the
separate corporate existence of each of USO and CDT shall cease. Prior to the
Effective Time, the parties hereto shall mutually agree as to the name of the
Surviving Corporation. The Merger is intended to qualify as a tax-free
reorganization under Section 368 of the Code.
Section 1.2. Effective Time. Subject to the terms and conditions set forth
in this Agreement, a Certificate of Merger (the "Merger Certificate") shall be
duly executed and acknowledged by each of CDT, USO and Newco and thereafter
the Merger Certificate reflecting the Merger shall be delivered to the
Secretary of State of the State of Delaware for filing pursuant to the DGCL on
the Closing Date (as defined in Section 1.3). The Merger shall become
effective at such time as a properly executed and certified copy of the Merger
Certificate is duly filed by the Secretary of State of the State of Delaware
in accordance with the DGCL or such later time as the parties may agree upon
and set forth in the Merger Certificate (the time at which the Merger becomes
effective shall be referred to herein as the "Effective Time").
Section 1.3. Closing of the Merger. The closing of the Merger (the
"Closing") will take place at a time and on a date to be specified by the
parties, which shall be no later than the second business day after
satisfaction of the latest to occur of the conditions set forth in Article 5
(the "Closing Date"), at the offices of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., 1875 Connecticut Avenue, N.W., Suite 1200, Washington, D.C., unless
another time, date or place is agreed to in writing by the parties hereto.
Section 1.4. Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights,
privileges, powers and franchises of USO and CDT shall vest in the Surviving
Corporation, and all debts, liabilities and duties of USO and CDT shall become
the debts, liabilities and duties of the Surviving Corporation.
Section 1.5. Formation of Newco; Certificate of Incorporation and Bylaws.
(a) Prior to the Effective Time, USO and CDT agree to take such action as is
necessary to form a new corporation under the laws of a jurisdiction to be
mutually agreed upon by USO and CDT ("Newco") and shall
A-1
<PAGE>
amend this Agreement to add Newco as a party. USO and CDT agree to take such
action as is necessary to cause Newco to perform the various covenants and
agreements contained herein which are contemplated herein to be performed by
Newco. Any covenants or agreements of Newco contained herein shall be binding
on Newco as of the time Newco becomes a party to this Agreement.
(b) The Certificate of Incorporation of Newco shall, as of the Effective
Time, be the Certificate of Incorporation of the Surviving Corporation after
the Effective Time. Such Certificate of Incorporation shall be amended and
restated at or prior to the Effective Time to include, among other things: (i)
a change in the name of the Surviving Corporation to such name as may be
mutually agreed by CDT and USO; (ii) an increase in the authorized common
stock to 60,000,000 shares, par value $.001 per share; (iii) authorization of
a class of 5,000,000 shares of Preferred Stock, par value $.001 per share, to
be issued, if at all, in such series and having such rights, limitations and
preferences as may be authorized by Surviving Corporation's Board of
Directors; and (iv) a classified Board consisting of three (3) classes of
directors, which amended and restated Certificate of Incorporation shall be in
form and substance subject to the reasonable approval of CDT and USO.
(c) The Bylaws of Newco shall, as of the Effective Time, be the Bylaws of
the Surviving Corporation after the Effective Time.
Section 1.6. Board of Directors and Officers of Newco. (a) At or prior to
the Effective Time, each of CDT and USO agrees to take such action as is
necessary (i) to cause the number of directors comprising the full Board of
Directors of Newco to be nine (9) persons and (ii) to cause T. Coleman Andrews
III, William F. Gorog, John C. Backus, Jr., Patrick F. Graham and Wesley C.
Tallman (the "USO Designees") and Robert J. Schock, Walter M. Fiederowicz,
Timothy R. Welles and Constantine S. Macricostas (the "CDT Designees") to be
elected as directors of Newco. In addition, CDT and USO, as the stockholders
of Newco prior to the Effective Time shall take all action necessary to cause,
to the greatest extent practicable, the USO Designees and the CDT Designees to
serve in equal numbers in each of Newco's three classes of directors until the
1997 Annual Meeting, 1998 Annual Meeting and 1999 Annual Meeting. If any of
the USO Designees or the CDT Designees, respectively, shall decline or be
unable to serve as a director prior to the Effective Time, USO (if such person
was a USO Designee) or CDT (if such person was a CDT Designee), as the case
may be, shall nominate another person to serve in such person's stead which
such person shall be subject to approval of the other party. If any of the USO
Designees or the CDT Designees, respectively, shall decline or be unable to
serve as a director during his initial term following the Effective Time, the
remaining USO Designees (if such person was a USO Designee) or the CDT
Designees (if such person was a CDT Designee), as the case may be, shall
nominate another person to serve in such person's stead, which such person
shall be subject to the approval of the other party's designees.
(b) Prior to or at the Effective Time, the Newco Board shall take action to
establish an Executive Committee, a Compensation Committee, an Audit Committee
and a Nominating Committee on which as of the Effective Time there shall be
equal representation of the USO Designees and the CDT Designees, and initially
William F. Gorog and John C. Backus, Jr. shall be the USO Designees, and
Robert J. Schock and Timothy R. Welles shall be the CDT Designees to serve on
the Executive Committee, each such Executive Committee member to serve until
the next annual meeting of stockholders of Newco at which such Executive
Committee member first stands for reelection to the Board. The members of the
other committees shall be selected by the full Board. If a vacancy occurs on
any committee prior to the 1997 Annual Meeting of Stockholders, the Newco
Board shall use its best efforts to seek nominations to such committee to
accomplish an equal representation of USO Designees and CDT Designees.
(c) From and after the Effective Time, until successors are duly elected or
appointed and qualified in accordance with applicable law, the directors of
all of the subsidiaries of Newco shall be Robert J. Schock, John C. Backus,
Jr. and Timothy R. Welles.
(d) From and after the Effective Time, and until successors are duly elected
or appointed and qualified in accordance with applicable law, Robert J. Schock
shall be Chief Executive Officer and Vice Chairman of Newco, William F. Gorog
shall be Chairman of Newco, John C. Backus, Jr. shall be President and Chief
Operating
A-2
<PAGE>
Officer of Newco, Timothy R. Welles shall be Executive Vice President of
Newco, Joseph Smith shall be Executive Vice President of Newco, Albert N.
Wergley shall be Vice President, General Counsel and Secretary of Newco, Mark
S. Lynch shall be Vice President-Finance of Newco, and John N. Giamalis shall
be Vice President, Treasurer and Chief Financial Officer of Newco. It is the
current intention of the parties that between six months and nine months from
the Effective Date, Mr. Schock shall become Chairman, Mr. Gorog shall become
Vice Chairman and Mr. Backus shall become President and Chief Executive
Officer of Newco.
(e) From and after the Effective Time, Newco shall take such action as is
necessary to appoint and cause to be elected in accordance with applicable
law, until their successors are duly elected, John C. Backus, Jr. as
President, Albert N. Wergley as Secretary and John N. Giamalis as Treasurer of
each of the subsidiaries of Newco.
Section 1.7. Conversion of Shares.
(a) At the Effective Time, each share of common stock, par value $.001 per
share, of USO (individually a "USO Share" and collectively, the "USO Shares")
issued and outstanding immediately prior to the Effective Time (other than (i)
USO Shares held in the USO's treasury and (ii) USO Shares held by CDT) shall,
by virtue of the Merger and without any action on the part of CDT, Newco, USO
or the holder thereof, be converted into and shall become one (1.0) fully paid
and nonassessable share of common stock, par value $.001 per share, of Newco
(individually a "Newco Share" and collectively, the "Newco Shares").
(b) At the Effective Time, each share of common stock, par value $.01 per
share of CDT (individually a "CDT Share" and collectively, the "CDT Shares")
issued and outstanding immediately prior to the Effective Time (other than (i)
CDT Shares held in CDT's Treasury and (ii) CDT Shares held by USO) shall, by
virtue of the Merger and without any action on the part of CDT, USO, Newco or
the holder thereof, be converted into and shall become one (1.0) fully paid
and nonassessable Newco Share. USO Shares and CDT Shares are sometimes
referred to collectively herein as "Shares."
(c) At the Effective Time, each outstanding share of the common stock of any
subsidiaries of CDT shall remain outstanding.
(d) At the Effective Time, each USO Share or CDT Share held in the treasury
of either of USO or CDT, respectively, and each Newco Share held by CDT or USO
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of Newco, CDT or USO be canceled, retired and
cease to exist and no payment shall be made with respect thereto. At the
Effective Time, each USO Share held by CDT and each CDT Share held by USO
shall, by virtue of the Merger and without any action on the part of CDT or
USO, be cancelled, retired and cease to exist and no payment shall be made
with respect thereto.
Section 1.8. Exchange of Certificates.
(a) Prior to the Effective Time, Newco shall enter into an agreement with,
and shall deposit with, American Stock Transfer & Trust Company, or such other
agent or agents as may be satisfactory to USO and CDT (the "Exchange Agent"),
for the benefit of the holders of CDT Shares and USO Shares, for exchange
through the Exchange Agent in accordance with this Article I: (i) certificates
representing the appropriate number of Newco Shares to be issued to holders of
USO Shares and to holders of CDT Shares and (ii) cash to be paid in lieu of
fractional Newco Shares (such Newco Shares and such cash are hereinafter
referred to as the "Exchange Fund") issuable pursuant to Section 1.7 in
exchange for outstanding CDT Shares and USO Shares.
(b) As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented outstanding USO
Shares or CDT Shares (the "Certificates") whose shares were converted into the
right to receive Newco Shares pursuant to Section 1.7: (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the
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Exchange Agent and shall be in such form and have such other provisions as CDT
and USO may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing Newco
Shares. Upon surrender of a Certificate to the Exchange Agent, together with
such letter of transmittal, duly executed, and any other required documents,
the holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole Newco Shares and, if
applicable, a check representing the cash consideration to which such holder
may be entitled on account of a fractional Newco Share, which such holder has
the right to receive pursuant to the provisions of this Article I, and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of USO Shares or CDT Shares which is not registered in
the transfer records of either USO or CDT, a certificate representing the
proper number of Newco Shares may be issued to a transferee if the Certificate
representing such CDT Shares or USO Shares is presented to the Exchange Agent,
accompanied by all documents required by the Exchange Agent or Newco to
evidence and effect such transfer and by evidence that any applicable stock
transfer or other taxes have been paid. Until surrendered as contemplated by
this Section 1.8, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
certificate representing Newco Shares and cash in lieu of any fractional Newco
Shares as contemplated by this Section 1.8.
(c) No dividends or other distributions declared or made after the Effective
Time with respect to Newco Shares with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to
the Newco Shares represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 1.8(f) until the
holder of record of such Certificate shall surrender such Certificate. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing
whole Newco Shares issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of any cash payable in lieu of a fractional
Newco Share to which such holder is entitled pursuant to Section 1.8(f) and
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole Newco Shares, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole Newco Shares.
(d) In the event that any Certificate for CDT Shares or USO Shares shall
have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange therefor, upon the making of an affidavit of that fact by the holder
thereof such Newco Shares and cash in lieu of fractional Newco Shares, if any,
as may be required pursuant to this Agreement; provided, however, that Newco
or the Exchange Agent, may, in its respective discretion, require the delivery
of a suitable bond, opinion or indemnity.
(e) All Newco Shares issued upon the surrender for exchange of CDT Shares or
USO Shares in accordance with the terms hereof (including any cash paid
pursuant to Section 1.8(c) or 1.8(f)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such CDT Shares or USO Shares.
There shall be no further registration of transfers on the stock transfer
books of either of CDT or USO of the CDT Shares or USO Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to Newco for any reason, they shall be
canceled and exchanged as provided in this Article I.
(f) No fractional Newco Shares shall be issued in the Merger, but in lieu
thereof each holder of USO Shares or CDT Shares otherwise entitled to a
fractional Newco Share shall, upon surrender of its, his or her Certificate or
Certificates, be entitled to receive an amount of cash rounded to the nearest
cent (without interest) determined by multiplying the fair market value of a
Newco Share as determined by the Newco Board of Directors by the fractional
share interest to which such holder would otherwise be entitled. The parties
acknowledge that payment of the cash consideration in lieu of issuing
fractional shares was not separately bargained for consideration but merely
represents a mechanical rounding off for purposes of simplifying the corporate
and accounting complexities which would otherwise be caused by the issuance of
fractional shares.
(g) Any portion of the Exchange Fund which remains undistributed to the
stockholders of either USO or CDT for six months after the Effective Time
shall be delivered to Newco, upon demand, and any stockholders
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of either USO or CDT who have not theretofore complied with this Article I
shall thereafter look only to Newco for payment of their claim for Newco
Shares, any cash in lieu of fractional Newco Shares and any applicable
dividends or distributions with respect to Newco Shares, as the case may be.
(h) Neither Newco, CDT nor USO shall be liable to any holder of CDT Shares,
USO Shares or Newco Shares, as the case may be, for such shares (or dividends
or distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
Section 1.9. Stock Options.
(a) At the Effective Time, each outstanding option to purchase USO Shares (a
"USO Stock Option" or collectively, "USO Stock Options") issued pursuant to
the USO 1991 Stock Option Plan, the USO 1995 Incentive Plan, the USO Non-
Employee Directors' Stock Option Plan and the USO Outside Directors Stock
Option Plan, and a one-time grant of 25,000 options to an individual which is
described in Section 1.9 of the USO Disclosure Schedule, whether vested or
unvested, shall be assumed by Newco (all of such plans or agreements pursuant
to which any USO Stock Option has been issued or may be issued are referred to
collectively as the "USO Plans"). Each USO Stock Option shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such USO Stock Option, the same number of Newco Shares as the
holder of such USO Stock Option would have been entitled to receive pursuant
to the Merger had such holder exercised such option in full immediately prior
to the Effective Time, at a price per share equal to (y) the aggregate
exercise price for the USO Shares otherwise purchasable pursuant to such USO
Stock Option divided by (z) the number of full Newco Shares deemed purchasable
pursuant to such USO Stock Option; provided, however, that in the case of any
option to which section 421 of the Code applies by reason of its qualification
under section 422 of the Code ("incentive stock options" or "ISOs"), the
option price, the number of shares purchasable pursuant to such option and the
terms and conditions of exercise of such option shall be determined in order
to comply with section 424(a) of the Code.
(b) At the Effective Time, each outstanding option to purchase CDT Shares (a
"CDT Stock Option" or collectively, "CDT Stock Options") issued pursuant to
the CDT 1983 Stock Option Plan or the CDT 1994 Long Term Incentive Plan,
whether vested or unvested, shall be assumed by Newco (all of such plans or
agreements pursuant to which any CDT Stock Option has been issued or may be
issued are referred to collectively as the "CDT Plans"). Each CDT Stock Option
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such CDT Stock Option, the same number of
Newco Shares as the holder of such CDT Stock Option would have been entitled
to receive pursuant to the Merger had such holder exercised such option in
full immediately prior to the Effective Time, at a price per share equal to
(y) the aggregate exercise price for the CDT Shares otherwise purchasable
pursuant to such CDT Stock Option divided by (z) the number of Newco Shares
deemed purchasable pursuant to such CDT Stock Option; provided, however, that
in the case of any ISOs, the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such
option shall be determined in order to comply with section 424(a) of the Code.
(c) As soon as practicable after the Effective Time, Newco shall deliver to
the holders of USO Stock Options and CDT Stock Options appropriate notices
setting forth such holders' rights pursuant to the respective USO Plans and
CDT Plans and the agreements evidencing the grants of such CDT Options and USO
Options shall continue in effect on the same terms and conditions (subject to
the adjustments required by this Section 1.9 after giving effect to the
Merger). Newco shall comply with the terms of the USO Plans and CDT Plans and
ensure, to the extent required by, and subject to the provisions of, such
Plans, that USO Stock Options and CDT Stock Options which qualified as
incentive stock options immediately prior to the Effective Time continue to
qualify as incentive stock options of Newco after the Effective Time.
(d) Newco shall take all corporate action necessary to reserve for issuance
a sufficient number of Newco Shares for delivery upon exercise of USO Stock
Options and CDT Stock Options assumed in accordance with
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this Section 1.9. As soon as practicable after the Effective Time, Newco shall
file a registration statement on Form S-8 (or any successor or other
appropriate forms) with respect to the Newco Shares subject to any USO Stock
Options and CDT Stock Options held by persons who are or were directors,
officers or employees of USO or CDT or their subsidiaries and shall use its
best efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain
outstanding. With respect to those individuals who subsequent to the Merger
will be subject to the reporting requirements under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), where
applicable, Newco shall administer USO Plans and CDT Plans assumed pursuant to
this Section 1.9 in a manner that complies with Rule 16b-3 promulgated under
the Exchange Act, as it may be amended from time to time, to the extent the
applicable USO Plan and CDT Plan complied with such rule immediately prior to
the Merger.
(e) At the Effective Time, each of the (i) 371,429 warrants to purchase USO
Shares (each a "USO Warrant") issued pursuant to the Warrant Agreement between
US Order, Inc. and WorldCorp, Inc. dated as of May 1, 1993, and (ii) 14,802
warrants to purchase CDT Shares (each a "CDT Warrant") which then remains
outstanding shall be deemed to constitute a warrant to purchase, on the same
terms and conditions as were applicable under such USO Warrant or CDT Warrant,
as the case may be, the same number of Newco Shares as the holder of such USO
Warrant or CDT Warrant would have been entitled to receive pursuant to the
Merger had such holder exercised such warrant in full immediately prior to the
Effective Time, at a price per share equal to (y) the aggregate exercise price
for the USO Shares or CDT Shares otherwise purchasable pursuant to such USO
Warrant or CDT Warrant, as the case may be, divided by (z) the number of full
Newco Shares deemed purchasable pursuant to such USO Warrant or CDT Warrant,
as the case may be.
As soon as practicable after the Effective Time, Newco shall deliver to each
holder of a USO Warrant or CDT Warrant appropriate notices setting forth such
holder's rights pursuant to the warrants to purchase Newco Shares and the
agreements evidencing such USO Warrants or CDT Warrants shall continue in
effect on the same terms and conditions (subject to the adjustments required
by this Section 1.9(d) after giving effect to the Merger).
Newco shall take all corporate action necessary to reserve for issuance a
sufficient number of Newco Shares for delivery upon exercise of USO Warrants
or CDT Warrants assumed in accordance with this Section 1.9(d).
(f) The parties will take such action as may be necessary to cause Newco to
assume USO's rights and obligations with respect to the shares of Home
Financial Network, Inc. ("HFN") pursuant to a certain shareholders agreement
between USO, HFN, Daniel M. Schley and Eric T. Jacobsen (the "Founders"),
dated October 18, 1995, as amended (the "HFN Shareholders Agreement"), and a
certain shareholders agreement among USO, HFN, the Founders and Fleet Venture
Resources, Inc., dated April 19, 1996 (the "Fleet Agreement"), and to reserve
out of the authorized Newco Shares a sufficient number of Newco Shares for
delivery pursuant to the HFN Shareholders Agreement and the Fleet Agreement.
Section 1.10. Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, Newco, CDT or USO reasonably determines that any
deeds, assignments, or instruments or confirmations of transfer are necessary
or desirable to carry out the purposes of this Agreement and to vest Newco
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of USO or CDT, the officers and directors of
Newco, USO and CDT are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and
necessary or desirable action.
ARTICLE 2
Representations and Warranties of USO
Except as set forth on the Disclosure Schedule delivered by USO to CDT (the
"USO Disclosure Schedule"), USO hereby represents and warrants to CDT as
follows:
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Section 2.1. Organization and Qualification.
(a) USO is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization and has all
requisite power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted, except where the failure to be
so organized, existing and in good standing or to have such power and
authority would not have a Material Adverse Effect (as defined below) on USO.
When used in connection with USO, the term "Material Adverse Effect" means any
change or effect (i) that is or is reasonably likely to be materially adverse
to the business, results of operations, condition (financial or otherwise) or
prospects of USO, other than any change or effect arising out of general
economic conditions unrelated to any business in which USO is engaged, or (ii)
that may impair the ability of USO to perform its obligations hereunder or to
consummate the transactions contemplated hereby.
(b) USO has heretofore delivered to CDT accurate and complete copies of the
Certificate of Incorporation and Bylaws (or similar governing documents), as
currently in effect, of USO. Except as set forth on Schedule 2.1 of the USO
Disclosure Schedule, USO is duly qualified or licensed and in good standing to
do business in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not
have a Material Adverse Effect on USO.
Section 2.2. Capitalization of USO.
(a) The authorized capital stock of USO consists of: (i) Thirty-Five Million
(35,000,000) USO Shares, of which, as of July 31, 1996, 15,887,407 USO Shares
were issued and outstanding, and no USO Shares were held in treasury, and (ii)
Five Million (5,000,000) shares of Preferred Stock, par value $.001 per share,
no shares of which are outstanding. All of the outstanding USO Shares have
been duly authorized and validly issued, and are fully paid, nonassessable and
free of preemptive rights. As of July 31, 1996, approximately 2,519,923 USO
Shares were reserved for issuance and issuable upon or otherwise deliverable
in connection with the exercise of outstanding USO Stock Options issued
pursuant to the USO Plans, 1,000,000 USO Shares were reserved for issuance
pursuant to the USO Employee Stock Purchase Plan (the "ESPP"), and 371,429 USO
Shares were reserved for issuance with respect to USO Warrants. All of the USO
Warrants expire on September 4, 1996. In addition, pursuant to an agreement
dated September 14, 1995, certain parties have the right to require USO to
acquire their shares in Home Financial Network, Inc. in exchange for USO
Shares pursuant to a formula contained in such agreement. Between July 31,
1996 and the date hereof, no shares of USO's capital stock have been issued
other than pursuant to USO Stock Options already in existence on such date,
and, between July 31, 1996 and the date hereof, no stock options have been
granted. Except as set forth above, as of the date hereof, there are no
outstanding (i) shares of capital stock or other voting securities of USO,
(ii) securities of USO convertible into or exchangeable for shares of capital
stock or voting securities of USO, (iii) options or other rights to acquire
from USO and, except as described in the USO SEC Reports (as defined below),
no obligations of USO to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of USO, and (iv) equity equivalents, interests in the ownership or
earnings of USO or other similar rights (collectively, "USO Securities"). As
of the date hereof, except as set forth on Schedule 2.2(a) of the USO
Disclosure Schedule there are no outstanding obligations of USO or its
subsidiaries to repurchase, redeem or otherwise acquire any USO Securities or
stockholder agreements, voting trusts or other agreements or understandings to
which USO is a party or by which it is bound relating to the voting or
registration of any shares of capital stock of USO. For purposes of this
Agreement, "Lien" means, with respect to any asset (including, without
limitation, any security) any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind in respect of such asset.
(b) The USO Shares constitute the only class of equity securities of USO
registered or required to be registered under the Exchange Act.
(c) USO does not own directly or indirectly more than fifty percent (50%) of
the outstanding voting securities or interests (including membership
interests) of any entity.
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Section 2.3. Authority Relative to this Agreement; Recommendation.
(a) USO has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of USO (the "USO Board") and no other corporate proceedings
on the part of USO are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby, except, as referred to in Section 2.17,
the approval and adoption of this Agreement by the holders of at least a
majority of the then outstanding USO Shares. This Agreement has been duly and
validly executed and delivered by USO and constitutes a valid, legal and
binding agreement of USO, enforceable against USO in accordance with its
terms.
(b) The USO Board has resolved to recommend that the stockholders of USO
approve and adopt this Agreement.
Section 2.4. SEC Reports; Financial Statements.
(a) USO has filed all required forms, reports and documents with the
Securities and Exchange Commission (the "SEC") since June 1, 1995, each of
which has complied in all material respects with all applicable requirements
of the Securities Act of 1933, as amended (the "Securities Act"), and the
Exchange Act (and the rules and regulations promulgated thereunder,
respectively), each as in effect on the dates such forms, reports and
documents were filed. USO has heretofore delivered or promptly will deliver
prior to the Effective Date to Newco and CDT, in the form filed with the SEC
(including any amendments thereto but excluding any exhibits), (i) its Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, (ii) all
definitive proxy statements relating to USO's meetings of stockholders
(whether annual or special) held since June 1, 1995 and (iii) all other
reports or registration statements filed by USO with the SEC since June 1,
1995 (all of the foregoing, collectively, the "USO SEC Reports"). None of such
USO SEC Reports, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained, when
filed, any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited financial statements of USO
included in the USO SEC Reports fairly present, in conformity with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated in the notes thereto), the financial position of USO as of the dates
thereof and its results of operations and changes in financial position for
the periods then ended. All material agreements, contracts and other documents
required to be filed as exhibits to any of the USO SEC Reports have been so
filed.
(b) USO has heretofore made available or promptly will make available to
Newco and CDT a complete and correct copy of any amendments or modifications,
which are required to be filed with the SEC but have not yet been filed with
the SEC, to agreements, documents or other instruments which previously had
been filed by USO with the SEC pursuant to the Exchange Act.
Section 2.5. Information Supplied. None of the information supplied or to be
supplied by USO for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Newco in
connection with the issuance of Newco Shares in the Merger (the "S-4") will,
at the time the S-4 is filed with the SEC and at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and (ii) the proxy statement
relating to the meeting of USO's stockholders and the meeting of CDT's
stockholders to be held in connection with the Merger (the "Proxy Statement")
will, at the date mailed to stockholders of USO and at the times of the
meeting or meetings of stockholders of USO to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Proxy Statement, insofar as it relates to the meeting of
USO's stockholders to vote on the Merger, will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
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Section 2.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), the rules of the National Association of
Securities Dealers, Inc. ("NASD"), the filing and recordation of the Merger
Certificate as required by the DGCL, and as set forth on Schedule 2.6 of the
USO Disclosure Schedule no filing with or notice to, and no permit,
authorization, consent or approval of, any court or tribunal or
administrative, governmental or regulatory body, agency or authority (a
"Governmental Entity") is necessary for the execution and delivery by USO of
this Agreement or the consummation by USO of the transactions contemplated
hereby, except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings or give such notice would not
have a Material Adverse Effect on USO.
Except as set forth in Section 2.6 of the USO Disclosure Schedule, neither
the execution, delivery and performance of this Agreement by USO nor the
consummation by USO of the transactions contemplated hereby will (i) conflict
with or result in any breach of any provision of the respective Certificate of
Incorporation or Bylaws (or similar governing documents) of USO, (ii) result
in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration or Lien) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which USO is
a party or by which any of its properties or assets may be bound, or (iii)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to USO or any of its properties or assets, except in the case of
(ii) or (iii) for violations, breaches or defaults which would not have a
Material Adverse Effect on USO.
Section 2.7. No Default. Except as set forth in Section 2.7 of the USO
Disclosure Schedule, USO is not in breach, default or violation (and no event
has occurred which with notice or the lapse of time or both would constitute a
breach, default or violation) of any term, condition or provision of (i) its
Certificate of Incorporation or Bylaws (or similar governing documents), (ii)
any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which USO is now a party or by which any of
its respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to USO or any
of its respective properties or assets, except in the case of (ii) or (iii)
for violations, breaches or defaults that would not have a Material Adverse
Effect on USO. Except as set forth in Section 2.7 of the USO Disclosure
Schedule, each note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which USO is now a party or by
which its respective properties or assets may be bound that is material to USO
and that has not expired is in full force and effect and is not subject to any
material default thereunder of which USO is aware by any party obligated to
USO thereunder.
Section 2.8. No Undisclosed Liabilities; Absence of Changes. Except as set
forth in Section 2.8 of the USO Disclosure Schedule and except as and to the
extent publicly disclosed by USO in the USO SEC Reports, as of December 31,
1995, USO does not have any liabilities or obligations of any nature, whether
or not accrued, contingent or otherwise, that would be required by generally
accepted accounting principles to be reflected on a balance sheet of USO
(including the notes thereto) or which would have a Material Adverse Effect on
USO. Except as publicly disclosed by USO, since December 31, 1995, USO has not
incurred any liabilities of any nature, whether or not accrued, contingent or
otherwise, which could reasonably be expected to have, and there have been no
events, changes or effects with respect to USO having or which reasonably
could be expected to have, a Material Adverse Effect on USO. Except as and to
the extent publicly disclosed by USO in the USO SEC Reports and except as set
forth in Section 2.8 of the USO Disclosure Schedule, since December 31, 1995,
there has not been (i) any material change by USO in its accounting methods,
principles or practices (other than as required after the date hereof by
concurrent changes in generally accepted accounting principles), (ii) any
revaluation by USO of any of its assets having a Material Adverse Effect on
USO, including, without limitation, any write-down of the value of any assets
other than in the ordinary course of business or (iii) any other action or
event that would have required the consent of any other party hereto pursuant
to Section 4.1 of this Agreement had such action or event occurred after the
date of this Agreement.
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Section 2.9. Litigation. Except as publicly disclosed by USO in the USO SEC
Reports, there is no suit, claim, action, proceeding or investigation pending
or, to the knowledge of USO, threatened against USO or any of its subsidiaries
or any of their respective properties or assets before any Governmental Entity
which, individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect on USO or could reasonably be expected to prevent or
delay the consummation of the transactions contemplated by this Agreement.
Except as publicly disclosed by USO in the USO SEC Reports, USO is not subject
to any outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen in the future, could reasonably be expected to have a
Material Adverse Effect on USO or could reasonably be expected to prevent or
delay the consummation of the transactions contemplated hereby.
Section 2.10. Compliance with Applicable Law. Except as publicly disclosed
by USO in the USO SEC Reports, USO holds all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities necessary for
the lawful conduct of their respective businesses (the "USO Permits"), except
for failures to hold such permits, licenses, variances, exemptions, orders and
approvals which would not have a Material Adverse Effect on USO. Except as
publicly disclosed by USO in the USO SEC Reports, USO is in compliance with
the terms of the USO Permits, except where the failure so to comply would not
have a Material Adverse Effect on USO. Except as publicly disclosed by USO in
the USO SEC Reports, the business of USO is not being conducted in violation
of any law, ordinance or regulation of any Governmental Entity except that no
representation or warranty is made in this Section 2.10 with respect to
Environmental Laws (as defined in Section 2.12 below) and except for
violations or possible violations which do not, and, insofar as reasonably can
be foreseen, in the future will not, have a Material Adverse Effect on USO.
Except as publicly disclosed by USO in the USO SEC Reports, no investigation
or review by any Governmental Entity with respect to USO is pending or, to the
knowledge of USO, threatened, nor, to the knowledge of USO, has any
Governmental Entity indicated an intention to conduct the same, other than, in
each case, those which USO reasonably believes will not have a Material
Adverse Effect on USO.
Section 2.11. Employee Benefit Plans; Labor Matters.
(a) Except as set forth in Section 2.11(a) of the USO Disclosure Schedule,
with respect to each employee benefit plan, program, policy, arrangement and
contract (including, without limitation, any "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), maintained or contributed to at any time by USO
or any entity required to be aggregated with USO pursuant to Section 414 of
the Code (each, a "USO Employee Plan"), no event has occurred and to the
knowledge of USO, no condition or set of circumstances exists in connection
with which USO could reasonably be expected to be subject to any liability
which would have a Material Adverse Effect on USO.
(b) (i) No USO Employee Plan is or has been subject to Title IV of ERISA or
Section 412 of the Code; and (ii) each USO Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code is the subject of a favorable Internal Revenue
Service determination letter, and nothing has occurred which could reasonably
be expected to adversely affect such determination.
(c) Section 2.11(c) of the USO Disclosure Schedule sets forth a true and
complete list, as of the date of this Agreement, of each person who holds any
USO Stock Options, together with the number of USO Shares which are subject to
such option, the date of grant of such option, the extent to which such option
is vested (or will become vested as a result of the Merger), the option price
of such option (to the extent determined as of the date hereof), whether such
option is a nonqualified stock option or is intended to qualify as an
incentive stock option within the meaning of Section 422(b) of the Code, and
the expiration date of such option. Section 2.11(c) of the USO Disclosure
Schedule also sets forth the total number of such incentive stock options and
such nonqualified options. USO has furnished CDT with complete copies of the
plans pursuant to which the USO Stock Options were issued. Other than the
automatic vesting of USO Stock Options that may occur without any action on
the part of USO or its officers or directors, USO has not taken any action
that would result in any USO Stock Options that are unvested becoming vested
in connection with or as a result of the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
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(d) USO has made available to CDT (i) a description of the terms of
employment and compensation arrangements of all officers of USO and a copy of
each such agreement currently in effect; (ii) copies of all agreements with
consultants who are individuals obligating USO to make annual cash payments in
an amount exceeding $60,000; (iii) a schedule listing all officers of USO who
have executed a non-competition agreement with USO and a copy of each such
agreement currently in effect; (iv) copies (or descriptions) of all severance
agreements, programs and policies of USO with or relating to its employees,
except programs and policies required to be maintained by law; and (v) copies
of all plans, programs, agreements and other arrangements of USO with or
relating to its employees which contain change in control provisions all of
which are set forth in Section 2.11(d) of the USO Disclosure Schedule.
(e) There shall be no payment, accrual of additional benefits, acceleration
of payments, or vesting in any benefit under any USO Employee Plan or any
agreement or arrangement disclosed under this Section 2.11 solely by reason of
entering into or in connection with the transactions contemplated by this
Agreement.
(f) There are no controversies pending or, to the knowledge of USO,
threatened, between USO and any of their employees, which controversies have
or could reasonably be expected to have a Material Adverse Effect on USO.
Neither USO nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by USO or any of its subsidiaries (and neither USO nor any of its
subsidiaries has any outstanding material liability with respect to any
terminated collective bargaining agreement or labor union contract), nor does
USO know of any activities or proceedings of any labor union to organize any
of its or employees. USO has no knowledge of any strike, slowdown, work
stoppage, lockout or threat thereof, by or with respect to any of its
employees.
Section 2.12. Environmental Laws and Regulations.
(a) Except as publicly disclosed by USO in the USO SEC Reports, (i) USO is
in material compliance with all applicable federal, state, local and foreign
laws and regulations relating to pollution or protection of human health or
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) (collectively, "Environmental
Laws"), except for non-compliance that would not have a Material Adverse
Effect on USO, which compliance includes, but is not limited to, the
possession by USO of all material permits and other governmental
authorizations required under applicable Environmental Laws, and compliance
with the terms and conditions thereof; (ii) USO has not received written
notice of, or, to the knowledge of USO, is the subject of, any action, cause
of action, claim, investigation, demand or notice by any person or entity
alleging liability under or non-compliance with any Environmental Law (an
"Environmental Claim") that could reasonably be expected to have a Material
Adverse Effect on USO; and (iii) to the knowledge of USO, there are no
circumstances that are reasonably likely to prevent or interfere with such
material compliance in the future.
(b) Except as publicly disclosed by USO, there are no Environmental Claims
which could reasonably be expected to have a Material Adverse Effect on USO
that are pending or, to the knowledge of USO, threatened against USO or, to
the knowledge of USO, against any person or entity whose liability for any
Environmental Claim USO has or may have retained or assumed either
contractually or by operation of law.
Section 2.13. Tax Matters.
(a) Except as set forth in Section 2.13 of the USO Disclosure Schedule: (i)
USO has filed or has had filed on its behalf in a timely manner (within any
applicable extension periods) with the appropriate Governmental Entity all
income and other material Tax Returns (as defined herein) with respect to
Taxes (as defined herein) of USO and all Tax Returns were in all material
respects true, complete and correct; (ii) all material Taxes with respect to
USO have been paid in full or have been provided for in accordance with GAAP
on USO's most recent balance sheet which is part of the USO SEC Documents;
(iii) there are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any federal, state, local or foreign
income or other material Tax Returns required to be filed by or with respect
to USO; (iv) to the knowledge of USO none of
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the Tax Returns of or with respect to USO is currently being audited or
examined by any Governmental Entity; and (v) no deficiency for any income or
other material Taxes has been assessed with respect to USO which has not been
abated or paid in full.
(b) For purposes of this Agreement, (i) "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property or
other taxes, customs duties, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority and (ii) "Tax Return" shall
mean any report, return, documents, declaration or other information or filing
required to be supplied to any taxing authority or jurisdiction with respect
to Taxes.
Section 2.14. Title to Property. USO has good and defensible title to all of
its properties and assets, free and clear of all liens, charges and
encumbrances except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
which, individually or in the aggregate, would not have a Material Adverse
Effect on USO; and, to USO's knowledge, all leases pursuant to which USO
leases from others real or personal property are in good standing, valid and
effective in accordance with their respective terms, and there is not, to the
knowledge of USO, under any of such leases, any existing material default or
event of default (or event which with notice of lapse of time, or both, would
constitute a default and in respect of which USO has not taken adequate steps
to prevent such a default from occurring) except where the lack of such good
standing, validity and effectiveness, or the existence of such default or
event, would not have a Material Adverse Effect on USO.
Section 2.15. Intellectual Property.
(a) USO owns, or possesses adequate licenses or other valid rights to use,
all existing United States and foreign patents, trademarks, trade names,
service marks, copyrights, trade secrets and applications therefor that are
material to its business as currently conducted (the "USO Intellectual
Property Rights").
(b) The validity of the USO Intellectual Property Rights and the title
thereto of USO is not being questioned in any litigation to which USO is a
party.
(c) Except as set forth in Section 2.15(c) of the USO Disclosure Schedule,
the conduct of the business of USO as now conducted does not, to USO's
knowledge, infringe any valid patents, trademarks, trade names, service marks
or copyrights of others. The consummation of the transactions completed hereby
will not result in the loss or impairment of any USO Intellectual Property
Rights.
(d) USO has taken steps it believes appropriate to protect and maintain its
trade secrets as such, except in cases where USO has elected to rely on patent
or copyright protection in lieu of trade secret protection.
Section 2.16. Insurance. USO maintains general liability and other business
insurance that USO believes to be reasonably prudent for its business.
Section 2.17. Vote Required. The affirmative vote of the holders of at least
a majority of the outstanding USO Shares is the only vote of the holders of
any class or series of USO's capital stock necessary to approve and adopt this
Agreement and the Merger.
Section 2.18. Tax Treatment. Neither USO nor, to the knowledge of USO, any
of its affiliates has taken or agreed to take action that would prevent the
Merger from constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code.
Section 2.19. Affiliates. Except for Principal USO Stockholder ("PCS") and
the directors and executive officers of USO, each of whom is listed in Section
2.19 of the USO Disclosure Schedule, there are no
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persons who, to the knowledge of USO, may be deemed to be affiliates of USO
under Rule 1-02(b) of Regulation S-X of the SEC (the "USO Affiliates").
Section 2.20. Certain Business Practices. None of USO or any directors,
officers, agents or employees of USO has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended (the "FCPA"), or (iii) made any other unlawful payment.
Section 2.21. Insider Interests. Except as set forth in Section 2.21 of the
USO Disclosure Schedule, neither PCS nor any officer or director of USO has
any interest in any material property, real or personal, tangible or
intangible, including without limitation, any computer software or USO
Intellectual Property Rights, used in or pertaining to the business of USO,
expect for the ordinary rights of a stockholder or employee stock
optionholder.
Section 2.22. Opinion of Financial Adviser. Salomon Brothers Inc (the "USO
Financial Adviser") has delivered to the USO Board its written opinion, dated
the date of this Agreement, to the effect that, as of such date, the exchange
ratio contemplated by the Merger is fair to the holders of USO Shares.
Section 2.23. Brokers. No broker, finder or investment banker (other than
the USO Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to CDT) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of USO.
Section 2.24. Disclosure. No representation or warranty of USO in this
Agreement or any certificate, schedule, document or other instrument furnished
or to be furnished to CDT pursuant hereto or in connection herewith contains,
as of the date of such representation, warranty or instrument, or will contain
any untrue statement of a material fact or, at the date thereof, omits or will
omit to state a material fact necessary to make any statement herein or
therein, in light of the circumstances under which such statement is or will
be made, not misleading.
Section 2.25. No Existing Discussions. As of the date hereof, USO is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to any Third Party Acquisition (as defined in Section
4.4).
Section 2.26. Material Contracts.
(a) USO has delivered or otherwise made available to CDT true, correct and
complete copies of all contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which USO is a
party affecting the obligations of any party thereunder) to which USO is a
party or by which any of its properties or assets are bound that are, material
to the business, properties or assets of USO taken as a whole, including,
without limitation, to the extent any of the following are, individually or in
the aggregate, material to the business, properties or assets of USO taken as
a whole, all: (i) employment, product design or development, personal
services, consulting, non-competition, severance, golden parachute or
indemnification contracts (including, without limitation, any contract to
which USO is a party involving employees of USO); (ii) licensing, publishing,
merchandising or distribution agreements; (iii) contracts granting rights of
first refusal or first negotiation; (iv) partnership or joint venture
agreements; (v) agreements for the acquisition, sale or lease of material
properties or assets or stock or otherwise entered into since June 1, 1995;
(vi) contracts or agreements with any Governmental Entity; and (vii) all
commitments and agreements to enter into any of the foregoing (collectively,
together with any such contracts entered into in accordance with Section 4.1
hereof, the "USO Contracts"). USO is not a party to or bound by any severance,
golden parachute or other agreement with any employee or consultant pursuant
to which such person would be entitled to receive any additional compensation
or an accelerated payment of compensation as a result of the consummation of
the transactions contemplated hereby.
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(b) Each of the USO Contracts is valid and enforceable in accordance with
its terms, and there is no default under any USO Contract so listed either by
USO or, to the knowledge of USO, by any other party thereto, and no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by USO or, to the knowledge of USO, any other
party, in any such case in which such default or event could reasonably be
expected to have a Material Adverse Effect on USO.
(c) No party to any such USO Contract has given notice to USO of or made a
claim against USO with respect to any breach or default thereunder, in any
such case in which such breach or default could reasonably be expected to have
a Material Adverse Effect on USO.
ARTICLE 3
Representations and Warranties of CDT
Except as set forth on the Disclosure Schedule delivered by CDT to USO (the
"CDT Disclosure Schedule"), CDT hereby represents and warrants to USO as
follows:
Section 3.1. Organization and Qualification.
(a) Each of CDT and its subsidiaries is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted,
except where the failure to be so organized, existing and in good standing or
to have such power and authority would not have a Material Adverse Effect (as
defined below) on CDT. When used in connection with CDT, the term "Material
Adverse Effect" means any change or effect (i) that is or is reasonably likely
to be materially adverse to the business, results of operations, condition
(financial or otherwise) or prospects of CDT and its subsidiaries, taken as a
whole, other than any change or effect arising out of general economic
conditions unrelated to any businesses in which CDT and its subsidiaries are
engaged, or (ii) that may impair the ability of CDT to consummate the
transactions contemplated hereby.
(b) CDT has heretofore delivered to USO accurate and complete copies of the
Certificate of Incorporation and Bylaws (or similar governing documents), as
currently in effect, of CDT. Each of CDT and its subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not have a Material Adverse Effect on CDT.
Section 3.2. Capitalization of CDT.
(a) As of July 31, 1996, the authorized capital stock of CDT consists of
Twenty Million (20,000,000) CDT Shares, 15,525,035 CDT Shares (including
63,780 CDT Shares held in CDT's treasury) were issued and 15,461,225 shares
were outstanding. All of the outstanding CDT Shares have been duly authorized
and validly issued, and are fully paid, nonassessable and free of preemptive
rights. As of July 31, 1996, approximately 329,500 CDT Shares were reserved
for issuance and issuable upon or otherwise deliverable in connection with the
exercise of outstanding CDT Stock Options issued pursuant to the CDT Plans. As
of July 31, 1996, 14,802 CDT Shares were reserved for issuance and issuable
upon or otherwise deliverable in connection with the exercise of outstanding
warrants (collectively, the "CDT Warrants").
(b) Except as set forth in Section 3.2(b) of the CDT Disclosure Schedule,
CDT is the record and beneficial owner of all of the issued and outstanding
shares of capital stock of its subsidiaries.
(c) Except as set forth in Section 3.2(c) of the CDT Disclosure Schedule,
between July 31, 1996 and the date hereof, no shares of CDT's capital stock
have been issued other than pursuant to CDT Stock Options already in existence
on such date, and, between July 31, 1996 and the date hereof, no CDT Stock
Options have been granted. Except as set forth in Section 3.2(a) above, as of
the date hereof, there are no outstanding (i) shares of capital stock or other
voting securities of CDT, (ii) securities of CDT or its subsidiaries
convertible into or
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exchangeable for shares of capital stock or voting securities of CDT, (iii)
options or other rights to acquire from CDT or its subsidiaries, or
obligations of CDT or its subsidiaries to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of CDT, or (iv) equity equivalents, interests in the
ownership or earnings of CDT or its subsidiaries or other similar rights
(collectively, "CDT Securities"). As of the date hereof, there are no
outstanding obligations of CDT or any of its subsidiaries to repurchase,
redeem or otherwise acquire any CDT Securities. There are no stockholder
agreements, voting trusts or other agreements or understandings to which CDT
is a party or by which it is bound relating to the voting or registration of
any shares of capital stock of CDT.
(d) Except as set forth in Section 3.2(d) of the CDT Disclosure Schedule,
there are no securities of CDT convertible into or exchangeable for, no
options or other rights to acquire from CDT, and no other contract,
understanding, arrangement or obligation (whether or not contingent) providing
for the issuance or sale, directly or indirectly, of any capital stock or
other ownership interests in, or any other securities of, any subsidiary of
CDT.
(e) The CDT Shares constitute the only class of equity securities of CDT or
its subsidiaries registered or required to be registered under the Exchange
Act.
(f) Except as set forth in Section 3.2(f) of the CDT Disclosure Schedule,
CDT does not own directly or indirectly more than fifty percent (50%) of the
outstanding voting securities or interests (including membership interests) of
any entity.
Section 3.3. Authority Relative to this Agreement; Recommendation.
(a) CDT has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of CDT (the "CDT Board"), and no other corporate
proceedings on the part of CDT are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby, except, as referred to in
Section 3.17, the approval and adoption of this Agreement by the holders of at
least a majority of the then outstanding CDT Shares. This Agreement has been
duly and validly executed and delivered by CDT and constitutes a valid, legal
and binding agreement of CDT, enforceable against CDT in accordance with its
terms.
(b) The CDT Board has resolved to recommend that the stockholders of CDT
approve and adopt this Agreement.
Section 3.4. SEC Reports; Financial Statements.
(a) CDT has filed all required forms, reports and documents with the SEC
since January 1, 1993, each of which has complied in all material respects
with all applicable requirements of the Securities Act and the Exchange Act
(and the rules and regulations promulgated thereunder, respectively), each as
in effect on the dates such forms, reports and documents were filed. CDT has
heretofore delivered or promptly will deliver prior to the Effective Date to
Newco and USO, in the form filed with the SEC (including any amendments
thereto but excluding any exhibits), (i) its Annual Reports on Form 10-K for
the fiscal years ended December 31, 1993, December 31, 1994 and December 31,
1995, (ii) all definitive proxy statements relating to CDT's meetings of
stockholders (whether annual or special) held since January 1, 1993 and (iii)
all other reports or registration statements filed by CDT with the SEC since
January 1, 1993 (all of the foregoing, collectively, the "CDT SEC Reports").
None of such CDT SEC Reports, including, without limitation, any financial
statements or schedules included or incorporated by reference therein,
contained, when filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements of CDT included in the CDT SEC Reports
fairly present, in conformity with generally accepted accounting principles
applied on a consistent basis (except as may be indicated in the
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notes thereto), the consolidated financial position of CDT and its
consolidated subsidiaries as of the dates thereof and their consolidated
results of operations and changes in financial position for the periods then
ended. All material agreements, contracts and other documents required to be
filed as exhibits to any of the CDT SEC Reports have been so filed.
(b) CDT has heretofore made available or promptly will make available to
Newco and USO a complete and correct copy of any amendments or modifications,
which are required to be filed with the SEC but have not yet been filed with
the SEC, to agreements, documents or other instruments which previously had
been filed by CDT with the SEC pursuant to the Exchange Act.
Section 3.5. Information Supplied. None of the information supplied or to be
supplied by CDT for inclusion or incorporation by reference to (i) the S-4
will, at the time the S-4 is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (ii) the Proxy
Statement will, at the date mailed to stockholders of CDT and at the times of
the meeting or meetings of stockholders of CDT to be held in connection with
the Merger, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement, insofar as it relates to the
meeting of CDT's stockholders to vote on the Merger, will comply as to form in
all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder, and the S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and
regulations thereunder.
Section 3.6. Consents and Approvals; No Violations. Except as set forth in
Section 3.6 of the CDT Disclosure Schedule, and for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, the rules of the NASD, and the
filing and recordation of the Merger Certificate as required by the DGCL, no
filing with or notice to, and no permit, authorization, consent or approval
of, any Governmental Entity is necessary for the execution and delivery by CDT
of this Agreement or the consummation by CDT of the transactions contemplated
hereby, except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings or give such notice would not
have a Material Adverse Effect on CDT.
Neither the execution, delivery and performance of this Agreement by CDT nor
the consummation by CDT of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
Certificate of Incorporation or Bylaws (or similar governing documents) of CDT
or any of CDT's subsidiaries, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument
or obligation to which CDT or any of CDT's subsidiaries is a party or by which
any of them or any of their respective properties or assets may be bound or
(iii) violate any order, writ, injunction, decree, law, statute, rule or
regulation applicable to CDT or any of CDT's subsidiaries or any of their
respective properties or assets, except in the case of (ii) or (iii) for
violations, breaches or defaults which would not have a Material Adverse
Effect on CDT.
Section 3.7. No Default. None of CDT or any of its subsidiaries is in
breach, default or violation (and no event has occurred which with notice or
the lapse of time or both would constitute a breach, default or violation) of
any term, condition or provision of (i) its Certificate of Incorporation or
Bylaws (or similar governing documents), (ii) any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which CDT or any of its subsidiaries is now a party or by which
any of them or any of their respective properties or assets may be bound or
(iii) any order, writ, injunction, decree, law, statute, rule or regulation
applicable to CDT, its subsidiaries or any of their respective properties or
assets, except in the case of (ii) or (iii) for violations, breaches or
defaults that would not have a Material Adverse Effect on CDT. Each note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which
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CDT or any of its subsidiaries is now a party or by which any of them or any
of their respective properties or assets may be bound that is material to CDT
and its subsidiaries taken as a whole and that has not expired is in full
force and effect and is not subject to any material default thereunder of
which CDT is aware by any party obligated to CDT or any subsidiary thereunder.
Section 3.8. No Undisclosed Liabilities; Absence of Changes. Except as and
to the extent publicly disclosed by CDT in the CDT SEC Reports, as of December
31, 1995, none of CDT or its subsidiaries had any liabilities or obligations
of any nature, whether or not accrued, contingent or otherwise, that would be
required by generally accepted accounting principles to be reflected on a
consolidated balance sheet of CDT and its consolidated subsidiaries (including
the notes thereto) or which would have a Material Adverse Effect on CDT.
Except as publicly disclosed by CDT, since December 31, 1995, none of CDT or
its subsidiaries has incurred any liabilities of any nature, whether or not
accrued, contingent or otherwise, which could reasonably be expected to have,
and there have been no events, changes or effects with respect to CDT or its
subsidiaries having or which could reasonably be expected to have, a Material
Adverse Effect on CDT. Except as and to the extent publicly disclosed by CDT
in the CDT SEC Reports or except as set forth in Section 3.8 of the CDT
Disclosure Schedule, since December 31, 1995, there has not been (i) any
material change by CDT in its accounting methods, principles or practices
(other than as required after the date hereof by concurrent changes in
generally accepted accounting principles), (ii) any revaluation by CDT of any
of its assets having a Material Adverse Effect on CDT, including, without
limitation, any write-down of the value of any assets other than in the
ordinary course of business or (iii) any other action or event that would have
required the consent of any other party hereto pursuant to Section 4.2 of this
Agreement had such action or event occurred after the date of this Agreement.
Section 3.9. Litigation. Except as set forth in Schedule 3.9 of the CDT
Disclosure Schedule or as publicly disclosed by CDT in the CDT SEC Reports,
there is no suit, claim, action, proceeding or investigation pending or, to
the knowledge of CDT, threatened against CDT or any of its subsidiaries or any
of their respective properties or assets before any Governmental Entity which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on CDT or could reasonably be expected to prevent or
delay the consummation of the transactions contemplated by this Agreement.
Except as publicly disclosed by CDT in the CDT SEC Reports, none of CDT or its
subsidiaries is subject to any outstanding order, writ, injunction or decree
which, insofar as can be reasonably foreseen in the future, could reasonably
be expected to have a Material Adverse Effect on CDT or could reasonably be
expected to prevent or delay the consummation of the transactions contemplated
hereby.
Section 3.10. Compliance with Applicable Law. Except as publicly disclosed
by CDT in the CDT SEC Reports, CDT and its subsidiaries hold all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of their respective businesses (the
"CDT Permits"), except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals which would not have a Material Adverse
Effect on CDT. Except as publicly disclosed by CDT in the CDT SEC Reports, CDT
and its subsidiaries are in compliance with the terms of the CDT Permits,
except where the failure so to comply would not have a Material Adverse Effect
on CDT. Except as publicly disclosed by CDT in the CDT SEC Reports, the
businesses of CDT and its subsidiaries are not being conducted in violation of
any law, ordinance or regulation of any Governmental Entity except that no
representation or warranty is made in this Section 3.10 with respect to
Environmental Laws and except for violations or possible violations which do
not, and, insofar as reasonably can be foreseen, in the future will not, have
a Material Adverse Effect on CDT. Except as publicly disclosed by CDT in the
CDT SEC Reports, no investigation or review by any Governmental Entity with
respect to CDT or its subsidiaries is pending or, to the knowledge of CDT,
threatened, nor, to the knowledge of CDT, has any Governmental Entity
indicated an intention to conduct the same, other than, in each case, those
which CDT reasonably believes will not have a Material Adverse Effect on CDT.
Section 3.11. Employee Benefit Plans; Labor Matters.
(a) With respect to each employee benefit plan, program, policy, arrangement
and contract (including, without limitation, any "employee benefit plan," as
defined in Section 3(3) of ERISA), maintained or
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contributed to at any time by CDT, any of its subsidiaries or any entity
required to be aggregated with CDT or any of its subsidiaries pursuant to
Section 414 of the Code (each, a "CDT Employee Plan"), no event has occurred
and, to the knowledge of CDT, no condition or set of circumstances exists in
connection with which CDT or any of its subsidiaries could reasonably be
expected to be subject to any liability which would have a Material Adverse
Effect on CDT.
(b) (i) No CDT Employee Plan is or has been subject to Title IV of ERISA or
Section 412 of the Code; and (ii) each CDT Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code is the subject of a favorable Internal Revenue
Service determination letter, and nothing has occurred which could reasonably
be expected to adversely affect such determination.
(c) Section 3.11(c) of the CDT Disclosure Schedule sets forth a true and
complete list, as of the date of this Agreement, of each person who holds any
CDT Stock Options, together with the number of CDT Shares which are subject to
such option, the date of grant of such option, the extent to which such option
is vested (or will become vested as a result of the Merger), the option price
of such option (to the extent determined as of the date hereof), whether such
option is a nonqualified stock option or is intended to qualify as an
incentive stock option within the meaning of Section 422(b) of the Code, and
the expiration date of such option. Section 3.11(c) of the CDT Disclosure
Schedule also sets forth the total number of such incentive stock options and
such nonqualified options. CDT has furnished USO with complete copies of the
plans pursuant to which the CDT Stock Options were issued. Other than the
automatic vesting of CDT Stock Options that may occur without any action on
the part of CDT or its officers or directors, CDT has not taken any action
that would result in any CDT Stock Options that are unvested becoming vested
in connection with or as a result of the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(d) CDT has made available to USO (i) a description of the terms of
employment and compensation arrangements of all officers of CDT and a copy of
each such agreement currently in effect; (ii) copies of all agreements with
consultants who are individuals obligating CDT to make annual cash payments in
an amount exceeding $60,000; (iii) a schedule listing all officers of CDT who
have executed a non-competition agreement with CDT and a copy of each such
agreement currently in effect; (iv) copies (or descriptions) of all severance
agreements, programs and policies of CDT with or relating to its employees,
except programs and policies required to be maintained by law; and (v) copies
of all plans, programs, agreements and other arrangements of the CDT with or
relating to its employees which contain change in control provisions.
(e) Except as disclosed in Section 3.11(e) of the CDT Disclosure Schedule,
there shall be no payment, accrual of additional benefits, acceleration of
payments, or vesting in any benefit under any CDT Employee Plan or any
agreement or arrangement disclosed under this Section 3.11 solely by reason of
entering into or in connection with the transactions contemplated by this
Agreement.
(f) There are no controversies pending or, to the knowledge of CDT,
threatened, between CDT or any of its subsidiaries and any of their respective
employees, which controversies have or could reasonably be expected to have a
Material Adverse Effect on CDT. Neither CDT nor any of its subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by CDT or any of its subsidiaries (and neither
CDT nor any of its subsidiaries has any outstanding material liability with
respect to any terminated collective bargaining agreement or labor union
contract), nor does CDT know of any activities or proceedings of any labor
union to organize any of its or any of its subsidiaries' employees. CDT has no
knowledge of any strike, slowdown, work stoppage, lockout or threat thereof,
by or with respect to any of its or any of its subsidiaries' employees.
Section 3.12. Environmental Laws and Regulations.
(a) Except as publicly disclosed by CDT in the CDT SEC Reports, (i) each of
CDT and its subsidiaries is in material compliance with all Environmental
Laws, except for non-compliance that would not have a Material Adverse Effect
on CDT, which compliance includes, but is not limited to, the possession by
CDT and its
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subsidiaries of all material permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms
and conditions thereof; (ii) none of CDT or its subsidiaries has received
written notice of, or, to the knowledge of CDT, is the subject of, any
Environmental Claim that could reasonably be expected to have a Material
Adverse Effect on CDT; and (iii) to the knowledge of CDT, there are no
circumstances that are reasonably likely to prevent or interfere with such
material compliance in the future.
(b) Except as publicly disclosed by CDT, there are no Environmental Claims
which could reasonably be expected to have a Material Adverse Effect on CDT
that are pending or, to the knowledge of CDT, threatened against CDT or any of
its subsidiaries or, to the knowledge of CDT, against any person or entity
whose liability for any Environmental Claim CDT or its subsidiaries has or may
have retained or assumed either contractually or by operation of law.
Section 3.13. Tax Matters. Except as set forth in Section 3.13 of the CDT
Disclosure Schedule: (i) CDT and each of its subsidiaries has filed or has had
filed on its behalf in a timely manner (within any applicable extension
periods) with the appropriate Governmental Entity all income and other
material Tax Returns with respect to Taxes of CDT and each of its subsidiaries
and all Tax Returns were in all material respects true, complete and correct;
(ii) all material Taxes with respect to CDT and each of its subsidiaries have
been paid in full or have been provided for in accordance with GAAP on CDT's
most recent balance sheet which is part of the CDT SEC Documents; (iii) there
are no outstanding agreements or waivers extending the statutory period of
limitations applicable to any federal, state, local or foreign income or other
material Tax Returns required to be filed by or with respect to CDT or its
subsidiaries; (iv) to the knowledge of CDT none of the Tax Returns of or with
respect to CDT or any of its subsidiaries is currently being audited or
examined by any Governmental Entity; and (v) no deficiency for any income or
other material Taxes has been assessed with respect to CDT or any of its
subsidiaries which has not been abated or paid in full.
Section 3.14. Title to Property. CDT and each of its subsidiaries have good
and defensible title to all of their properties and assets, free and clear of
all liens, charges and encumbrances except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby or which, individually or in the aggregate, would
not have a Material Adverse Effect on CDT; and, to CDT's knowledge, all leases
pursuant to which CDT or any of its subsidiaries lease from others real or
personal property are in good standing, valid and effective in accordance with
their respective terms, and there is not, to the knowledge of CDT, under any
of such leases, any existing material default or event of default (or event
which with notice or lapse of time, or both, would constitute a material
default and in respect of which CDT or such subsidiary has not taken adequate
steps to prevent such a default from occurring) except where the lack of such
good standing, validity and effectiveness, or the existence of such default or
event of default would not have a Material Adverse Effect on CDT.
Section 3.15. Intellectual Property.
(a) Each of CDT and its subsidiaries owns, or possesses adequate licenses or
other valid rights to use, all existing United States and foreign patents,
trademarks, trade names, services marks, copyrights, trade secrets, and
applications therefor that are material to its business as currently conducted
(the "CDT Intellectual Property Rights").
(b) Except as set forth in Section 3.15(b) of the CDT Disclosure Schedule,
the validity of the CDT Intellectual Property Rights and the title thereto of
CDT or any subsidiary, as the case may be, is not being questioned in any
litigation to which CDT or any subsidiary is a party.
(c) The conduct of the business of CDT and its subsidiaries as now conducted
does not, to CDT's knowledge, infringe any valid patents, trademarks,
tradenames, service marks or copyrights of others. The consummation of the
transactions contemplated hereby will not result in the loss or impairment of
any CDT Intellectual Property Rights.
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(d) Each of CDT and its subsidiaries has taken steps it believes appropriate
to protect and maintain its trade secrets as such, except in cases where CDT
has elected to rely on patent or copyright protection in lieu of trade secret
protection.
Section 3.16. Insurance. CDT and its subsidiaries maintain general liability
and other business insurance that CDT believes to be reasonably prudent for
its business.
Section 3.17. Vote Required. The affirmative vote of the holders of at least
a majority of the outstanding CDT Shares is the only vote of the holders of
any class or series of CDT's capital stock necessary to approve and adopt this
Agreement and the Merger.
Section 3.18. Tax Treatment. Neither CDT nor, to the knowledge of CDT, any
of its affiliates has taken or agreed to take any action that would prevent
the Merger from constituting a reorganization qualifying under the provisions
of Section 368(a) of the Code.
Section 3.19. Affiliates. Except for the directors and executive officers of
CDT, each of whom is listed in Section 3.19 of the CDT Disclosure Schedule,
there are no persons who, to the knowledge of CDT, may be deemed to be
affiliates of CDT under Rule 1-02(b) of Regulation S-X of the SEC (the "CDT
Affiliates").
Section 3.20. Certain Business Practices. None of CDT, any of its
subsidiaries or any directors, officers, agents or employees of CDT or any of
its subsidiaries has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the FCPA, or (iii) made any other unlawful payment.
Section 3.21. Insider Interests. Except as set forth in Section 3.21 of the
CDT Disclosure Schedule, no officer or director of CDT has any interest in any
material property, real or personal, tangible or intangible, including without
limitation, any computer software or CDT Intellectual Property Rights, used in
or pertaining to the business of CDT or any subsidiary, except for the
ordinary rights of a stockholder or employee stock optionholder.
Section 3.22. Opinion of Financial Adviser. First Albany Corporation (the
"CDT Financial Adviser") has delivered to the CDT Board its written opinion,
dated as of the date of this Agreement, to the effect that, as of such date,
the exchange ratio contemplated by the Merger is fair to the holders of CDT
Shares.
Section 3.23. Brokers. No broker, finder or investment banker (other than
the CDT Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to USO) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of CDT.
Section 3.24. Disclosure. No representation or warranty of CDT in this
Agreement or any certificate, schedule, document or other instrument furnished
or to be furnished to USO pursuant hereto or in connection herewith contains,
as of the date of such representation, warranty or instrument, or will contain
any untrue statement of a material fact or, at the date thereof, omits or will
omit to state a material fact necessary to make any statement herein or
therein, in light of the circumstances under which such statement is or will
be made, not misleading.
Section 3.25. No Existing Discussions. As of the date hereof, CDT is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to any Third Party Acquisition (as defined in Section
5.4).
Section 3.26. Material Contracts.
(a) CDT has delivered or otherwise made available to USO true, correct and
complete copies of all contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to
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which CDT is a party affecting the obligations of any party thereunder) to
which CDT or any of its subsidiaries is a party or by which any of their
properties or assets are bound that are, material to the business, properties
or assets of CDT and its subsidiaries taken as a whole, including, without
limitation, to the extent any of the following are, individually or in the
aggregate, material to the business, properties or assets of CDT and its
subsidiaries taken as a whole, all: (i) employment, product design or
development, personal services, consulting, non-competition, severance, golden
parachute or indemnification contracts (including, without limitation, any
contract to which CDT is a party involving employees of CDT); (ii) licensing,
publishing, merchandising or distribution agreements; (iii) contracts granting
rights of first refusal or first negotiation; (iv) partnership or joint
venture agreements; (v) agreements for the acquisition, sale or lease of
material properties or assets or stock or otherwise entered into since January
1, 1993, (vi) contracts or agreements with any Governmental Entity; and (vii)
all commitments and agreements to enter into any of the foregoing
(collectively, together with any such contracts entered into in accordance
with Section 5.2 hereof, the "CDT Contracts"). Neither CDT nor any of its
subsidiaries is a party to or bound by any severance, golden parachute or
other agreement with any employee or consultant pursuant to which such person
would be entitled to receive any additional compensation or an accelerated
payment of compensation as a result of the consummation of the transactions
contemplated hereby.
(b) Each of the CDT Contracts is valid and enforceable in accordance with
its terms, and there is no default under any CDT Contract so listed either by
CDT or, to the knowledge of CDT, by any other party thereto, and no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by CDT or, to the knowledge of CDT, any other
party, in any such case in which such default or event could reasonably be
expected to have a Material Adverse Effect on CDT.
(c) No party to any such CDT Contract has given notice to CDT of or made a
claim against CDT with respect to any breach or default thereunder, in any
such case in which such breach or default could reasonably be expected to have
a Material Adverse Effect on CDT.
ARTICLE 4
Covenants
Section 4.1. Conduct of Business of USO. Except as contemplated by this
Agreement or as described in Section 4.1 of the USO Disclosure Schedule,
during the period from the date hereof to the Effective Time, USO will conduct
its operations in the ordinary course of business consistent with past
practice and, to the extent consistent therewith, with no less diligence and
effort than would be applied in the absence of this Agreement, seek to
preserve intact its current business organization, keep available the service
of its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that goodwill and ongoing businesses shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, except as otherwise
expressly provided in this Agreement or as described in Section 4.1 of the USO
Disclosure Schedule, prior to the Effective Time, USO will not, without the
prior written consent of CDT:
(a) amend its Certificate of Incorporation or Bylaws (or other similar
governing instrument);
(b) amend the terms of the USO Warrants, authorize for issuance, issue,
sell, deliver or agree or commit to issue, sell or deliver (whether through
the issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any stock of any class or any other
securities (except bank loans) or equity equivalents (including, without
limitation, any stock options or stock appreciation rights), except for (i)
the issuance and sale of USO Shares pursuant to options previously granted
under the USO Plans; (ii) the issuance and sale of USO Shares pursuant to
USO Warrants outstanding on the date hereof; and (iii) the granting of
stock options to employees in the ordinary course of business and
consistent with past practices of USO, provided that the aggregate number
of USO Shares issuable pursuant to such options shall not exceed 200,000;
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(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, make any other actual, constructive or deemed distribution
in respect of its capital stock or otherwise make any payments to
stockholders in their capacity as such, or redeem or otherwise acquire any
of its securities;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
USO (other than the Merger);
(e) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings or issuances of letters of credit
under existing lines of credit in the ordinary course of business; (ii)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person; (iii) make any loans, advances or capital contributions to,
or investments in, any other person; (iv) pledge or otherwise encumber
shares of capital stock of USO; or (v) mortgage or pledge any of its
material assets, tangible or intangible, or create or suffer to exist any
material Lien thereupon (other than tax Liens for taxes not yet due);
(f) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee in any manner, or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan and arrangement as in effect as of the
date hereof (including, without limitation, the granting of stock
appreciation rights or performance units); provided, however, that this
paragraph (f) shall not prevent USO from (i) entering into employment
agreements or severance agreements with employees in the ordinary course of
business and consistent with past practice or (ii) increasing annual
compensation and/or providing for or amending bonus arrangements for
employees for fiscal 1997 in the ordinary course of year-end compensation
reviews consistent with past practice and paying bonuses to employees for
fiscal 1996 in amounts previously disclosed to CDT (to the extent that such
compensation increases and new or amended bonus arrangements do not result
in a material increase in benefits or compensation expense to USO);
(g) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions (other than in the ordinary
course of business);
(h) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(i) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or
accounts receivable other than in the ordinary course of business;
(j) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any
contract or agreement other than in the ordinary course of business
consistent with past practice which would be material to USO; (iii)
authorize any new capital expenditure or expenditures which, individually,
is in excess of $500,000 or, in the aggregate, are in excess of $1,000,000;
provided, however that none of the foregoing shall limit any capital
expenditure required pursuant to existing contracts;
(k) make any tax election or settle or compromise any income tax
liability material to USO;
(l) settle or compromise any pending or threatened suit, action or claim
which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
USO;
(m) commence any material research and development project or terminate
any material research and development project that is currently ongoing, in
either case, except pursuant to the terms of existing contracts or in the
ordinary course of business; or
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(n) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through 4.1(m) or any action which would make
any of the representations or warranties of USO contained in this Agreement
untrue or incorrect.
Section 4.2. Conduct of Business of CDT. Except as contemplated by this
Agreement or as described in Section 4.2 of the CDT Disclosure Schedule,
during the period from the date hereof to the Effective Time, CDT will conduct
its operations in the ordinary course of business consistent with past
practice and, to the extent consistent therewith, with no less diligence and
effort than would be applied in the absence of this Agreement, seek to
preserve intact its current business organization, keep available the service
of its current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that goodwill and ongoing businesses shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, except as otherwise
expressly provided in this Agreement or as described in Section 4.2 of the CDT
Disclosure Schedule, prior to the Effective Time, CDT will not, without the
prior written consent of USO:
(a) amend its Certificate of Incorporation or Bylaws (or other similar
governing instrument);
(b) amend the terms of the CDT Warrants, authorize for issuance, issue,
sell, deliver or agree or commit to issue, sell or deliver (whether through
the issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any stock of any class or any other
securities (except bank loans) or equity equivalents (including, without
limitation, any stock options or stock appreciation rights), except for (i)
the issuance and sale of CDT Shares pursuant to options previously granted
under the CDT Plans (ii) the issuance and sale of CDT Shares pursuant to
CDT Warrants outstanding on the date hereof; and (iii) the granting of
stock options to employees in the ordinary course of business and
consistent with past practices of CDT, provided that the aggregate number
of CDT Shares issuable pursuant to such options shall not exceed 200,000;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, make any other actual, constructive or deemed distribution
in respect of its capital stock or otherwise make any payments to
stockholders in their capacity as such, or redeem or otherwise acquire any
of its securities;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
CDT (other than the Merger);
(e) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings or issuances of letters of credit
under existing lines of credit in the ordinary course of business; (ii)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person; (iii) make any loans, advances or capital contributions to,
or investments in, any other person; (iv) pledge or otherwise encumber
shares of capital stock of CDT or its subsidiaries; or (v) mortgage or
pledge any of its material assets, tangible or intangible, or create or
suffer to exist any material Lien thereupon (other than tax Liens for taxes
not yet due);
(f) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee in any manner, or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan and arrangement as in effect as of the
date hereof (including, without limitation, the granting of stock
appreciation rights or performance units); provided, however, that this
paragraph (f) shall not prevent CDT or its subsidiaries from (i) entering
into employment agreements or severance agreements with employees in the
ordinary course of business and consistent with past practice or (ii)
increasing annual compensation and/or providing for or amending bonus
arrangements for employees for fiscal 1997 in the ordinary course of year-
end compensation reviews consistent with past practice and paying bonuses
to employees for fiscal
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1996 in amounts previously disclosed to USO (to the extent that such
compensation increases and new or amended bonus arrangements do not result
in a material increase in benefits or compensation expense to CDT);
(g) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions other than in the ordinary
course of business;
(h) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(i) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory of writing-off notes or
accounts receivable other than in the ordinary course of business;
(j) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership, or other business organization or
division thereof or any equity interest therein; (ii) enter into any
contract or agreement other than in the ordinary course of business
consistent with past practice which would be material to CDT; (iii)
authorize any new capital expenditure or expenditures which, individually,
is in excess of $500,000 or, in the aggregate, are in excess of $1,000,000:
provided, however that none of the foregoing shall limit any capital
expenditure required pursuant to existing contracts;
(k) make any tax election or settle or compromise any income tax
liability material to CDT and its subsidiaries taken as a whole;
(l) settle or compromise any pending or threatened suit, action or claim
which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
CDT;
(m) commence any material research and development project or terminate
any material research and development project that is currently ongoing, in
either case, except pursuant to the terms of existing contracts or except
in the ordinary course of business; or
(n) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.2(a) through 4.2(m) or any action which would make
any of the representations or warranties of the CDT contained in this
Agreement untrue or incorrect.
Section 4.3. Preparation of S-4 and the Proxy Statement. CDT and USO shall
promptly prepare and file with the SEC the Proxy Statement, and the parties
shall prepare and file with the SEC the S-4, in which the Proxy Statement will
be included as a prospectus. Each of the parties shall use its best efforts to
have the S-4 declared effective under the Securities Act as promptly as
practicable after such filing. The parties shall also take any action (other
than qualifying to do business in any jurisdiction in which it is now not so
qualified) required to be taken under any applicable state securities laws in
connection with the issuance of Newco Shares in the Merger and upon the
exercise of USO Stock Options and CDT Stock Options. Each party shall furnish
all information concerning such party and the stockholders and holders of
stock options of such party as may be reasonably requested in connection with
any such action.
Section 4.4. Other Potential Acquirers.
(a) Each of CDT and USO, its affiliates and their respective officers,
directors, employees, representatives and agents shall immediately cease any
existing discussions or negotiations, if any, with any parties conducted
heretofore with respect to any Third Party Acquisition (as defined below). CDT
or USO may, directly or indirectly, furnish information and access, in each
case only in response to unsolicited requests therefor, to any person or group
pursuant to confidentiality agreements with terms no less favorable to CDT or
USO than the Confidentiality Agreement dated June 24, 1996 between USO and CDT
is with respect to CDT, or USO, as the case may be, and may participate in
discussions and negotiate with such entity or group concerning any Third Party
Acquisition, if (i) such entity or group has submitted a Superior Proposal (as
defined in paragraph (b) below) to the CDT Board or the USO Board, as the case
may be, relating to any such Third Party Acquisition and (ii) such Board by a
majority vote determines in its good faith judgment, after consultation with
and based upon the advice of independent legal counsel, that it is required to
do so in order to comply with its fiduciary
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duties; provided, and subject to Section 6.1 below, if CDT shall have received
a Superior Proposal it shall not, in any event, be entitled to terminate this
Agreement as a result of the occurrence of the events described in clauses (i)
and (ii) of this sentence; provided further, if USO shall have received a
Superior Proposal it shall not, in any event, be entitled to terminate this
Agreement as a result of the occurrence of the events described in clauses (i)
and (ii) of this sentence. The CDT Board or the USO Board, as the case may be,
shall provide a copy of any such written Superior Proposal and a summary of
any such oral Superior Proposal to the other party to this Agreement
immediately after receipt thereof and thereafter keep such other party
promptly advised of any development with respect thereto. Except as set forth
above, neither CDT nor USO nor any of their respective affiliates shall, nor
shall CDT or USO authorize or permit any of its or their respective officers,
directors, employees, representatives or agents to, directly or indirectly,
encourage, solicit, participate in or initiate discussions or negotiations
with, or provide any information to, any person or group (other than to the
other party to this Agreement, any affiliate or associate of or any designees
of the other party to this Agreement) concerning any Third Party Acquisition;
provided, however, that nothing herein shall prevent the CDT Board or the USO
Board from taking, and disclosing to the CDT's or USO's stockholders, as the
case may be, a position contemplated by Rules 14d-9 and 14e-2 promulgated
under the Exchange Act with regard to any tender offer.
(b) Except as set forth in this Section 4.4(b), neither the CDT Board nor
the USO Board shall withdraw its recommendation of the transactions
contemplated hereby or approve or recommend, or cause CDT or USO, as the case
may be, to enter into any agreement with respect to, any Third Party
Acquisition. Notwithstanding the foregoing, if the CDT Board or the USO Board,
respectively, by a majority vote determines in its good faith judgment, after
consultation with and based upon the advice of independent legal counsel, that
it is required to do so in order to comply with its fiduciary duties, the CDT
Board or the USO Board, as the case may be, may withdraw its recommendation of
the transactions contemplated hereby and may approve or recommend a Superior
Proposal, but in each case only (i) after providing reasonable written notice
to USO or CDT, as the case may be, (a "Notice of Superior Proposal") advising
USO or CDT that the CDT Board or the USO Board has received a Superior
Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal, and (ii) if
USO or CDT does not, within seven business days after such party's receipt of
the Notice of Superior Proposal, make a counter offer which such party's Board
by a majority vote determines in its good faith judgment (based on the written
advice of the USO Financial Advisor or the CDT Financial Advisor or another
financial adviser of nationally recognized reputation) to be as favorable to
the stockholders of the party who has received the original Superior Proposal;
provided, however, no party hereto shall be entitled to enter into any
agreement with respect to a Superior Proposal unless and until this Agreement
is terminated by its terms pursuant to Section 6.1. For the purposes of this
Agreement, "Third Party Acquisition" means the occurrence of any of the
following events: (i) the acquisition of CDT or USO by merger or otherwise by
any person (which includes a "person" as such term is defined in Section
13(d)(3) of the Exchange Act) other than by USO, CDT, or Newco or any
affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
more than 30% of the total assets of USO or CDT; (iii) the acquisition by a
Third Party of 30% or more of the outstanding USO Shares or CDT Shares; (iv)
the adoption by CDT or USO of a plan of liquidation or the declaration or
payment of an extraordinary dividend; (v) the repurchase by CDT or USO of more
than 20% of its outstanding shares; or (vi) the acquisition by CDT or USO, by
merger, purchase of stock or assets, joint venture or otherwise, of a direct
or indirect ownership interest or investment in any business whose annual
revenues, net income or assets is equal or greater than 40% of its annual
revenues, net income or assets together with its subsidiaries taken as whole.
For purposes of this Agreement, a "Superior Proposal" means any bona fide
proposal to acquire, directly or indirectly, for consideration consisting of
cash and/or securities, more than 50% of the shares then outstanding or all or
substantially all of the assets of CDT or USO, as the case may be, and
otherwise on terms which the CDT Board or the USO Board, as the case may be,
by a majority vote determines in its good faith judgment (based on the written
advice of the USO Financial Advisor or the CDT Financial Advisor or another
financial adviser of nationally recognized reputation) to be more favorable to
such party's stockholders than the Merger.
Section 4.5. Meetings of Stockholders. Each of CDT and USO shall take all
action necessary, in accordance with the DGCL, and its respective certificate
of incorporation and bylaws, to duly call, give notice
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of, convene and hold a meeting of its stockholders as promptly as practicable,
to consider and vote upon the adoption and approval of this Agreement and the
transactions contemplated hereby. The stockholder votes required for the
adoption and approval of the transactions contemplated by this Agreement shall
be the vote required by the DGCL and its charter and bylaws, in the case of
USO, and the DGCL and its charter and bylaws, in the case of CDT. USO and CDT
will, through their respective Boards of Directors, recommend to their
respective stockholders approval of such matters; provided, however, that,
subject to the provisions of Section 6.3, the USO Board or the CDT Board may
withdraw its recommendation if (i) USO or CDT, as the case may be, receives a
Superior Proposal, and (ii) after complying with the provisions of Section
4.4(b), the USO Board or the CDT Board by a majority vote determines in its
good faith judgment, after consultation with and based upon the advice of
independent legal counsel, that it is required, in order to comply with its
fiduciary duties, to recommend the Superior Proposal; provided further,
however, that neither USO nor CDT, respectively, if such party shall have
received a Superior Proposal, shall, in any event, be permitted to terminate
this Agreement as a result of the occurrence of the events described in
clauses (i) and (ii) of this sentence. USO and CDT shall coordinate and
cooperate with respect to the timing of such meetings and shall use their best
efforts to hold such meetings on the same day and as soon as practicable after
the date hereof.
Section 4.6. Nasdaq Listing. The parties shall use all reasonable efforts to
cause the Newco Shares to be issued in the Merger and the Newco Shares to be
reserved for issuance upon exercise of USO Stock Options or CDT Stock Options
to be approved for listing on the Nasdaq National Market ("Nasdaq"), subject
to official notice of issuance, prior to the Effective Time.
Section 4.7. Access to Information.
(a) Between the date hereof and the Effective Time, USO will give CDT and
its authorized representatives, and CDT will give USO and its authorized
representatives, reasonable access to all employees, plants, offices,
warehouses and other facilities and to all books and records of itself and its
subsidiaries, will permit the other party to make such inspections as such
party may reasonably require and will cause its officers and those of its
subsidiaries to furnish the other party with such financial and operating data
and other information with respect to the business and properties of itself
and its subsidiaries as the other party may from time to time reasonably
request.
(b) Between the date hereof and the Effective Time, USO shall furnish to
CDT, and CDT will furnish to USO, within 25 business days after the end of
each calendar month (commencing with June 1996, and, in the case of June 1996,
within 90 days), an unaudited balance sheet of the party furnishing such
information as of the end of the such month and the related statements of
earnings, stockholders' equity (deficit) and, within 25 business days after
the end of each calendar quarter (or, in the case of the quarter ended June
30, within 90 days), cash flows for the quarter then ended, each prepared in
accordance with generally accepted accounting principles in conformity with
the practices consistently applied by such party with respect to its monthly
or quarterly financial statements. All the foregoing shall be in accordance
with the books and records of the party furnishing such information and shall
fairly present its financial position (taking into account the differences
between the monthly and quarterly statements prepared by such party in
conformity with its past practices) as of the last day of the period then
ended.
(c) Each of the parties hereto will hold and will cause its consultants and
advisers to hold in confidence all documents and information furnished to it
in connection with the transactions contemplated by this Agreement pursuant to
the terms of that certain Confidentiality Agreement entered into between USO
and CDT dated June 24, 1996.
Section 4.8. Additional Agreements; Reasonable Efforts. Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
(i) cooperating in the preparation and filing of the Proxy Statement and the
S-4, any filings
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that may be required under the HSR Act, and any amendments to any thereof;
(ii) obtaining consents of all third parties and Governmental Entities
necessary, proper or advisable for the consummation of the transactions
contemplated by this Agreement; (iii) contesting any legal proceeding relating
to the Merger and (iv) the execution of any additional instruments necessary
to consummate the transactions contemplated hereby. Subject to the terms and
conditions of this Agreement, CDT, Newco and USO agree to use all reasonable
efforts to cause the Effective Time to occur as soon as practicable after the
stockholder votes with respect to the Merger. In case at any time after the
Effective Time any further action is necessary to carry out the purposes of
this Agreement, the proper officers and directors of each party hereto shall
take all such necessary action.
Section 4.9. Employee Benefits; Stock Option and Employee Purchase Plans.
(a) Subject to the provisions of Section 1.6(d) hereof, prior to the
Effective Time, Newco will take or cause to be taken all action necessary to
adopt the employment agreements of Robert J. Schock and John C. Backus, Jr.
with CDT and USO, respectively, and to enter into employment agreements with
Timothy R. Welles and Joseph Smith. It is the parties' present intent to
provide after the Effective Time to employees of CDT and USO and their
subsidiaries employee benefit plans (other than stock option or other plans
involving the potential issuance of securities of Newco) which, in the
aggregate, are not less favorable than those currently provided by CDT and
USO, respectively. Notwithstanding the foregoing, nothing contained herein
shall be construed as requiring the parties to continue any specific employee
benefit plans.
(b) The parties agree to work together prior to the Effective Time to cause
Newco to develop and adopt (i) an incentive plan authorizing the issuance of
up to 1,500,000 Newco Shares pursuant to stock options or other incentive
awards to employees of Newco and its subsidiaries; (ii) a stock option plan
authorizing the issuance of up to 200,000 Newco Shares to nonemployee
directors of Newco; and (iii) an employee stock purchase plan authorizing the
issuance of up to 500,000 Newco Shares to employees of Newco and its
subsidiaries and providing for a vesting period of not less than one year.
(c) The parties agree to work together prior to the Effective Time to
develop and design such plans, programs and arrangements and to prepare for
the implementation of such plans, programs and arrangements described in this
Section 4.9 following the Effective Time.
Section 4.10. Public Announcements. CDT, and USO will consult with one
another before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement,
including, without limitation, the Merger, and shall not issue any such press
release or make any such public statement prior to such consultation, except
as may be required by applicable law or by obligations pursuant to any listing
agreement with the Nasdaq as determined by CDT or USO.
Section 4.11. Indemnification.
(a) To the extent, if any, not provided by an existing right under one of
the parties' directors and officers liability insurance policies, from and
after the Effective Time, Newco shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof, or who becomes prior to the
Effective Time, a director, officer or employee of the parties hereto or any
subsidiary thereof (each an "Indemnified Party" and, collectively, the
"Indemnified Parties") against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to
the proviso of the next succeeding sentence, amounts paid in settlement,
arising out of actions or omissions occurring at or prior to the Effective
Time and whether asserted or claimed prior to, at or after the Effective Time)
that are in whole or in part (i) based on, or arising out of the fact that
such person is or was a director, officer or employee of such party or a
subsidiary of such party or (ii) based on, arising out of or pertaining to the
transactions contemplated by this Agreement. In the event of any such loss,
expense, claim, damage or liability (whether or not arising before the
Effective Time), (i) Newco shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to Newco, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request
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reimbursement of documented expenses reasonably incurred, in either case to
the extent not prohibited by the DGCL or its certificate of incorporation or
bylaws, (ii) Newco will cooperate in the defense of any such matter and (iii)
any determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards set forth under the DGCL and
Newco's certificate of incorporation or bylaws shall be made by independent
counsel mutually acceptable to Newco and the Indemnified Party; provided,
however, that Newco shall not be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld). The
Indemnified Parties as a group may retain only one law firm with respect to
each related matter except to the extent there is, in the opinion of counsel
to an Indemnified Party, under applicable standards of professional conduct, a
conflict on any significant issue between positions of any two or more
Indemnified Parties.
(b) For a period of three years after the Effective Time, Newco shall cause
to be maintained in effect the policies of directors' and officers' liability
insurance maintained by USO and CDT for the benefit of those persons who are
covered by such policies at the Effective Time (or Newco may substitute
therefor policies of at least the same coverage with respect to matters
occurring prior to the Effective Time).
(c) In the event Newco or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity or such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in either such case, proper provision shall be made so that
the successors and assigns of Newco shall assume the obligations set forth in
this Section 4.11.
(d) To the fullest extent permitted by law, from and after the Effective
Time, all rights to indemnification now existing in favor of the employees,
agents, directors or officers of USO and CDT and their subsidiaries with
respect to their activities as such prior to the Effective Time, as provided
in USO's and CDT's certificate of incorporation or bylaws, in effect on the
date thereof or otherwise in effect on the date hereof, shall survive the
Merger and shall continue in full force and effect for a period of not less
than six years from the Effective Time.
(e) The provisions of this Section 4.11 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives.
Section 4.12. Notification of Certain Matters. The parties hereto shall give
prompt notice to the other parties, of (i) the occurrence or nonoccurrence of
any event the occurrence or nonoccurrence of which would be likely to cause
any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time, (ii) any
material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder, (iii)
any notice of, or other communication relating to, a default or event which,
with notice or lapse of time or both, would become a default, received by such
party or any of its subsidiaries subsequent to the date of this Agreement and
prior to the Effective Time, under any contract or agreement material to the
financial condition, properties, businesses or results of operations of such
party and its subsidiaries taken as a whole to which such party or any of its
subsidiaries is a party or is subject, (iv) any notice or other communication
from any third party alleging that the consent of such third party is or may
be required in connection with the transactions contemplated by this
Agreement, or (v) any material adverse change in their respective financial
condition, properties, businesses, results of operations or prospects, taken
as a whole, other than changes resulting from general economic conditions;
provided, however, that the delivery of any notice pursuant to this Section
4.12 shall not cure such breach or non-compliance or limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 4.13. Affiliates.
(a) CDT and USO shall use all reasonable efforts to obtain from any CDT
Affiliate or USO Affiliate who has not previously executed such letter
agreement and from any person who may be deemed to have become a CDT Affiliate
or USO Affiliate after the date of this Agreement and on or prior to the
Effective Time, a letter agreement substantially in the form of Exhibit A
hereto as soon as practicable.
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(b) Newco shall not be required to maintain the effectiveness of the S-4 for
the purpose of resale of Newco Shares by stockholders of CDT or USO who may be
affiliates of CDT or USO or Newco pursuant to Rule 145 under the Securities
Act.
ARTICLE 5
Conditions to Consummation of the Merger
Section 5.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) this Agreement shall have been approved and adopted by the requisite
vote of the stockholders of USO and CDT;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which
prohibits, restrains, enjoins or restricts the consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired, and any other governmental or regulatory
notices or approvals required with respect to the transactions contemplated
hereby shall have been either filed or received; and
(d) the S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop
order, and all state securities laws or "blue sky" permits and
authorizations necessary to issue Newco Shares in exchange for USO Shares
and CDT Shares in the Merger shall have been obtained.
Section 5.2. Conditions to the Obligations of USO. The obligation of USO to
effect the Merger is subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(a) the representations of CDT and Newco contained in this Agreement or
in any other document delivered pursuant hereto shall be true and correct
(except to the extent that the breach thereof would not have a Material
Adverse Effect on CDT or Newco) at and as of the Effective Time with the
same effect as if made at and as of the Effective Time (except to the
extent such representations specifically related to an earlier date, in
which case such representations shall be true and correct as of such
earlier date), and at the Closing CDT and Newco shall have delivered to USO
a certificate to that effect;
(b) each of the covenants and obligations of CDT and Newco to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or
before the Effective Time and at the Closing CDT and Newco shall have
delivered to USO a certificate to that effect;
(c) the Newco Shares issuable to the USO stockholders pursuant to this
Agreement and such other shares required to be reserved for issuance in
connection with the Merger shall have been authorized for listing on the
Nasdaq upon official notice of issuance;
(d) the opinion of Hunton & Williams, counsel to USO, dated the Closing
Date and addressed to USO to the effect that (i) the merger of USO into
Newco will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; (ii) each of Newco and
USO will be a party to the reorganization within the meaning of Section
368(b) of the Code; and (iii) no gain or loss for Federal income tax
purposes will be recognized by Newco, USO or a stockholder of USO as a
result of the Merger (other than with respect to cash received by a
stockholder in lieu of a fractional Newco Share), and such opinion shall
not have been withdrawn or modified in any material respect. Such opinion
may be conditioned upon the receipt of representations of USO, CDT and
Newco, all in form and substance reasonably satisfactory to such counsel
and other reasonable assumptions set forth therein;
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(e) CDT shall have obtained the consent or approval of each person whose
consent or approval shall be required in order to permit the succession by
Newco pursuant to the Merger to any obligation, right or interest of CDT
under any loan or credit agreement, note, mortgage, indenture, lease or
other agreement or instrument, except those for which failure to obtain
such consents and approvals would not, in the reasonable opinion of USO,
individually or in the aggregate, have a Material Adverse Effect on CDT;
and
(f) there shall have been no events, changes or effects with respect to
CDT or its subsidiaries having or which could reasonably be expected to
have a Material Adverse Effect on CDT.
Section 5.3. Conditions to the Obligations of CDT. The respective
obligations of CDT to effect the Merger are subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) the representations of USO and Newco contained in this Agreement or
in any other document delivered pursuant hereto shall be true and correct
(except to the extent that the breach thereof would not have a Material
Adverse Effect on USO or Newco) at and as of the Effective Time with the
same effect as if made at and as of the Effective Time (except to the
extent such representations specifically related to an earlier date, in
which case such representations shall be true and correct as of such
earlier date), and at the Closing USO and Newco shall have delivered to CDT
a certificate to that effect;
(b) each of the covenants and obligations of USO and Newco to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or
before the Effective Time and at the Closing USO and Newco shall have
delivered to CDT a certificate to that effect;
(c) the Newco Shares issuable to the CDT stockholders pursuant to this
Agreement and such other shares to be reserved for issuance in connection
with the Merger shall have been authorized for listing on Nasdaq upon
official notice of issuance;
(d) the opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel to
CDT, dated the Closing Date and addressed to CDT, to the effect that (i)
the merger of CDT into Newco will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code; (ii) each of CDT and Newco will be a party to the reorganization
within the meaning of Section 368(b) of the Code; and (iii) no gain or loss
for Federal income tax purposes will be recognized by CDT or Newco or a
stockholder of CDT as a result of the Merger (other than with respect to
cash received by a stockholder of CDT in lieu of a fractional Newco Share),
and such opinion shall not have been withdrawn or modified in any material
respect. Such opinion may be conditioned upon the receipt of
representations of USO, CDT and Newco, all in form and substance reasonably
satisfactory to such counsel and other reasonable assumptions set forth
therein.
(e) USO shall have obtained the consent or approval of each person whose
consent or approval shall be required in order to permit the succession by
Newco pursuant to the Merger to any obligation, right or interest of USO
under any loan or credit agreement, note, mortgage, indenture, lease or
other agreement or instrument, except for those for which failure to obtain
such consents and approvals would not, in the reasonable opinion of CDT,
individually or in the aggregate, have a Material Adverse Effect on USO;
and
(f) there shall have been no events, changes or effects with respect to
USO having or which could reasonably be expected to have a Material Adverse
Effect on USO.
ARTICLE 6
Termination; Amendment; Waiver
Section 6.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after approval and adoption of this Agreement by USO's or CDT's stockholders:
(a) by mutual written consent of USO and CDT;
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(b) by CDT or USO if (i) any court of competent jurisdiction in the
United States or other United States Governmental Entity shall have issued
a final order, decree or ruling or taken any other final action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action is or shall have become nonappealable or
(ii) the Merger has not been consummated by February 28, 1997; provided,
however, that no party may terminate this Agreement pursuant to this clause
(ii) if such party's failure to fulfill any of its obligations under this
Agreement shall have been the reason that the Effective Time shall not have
occurred on or before said date;
(c) by USO if (i) there shall have been a breach of any representation or
warranty on the part of CDT or Newco set forth in this Agreement, or if any
representation or warranty of CDT or Newco shall have become untrue, in
either case such that the conditions set forth in Section 5.2(a) would be
incapable of being satisfied by February 28, 1997 (or as otherwise
extended), (ii) there shall have been a breach by CDT or Newco of any of
their respective covenants or agreements hereunder having a Material
Adverse Effect on CDT or Newco or materially adversely affecting (or
materially delaying) the consummation of the Merger, and CDT or Newco, as
the case may be, has not cured such breach within 20 business days after
notice by USO thereof, provided that USO has not breached any of its
obligations hereunder, (iii) the CDT Board shall have recommended to CDT's
stockholders a Superior Proposal, (iv) the CDT Board shall have withdrawn,
modified or changed its approval or recommendation of this Agreement or the
Merger or shall have failed to call, give notice of, convene or hold a
stockholders' meeting to vote upon the Merger, or shall have adopted any
resolution to effect any of the foregoing, (v) CDT shall have convened a
meeting of its stockholders to vote upon the Merger and shall have failed
to obtain the requisite vote of its stockholders or (vi) USO shall have
convened a meeting of its stockholders to vote upon the Merger and shall
have failed to obtain the requisite vote of its stockholders; or
(d) by CDT if (i) there shall have been a breach of any representation or
warranty on the part of USO or Newco set forth in this Agreement, or if any
representation or warranty of USO or Newco shall have become untrue, in
either case such that the conditions set forth in Section 5.3(a) would be
incapable of being satisfied by February 28, 1997 (or as otherwise
extended), (ii) there shall have been a breach by USO or Newco of its
covenants or agreements hereunder having a Material Adverse Effect on USO
or Newco or materially adversely affecting (or materially delaying) the
consummation of the Merger, and USO or Newco, as the case may be, has not
cured such breach within twenty business days after notice by CDT thereof,
provided that CDT has not breached any of its obligations hereunder, (iii)
the USO Board shall have recommended to USO's stockholders a Superior
Proposal, (iv) the USO Board shall have withdrawn, modified or changed its
approval or recommendation of this Agreement or the Merger or shall have
failed to call, give notice of, convene or hold a stockholders' meeting to
vote upon the Merger, or shall have adopted any resolution to effect any of
the foregoing, (v) CDT shall have convened a meeting of its stockholders to
vote upon the Merger and shall have failed to obtain the requisite vote of
its stockholders or (vi) USO shall have convened a meeting of its
stockholders to vote upon the Merger and shall have failed to obtain the
requisite vote of its stockholders.
Section 6.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders, other
than the provisions of this Section 6.2 and Sections 4.7(c) and 6.3 hereof.
Nothing contained in this Section 6.2 shall relieve any party from liability
for any breach of this Agreement.
Section 6.3. Fees and Expenses.
(a) In the event that this Agreement shall be terminated by USO pursuant to
Section 6.1(c)(iii) or 6.1 (c)(iv), then CDT shall pay to USO the amount of
Three Million Dollars ($3,000,000) within five business days after such
termination. In the event that this Agreement shall be terminated by CDT
pursuant to Section 6.1(d)(iii) or 6.1(d)(iv) then USO shall pay to CDT the
amount of Three Million Dollars ($3,000,000) within five (5) business days
after such termination. In the event that, within twelve months after the
termination of this Agreement as
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<PAGE>
described in the first sentence of this Section 6.3(a), CDT enters into an
agreement with respect to a Third Party Acquisition, involving any party (or
any affiliate thereof) (x) with whom CDT (or its agents) had negotiations with
a view to a Third Party Acquisition, (y) to whom CDT (or its agents) furnished
information with a view to a Third Party Acquisition or (z) who had submitted
a proposal or expressed an interest in a Third Party Acquisition, in the case
of each of clauses (x), (y) and (z) after the date hereof and prior to such
termination, and such Third Party Acquisition is consummated within twelve
(12) months thereafter, then CDT shall pay to USO an additional amount equal
to Four Million Five Hundred Thousand Dollars ($4,500,000) on the next
business day following the consummation of such Third Party Acquisition. In
the event that, within twelve months after the termination of this Agreement
as described in the second sentence of this Section 6.3(a), USO enters into an
agreement with respect to a Third Party Acquisition, involving any party (or
any affiliate thereof) (x) with whom USO (or its agents) had negotiations with
a view to a Third Party Acquisition, (y) to whom USO (or its agents) furnished
information with a view to a Third Party Acquisition or (z) who had submitted
a proposal or expressed an interest in a Third Party Acquisition, in the case
of each of clauses (x), (y) and (z) after the date hereof and prior to such
termination, and such Third Party Acquisition is consummated within twelve
(12) months thereafter, then USO shall pay to CDT an additional amount equal
to Four Million Five Hundred Thousand Dollars ($4,500,000) on the next
business day following the consummation of such Third Party Acquisition. Each
party acknowledges that upon the occurrence of any of the events described
above in this Section 6.3(a), the party terminating this Agreement would
suffer direct and substantial damages, which damages cannot be determined with
reasonable certainty. To compensate the terminating party for such damages,
the party causing such damages shall pay to the other party hereto the amounts
described in this Section 6.3(a) as liquidated damages and not as a penalty.
(b) In the event that this Agreement shall be terminated by USO pursuant to
a willful breach of any material representation or warranty made by CDT
hereunder or any material covenant contained in Sections 4.2 (excluding the
first sentence contained therein), 4.3, 4.4, 4.5 and 4.8 of this Agreement on
the part of CDT, and within twelve months after the termination of this
Agreement as described in the preceding sentence of this Section 6.3(b), CDT
enters into an agreement with respect to a Third Party Acquisition, involving
any party (or any affiliate thereof) (x) with whom CDT (or its agents) had
negotiations with a view to a Third Party Acquisition, (y) to whom CDT (or its
agents) furnished information with a view to a Third Party Acquisition or (z)
who had submitted a proposal or expressed an interest in a Third Party
Acquisition, in the case of each of clauses (x), (y) and (z) after the date
hereof and prior to such termination, and such Third Party Acquisition is
consummated within 12 months thereafter, then CDT shall pay to USO an amount
equal to Seven Million Dollars ($7,000,000) in immediately available funds on
the next business day following the consummation of the Third Party
Acquisition.
(c) In the event that this Agreement shall be terminated by CDT pursuant to
a willful breach of any material representation or warranty made by USO
hereunder or any material covenant contained in Sections 4.1 (excluding the
first sentence contained therein), 4.3, 4.4, 4.5 and 4.8 of this Agreement on
the part of USO, and within twelve months after the termination of this
Agreement as described in the preceding sentence of this Section 6.3(c), USO
enters into an agreement with respect to a Third Party Acquisition, involving
any party (or any affiliate thereof) (x) with whom USO (or its agents) had
negotiations with a view to a Third Party Acquisition, (y) to whom USO (or its
agents) furnished information with a view to a Third Party Acquisition or (z)
who had submitted a proposal or expressed an interest in a Third Party
Acquisition, in the case of each of clauses (x), (y) and (z) after the date
hereof and prior to such termination, and such Third Party Acquisition is
consummated within 12 months thereafter, then USO shall pay to CDT an amount
equal to Seven Million Dollars ($7,000,000) in immediately available funds on
the next business day following the consummation of the Third Party
Acquisition.
(d) Except as specifically provided in this Section 6.3, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
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<PAGE>
Section 6.4. Amendment. This Agreement may be amended by action taken by USO
and CDT at any time before or after approval of the Merger by the stockholders
of USO and CDT (if required by applicable law) but, after any such approval,
no amendment shall be made which requires the approval of such stockholders
under applicable law without such approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of the parties hereto.
Section 6.5. Extension; Waiver. At any time prior to the Effective Time,
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of any other party, (ii) waive any inaccuracies in
the representations and warranties of any other party contained herein or in
any document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by any other party with any of the agreements or conditions
contained herein. Any agreement on the part of any party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of such
rights.
ARTICLE 7
Miscellaneous
Section 7.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section 7.1 shall not
limit any covenant or agreement of the parties hereto which by its terms
requires performance after the Effective Time.
Section 7.2. Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes all other prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof and (b) shall not be assigned by operation of law or otherwise.
Section 7.3. Validity. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby,
and to such end, the provisions of this Agreement are agreed to be severable.
Section 7.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile or by registered or certified mail (postage prepaid, return receipt
requested), to each other party as follows:
If to CDT:
Colonial Data Technologies Corp.
80 Pickett District Road
New Milford, CT 06776
Attention: Timothy R. Welles
Telecopy: (860) 355-3186
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
225 Asylum Street
Hartford, Connecticut 06103
Attention: Thomas L. Fairfield, Esq.
Telecopy: (860) 293-3555
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<PAGE>
if to USO:
US Order, Inc.
13873 Park Center Road
Suite 353
Herndon, VA 22071
Attention: John C. Backus, Jr.
Telecopy: (703) 904-8809
with a copy to:
Hunton & Williams
River Front Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23212
Telecopy: (804) 788-8218
Attention: David M. Carter, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 7.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of law thereof.
Section 7.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Section 7.7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 4.9 and 4.11, nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under
or by reason of this Agreement.
Section 7.8. Certain Definitions. For the purposes of this Agreement, the
term:
(a) "affiliate" means (except as otherwise provided in Sections 2.19,
3.19 and 4.13) a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person;
(b) "business day" means any day other than a day on which Nasdaq is
closed;
(c) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(d) "knowledge" or "known" means, with respect to any matter in question,
if an executive officer of USO or CDT or its subsidiaries, as the case may
be, has actual knowledge of such matter;
(e) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity; and
(f) "subsidiary" or "subsidiaries" of Newco, USO, CDT or any other
person, means any corporation, partnership, limited liability company,
association, trust, unincorporated association or other legal entity of
which Newco, USO, CDT or any such other person, as the case may be (either
alone or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the capital stock, the holders of which are
generally entitled to vote for the election of the board of directors or
other governing body of such corporation or other legal entity.
Section 7.9. Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect stockholder of USO, CDT or Newco or any officer,
director, employee, agent, representative or investor of any party hereto.
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<PAGE>
Section 7.10. Specific Performance. The parties hereby acknowledge and agree
that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder; provided, however, that, if a party
hereto is entitled to receive any payment or reimbursement of expenses
pursuant to Sections 6.3(a), (b) or (c), it shall not be entitled to specific
performance to compel the consummation of the Merger.
Section 7.11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
In Witness Whereof, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
US Order, Inc.
/s/ John C. Backus, Jr.
By:
-----------------------------------
Name: John C. Backus, Jr.
Title: President and Chief
Operating Officer
Colonial Data Technologies Corp.
/s/ Robert J. Schock
By:
-----------------------------------
Name: Robert J. Schock
Title: President and Chief
Executive Officer
A-36
<PAGE>
APPENDIX II
SALOMON BROTHERS INC
SEVEN WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
August 2, 1996
Members of the Board of Directors
US Order, Inc.
13873 Park Center Road
Suite 353
Herndon, VA 22071
Dear Sirs:
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, to the holders of common stock, par value
$.001 per share ("Company Common Stock"), of US Order, Inc. (the "Company"),
other than Colonial Data Technologies Corp. ("CDT") and any of its affiliates,
of the consideration to be received by such holders in connection with the
proposed combination (the "Combination") of the Company, CDT and Newco
("Newco") pursuant to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 5, 1996, between the Company and CDT. In the
Combination, the Company and CDT will each be merged with and into Newco,
which will be the surviving corporation in the Combination. Each issued and
outstanding share of the Company Common Stock (other than (a) Company Common
Stock held in the Company's treasury and (b) Company Common Stock held by CDT)
will be converted into and become one fully paid and nonassessable share (the
"Exchange Ratio") of common stock, par value $.001 per share, of Newco ("Newco
Common Stock") and each issued and outstanding share of common stock, par
value $.01 per share, of CDT ("CDT Common Stock") (other than (a) CDT Common
Stock held in CDT's treasury and (b) CDT Common Stock held by the Company)
will be converted into and become one fully paid and nonassessable share of
Newco Common Stock.
In arriving at our opinion, we have reviewed the Merger Agreement and its
related exhibits. We also have reviewed certain publicly available business
and financial information relating to the Company and CDT, as well as certain
other information, including financial projections, provided to us by the
Company and CDT. We have discussed the past and current operations and
financial condition and prospects of the Company and CDT with the respective
senior management of such entities. We have also considered such other
information, financial studies, analyses, investigations and financial,
economic, market and trading criteria which we deemed relevant.
We have assumed and relied on the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information or
for independent evaluation or appraisal of the assets of the Company or CDT.
With respect to the Company's and CDT's financial projections, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's and CDT's management, as
the case may be, as to the future financial performance of such entity, and we
express no opinion with respect to such forecasts or the assumptions on which
they are based.
Our opinion is necessarily based upon business, market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter and does not address the Company's underlying business decision to
enter into the Combination or constitute a recommendation to any holder of
Company Common Stock as to how such holder should vote with respect to the
Combination. Our opinion as expressed below does not imply any conclusion as
to the likely trading range for Newco Common Stock following the consummation
of the Combination, which may vary depending on, among other factors, changes
in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
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<PAGE>
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Combination and will receive a fee for our services,
part of which is payable upon the initial submission of this opinion. In the
ordinary course of our business, we actively trade the securities of the
Company and CDT for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of Company Common Stock (other than
CDT and any of its affiliates).
Very truly yours,
Salomon Brothers Inc
B-2
<PAGE>
APPENDIX III
August 2, 1996
Board of Directors
Colonial Data Technologies Corp.
80 Pickett District Road
New Milford, CT 06776
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Colonial Data Technologies Corp. (the "Company")
of the merger of the Company (the "Merger") and US Order, Inc. ("USOR"), a
publicly held company pursuant to an Agreement and Plan of Merger (the
"Agreement"). Pursuant to the Agreement, holders of USOR common stock and
Company common stock will receive one share of the common stock of a newly
formed corporation, into which each of USOR and the Company will be merged, in
exchange for each share of USOR common stock or Company common stock,
respectively.
First Albany Corporation ("First Albany"), as a customary part of its
investment banking business, is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements and valuations for corporate,
estate and other purposes. We regularly publish research reports regarding
various industry sectors, including telephony, and companies in those sectors.
In connection with and in preparation for rendering this opinion, we have
reviewed, analyzed and relied upon certain information bearing upon the
financial and operating condition of the Company and USOR, including: the
Agreement; financial statements and related information of the Company and
USOR for the year ended December 31, 1995, and for the interim periods ending
June 30, 1996; publicly available information concerning the historical prices
at which the common stock of the Company has been transferred; research
reports published by equity analysts; and other financial information
concerning the business and operations of the Company and USOR, including
certain internal financial and operating budgets, analyses and forecasts of
the Company and USOR prepared by their respective managements. We have also
met with members of the senior management of each of the Company and USOR to
discuss past and current business operations, financial condition and future
prospects of the Company and USOR, as well as other matters believed to be
relevant to our analysis. Further, we considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which we deemed relevant to our analysis including, to the
extent publicly available, the financial terms of comparable transactions.
In conducting our review and arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to us by the Company or USOR, or otherwise publicly
available. We have not independently verified this information, nor have we
had such information verified. For the purposes of rendering this opinion, we
have not conducted a physical inspection of any of the assets, properties or
facilities of the Company or USOR, nor have we made or obtained any
independent evaluation or appraisals of any such assets, properties or
facilities. Further, we have assumed that the Merger will be accounted for on
a purchase basis under generally accepted accounting principles.
First Albany will receive a fee for rendering this opinion, and such fee is
in part contingent upon the consummation of the Merger. First Albany served as
the lead underwriter on the Company's public offerings of 3,200,000 shares of
common stock in October of 1994 and 2,300,000 shares of common stock in July
of 1995, and served as a managing underwriter on USOR's initial public
offering of 3,850,000 shares of common stock in June of 1995. First Albany
provides research coverage on both the Company and USOR. Walter Fiederowicz, a
Director of the Company, is also a director of First Albany.
C-1
<PAGE>
We may, from time to time, have a long or short position in, and buy or
sell, the Company's common stock for our own account and for the accounts of
our customers. As of the date of this opinion, we have a nominal short
position in the common stock of both the Company and USOR.
Based upon and subject to the foregoing, it is our opinion that the
consideration to be received by the stockholders of the Company pursuant to
the Agreement is fair, from a financial point of view, to the stockholders of
the Company as of the above date.
Very truly yours,
FIRST ALBANY CORPORATION
C-2
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") authorizes,
inter alia, a corporation generally to indemnify any person ("indemnitee") who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation, in a similar position with another
corporation or entity, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. With respect to actions or suits by or in the right of the
corporation; however, an indemnitee who acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation is generally limited to attorney's fees and other expenses, and no
indemnification shall be made if such person is adjudged liable to the
corporation unless and only to the extent that a court of competent
jurisdiction determines that indemnification is appropriate. Section 145
further provides that any indemnification shall be made by the corporation
only as authorized in each specific case upon a determination by the (i)
stockholders, (ii) board of directors by a majority voted of a quorum
consisting of directors who were not parties to such action, suit or
proceeding or (iii) independent counsel if a quorum of disinterested directors
so directs, that indemnification of the indemnitee is proper because he has
met the applicable standard of conduct. Section 145 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
Article of the Newco Certificate of Incorporation provides that Newco
shall indemnify any and all persons permitted to be indemnified by Section 145
of DGCL to the fullest extent permitted by the DGCL.
Section of the Newco ByLaws provides, in substance, that directors,
officers, employees and agents shall be indemnified to the fullest extent
permitted by Section 145 of the DGCL.
Newco intends to enter into indemnification agreements with certain of its
directors providing for indemnification to the fullest extent permitted by the
laws of the State of Delaware. These agreements provide for specific
procedures to better assure the directors' rights to indemnification,
including procedures for directors to submit claims, for determination of
directors' entitlement to indemnification (including the allocation of the
burden of proof and selection of a reviewing party) and for enforcement of
directors' indemnification rights.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) The following are filed as exhibits to this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
2.1 Agreement and Plan of Merger, dated August 5, 1996, between US
Order, Inc. and Colonial Data Technologies Corp. (included as
Appendix I to the Joint Proxy Statement/Prospectus).
3.1 Certificate of Incorporation of Newco.*
3.2 Bylaws of Newco.*
4.1 Article of the Certificate of Incorporation of Newco and Section
of the Bylaws of Newco.
5 Opinion of Hunton & Williams.*
8.1 Tax Opinion of Hunton & Williams.*
8.2 Tax Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.*
10.1 Newco Non-Employee Directors' Stock Option Plan.*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.2 Newco Incentive Plan.*
10.3 Newco Employee Stock Purchase Plan.*
10.4 Employment Agreement, dated August 1, 1994, between US Order, Inc.
and John C. Backus, Jr. (incorporated herein by reference to US
Order's Registration Statement on Form S-1, dated June 1, 1995
(as filed with the Commission, File number 33-90978)).
10.5 Employment Agreement, dated as of July 1, 1996, between Colonial
Data Technologies Corp. and Robert J. Schock.*
10.6 Employment Agreement, dated September , 1996, between Newco and
Timothy R. Welles.*
10.7 Employment Agreement, dated September , 1996, between Newco and
Joseph E. Smith.*
12 Statement regarding computation of certain ratios.*
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Hunton & Williams (included as part of Exhibits 5 and
8.1).*
23.4 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included as
part of Exhibit 8.2).*
23.5 Consent of Salomon Brothers Inc.
23.6 Consent of First Albany Corporation.
24 Powers of Attorney.*
99.1 Form of US Order, Inc. proxy card.*
99.2 Form of Colonial Data Technologies Corp. proxy card.*
</TABLE>
- --------
*To be filed by amendment.
ITEM 22. 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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any 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 registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual
II-2
<PAGE>
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
C. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
D. The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (C) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes 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.
E. 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 of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
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.
F. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
G. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HERNDON, COMMONWEALTH OF
VIRGINIA, ON THE 28TH DAY OF AUGUST, 1996.
USOCDT Merger Corporation
(Registrant)
/s/ Albert N. Wergley
By: _________________________________
Albert N. Wergley
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSON IN THE CAPACITIES INDICATED
ON AUGUST 28, 1996.
SIGNATURE TITLE
--------- -----
/s/ Albert N. Wergley President, Treasurer and Sole Director
- ------------------------------------- (Principal Executive Officer and
ALBERT N. WERGLEY Principal Financial and Accounting
Officer)
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Deloitte & Touche LLP
23.5 Consent of Salomon Brothers Inc
23.6 Consent of First Albany Corporation
</TABLE>
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
US Order, Inc.:
We consent to the use of our report dated February 5, 1996 with respect to
the balance sheets of US Order, Inc. as of December 31, 1995 and 1994, and the
related statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1995,
which report is incorporated by reference herein, and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Washington, D.C.
August 28, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Colonial Data Technologies Corp. on Form S-4 of our report dated January 26,
1996, appearing in the Annual Report on Form 10-K of Colonial Data Technologies
Corp. for the year ended December 31, 1995 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
Deloitte & Touche LLP
Hartford, Connecticut
August 28, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name and the description of our opinion
letter, dated the date of the Proxy/Statement Prospectus referred to below,
under the caption "The Mergers--Opinions of Financial Advisors--Salomon" in,
and to the inclusion of such opinion letter as Appendix II to, the Joint Proxy
Statement/Prospectus of US Order, Inc. and Colonial Data Technologies Corp.,
which Proxy Statement/Prospectus is part of the Registration Statement on Form
S-4 of US Order, Inc. and Colonial Data Technologies Corp. By giving such
consent we do not thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "expert" as used
in, or that we come within the category of persons whose consent is required
under, the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission promulgated thereunder.
Salomon Brothers Inc
By: /s/ Eduado G. Mestre
------------------------
Managing Director
New York, New York
August 28, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF FIRST ALBANY CORPORATION
We hereby consent to the use of our name and the description of our opinion
letter, dated August 2, 1996, under the caption "The Mergers--Opinions of
Financial Advisors--First Albany" in, and to the inclusion of such opinion
letter as Appendix III to, the Joint Proxy Statement/Prospectus of US Order,
Inc. and Colonial Data Technologies Corp., which Joint Proxy
Statement/Prospectus is part of the Registration Statement on Form S-4 of US
Order, Inc. and Colonial Data Technologies Corp. By giving such consent we do
not thereby admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "expert" as used in, or
that we come within the category of persons whose consent is required under,
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
First Albany Corporation
By: /s/ Kenneth A. Mabbs
--------------------------
Senior Vice President
Boston, Massachusetts
August 28, 1996
