<PAGE>
As filed with the Securities and Exchange Commission on June 28, 1995
Registration No. _______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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Comdial Corporation
(Exact name of Registrant as specified in its charter)
Delaware (State or other 94-2443673 (IRS
jurisdiction of in corporation or Employer
organization) Identification No.)
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1180 Seminole Trail
Charlottesville, Virginia 22901
(804) 978-2200
(Address, including zip code and telephone number,
including area code of Registrant's principal executive offices)
Wayne R. Wilver
Secretary
Comdial Corporation
1180 Seminole Trail
Charlottesville, Virginia 22901
(804) 978-2200
(Name, address, including zip code and telephone number,
including area code of agent for service)
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Copies to:
Robert E. Stroud, Esq. Joel I. Papernik, Esq.
McGuire, Woods, Battle & Boothe, L.L.P. Squadron, Ellenoff, Plesent,
418 East Jefferson Street Sheinfeld & Sorkin, LLP
P.O. Box 1288 Charlottesville, 551 Fifth Avenue
Virginia 22902-1288 New York, New York 10176
(804) 977-2500 (212) 661-6500
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Approximate date of commencement of proposed sale to public: As soon as
practical after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1993 check the following box. [ ]
If the Registrant elects to deliver its latest annual report to security
holders or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE (1)
<TABLE>
<CAPTION>
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Proposed Proposed
Title of Each Class of Maximum Maximum Amount of
Securities to be Amount to be Offering Price Aggregate Registration
Registered Registered (2) per Share (3) Offering Price (3) Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock .............. 10,350,000 $ 3.97 $41,089,500 $14,168.79
- ------------------------------------------------------------------------------------------------------
<FN>
(1) Does not reflect the effect of a proposed one-for-three reverse stock split.
(2) Includes 1,350,000 shares that the Underwriters have an option to purchase
from the Selling Stockholder to cover over-allotments, if any which does not
reflect the effect of a proposed one-for-three reverse stock split.
(3) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457 of the Securities Act of 1933.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
COMDIAL CORPORATION
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Part I Items of Form S-2
<TABLE>
<CAPTION>
Item and Heading in Form S-2
Registration Statement Location in Prospectus
---------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus Cover Pages of Registration Statement and Prospectus
2. Inside Front and Outside Back Cover Pages
Of Prospectus......................................... Inside Front and Outside Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.............................. Prospectus Summary; Risk Factors
4. Use of Proceeds........................................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price........................ Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution............................................... Not Applicable
7. Selling Security Holders............................... Principal and Selling Stockholders
8. Plan of Distribution................................... Outside Front and Inside Front Cover Page of
Prospectus; Price Range of Common Stock;
Dividend Policy Underwriting; Outside Back Cover Page
of Prospectus;
9. Description of Securities to be Registered............. Description of Capital Stock
10. Interests of Named Experts and Counsel................. Experts
11. Information with Respect to the Registrant............. Outside Front Cover Page; Price Range of Common
Stock; Dividend Policy; Capitalization; Selected
Historical Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business; Index to Consolidated
Financial Statements
12. Incorporation of Certain Information by
Reference............................................ Incorporation of Certain Information by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities....... Description of Capital Stock
</TABLE>
1
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 28, 1995
3,000,000 Shares
#############################################################################
IMAGE OMITTED
(COMDIAL LOGO)
#############################################################################
Common Stock
Of the 3,000,000 shares of Common Stock offered hereby, 1,000,000 shares are
being sold by Comdial Corporation (the "Company") and 2,000,000 shares are being
sold by a selling stockholder (the "Selling Stockholder"). The Company will not
receive any proceeds from the sale of shares by the Selling Stockholder.
The Common Stock is included for trading on the Nasdaq National Market under
the symbol "CMDL." The Board of Directors of the Company has authorized and
submitted to the stockholders for approval on July 28, 1995, a one-for-three
reverse stock split of the Company's Common Stock, to be effective on the date
of this Prospectus. Except as otherwise indicated, all share and per share data
herein have been adjusted to reflect such reverse stock split. On June 27, 1995,
the closing price of the Common Stock as reported on the Nasdaq National Market
was $4 7/16 per share, or the equivalent of $13 5/16 per share as adjusted to
reflect the reverse stock split. See "Price Range of Common Stock."
For a discussion of certain material factors that should be considered in
connection with an investment in the Common Stock, see "Risk Factors" commencing
on page 6 hereof.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Underwriting
Price to Discounts and Proceeds to Proceeds to Selling
Public Commissions (1) Company (2) Stockholder (2)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share .... $ $ $ $
Total (3) .... $ $ $ $
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<FN>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting offering expenses estimated to be approximately $ payable
by the Company and approximately $ payable by the Selling Stockholder.
(3) The Selling Stockholder has granted to the Underwriters a 30-day option to
purchase up to 450,000 additional shares of Common Stock solely to cover
over-allotments, if any, on the same terms and conditions as the shares
offered hereby. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, and Proceeds to the Selling
Stockholder will be $ , $ and $ , respectively. See "Underwriting."
</TABLE>
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Rodman & Renshaw, Inc., New York, New
York, on or about ________ __, 1995.
Rodman & Renshaw, Inc.
The date of this Prospectus is _____ ___, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at 7 World Trade Center, Suite 1300, New York, New York, 10048; and 500 West
Madison Street, Suite 1400, Chicago, Illinois, 60611. Copies of such material
can be obtained from the Public Reference Section of the Commission, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition,
copies of such reports, proxy statements, and other information concerning the
Company may also be inspected and copied at the library of the Nasdaq National
Market, 1735 K Street, N.W., Washington, D.C. 20006, upon which the Common Stock
of the Company is listed.
The Company has filed with the Commission a Registration Statement on Form
S-2 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Common Stock being offered pursuant to
this Prospectus. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement and the documents
incorporated herein by reference which may be examined without charge at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies thereof may be obtained from the
Commission upon payment of the prescribed fees. Statements contained in this
Prospectus or in any document incorporated herein by reference as to the
contents of any contract or document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement or such
other document, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission (File No. 0-9023) pursuant
to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K, for the fiscal year ended December
31, 1994 excluding financial statements which are included elsewhere herein
and which have been restated to reflect the effect of a proposed
one-for-three reverse stock split;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended April 2,
1995 excluding financial statements which are included elsewhere herein and
which have been restated to reflect the effect of a proposed one-for-three
reverse stock split;
3. The Company's Proxy Statement dated April 4, 1995 relating to an Annual
Meeting of Stockholders held April 27, 1995; and
4. The Company's Proxy Statement dated June 28, 1995 relating to a Special
Meeting of Stockholders to be held on July 28, 1995.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus and the
Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement.
The Company will provide, without charge, upon written or oral request from
any person to whom a copy of the Prospectus is delivered, a copy of any of the
documents incorporated herein by reference in this Prospectus, not including
exhibits to such documents. Such requests should be directed to Comdial
Corporation, 1180 Seminole Trail, Charlottesville, VA 22901, Attention: Wayne R.
Wilver, telephone (804) 978-2200.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS
AND SELLING GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE
WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE
<PAGE>
ACT OF 1934. SEE "UNDERWRITING."
COMDIAL(Registered Trademark), DigiTech(Registered Trademark), DXP(Registered
Trademark), HoTelephone(Registered Trademark), InnTouch(Registered Trademark),
Enterprise(Trademark), Enterprise for Telephoney Services(Trademark),
ExecuMail(Trademark), ExecuTech(Trademark), Impact(Trademark) QuickQ(Trademark),
Scout(Trademark), Solo(Trademark), Tracker(Trademark), Unisyn(Trademark), and
Voice Express(Trademark) are trademarks of the Company. This Prospectus also
contains trademarks and trade names of other companies.
<PAGE>
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IMAGES OMITTED
SCEMATIC TELEPHONE SYSTEM
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<PAGE>
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IMAGES OMITTED
PICTURES OF COMDIAL PRODUCTS
PLACED RANDOMLY ON THE PAGE
#############################################################################
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus and
incorporated herein by reference. Unless otherwise indicated, all share, per
share, and financial information set forth herein reflects the one-for-three
reverse stock split of the Company's Common Stock to be effective on the date of
this Prospectus and assumes a public offering price of $13 5/16 per share, and
no exercise of the Underwriters' over-allotment option. Unless the context
requires otherwise, references in this Prospectus to the "Company" refer to
Comdial Corporation, its subsidiaries, and predecessors.
The Company
The Company designs, manufactures, and markets small to medium sized business
telecommunications systems which support up to approximately 200 telephones. The
Company believes that it is a leading supplier to this market, with an installed
base estimated to be in excess of 200,000 telephone systems and 2,000,000
telephones. The Company's products include digital and analog telephone switches
and telephones, as well as a wide range of product enhancements to the Company's
telephone systems. The Company's recent growth has occurred principally as a
result of digital telephone systems introduced by the Company since 1992. These
digital products provide end users with the ability to utilize evolving
telecommunications technologies, including those arising from the convergence of
telephone systems and computers, or computer-telephony integration ("CTI").
The Company's business strategy is to maintain its position in its core
business of delivering advanced telecommunications systems by continuing to
expand its distribution network, targeting organizations requiring small to
medium sized telecommunications systems, and providing a broad range of
products. In addition, the Company's growth strategy includes expansion of its
international markets and furthering its position as a leader in the emerging
market for CTI system solutions.
As a result of this business strategy, the Company has experienced
substantial increases in net sales and net income since 1993. Net sales
increased 11.6% from $69.1 million in 1993 to $77.1 million in 1994. Similarly,
net sales increased 26.5% from $17.6 million in the first quarter of 1994 to
$22.3 million in the first quarter of 1995. Net income applicable to common
stock before extraordinary items increased 25.7% from $2.4 million in 1993 to
$3.0 million in 1994, and 113.6% from $0.5 million in the first quarter of 1994
to $1.1 million in the first quarter of 1995.
The Company has established an extensive two-tiered distribution network,
whereby the Company sells its products to wholesale supply houses which in turn
sell the Company's products to approximately 7,400 independent dealers. These
dealers market the Company's products to small to medium sized organizations and
divisions of larger organizations. The Company's sales force seeks to recruit,
train, and support dealers to facilitate and encourage dealers' promotion and
sale of the Company's products. This distribution network enables the Company to
virtually eliminate bad debt exposure and minimize administration, credit
checking, sales expenses, and finished goods inventory levels, while achieving
broad geographic penetration and access to some of the fastest growing markets
in the country. In addition, this dealer network assures end users of local
sales representation, maintenance, support, and ready availability of the
Company's products.
The Company is positioning itself as a leader in the rapidly growing market
for CTI applications by supporting recently established industry standards,
promoting third-party software developers, and designing several new systems
using CTI applications. According to trade sources, since 1994 the Company has
been among the first manufacturers to produce a product which was compatible
with the Telephony Services Application Programming Interface ("TSAPI") standard
created by Novell, Inc. ("Novell"), bundle Novell's telephony services software
with the Company's
3
<PAGE>
software application interface, and demonstrate a prototype working interface
card for Microsoft Corporation's Telephone Application Programming Interface
("TAPI"). The Company supports third-party software developers by providing a
CTI development facility at the Company's offices. The Company also offers an
opportunity for third-party software developers to distribute their application
software packages through the Company's dealer network by means of a Company
produced catalog featuring CTI applications. The Company has introduced various
CTI applications for specific markets such as hospitality, emergency services,
and call centers.
The Company was originally incorporated in Oregon in 1977 and was
reincorporated in Delaware in 1982. Its principal office and manufacturing
facility is located at 1180 Seminole Trail, Charlottesville, Virginia 22901 and
its telephone number is (804) 978-2200.
The Offering
Common Stock Offered by the Company ...................... 1,000,000 shares
Common Stock to be Offered by the Selling Stockholder ... 2,000,000 shares
Common Stock to be Outstanding after the Offering ....... 8,085,529 shares (1)
Use of Proceeds .......................................... To redeem 750,000
shares of Series A
Preferred Stock and
for general
corporate and
working capital
purposes.
Nasdaq National Market Symbol ............................ "CMDL"
(1) Excludes 491,255 shares of Common Stock reserved for issuance upon
exercise of currently outstanding options granted under the Company's stock
option plans. For a description of the Company's stock option plans, see Note 11
of Notes to Consolidated Financial Statements.
4
<PAGE>
Summary Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, Quarter Ended
--------------------------- -----------------
April 3, April 2,
1992(1) 1993(2) 1994 1994 1995
------ ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Statement of Operations Data:
Net sales ..................................... $70,897 $69,099 $77,145 $ 17,639 $22,316
Gross profit .................................. 20,685 21,614 24,727 5,866 7,124
Operating income .............................. 3,072 5,385 5,667 1,143 1,737
Income before extraordinary item (3) ......... 884 2,416 3,614 615 1,230
Extraordinary item, write-off of debt issuance
cost .......................................... -- -- (389) (389) --
Net income .................................... 884 2,416 3,225 226 1,230
Dividends on preferred stock .................. -- -- 577 106 143
Net income applicable to common stock ........ $ 884 $ 2,416 $ 2,648 $ 120 $ 1,087
Selected Per Share Data:
Income before extraordinary item .............. $ 0.13 $ 0.35 $ 0.42 $ 0.07 $ 0.15
Extraordinary item ............................ -- -- (0.05) (0.05) --
Net income per common share ................... $ 0.13 $ 0.35 $ 0.37 $ 0.02 $ 0.15
Weighted average common shares outstanding ... 6,738 6,935 7,231 7,247 7,216
</TABLE>
At April 2, 1995
-----------------------
Actual As Adjusted(4)
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Selected Balance Sheet Data:
Working capital ............................. $12,282 $
Total assets ................................ 43,729
Long-term debt, excluding current maturities 3,988
Preferred stockholders' equity .............. 7,500 --
Common stockholders' equity ................. 14,795
(1) Net sales include approximately $6,474,000 relating to revenues of a
residential telephone product line that was sold in July 1992. Included in
net income is a gain of approximately $791,000 resulting from the sale of
such product line.
(2) Net income per common share and weighted average number of common shares
outstanding were $0.34 and 7,158,000, respectively, on a fully diluted
basis. There was no difference in primary and fully diluted share data in
any other year presented.
(3) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Income Tax Loss Carryforwards."
(4) Adjusted to reflect receipt by the Company of estimated net proceeds from
the issuance of 1,000,000 shares. See "Use of Proceeds" and
"Capitalization."
5
<PAGE>
RISK FACTORS
In evaluating an investment in the Common Stock being offered hereby,
investors should consider carefully, among other things, the following risk
factors, as well as the other information contained in this Prospectus and the
documents incorporated herein by reference.
Technological Change and Dependence on New Products
The market for the Company's systems and products is characterized by rapid
technological change and continuing demand for new products. Accordingly, the
timely introduction of new products and product features, as well as new
telecommunications applications such as computer-telephony integration are
expected to be a major factor in the Company's continued success. Market needs
and expectations will require the Company to continue to identify, develop and
sell new products and features that keep pace with technological developments
and competitive pressures. In addition, technological difficulties occasionally
inherent in new products and the time necessary to stabilize new product
manufacturing costs may adversely affect operating costs. There can be no
assurance that the Company's new products will achieve market acceptance, or
that the Company will be able to continue to develop new products, technologies,
and applications as required by changing market needs in the future. See
"Business -- Industry Background."
Dependence on Component Suppliers
Although the Company uses standard parts and components in the manufacture of
its products, certain electronic components used in the Company's systems,
including certain microprocessor and memory chips, are currently available from
a single source or a limited number of outside electronic component
manufacturers and distributors. Currently, the Company has multiple sources for
most electronic components, but has single sources for a few unique parts such
as custom integrated circuits. The Company does not have a long-term agreement
with any supplier of components. In addition, the Company obtains certain
electronic components from a limited number of manufacturers located outside of
the United States which are subject to changes in governmental policies,
imposition of tariffs, import restrictions, and other factors beyond the
Company's control. Although the Company has not experienced any material
difficulties in obtaining supplies in the past, there can be no assurance that
the Company will not experience delay in delivery or absence of supply from
existing sources or the inability to develop alternative sources, if and when
required in the future, which could materially and adversely affect operating
results.
Competition
The market for the Company's products is highly competitive. The Company
competes with approximately 20 companies, many of which have significantly
greater financial, marketing, and technical resources than the Company. In
addition, the Company must compete to attract and retain dealers for its
products. There can be no assurance that the Company will be able to compete
successfully in the marketplace or that the Company will be able to maintain its
current dealer network. See "Business -- Competition."
Fluctuations in Quarterly Revenues
The Company's revenues may vary from quarter to quarter due to a variety of
factors, including the timing of customer orders, the introduction of new
products by the Company or its competitors, domestic and international pricing
pressures as well as general economic conditions. The Company typically operates
with relatively little backlog, and substantial amounts of its revenues in each
quarter ordinarily come from orders received in that quarter.
Potential Intellectual Property Infringements; Limited Protection
From time to time, the Company is subject to proceedings alleging
infringement by the Company of intellectual property rights of others. Such
proceedings could require the Company to expend significant sums in litigation
and could require the Company to pay significant damages, develop non-infringing
6
<PAGE>
technology, or acquire licenses to the technology which is the subject of the
asserted infringement. Moreover, the Company relies upon copyright, trademark,
and trade secret protection to protect the Company's proprietary rights in its
products. There can be no assurance that these protections will be adequate to
deter misappropriation of the Company's technologies or independent third-party
development of similar technologies. See "Business -- Intellectual Property."
Dependence on Highly Skilled Personnel
The Company believes that its future success depends in large part upon its
ability to attract and retain highly skilled technical employees to oversee
product development and engineering functions. To date, the Company generally
has not experienced difficulty in recruiting capable individuals to fill these
positions other than certain positions for software engineers, as to which the
Company has been able to obtain the services of technical consultants as needed
for any particular project. However, competition for highly-skilled personnel is
intense, and there can be no assurance that the Company will be able to continue
to recruit capable technical employees and engineers in the future, or to secure
technical consultants when needed on reasonable terms.
7
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock being offered by the Company are estimated to be approximately $
after deducting the underwriting discounts and estimated offering expenses
payable by the Company. The Company will not receive any of the proceeds from
the shares offered by the Selling Stockholder.
The Company plans to use $7,500,000 of the net proceeds of the offering to
redeem 750,000 shares of Series A 7 1/2 % Cumulative Convertible Redeemable
Preferred Stock ("Series A Preferred Stock") currently held by PacifiCorp
Credit, Inc. ("PCI"), an affiliate of the Company. The outstanding shares of
Series A Preferred Stock may be redeemed at the option of the Company, in whole
or in part, at any time upon not less than 30 days nor more than 90 days prior
written notice, at a redemption price equal to $10.00 per share plus any
accumulated but unpaid dividends. The Company intends to use the balance of the
net proceeds for general corporate and working capital purposes. PCI has agreed
with the Company, until the earlier of the redemption of the Series A Preferred
Stock or October 1, 1995, to waive (i) the notice period required to redeem the
Series A Preferred Stock, (ii) PCI's right to convert the Series A Preferred
Stock into Common Stock, and (iii) certain rights to demand registration of
other shares of Common Stock owned by PCI which are not included in the
offering, including, but not limited to, registration rights PCI may possess
under a warrant agreement. In such connection, PCI has also consented to the
filing by the Company of a post-effective amendment to a Form S-3 Registration
Statement, originally filed by the Company in July 1994, in order to remove from
registration 2,000,000 shares of Common Stock owned by PCI covered thereby. Such
amendment shall be effective no earlier than the effective date of the
Registration Statement of which this Prospectus is a part.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the Nasdaq National Market under the
trading symbol "CMDL." The following table sets forth, for the quarters
indicated, the high and low last sale prices for the Company's Common Stock on
the Nasdaq National Market:
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
Year Ended December 31, 1993:
First Quarter ............................. $3 3/16 $1 5/16
Second Quarter ............................ 3 3/8 2 7/16
Third Quarter ............................. 3 2 1/4
Fourth Quarter ............................ 11 1/16 2 1/4
Year Ended December 31, 1994: .............
First Quarter ............................. $12 3/16 $8 1/4
Second Quarter ............................ 9 3/8 6
Third Quarter ............................. 8 7/16 6
Fourth Quarter ............................ 10 1/8 5 7/16
Year Ended December 31, 1995: .............
First Quarter ............................. $9 $6 3/4
Second Quarter (through June 27, 1995) ... 14 5/8 7 7/8
</TABLE>
On June 27, 1995, the last reported sale price for the Company's Common Stock
on the Nasdaq National Market was $13 5/16 per share. As of June 23, 1995, there
were 2,102 stockholders of record of the Common Stock.
8
<PAGE>
DIVIDEND POLICY
Pursuant to the terms of the Series A Preferred Stock, the holders of shares
of Series A Preferred Stock, in preference to the holders of the Company's
Common Stock, are entitled to receive, when, as, and if declared by the Board of
Directors, out of Company funds legally available for the payment of dividends,
quarterly dividends per share payable in cash in the following amounts: $0.19 on
the last day of March, $0.19 on the last day of June, $0.19 on the last day of
September, and $0.18 on the last day of December each year. Since March 1994,
the Company has paid such quarterly dividends on the outstanding shares of
Series A Preferred Stock.
To date, the Company has not paid any cash dividends on outstanding shares of
Common Stock. The Company currently intends to retain future earnings in order
to provide funds for operation and expansion of its business and, accordingly,
does not anticipate paying cash dividends on the Common Stock in the foreseeable
future. Any determination as to the payment of dividends is at the discretion of
the Company's Board of Directors and will depend on the Company's financial
condition, results of operations, capital requirements, contractual restrictions
on payment of dividends (if any), economic and market conditions and such other
factors as the Board of Directors deems relevant. The Company's loan agreement
currently restricts the payment of cash dividends, except on the Series A
Preferred Stock.
CAPITALIZATION
The following table sets forth the capitalization of the Company at April 2,
1995, and as adjusted to reflect the sale of 1,000,000 shares of Common Stock
offered by the Company hereby. This table should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At April 2, 1995
Actual As Adjusted
-------- ------------
(In thousands)
<S> <C> <C>
Long-term debt, excluding current maturities ......................... $ 3,988 $
Stockholders' equity: ................................................
Series A 7 1/2 % preferred stock ($10.00 par value), (authorized
2,000 shares; issued: 750 shares, no shares as adjusted) ....... 7,500 --
Common stock ($0.01 par value) and paid-in capital (authorized
30,000 shares; issued: 7,036 shares, 8,036 shares as
adjusted) (1) .................................................... 100,517
Other .............................................................. (973)
Accumulated deficit ................................................ (84,749)
Total stockholders' equity ......................................... 22,295
Total capitalization ............................................. $ 26,283 $
<FN>
(1) Excludes 548,706 shares of Common Stock reserved for issuance upon exercise
of currently outstanding options granted under the Company's stock option
plans. For a description of the Company's stock option plans, see Note 11 of
Notes to Consolidated Financial Statements.
</TABLE>
9
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(In thousands, except per share)
The following selected consolidated financial data for and as of the five
years ended December 31, 1994 are derived from the Company's audited
consolidated financial statements. The selected financial data as of April 2,
1995 and for the quarters ended April 2, 1995 and April 3, 1994 have been
derived from unaudited financial statements of the Company, which, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for such
periods. The results of the quarter ended April 2, 1995 are not necessarily
indicative of the results to be expected for the entire year. The data set forth
below should be read in conjunction with the Company's consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31, Quarter Ended
---------------------------------------------------- -------------------
April 3, April 2,
1990 1991 1992 1993(1) 1994 1994 1995
------- ------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Statement of Operations Data:
Net sales (2) .............................. $83,957 $66,914 $70,897 $69,099 $77,145 $ 17,639 $22,316
Costs of goods sold ........................ 62,845 48,103 50,212 47,485 52,418 11,773 15,192
Gross profit ............................... 21,112 18,811 20,685 21,614 24,727 5,866 7,124
Operating expenses: ..........................
Selling, general and administrative ..... 12,184 13,040 13,829 12,805 15,128 3,739 4,344
Engineering, research and development .... 3,903 3,343 3,784 3,424 3,932 984 1,043
Operating income ........................... 5,025 2,428 3,072 5,385 5,667 1,143 1,737
Interest expense ........................... 3,358 2,921 2,564 2,420 1,267 392 273
Other expense (income) (3) ................. 336 378 (389) 420 670 114 194
Income (loss) before income taxes and
extraordinary item ....................... 1,331 (871) 897 2,545 3,730 637 1,270
Income tax expense (4) ..................... 587 -- 13 129 116 22 40
Income (loss) from continuing operations ... 744 (871) 884 2,416 3,614 615 1,230
Extraordinary items and loss from
discontinued operations (5) .............. 270 -- -- -- (389) (389) --
Net income (loss) .......................... 1,014 (871) 884 2,416 3,225 226 1,230
Dividends on preferred stock ................ -- -- -- -- 577 106 143
Net income (loss) applicable to common stock $ 1,014 $ (871) $ 884 $ 2,416 $ 2,648 $ 120 $ 1,087
Selected Per Share Data:
Income (loss) from continuing operations .. $ 0.12 $ (0.15) $ 0.13 $ 0.35 $ 0.42 $ 0.07 $ 0.15
Extraordinary items and loss from
discontinued operations (4)................. 0.05 -- -- -- (0.05) (0.05) --
Net income (loss) per common share ........... $ 0.17 $ (0.15) $ 0.13 $ 0.35 $ 0.37 $ 0.02 $ 0.15
Weighted average common shares outstanding .. 5,984 5,964 6,738 6,935 7,231 7,247 7,216
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------- April 2,
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Working capital ............................. $ 8,499 $13,927 $12,404 $14,943 $11,631 $12,282
Total assets ................................ 44,163 41,412 41,747 44,803 42,260 43,729
Long-term debt, excluding current maturities 16,819 22,866 21,072 18,943 4,737 3,988
Preferred stockholders' equity .............. -- -- -- -- 7,500 7,500
Common stockholders' equity.................. 6,994 6,343 7,511 10,750 13,543 14,795
<FN>
(1) Net income per common share and weighted average number of common shares
outstanding were $0.34 and 7,158,000, respectively, on a fully diluted
basis. There was no differance in primary and fully diluted share data in
any other year presented.
(2) Amounts for 1990, 1991, and 1992 include revenues of approximately
$13,790,000, $11,183,000, and $6,474,000, respectively, from a residential
telephone product line which was sold in July 1992.
(3) Includes $791,000 related to a gain on the sale of a residential telephone
product line in 1992 (see note 1 above).
(4) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Income Tax Loss Carryforwards."
(5) Reflects in 1990, a loss from discontinued operations of $251,000 and a
benefit of $521,000 from the utilization of operating loss carryforwards
(($.04) and $.09 per share, respectively), and in 1994, the write-off of
debt issuance costs of $389,000.
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Selected Historical Financial Data and the Company's Consolidated Financial
Statements and Notes.
Results of Operations
The following table sets forth certain statement of operations data of the
Company expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, April 3, April 2,
-------------------------- ------------------
1992 1993 1994 1994 1995
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net sales ..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ............................ 70.8 68.7 67.9 66.7 68.1
Gross profit .................................. 29.2 31.3 32.1 33.3 31.9
Selling, general & administrative ............. 19.5 18.5 19.6 21.2 19.5
Engineering, research and development ........ 5.3 5.0 5.1 5.6 4.7
Operating income .............................. 4.3 7.8 7.3 6.5 7.8
Interest expense .............................. 3.6 3.5 1.6 2.2 1.2
Other expense (income) ........................ (0.5) 0.6 0.9 0.6 0.9
Income tax expense ............................ 0.0 0.2 0.2 0.1 0.2
Extraordinary item, write-off of debt issuance
cost .......................................... -- -- 0.5 2.2 --
Net income .................................... 1.2 3.5 4.2 1.3 5.5
Preferred dividends ........................... -- -- 0.7 0.6 0.6
Net income applicable to common stock ........ 1.2 3.5 3.4 0.7 4.9
</TABLE>
Note: Numbers may not add due to rounding.
Quarter Ended April 2, 1995 Compared to Quarter Ended April 3, 1994
Net sales in the first quarter of 1995 increased 26.5% to $22,316,000,
compared with $17,639,000 in the first quarter of 1994. The increase in net
sales was due primarily to the increase in sales of newer product lines, such as
the DXP and Impact digital systems. In addition, net sales from custom
manufacturing for other companies increased to $2,020,000, compared with
$261,000 in the first quarter of 1994.
Gross profit in the first quarter of 1995 increased 21.4% to $7,124,000,
compared with $5,866,000 in the first quarter of 1994. However, gross margin
decreased to 31.9% in the first quarter of 1995, compared with 33.3% in the
first quarter of 1994. Although the Company's sales of higher margin products,
such as DXP and Impact digitial systems, increased during the first quarter of
1995 as compared with the same period of 1994, the decrease in gross margin was
due primarily to increased levels of lower margin custom manufacturing products.
While increased levels of custom manufacturing have reduced gross margin, the
Company anticipates continuing custom manufacturing in order to offset fixed
costs associated with excess manufacturing capacity.
Selling, general and administrative expenses in the first quarter of 1995
increased 16.2% to $4,344,000, compared with $3,739,000 in the first quarter of
1994. However, such expenses decreased as a percentage of net sales to 19.5% in
the first quarter of 1995, compared with 21.2% in the first quarter of 1994. The
expense increase was due primarily to (i) an increase in personnel associated
with international sales, and development and marketing of CTI products, (ii)
sales allowances associated with higher sales volume, and (iii) an increase in
sales allowances attributed to an approximate 9% increase in the number of
dealers. The decrease as a percentage of net sales was due primarily to
predominantly fixed costs spread over increased sales.
11
<PAGE>
Engineering, research and development expenses in the first quarter of 1995
increased 6.0% to $1,043,000, compared with $984,000 in the first quarter of
1994. However, such expenses decreased as a percentage of net sales to 4.7% in
the first quarter of 1995, compared with 5.6% in the first quarter of 1994 due
to the higher rate of growth of net sales. The increase was due primarily to
higher expenditures to support ongoing development and testing of the larger
version of the DXP digital system which is expected to provide for larger
installations while still utilizing the DXP operating system.
Operating income in the first quarter of 1995 increased by 52.0% to
$1,737,000, compared with $1,143,000 in the first quarter of 1994. Similarly,
operating income increased as a percentage of net sales to 7.8% in the first
quarter of 1995, compared with 6.5% in the first quarter of 1994.
Interest expense in the first quarter of 1995 decreased 30.4% to $273,000,
compared with $392,000 in the first quarter of 1994. This decrease was primarily
due to the recapitalization, effective on February 1, 1994, that lowered the
Company's debt and interest rate. See Note 5 of Notes to Consolidated Financial
Statements.
Other expense in the first quarter of 1995 increased 70.2% to $194,000,
compared with $114,000 in the first quarter of 1994. Similarly, other expense
increased as a percentage of net sales to 0.9% for the first quarter of 1995,
compared with 0.6% in the first quarter of 1994. The increase of other expense
as a percentage of net sales was due primarily to higher cash discounts which
were a result of higher sales. In addition, reduction of interest income from a
note issued to the Company in connection with the sale of the residential
telephone product line in 1992 contributed to the increase in other expense.
Income tax expense in the first quarter of 1995 was $40,000, compared with
$22,000 in the first quarter of 1994. The Company's income tax expense would
have been higher, but such taxes were reduced by the utilization of operating
loss carryforwards.
Extraordinary item, write-off of debt issuance cost in the first quarter of
1994 of $389,000 represents debt restructuring costs that were written off in
connection with the refinancing of the Company's indebtedness to PacifiCorp
Credit Inc., ("PCI"), an affiliate of the Company.
Dividends on preferred stock represent quarterly dividends payable to PCI as
holder of the Series A 7 1/2 % Cumulative Convertible Redeemable Preferred Stock
("Series A Preferred Stock"). Dividends increased to $143,000 in the first
quarter of 1995, compared with $106,000 in the same period of 1994 due to the
Company's paying dividends for a full quarter in 1995, compared with only two
months in the first quarter in 1994.
As a result of the foregoing factors, net income applicable to common stock
before extraordinary item increased 113.6% to $1,087,000 in the first quarter of
1995, compared with $509,000 in the first quarter of 1994.
1994 Compared to 1993
Net sales in 1994 increased 11.6% to $77,145,000, compared with $69,099,000
in 1993. This increase was due primarily to increased sales of $6,974,000 of
business systems. The continual increase in sales of telephone systems was due
primarily to the demand for the Company's newer digital telephone systems, DXP
and Impact. In addition, net sales from custom manufacturing increased by
$1,684,000, or 288.4%, compared with 1993.
Gross profit in 1994 increased 14.4% to $24,727,000, compared with
$21,614,000 in 1993. Similarly, gross margin increased to 32.1% in 1994,
compared with 31.3% in 1993. This increase in gross margin was attributable
primarily to increased sales of higher margin products, such as DXP and Impact.
Selling, general and administrative expenses in 1994 increased 18.1% to
$15,128,000, compared with $12,805,000 in 1993. Similarly, such expenses
increased as a percentage of net sales to 19.6% in 1994 from 18.5% in 1993. The
primary reasons for the increase were: (i) additional sales allowances
associated with the higher sales volume in 1994, (ii) increased sales allowances
attributed to an approximate 12% increase in the number of dealers, (iii)
increased personnel and associated expenses for customer support and
12
<PAGE>
training, and (iv) a full year of operation of the Company's Comdial Enterprise
Systems, Inc. ("CES"), a wholly-owned subsidiary formed in 1993 to manage CTI
product development, sales and marketing. Costs relating to CES were $546,000
higher in 1994 compared with 1993.
Engineering, research and development expenses in 1994 increased 14.8% to
$3,932,000, compared with $3,424,000 in 1993. Similarly, engineering, research
and development expenses increased as a percentage of net sales to 5.1% in 1994
from 5.0% in 1993. The increase was due primarily to expenditures to support
development of the larger version of the DXP digital system which is expected to
provide for larger installations while still utilizing the operating system of
the DXP and expenditures for the Company's Unisyn business system.
Operating income in 1994 increased 5.2% to $5,667,000, compared with
$5,385,000 in 1993. However, operating income decreased as a percentage of net
sales to 7.3% in 1994 from 7.8% in 1993.
Interest expense in 1994 decreased 47.6% to $1,267,000, compared with
$2,420,000 in 1993. Similarly, interest expense decreased as a percentage of net
sales to 1.6% in 1994 from 3.5% in 1993. This decrease was due primarily to the
Company's recapitalization, on February 1, 1994, that lowered the Company's debt
and interest rate.
Other expense in 1994 increased 59.5% to $670,000, compared with $420,000 in
1993. Similarly, other expense increased as a percentage of net sales to 0.9% in
1994, compared with 0.6% in 1993. The increase in other expense as a percentage
of net sales was due primarily to higher cash discounts which were a direct
result of higher sales. In addition, the reduction of interest income was due
primarily to the Company's repayment of debt under its revolving credit
facility.
Income tax expense in 1994 was $116,000, compared with $129,000 in 1993. The
Company's income tax expense would have been higher, but such taxes were reduced
by the utilization of operating loss carryforwards.
Extraordinary item, write-off of debt issuance cost in 1994 of $389,000, or
0.5% of net sales, represents debt restructuring costs.
Dividends on preferred stock represent quarterly dividends payable to the
holder of Series A Preferred Stock. The Company issued 850,000 shares of Series
A Preferred Stock to PCI on February 1, 1994, in exchange for the cancellation
of $8,500,000 of the Company's indebtedness. The Company redeemed 100,000 shares
of Series A Preferred Stock from PCI in December 1994. Dividends in 1994 totaled
$577,000.
As a result of the foregoing, net income applicable to common stock before
extraordinary item increased 25.7% to $3,037,000 in 1994, compared with
$2,416,000 in 1993.
1993 Compared to 1992
Net sales in 1993 decreased by 2.5% to $69,099,000, compared with $70,897,000
in 1992. This decrease was primarily due to the sale of the residential
telephone product line during 1992 which accounted for $6,474,000, or 9.1%, of
1992 net sales. Sales of continuing product lines increased 7.3% from 1992 to
1993. Sales of other products in 1993 decreased by $1,809,000, or 22%, compared
with 1992 levels. This was offset by increased sales of $6,926,000, or 13%, of
business system products. This increase in sales of business system products was
largely attributable to the introduction of the Company's Impact telephone
system in the fourth quarter of 1992.
Gross profit in 1993 increased 4.5% to $21,614,000, compared with $20,685,000
in 1992. Similarly, gross margin increased to 31.3% in 1993, compared with 29.2%
in 1992. This increase in gross margin was primarily attributable to increased
sales of higher margin business system products, such as Impact and DXP.
Selling, general and administrative expenses in 1993 decreased 7.4% to
$12,805,000, compared with $13,829,000 in 1992. Similarly, selling, general and
administrative expenses decreased as a percentage of net sales to 18.5% in 1993
from 19.5% in 1992. The reduction in selling, general and administrative
13
<PAGE>
expenses was due principally to the continuing favorable impact in 1993 of the
workforce reduction in 1992. Costs relating to the Company's commitment to
expanding its international business were higher in 1993 by $256,000. In
addition, expenses arising from operations of CES, which was formed in 1993,
were $265,000.
Engineering, research and development expenses in 1993 decreased 9.5% to
$3,424,000, compared with $3,784,000 in 1992. Similarly, engineering, research
and development expenses decreased as a percentage of net sales to 5.0% in 1993
from 5.3% in 1992. This decrease was due primarily to the continuing favorable
impact in 1993 of the workforce reduction in 1992.
Operating income for 1993 increased by 75.3% to $5,385,000, compared with
$3,072,000 in 1992. Similarly, operating income increased as a percentage of net
sales to 7.8% in 1993, compared with 4.3% in 1992.
Interest expense in 1993 decreased 5.6% to $2,420,000, compared with
$2,564,000 in 1992. Similarly, interest expense decreased as a percentage of net
sales to 3.5% in 1993 from 3.6% in 1992. Interest expense decreased primarily
due to additional reduction of the Company's indebtedness.
Other expense in 1993 increased to $420,000, compared with income of $389,000
in 1992. The Company had income in 1992 from the realized net gain of $791,000
from the sale of the residential telephone product line.
Income tax expense in 1993 was $129,000, compared with $13,000 in 1992. The
Company's income tax expense would have been higher, but such taxes were reduced
by the utilization of operating loss carryforwards.
As a result of the foregoing, net income applicable to common stock increased
173.3% to $2,416,000 in 1993, compared with $884,000 in 1992. This increase was
attributable primarily to cost reductions implemented by management in 1992.
Liquidity and Capital Resources
Prior to February 1, 1994, the Company was indebted to an affiliate of PCI in
the amount of $21,209,453. In connection with a recapitalization effected on
February 1, 1994, the Company issued 850,000 shares of a newly designated Series
A Preferred Stock in exchange for the cancellation of $8,500,000 of the
Company's indebtedness to PCI. See "Description of Capital Stock -- Series A
Preferred Stock." The remainder of the Company's indebtedness to PCI was paid
using $6,000,000 of cash generated from operations and $6,709,453 of cash
borrowed from Shawmut Capital Corporation ("Shawmut"), formerly known as
Barclays Business Credit, Inc., pursuant to a loan and security agreement (the
"Loan Agreement") between Shawmut and the Company, under which Shawmut provided
a $6,000,000 term loan and a $9,000,000 revolving credit facility to the
Company.
On April 29, 1994, the Loan Agreement was amended and Shawmut issued a second
term note to the Company in the amount of $1,300,000 to finance the purchase of
additional surface mount technology equipment. Furthermore, in December 1994,
the Company redeemed 100,000 shares of the Series A Preferred Stock using the
proceeds from the repayment of a $1,000,000 note issued by the Company to
Cortelco International, Inc., in connection with the sale of the residential
telephone product line in 1992.
Pursuant to the terms of the Loan Agreement, the $6,000,000 term note and the
$1,300,000 term note have an interest rate equal to 1 1/2 % above Shawmut's
prime rate. The $6,000,000 term note is payable in 24 equal monthly principal
installments of $125,000, and 23 equal monthly principal installments of
$83,334, with the balance due on February 1, 1998. The $1,300,000 term note is
payable in 44 equal monthly installments of $27,000, with the balance due on
February 1, 1998. The revolving credit facility has an interest rate of 1% above
Shawmut's prime rate. As of June 26, 1995, the Company had borrowed
approximately $1,752,802 under the revolving credit facility and had
approximately $5,503,636 of additional borrowing capacity. See Note 5 of Notes
to Consolidated Financial Statements. The Company expects to fund its 1995 total
debt payments of $1,824,000 owed to Shawmut with cash from operations.
14
<PAGE>
The Company's indebtedness under the Loan Agreement is secured by liens on
the Company's accounts receivable, inventories, intangibles, land, and all other
assets. The Loan Agreement also contains financial covenants requiring the
Company to maintain specified levels of consolidated tangible net worth,
profitability, debt service ratio, and current ratio. In addition, the Loan
Agreement limits the Company's ability to make additional borrowings and pay
dividends except those permitted on the Series A Preferred Stock. As of December
31, 1994 and April 2, 1995, the Company was in compliance with all of the
covenants.
Overall, the recapitalization including the issuance of the Series A
Preferred Stock, has resulted in increased net income and cash flow due to the
Company's incurring lower interest expenses and has improved the Company's
balance sheet by reducing debt and increasing equity. In particular, cash and
cash equivalents decreased by $3,795,000 from December 31, 1993 to December 31,
1994 due to the payment of $6,000,000 to reduce the PCI indebtedness and the use
of the revolver to fund operations. Current maturities on debt decreased by
$1,786,000 from December 31, 1993 to December 31, 1994. The Company plans to use
a substantial portion of the net proceeds from the sales of shares offerred
hereby to redeem the remaining 750,000 shares of Series A Preferred Stock. See
"Use of Proceeds."
Working capital increased in the first quarter of 1995 by $651,000 due
primarily to the increase in accounts receivable and inventory which relates to
the increase in sales during this period. Working capital decreased during 1994
by $3,312,000 due primarily to a $3,795,000 reduction in cash and cash
equivalents.
Capital expenditures in the first quarter of 1995 and fiscal year 1994 were
$585,000 and $2,367,000, respectively. Capital additions in 1994 were provided
by funds from operations, capital leasing, and borrowing from Shawmut. Cash
expenditures for capital additions in 1994, 1993, and 1992 were $2,116,000,
$848,000, and $1,776,000, respectively. The Company anticipates spending
approximately $3,000,000 on capital expenditures during 1995 which include
equipment for manufacturing and technology.
The Company expects sales of telephone systems to continue to grow in 1995,
primarily due to the development of new products, strategic alliances, and the
development of additional international distribution channels. In addition, the
Company expects sales of its digital products, such as DXP and Impact, to
increase in 1995.
The Company believes that as a result of the improved capital structure
resulting from the repurchase of the Series A Preferred Stock from PCI and the
elimination of the dividend payments payable on such Series A Preferred Stock,
income from operations, amounts available from the Company's current credit
facilities and the net proceeds from the sale of the shares offered by the
Company hereby will be sufficient to meet the Company's needs for the forseeable
future.
In November 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers
Accounting for Postemployment Benefits." The Company implemented this standard
in 1994. This standard had no material effect on earnings or financial position
primarily due to the Company's policies regarding postemployment benefits.
Income Tax Loss Carryforwards
On January 1, 1993, the Company adopted SFAS No. 109, Accounting for Income
Taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income.
At December 31, 1994, the Company had approximately $72,336,000 and
$3,027,000 in Federal net operating loss and credit carryovers which will expire
if unused. The Company provided as of December 31, 1994, a valuation allowance
to fully reserve the net deferred tax assets related to such carryovers due to
the uncertainty as to whether the Company would generate taxable income during
the carryforward period.
15
<PAGE>
The Company continually evaluates the requirements for a valuation allowance
and makes adjustments to such allowance when circumstances result in changes in
its estimate of its ability to realize its deferred tax assets. During the
second quarter of the year ending December 31, 1995, the Company expects to
reduce the valuation allowance because at this point in time it appears more
likely than not that the Company will be able to utilize approximately
$13,000,000 of the net operating loss carryforwards prior to their expiration.
This will result in an increase in net income of approximately $4,500,000 for
the quarter ending July 2, 1995.
If the Company undergoes an "ownership change" within the meaning of Section
382 of the Internal Revenue Code, the Company's right to use its then existing
NOLs is limited during each future year to a percentage of the fair market value
of the Company's stock immediately before the ownership change. In general,
there is an ownership change under Section 382 if over a three-year period
certain stockholders increase their percentage ownership change of a corporation
by more than 50 percent. The amount of net operating loss carryforwards expected
to be utilized resulting in the reduction of the valuation allowance of
$4,500,000 assumes an ownership change will take place.
16
<PAGE>
BUSINESS
The Company designs, manufactures, and markets small to medium sized business
telecommunications systems which support up to approximately 200 telephones. The
Company believes that it is a leading supplier to this market, with an installed
base estimated to be in excess of 200,000 telephone systems and 2,000,000
telephones. The Company's products include digital and analog telephone switches
and telephones, as well as a wide range of product enhancements to the Company's
telephone systems. The Company's recent growth has occurred principally as a
result of digital telephone systems introduced by the Company since 1992. These
digital products provide end users with the ability to utilize evolving
telecommunications technologies, including those arising from the convergence of
telephone systems and computers, or computer-telephony integration ("CTI").
Industry Background
In recent years, advances in telecommunications have facilitated the
development of technologically advanced telephone systems and applications.
Spurred by the significant deregulation of the telephone industry that began in
the 1970s, electronic telephone systems began displacing the traditional
electromechanical telephones that had served as the basic office telephone
system since the 1930s. New telephone applications are being introduced
continuously, permitting business users to improve communications within their
organizations and with customers by using conference calls, speakerphones, voice
mail, automated attendant, and voice processing applications, such as speech
recognition.
A telephone system consists of a telephone switch that routes calls among
individual telephones on the system, and telephones that are connected to the
switch via internal telephone lines. Systems are typically described in terms of
the number of telephones connected to the switch. In the case of flexibility
configured systems, the system is described in terms of the total number of
ports, which can be connected to an outside line, a telephone, fax machine, or
other communications device.
Until recently, most telephone systems were "analog," transmitting voice
information in a continuous wave form that is "analogous" to the original voice
signal. Analog transmission is acceptable for most voice requirements, but is
not as efficient for data or video transmission. Analog transmission is subject
to attenuation, or the continual degradation of transmission quality as the
distance between sender and receiver increases. In addition, ambient noises can
be picked up and transmitted along with the original voice transmission, leading
to garbled communications.
By the late 1980s, digital telephone systems were available for commercial
use. The digitization of voice, data, and video is a general trend in the
telecommunications industry, whereby such forms of communication are converted
into binary pulses (0 and 1) that may be stored or transmitted. Within a fully
digital system, the signals are reproduced precisely with minimal degradation of
quality. Digital systems generally offer customers more features, provide
greater voice clarity, offer potential cost savings through the use of low-cost,
high-capacity T-1 transmission lines from telecommunication service providers,
enable improved video and data transmission, and offer superior platforms for
future features. Businesses with digital systems are better positioned to take
advantage of new features.
While some manufacturers have ceased producing analog systems altogether, the
Company offers a broad line of systems utilizing both analog and digital
technologies. The Company believes that current industry shipments are
approximately half digital, with the digital share growing rapidly. In addition,
the installed telephone system base remains predominantly analog, thereby
providing significant opportunities for manufacturers who continue to produce
analog systems. Such systems are purchased by end users wishing to install new
analog systems due to price considerations or to expand existing systems.
A recent major industry advancement is the development of CTI. CTI
applications merge the power of modern telephone systems with that of computers
to provide integrated solutions to broad communications problems, such as proper
queuing in call communications centers, and specific vertical market
applications (such as the real estate, law firm and food service markets). As an
example, an emergency dispatch system may use caller identification technology
in conjunction with other databases in order to access information such as the
street address and profile of the emergency caller which is displayed on the
dispatcher's computer. Dispatchers can send help quickly to the correct address
and
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provide the information needed to respond appropriately to the situation. The
growing industry and user interest in CTI has added a new dimension to the
business telecommunications market. In addition to the proprietary products
offered by the Company and others, the acceptance of industry standards now
makes it possible for independent software developers to market applications
software geared toward solving or simplifying a myriad of common business
communications problems.
Initially, the implementation of CTI was limited to specialized applications
written to the proprietary interfaces of individual switch makers. This yielded
a small number of expensive products. The broad acceptance of de facto standards
from Novell, Inc. ("Novell") and Microsoft Corporation ("Microsoft") now makes
it possible to implement CTI on a much broader scale and at a substantially
lower cost. In a local area network ("LAN") environment, Novell provides
software instructions (service provider interfaces or "SPIs") to telephone
system manufacturers committed to producing the connectivity software and
hardware required to communicate with the telephony server. The telephone switch
effectively becomes another node on a client server network.
For users who are not on a network, the desktop approach promoted by
Microsoft is an alternative solution. In this case, telephone system
manufacturers design special software links to Microsoft's SPI. Telephony
software is optionally available on current Windows operating systems and is
expected to be standard on Windows 95.
Until the late 1980s, all small and medium sized telephone systems were
"closed." If users wished to add new capabilities to their telephone systems,
they were restricted to whatever the system manufacturer chose to offer. One of
the most significant developments in recent years is the introduction of "open"
systems that permit users to customize their telephone system by adding those
applications packages suitable to their communications needs. Open systems
provide an open application interface ("OAI") through which a telephone system
can be linked to a computer. The computer can then command the telephone system
to perform certain functions, such as to answer, hold, delay, or transfer
telephone calls. The OAI is different for each switch manufacturer and useful
only if a software developer kit ("SDK") is also provided to third parties by
the switch manufacturers.
Because of the technological advances that have arisen due to digitization
and open systems, more flexible and useful telephone applications are being
developed to solve current communications problems. For example, a decade of
downsizing and corporate cost cutting has produced a large number of small
businesses and work-at-home employees. The industry estimates that nearly 30
million people work at least part-time out of their homes. This has created a
large market for small telephone systems, personal computers, fax machines,
modems and other devices required by home offices. These users need products
that can better integrate voice and data at the desktop level.
Changes in the telecommunications industry extend to the international market
as well. Developing countries recognize that advanced telecommunications systems
and networks are essential to attract foreign investment and stimulate local
economies. In some countries, people must wait several years for basic dial tone
service. There is a large, ready demand for delivery systems that can provide
basic service in short time frames and at economical prices. Among developed
nations, there is a sustained trend toward privatization of government
telecommunications monopolies in favor of competition at all levels. The
Company, with much experience working in a competitive environment, is well
positioned to take advantage of these opportunities.
Strategy
The Company is pursuing three fundamental business strategies: (i)
maintaining a leadership position in its core business of delivering advanced
telecommunications systems to the U.S. domestic market through wholesale supply
house distribution channels, (ii) achieving growth through expansion into
international markets, and (iii) being a leader in the emerging market for
systems solutions based on CTI. The Company seeks to support these strategies
through the following approaches.
Maintaining a Broad and Efficient Distribution Network
The Company distributes its products through a network of approximately 7,400
independent dealers, of which approximately 1,400 have written contractual
arrangements with the Company. This network enables the Company to achieve broad
geographic penetration, as well as access to some of the
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fastest growing markets in the country. The Company's distribution network
centers around a key group of wholesale supply houses, through which the
Company's products are made available to dealers. These dealers market the
Company's products to small to medium sized organizations and divisions of
larger organizations. The Company's strategy enables it to virtually eliminate
bad debt exposure and minimize administration, credit checking, and sales
expenses, as well as finished goods inventory levels. Wholesale supply houses in
turn are able to sell related products such as cable, connectors, and
installation tools. Dealers have the benefits of competitive sourcing and
reduced inventory carrying costs.
Targeting Small to Medium Sized Organizations
The Company has traditionally focused on organizations requiring small to
medium sized telecommunications systems, which the Company believes represents
about six million establishments in the United States, according to U.S.
government statistics. The Company's products offer this market many of the
features previously available only in large, proprietary systems that were often
not as affordable to this market.
Offering a Broad Range of Products
The Company currently offers digital and analog business telephone systems,
along with a variety of enhancements to the Company's products, CTI
applications, and several other products. Due to the fact that the software is
designed to be compatible with most of the Company's telephones, end users are
able to enhance and upgrade their systems without having to replace their
telephone equipment. The Company believes that this broad range of products
allows dealers to meet differing price and feature requirements. The Company
continuously strives to introduce new products to meet the needs of a changing
market.
Developing Strategic Alliances
The Company has developed strategic alliances with several other companies,
in order to build on the strengths of these companies and bring the best
possible products to the market at a lower cost. For example, pursuant to
strategic alliances, the Company has developed the Tracker on-site integrated
paging system with Motorola, Inc. ("Motorola"), and the Scout wireless
multi-line telephone supporting features of the Company's systems with Uniden of
America Corporation ("Uniden"). In addition, the Company has joined with Active
Voice Corporation ("Active Voice") for the Company's ExecuMail system and with
Novell for its Enterprise for Telephony Services.
Pursuing International Opportunities
The Company chooses its international markets carefully, with a preference
for emerging yet stable economies with technical standards close to North
America's (to minimize costly redesigns), and an open and competitive
telecommunications marketplace. In 1994, international sales were approximately
$3 million, including sales to Canada, Latin America, the Middle East, and South
Africa. The Company has entered into a licensing and original equipment
manufacturer ("OEM") relationship with Corporate Telephone Systems (Proprietary)
Limited ("Teleboss"), a major South African telecommunications manufacturer and
dealer, pursuant to which Teleboss is serving as a distributor of specified
products made by the Company, and has a license from the Company to manufacture
certain subassemblies used in those products.
Computer -- Telephony Application
The Company is addressing the CTI opportunity on several fronts. The Company
believes that the essential ingredients for successful CTI include (i) "open"
telephone systems, such as the Company's DXP, (ii) communication links between
the telephone system and computer or computer network, (iii) a telephony server
(if integration is over a LAN), and (iv) applications software.
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The Company believes that in order to maximize profitability in the emerging
markets for CTI, it must create the applications software for promising vertical
markets and small businesses, such as real estate, legal, and retail. The
Company's strategy is to develop applications for these vertical markets using
capabilities already available such as screen pops, directory dialing from an
existing data base, facsimile transmission from the desktop personal computer
("PC"), and unified messaging displays.
Promoting Industry Accepted Interface Standards
In order to integrate computers and telecommunications equipment, several
standards have been developed. The Company was among the first telephone
manufacturing companies to commit to the Novell standard, called Telephony
Services Application Programming Interface ("TSAPI"). The TSAPI standard
provides a stable platform for a Novell NetWare Network to integrate with the
features and functionality of a telephone switch. This standard also allows
third-party developers to write applications in a non-proprietary environment,
rather than using a specific system vendor's SDK, thus decreasing development
time and application investment costs. The Company also has demonstrated a
prototype working interface card to support Microsoft's Telephony Application
Programming Interface ("TAPI") standard that allows users to control any of the
Company's digital telephone systems through their PC and access special
telephony applications now being developed for desktop PC users.
Developing of Open Application Interface
The Company believes that OAI provide many advantages to systems developers
including reducing the time needed to develop new products and providing access
to a variety of applications from third-party vendors. Some manufacturers charge
high prices for the interface and software development kit. While this has
retarded growth of CTI applications, prices are now coming down. The Company was
the second manufacturer to equip a small to medium sized system with an OAI, and
the first to offer the interface link and SDK essentially for free.
Products
The Company offers a variety of telephone systems, including digital systems,
analog systems, enhancements to the Company's products, CTI applications, and
other products.
Digital Systems
DXP is a digital switch, introduced in 1992, that is compatible with
virtually all of the Company's analog and digital telephones. This compatability
allows the Company and its dealers to target larger end users while using the
same telephones as those used in the Company's smaller systems. Currently, the
DXP provides customers with an affordable system that can be expanded to support
up to 192 ports that can be configured as incoming lines or telephones. The DXP
has more call processing features than smaller systems, including automatic
route selection and an optional PC-based attendant position. The DXP may be
linked to various CTI applications using the Company's Enterprise SDK, which
allows external PC-based software packages to manage the DXP for any number of
specialized applications. Properly designed digital telephone systems, such as
the Company's DXP, are also directly compatible with T-1 service lines from
telecommunications service providers. A T-1 line is a digital service line that
is equivalent to 24 voice channels or can transmit data at 1.5 megabits per
second. The Company is currently testing an even larger version of the DXP to be
introduced in the second half of 1995.
Impact digital telephone systems were introduced in November 1992, and
support up to 24 lines and 48 telephones. This system includes a digital switch
and Impact digital telephones which offer a variety of features, including an
interactive liquid crystal display ("LCD"), interactive feature keys, three
color lighted status indicators, and a subdued off-hook voice announce for
receiving intercom calls while on a telephone call.
DigiTech digital systems were introduced in January 1991 with switches and
telephones designed for the business market supporting up to 24 lines and 48
telephones. DigiTech offers automatic set relocation, remote programming, a
replaceable software cartridge, and other sophisticated features.
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Analog Systems
Unisyn is an analog telephone system, introduced in 1994, designed to offer
advanced features to very small organizations. Two models are offered, one of
which supports up to three lines and eight telephones, and the other which
supports up to six lines and 16 telephones. Display model telephones offer
interactive function keys to simplify feature access. Another capability of
Unisyn is its optional compatibility with standard interface analog devices,
such as single line telephones, fax machines, and modems.
ExecuTech 2000 Unitized Expandable Hybrid Systems are analog systems,
introduced in 1989, the largest base system of which supports up to 16 lines and
32 telephones. The addition of expansion modules allows end users to increase
capacity to a maximum combination of 80 lines and telephones. These systems
provide subdued off-hook voice announce, built-in battery backup interface,
integrated call costing, and many other features.
ExecuTech XE Key Systems are analog telephone systems, introduced in 1989,
that support up to 10 lines and 24 telephones. All systems support the same
family of full-featured telephones. The switch is unitized, or a closed,
self-contained unit, making the ExecuTech XE system economical to manufacture,
easy to install, and beneficial to end users who do not have to buy additional
components to add features.
ExecuTech II Hybrid products are analog telephone systems, introduced in
1986, consisting of models supporting up to 22 lines and 96 telephones. This
line of systems supports economical ExecuTech single-line telephones and a
variety of multi-line terminals including an LCD model.
InnTouch is a line of four analog hospitality systems, the first of which was
introduced in 1987, that support up to 22 lines and 128 telephones. These
systems feature a front desk video display terminal, integrated call costing,
and multi-featured room phones.
Solo II is an analog telephone system, introduced in 1986, that is offered in
three and four line models and provides a sophisticated set of features that are
easy to program and cost effective.
Product Enhancements
ExecuMail is an integrated voice processing system, introduced in 1990, for
use with selected telephone systems offered by the Company. ExecuMail was
developed in cooperation with Active Voice, and provides both voice mail and
automated attendant service.
Scout is the Company's first wireless multi-line telephone, introduced in
1995. This telephone allows users to roam freely within their business
environments and still receive or place calls. Scout phones offer an LCD
display, multi-line access, programmable keys, an intercom, and head-set
convenience. The portable handset weighs only 8.5 ounces. Scout was developed in
cooperation with Uniden, a major supplier of wireless communications products.
Tracker is an on-site integrated paging system introduced in 1994. The
purpose of the product is to help assure that calls are quickly and efficiently
completed to individuals who are at work, but not always by their phones.
Tracker, which operates on one of the Company's digital telephone systems,
includes a Tracker base station and personal pagers equipped with an LCD. The
personal pagers sound an alert or vibrate to notify users of incoming calls or
important messages. A user can retrieve calls by going to the nearest Impact
phone and dialing a special code that is displayed on the LCD. A valuable
feature of Tracker is its compatability with related products manufactured by
the Company. Tracker was developed in cooperation with Motorola.
CTI Applications
Enterprise is the Company's OAI software developer's tool kit, introduced in
1993, used with the DXP system. Enterprise allows independent software
developers to access the DXP system software using more than 100 commands to
create unique applications for specific vertical markets, such as telemarketing
groups, emergency services, call centers, taxi services, and multimedia centers.
One of the
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initial OAI applications developed using Enterprise is an Enhanced 911 ("E911")
emergency telephone system. Enterprise is a platform for the development of
applications based upon the convergence of computer and telephony technologies.
InnTouch DXP is a digital telephone system, introduced in 1994, designed for
hospitality applications. The system consists of a DXP, Impact multi-line
administration phones, single-line guest phones, and special hospitality
software. The guest phones may be industry standard message waiting models or
the Company's own HoTelephones. HoTelephones provide added functionality,
including programmable keys and an auxiliary jack for modem connection. Standard
system features include check-in/check-out, automatic wake-up calls, message
waiting indication, call costing, maid status, and many other valuable hotel
management features. The optional InnTouch processing monitor is linked to the
DXP via the Company's proprietary Enterprise CTI link and provides full screen
display of room, telephone and maid status. InnTouch serves hotel properties
requiring up to 192 telephones. InnTouch was designed in cooperation with an
independent software developer.
QuickQ ACD is a digital telephone system, introduced in 1994, designed for
call center use. The system consists of a DXP, Impact telephones, voice
announcing equipment, special automatic call distribution software, and a PC.
The QuickQ answers and distributes incoming calls rapidly and efficiently,
helping to assure maximum call center productivity and superior customer
response levels. Up to 96 reports are provided, detailing call volume and call
center performance. The QuickQ ACD has a maximum capacity of 64 outside lines to
support up to 48 telephones in use simultaneously. Like the InnTouch DXP, the
QuickQ is a CTI product, based on the Company's Enterprise link to the DXP
operating system. QuickQ was designed in cooperation with an independent
software developer.
E911 Systems are specially engineered telephone systems, introduced in 1994,
for handling emergency ("911") telephone calls. The Company's systems deliver
valuable information to emergency dispatchers using caller identification
technology in conjunction with other databases in order to access information
such as the street address and profile of the emergency caller. Dispatchers can
send help swiftly to the correct address and provide information needed to
respond appropriately to the situation. All calls are recorded for future
reference, and operators can handle multiple calls without losing valuable
information. The Company's E911 system makes extensive use of CTI. The Company
contracts with municipal authorities for the purchase of the equipment.
Enterprise for Telephony Services is a line of software and documentation
products, introduced in 1995, used by dealers to integrate a DXP switch with
Novell Netware based LAN networks. When installed in a network server, PC users
on the LAN can command the DXP to perform telephony functions from their PCs and
access special applications software. Several products are available to support
up to 250 telephones.
Other Products
HoTelephone, introduced in 1984, comes in a variety of models. In 1990, the
Company added models with programmable soft keys and the "Take II" model that
simulates two-line service. Specially designed for business travelers, the
HoTelephone for motel and hotel guest rooms offers memory keys for one-button
dialing of various services, plus a message waiting lamp, hold button, and
built-in data jack for connecting portable computers and fax machines.
Voice Express is a fully featured multi-function display telephone that was
introduced in the early 1980s, with integrated speakerphone, autodial, and many
standard features for use behind different types of switches. Voice Express may
be optionally equipped with a two-line module or the user can add special six
and ten button modules for use with older telephone equipment.
Sales and Marketing
The Company has established an extensive two-tiered distribution network,
whereby the Company sells its products to wholesale supply houses which in turn
sell the Company's products to approximately 7,400 independent dealers.
International sales are accomplished through a network of international
distributors. These customers buy direct from Comdial, normally by letters of
credit, and resell to end users or other dealers. With the exception of federal
government sales, no products are distributed directly to end users.
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The Company distributes products to nine major wholesale supply houses, three
of which each account for more than 10% of the Company's sales. These wholesale
supply houses are Graybar Electric Company, Inc.("Graybar"), North Supply
Company, Inc.("North Supply"), a subsidiary of Sprint Corporation, and ALLTEL
Supply, Inc.("ALLTEL"), a subsidiary of ALLTEL Corporation, a stockholder of the
Company, which in the aggregate in 1994 accounted for approximately 78% of the
Company's sales. In 1994, sales to Graybar, North Supply and ALLTEL amounted to
approximately $31.3 million (41% of net sales), $16.3 million (21% of net
sales), and $12.4 million (16% of net sales), respectively.
The Company has two classes of dealers, Preferred and Associate Dealers.
Preferred Dealers generally have greater sales and technical skills, and are
strongly committed to the Company's products. The Company offers an attractive
incentive package for Preferred Dealers, including exclusive access to the
Company's most popular and advanced products, cash rebates related to dealer
purchase levels, cooperative advertising allowances and a measure of territorial
protection. For example, special software is required to connect the Company's
popular Impact telephones with DXP switches, which is not available from the
wholesale supply houses, but rather sold and shipped exclusively to Preferred
Dealers. Preferred Dealers have sales quotas, and the sales department monitors
their performance against these targets. By contrast, Associate Dealers do not
have quotas. They purchase Comdial products on an as-needed basis, and are
rewarded through product rebates. The Company has approximately 7,400
independent dealers, of which approximately 1,400 have written contractual
arrangements with the Company, divided almost equally between Preferred and
Associate Dealers.
The Company's sales organization seeks to recruit, train and support
individual dealers to facilitate promotion and sale of the Company's products.
Dealer and distributor sales are managed by 14 territory managers, organized
into Western and Eastern regions. Each territory manager has a corresponding
Inside Sales Representative. Field Sales Representatives concentrate on
supporting Preferred Dealers and the distributors from whom they purchase.
Within their respective territories, Field Sales Representatives are based in
large cities and work out of home offices. There are also small sales teams
focused on sales to the United States government and to international
distributors.
Each territory manager is responsible for recruiting new dealers and training
and motivating existing dealers. Dealers are supported through telephone contact
with Inside Sales Representatives, direct mail, and local product seminars often
organized by distributors. To stimulate street level demand, Field Sales
Representatives make joint sales calls with dealers to end users and train
dealer sales personnel in product benefits. Product specialists in
Charlottesville are available to help engineer complex configurations and solve
technical problems. All sales personnel earn incentive income based on sales
results.
Advertising and public relations efforts are also directed to dealers through
trade magazines such as Teleconnect and Computer-Telephony. Trade shows are a
major element of the Company's marketing plans. The Company is always a major
draw at the annual UNICOM and Computer-Telephony shows.
CTI products are marketed somewhat differently. E911 systems are sold
directly by dedicated sales personnel, with installation and maintenance
performed by qualified dealers. Comdial brand software and bundled systems
solutions are purchased through wholesale supply houses like the Company's other
products. Third-party applications software can be purchased directly from the
Company through the CT Direct catalog.
The Company's dealers are primarily responsible for supporting end users who
purchase the Company's products. The Company does, however, provide substantial
technical support to its dealers at no additional cost to them. The Company
maintains a technical support staff devoted to dealer support which is available
on a toll free basis twelve hours per day with emergency service on weekends.
The Company also generally provides a limited warranty on elements of its
products, permitting factory returns within 24 months after sale. Although the
Company does not offer maintenance contracts for its systems, dealers often
independently sell maintenance contracts to end users.
Because the Company's sales are made under short-term sales orders issued by
customers on a month-to-month basis, rather than under long-term supply
contracts, backlog is not material to an understanding of the Company's
business.
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Engineering, Research and Development
The Company believes that it must continue to introduce new products and
enhance existing products to maintain a competitive position in the marketplace.
The Company's engineering department, working in collaboration with the
marketing and manufacturing departments, is responsible for the design of these
new products and enhancements. A significant amount of engineering expenditures
are dedicated to new product development, with the balance used for cost
reductions and performance enhancements to existing products. Early in 1993, the
Company changed the responsibilities of its engineering staff to include both
product development and support of a product through its entire life cycle. This
requires engineers to perform multiple tasks in addition to research and
development. Although research and development costs for the fiscal years ended
1994, 1993, and 1992 comprise the majority of engineering, research, and
development costs, which were $3,932,000, $3,424,000, and $3,784,000,
respectively, the Company is unable to segregate and quantify the amount of
research and development costs from other engineering costs for such fiscal
years.
At this time, the Company's new product investments are heavily directed in
three areas (i) expansion of its digital product line, (ii) extending OAI
capability to a broader range of the Company's platforms, and (iii)
"internationalization" of existing and new products. The efforts are not
independent of each other. For example, a new digital system might be designed
to provide an OAI and to be available in models compatible with the standards of
the Company's prime international markets.
The Company anticipates introducing a larger version of the DXP in the second
half of 1995. This should extend the Company's ability to deliver CTI solutions
to larger businesses. Field trials for this product began in May, 1995. Efforts
are also underway to develop a smaller platform, or series of platforms, to
deliver CTI solutions to smaller businesses. Another important design activity
is the completion of special telephony cards supporting desktop CTI
applications. The demand for these products is expected to grow, coincident with
the release and anticipated broad market acceptance of Microsoft's Windows 95
operating system.
Manufacturing and Quality Control
The Company's manufacturing process is vertically integrated, and uses
advanced automated assembly and test equipment and computer controlled
sequencing machines. Beginning in 1991, the Company made further productivity
improvements by employing surface mount technology ("SMT") in the production of
predrilled printed wire boards ("PWBs"). Between 1992 and 1994, the Company
further expanded SMT productivity. Components designed for SMT production are
smaller, and allow for the placement of more components in the same surface
area. In addition, the components are placed on the surface rather than through
the surface which allows placement of components on both sides of the PWB. In
most cases, this reduces the required number of PWBs and connectors, thereby
providing a major improvement in quality and product reliability, a reduction in
product cost, and an improvement in profit margins. The Company believes that
approximately 10% of its costs are associated with labor expenses.
The Company also manufactures injection molded plastic parts, fabricated
metal parts, and other components. The Company's employees assemble completed
PWBs, components, plastics, and other purchased or manufactured subassemblies
into completed products. The Company has been able to utilize excess plant
capacity by contracting with third-parties who use the Company's plastics
molding equipment. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company attempts to monitor the quality of the manufacturing process.
Individual assemblers and machine operators are trained to inspect subassemblies
as the work passes through their respective areas. In addition, some automated
production machines perform quality tests concurrently with assembly operations.
The Company believes that this high level of automation and vertical integration
improves quality, cost, and customer satisfaction. In 1994, the Company was
certified by the International Organization for Standardization ("ISO") at the
most rigorous ISO 9001 level, which rates systems and procedures for
manufacturing, engineering, product design, and customer service.
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Competition
The market for the Company's products is highly competitive. The Company
competes with approximately 20 companies, many of which, such as AT&T Corp.,
Northern Telecom Inc., and Toshiba Corp., have significantly greater financial,
marketing and technical resources than the Company. Key competitive factors in
the sale of telephone systems and related applications include performance,
features, reliability, service and support, name recognition, distribution
capability, and price. The Company believes that it competes favorably in its
market with respect to the performance, features, and price of its systems, as
well as the level of service and support that the Company provides. In marketing
its telephone systems, the Company also emphasizes quality as evidenced by its
ISO 9001 certification and high technology features. In addition, the Company
competes with its competitors to attract and retain dealers for its products.
The Company expects that competition will continue to be intense in the markets
that it serves, and there can be no assurance that the Company will be able to
continue to compete successfully in the marketplace or that the Company will be
able to maintain its current dealer network.
Intellectual Property
From time to time, the Company is subject to proceedings alleging
infringement by the Company of intellectual property rights of others. Such
proceedings could require the Company to expend significant sums in litigation
and could require the Company to pay significant damages, develop non-infringing
technology, or acquire licenses to the technology that is the subject of the
asserted infringement. Moreover, the Company relies upon copyright, trademark,
and trade secret protection to protect the Company's proprietary rights in its
products. There can be no assurance that these protections will be adequate to
deter misappropriation of the Company's technologies or independent third-party
development of similar technologies.
Because the telecommunications manufacturing industry is characterized by
rapid technological change with frequent new product and feature introductions,
industry participants often find it necessary to develop products and features
similar to those introduced by others, with incomplete knowledge of whether
patent protection may have been applied for or may ultimately be obtained by
competitors or others. The telecommunications manufacturing industry has
historically witnessed numerous allegations of patent infringement and
considerable related litigation among competitors. The Company itself has
received claims of patent infringement from several parties, including certain
competitors such as Phonometrics, Inc., which has since licensed patented
technology to the Company. Although the Company's investigation of some of these
claims has been limited by the claims' lack of specificity, the limited
availability of factual information and documentation related to the claims, and
the expense of pursuing exhaustive patent reviews, the Company believes that its
systems do not currently infringe valid patents of any such claimants. In
response to prior infringement claims, the Company has pursued and obtained
nonexclusive licenses entitling the Company to utilize certain fundamental
patented functions that are widely licensed and used in the telecommunications
manufacturing industry. These licenses expire upon expiration of the underlying
patents.
Although the Company believes that it currently owns or has adequate rights
to utilize all material technologies relating to its products, as it continues
to develop new products and features in the future, it anticipates that it may
receive additional claims of patent infringement. Such claims could result in
the Company's incurring substantial legal expenses and being required to obtain
licenses, pay damages for infringement, or cease offering products that infringe
such patents. There can be no assurance that a license for any such infringed
technology would be available to the Company or, even if available, that the
terms of any such license would be satisfactory.
Employees
As of April 2, 1995, the Company had 801 full-time employees, of whom 572
were engaged in manufacturing, 103 in product development and support, 71 in
sales, and 55 in general management and administration. The Company has never
experienced a work stoppage and no employees are represented by labor unions.
The Company believes that its employee relations are good.
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Properties
The Company designs, manufactures, and markets all of its products from a
fully-integrated, approximately 500,000 square foot manufacturing facility on a
25 acre site located in Charlottesville, Virginia. All of the Company's
operations and development are located at this facility, which the Company owns.
The Company believes that its facilities are adequate for both the operation of
its business as presently conducted and expansion in the foreseeable future.
The Company's facilities are subject to a variety of federal, state, and
local environmental protection laws and regulations, including provisions
relating to the discharge of materials into the environment. The cost of
compliance with such laws and regulations has not had a material adverse effect
upon the Company's capital expenditures, earnings or competitive position, and
it is not anticipated to have a material adverse effect in the future.
In 1988, the Company voluntarily discontinued its use of a concrete
underground hydraulic oil and chlorinated solvent storage tank. In conjunction
therewith, nearby soil and groundwater contamination was noted. As a result, the
Company developed a plan of remediation that was approved by the Virginia Water
Control Board on January 31, 1989. The plan was later amended and approved by
the Virginia Department of Environmental Quality, after which the Company
commenced the remediation efforts required thereunder. In 1993, the Company
provided a $45,000 reserve for the estimated cost to implement the remediation
plan.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Company or any of its
subsidiaries is a party or to which any of their property is the subject.
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MANAGEMENT
The following table sets forth certain information regarding the Company's
directors, executive officers and a key employee.
Name Age Position
---- --- --------
Officers and Directors
William G. Mustain .. 53 Chairman of the Board, President, and Chief
Executive Officer
Wayne R. Wilver ...... 61 Senior Vice President, Chief Financial Officer,
Treasurer, and Secretary
Stephen C. Ayers .... 40 Vice President, Sales and Marketing
Joe D. Ford .......... 47 Vice President, Human Resources
Keith J. Johnstone .. 48 Vice President, Manufacturing
Lawrence K. Tate .... 52 Vice President, Quality
Ove Villadsen ........ 54 Vice President, Engineering
A.M. Gleason ......... 65 Director
Michael C. Henderson 48 Director
William E. Porter ... 50 Director
John W. Rosenblum ... 51 Director
Dianne C. Walker .... 38 Director
Key Employee
William C. Grover ... 56 President, Comdial Enterprise Systems, Inc.
The business experience, principal occupations and employment, as well as the
periods of service, of each of the directors, executive officers and a key
employee of the Company during at least the last five years are set forth below.
William G. Mustain joined the Company as Vice President of Operations in June
1987 and assumed the position of President, Chief Executive Officer and Director
in May 1989. In April 1995, Mr. Mustain became Chairman of the Board of
Directors. Prior to joining the Company, Mr. Mustain was Vice President of
Operations (Engineering and Manufacturing) for Norand Corporation, a
manufacturer and marketer of mobile computing systems and premises
based-wireless data communication networks, from 1983 to 1987 and held various
engineering and manufacturing positions with General Electric Company from 1964
to 1983.
Wayne R. Wilver joined the Company in July 1986 and has served in his present
position as Senior Vice President, Chief Financial Officer, Treasurer, and
Secretary since May 1989. Between 1983 and 1986, Mr. Wilver served as Vice
President -- Finance and Business Management and Treasurer to the U.S. Committee
for Energy Awareness. From 1955 to 1983, Mr. Wilver held various management
positions with General Electric Company, including Chief Financial Executive of
its Mobile Communications Business division.
Stephen C. Ayers joined the Company in November 1988 as Vice President in
charge of Sales and Marketing. Prior to that time, he held various sales
management positions with BellSouth Communications Systems, Inc., a subsidiary
of BellSouth, Inc.
Keith J. Johnstone was elected Vice President in charge of Manufacturing for
the Company in May 1990. He has been employed in various positions with the
Company and its affiliates since 1980, including Director of Customer Service,
Director of Materials, Director of Manufacturing Systems, and Plant Manager.
Joe D. Ford was elected Vice President in charge of Human Resources in April
1995. Prior to his election, Mr. Ford served as the Company's Director of Human
Resources. Mr. Ford joined Stromberg-
27
<PAGE>
Carlson Telephone Systems, Inc., a division of General Dynamics, in 1979 and
joined the Company when it acquired Stromberg-Carlson's Charlottesville
operations in October 1982.
Lawrence K. Tate was elected Vice President in charge of Quality in November
1982. Between 1969 and 1982, he held various management positions, including
Vice President -- Manufacturing Operations, for Stromberg-Carlson Telephone
Systems, Inc., which operated the Charlottesville manufacturing facility before
the Company acquired it in October 1982.
Ove Villadsen was elected Vice President in charge of Engineering in May
1989. Prior to that time, Mr. Villadsen served as Vice President of one of the
Company's subsidiaries and has been employed in various management positions by
the Company or its affiliates since 1980.
A. M. Gleason retired in May 1995 as Vice Chairman and director of
PacifiCorp, a diversified public utility. Prior to January 1994, Mr. Gleason was
President and Chief Executive Officer of PacifiCorp. He is also a director of
Tektronix, Inc., Blount, Inc., and Fred Meyer, Inc. Mr. Gleason has served as a
director of the Company since 1981.
Michael C. Henderson is President and Chief Executive Officer of PacifiCorp
Holdings, Inc., a holding company which owns 87% of Pacific Telecom, Inc., and
100% of Pacific Generation Company and PacifiCorp Financial Services, Inc. He is
also President and Chief Executive Officer of PacifiCorp Financial Services,
Inc., a diversified financial services company, and served as Chairman of
Pacific Generation Company, developer and operator of independent power
projects. Prior to April 1993, Mr. Henderson was Vice President -- Community and
Energy Services of PacifiCorp. Between April 1991 and April 1992, Mr. Henderson
served as Senior Vice President -Portfolio Management of PacifiCorp Financial
Services, Inc. ("PFS"), and in that capacity held various management positions
in companies in which PFS held equity interests. From 1986 to 1990, Mr.
Henderson served as Chief Executive Officer of Crescent Foods, Inc., and was
President of Sound Strategies, a solely owned consulting firm from 1990 to 1991.
Mr. Henderson serves as Chairman of the Board of Albina Community Bancorp. Mr.
Henderson has served as a director of the Company since April 1995.
William E. Porter is Vice President -- Project Future of Trigon Blue Cross
Blue Shield (formerly Blue Cross Blue Shield of Virginia). Between 1992 and May
1994, Mr. Porter was a Vice President of the Integrated Systems Division of
Century Technologies Corporation, a systems integration company. Between 1990
and 1992, Mr. Porter served as Deputy Chief of Staff for the Governor of the
Commonwealth of Virginia and as Deputy Secretary of Commerce and Trade. He
served as a director of the Metropolitan Washington Airports Authority between
1992 and 1994 and as a director of Virginia's Center for Innovative Technology
in 1993. Mr. Porter has served as a director of the Company since July 1994.
John W. Rosenblum is a Tayloe Murphy Professor of Business Administration and
was Dean from 1983 to 1993 at the Darden Graduate School of Business
Administration at the University of Virginia. He is also a director of
Chesapeake Corporation, Cadmus Communications Corp., T. Rowe Price Associates,
and Cone Mills Corporation. Mr. Rosenblum has served as a director of the
Company since 1992.
Dianne C. Walker is an independent consultant. Prior to January 1995, she was
a consultant to Bear Stearns & Co. Inc., an investment banking firm. Prior to
August 1992, she was a consultant to and between April 1990 and July 1991, Vice
President of Kidder Peabody & Co., Inc., an investment banking firm. Between
1988 and 1990, Ms. Walker was a consultant to Pacific Telecom, Inc., a
telecommunications company and an affiliate of PCI and of the Company. She is
also a director of Satellite Technology Management, Inc., Catalina Marketing
Corporation, Arizona Public Service Company, and Microtest, Inc. Ms. Walker has
served as a director of the Company since 1986.
William C. Grover has been the President of CES, a wholly owned subsidiary of
the Company which markets CTI hardware and software since August 1993. Prior to
joining the Company, Mr. Grover was the Chief Executive Officer of a software
database company after spending 17 years as an executive at Sperry Computer
Systems, three years as Senior Vice President -- Sales and Marketing for Norand,
and two years as President of Sequoia Systems.
28
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of June 12, 1995, and
as adjusted to reflect the sale of 1,000,000 shares of Common Stock by the
Company and 2,000,000 shares by the Selling Stockholder in this offering
regarding the beneficial ownership of the Company's Common Stock by (i) all
persons known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each director and officer of the Company, (iii) all directors
and officers of the Company as a group and (iv) the Selling Stockholder. All
information with respect to ownership by the Selling Stockholder has been
furnished by the Selling Stockholder.
<TABLE>
<CAPTION>
Amount and Percent of Outstanding
Nature of Shares Shares Owned Stock Owned(3)
Beneficial Being After Before After
Name and Address of Beneficial Owner Ownership(1) Offered(2) Offering(2) Offering Offering
- -------------------------------------- --------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
PacifiCorp Credit, Inc. (4), (5) ...... 2,907,169 2,000,000 907,169 41.1% 11.2%
825 N. E. Multnomah Street Suite 775
Portland, Oregon 97232-2152
ALLTEL Corporation (4)................. 365,222 -- 365,222 5.2% 4.5%
One Allied Drive
Little Rock, Arkansas 72202 ..........
Dimensional Fund Advisors, Inc. (4),
(6).................................... 367,233 -- 367,233 5.2% 4.5%
1299 Ocean Avenue, Suite 650
Santa Monica, California 90401........
A. M. Gleason (7)...................... 19,600 -- 19,600 **
Michael C. Henderson (8), (9).......... 2,910,503 -- 910,503 41.1% 11.3%
William E. Porter (9).................. 6,666 -- 6,666 **
John W. Rosenblum (9).................. 13,333 -- 13,333 **
Dianne C. Walker (10).................. 16,700 -- 16,700 **
William G. Mustain .................... 41,895 -- 41,895 **
Wayne R. Wilver (11)................... 24,444 -- 24,444 **
Stephen C. Ayers (12) ................. 13,222 -- 13,222 **
Joe D. Ford (13) ...................... 1,711 -- 1,711 **
Keith J. Johnstone (14) ............... 6,845 -- 6,845 **
Lawrence K. Tate (15) ................. 20,088 -- 20,088 **
Ove Villadsen (14) .................... 9,678 -- 9,678 **
All directors and officers as a group
(12 persons) (16) ..................... 3,084,686 -- 1,084,685 43.3% 13.3%
<FN>
* Less than one percent of the issued and outstanding shares of Common Stock.
(1) Beneficial ownership is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is
generally determined by voting power and/or investment power with respect to
securities and accordingly, may include securities owned by or for, among
others, the spouse and/or minor children of an individual and any other
relative who has the same home as such individual, as well as other
securities as to which the owner has or has the right to acquire within 60
days after June 12, 1995. However, shares of Common Stock issuable upon
conversion of shares of Series A 7 1/2 % Cumulative Convertible Redeemable
Preferred Stock of the Company ("Series A Preferred Stock") have not been
included in the table (see
29
<PAGE>
note 5). Except as indicated by footnote, and subject to community property
laws where applicable, the Company believes that the persons named in the
table above have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them. Beneficial ownership
may be disclaimed as to certain of the securities. For a description of the
Series A Preferred Stock, See "Description of Capital Stock."
(2) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to 450,000 shares of Common Stock from the Selling Stockholder. If such
over-allotment option is exercised in full, the number of shares of Common
Stock beneficially owned by the Selling Stockholder will be reduced to
457,169 or 5.7% of the total shares of Common Stock outstanding after the
offering.
(3) Individual percentages have been rounded. Shares subject to outstanding
stock options which the individual has the right to acquire within 60 days
after June 12, 1995, are deemed to be outstanding for the purpose of
computing the percentage of outstanding securities of the class owned by
such individual, or any group including such individual, but are not deemed
outstanding for the purpose of computing the percentage of the class owned
by any other individual.
(4) Based on information filed with the Securities and Exchange Commission by
the reporting person.
(5) Excludes 856,933 shares issuable upon the conversion of 750,000 shares
Series A Preferred Stock held by PacifiCorp Credit, Inc. ("PCI"). Mr.
Henderson, a director of the Company, is President and Chief Executive
Officer of PacifiCorp Holdings, Inc., an affiliate of PCI. Mr. Henderson
disclaims beneficial ownership of the shares of Common Stock and Series A
Preferred Stock owned by PCI.
(6) Dimensional Fund Advisors, Inc. ("DFA") is an investment advisor registered
under the Investment Advisors Act of 1940, as amended. The shares reported
in the table are held in portfolios of DFA Investment Dimensions Group,
Inc., a registered open-end investment company, or in series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group Trust
and the DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which DFA serves as investment manager. DFA
disclaims beneficial ownership of all such shares. No individual client of
DFA is known to the Company to be the holder of more than five percent of
the Company's Common Stock.
(7) In May 1995, Mr. Gleason retired as Vice Chairman and a director of
PacifiCorp, an affiliate of PCI. Until April 1995, Mr. Gleason served as
PCI's nominee on the Board of Directors of the Company. PCI named Mr.
Henderson (see note 8) to replace Mr. Gleason as PCI's nominee on the Board
of Directors, effective as of the Annual Meeting held on April 27, 1995.
Although Mr. Gleason is no longer PCI's nominee, he has agreed to remain a
member of the Board. His term expires in 1997.
(8) Includes 2,907,169 shares beneficially owned by PCI (see note 5). Pursuant
to an agreement between PCI and the Company dated October 31, 1991, as long
as PCI or any of its affiliates owns at least 10% of the Company's
outstanding Common Stock, the Company will nominate and use its best efforts
to cause a nominee of PCI to become a member of the Board of Directors of
the Company. Mr. Henderson currently serves as PCI's nominee on the
Company's Board of Directors having replaced Mr. Gleason (see note 7). Mr.
Henderson is President and Chief Executive Officer of PacifiCorp Holdings,
Inc., a holding company which owns 87% of Pacific Telecom Inc., and 100% of
Pacific Generation Company and PacifiCorp Financial Services, Inc. He is
also President and Chief Executive Officer of PacifiCorp Financial Services,
Inc., an affiliate of PCI.
(9) Includes 3,333 shares issuable upon the exercise of stock options.
(10) Includes 6,666 shares issuable upon the exercise of stock options.
(11) Includes 2,222 shares issuable upon the exercise of stock options.
(12) Includes 5,555 shares issuable upon the exercise of stock options.
(13) Includes 1,111 shares issuable upon the exercise of stock options.
(14) All shares issuable upon the exercise of stock options.
(15) Includes 3,958 shares issuable upon the exercise of stock options.
(16) Includes 46,034 shares issuable upon the exercise of stock options and
2,907,169 shares beneficially owned by PCI (see note 5).
</TABLE>
30
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock and selected
provisions of its Restated Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by the Company's Restated Certificate of
Incorporation and Bylaws, copies of which have been filed with the Securities
and Exchange Commission as exhibits to the Registration Statement of which this
Prospectus is a part.
The Company is a Delaware corporation authorized to issue 2,000,000 shares of
Preferred Stock, par value $10.00, and 30,000,000 shares of Common Stock, par
value $0.01.
Common Stock
The holders of Common Stock have full voting rights, subject to any voting
rights of any shares of Preferred Stock then outstanding, and are entitled to
one vote for each share held of record on each matter submitted to a vote of the
stockholders. Holders of Common Stock have no rights to convert their shares
into other securities and no right to vote cumulatively for the election of
directors. Subject to the preferences that may be applicable to any shares of
Preferred Stock then outstanding, the holders of the shares of Common Stock will
be entitled to receive such dividends, if any, as may be declared by the Board
of Directors out of legally available funds and to share ratably in any
distribution to the stockholders, including any distribution upon the
liquidation of the Company.
The Company has not paid dividends on its Common Stock. The terms of the
Company's loan and security agreement with Shawmut Capital Corporation prohibits
the payment of dividends on the Comdial Common Stock. Furthermore, the terms of
the Series A Preferred Stock prohibit the payment of dividends on the Common
Stock unless the Company is current in the payment of dividends required with
respect to the Series A Preferred Stock. Accordingly, the Company does not
anticipate paying dividends on its Common Stock in the foreseeable future. See
"Dividend Policy." As of June 23, 1995 there were approximately 7,079,269 shares
of Common Stock outstanding, as adjusted to reflect the one-for-three reverse
split of the Common Stock.
Preferred Stock
The Company's Preferred Stock is of the type referred to as "blank check"
preferred. "Blank check" preferred stock refers to preferred stock for which the
designations, preferences, conversion rights, qualifications, limitations or
restrictions thereof may be determined by a corporation's board of directors at
the time of issuance. As a result, the Board of Directors may, without further
action by the stockholders, issue shares of Preferred Stock in one or more
series and fix or alter the rights, preferences, privileges and restrictions,
including dividend rights, dividend rates, conversion rights, voting rights,
rights and terms of redemption, rights upon dissolution or liquidation, sinking
funds and any other rights, preferences and limitations. The issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of holders of Common Stock and, under certain
circumstances, make it more difficult for a third-party to acquire control of
the Company.
On February 1, 1994, the Company issued 850,000 shares of Series A Preferred
Stock to PCI as part of its recapitalization and later redeemed 100,000 shares
of Series A Preferred Stock. The Company has no present plans to issue
additional shares of Preferred Stock and intends to redeem all of the Series A
Preferred Stock upon completion of this offering. See "Use of Proceeds."
Series A Preferred Stock
With respect to dividend rights and rights on liquidation, dissolution and
winding up, the Series A Preferred Stock is senior to the Common Stock. Without
the affirmative vote of 67% of the shares of Series A Preferred Stock at the
time outstanding, the Company is prohibited from amending its Restated
Certificate of Incorporation to adopt a certificate of designation to or
otherwise (i) create any class of stock, issue any series of Preferred Stock or
any other equity security ranking prior to or in parity with the Series A
Preferred Stock as to dividends or upon liquidation or (ii) alter or change any
of
31
<PAGE>
the preferences, privileges, rights or powers of the holders of the Series A
Preferred Stock so as to affect adversely such preferences, privileges, rights
or powers. Holders of Series A Preferred Stock are entitled to receive, out of
funds of the Company legally available for the payment of dividends, cumulative
quarterly dividends per share in the following amounts: $0.19 on the last day of
March, $0.19 on the last day of June, $0.19 on the last day of September and
$0.18 on the last day of December.
Holders of shares of Series A Preferred Stock then outstanding have a
liquidation preference of $10.00 per share plus an amount equal to accrued
dividends. Outstanding shares of Series A Preferred Stock may be redeemed at the
option of the Company, in whole or in part, at any time upon not less than 30
days nor more than 90 days prior written notice, at a redemption price equal to
all accumulated but unpaid dividends plus an amount (the "Applicable Amount")
equal to (i) $10.00 per share during the four calendar years after the issuance
of the Series A Preferred Stock, or (ii) during each calendar year after the
fourth year after issuance, an amount equal to the Applicable Amount in the
preceding year plus $0.50 per share; provided that the redemption price per
share for any transaction which results in the total number of shares of Series
A Preferred Stock that have been redeemed (including the shares redeemed in such
transaction) equaling at least ten percent (10%) of the total number of shares
of Series A Preferred Stock which were originally issued, and for all subsequent
transactions, shall be the price which was in effect during the year preceding
the year in which the total number of shares of Series A Preferred Stock
redeemed equals ten percent or more.
Shares of Series A Preferred Stock are non-voting, except where required by
law and to effect the dissolution of the Company, the sale, lease, exchange of
all or substantially all of its property and assets, the merger or consolidation
of the Company with or into any other entity or the voluntary bankruptcy of the
Company which requires the affirmative vote of the holders of a majority of the
outstanding shares of Series A Preferred Stock. The holder or holders of Series
A Preferred Stock has the right to elect two members of the Board of Directors
or such greater number as is necessary to equal at least 40% of the Board, if
the Company does not pay four consecutive quarterly dividends required by the
terms of the Series A Preferred Stock.
Each share of Series A Preferred Stock may be converted at the option of the
holder at any time into approximately 1.14258 fully paid and nonassessable
pre-split shares of Company Common Stock. The number of shares of stock into
which each share of Series A Preferred Stock is convertible is subject to
anti-dilution protection upon the occurrence of certain events, including (i)
stock dividends or other distributions of the Common Stock, (ii) stock splits
affecting the Common Stock, reverse stock splits, share exchanges, or
reclassifications, (iii) certain issuances of Common Stock (or rights, warrants,
or securities convertible or exchangeable into Common Stock) at a price per
share (or having a conversion or exercise price per share) less than the market
price (as defined), or (iv) a merger, consolidation, or other reorganization of
the Company.
Delaware Law and Certain Charter Provisions
Section 203 of the Delaware General Corporation Law prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's voting stock.
The Company's Restated Certificate of Incorporation (the "Restated
Certificate") divides the Board of Directors into three classes. One class of
directors is elected at each annual meeting for a three-year term. The Restated
Certificate also provides that the affirmative vote of the holders of not less
than 60 percent of the total voting power of all outstanding shares of Common
Stock of the Company is required to approve a merger, consolidation or other
business reorganization or combination of the Company with any other corporation
or for the sale of all or substantially all of the assets of the Company.
Furthermore, amendments to these provisions must be approved by not less than 60
percent of the total voting power of all outstanding shares of Common Stock of
the Company. Special meetings of stock
32
<PAGE>
holders may be called only by the Secretary at the request of the Board of
Directors or by the Chairman of the Board, and stockholder action may not be
taken by written consent. These provisions could have the effect of discouraging
takeover attempts or delaying or preventing a change of control of the Company.
Indemnification
The Company's Bylaws and the General Corporation Law of Delaware authorize
indemnification of directors, officers, employees and agents of the Company and
of persons serving in similar capacities for other entities at the Company's
request so long as such person (i) acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the Company
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful and (ii) in the event of a suit by or in the
right of the Company, was not adjudged liable for negligence or misconduct in
the performance of his duty to the Company, unless there is a court
determination that indemnification is fair and reasonable under all the
circumstances. The Bylaws and the General Corporation Law of Delaware also allow
advances of the costs of defending against litigation and permit the purchase of
insurance on behalf of directors, officers, employees and agents against
liabilities whether or not in the circumstances the Company would have the power
to indemnify against such liabilities under the provisions of the Bylaws or the
statute. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provision, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
As permitted by Section 102 of the Delaware General Corporation law, the
Company's Restated Certificate of Incorporation contains provisions eliminating
a director's personal liability for monetary damages to the Company and its
stockholders arising from a breach of a director's fiduciary duty except for
liability under Section 174 of the Delaware General Corporation law or liability
for any breach of the director's duty of loyalty to the Company or its
stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or for any transaction in
which the director derived an improper personal benefit.
Transfer Agent
Chemical Bank is the transfer agent for the Company's Common Stock.
33
<PAGE>
UNDERWRITING
The Underwriters below, for whom Rodman & Renshaw, Inc. is acting as
Representative, have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholder the number of shares of Common Stock set forth below
opposite their respective names.
Underwriter Number of Shares
----------- ----------------
Rodman & Renshaw, Inc................
Total ............................ 3,000,000
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other considerations. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
above shares of Common Stock if any are purchased.
The Underwriters, through the Representative, have advised the Company that
they propose to offer the Common Stock initially at the public offering price
set forth on the cover page of this Prospectus; that the Underwriters may allow
to selected dealers a concession of $ per share, and that such dealers may
reallow a concession of $ per share to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Underwriters. The Common Stock is included for quotation on the Nasdaq National
Market.
The Selling Stockholder has granted to the Underwriters a 30-day
over-allotment option to purchase up to an aggregate of 450,000 additional
shares of Common Stock, exercisable at the public offering price less the
underwriting discount. If the Underwriters exercise such over-allotment option,
then each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof as the number
of shares of Common Stock to be purchased by it as shown in the above table
bears to the 3,000,000 shares of Common Stock offered hereby. The Underwriters
may exercise such option only to cover over-allotments made in connection with
the sale of the shares of Common Stock offered hereby.
The Company, the officers and directors of the Company, and the Selling
Stockholder have agreed that they will not sell or dispose of any shares of
Common Stock of the Company for a period of 180 days after the later of the date
on which the Registration Statement is declared effective by the Commission or
the first date on which the shares are bona fide offered to the public, without
the prior written consent of the Representative. The Company may issue shares of
Common Stock in connection with the exercise of options under the Company's 1992
Stock Incentive Plan and the 1992 Non-Employee Directors Plan. In addition,
ALLTEL Corporation, a stockholder of the Company, has agreed with the Company
that absent unanticipated or unusual circumstances that, if known, would have
affected its decision to enter into the agreement, it will not sell or dispose
of shares of Common Stock of the Company owned by it before the earlier of (i)
the date that is 60 days after the date that the Registration Statement, of
which this Prospectus is a part, is declared effective and (ii) October 1, 1995,
except for approximately 13,399 shares of Common Stock which it may sell in
accordance with the provisions of Rule 144 under the Securities Act.
34
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to make
in respect thereof.
In connection with the offering made hereby, certain Underwriters and selling
group members (if any) or their respective affiliates who are qualified
registered market makers on the Nasdaq National Market may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 10b-6A under the Exchange Act, during the two business day
period before commencement of offers or sales of the Common Stock. The passive
market making transactions must comply with applicable volume and price limits
and be identified as such. In general, a passive market maker may display its
bid at a price not in excess of the highest independent bid for such security;
if all independent bids are lowered below the passive market maker's bid,
however, such bid must then be lowered when certain purchase limits are
exceeded.
Rodman & Renshaw, Inc. has performed investment banking services since March,
1995 for the Company and received $20,000 therefor. In addition, another firm,
whose investment banking and equity departments were acquired by Rodman &
Renshaw, Inc., had performed similar services prior to March, 1995 and received
$75,000 therefor.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by McGuire, Woods, Battle &
Boothe, L.L.P., Charlottesville, Virginia. Certain matters in connection with
the sale of Common Stock offered hereby will be passed on for the Underwriters
by Squadron, Ellenoff, Plesent, Sheinfeld & Sorkin, LLP, New York, New York. As
of, 1995, partners and associates of McGuire, Woods, Battle & Boothe, L.L.P.,
which serves as general counsel to the Company, owned of record and beneficially
1,001 shares of Common Stock of the Company.
EXPERTS
The audited financial statements included in this Prospectus, which is part
of this Registration Statement, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets as of December 31, 1993 and 1994 and April 2, 1995 ...... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1992, 1993
and 1994 and the Quarters Ended April 3, 1994 and April 2, 1995...................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1992, 1993 and 1994 and the Quarter Ended April 2, 1995.............................. F-5
Statements of Cash Flows for the Years Ended December 31, 1992, 1993 and 1994 and
the Quarters Ended April 3, 1994 and April 2, 1995................................... F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
The financial statements as of and for the periods ended April 3, 1994 and April
2, 1995 are unaudited.
F-1
<PAGE>
The accompanying financial statements reflect a one-for-three reverse split
of common stock, which is to be effected prior to the effective date of this
Registration Statement, which is expected to be on or about July , 1995. The
above report is in the form which will be signed by Deloitte & Touche LLP upon
consummation of such reverse split, which is described in Note 1 and Note 14 of
the Notes to Consolidated Financial Statements and, assuming that from January
30, 1995 to the date of such reverse split, no other events shall have occurred
that would affect the accompanying financial statements and notes thereto:
INDEPENDENT AUDITORS' REPORT
"Board of Directors and Stockholders
Comdial Corporation
Charlottesville, Virginia
We have audited the accompanying consolidated balance sheets of Comdial
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Comdial Corporation and
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Richmond, Virginia
January 30, 1995 (June 27, 1995 as to
the third paragraph of Note 6, ____ ____, 1995
as to the last paragraph of Note 1 and Note 14)"
F-2
<PAGE>
COMDIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
<TABLE>
<CAPTION>
December 31,
------------------- April 2,
1993 1994 1995
--------- -------- ---------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................... $ 5,474 $ 1,679 $ 62
Accounts receivable -- net.......................... 6,184 6,637 8,881
Inventories......................................... 14,844 16,869 17,366
Prepaid expenses and other current assets .......... 1,799 1,014 1,445
Total current assets.............................. 28,301 26,199 27,754
Property -- net..................................... 14,187 13,668 13,541
Other assets........................................ 2,315 2,393 2,434
Total assets...................................... $ 44,803 $ 42,260 $ 43,729
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................... $ 5,059 $ 6,977 $ 7,629
Accrued payroll and related expenses................ 1,222 1,373 1,411
Accrued promotional allowances...................... 1,170 1,592 1,028
Other accrued liabilities........................... 1,655 2,160 1,515
Current maturities of debt.......................... 4,252 2,466 3,889
Total current liabilities......................... 13,358 14,568 15,472
Long-term debt...................................... 18,943 4,737 3,988
Long-term employee benefit obligations.............. 1,700 1,912 1,974
Other long-term liabilities......................... 52 -- --
Commitments and contingent liabilities (see Note
13)...............................................
Total liabilities................................. 34,053 21,217 21,434
Stockholders' equity
Series A 7 1/2 % preferred stock ($10.00 par value),
(Authorized shares 2,000; issued shares 750)......... -- 7,500 7,500
Common stock ($0.01 par value) and paid-in capital
(Authorized 30,000 shares; issued shares: 1993 =
6,855; 1994 = 6,980; April 2, 1995 = 7,036) ......... 100,047 100,320 100,517
Other................................................... (814) (942) (973)
Accumulated deficit..................................... (88,483) (85,835) (84,749)
Total stockholders' equity............................ 10,750 21,043 22,295
Total liabilities and stockholders' equity ......... $ 44,803 $ 42,260 $ 43,729
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
COMDIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, Quarter Ended
April 3, April 2,
1992 1993 1994 1994 1995
------- ------- ------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales...................................... $70,897 $69,099 $77,145 $ 17,639 $22,316
Cost of goods sold............................. 50,212 47,485 52,418 11,773 15,192
Gross profit................................. 20,685 21,614 24,727 5,866 7,124
Operating expenses:
Selling, general & administrative............ 13,829 12,805 15,128 3,739 4,344
Engineering, research & development.......... 3,784 3,424 3,932 984 1,043
Operating income........................... 3,072 5,385 5,667 1,143 1,737
Other expense (income):
Interest expense........................... 2,564 2,420 1,267 392 273
Miscellaneous expense...................... 402 420 670 114 194
Gain on the sale of product line........... (791) -- -- -- --
Income before income taxes and extraordinary
item....................................... 897 2,545 3,730 637 1,270
Income tax expense........................... 13 129 116 22 40
Income before extraordinary item............. 884 2,416 3,614 615 1,230
Extraordinary item, write-off of debt issuance
cost........................................ -- -- 389 389 --
Net income.................................. 884 2,416 3,225 226 1,230
Dividends on preferred stock.................. -- -- 577 106 143
Net income applicable to common stock ...... $ 884 $ 2,416 $ 2,648 $ 120 $ 1,087
Earnings per common share and common
equivalent share: ..........................
Primary:
Income before extraordinary item........ $ 0.13 $ 0.35 $ 0.42 $ 0.07 $ 0.15
Extraordinary item...................... -- -- (0.05) (0.05) --
Net income per common share........... $ 0.13 $ 0.35 $ 0.37 $ 0.02 $ 0.15
Fully diluted........................... $ 0.13 $ 0.34 $ 0.37 $ 0.02 $ 0.15
Weighted average common shares outstanding:
Primary....................................... 6,738 6,935 7,231 7,247 7,216
Fully diluted................................. 6,738 7,158 7,231 7,247 7,216
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
COMDIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Notes
Receivable
Common Stock Preferred Stock Paid-in Treasury Stock on Sale Retained
Shares Amount Shares Amount Capital Shares Amount of Stock Earnings Total
------ ------ ------ ------ -------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 ..... 6,014 $ 60 -- $ -- $ 99,272 (50) $ (583) $ (623) $(91,783) $6,343
PROCEEDS FROM SALE OF COMMON
STOCK:
INCENTIVE PLANS ................ (36) (36)
NOTES RECEIVABLE ............... 4 4
RECLASSIFICATION OF NOTES
RECEIVABLE ..................... 316 316
NET INCOME ..................... 884 884
BALANCE AT DECEMBER 31, 1992 ... 6,014 60 -- -- 99,236 (50) (583) (303) (90,899) 7,511
PROCEEDS FROM SALE OF COMMON STOCK:
INCENTIVE PLANS ................ (20) (20)
NOTES RECEIVABLE ............... 74 74
STOCK OPTIONS EXERCISED ........ 44 1 95 96
WARRANTS EXERCISED ............. 834 8 637 645
INCENTIVE STOCK ISSUED ......... 13 30 30
TREASURY STOCK PURCHASED ....... (1) (2) (2)
NET INCOME ..................... 2,416 2,416
BALANCE AT DECEMBER 31, 1993 ... 6,905 69 -- -- 99,978 (51) (585) (229) (88,483) 10,750
PROCEEDS FROM SALE OF COMMON
STOCK:
NOTES RECEIVABLE ............... (146) 47 (99)
STOCK OPTIONS EXERCISED ........ 147 1 288 289
INCENTIVE STOCK ISSUED ......... 13 130 130
PREFERRED STOCK ISSUED ......... 850 8,500 8,500
REDEEMED PREFERRED STOCK ....... (100) (1,000) (1,000)
TREASURY STOCK PURCHASED ....... (34) (175) (175)
DIVIDEND PAID ON PREFERRED STOCK (577) (577)
NET INCOME ..................... 3,225
3,225
BALANCE AT DECEMBER 31, 1994 ... 7,065 70 750 7,500 100,250 (85) (760) (182) (85,835) 21,043
PROCEEDS FROM SALE OF COMMON
STOCK:
NOTES RECEIVABLE ............... 2 2
STOCK OPTION EXERCISED ......... 47 1 80 81
INCENTIVE STOCK ISSUED ......... 13 115 115
TREASURY STOCK PURCHASED ....... (4) (33) (33)
DIVIDEND PAID ON PREFERRED STOCK (143) (143)
NET INCOME ..................... 1,230 1,230
ROUNDING ....................... 1 (1)
BALANCE AT APRIL 2, 1995
(UNAUDITED) .................... 7,125 $ 72 750 $ 7,500 $100,445 (89) $(793) $(180) $(84,749) $22,295
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
COMDIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31, Quarter Ended
------------------------------ ----------------------
April 3, April 2,
1992 1993 1994 1994 1995
-------- -------- -------- ----------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers....................... $ 72,525 $ 74,265 $ 81,298 $ 17,456 $ 21,496
Other cash received................................ 1,083 1,236 2,305 430 236
Interest received.................................. 89 65 56 51 15
Cash paid to suppliers and employees............... (68,994) (66,725) (75,888) (17,364) (23,088)
Interest paid on debt.............................. (2,161) (1,981) (924) (431) (223)
Interest paid under capital lease obligations...... (354) (256) (284) (83) (50)
Income taxes paid.................................. (13) (44) (200) (66) --
Net cash provided (used) by operating activities. 2,175 6,560 6,363 (7) (1,614)
Cash flows from investing activities:
Proceeds from the sale of equipment................ 1,010 56 206 31 --
Proceeds received on note from Cortelco
International, Inc............................... -- 1,000 1,000 -- --
Capital expenditures............................... (1,776) (848) (2,116) (453) (585)
Net cash provided (used) by investing activities. (766) 208 (910) (422) (585)
Cash flows from financing activities:
Proceeds from borrowings........................... 1,972 2,660 7,300 6,000 --
Net borrowings under revolver agreement ........... -- -- -- 2,546 1,445
Proceeds from issuance of common stock............. -- 739 203 149 51
Principal payments on debt......................... (3,800) (3,859) (14,365) (13,175) (608)
Principal payments under capital lease obligations. (1,978) (1,233) (809) (256) (163)
Preferred stock redemption......................... -- -- (1,000) -- --
Preferred dividends paid........................... -- (577) (106) (143)
Net cash provided (used) by financing activities. (3,806) (1,693) (9,248) (4,842) 582
Net increase (decrease) in cash and cash
equivalents........................................ (2,397) 5,075 (3,795) (5,271) (1,617)
Cash and cash equivalents at beginning of year ...... 2,796 399 5,474 5,474 1,679
Cash and cash equivalents at end of year............. $ 399 $ 5,474 $ 1,679 $ 203 $ 62
Reconciliation of net income to net cash provided
by operating activities:
Net income......................................... $ 884 $ 2,416 $ 3,225 $ 226 $ 1,230
Depreciation and amortization.................... 2,974 3,138 4,138 1,212 915
Decrease (increase) in accounts receivable ...... (1,462) 689 (453) (1,334) (2,244)
Inventory provision.............................. 1,497 900 964 425 451
Decrease (increase) in inventory................. 170 (307) (2,989) (1,692) (948)
Increase in other assets......................... (3,982) (958) (1,620) (874) (675)
Increase (decrease) in accounts payable and bank
overdrafts..................................... 1,889 (639) 1,918 1,896 652
Increase (decrease) in other liabilities......... (79) 1,237 1,238 (21) (1,109)
Increase (decrease) in paid--in capital and other
equity......................................... 284 84 (58) 155 114
Total adjustments............................ 1,291 4,144 3,138 (233) (2,844)
Net cash provided (used) by operating activities. $ 2,175 $ 6,560 $ 6,363 $ (7) $ (1,614)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Comdial
Corporation and its subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated.
Unaudited Financial Statements
The consolidated balance sheet as of April 2, 1995, the consolidated
statements of operations and cash flows for the quarters ended April 3, 1994 and
April 2, 1995, and the consolidated statement of stockholders' equity for the
quarter ended April 2, 1995 and related information contained in these notes
have been prepared by management of the Company without audit. In the opinion of
management, all accruals (consisting of normal recurring accruals) which are
necessary for a fair presentation of financial position and results of
operations for such periods have been made. Results for an interim period should
not be considered as indicative of results for a full year.
Cash and Cash Equivalents
Cash equivalents are defined as short-term liquid investments with original
maturities when purchased of less than 90 days that are readily convertible into
cash. Under the Company's current cash management policy, borrowings from the
revolving credit facility are used for normal operating purposes. The revolving
credit facility is reduced by cash receipts that are deposited daily. Bank
overdrafts of $1,099,000 and $2,236,000 are included in Accounts Payable at
December 31, 1994 and April 2, 1995 (unaudited), respectively, which are
outstanding checks that have not (1) cleared the bank and (2) been funded by the
revolving credit facility (see Note 5). The Company is reporting the revolving
credit facility activity on a net basis on the Consolidated Statements of Cash
Flows.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property/Depreciation
Depreciation is computed using the straight-line method for all buildings,
land improvements, machinery and equipment, and capitalized lease property over
their estimated useful lives. Effective January 1, 1994, the Company revised the
estimated useful lives of certain computer hardware equipment from seven to five
years to more closely reflect expected remaining business lives. The effect of
this change in accounting estimate was to increase depreciation expense and
decrease income from continuing operations in 1994 by $239,000 or $0.03 per
share. Management believes this change is warranted due to the continuing
advances in computer technology. Expenditures for maintenance and repairs of
property are charged to expense. Improvements and renewals which extend economic
lives are capitalized.
The estimated useful lives are as follows: ..
Buildings .................................... 30 years
Land Improvements............................. 15 years
Machinery and Equipment....................... 7 years
Computer Hardware Equipment and Tooling ...... 5 years
F-7
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
Expensing of Costs
All production start-up, research and development, and engineering costs are
charged to expense, except for that portion of costs which relate to product
software development (see "Capitalized Software Development Costs").
Earnings (Loss) Per Common Share and Common Equivalent Share
For 1992, 1993, 1994, and the quarter ending April 2, 1995 (unaudited),
earnings per common share were computed by dividing net income applicable to
common shares by the weighted average number of common shares outstanding and
common equivalent shares. Fully diluted earnings per share assumes the
conversion of preferred stock and adds back the preferred stock dividends paid
to net income. The effect of the preferred stock conversion was antidilutive for
the year ended 1994.
Capitalized Software Development Costs
In 1992, 1993, and 1994, the Company incurred costs associated with
development of software related to the Company's various products. The
accounting for such software costs is in accordance with Generally Accepted
Accounting Principles ("GAAP") and Statement of Financial Accounting Standards
("SFAS") No. 86. The Company's estimate of useful life is three years. The total
amount of unamortized software development cost included in other assets is
$1,392,000 at December 31, 1994. The amounts capitalized for 1992, 1993, and
1994 were $829,000, $721,000, and $717,000, respectively, of which $591,000,
$705,000, and $858,000 were amortized in 1992, 1993, and 1994, respectively.
Postretirement Benefits Other Than Pension
The Company adopted, in 1993, SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. SFAS No. 106 requires the Company
to accrue estimated cost relating to health care and life insurance benefits. In
1993 and 1994, the Company recognized $288,000 and $289,000, respectively.
Income Taxes
The Company adopted SFAS No. 109, Accounting for Income Taxes, in 1993, which
specifies the asset and liability approach. Under SFAS 109, the deferred tax
liability or asset is determined based on the difference between the financial
statement and tax bases of assets and liabilities as measured by the enacted tax
rates which will be in effect when the differences reverse. Deferred tax expense
is the result of changes in the liability for deferred taxes. The measurement of
deferred tax assets is reduced by the amount of any tax benefits where, based on
available evidence, the likelihood of realization cannot be established. The
Company has incurred prior cumulative operating losses through 1991 for
financial statement and tax reporting purposes (see Note 6). Tax credits will be
utilized to reduce current and future income taxes.
F-8
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
Reclassifications
Certain amounts in the 1992, 1993 and 1994 consolidated financial statements
have been reclassified to conform to a reclassification made for the period
ended April 2, 1995 presentation. The Company is currently reporting sales as a
net number that includes deductions for volume discounts, returns, and
allowances. The Company has reclassified freight expense and the cost of certain
promotional programs resulting in a reduction in sales, and an increase in cost
of sales and selling, general and administrative expense, respectively, for 1994
and the comparable prior periods. Promotional programs include various sales
incentive rebates claimed by dealers and specific end users who buy the
Company's products direct from distributors. Management considers these
reclassifications as more consistent with the nature of the sales costs
incurred, and the manner in which such costs are managed by the Company. For the
years 1992, 1993, and 1994, reclassified freight expense was $677,000, $478,000,
and $552,000, and reclassified promotional program expense was $4,751,000,
$3,538,000, and $4,492,000, respectively. These reclassifications had no effect
on previously reported consolidated net income.
Restatement of Common Stock Data
On July 28, 1995, pending approval from the Company's shareholders, the
Company expects to authorize a one-for-three reverse split of the Company's
common stock, to be effective on the date of this Prospectus. Accordingly, all
references in the accompanying financial statements to common share or per share
information have been restated to reflect this reverse stock split.
NOTE 2 -- INVENTORIES
Inventories consist of the following:
(In thousands) At December 31, At April 2,
1993 1994 1995
---- ---- ----
(Unaudited)
Finished goods ....... $ 3,972 $ 2,936 $ 3,242
Work-in-process....... 2,485 4,455 5,037
Materials and
supplies.............. 8,387 9,478 9,087
Total................. $14,844 $16,869 $ 17,366
NOTE 3 -- PROPERTY
Property consists of the following:
(In thousands) At December 31,
1993 1994
Land......................... $ 396 $ 396
Buildings and improvements .. 11,864 11,540
Machinery and equipment ..... 25,126 26,551
Less accumulated
depreciation................. (23,199) (24,819)
Property -- Net.............. $ 14,187 $ 13,668
Depreciation expense charged to operations for the years 1992, 1993, and
1994, was $1,970,000, $2,164,000, and $2,601,000, respectively.
F-9
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
NOTE 4 -- LEASE OBLIGATIONS
The Company and its subsidiaries have various capital and operating lease
obligations. Future minimum lease commitments for capitalized leases and
aggregate minimum rental commitments under operating lease agreements that have
initial non-cancelable lease terms in excess of one year are as follows:
Capital Operating
(In thousands) Leases Leases
- -------------- -------- ----------
Year Ending December 31, .........................
1995............................................ $ 807 $ 1,218
1996............................................ 565 1,182
1997............................................ 131 1,165
1998............................................ 104 1,131
1999............................................ -- 1,021
Total minimum lease commitments................ 1,607 $ 5,717
Less amounts representing interest and other
costs............................................. (260)
Principal portion of minimum lease commitments at
December 31, 1994................................. $1,347
Assets recorded under capital leases (included in property in the
accompanying Consolidated Balance Sheets) are as follows:
At December 31,
(In thousands) 1993 1994
- -------------- ------ -------
Machinery and equipment .......................... $3,430 $2,269
Less accumulated depreciation...................... (706) (570)
Property -- Net ................................. $2,724 $1,699
During 1992, 1993, and 1994, the Company entered into new capital lease
obligations which amounted to approximately $692,000, $1,597,000, and $228,000,
respectively.
Operating leases and rentals are for buildings, and factory and office
equipment. The total rent expense for operating leases, including rentals which
are cancelable on short-term notice, for the years ended December 31, 1992,
1993, and 1994 was $1,149,000, $1,025,000, and $1,023,000, respectively.
NOTE 5 -- DEBT
As of February 1, 1994, Shawmut Capital Corporation ("Shawmut"), formerly
known as Barclays Business Credit, Inc., held substantially all of the Company's
indebtedness. Prior to February 1, 1994, PacifiCorp, through its indirect
subsidiary, PacifiCorp Credit, Inc. ("PCI"), held substantially all of the
Company's indebtedness. Before December, 1993, substantially all the Company's
indebtedness was held by PacifiCorp Holdings, Inc. ("PHI"), formerly known as
Inner PacifiCorp, Inc. On December 1, 1993, PHI transferred the entirety of its
holdings in the Company to its wholly-owned subsidiary, PacifiCorp Financial
Services, Inc., which in turn transferred such holdings to its wholly-owned
subsidiary, PCI. References herein to PCI shall be deemed to include references
to PHI, its predecessor in interest to the indebtedness of the Company, where
such references are appropriate.
F-10
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
Long-term Debt
Long-term debt consisted of the following:
(In thousands) At December 31, April 2,
1993 1994 1995
- ------------- -------- ------ -----------
(Unaudited)
Notes payable to PCI (1) ......
Term note ...................... $19,191 $ -- $ --
Optional advance note .......... 2,074 -- --
Notes payable to Shawmut ......
Term notes I and II (2) ........ -- 5,854 5,246
Revolving credit (3) ........... -- -- 1,445
Capitalized leases (see Note 4) 1,930 1,349 1,186
Total debt ..................... 23,195 7,203 7,877
Less current maturities on debt 4,252 2,466 3,889
Total long-term debt ........... $18,943 $4,737 $ 3,988
(1) The term note was payable in fifty-nine equal monthly principal installments
of $150,000 with the balance due on November 1, 1996. The optional advance
note was payable in thirty-six equal monthly principal installments of
$59,000 beginning on December 1, 1993. Interest was payable monthly on both
notes.
In July, 1992, the Company sold its residential telephone product line to
International Telecommunication Asia PTE. LTD., a Singapore corporation ("IT
Asia"), which was assigned to Cortelco International, Inc. ("CII"), an
affiliate of IT Asia, in August 1993. In connection with the sale, IT Asia
delivered to the Company its non-interest bearing promissory note in the
principal amount of $2,000,000 (the "IT Asia Note"). The Company agreed to
apply the proceeds received from CII to the outstanding balance of the PCI
term note. In August, 1993, CII made the $1,000,000 principal payment to the
Company on the IT Asia Note. The Company used the proceeds from CII to repay
a portion of the term note held by PCI.
The Company's indebtedness was secured by liens on the Company's accounts
receivable, inventories, intangibles, land, and other property. Prior to
February 1, 1994, these loans accrued interest at an annual rate equal to 3
1/2 % above the prime rate of interest established by Morgan Guaranty Trust
Company (the "Morgan Guaranty Prime Rate"). The Morgan Guaranty Prime Rate
was 5 1/2 % at December 31, 1993 and February 1, 1994.
On December 23, 1993, the Company and PCI entered into an agreement (the
"Equity Agreement"), pursuant to which, among other things, PCI agreed to
accept 850,000 shares of a newly designated Series A 7 1/2 % Cumulative
Convertible Redeemable Preferred Stock ("Series A Preferred Stock") of the
Company in exchange for the cancellation of $8,500,000 of the Company's
existing indebtedness to PCI (which was a non-cash transaction).
At a special meeting held on February 1, 1994, the Stockholders of the
Company approved the exchange and amendments to the Company's Certificate of
Incorporation permitting the issuance of the Series A Preferred Stock.
Immediately following the meeting, the Company and Shawmut entered into a
loan and security agreement ("Loan Agreement") pursuant to which Shawmut
agreed to provide the Company with a $6,000,000 term loan ("Term Note I")
and a $9,000,000 revolving
F-11
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
cedit loan facility. The Company's principal balance of its indebtedness on
February 1, 1994 to PCI was $21,209,453, which was paid by using cash
generated from operations of $6,000,000, cash borrowed from Shawmut of
$6,709,453, and the cancellation of the remaining debt of $8,500,000 with
the issuance of Preferred Stock. The Company purchased from PCI 100,000
shares of the Redeemable Preferred Stock at the time the Company received
the proceeds of $1,000,000 from Cortelco in December, 1994 relating to the
sale of the residential telephone product line in 1992.
On April 29, 1994, the Company and Shawmut amended the Loan Agreement to
permit the Company to borrow an additional $1,300,000 under the Term Note
("Term Note II") to finance the purchase of additional surface mount
technology equipment. The Company will repay the additional advance in 44
consecutive monthly payments of $27,000 beginning on June 1, 1994 with the
balance due on February 1, 1998.
(2) The Shawmut Term Notes I and II of $7,300,000 carry interest rates of 1 1/2
% over the Shawmut's prime rate and are payable in equal monthly principal
installments of $152,000 for the next 14 months, and 23 equal monthly
principal installments of $110,334, with the balance due on February 1,
1998. Shawmut's prime rate was 8.5% and 9% at December 31, 1994 and April 2,
1995 (unaudited).
(3) The Shawmut revolving credit facility carries an interest rate of 1% over
Shawmut's prime rate. Availability under the revolving credit facility is
based on eligible accounts receivable and inventory, less funds already
borrowed. The Company's total indebtedness to Shawmut (term notes plus
revolving credit facility) may not exceed $14,000,000.
Scheduled maturities of Shawmut Term Notes (current and long-term debt) as
defined in the Loan Agreement are as follows:
Principal
(In thousands) Fiscal Years Installments
- -------------- ------------ ------------
Term Notes payable.......... 1995 $ 1,824 (1)
1996 1,407
1997 1,324
1998 1,299
(1) Remaining aggregate payments for 1995 as of April 2, 1995 were $1,216
(unaudited).
Debt Covenants
The Company's indebtedness to Shawmut is secured by liens on the Company's
accounts receivable, inventories, intangibles, land, and other property. Among
other restrictions, the Loan Agreement with Shawmut also contains certain
financial covenants that relate to specified levels of consolidated tangible net
worth, profitability, debt service ratio, and current ratio. The Loan Agreement
also limits additional borrowings and payment of dividends, except for payments
to PCI for their Series A Preferred Stock. On January 23, 1995, the Company and
Shawmut amended the Loan Agreement (the second amendment) to modify the covenant
restrictions on leases and profitability. As of December 31, 1994 and April 2,
1995, (unaudited) the Company was in compliance with the Loan Agreement terms as
defined in the Loan Agreement, as amended.
F-12
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
NOTE 6 -- INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method as required by
SFAS No. 109, Accounting for Income Taxes. As permitted under the rules, prior
years' financial statements have not been restated. The components of the income
tax expense are as follows:
For the Years Ended
(In thousands) December 31, For the Quarter Ended
------------------------- ---------------------
Deferred
Method Liability Method
-------- -------------------------------
April 3, April 2,
1992 1993 1994 1994 1995
---- ----- ----- ------ -----
(Unaudited)
Current-Federal $ 10 $ 89 $ 88 $ 18 $ 32
State ......... 3 40 28 4 8
Deferred ....... -- -- -- -- --
Total provision $ 13 $ 129 $ 116 $ 22 $ 40
The income tax provision reconciled to the tax computed at statutory rates
are summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended
(In thousands) December 31, For the Quarter Ended
---------------------- ---------------------
April 3, April 2,
1992 1993 1994 1994 1995
- ------------- ----- ----- ---- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Federal tax (benefit) at statutory rate (34% in
1992, 35% in 1993, 1994, and 1995) ............. $ 295 $ 891 $ 1,306 $ 217 $ 444
State income taxes (net of federal tax benefit) 30 27 18 5 5
Nondeductible charges .......................... 19 20 34 23 14
Alternative minimum tax ........................ 13 89 84 20 32
Utilization of operating loss carryover ....... (344) (898) (1,326) (243) (455)
Income tax provision ........................... $ 13 $ 129 $ 116 $ 22 $ 40
</TABLE>
There is no tax benefit of the extraordinary item due to the presence of tax
operating loss carryovers.
No deferred taxes have been recognized in the accompanying Consolidated
Balance Sheet at December 31, 1993 and 1994, and April 2, 1995 (unaudited).
The components are as follows:
(In thousands) At December 31, At April 2,
---------------- ------------
1993 1994 1995
---- ---- ----
(Unaudited)
Total deferred tax
liabilities .................. $ (2,137) $ (1,981) $ (2,087)
Total deferred tax assets ... 30,631 29,852 29,158
Total valuation allowance ... (28,494) (27,871) (27,071)
$ -- $ -- $ --
F-13
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
The valuation allowance decreased $623,000 and $800,000 during the year ended
December 31, 1994 and the quarter ended April 2, 1995 (unaudited), respectively,
and was primarily related to benefits arising from the utilization of operating
loss carryforwards. The Company periodically reviews the requirements for a
valuation allowance and makes adjustments to such allowance when changes in
circumstances result in changes in judgement about the future realization of
deferred tax assets. In June of 1995 the Company expects to reduce the valuation
allowance by approximately $4,500,000, which will decrease income tax expense.
The Company has net operating loss and credit carryovers of approximately
$72,336,000 and $3,027,000 as of December 31, 1994, and $70,445,000 and
$3,059,000 as of April 2, 1995 (unaudited), respectively, which, if not
utilized, will expire as follows:
Net Operating Tax
(In thousands) Losses Credits
Expiration
Dates ..........
1996 -- 1997 ... $ -- $ 412
1998............ -- 1,846
1999............ 25,454 504
2000............ 31,129 66
2001............ 5,260 --
After 2001...... 10,493 199
$72,336 $ 3,027
Certain provisions of the tax law may limit the net operating loss and credit
carryforwards available for use in any given year in the event of a significant
change in ownership interest. If changes in the Company's stock ownership exceed
50% of the value of the Company's stock during any three year period, the
utilization of the tax net operating loss and tax credit carryforwards would be
severely limited beginning with the year of ownership change.
The components of the net deferred tax asset (liabilities) at December 31,
1993 and 1994 are as follows:
<TABLE>
<CAPTION>
Deferred
(In thousands) Asset/(Liability)
----------------------
1993 1994
----------- ---------
<S> <C> <C>
Net loss carryovers................................................. $ 26,111 $ 24,595
Tax credit carryovers............................................... 2,830 3,027
Inventory write downs and capitalization............................ 876 1,028
Pension............................................................. 177 461
Postretirement benefits............................................. 98 189
Compensation and benefits........................................... 164 169
Capitalized software development costs.............................. 174 256
Contingencies....................................................... 49 28
Other deferred tax assets........................................... 64 11
Note receivable reserve............................................. 88 84
Fixed asset depreciation............................................ (1,981) (1,977)
Income reported in different periods for financial reporting and
tax purposes........................................................ (104) --
Other deferred tax liabilities...................................... (52) --
Net deferred tax asset.............................................. 28,494 27,871
Less: Valuation allowance........................................... (28,494) (27,871)
Total............................................................... $ -- $ --
</TABLE>
F-14
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
NOTE 7 -- PENSION AND SAVINGS PLANS
The Company formerly sponsored two non-contributory pension plans that
together covered all employees. One plan provided pension benefits based on
years of service and employee's compensation during the employment period. The
other plan provided benefits based on years of service. Effective January 1,
1992, the Company merged the two pension plans into a single plan which provides
benefits based on years of service and employee's compensation during the
employment period. The calculation of pension benefits prior to 1992 will be
based on the provisions of the old plans. The funding policy for both plans was
to make the minimum annual contributions required by applicable regulations.
Assets of the plans were generally invested in equities and fixed income
instruments.
The following table sets forth the funded status of the plans and amounts
recognized in the Company's Consolidated Balance Sheets at December 31, 1993 and
1994.
<TABLE>
<CAPTION>
(In thousands) 1993 1994
- ------------- ----- -----
<S> <C> <C>
Actuarial present value of benefit obligation: ....................
Accumulated benefit obligation (including vested benefits of
$8,320 and $8,431, respectively)................................... $(9,226) $(9,225)
Projected benefit obligation for service to date................... $(9,557) $(9,583)
Plan assets at fair value.......................................... 9,230 9,041
Plan assets less than projected benefit obligation................. (327) (542)
Unrecognized net (gain) or loss from past experience............... (556) (1,007)
Unrecognized net (gain) or loss from prior service cost ........... (354) (322)
Unrecognized net asset at date of implementation of SFAS No. 87
amortized over 15 years............................................ (172) (144)
Accrued liabilities for benefit plans at December 31............... $(1,409) $(2,015)
</TABLE>
Net periodic pension cost for the years ended December 31, included the
following components:
<TABLE>
<CAPTION>
(In thousands) 1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Service cost-benefits earned during the
period........................................ $ 785 $ 803 $ 982
Interest cost on projected benefit
obligation.................................... 495 548 657
Actual return on plan assets.................. (1,282) (1,438) 106
Net amortization and deferral of other items . 630 608 (919)
Net periodic pension cost..................... $ 628 $ 521 $ 826
</TABLE>
Assumptions used in accounting for the plans were as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Discount rate................................. 8.50% 7.00% 8.00%
Rate of increase in future compensation
levels........................................ 4.00% 4.00% 4.00%
Expected long-term rate of return on assets .. 9.00% 9.00% 9.00%
</TABLE>
In addition to providing pension benefits, the Company contributes to a
401(k) plan, based on the employee's contributions. Participants can contribute
from 2% to 10% of their salary as defined in the terms of the plan. The Company
makes matching contributions equal to 25% of a participant's contributions. The
Company's total expense for the matching portion to the 401(k) plan for 1992,
1993, and 1994 was $178,000, $225,000, and $261,000, respectively.
F-15
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
NOTE 8 -- POSTRETIREMENT BENEFITS OTHER THAN PENSION
As of January 1, 1993, the Company adopted SFAS No. 106. The effect of
adopting SFAS No. 106 on income from continuing operations for 1993 and 1994
was an expense of $288,000 and $289,000, respectively.
The Company provides certain health care coverage (until age 65) which is
subsidized by the retiree through insurance premiums paid to the Company, and
life insurance benefits for substantially all of its retired employees. In 1992,
the Company recognized $160,000 as an expense for postretirement health care and
life insurance benefits. The Company's postretirement health care benefits are
not currently funded. The status of the postretirement benefits are as follows:
Accumulated postretirement benefit obligation at January 1, 1993 and 1994:
<TABLE>
<CAPTION>
(In thousands) 1993 1994
- -------------- ------ ------
<S> <C> <C>
Retirees...................................... $ 222 $ 398
Actives eligible to retire.................... 435 628
Other active participants ineligible to
retire........................................ 676 972
Total......................................... $1,333 $1,998
</TABLE>
Net postretirement benefit cost for years ended December 31, consisted of the
following components:
<TABLE>
<CAPTION>
(In thousands) 1993 1994
- -------------- ------ ------
<S> <C> <C>
Service cost.......................................... $ 46 $ 59
Interest cost......................................... 151 139
Actual return on assets............................... -- --
Amortization of the unrecognized transition
obligation............................................ 91 91
Amortization of (gain) or loss........................ -- --
Amortization of prior service cost.................... -- --
Total................................................. $ 288 $ 289
</TABLE>
The following table sets forth funded status of the plans and amounts
recognized in the Company's Consolidated Balance Sheet at December 31, 1993 and
1994.
<TABLE>
<CAPTION>
(In thousands) 1993 1994
- -------------- ------ ------
<S> <C> <C>
Plan assets at fair value........................... $ -- $ --
Accumulated postretirement benefit obligation: ....
Retirees............................................ (639) (394)
Fully eligible participants......................... (523) (604)
Other active participants........................... (874) (874)
Unrecognized prior service cost..................... -- --
Unrecognized net (gain) or loss..................... 26 (316)
Unrecognized transition obligation.................. 1,722 1,631
Accrued liabilities for benefit plans at December
31.................................................. $ (288) $ (557)
</TABLE>
F-16
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of January 1, 1994 was 13% for 1994, the
trend rate decreasing each successive year until it reaches 5 1/4 % in 2005
after which it remains constant. The discount rate used in determining the
accumulated postretirement benefit obligation cost was 7%. A 1-percentage-point
increase in the assumed health care cost trend rate for each year would increase
the accumulated postretirement benefit obligation as of January 1, 1994 and net
postretirement health care cost by approximately $140,000 and service cost plus
interest cost by approximately $18,000. The postretirement benefit obligation is
not funded and does not include any provisions for securities, settlement,
curtailment, or special termination benefits.
NOTE 9 -- WARRANTS
A summary of warrants issued and outstanding is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- -------
<S> <C> <C> <C>
Warrants outstanding, January 1: ...................... 833,333 833,333 --
Issued................................................. -- -- --
Exercised.............................................. -- (833,333) --
Canceled............................................... -- -- --
Warrants outstanding, December 31: 833,333 -- --
Price per share ranges of warrants outstanding at
December 31............................................ $0.03--$3.75 -- --
Dates through which warrants outstanding at December
31, were exercisable................................... (*) (*) (*)
<FN>
(1) The warrants were held by PCI and a bank group which held the majority of
the Company's indebtedness prior to October 1991. On November 1, 1993, the
bank group exercised warrants and acquired in the aggregate 166,666 shares
of the Company's Common Stock, at an exercise price of $3.75 per share. On
December 9, 1993, PCI exercised its Replacement Warrant and acquired 666,667
shares of the Company's Common Stock, at an exercise price of $0.03 per
share.
</TABLE>
NOTE 10 -- PREFERRED STOCK
On December 23, 1993, the Company and PCI entered into the Equity Agreement,
pursuant to which, among other things, PCI agreed to accept 850,000 shares of a
newly designated Series A 7 1/2 % Cumulative Convertible Redeemable Preferred
Stock of the Company in exchange for the cancellation of $8,500,000 of the
Company's existing indebtedness to PCI (which was a non-cash transaction).
Dividends are paid each quarter at an annual rate of return of 7 1/2 % which
totaled $577,000 for 1994.
Each share of Series A Preferred Stock is convertible into fully paid and
non-assessable shares of Common Stock (1.14258 after reverse stock split) at the
option of PCI. Under the terms of the Equity Agreement, the Company was required
to redeem 100,000 shares of the Series A Preferred Stock at the time the Company
received $1,000,000 in 1994 from CII, relating to the sale of the residential
telephone product line in 1992 (see Note 5). In December, 1994, the Company
received the $1,000,000 payment from CII, which was used to redeem the 100,000
shares (par value $10.00) of Series A Preferred Stock. The Series A Preferred
Stock is redeemable at the option of the Company. In the event that four
consecutive quarterly dividend payments on Series A Preferred Stock are in
arrears and unpaid, PCI shall have the exclusive right, voting separately as a
class, to elect two members of the Board of Directors or such greater number of
members as is necessary to equal at least 40% of the total number of members of
the Board of Directors at all times thereafter.
F-17
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
NOTE 11 -- STOCK OPTIONS AND AWARDS
The Company's plans include stock options to purchase Common Stock and may be
granted to officers, directors, consultants, and certain key employees as
additional compensation. The plans are composed of both stock options,
restricted stock, nonstatutory stock, and incentive stock. The plan awards to
each Director 3,333 shares of the Company's Common Stock for each fiscal year
the Company reports income. Subsequent to year end the Board of Directors
increased the cash compensation and temporarily suspended 1,667 of the 3,333
shares awarded to each Board member each year that the Company is profitable
until specific action is taken by the Board to the contrary. The Company's
incentive plans are administered by the Compensation Committee of the Company's
Board of Directors.
The Company's incentive plans reserve 1,000,000 shares of the Company's
Common Stock for issuance at December 31, 1992, 1993, and 1994. The Company has
previously accepted notes relating to the non-qualified stock options exercised
by officers and employees. These notes receivable relating to the stock
purchases, amounting to $303,000, $229,000, and $182,000 at December 31, 1992,
1993, and 1994, respectively, have been deducted from Stockholders' equity.
Information regarding stock options is summarized below:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- --------
<S> <C> <C> <C>
Options outstanding, January 1: 409,969 582,667 451,377
Granted.......................... 340,511 14,333 92,000
Exercised........................ -- (44,290) (146,558)
Terminated....................... (167,813) (101,333) (33,647)
Options outstanding, December 31: 582,667 451,377 363,172
Per share ranges of options outstanding at
December 31.................................. $1.41-$3.00 $1.41-$6.18 $1.41-$10.59
Dates through which options outstanding at
December 31, were exercisable................ 1/93-10/2002 1/94-10/2003 1/95-10/2004
Options exercisable, December 31: 228,138 178,150 174,599
</TABLE>
Options are provided to officers and employees of the Company at fair market
value at the date of grant. The value of stock awarded to directors is expensed.
NOTE 12 -- SEGMENT INFORMATION
During 1992, 1993, and 1994, substantially all of the Company's sales, net
income, and identifiable net assets were attributable to the telecommunications
industry.
The Company had sales in excess of 10% of net sales to three customers as
follows:
<TABLE>
<CAPTION>
(In thousands) 1992 1993 1994
- --------------- ------- -------- --------
<S> <C> <C> <C>
Sales:
ALLTEL Supply, Inc............ $12,695 $15,908 $12,370
Graybar Electric Company,
Inc......................... 26,217 24,494 31,298
North Supply Company, Inc. ... 13,598 14,984 16,305
Percentage of net sales: .....
ALLTEL Supply, Inc............ 18% 23% 16%
Graybar Electric Company,
Inc......................... 37% 35% 41%
North Supply Company, Inc. ... 19% 22% 21%
</TABLE>
F-18
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
ALLTEL Supply, Inc., a subsidiary of ALLTEL Corporation, a stockholder of the
Company, had accounts receivable with the Company of $808,000 and $588,000 for
the periods ending December 31, 1993 and 1994, respectively.
NOTE 13 -- COMMITMENTS AND CONTINGENT LIABILITIES
The Company facilities are subject to a variety of federal, state, and local
environmental protection laws and regulations, including provisions relating to
the discharge of materials into the environment. The cost of compliance with
such laws and regulations has not had a material adverse affect upon the
Company's capital expenditures, earnings or competitive position and it is not
anticipated to have a material adverse effect in the future.
In 1988, the Company voluntarily terminated the use of a concrete underground
storage tank for draining hydraulic oil and chlorinated solvents from machine
parts, and removed the tank. The consulting engineers engaged by the Company
prepared an environmental site characterization report showing hydraulic oil and
chlorinated solvents contamination of the soil, and hydraulic oil contamination
of the groundwater. A remediation plan was recommended to the Company, which was
approved by the State of Virginia Water Control Board on January 31, 1989. The
remediation plan was expected to extend for approximately 10 years. The Company
believes that it has been, and is now, in compliance with the 1989 remediation
plan.
In November, 1993, the Company engaged Froehling and Robertson, Inc. ("F &
R"), an environmental engineering firm, to collect additional samples of soil
and groundwater for assessing the effect of the hydraulic oil remediation plan,
and to determine whether the chlorinated solvents had dissipated. The Company
also requested the State of Virginia Department of Environmental Quality ("DEQ")
to review the site characterization plan report for adequacy under current
environmental regulations. As a result, DEQ sent the Company a letter on
November 30, 1993, citing certain deficiencies and requesting a site
characterization report addendum and a corrective action plan. On January 14,
1994, the Company submitted a corrective action plan to the DEQ, which was
approved by the DEQ on July 8, 1994. F & R has advised the Company that the cost
estimate for the remediation strategy proposed in the corrective action plan is
approximately $35,000 to $45,000. In 1993, the Company provided an accrued
liability in the amount of $45,000 to cover such cost.
In October, 1994, the Company installed all the required equipment in
accordance with the remediation plan and has started the process of pumping
hydraulic oil residue from the underground water. The oil will be deposited into
approved containers and taken to a hazardous waste site in accordance with the
corrective action plan.
NOTE 14 -- SUBSEQUENT EVENTS
In June, 1995, the Company's Board of Directors authorized management of the
Company to file a Registration Statement with The Securities and Exchange
Commission permitting the Company to sell shares of its common stock in an
underwritten public offering. If the offering is consummated under the terms
presently anticipated, up to an additional 1,000,000 shares of common stock will
be issued (not including 450,000 shares that the Underwriters have an option to
purchase from the Selling Stockholder to cover any overallotments, if any).
Proceeds from the offering will be used, in part, to redeem the 750,000 shares
of outstanding Series A Preferred Stock.
On July 28, 1995, the Company's shareholders authorized a one-for-three
reverse split of the Company's common stock, to be effective on the date of this
Prospectus. Accordingly, all references in the accompanying financial statements
to common share or per share information have been restated to reflect this
reverse stock split.
F-19
<PAGE>
COMDIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1992, 1993 and 1994 and the
Unaudited Quarters Ended April 3, 1994 and April 2, 1995
NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands) Quarter Quarter Quarter Quarter
- --------------- -------- -------- ------ ---------
<S> <C> <C> <C> <C>
1994
Sales........................................ $ 17,639 $ 19,019 $ 20,660 $ 19,827
Gross profit................................. 5,866 6,122 6,384 6,355
Interest expense............................. 392 319 301 255
Income before extraordinary item............. 615 942 1,245 812
Net income................................... 226 942 1,245 812
Dividends on preferred stock................. 106 161 162 148
Net earnings per common share: Primary ...... 0.02 0.11 0.15 0.09
1993
Sales........................................ $ 14,435 $ 14,010 $ 19,192 $ 21,462
Gross profit................................. 4,183 3,885 6,023 7,523
Interest expense............................. 589 615 619 597
Net income (loss)............................ 237 (486) 1,014 1,651
Net earnings (loss) per common share:
Primary...................................... 0.04 (0.08) 0.15 0.24
</TABLE>
Previously reported quarterly information has been revised to reflect certain
reclassifications. These reclassifications had no effect on previously reported
consolidated net income (see Note 1 -- Reclassifications).
In the first quarter of 1994 (February 1, 1994), the Company restructured its
indebtedness to PCI by using cash generated from operations and cash borrowed
from Shawmut (see Note 5). The major impact on operations was the reduction of
interest expense for 1994 and the write-off of prior debt issuance cost of
$389,000.
Certain interim inventory estimates are recognized throughout the fiscal year
relating to shrinkage, obsolescence, and product mix. The results of the
physical inventory and the fiscal year-end close reflected a favorable
adjustment with respect to such estimates, resulting in approximately $224,000
of additional income, which is reflected in the fourth quarter of 1994.
F-20
<PAGE>
#############################################################################
IMAGES OMITTED
PICTURES OF
PHOTOS DIPICTING PRODUCTION AND ASSEMBLY OF COMDIAL PRODUCTS
RANDOMLY SET ON THE PAGE
#############################################################################
<PAGE>
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
No dealer, salesperson, or other person has been authorized to give any
information orto make any representation in connectionwith this offering other
than those contained in this Prospectus and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company or any of the Underwriters. This Prospectus does not constitute an offer
to sell or solicitation of any offer to buy by any one in any jurisdiction in
which such offer to sell or solicitation is not authorized, or in which the
person making such offer or solicitation is not qualified to do, or to any
person to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
Page
Available Information ..................
Incorporation of Certain Information
By Reference .........................
Prospectus Summary .....................
Risk Factors ...........................
Use Of Proceeds ........................
Price Range of Common Stock ............
Dividend Policy ........................
Capitalization .........................
Selected Historical Financial Data ....
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..............................
Business ...............................
Legal Proceedings ......................
Management .............................
Principal and Selling Stockholders ....
Description of Capital Stock ...........
Underwriting ...........................
Legal Matters ..........................
Experts ................................
Index to Financial Statements........... F-1
#############################################################################
IMAGE OMITTED
COMDIAL LOGO
#############################################################################
3,000,000 Shares
Common Stock
PROSPECTUS
Rodman & Renshaw, Inc.
June ___, 1995
<PAGE>
PART II
Information Not Required in Prospectus
Item 14: Other Expenses of Issuance and Distribution
The estimated expenses in connection with this offering are as follows:
AMOUNT TO BE PAID
Selling
Company Stockholder Total
SEC Registration Fee ............ $ $ $
NASD Registration Fee ........... $ $ $
Legal Fees ...................... $ $ $
Printing Fees and Expenses ..... $ $ $
Accounting Fees and Expenses ... $ $ $
Blue Sky Fees and Expenses ..... $ $ $
Miscellaneous ................... $ $ $
Total ........................... $ $ $
Item 15: Indemnification of Directors and Officers
The Company's Bylaws and the General Corporation law of Delaware authorize
indemnification of directors, officers, employees and agents of the Company and
of persons serving in similar capacities for other entities at the Company's
request (so long as such person (i) acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the Company
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful and (ii) in the event of a suit by or in the
right of the Company, was not adjudged liable for negligence or misconduct in
the performance of his duty to the Company, unless there is a court
determination that indemnification is fair and reasonable under all the
circumstances), allow advances of the costs of defending against litigation; and
permit the purchase of insurance on behalf of directors, officers, employees and
agents against liabilities whether or not in the circumstances the Company would
have the power to indemnify against such liabilities under the provisions of the
bylaws or the statute. Insofar as the indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provision, the Company
has been informed 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.
As permitted by Section 102 of the Delaware General Corporation Law, the
Company's Restated Certificate of Incorporation contains provisions eliminating
a director's personal liability for monetary damages to the Company and its
stockholders arising from a breach of a director's fiduciary duty except for
liability under Section 174 of the Delaware General Corporation law or liability
for any breach of the director's duty of loyalty to the Company or its
stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or for any transaction in
which the director derived an improper personal benefit.
The Warrant Exchange Agreement (Exhibit No. 4.2) provides for indemnification
by the Company to PCI and certain of its affiliates, in certain circumstances.
The Selling Stockholder has agreed to indemnify the Company and certain of
its affiliates in certain circumstances.
II- 1
<PAGE>
PART II
Information Not Required in Prospectus
(Continued)
Item 16: Exhibits
<TABLE>
<CAPTION>
Exhibit
Number ..... Description
<S> <C>
1 ......... Form of Underwriting Agreement.
4.1 ....... Restated Certificate of Incorporation of Comdial Corporation.
4.2 ...... Bylaws of Comdial Corporation. (Exhibit 3.3 to Registrant's Form 10-K for the year ended December 31,
1993.)*
5 ......... Opinion of McGuire, Woods, Battle & Boothe, L.L.P. (to be filed by amendment).
10.1 ....... Registrant's 1979 Long Term Incentive Plan and 1982 Incentive Plan. (Exhibits 4(a) and 4(b) of Registrant's
Form S-8 dated February 7, 1984.)*
10.2 ....... Registrant's 1992 Stock Incentive Plan and 1992 Non-employee Directors Stock Incentive Plan. (Exhibits 28.1
and 28.2 of Registrant's Form S-8 dated October 21, 1992.)*
10.3 ....... Agreement dated February 20, 1990 among Registrant and Estech Systems Inc. (Exhibit 10.11 to Registrant's
Form 10-K for the year ended December 31, 1990.)*
10.4 ....... Loan Restructuring dated October 31, 1991 among Registrant and Inner PacifiCorp, Inc. (Exhibit 4.1 to
Registrant's Form 10-Q for the quarter ended September 27, 1991.)*
10.5 ....... Stock Purchase Warrant dated November 1, 1991 among Registrant and Inner PacifiCorp, Inc. (Exhibit 4.2 to
Registrant's Form 10-Q for the quarter ended September 27, 1991.)*
10.6 ....... Amendment No. 1 to the Loan Restructuring Agreement dated July 31, 1992 among Registrant and PacifiCorp
Holdings, Inc. (Exhibit 10.8 to Registrant's Form 10-K for the year ended December 31, 1992.)*
10.7 ....... Asset Purchase Agreement dated July 21, 1992 among the Registrant and International Telecommunication Asia
PTE. LTD. (Exhibit 10.9 to Registrant's Form 10-K for the year ended December 31, 1992.)*
10.8 ....... Amendment No. 2 to the Loan Restructuring Agreement dated April 1, 1993 among Registrant and PacifiCorp
Holdings, Inc. (Exhibit 10.1 to Registrant's Form 10-Q for the period ended March 28, 1993.)*
10.9 ....... Amendment No. 3 to the Loan Restructuring Agreement dated August 6, 1993 among Registrant and PacifiCorp
Holdings, Inc. (Exhibit 10.1 to Registrant's Form 10-Q for the period ended September 26, 1993.)*
10.10 ...... Modification Agreement dated August 23, 1993 among the Registrant and Cortelco International, Inc. (Exhibit
10.2 to Registrant's Form 10-Q for the period ended September 26, 1993.)*
10.11 ...... Amendment No. 4 to the Loan Restructuring Agreement dated October 31, 1993 among Registrant and PacifiCorp
Holdings, Inc. (Exhibit 10.12 to Registrant's Form 10-K for the year ended December 31, 1993.)*
10.12 ...... Loan And Security Agreement dated February 1, 1994 among Registrant and Barclays Business Credit, Inc.
(Exhibit 10.13 to Registrant's Form 10-K for the year ended December 31, 1993.)*
10.13 ...... Equity Agreement dated December 23, 1993 among Registrant and PacifiCorp Credit, Inc. (Exhibit 10.14 to
Registrant's Form 10-K for the year ended December 31, 1993.)*
10.14 ...... Warrant Exchange Agreement dated October 31, 1991 among Registrant and Inner PacifiCorp. Inc. (Exhibit 10.15
to Registrant's Form 10-K for the year ended December 31, 1993.)*
10.15 ...... Development Agreement dated December 2, 1993 among Registrant and Motorola Inc. (Exhibit 10.16 to
Registrant's Form 10-K for the year ended December 31, 1993.)*
10.16 ...... Stock Purchase Agreement dated April 2, 1985 among Registrant and ALLTEL Corporation. (Exhibit 10.17 to
Registrant's Form 10-K for the year ended December 31, 1993.)*
10.17 ...... Amendment No. 1 to the Loan And Security Agreement dated April 29, 1994 among the Registrant and Barclays
Business Credit, Inc. (Exhibit 10.1 to Registrant's Form 10-Q for the quarter ended April 3, 1994.)*
10.18....... Amendment No. 2 to the Loan Restructuring Agreement dated January 23, 1995 among Registrant and Shawmut
Capital Corporation. (Exhibit 10.1 to Registrant's Form 10-Q for the quarter ended April 2, 1995.)
23.1 ....... Consent of Deloitte & Touche LLP (to be filed by amendment).
23.2 ....... Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included in exhibit 5 above).
24 ......... Power of attorney (found on page II-4 herein).
</TABLE>
* Incorporated by reference
II- 2
<PAGE>
PART II
Information Not Required in Prospectus
(Continued)
Item 17: Undertakings
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act of
1933, each post- effective amendment that contains a form of prospectus 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.
II- 3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto authorized,
in the city of Charlottesville, Virginia on June 28, 1995
COMDIAL CORPORATION
By: /s/ William G. Mustain
-------------------------------
William G. Mustain
(Chief Executive Officer)
POWER OF ATTORNEY
Know all Persons By These Presents, that each person whose signature appears
below constitutes and appoints William G. Mustain and Wayne R. Wilver, and each
of them, as his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement, and to file the same, with the Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ A. M. Gleason
- ---------------------------
A. M. Gleason Director June 28, 1995
/s/ John W. Rosenblum John
- ---------------------------
W. Rosenblum Director June 28, 1995
/s/ Dianne C. Walker Dianne
- ---------------------------
C. Walker Director June 28, 1995
/s/ William E. Porter
- ---------------------------
William E. Porter Director June 28, 1995
/s/ Michael C. Henderson
- ---------------------------
Michael C. Henderson Director June 28, 1995
/s/ William G. Mustain
- --------------------------- President, Chief Executive Officer
William G. Mustain and Director June 28, 1995
/s/ Wayne R. Wilver Wayne Senior Vice President, Chief
- --------------------------- Financial Officer and Principal
R. Wilver Accounting Officer June 28, 1995
</TABLE>
II-4
<PAGE>
Draft 6/28/95
3,000,000 Shares
COMDIAL CORPORATION
Common Stock
UNDERWRITING AGREEMENT
_____________, 1995
Rodman & Renshaw, Inc.
One Liberty Plaza
165 Broadway
New York, New York 10006
On behalf of the Several Underwriters named in Schedule I attached hereto.
Ladies and Gentlemen:
Comdial Corporation, a Delaware corporation (the "Company") and
PacifiCorp Credit, Inc. (the "Selling Stockholder"), propose to sell to you and
the other underwriters named in Schedule I attached hereto (the "Underwriters"),
for whom you are acting as the Representative, an aggregate of 3,000,000 shares
(the "Firm Shares") of the Company's Common Stock, $.01 par value per share (the
"Common Stock") of which 1,000,000 shares (the "Company Shares") are to be
issued and sold by the Company and 2,000,000 shares (the "Selling Stockholder
Shares") are to be sold by the Selling Stockholder. In addition, the Selling
Stockholder proposes to grant to the Underwriters an option to purchase up to an
additional 450,000 shares (the "Option Shares"), of Common Stock for the purpose
of covering over-allotments in connection with the sale of the Firm Shares. The
Firm Shares and the Option Shares are together called the "Shares."
1. Sale and Purchase of the Shares. On the basis of the
representations, warranties and agreements contained in, and
subject to the terms and conditions of, this Agreement:
(a) The Company agrees to issue and sell the Company Shares
and the Selling Stockholder agrees to sell the Selling Stockholder
Shares to the several Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase at the purchase price
per share of Common Stock of $_____ (the "Initial Price"), the
aggregate number of Firm Shares set forth opposite such Underwriter's
name in Schedule
-1-
<PAGE>
I attached hereto. The Underwriters agree to offer the Firm Shares to
the public as set forth in the Prospectus.
(b) The Selling Stockholder grants to the several Underwriters
an option to purchase all or any part of the 450,000 Option Shares it
is obligated to sell at the Initial Price. The number of Option Shares
to be purchased by each Underwriter shall be the same percentage
(adjusted by the Representative to eliminate fractions) of the total
number of Option Shares to be purchased by the Underwriters as such
Underwriter is purchasing of the Firm Shares. Such option may be
exercised only to cover over-allotments in the sales of the Firm Shares
by the Underwriters and may be exercised in whole or in part at any
time on or before 12:00 noon, New York City time, on the business day
before the Firm Shares Closing Date (as defined below), and from time
to time thereafter within 30 days after the date of this Agreement,
upon written or telegraphic notice, or verbal or telephonic notice
confirmed by written or telegraphic notice, by the Representative to
the Selling Stockholder no later than 12:00 noon, New York City time,
on the business day before the Firm Shares Closing Date or at least two
business days before any Option Shares Closing Date (as defined below),
as the case may be, setting forth the number of Option Shares to be
purchased and the time and date (if other than the Firm Shares Closing
Date) of such purchase.
2. Delivery and Payment. Delivery by the Company and the Selling
Stockholder of the Firm Shares to the Representative for the respective accounts
of the Underwriters, and payment of the purchase price by certified or official
bank check or checks payable in New York Clearing House (next day) funds to the
Company and the Selling Stockholder, shall take place at the offices of Rodman &
Renshaw, Inc., at One Liberty Plaza, 165 Broadway, New York, New York, 10006, at
10:00 a.m., New York City time, on the fifth business day following the date on
which the public offering of the Shares commences (unless such date is postponed
in accordance with the provisions of Section 10(b)), or at such time and place
or such other date, not later than 10 business days after the date of this
Agreement, as shall be agreed upon by the Company, the Selling Stockholder and
the Representative (such time and date of delivery and payment are called the
"Firm Shares Closing Date"). The public offering of the Shares shall be deemed
to have commenced at the time, which is the earlier of (a) the time, after the
Registration Statement (as defined in Section 4 below) becomes effective, of the
release by you for publication of the first newspaper advertisement which is
subsequently published relating to the Shares or (b) the time, after the
Registration Statement becomes effective, when the Shares are first released by
you for offering by the Underwriters or dealers by letter or telegram.
In the event the option with respect to the Option Shares is exercised,
delivery by the Selling Stockholder of the Option
-2-
<PAGE>
Shares to the Representative for the respective accounts of the Underwriters and
payment of the purchase price by certified or official bank check or checks
payable in New York Clearing House (next day) funds to the Selling Stockholder
shall take place at the offices of Rodman & Renshaw, Inc. specified above at the
time and on the date (which may be the same date as, but in no event shall be
earlier than, the Firm Shares Closing Date) specified in the notice referred to
in Section 1(b) (such time and date of delivery and payment is called the
"Option Shares Closing Date"). The Firm Shares Closing Date and the Option
Shares Closing Dates are called, individually, a "Closing Date" and, together,
the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names
and shall be in such denominations as the Representative shall request at least
two full business days before the Firm Shares Closing Date or the Option Shares
Closing Date, as the case may be, and shall be made available to the
Representative for checking and packaging, at such place as is designated by the
Representative, on the full business day before the Firm Shares Closing Date or
the Option Shares Closing Date, as the case may be.
3. Public Offering. The Company and the Selling Stockholder understand
that the Underwriters propose to make a public offering of the Shares, as set
forth in and pursuant to the Prospectus (as defined in Section 4 below), as soon
after the effective date of the Registration Statement and the date of this
Agreement as the Representative deems advisable. The Company and the Selling
Stockholder hereby confirm that the Underwriters and dealers have been
authorized to distribute or cause to be distributed each preliminary prospectus
and are authorized to distribute the Prospectus (as from time to time amended or
supplemented if the Company furnishes amendments or supplements thereto to the
Underwriters).
4. Representations and Warranties of the Company and the
Selling Stockholders.
(a) The Company represents and warrants to, and agrees
with, the several Underwriters that:
(i) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration
statement, and may have filed one or more amendments thereto,
on Form S-2 (Registration No. 33-______), including in such
registration statement and each such amendment a related
preliminary prospectus (a "Preliminary Prospectus"), for the
registration of the Shares and the Option Shares, in
conformity with the requirements of the Securities Act of
1933, as amended (the "Act"). In addition, the Company has
filed or will promptly file a further amendment to such
registration statement, in the form heretofore delivered to
you. As
-3-
<PAGE>
used in this Agreement, the term "Registration Statement"
means such registration statement, as amended, on file with
the Commission at the time such registration statement becomes
effective (including the prospectus, financial statements,
exhibits, and all other documents filed as a part thereof or
incorporated by reference directly or indirectly therein (such
incorporated documents being herein collectively "Incorporated
Documents")), provided that such Registration Statement, at
the time it becomes effective, may omit such information as is
permitted to be omitted from the Registration Statement when
it becomes effective pursuant to Rule 430A of the General
Rules and Regulations promulgated under the Act (the
"Regulations"), which information ("Rule 430 Information")
shall be deemed to be included in such Registration Statement
when a final prospectus is filed with the Commission in
accordance with Rules 430A and 424(b)(1) or (4) of the
Regulations; the term "Preliminary Prospectus" means each
prospectus included in the Registration Statement, or any
amendments thereto, before it becomes effective under the Act,
the form of prospectus omitting Rule 430A Information included
in the Registration Statement when it becomes effective, if
applicable (the "Rule 430A Prospectus"), and any prospectus
filed by the Company with your consent pursuant to Rule 424(a)
of the Regulations; and the term "Prospectus" means the final
prospectus included as part of the Registration Statement,
except that if the prospectus relating to the securities
covered by the Registration Statement in the form first filed
on behalf of the Company with the Commission pursuant to Rule
424(b) of the Regulations shall differ from such final
prospectus, the term "Prospectus" shall mean the prospectus as
filed pursuant to Rule 424(b) from and after the date on which
it shall have first been used.
(ii) When the Registration Statement becomes
effective, and at all times subsequent thereto to and
including the Closing Dates, and during such longer period as
the Prospectus may be required to be delivered in connection
with sales by the Underwriters or a dealer, the Registration
Statement (and any post-effective amendment thereto) and the
Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment or supplement to
the Registration Statement or the Prospectus) will contain all
statements which are required to be stated therein in
accordance with the Act and the Regulations, will comply with
the Act and the Regulations, and will not 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
-4-
<PAGE>
misleading, and no event will have occurred which should have
been set forth in an amendment or supplement to the
Registration Statement or the Prospectus which has not then
been set forth in such an amendment or supplement; if a Rule
430A Prospectus is included in the Registration Statement at
the time it becomes effective, the Prospectus filed pursuant
to Rules 430A and 424(b)(1) or (4) will contain all Rule 430A
Information; and each Preliminary Prospectus, as of the date
filed with the Commission, did not include 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; except that no
representation or warranty is made in this Section 4(a)(ii)
with respect to statements or omissions made in reliance upon
and in conformity with written information furnished to the
Company as stated in Section 7(b) with respect to any
Underwriter by or on behalf of such Underwriter through the
Representative expressly for inclusion in any Preliminary
Prospectus, the Registration Statement, or the Prospectus, or
any amendment or supplement thereto. Each of the Incorporated
Documents complies in all material respects with the
requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations
thereunder.
(iii) Neither the Commission nor the "blue sky" or
securities authority of any jurisdiction have issued an order
(a "Stop Order") suspending the effectiveness of the
Registration Statement, preventing or suspending the use of
any Preliminary Prospectus, the Prospectus, the Registration
Statement, or any amendment or supplement thereto, refusing to
permit the effectiveness of the Registration Statement, or
suspending the registration or qualification of the Firm
Shares or the Option Shares nor has any of such authorities
instituted or threatened to institute any proceedings with
respect to a Stop Order.
(iv) Any contract, agreement, instrument, lease, or
license required to be described in the Registration Statement
or the Prospectus has been properly described therein. Any
contract agreement, instrument, lease, or license required to
be filed as an exhibit to the Registration Statement has been
filed with the Commission as an exhibit to or has been
incorporated as an exhibit by reference into the Registration
Statement.
(v) The Company has no subsidiary or subsidiaries and
does not control, directly or indirectly, any corporation,
partnership, joint venture, association or other business
organization, except for those permitted to be excluded
pursuant to Item 601, Exhibit 21 of
-5-
<PAGE>
Regulation S-K or those disclosed under Exhibit 21 to the
Company's Form 10-K for the fiscal year ended December 31,
1994 on page 18 thereof (each such corporation singly a
"Subsidiary" and collectively the "Subsidiaries"). The Company
and each Subsidiary is a corporation duly organized, validly
existing, and in good standing under the laws of the state of
its incorporation, with full corporate power and authority,
and all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and
assets and to carry on its business as now being conducted and
in the manner described in the Prospectus. The Company and
each of the Subsidiaries has been duly qualified to do
business and is in good standing in each jurisdiction in which
its respective ownership, leasing, licensing, or character,
location or use of property and assets or the conduct of its
respective business makes such qualification necessary.
Neither the Company nor any of the Subsidiaries owns, leases
or licenses any property or conducts any business outside the
United States of America.
(vi) The authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock, of which
[____________] shares are outstanding and 2,000,000 shares of
preferred stock, par value $10.00 per share, of the Company
(the "Preferred Stock"), of which 750,000 are outstanding.
Each outstanding share of Common Stock and each outstanding
share of Preferred Stock has been duly and validly authorized
and issued, fully paid, and non-assessable, without any
personal liability attaching to the ownership thereof and has
not been issued and is not owned or held in violation of any
preemptive rights of stockholders. The Company owns all of the
shares of capital stock of the Subsidiaries, free and clear of
all liens, claims, security interests, restrictions,
stockholders' agreements voting trusts and any other
encumbrances whatsoever. There is no commitment, plan,
preemptive right or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of,
shares of capital stock of the Company or any of the
Subsidiaries or any security or other instrument which by its
terms is convertible into, exercisable for, or exchangeable
for capital stock of the Company or any of the Subsidiaries,
except as may be properly described in the Prospectus. There
is outstanding no security or other instrument which by its
terms is convertible into or exchangeable for capital stock of
the Company or any of the Subsidiaries, except as may be
properly described in the Prospectus. The 1- for-3 reverse
split (the "Reverse Split") with respect
-6-
<PAGE>
to the Company's Common Stock has been duly authorized
by the stockholders of the Company.
(vii) The consolidated financial statements of the
Company included in the Registration Statement and the
Prospectus fairly present with respect to the Company the
financial position, the results of operations, and the other
information purported to be shown therein at the respective
dates and for the respective periods to which they apply. Such
financial statements have been prepared in accordance with
generally accepted accounting principles (except to the extent
that certain footnote disclosures regarding any stub period
may have been omitted in accordance with the applicable rules
of the Commission under the Exchange Act) consistently applied
throughout the periods involved, are correct and complete, and
are in accordance with the books and records of the Company.
The accountants whose report on the audited financial
statements is filed with the Commission as a part of the
Registration Statement are, and during the periods covered by
their report(s) included in the Registration Statement and the
Prospectus were, independent certified public accountants with
respect to the Company within the meaning of the Act and the
Regulations. No other financial statements are required by
Form S-2 or otherwise to be included in the Registration
Statement or the Prospectus. There has at no time been a
material adverse change in the financial condition, results of
operations, business, properties, assets, liabilities, or
future prospects of the Company or any of the Subsidiaries
from the latest information set forth in the Registration
Statement or the Prospectus, except as may be properly
described in the Prospectus.
(viii) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation before any court or before any public body or
board pending, or to the Company's knowledge, threatened, or
in prospect (or any basis therefor) with respect to the
Company or any of the Subsidiaries, or any of their respective
operations, business, properties or assets, except as may be
properly described in the Prospectus or such as individually
or in the aggregate do not now have and will not in the future
have a material adverse effect upon the operations, business,
properties, assets or financial condition of the Company and
the Subsidiaries. Neither the Company nor any of the
Subsidiaries is involved in any labor dispute, nor is such
dispute threatened, which dispute would have a material
adverse effect upon the operations, business, properties,
assets or financial condition of the Company and the
Subsidiaries. Neither the Company nor any of the Subsidiaries
is in violation of, or in default with
-7-
<PAGE>
respect to, any law, rule, regulation, order, judgment, or
decree; nor is the Company or any of the Subsidiaries required
to take any action in order to avoid any such violation or
default.
(ix) The Company and each of the Subsidiaries has
good and marketable title in fee simple absolute to all real
properties and good title to all other properties and assets
which the Prospectus indicates are owned by them, and has
valid and enforceable leasehold interests in each of such
items, free and clear of all liens, security interests,
pledges, charges, encumbrances, and mortgages (except as may
be properly described in the Prospectus). No real property
owned, leased, licensed or used by the Company or any of the
Subsidiaries lies in an area which is, or to the knowledge of
the Company will be, subject to zoning, use or building code
restrictions which would prohibit, and no state of facts
relating to the actions or inaction of another person or
entity or his or its ownership, leasing, licensing or use of
any real or personal property exists or will exist which would
prevent, the continued effective ownership, leasing, licensing
or use of such real property in the business of the Company or
any of the Subsidiaries as presently conducted or as the
Prospectus indicates it contemplates conducting (except as may
be properly described in the Prospectus).
(x) The Company and each of the Subsidiaries, and to
the knowledge of the Company, any other party, is not now or
is not expected by the Company to be in violation or breach
of, or in default with respect to, complying with any term,
obligation or provision of any contract, agreement,
instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding which is material to
the Company or any of the Subsidiaries or by which any of
their respective properties or business may be bound or
affected, and no event has occurred which with notice or lapse
of time or both would constitute such a default, and each such
contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding is
in full force and is the legal, valid and binding obligation
of the parties thereto and is enforceable as to them in
accordance with its terms. The Company and each of the
Subsidiaries enjoys peaceful and undisturbed possession under
all leases and licenses under which it is operating. Neither
the Company nor any of the Subsidiaries is a party to or bound
by any contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or
understanding, or subject to any charter or other restriction,
which has had or may in the future have a material adverse
effect on the financial condition,
-8-
<PAGE>
results of operations, business, properties, assets,
liabilities or future prospects of the Company and the
Subsidiaries. Neither the Company nor any of the Subsidiaries
is in violation or breach of, or in default with respect to,
any term of its certificate of incorporation (or other charter
document) or by-laws or of any franchise, license, permit,
judgment, decree, order, statute, rule or regulation.
(xi) The Company and the Subsidiaries have filed all
federal, state, local and foreign tax returns which are
required to be filed through the date hereof, or have received
extensions thereof, and have paid all taxes shown on such
returns and all assessments received by them to the extent
that the same are material and have become due.
(xii) All patents, patent applications, trademarks,
trademark applications, trade names, service marks,
copyrights, copyright applications, franchises, and other
intangible properties and assets listed in the Registration
Statement under "Business-Intellectual Property" (all of the
foregoing being collectively herein called "Intangibles") that
the Company and the Subsidiaries own, possess or have pending,
or under which they are licensed, are in good standing and
uncontested. There is no right under any Intangible necessary
to the business of the Company and the Subsidiaries as
presently conducted or as the Prospectus indicates the Company
and the Subsidiaries contemplate conducting (except as may be
so described in the Prospectus). To the knowledge of the
Company, neither the Company nor any of the Subsidiaries have
infringed, are not infringing, or have received any notice of
infringement with respect to asserted Intangibles of others.
To the knowledge of the Company, there is no infringement by
others of Intangibles of the Company. To the knowledge of the
Company, there is no Intangible of others which has had or may
in the future have a materially adverse effect on the
financial condition, results of operations, business,
properties, assets, liabilities or future prospects of the
Company and the Subsidiaries.
(xiii) Neither the Company nor any Subsidiary, or to
the Company's knowledge, any director, officer, agent,
employee or other person associated with or acting on behalf
of the Company and the Subsidiaries has, directly or
indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or
employees or to foreign domestic political parties or
campaigns from or corporate funds;
-9-
<PAGE>
violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback, or other unlawful payment. No transaction
has occurred between or among the Company, the Subsidiaries,
or the Selling Stockholder and any of its or their officers or
directors or any affiliates or affiliates of any such officer
or director, except as described in the Prospectus.
(xiv) The Company and the Subsidiaries have all
requisite power and authority to execute, deliver and perform
this Agreement. All necessary corporate proceedings of the
Company and the Subsidiaries have been duly taken to authorize
the execution, delivery and performance of this Agreement.
This Agreement has been duly authorized, executed, and
delivered by the Company, is the legal, valid and binding
obligation of the Company, and is enforceable as to the
Company in accordance with its terms. No consent,
authorization, approval, order, license, certificate or permit
of or from, or declaration or filing with, any federal, state,
local or other governmental authority or any court or other
tribunal is required by the Company or the Subsidiaries for
the execution, delivery or performance by the Company of this
Agreement (except filings under the Act which have been or
will be made before the applicable Closing Date and such
consents consisting only of consents under "blue sky" or
securities laws which have been obtained at or prior to the
date of this Agreement). No consent of any party to any
contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement or understanding to
which the Company or the Subsidiaries is a party, or to which
any of their respective properties or assets are subject, is
required for the execution, delivery or performance of this
Agreement, and the execution, delivery and performance of this
Agreement, will not violate, result in a breach of, conflict
with, accelerate the due date of any payments under, or (with
or without the giving of notice or the passage of time or
both) entitle any party to terminate or call a default under
any such contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or
understanding, or violate or result in a breach of any term of
the certificate of incorporation (or other charter document)
or by-laws of the Company or the Subsidiaries, or violate,
result in a breach of, or conflict with any law, rule,
regulation, order, judgment or decree binding on the Company
or any of the Subsidiaries or to which any of their respective
operations, business, properties or assets are subject.
-10-
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(xv) The Company Shares are validly authorized. The
Firm Shares, when issued and delivered in accordance with this
Agreement, will be duly and validly issued, fully paid, and
non-assessable, without any personal liability attaching to
the ownership thereof, and will not be issued in violation of
any preemptive rights of stockholders, optionholders,
warrantholders and any other persons and the Underwriters will
receive good title to the Company Shares purchased by them,
respectively, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements and
voting trusts.
(xvi) The Common Stock, the Preferred Stock, the Firm
Shares and the Option Shares conform to all statements
relating thereto contained in the Registration Statement or
the Prospectus.
(xvii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as may otherwise be properly described
therein, there has not been any material adverse change in the
assets or properties, business or results of operations or
financial condition of the Company or the Subsidiaries,
whether or not arising from transactions in the ordinary
course of business; neither the Company nor the Subsidiaries
has sustained any material loss or interference with their
respective business or properties from fire, explosion,
earthquake, flood or other calamity, whether or not covered by
insurance; since the date of the latest balance sheet included
in the Registration Statement and the Prospectus, except as
reflected therein, neither the Company nor the Subsidiaries
have undertaken any liability or obligation, direct or
contingent, except for liabilities or obligations undertaken
in the ordinary course of business; and neither Company nor
the Subsidiaries have not (A) issued any securities or
incurred any liability or obligation, primary or contingent,
for borrowed money, (B) entered into any transaction not in
the ordinary course of business, or (C) declared or paid any
dividend or made any distribution on any of its capital stock
or redeemed, purchased or otherwise acquired or agreed to
redeem, purchase or otherwise acquire any shares of its
capital stock.
(xviii) Neither the Company nor any of its officers,
directors or affiliates (as defined in the Regulations), has
taken or will take, directly or indirectly, prior to the
termination of the underwriting syndicate contemplated by this
Agreement, any action designed to stabilize or manipulate the
price of any security of the Company, or which has caused or
resulted
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<PAGE>
in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price
of any security of the Company, to facilitate the sale or
resale of any of the Firm Shares or the Option Shares.
(xix) The Company has obtained from each of its
executive officers and directors and the Selling Stockholder,
their enforceable written agreement, in form and substance
satisfactory to counsel for the Underwriters, that for a
period of 180 days from the date on which the public offering
of the Shares commences they will not, without your prior
written consent, offer, pledge, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of, directly
or indirectly, any shares of Common Stock or other securities
of the Company (or any security or other instrument which by
its terms is convertible into, exercisable for, or
exchangeable for shares of Common Stock or other securities of
the Company, including, without limitation, any shares of
Common Stock issuable under any employee stock options),
beneficially owned by them, except with respect to Shares
being sold in connection herewith or their being a beneficial
owner of any such Shares;
(xx) The Company is not, and does not intend to
conduct its business in a manner in which it would be, an
"investment company" as defined in Section 3(a) of the
Investment Company Act of 1940 (the "Investment Company Act").
(xxi) No person or entity has the right to require
registration of shares of Common Stock or other securities of
the Company because of the filing or effectiveness of the
Registration Statement, except such person or entities from
whom written waivers of such rights have been received prior
to the date hereof.
(xxii) Except as may be set forth in the Prospectus,
the Company has not incurred any liability for a fee,
commission or other compensation on account of the employment
of a broker or finder in connection with the transactions
contemplated by this Agreement.
(xxiii) No transaction has occurred between or among
the Company, the Subsidiaries or any of their officers or
directors or any affiliates of any such officers or directors,
that is required to be described in and is not described in
the Registration Statement and the Prospectus.
(xxiv) The Common Stock, including the Shares, are
authorized for quotation on the NASDAQ National Market.
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(xxv) Neither the Company, the Subsidiaries nor any
of their affiliates is presently doing business with the
government of Cuba or with any person or affiliate located in
Cuba. If, at any time after the date that the Registration
Statement is declared effective with the Commission or with
the Florida Department of Banking and Finance (the "Florida
Department"), whichever date is later, and prior to the end of
the period referred to in the first clause of Section 4(a)(ii)
hereof, the Company commences engaging in business with the
government of Cuba or with any person or affiliate located in
Cuba, the Company will so inform the Florida Department within
ninety days after such commencement of business in Cuba, and
during the period referred to in Section 4(a)(ii) hereof will
inform the Florida Department within ninety days after any
change occurs with respect to previously reported information.
(b) The Selling Stockholder represents and warrants to,
and agree with, the several Underwriters that:
(i) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation before any court or beneficiary, public body or
board pending, threatened, or in prospect (or any basis
therefor known to the Selling Stockholder) with respect to the
Selling Stockholder or any of the Selling Stockholder's
business, properties or assets which would adversely effect
the transactions contemplated by this Agreement. The Selling
Stockholder is not in violation of, or in default with respect
to, any law, rule, regulation, order, judgment, or decree; nor
is the Selling Stockholder required to take any action in
order to avoid the violation or default.
(ii) The Selling Stockholder has all requisite power
and authority to execute, deliver, and perform this Agreement.
This Agreement has been duly executed and delivered by or on
behalf of the Selling Stockholder, is the legal, valid and
binding obligation of the Selling Stockholder, and is
enforceable as to the Selling Stockholder in accordance with
its terms. No consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local or other governmental
authority or any court or other tribunal is required by the
Selling Stockholder for the execution, delivery or performance
of this Agreement (except filings under the Act which have
been made before the applicable Closing Date and the consents
consisting only of consents under "blue sky" or securities
laws which have been obtained at or prior to the date of this
Agreement) by the Selling Stockholder. No consent of any party
to any contract, agreement, instrument, lease,
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<PAGE>
license, indenture, mortgage, deed of trust, note, arrangement
or understanding to which the Selling Stockholder is a party,
or to which any of the Selling Stockholder's properties or
assets are subject, is required for the execution, delivery or
performance of this Agreement; and the execution, delivery and
performance of this Agreement will not violate, result in a
breach of, conflict with, or (with or without the giving of
notice of the passage of time or both) entitle any party to
terminate or call a default under any the contract, agreement,
instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding, or violate, result
in a breach of, or conflict with, any law, rule, regulation,
order, judgment or decree binding on the Selling Stockholder
or to which any of the Selling Stockholder's operations,
business, properties, or assets are subject.
(iii) The Selling Stockholder has good title to the
Selling Stockholder Shares and Option Shares, as the case may
be, to be sold by the Selling Stockholder pursuant to this
Agreement, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements and
voting trusts and when delivered in accordance with this
Agreement, the Underwriters will receive good title to the
Selling Stockholder Shares and the Option Shares purchased by
them, respectively, from the Selling Stockholder, free and
clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts.
(iv) Neither the Selling Stockholder nor any of the
Selling Stockholder's affiliates (as defined in the
Regulations) has taken or will take, directly or indirectly,
prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the
Selling Stockholder Shares or the Option Shares.
(v) All information furnished or to be furnished to
the Company by or on behalf of the Selling Stockholder for use
in connection with the preparation of the Registration
Statement and the Prospectus is true in all respects and does
not and will not include 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.
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<PAGE>
(vi) Except as may be set forth in the Prospectus,
the Selling Stockholder has not incurred any liability for a
fee, commission or other compensation on account of the
employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(vii) The Selling Stockholder has no knowledge that,
and does not believe that, any representation or warranty of
the Company in Section 4(a) is incorrect.
(viii) The Selling Stockholder has not, directly or
indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful
payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any
bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment.
(ix) The Selling Stockholder Shares and the Option
Shares to be sold by the Selling Stockholder pursuant to this
Agreement are duly and validly authorized and issued, fully
paid and non-assessable, and have not been issued and are not
owned or held in violation of any preemptive right of
stockholders, optionholders, warrantholders or other persons.
(x) No transaction has occurred between the Selling
Stockholder and the Company that is required to be described
in the Registration Statement or the Prospectus.
5. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters under this Agreement are several and
not joint. The respective obligations of the Underwriters to purchase
the Shares are subject to each of the following terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a)(i) of this Agreement.
(b) No order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus shall have been or shall be in
effect and no order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for the purpose shall
be pending before or threatened by the Commission, and any requests for
additional information on the part of the Commission (to be included in
the Registration Statement or the Prospectus or otherwise) shall have
been complied with to the satisfaction of the Representative.
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<PAGE>
(c) The representations and warranties of the Company and the
Selling Stockholder contained in this Agreement and in the certificates
delivered pursuant to Section 5(d) shall be true and correct when made
and on and as of each Closing Date as if made on the date and the
Company and the Selling Stockholder shall have performed all covenants
and agreements and satisfied all the conditions contained in this
Agreement required to be performed or satisfied by it or them at or
before the Closing Date.
(d) The Representative shall have received on each Closing
Date (i) a certificate, addressed to the Representative and dated such
Closing Date, of the chief executive or chief operating officer and the
chief financial officer of the Company to the effect that the persons
executing such certificate have carefully examined the Registration
Statement, the Prospectus and this Agreement and that the
representations and warranties of the Company in this Agreement are
true and correct on and as of such Closing Date with the same effect as
if made on such Closing Date and the Company has performed all
covenants and agreements and satisfied all conditions contained in this
Agreement required to be performed or satisfied by it at or prior to
such Closing Date and (ii) certificates, addressed to the
Representative and dated such Closing Date, of the Selling Stockholder
to the effect that the representations and warranties of the Selling
Stockholder are true and correct on and as of such Closing Date and the
Selling Stockholder has performed all covenants and agreements and
satisfied all conditions contained in this Agreement required to be
performed or satisfied by the Selling Stockholder at or prior to such
Closing Date.
(e) The Representative shall have received at the time this
Agreement is executed and on each Closing Date a signed letter from
Deloitte & Touche LLP, addressed to the Representative and dated,
respectively, the date of this Agreement and each such Closing Date, in
form and scope reasonably satisfactory to the Representative, with
reproduced copies or signed counterparts thereof for each of the
Underwriters confirming that they are independent accountants within
the meaning of the Act and the Regulations, that the response to Item
10 of the Registration Statement is correct in so far as it relates to
them and stating in effect that:
(i) in their opinion the audited financial statements
and financial statement schedules included or incorporated by
reference in the Registration Statement and the Prospectus and
reported on by them comply as to form in all material respects
with the applicable accounting requirements of the Act, the
Exchange Act and the related published rules and regulations
thereunder;
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<PAGE>
(ii) on the basis of a reading of the amounts
included in the Registration Statement and the Prospectus
under the headings "Summary Financial Data" and "Selected
Financial Data," which would not necessarily reveal matters of
significance with respect to the comments set forth in such
letter, a reading of the minutes of the meetings of the
stockholders and directors of the Company, and inquiries of
certain officials of the Company who have responsibility for
financial and accounting matters of the Company as to
transactions and events subsequent to the date of the latest
audited financial statements, except as disclosed in the
Registration Statement and the Prospectus, nothing came to
their attention which caused them to believe that:
(A) the amounts in "Summary Financial Data,"
and "Selected Financial Data" included or
incorporated by reference in the Registration
Statement and the Prospectus do not agree with the
corresponding amounts in the audited financial
statements from which such amounts were derived; or
(B) with respect to the Company, there were,
at a specified date not more than five business days
prior to the date of the letter, any decreases in net
sales, income before income taxes and net income or
any increases in long-term debt of the Company or any
decreases in the capital stock, working capital or
the stockholders' equity in the Company, as compared
with the amounts shown on the Company's audited
Balance Sheet for the fiscal year ended December 31,
1994 included in the Registration Statement or the
audited Statement of Operations, for such year; and
(iii) they have performed certain other procedures as
a result of which they determined that information of an
accounting, financial or statistical nature (which is limited
to accounting, financial or statistical information derived
from the general accounting records of the Company) set forth
in the Registration Statement and the Prospectus and
reasonably specified by the Representative agrees with the
accounting records of the Company.
References to the Registration Statement and the Prospectus in
this paragraph (e) are to such documents as amended and supplemented at
the date of such letter.
(f) The Representative shall have received on each Closing
Date from McGuire Woods Battle & Boothe LLP, counsel for the Company,
an opinion, addressed to the Representative
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<PAGE>
and dated such Closing Date, and in form and scope satisfactory to
counsel for the Underwriters, with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) The Company has no subsidiary or subsidiaries and
does not control, directly or indirectly, any corporation,
partnership, joint venture, association or other business
organization, except for those permitted to be excluded
pursuant to Item 601, Exhibit 21 or Regulation S-K. The
Company and each Subsidiary is a corporation duly organized,
validly existing, and in good standing under the laws of the
state of its incorporation, with full corporate power and
authority to own, lease, license and use its properties and
assets and to conduct its business in the manner described in
the Prospectus. To the knowledge of such counsel, the Company
has all necessary consents, authorizations, approvals, orders,
certificates and permits of and from, and declarations and
filings with, all federal, state, local and other governmental
authorities and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its
business in the manner described in the Prospectus. The
Company and each of the Subsidiaries has been duly qualified
to do business and is in good standing, in each state where
the failure to be so qualified could have a material adverse
effect on the operating condition (financial and otherwise) or
business of the Company and the Subsidiaries. Neither the
Company nor the Subsidiaries owns, leases or licenses any
property or conducts any business outside the United States of
America.
(ii) The Company has authorized, issued and
outstanding capital stock as set forth in the "actual" column
of the capitalization table under the caption "Capitalization"
in the Prospectus. The certificates evidencing the shares are
in due and proper legal form. Each outstanding share of Common
Stock has been duly and validly authorized and issued, fully
paid, and non-assessable, without any personal liability
attaching to the ownership thereof, and has not been issued
and is not owned or held in violation of any preemptive right
of stockholders. The Company owns all of the shares of capital
stock of the Subsidiaries, free and clear of all liens,
claims, security interests, restrictions, stockholders'
agreements, voting trusts and any other encumbrances
whatsoever. To the knowledge of such counsel, there is no
commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of,
any share of capital stock of the Company or any of the
Subsidiaries or any security or other instrument which by its
terms is convertible into, exercisable for, or exchangeable
for
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<PAGE>
capital stock of the Company or any of the Subsidiaries,
except as may be properly described in the Prospectus. To the
knowledge of such counsel, there is outstanding no security or
other instrument which by its terms is convertible into,
exercisable for or exchangeable for capital stock of the
Company or any of the Subsidiaries, except as may be properly
described in the Prospectus. The Reverse Split with respect to
the Company's Common Stock has been duly authorized by the
stockholders of the Company.
(iii) To the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation before any
court or before any public body or board pending, threatened,
or in prospect (or any basis therefor) with respect to the
Company or any of the Subsidiaries, or any of their respective
operations, businesses, properties, assets, or financial
condition except as may be properly described in the
Prospectus or such as individually or in the aggregate do not
now have and will not in the future have a material adverse
effect upon the operations, business, properties, assets, or
financial condition of the Company and the Subsidiaries. To
the knowledge of such counsel, neither the Company, nor any of
the Subsidiaries, is involved in any labor dispute, nor is
such dispute threatened, which dispute would have a material
adverse effect upon the operations, business, properties,
assets or financial condition of the Company and the
Subsidiaries. Neither the Company, nor any of the
Subsidiaries, is in violation of, or in default with respect
to, any law, rule, regulation, order, judgment, or decree,
except as may be properly described in the Prospectus or such
as in the aggregate do not now have and will not in the future
have a material adverse effect upon the operations, business,
properties, assets, or financial condition of the Company and
of the Subsidiaries; nor is the Company or any of the
Subsidiaries required to take any action in order to avoid any
such violation or default.
(iv) To the knowledge of such counsel, neither the
Company, nor any of the Subsidiaries, nor any other party is
now or is expected by the Company to be in violation or breach
of, or in default with respect to, complying with any term,
obligation or provision of any contract, agreement,
instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding which is material to
the Company or any of the Subsidiaries or by which any of
their respective properties or businesses may be bound or
affected and no event has occurred which with notice or lapse
of time or both would constitute such a default.
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<PAGE>
(v) Neither the Company nor any of the Subsidiaries
is in violation or breach of, or in default with respect to,
any term of its certificate of incorporation (or other charter
document) or by-laws.
(vi) The Company and the Subsidiaries have all
requisite power and authority to execute, deliver and perform
this Agreement and to issue and sell the Shares. All necessary
corporate proceedings of the Company and the Subsidiaries have
been taken to authorize the execution, delivery and
performance by the Company of this Agreement. This Agreement
has been duly authorized, executed and delivered by the
Company, is the legal, valid and binding obligation of the
Company and (subject to applicable bankruptcy, insolvency, and
other laws affecting the enforceability of creditors' rights
generally) is enforceable as to the Company in accordance with
its terms. No consent, authorization, approval, order,
license, certificate or permit of or from, or declaration or
filing with, any federal state, local or other governmental
authority or any court or other tribunal is required by the
Company, or the execution, delivery or performance by the
Company of this Agreement (except filings under the Act which
have been made prior to the Closing Date and consents
consisting only of consents under "blue sky" or securities
laws). To the knowledge of such counsel, no consent of any
party to any contract, agreement, instrument, lease, license,
indenture, mortgage, deed of trust, note, arrangement or
understanding to which the Company or the Subsidiaries is a
party, or to which any of their respective properties or
assets are subject, is required for the execution, delivery or
performance of this Agreement; and the execution, delivery and
performance of this Agreement will not violate, result in a
breach of, conflict with, or (with or without the giving of
notice or the passage of time or both) entitle any party to
terminate or call a default under any such contract,
agreement, instrument, lease, license, indenture, mortgage,
deed of trust, note, arrangement or understanding, in each
case known to such counsel, or violate or result in a breach
of any term of the certificate of incorporation (or other
charter document) or by-laws of the Company or the
Subsidiaries, or violate, result in a breach of, or conflict
with any law, rule, regulation, order, judgment, or decree
binding on the Company or any of the Subsidiaries or to which
any of their respective operations, businesses, properties or
assets are subject.
(vii) The Firm Shares and the Option Shares are duly
and validly authorized. Such opinion delivered at each of the
Closing Dates shall state that each Share, as the case may be,
to be delivered on that date is duly
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<PAGE>
and validly issued, fully paid, and non-assessable, with no
personal liability attaching to the ownership thereof, and is
not issued in violation of any preemptive rights of
stockholders, and the Underwriters have received good title to
the Shares purchased by them, respectively, from the Company
for the consideration contemplated herein and in good faith
and without notice of any adverse claim within the meaning of
the Uniform Commercial Code, free and clear of any liens,
security interests, pledges, charges, encumbrances,
stockholders' agreements, voting trusts and other claims. The
Common Stock, the Preferred Stock, the Firm Shares and the
Option Shares conform to all statements relating thereto
contained in the Registration Statement or the Prospectus.
(viii) To the knowledge of such counsel, any
contract, agreement, instrument, lease or license required to
be described in the Registration Statement or the Prospectus
has been properly described therein. To the knowledge of such
counsel, any contract, agreement, instrument, lease or license
required to be filed as an exhibit to the Registration
Statement has been filed with the Commission as an exhibit to
or has been incorporated as an exhibit by reference into the
Registration Statement.
(ix) Insofar as statements in the Prospectus purport
to summarize the status of litigation or the provisions of
laws, rules, regulations, orders, judgments, decrees,
contracts, agreements, instruments, leases or licenses, such
statements have been prepared or reviewed by such counsel and
to the knowledge of such counsel, accurately reflect the
status of such litigation and provisions purported to be
summarized and are correct in all material respects.
(x) The Company is not an "investment company" as
defined in Section 3(a) of the Investment Company Act and, if
the Company conducts its business as set forth in the
Prospectus, will not become an "investment company" and will
not be required to be registered under the Investment Company
Act.
(xi) To the knowledge of such counsel, no person or
entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement except
such persons or entities from whom written waivers of such
rights have been received prior to the Closing Date.
(xii) The Registration Statement has become effective
under the Act. No Stop Order has been issued
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and no proceedings for that purpose has been instituted or are
threatened, pending, or to such counsel's knowledge,
contemplated.
(xiii) The Registration Statement, any Rule 430A
Prospectus, and the Prospectus, and any amendment or
supplement thereto (other than financial statements and other
financial data and schedules which are or should be contained
in any thereof, as to which such counsel need express no
opinion), comply as to form in all material respects with the
requirements of the Act and the Regulations. To the knowledge
of such counsel, the conditions for the use of Form S-2 have
been satisfied with respect to the Registration Statement.
(xiv) Such counsel has no reason to believe that any
of the Registration Statement, any Rule 430A Prospectus, or
the Prospectus, or any amendment or supplement thereto (other
than financial statements and other financial data and
schedules which are or should be contained in any thereof, as
to which such counsel need express no opinion), contains any
untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading.
(xv) To the knowledge of such counsel, since the
effective date of the Registration Statement, no event has
occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus
which has not been set forth in such an amendment or
supplement.
(xvi) The agreement of each officer and director of
the Company, stating that for a period of 180 days from the
date on which the public offering of the Shares commences,
such party will not, without the Representative's prior
written consent, offer, pledge, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of, directly
or indirectly, any shares of Common Stock (or any other
securities of the Company or any security or other instrument
which by its terms is convertible into, exercisable for, or
exchangeable for shares of Common Stock or other securities of
the Company, including, without limitation, any shares of
Common Stock issuable under any employee stock options),
beneficially owned by such party, has been duly and validly
authorized, executed and delivered by such party and
constitutes the legal, valid and binding obligation of such
party enforceable against such party in accordance with its
terms.
In addition, such counsel shall state that such counsel has
participated in the preparation of the Registration Statement
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and the Prospectus and in conferences with officers and other representative of
the Company, representative of the Representative and representative of the
independent accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, although such counsel has not independently verified and is not passing
upon and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus (except as specified in the foregoing opinion), on the basis of the
foregoing and relying as to materiality upon the representations of executive
officers of the Company after conferring with such executive officers, no facts
have come to the attention of such counsel which lead such counsel to believe
that the Registration Statement at the time it became effective contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or that the Prospectus, except for the financial statements and other financial
and statistical data included therein as to which counsel need express no
opinion, as amended or supplemented on the date thereof contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering their opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of other counsel retained
by the Company as to laws of any jurisdiction other than the Federal laws of the
United States or the General Corporate Law of the State of Delaware (for
purposes of rendering their opinion, such counsel may assume that the law of the
State of New York is the same as the law of the State of Virginia in all
respects), provided that (1) each such local counsel is reasonably acceptable to
the Representative and (2) such reliance is expressly authorized by each opinion
so relied upon and a copy of each such opinion is addressed to the
Representative and is in form and substance reasonably satisfactory to them and
their counsel. In addition, such counsel may rely, as to matters of fact, to the
extent such counsel deems proper, on certificates of responsible officers of the
Company, provided that executed copies of such certificates are provided to the
Representative.
(g) The Representative shall have received on each Closing
date from __________________, counsel to the Selling Stockholder, an
opinion, addressed to the Representative, and dated such Closing Date,
to the effect that:
(i) The Selling Stockholder has all requisite power
and authority to execute, deliver and perform this Agreement
and to issue and sell the Shares. This Agreement has been duly
authorized, executed and delivered by the Selling Stockholder,
is the legal,
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valid and binding obligation of the Selling Stockholder and
(subject to applicable bankruptcy, insolvency, and other laws
affecting the enforceability of creditors' rights generally)
is enforceable as to the Selling Stockholder in accordance
with its terms. No consent, authorization, approval, order,
license, certificate or permit of or from, or declaration or
filing with, any federal state, local or other governmental
authority or any court or other tribunal is required by the
Selling Stockholder, for the execution, delivery or
performance by the Selling Stockholder of this Agreement
(except filings under the Act which have been made prior to
the Closing Date and consents consisting only of consents
under "blue sky" or securities laws). To the knowledge of such
counsel, no consent of any party to any contract, agreement,
instrument, lease, license, indenture, mortgage, deed of
trust, note, arrangement or understanding to which the Selling
Stockholder is a party, or to which any of its properties or
assets are subject, is required for the execution, delivery or
performance of this Agreement; and the execution, delivery and
performance of this Agreement will not violate, result in a
breach of, conflict with, or (with or without the giving of
notice or the passage of time or both) entitle any party to
terminate or call a default under any such contract,
agreement, instrument, lease, license, indenture, mortgage,
deed of trust, note, arrangement or understanding, in each
case known to such counsel, or violate or result in a breach
of any term of the certificate of incorporation or by-laws of
the Selling Stockholder, or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment, or
decree binding on the Selling Stockholder or to which any of
its operations, businesses, properties or assets are subject.
(ii) Such opinion delivered at each of the Closing
Dates shall state that each Share, as the case may be, to be
delivered on that date is duly and validly issued, fully paid,
and non-assessable, with no personal liability attaching to
the ownership thereof, and is not issued in violation of any
preemptive rights of stockholders, and the Underwriters have
received good title to the Shares purchased by them,
respectively, from the Selling Stockholder for the
consideration contemplated herein and in good faith and
without notice of any adverse claim within the meaning of the
Uniform Commercial Code, free and clear of any liens, security
interests, pledges, charges, encumbrances, stockholders'
agreements, voting trusts and other claims.
(h) The Representative shall have received on each Closing
Date from , patent counsel for the Company, an opinion, addressed to
the Representative and
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dated such Closing Date in form and substance satisfactory to counsel
for the Underwriters.
(i) The Reverse Split with respect to the Company's Common
Stock shall have been duly authorized by the stockholders of the
Company and the appropriate document evidencing the Reverse Split shall
have been filed and accepted by the Secretary of State of the State of
Delaware.
(j) All proceedings taken in connection with the sale of the
Firm Shares and the Option Shares as herein contemplated shall be
satisfactory in form and substance to the Representative and its
counsel, and the Underwriters shall have received from Squadron,
Ellenoff, Plesent, Sheinfeld & Sorkin LLP, a favorable opinion,
addressed to the Representative and dated such Closing Date, with
respect to the Shares, the Registration Statement and the Prospectus,
and such other related matters, as the Representative may reasonably
request, and the Company and the Selling Stockholders shall have
furnished to Squadron, Ellenoff, Plesent, Sheinfeld & Sorkin LLP, such
documents as they may reasonably request for the purpose of enabling
them to pass upon such matters.
6. Covenants of the Company and the Selling Stockholders.
(a) The Company covenants and agrees as follows:
(i) The Company shall use its best efforts to cause
the Registration Statement to become effective as promptly as
possible. If the Registration Statement has become or becomes
effective with a form of prospectus omitting Rule 430A
information, or filing of the Prospectus is otherwise required
under Rule 424(b), the Company will file the Prospectus,
properly completed, pursuant to Rule 424(b) within the time
period prescribed and will provide evidence satisfactory to
you of such timely filing. The Company shall notify you
immediately, and confirm such notice in writing, (A) when the
Registration Statement and any post-effective amendment
thereto become effective, (B) of the receipt of any comments
from the Commission or the "blue sky" or securities authority
of any jurisdiction regarding the Registration Statement, any
post-effective amendment thereto, the Prospectus, or any
amendment or supplement thereto, and (C) of the receipt of any
notification with respect to a Stop Order. The Company shall
not file any amendment to the Registration Statement or
supplement to the Prospectus unless the Company has furnished
the Representative a copy for their review prior to filing and
shall not file any such proposed amendment or supplement to
which the Representative reasonably objects. The Company shall
use its best efforts to
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prevent the issuance of any Stop Order and, if issued, to
obtain as soon as possible the withdrawal thereof.
(ii) During the time when a prospectus relating to
the Shares is required to be delivered hereunder or under the
Act or the Regulations, comply so far as it is able with all
requirements imposed upon it by the Act, as now existing and
as hereafter amended, and by the Regulations, as from time to
time in force, so far as necessary to permit the continuance
of sales of or dealings in the Shares in accordance with the
provisions hereof and the Prospectus. If, at any time when a
prospectus relating to the Shares is required to be delivered
under the Act and the Regulations, any event as a result of
which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements
therein in the light of the circumstances under which they
were made not misleading, or if it shall be necessary to amend
or supplement the Prospectus to comply with the Act or the
Regulations, the Company promptly shall prepare and file with
the Commission, subject to the third sentence of paragraph (i)
of this Section 6(a), an amendment or supplement which shall
correct such statement or omission or an amendment which shall
effect such compliance.
(iii) The Company shall make generally available to
its security holders and to the Representative as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter of
the Company during which the Effective Date (or 90 days if
such 12-month period coincides with the Company's fiscal
year), an earnings statement (which need not be audited) of
the Company, covering such 12-month period, which shall
satisfy the provisions of Section 11(a) of the Act or Rule 158
of the Regulations.
(iv) The Company shall furnish to the Representative
and counsel for the Underwriters, without charge, signed
copies of the Registration Statement (including all exhibits
thereto, Incorporated Documents and amendments thereto) and to
each other Underwriter a copy of the Registration Statement
(without exhibits thereto or Incorporated Documents) and all
amendments thereof and, so long as delivery of a prospectus by
an Underwriter or dealer may be required by the Act or the
Regulations, as many copies of any preliminary prospectus and
the Prospectus and any amendments thereof and supplements
thereto as the Representative may reasonably request.
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(v) The Company shall cooperate with the
Representative and its counsel in endeavoring to qualify the
Shares for offer and sale under the laws of such jurisdictions
as the Representative may designate and shall maintain such
qualifications in effect so long as required for the
distribution of the Shares within such jurisdiction; provided,
however, that the Company shall not be required in connection
therewith, as a condition thereof, to qualify as a foreign
corporation or to execute a general consent to service of
process in any jurisdiction or subject itself to taxation as
doing business in any jurisdiction.
(vi) For a period of five years after the date of
this Agreement, the Company shall supply to the
Representative, and to each other Underwriter who may so
request in writing, copies of such financial statements and
other periodic and special reports as the Company may from
time to time distribute generally to the holders of any class
of its capital stock and to furnish to the Representative a
copy of each annual or other report it shall be required to
file with the Commission.
(vii) Without the prior written consent of the
Representative, for a period of 180 days from the date on
which a public offering of the Shares commences, the Company
shall not issue, sell or register with the Commission or
otherwise dispose of, directly or indirectly, any securities
of the Company (or any securities convertible into or
exercisable or exchangeable for securities of the Company),
except for the issuance of the Shares pursuant to the
Registration Statement.
(viii) On or before completion of this offering, the
Company shall make all filings required under applicable
securities laws and by the NASDAQ National Market.
(ix) Prior to each Closing Date and for a period of
25 days thereafter, you shall be given reasonable written
prior notice of any press release or other direct or indirect
communication and of any press conference with respect to the
Company, the financial conditions, results of operations,
business, properties, assets, liabilities of the Company, or
this offering.
(b) The Company and the Selling Stockholder agree to pay, or
reimburse, on a pro rata basis (except with respect to (ii) and (iv)
below as to which the Company shall be solely responsible) if paid by
the Representative, whether or not the transactions contemplated hereby
are consummated or this Agreement is terminated, all costs and expenses
relating to the registration and public offering of the Shares
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including those relating to: (i) the preparation, printing, filing and
distribution of the Registration Statement including all exhibits
thereto, each preliminary prospectus, the Prospectus, all amendments
and supplements to the Registration Statement and the Prospectus, and
any documents required to be delivered with any Preliminary Prospectus
or the Prospectus, and the printing, filing and distribution of the
Agreement Among Underwriters, this Agreement and related documents;
(ii) the preparation and delivery of certificates for the Shares to the
Underwriters; (iii) the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the various
jurisdictions referred to in Section 6(a)(v), including the fees and
disbursements of counsel for the Underwriters in connection with such
registration and qualification and the preparation, printing,
distribution and shipment of preliminary and supplementary Blue Sky
memoranda; (iv) the furnishing (including costs of shipping and
mailing) to the Representative and to the Underwriters of copies of
each preliminary prospectus, the Prospectus and all amendments or
supplements to the Prospectus, and of the several documents required by
this Section to be so furnished, as may be reasonably requested for use
in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold; (v) the filing
fees of the National Association of Securities Dealers, Inc. in
connection with its review of the terms of the public offering; (vi)
the furnishing (including costs of shipping and mailing) to the
Representative and to the Underwriters of copies of all reports and
information required by Section 6(a)(vi); (vii) inclusion of the Shares
for quotation on the NASDAQ National Market System; and (viii) all
transfer taxes, if any, with respect to the sale and delivery of the
Shares by the Company and the Selling Stockholder to the Underwriters.
Except as otherwise contemplated by Section 9 hereof, the Underwriters
will pay their own counsel fees and expenses to the extent not
otherwise covered by clause (iii) above, and their own travel and
travel-related expenses in connection with the distribution of the
Shares. Without limiting the Company's obligations set forth above, the
Selling Stockholder agrees to pay all of its other costs and expenses
incident to the performance of its obligations under this Agreement and
the sale of the Shares by it hereunder.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
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asserted), to which they, or any of them, may become subject under the
Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto, or arise out of or are
based upon any omission or alleged omission to state therein such fact
required to be stated therein or necessary to make such statements
therein not misleading. The Selling Stockholder agrees to indemnify
each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact with respect to such
Selling Stockholder contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment thereof or
supplement thereto (which amendments or supplements are furnished to
such Selling Stockholder), or which arise out of or are based upon any
omission or alleged omission to state therein such fact required to be
stated therein or necessary to make such statements therein not
misleading, but only with reference to information relating to the
Selling Stockholder furnished in writing to the Company by or on behalf
of the Selling Stockholder expressly for use in connection with the
preparation of the Registration Statement and Prospectus or any
amendment thereof or supplement thereto. Such indemnity from the
Company and Selling Stockholder shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) on account of
any losses, claims, damages or liabilities arising from the sale of the
Shares to any person by such Underwriter if such untrue statement or
omission or alleged untrue statement or omission was made in such
preliminary prospectus, the Registration Statement or the Prospectus,
or such amendment or supplement, in reliance upon and in conformity
with information furnished in writing to the Company by the
Representative on behalf of any Underwriter specifically for use
therein. The obligations of the Selling Stockholder, pursuant to this
Section 7(a) and Section 8, shall be limited to an amount not exceeding
the product of the Per Share Price to Public of the Shares as set forth
on the cover page of the Prospectus and the number of Shares being sold
by the Selling Stockholder. In no event shall the indemnification
agreement contained in this Section 7(a) inure to the benefit of any
Underwriter on account of
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any losses, claims, damages, liabilities or actions arising from the
sale of the Shares upon the public offering to any person by such
Underwriter if such losses, claims, damages, liabilities or actions
arise out of, or are based upon, a statement or omission or alleged
omission in a preliminary prospectus and if, in respect to such
statement, omission or alleged omission, the Prospectus differs in a
material respect from such preliminary prospectus and a copy of the
Prospectus has not been sent or given to such person at or prior to the
confirmation of such sale to such person. This indemnity agreement will
be in addition to any liability which the Company and Selling
Stockholder may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each person, if any, who
controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, each director of the Company, and the
officer of the Company who signs the Registration Statement and each
Selling Stockholder, to the same extent as the foregoing indemnity from
the Company and the Selling Stockholder to each Underwriter, but only
insofar as such losses, claims, damages or liabilities arise out of or
are based upon any untrue statement or omission or alleged untrue
statement or omission which was made in any Preliminary Prospectus, any
Rule 430A Prospectus, the Registration Statement or the Prospectus, or
any amendment thereof or supplement thereto, which were made in
reliance upon and in conformity with information furnished in writing
to the Company by the Representative on behalf of any Underwriter for
specific use therein; provided, however, that the obligation of each
Underwriter to indemnify the Company (including any controlling person,
director or officer thereof) and the Selling Stockholder shall be
limited to the net proceeds received by the Company and the Selling
Stockholder, respectively, from such Underwriter. For all purposes of
this Agreement, the amounts of the selling concession and reallowance
set forth in the Prospectus constitute the only information furnished
in writing by or on behalf of any Underwriter expressly for inclusion
in any Preliminary Prospectus, any Rule 430A Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement
thereto.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of
all papers served. No indemnification provided for in Section 7(a) or
7(b) shall be available to any party who shall fail to give notice as
provided in this Section 7(c) if the party to whom notice was not given
was unaware of the proceeding to
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which such notice would have related and was prejudiced by the failure
to give such notice but the omission so to notify such indemnifying
party of any such action, suit or proceeding shall not relieve it from
any liability that it may have to any indemnified party for
contribution or otherwise than under this Section. In case any such
action, suit or proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in,
and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and the approval by the
indemnified party of such counsel, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses,
except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in
connection with the defense thereof. The indemnified party shall have
the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the employment of counsel by such indemnified party
has been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in
which case the indemnifying parties shall not have the right to direct
the defense of such action on behalf of the indemnified party), or
(iii) the indemnifying parties shall not have employed counsel to
assume the defense of such action within a reasonable time after notice
of the commencement thereof, in each of which cases the reasonable fees
and expenses of counsel shall be at the expense of the indemnifying
parties. An indemnifying party shall not be liable for any settlement
of any action, suit, proceeding or claim effected without its written
consent.
8. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Sections 7(a) and (b) is due in accordance with its terms but for any reason is
held to be unavailable from the Company, the Selling Stockholder or the
Underwriters, the Company, the Selling Stockholder and the Underwriters shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted, but after deducting any contribution received by the
Company from persons other than the Underwriters, such as the Selling
Stockholder, persons who control the Company within the meaning of the Act,
officers of the Company who signed the
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Registration Statement and directors of the Company, who may also be liable for
contribution) to which the Company and the Selling Stockholder and one or more
of the Underwriters may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholder on the one hand and the Underwriters on the other from the offering
of the Shares or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 7 hereof, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company and the Selling Stockholder on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company, the Selling Stockholder and the Underwriters shall be deemed to
be in the same proportion as (x) the total proceeds from the Offering (net of
underwriting discounts but before deducting expenses) received by the Company or
the Selling Stockholder from the sale of the Shares, as set forth in the table
on the cover page of the Prospectus (but not taking into account the use of the
proceeds of such sale of Shares by the Company), bear to (y) the underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company, the Selling
Stockholder and the Underwriters shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
related to information supplied by the Company, the Selling Stockholder or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Selling Stockholder and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 8, (i) in no case shall any Underwriter (except as may be provided
in the Agreement Among Underwriters) be liable or responsible for any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder, (ii) in no case shall any of the Selling Stockholders be
liable or responsible for any amount in excess of the product of the Per Share
Price to Public of the Shares as set forth on the cover page of the Prospectus
and the number of Shares being sold by the Selling Stockholders subject to the
limitation expressed in Section 7(a), and (iii) the Company shall be liable and
responsible for any amount in excess of the underwriting discount and the amount
referred to in clause (ii); provided, however (i) that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person,
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if any, who controls an Underwriter within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any, who controls the Company within
the meaning of the Section 15 of the Act or Section 20(a) of the Exchange Act,
each officer of the Company who shall have signed the Registration Statement and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i), (ii) and (iii) in the immediately
preceding sentence of this Section 8. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section, notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties from whom contribution may be sought shall not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have hereunder or otherwise than under this Section. No party
shall be liable for contribution with respect to any action, suit, proceeding or
claim settled without its written consent. The Underwriters' obligations to
contribute pursuant to this Section 8 are several in proportion to their
respective underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with respect to the
Shares to be purchased on any Closing Date by the Representative by notifying
the Company at any time prior to the purchase of the Shares:
(a) in the absolute discretion of the Representative at or
before any Closing Date: (i) if on or prior to such date, any domestic
or international event or act or occurrence has materially disrupted,
or in the opinion of the Representative will in the future materially
disrupt, the securities markets; (ii) if there has occurred any new
outbreak or material escalation of hostilities or other calamity or
crisis the effect of which on the financial markets of the United
States is such as to make it, in the judgment of the Representative,
inadvisable to proceed with the Offering; (iii) if there shall be such
a material adverse change in general financial, political or economic
conditions or the effect of international conditions on the financial
markets in the United States such as to make it, in the judgment of the
Representative, inadvisable or impracticable to market the Shares; (iv)
if trading in the Shares has been suspended by the Commission or
trading generally on the New York Stock Exchange, Inc., the American
Stock Exchange, Inc. or the NASDAQ National Market System has been
suspended or limited, or minimum or maximum ranges for prices for
securities shall have been fixed, or maximum ranges for prices for
securities have been required, by said exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc., or
any other governmental or regulatory authority; or
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(v) if a banking moratorium has been declared by any state or
federal authority, or
(b) at or before any Closing Date, if any of the conditions
specified in Section 5 shall not have been fulfilled when and as
required by this Agreement.
If this Agreement is terminated pursuant to any of its provisions,
neither the Company nor the Selling Stockholder shall be under any liability to
any Underwriter, and no Underwriter shall be under any liability to the Company
or the Selling Stockholder, except that (y) if this Agreement is terminated by
the Representative or the Underwriters because of any failure, refusal or
inability on the part of the Company or the Selling Stockholder or all of them
to comply with the terms or to fulfill any of the conditions of this Agreement,
the Company and the Selling Stockholder will reimburse the Underwriters for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
incurred by them in connection with the proposed purchase and sale of the Shares
or in contemplation of performing their obligations hereunder and (z) no
Underwriter who shall have failed or refused to purchase the Shares agreed to be
purchased by it under this Agreement, without some reason sufficient hereunder
to justify cancellation or termination of its obligations under this Agreement,
shall be relieved of liability to the Company and the Selling Stockholders or to
the other Underwriters for damages occasioned by its failure or refusal.
10. Substitution of Underwriters. If one or more of the Underwriters
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representative may find one or more substitute underwriters to
purchase such Shares or make such other arrangements as the Representative may
deem advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representative, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date:
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares
that all the Underwriters are obligated to purchase on such Closing
Date, then each of the nondefaulting Underwriters shall be obligated to
purchase such Shares on the terms herein set forth in proportion to
their respective obligations hereunder; provided, that in no event
shall the maximum number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 10
by more than one-ninth of such number of Shares without the written
consent of such Underwriter, or
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(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date,
then the Company shall be entitled to an additional business day within
which it may, but is not obligated to, find one or more substitute
underwriters reasonably satisfactory to the Representative to purchase
such Shares upon the terms set forth in this Agreement.
In any such case, either the Representative or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representative and the Company. If the number
of Shares to be purchased on such Closing Date by such defaulting Underwriter or
Underwriters shall exceed 10% of the Shares that all the Underwriters are
obligated to purchase on such Closing Date, and none of the nondefaulting
Underwriters or the Company shall make arrangements pursuant to this Section
within the period stated for the purchase of the Shares that the defaulting
Underwriters agreed to purchase, this Agreement shall terminate with respect to
the Shares to be purchased on such Closing Date without liability on the part of
any nondefaulting Underwriter to the Company and the Selling Stockholder and
without liability on the part of the Company and the Selling Stockholder, except
in both cases as provided in Sections 6(b), 7, 8 and 9. The provisions of this
Section shall not in any way affect the liability of any defaulting Underwriter
to the Company or the Selling Stockholders or the nondefaulting Underwriters
arising out of such default. A substitute underwriter hereunder shall become an
Underwriter for all purposes of this Agreement.
11. Miscellaneous. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers, of
the Selling Stockholder and of the Underwriters set forth in or made pursuant to
this Agreement shall remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or the
Selling Stockholder or any of the officers, directors or controlling persons
referred to in Sections 7 and 8 hereof, and shall survive delivery of and
payment for the Shares. The provisions of Sections 6(b), 7, 8 and 9 shall
survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters, the Company and the Selling Stockholder and their respective
successors and assigns and, to the extent expressed herein, for the benefit of
persons controlling any of the Underwriters, or the Company, and directors and
officers of the Company, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include
-35-
<PAGE>
any purchaser of Shares from any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and mailed
or delivered, or by telefax or telegraph if subsequently confirmed by letter,
(a) if to the Representative, to Rodman & Renshaw, Inc., One Liberty Plaza, 165
Broadway, New York, New York 10006, Attention: Julia S. Heckman, Managing
Director, telecopy: (212) 346-5099, (b) if to the Company, to the Company's
agent for service as such agent's address appears on the cover page of the
Registration Statement, and (c) if to the Selling Stockholder, to PacifiCorp.
Credit, Inc., 825 N.E. Multnomah Street, Suite 775, Portland, Oregon, 97232,
Attention: President, telecopy:
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, or neuter, singular or plural, as the identity of the
person or persons or entity or entities require.
All section headings herein are for convenience of reference only and
are not part of this Agreement, and no construction or inference shall be
derived therefrom.
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
COMDIAL CORPORATION
By:______________________________
Name:
Title:
PACIFICORP Credit, Inc.
By:______________________________
Name:
Title:
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<PAGE>
Confirmed on behalf of itself and as the Representative of the several
Underwriters named in Schedule I annexed hereto:
RODMAN & RENSHAW, INC.
By:______________________________
Name: Julia S. Heckman
Title: Managing Director
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<PAGE>
SCHEDULE I
Number of Firm
Shares to be
Name of Underwriter Purchased
- ------------------- --------------
Rodman & Renshaw, Inc.
[others]
Total.................................................. 3,000,000
-38-
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
COMDIAL CORPORATION
Comdial Corporation, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Comdial Corporation. Comdial
Corporation was originally incorporated under the same name, and the original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on April 6, 1982.
2. Pursuant to, and in accordance with, Sections 242 and 245 of the
General Corporation Law of the State of Delaware, this Restated Certificate of
Incorporation restates and integrates the certificates and other instruments
comprising, and further amends the provisions of, the Certificate of
Incorporation of this corporation and was duly adopted by the board of directors
at a meeting held on February 16, 1995 and by vote of the corporation's stock
entitled to vote thereon at the corporation's annual meeting of stockholders
held on April 29, 1995.
3. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:
FIRST: The name of this corporation is:
COMDIAL CORPORATION
SECOND: The purpose of this corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
THIRD: The aggregate number of shares of capital stock which the
corporation has the authority to issue is Thirty Two Million (32,000,000), which
is divided into two classes as follows:
Two Million (2,000,000) shares of Preferred Stock
(Preferred Stock) with a par value of $10.00 per share, and
Thirty Million (30,000,000) shares of Common Stock
(Common Stock) with a par value of $0.01 per share.
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<PAGE>
The designations, voting powers, preferences
and relative, participating, optional or other special rights,
and qualifications, limitations or restrictions of the above
classes of stock are as follows:
I. Preferred Stock
(1) Issuance in Series.
Shares of Preferred Stock may be issued in one or more series
at such time or times, and for such consideration or considerations as
the board of directors may determine. All shares of any one series of
Preferred Stock will be identical with each other in all respects,
except that shares of one series issued at different times may differ
as to dates from which dividends thereon may be cumulative. All series
will rank equally and be identical in all respects, except as permitted
by the following provisions of paragraph 2 of this Division I.
(2) Authority of the Board with Respect to Series.
The board of directors is authorized, at any time and from
time to time, to provide for the issuance of the shares of Preferred
Stock in one or more series with such designations, preferences and
relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof as are stated and
expressed in the resolution or resolutions providing for the issue
thereof adopted by the board of directors, and as are not stated and
expressed in this Certificate of Incorporation or any amendment hereto
including, but not limited to, determination of any of the following:
(i) The number of shares constituting that series and
the distinctive designation of that series;
(ii) The dividend rate or rates on the shares of that
series, whether dividends shall be cumulative, and, if so,
from which date or dates, the payment date or dates for
dividends and the relative rights of priority, if any, of
payment of dividends on shares of that series;
(iii) Whether that series shall have voting rights,
in addition to the voting rights provided by law, and, if so,
the terms of such voting rights;
(iv) Whether that series shall have conversion
privileges, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the
conversion rate in such events as the board of directors shall
determine;
(v) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or date upon or after which
they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different
conditions and at different redemption dates;
I-2
<PAGE>
(vi) Whether that series shall have a sinking or
retirement fund for the redemption or purchase of shares of
that series, and, if so, the terms and amount of such sinking
or retirement fund;
(vii) The rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or
winding up of the corporation, and the relative rights of
priority, if any, of payment of shares of that series;
(viii) Any other preferences, privileges and powers,
and relative participating, optional or other special rights,
and qualifications, limitations or restrictions of a series,
as the board of directors may deem advisable and are not
inconsistent with the provisions of this Certificate of
Incorporation.
(3) Dividends.
Dividends on outstanding shares of Preferred Stock shall be
paid or declared and set apart for payment in accordance with their
respective preferential and relative rights before any dividends shall
be paid or declared and set apart for payment on the outstanding shares
of Common Stock with respect to the same dividend period.
(4) Liquidation.
If upon any voluntary or involuntary liquidation, dissolution
or winding up of the corporation, the assets available for distribution
to holders of shares of Preferred Stock of all series shall be
insufficient to pay such holders the full preferential amount to which
they are entitled, then such assets shall be distributed ratably among
the shares of all series of Preferred Stock in accordance with the
respective preferential and relative amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
(5) Reacquired Shares.
Shares of Preferred Stock which have been issued and
reacquired in any manner by the corporation (excluding, until the
corporation elects to retire them, shares which are held as treasury
shares but including shares redeemed, shares purchased and retired, and
shares which have been converted into shares of Common Stock) will have
the status of authorized and unissued shares of Preferred Stock and may
be reissued.
(6) Voting Rights.
Unless and except to the extent otherwise required by law or
provided in the resolution or resolutions of the board of directors
creating any series of Preferred Stock pursuant to this Division I, the
holders of the Preferred Stock shall have no voting power with respect
to any matter whatsoever. In no event shall the Preferred Stock be
entitled to more than one vote in respect of each share of stock except
as may be required by law or by this Certificate of Incorporation.
I-3
<PAGE>
II. Common Stock
(1) Dividends.
Subject to the preferential rights of the Preferred Stock, the
holders of the Common Stock are entitled to receive, to the extent
permitted by law, such dividends as may be declared from time to time
by the board of directors.
(2) Liquidation.
In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of the corporation,
after distribution in full of the preferential amounts, if any, to be
distributed to the holders of shares of Preferred Stock, holders of
Common Stock shall be entitled to receive all of the remaining assets
of the corporation of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares of Common
Stock held by them respectively. The board of directors may distribute
in kind to the holders of Common Stock such remaining assets of the
corporation or may sell, transfer or otherwise dispose of all or any
part of such remaining assets to any other corporation, trust or other
entity and receive payment therefor in cash, stock or obligations of
such other corporation, trust or other entity, or any combination
thereof, and may sell all or any part of the consideration so received
and distribute any balance thereof in kind to holders of Common Stock.
The merger or consolidation of the corporation into or with any other
corporation, or the merger of any other corporation into it, or any
purchase or redemption of shares of stock of the corporation of any
class, shall not be deemed to be a dissolution, liquidation or winding
up of the corporation for the purposes of this paragraph.
(3) Voting Rights.
Except as may be otherwise required by law or this Certificate
of Incorporation, each holder of Common Stock has one vote in respect
of each share of stock held by him of record on the books of the
corporation on all matters voted upon by the stockholders."
FOURTH: The corporation is to have perpetual existence.
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is authorized to adopt, amend and repeal the
Bylaws of this corporation.
SIXTH: No action shall be taken by the stockholders of the corporation
except in an annual or special meeting of stockholders. Special meetings of the
stockholders of the corporation for any purpose or purposes may be called by the
Chairman of the Board and shall be called by the Chairman of the Board, or
Secretary at the request in writing of a majority of the board of directors.
I-4
<PAGE>
SEVENTH: (a) The number of directors of the corporation shall be fixed
from time to time in the manner set forth in the Bylaws.
(b) The board of directors shall be divided into three classes, Class
A, Class B and Class C, with each class as nearly equal in number as possible.
Any inequality among the classes in the number of directors comprising such
classes shall not impair the validity of any action taken by the board of
directors. Each director shall serve for a term ending on the date of the third
annual meeting following the annual meeting at which such director was elected.
Directors in office on the effective date of this Restated Certificate of
Incorporation will continue to serve in the class to which they were elected or
appointed and for the balance of their respective terms as they existed
immediately prior to the effective date of this Restated Certificate of
Incorporation.
(c) In the event of any increase or decrease in the authorized number
of directors, each director then serving shall nevertheless continue as a
director of the class of which he or she is a member until the expiration of his
or her term, or his or her prior death, retirement or resignation.
(d) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director and the directors so chosen shall hold office until the next
election of the class for which such directors shall have been chosen, and until
their successors shall be elected and qualified. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute.
(e) Vacancies in more than one class of directors shall be filled, and
newly created or eliminated directorships shall be apportioned among the three
classes of directors, so that the number of directors in each class will be as
nearly equal as possible.
EIGHTH: The affirmative vote of the holders of not less than 60 percent
of the total voting power of all outstanding shares of Common Stock of the
corporation shall be required for the merger, consolidation or other business
reorganization or combination of this corporation with any other corporation
(collectively referred to as "Combination") or for the sale of all or
substantially all the assets of this corporation (referred to as a "Sale")
notwithstanding that applicable law would otherwise permit such a Combination or
Sale with the approval of fewer shares or without the approval of any shares.
NINTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation. Notwithstanding the
foregoing, the affirmative vote of the holders of not less than 60 percent of
the total voting power of all outstanding shares of Common Stock of the
corporation shall be required to amend or repeal the provisions set forth in
Articles SIXTH, SEVENTH, EIGHTH and NINTH.
I-5
<PAGE>
TENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of ss. 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
corporation under the provisions of ss. 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all of the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
ELEVENTH: The address of the registered office of this corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle, and the name of its registered agent at that address is The
Corporation Trust Company.
TWELFTH: No director of the corporation shall be personally liable to
the corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director involving any act or omission of any such director
occurring on or after May 14, 1987; provided, however, that the foregoing
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from which
the director derived an improper personal benefit. Any repeal or modification of
this Article by the stockholders of the corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the corporation in respect of any acts or omissions occurring prior
to such repeal or modification, or any such limitation existing at the time of
such repeal or modification.
4. The provisions of Comdial Corporation's Certificate of Designation
of Series A 7- 1/2% Cumulative Convertible Redeemable Preferred Stock, par value
$10.00 per share, filed with the Secretary of State of the State of Delaware on
February 1, 1994 shall specifically survive the restatement, integration and
amendment effected by this Restated Certificate of Incorporation. A copy of the
Certificate of Designation, without amendment or modification, is attached to
this Restated Certificate of Incorporation as Exhibit A and is incorporated
herein by reference.
I-6
<PAGE>
IN WITNESS WHEREOF, Comdial Corporation has caused this
Restated Certificate of Incorporation to be duly executed by William G. Mustain,
its President, and attested to by Wayne R. Wilver, its Secretary, and has caused
the corporate seal to be affixed hereto, this 16th day of May, 1995.
COMDIAL CORPORATION
By: /s/ William G. Mustain
______________________________
William G. Mustain, President
(Corporate Seal)
ATTEST:
/s/ Wayne R. Wilver
___________________________
Wayne R. Wilver, Secretary
I-7
<PAGE>
Exhibit A to the Company's
Restated Certificate of Incorporation
CERTIFICATE OF DESIGNATION
OF
SERIES A 7-1/2% CUMULATIVE CONVERTIBLE REDEEMABLE
PREFERRED STOCK
Comdial Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Company"), certifies that pursuant to the authority contained in Article THIRD
of its Certificate of Incorporation, as amended, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors, at a meeting duly convened and held on
February 1, 1994, adopted the following resolution creating a series of its
Preferred Stock, par value $10.00, designated as Series A 7-1/2% Cumulative
Convertible Redeemable Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred
Stock, par value $10.00, of the Company be hereby created, and that the
designation and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations and restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as the "Series A 7-1/2% Cumulative Convertible Redeemable
Preferred Stock" (hereinafter "Series A Preferred Stock") and the number of
shares constituting such series shall be 850,000 and no more.
Section 2. Dividends and Distributions.
(a) The holders of shares of Series A Preferred Stock, in
preference to the holders of shares of the Company's Common Stock, par value
$0.01 per share ("Common Stock"), shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds of the Company legally
available for the payment of dividends, quarterly dividends per share payable in
cash in the following amounts: $0.19 on the last day of March, $0.19 on the last
day of June, $0.19 on the last day of September, and $0.18 on the last day of
December in each year (each such date being referred to as a "Quarterly Dividend
Payment Date") commencing on the first Quarterly Dividend Payment Date which is
after the date of issue of such shares of Series A Preferred Stock; provided,
however, that with respect to such first Quarterly Dividend Payment Date, the
holders of shares of Series A Preferred Stock shall be entitled pursuant to this
paragraph (a) to receive the pro rata portion of such quarterly dividend on the
basis of the number of days elapsed between the date of issue and the first
Quarterly Dividend Payment Date. Such dividends shall be cumulative and shall
accrue from the date of issue until paid in cash.
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<PAGE>
(b) Dividends paid on shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis to
all such shares of Series A Preferred Stock at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payments of a dividend declared
thereon, which record date shall be no more than 60 days nor less than 10 days
prior to the date fixed for the payment thereof.
(c) The holders of shares of Series A Preferred Stock shall
not be entitled to receive any dividends or other distributions except as
provided in this Certificate of Designation of Series A 7-1/2% Cumulative
Convertible Redeemable Preferred Stock.
Section 3. Voting Rights. The shares of Series A Preferred
Stock shall not have any voting powers, either general or special, except as
required by applicable law and as follows:
(a) Without the affirmative vote of the holders of 67% of the
shares of Series A Preferred Stock at the time outstanding, voting separately as
a class, the Company shall not amend its Certificate of Incorporation to, adopt
a certification of designation to or otherwise (i) create any class of stock,
issue any series of Preferred Stock or any other equity security ranking prior
to or in parity with the Series A Preferred Stock as to dividends or upon
liquidation or (ii) alter or change any of the preferences, privileges, rights
or powers of the holders of the Series A Preferred Stock so as to affect
adversely such preferences, privileges, rights or powers.
(b) Without the affirmative vote of the holders of a majority
of shares of Series A Preferred Stock at the time outstanding, voting separately
as a class, the Company shall not effect the dissolution of the Company, the
sale, lease, exchange of all or substantially all of its property and assets,
authorize a merger or consolidation of the Company, or seek protection under the
Federal Bankruptcy Code or any successor statute of similar import.
(c) In the event that any four consecutive quarterly dividends
upon the Series A Preferred Stock shall be in arrears and unpaid, the holders of
Series A Preferred Stock shall have the exclusive and special right, voting
separately as a class, to elect two (2) members of the Board of Directors or
such greater number of members as is necessary to equal at least 40% of the
total number of members of the Board of Directors at all times thereafter.
Section 4. Certain Restrictions. Whenever quarterly dividends
payable on shares of Series A Preferred Stock pursuant to the terms of Section 2
are in arrears, then thereafter and until all accrued and unpaid dividends on
shares of Series A Preferred Stock outstanding shall have been paid in full or
declared and set apart for payment, the Company shall not declare or pay
dividends on, or make any other distributions on any shares of any series or
class other than Series A Preferred Stock or purchase, redeem or otherwise
acquire any shares of any series or class other than Series A Preferred stock.
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<PAGE>
Section 5. Redemption.
(a) The outstanding shares of Series A Preferred Stock may be
redeemed at the option of the Company, in whole or in part, at any time upon not
less than 30 days nor more than 90 days prior written notice to all holders of
record of shares of Series A Preferred Stock to be so redeemed, at a redemption
price equal to all accumulated but unpaid dividends to and including the date
fixed for redemption of such shares (the "Redemption Date") plus an amount (the
"Applicable Amount") equal to (i) during the four calendar years after the year
of issuance of the Series A Preferred Stock, $10.00 per share or (ii) during
each calendar year after the fourth year, an amount equal to the Applicable
Amount in the preceding year plus $0.50 per share; provided that the redemption
price per share for any transaction which results in the total number of shares
of Series A Preferred Stock that have been redeemed (including the shares
redeemed in such transaction) equaling at least ten percent (10%) of the total
number of shares of Series A Preferred Stock which were originally issued, and
for all subsequent transactions, shall be the same price as was in effect during
the year preceding the transaction which results in the redemption of at least
ten percent (10%) of the originally issued Series A Preferred Stock. Subject to
delivery of certificates for the shares to be redeemed, the Company shall pay
the Applicable Amount plus all accumulated but unpaid dividends on the
Redemption Date.
(b) Unless default shall be made in the payment in full of the
redemption price and any accumulated and unpaid dividends, dividends on the
shares of Series A Preferred Stock called for redemption shall cease to
accumulate on the Redemption Date, and all rights of the holders of such shares
as stockholders of the Company by reason of the ownership of such shares shall
cease on the Redemption Date, except the right to receive the amount payable
upon redemption of such shares on presentation and surrender of the respective
certificates representing such shares. After the Redemption Date, such shares
shall not be deemed to be outstanding and shall not be transferable on the books
of the Company except to the Company.
(c) At any time on or after the Redemption Date, the
respective holders of record of shares of Series A Preferred Stock to be
redeemed shall be entitled to receive the redemption price upon actual delivery
to the Company of certificates for the shares to be redeemed, such certificates,
if required by the Company, to be properly stamped for transfer and duly
endorsed in blank or accompanied by proper instruments of transfer thereof duly
executed in blank.
Section 6. Liquidation, Dissolution or Winding-Up. In the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of shares of the Series A Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Company
available for distribution to its stockholders, before any payment shall be made
to the holders of any other class or series of capital stock of the Company, an
amount equal to $10.00 per share plus an amount equal to all dividends accrued
thereon to and including the date of payment.
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Section 7. Conversion.
(a) Each share of Series A Preferred Stock shall be
convertible at any time at the option of the holder thereof, into shares of
Common Stock, the number of such shares of Common Stock to be determined by
dividing the par value of the Series A Preferred Stock by $2.91738 (the initial
conversion price for each share of Common Stock), subject to the adjustments
hereinafter provided (such price as adjusted, the "Conversion Price").
(b) Each holder of outstanding shares of Series A Preferred
Stock may exercise the conversion right provided in paragraph (a) above as to
all or any portion of the shares he holds by delivering to the Company during
regular business hours, at the principal office of the Company or at such other
place as may be designated in writing by the Company, the certificate or
certificates for the shares to be converted, duly endorsed or assigned in blank
or endorsed or assigned to the Company (if required by it), accompanied by
written notice stating that the holder elects to convert such shares and stating
the name or names (with address and applicable social security or other tax
identification number) in which the certificate or certificates for shares of
Common Stock are to be issued. Conversion shall be deemed to have been effected
on the date (the "Conversion Date") when such delivery is made. As promptly as
practicable thereafter the Company shall issue and deliver to or upon the
written order of such holder, at such office or other place designated by the
Company, a certificate or certificates for the number of shares of Common Stock
to which he is entitled and a check or other order for the payment of cash due
with respect to any fraction of a share, as provided in paragraph (c) below. The
person in whose name the certificate or certificates for shares of Common Stock
are to be issued shall be deemed to have become a shareholder of record on the
Conversion Date, unless the transfer books of the Company are closed on that
date, in which event he shall be deemed to have become a shareholder of record
on the next succeeding date on which the transfer books are open; but the
Conversion Price shall be that in effect on the Conversion Date.
(c) The Company shall not issue any fraction of a share of
Common Stock upon conversion of shares of Series A Preferred Stock. If more than
one share of Series A Preferred Stock shall be surrendered for conversion at any
time by the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the total number of shares
of Series A Preferred Stock so surrendered. If any fractional interest in a
share of Common Stock would be deliverable upon conversion, the Company shall
make an adjustment therefor in cash based on the Market Price of one share of
Common Stock on the Conversion Date. The "Market Price" of a share of Common
Stock on any date shall be deemed to be the average of the closing price of one
share of Common Stock on the NASDAQ National Market System on each of the 20
consecutive trading days commencing 40 trading days before such date (a trading
day being a day on which securities are traded in the NASDAQ National Market
System).
(d) The issuance of shares of Common Stock on conversion of
outstanding shares of Series A Preferred Stock shall be made by the Company
without charge for expenses or for any tax in respect of the issuance of such
shares of Common Stock, but the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in any name other than that of the holder of
record on the
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books of the Company of the outstanding shares of Series A Preferred Stock
converted, and the Company shall not be required to issue or deliver any
certificate for shares of Common Stock unless and until the person requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has been
paid.
(e) Conversion Price Adjustments. The Conversion Price of the
Series A Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) (A) If the Company shall issue any Additional
Stock (as defined below) without consideration or for a consideration per share
that is less than the Market Price in effect immediately prior to the issuance
of such Additional Stock, the Conversion Price shall forthwith (except as
otherwise provided in this clause (i)) be adjusted as to equal the price
determined by the following formula:
(P x N) + C
OP x ----------------- = NP
(P x (N + n))
where
NP = new Conversion Price,
OP = old Conversion Price
P = Market Price in effect immediately prior to the issuance of
Additional Stock,
N = the number of shares of Common Stock outstanding immediately
prior to the issuance of Additional Stock (including for this
purpose the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock at the Conversion
Price in effect immediately prior to such issuance),
C = the aggregate consideration to be received by the Company
for the Additional Stock, and
n = the number of shares of Additional Stock to be issued.
(B) No adjustment of the Conversion Price
for the Series A Preferred Stock shall be made in an amount less than one cent
per share, provided that any adjustments that are thereby not required to be
made shall be carried forward and shall be taken into account in any subsequent
adjustment. Except to the limited extent provided for in Subsection
7(e)(i)(E)(3), no adjustment of the Conversion Price pursuant to this Subsection
7(e)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
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(C) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options
to purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities (which are
not excluded from the definition of Additional Stock), the following provisions
shall apply:
(1) subject to subparagraph (4) below, the
aggregate maximum number of shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Subsections 7(e)(i)(C) and
7(e)(i)(D)), if any, received by the Company upon the issuance of such
options or rights plus the additional consideration, if any, to be
received by the Company upon the exercise of such options or rights for
the Common Stock covered thereby;
(2) subject to subparagraph (4) below, the
aggregate maximum number of shares of Common Stock deliverable upon
conversion of or in exchange for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and the
subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such convertible or exchangeable securities were
issued or such options or rights were issued and for a consideration
equal to the consideration, if any, received by the Company for any
such convertible or exchangeable securities and related options or
rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration, if any, to be
received by the Company upon the conversion or exchange of such
securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
Subsections 7(e)(i)(C) and 7(e)(i)(D));
(3) in the event of any increase in the
number of shares of Common Stock deliverable upon exercise of such
options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to,
a change resulting from the antidilution provisions thereof, the
Conversion Price then in effect shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustment that
was made upon the issuance of such options, rights or securities not
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converted prior to such change or the options or rights related to such
securities not converted prior to such change been made upon the basis
of such change, but no further adjustment shall be made for the actual
issuance of Common Stock upon the exercise of any such options or
rights or the conversion or exchange of such securities; and
(4) upon the expiration of any such options
or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have been obtained had the
adjustment that was made upon the issuance of such options, rights or
securities or options or rights related to such securities been made
upon the basis of the issuance of only the number of shares of Common
Stock actually issued upon the exercise of such options or rights, upon
the conversion or exchange of such securities or upon the exercise of
the options or rights related to such securities.
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to Subsection
7(e)(i)(E)) by the Company after the date Series A Preferred Stock is first
issued ("Issuance Date"), other than
(A) Common Stock issued pursuant to a
transaction described in Subsection 7(e)(iii) hereof,
(B) Any shares of Common Stock issuable or
issued to directors, employees or consultants of the Company directly or
pursuant to a stock option or other plan, and
(C) Common Stock issued or issuable upon
conversion of any outstanding Series A Preferred Stock.
(iii) If the Company should at any time or from time
to time after the Issuance Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the applicable
Conversion Price of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of Series A Preferred Stock shall be increased in proportion to such
increase of outstanding shares.
(iv) If the number of shares of Common Stock
outstanding at any time after the Issuance Date is decreased by a combination or
reverse stock split of the outstanding shares of Common Stock, then, following
the record date of such combination or reverse stock split, the applicable
Conversion Price of the Series A Preferred Stock shall be appropriately
increased so that
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the number of shares of Common Stock issuable on conversion of each share of
Series A Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.
(v) In case of any consolidation or merger of the
Company with or into another corporation or the conveyance of all or
substantially all of the assets of the Company to another corporation, adequate
provision shall be made by the Company or by the successor or purchasing
business entity so that each share of Series A Preferred Stock shall thereafter
be convertible into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock deliverable
upon conversion of such Series A Preferred Stock immediately before the
effectiveness of such consolidation, merger or conveyance, would have been
entitled upon such consolidation, merger or conveyance; and, in any such case,
appropriate adjustment (as determined by the Board of Directors of the Company)
shall be made in the application of the provisions herein set forth with respect
to the rights and interest thereafter of the holder of the Series A Preferred
Stock, to the end that the provisions set forth herein (including provisions
with respect to changes in and other adjustment of the Conversion Price of the
Series A Preferred Stock) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Series A Preferred Stock.
(f) Other Distributions. If the Company shall declare a
distribution payable to holders of Common Stock in securities of other persons,
evidences of indebtedness issued by the Company or other persons, assets
(excluding cash dividends) or options or rights not referred to in Subsection
7(e)(iii), then, in each such case for the purpose of this Subsection 7(f), the
holders of the Series A Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number of
shares of Common Stock of the Company into which their shares of Series A
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Company entitled to receive
such distribution.
(g) Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination, merger, sale of assets or other transaction provided for elsewhere
in this Section 7), provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion immediately before the effectiveness of such
recapitalization would have been entitled on such recapitalization. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 7 with respect to the rights of the holders of the Series A
Preferred Stock after the recapitalization to the end that the provisions of
this Section 7 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of the Series A Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.
(h) No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this
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Section 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of the Series A Preferred
Stock pursuant to this Section 7, the Company, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A Preferred Stock, by first class
mail, postage prepaid, a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement setting forth (A) the consideration
received or to be received by the Company for any Additional Stock, (B) the
Conversion Price then in effect, and (C) the number of shares of Common Stock
and the amount, if any, of other property which at the time would be received
upon the conversion of a share of the Series A Preferred Stock.
(j) Notices of Record Date. In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall mail to
each holder of Series A Preferred Stock, at least 20 days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
(k) Notices. Any notice required by the provisions of this
Section 7 to be given to the holder of shares of Series A Preferred Stock shall
be deemed given when personally delivered to such holder or five business days
after the same has been deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Company.
(l) Effect of Conversion After Certain Record Dates. If any
shares of Series A Preferred Stock are converted into shares of Common Stock
after the record date for the happening of any of the events described in
subparagraphs (i), (ii) or (iii) of Section 7(e) but before the happening of
such event the Company may defer, until the happening of such event, (i) issuing
to the holder of shares of Series A Preferred Stock so converted the shares of
Common Stock which he is entitled to receive because of the adjustments required
pursuant to any such subparagraph and (ii) paying to such holder any cash in
lieu of a fractional share pursuant to this Section 7.
(m) Reservation of Stock Issuable on Conversion. Shares of
Common Stock issued on conversion of shares of Series A Preferred Stock shall be
issued as fully paid shares and shall be nonassessable by the Company. The
Company shall, at all times, reserve and keep available for the purpose of
effecting the conversion of the outstanding shares of Series A Preferred Stock
such number of its duly authorized shares of Common Stock as shall be sufficient
to effect the conversion of all of the outstanding shares of Series A Preferred
Stock.
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Section 8. Transfer Restrictions. The holder of any shares of
Series A Preferred Stock shall not transfer or purport to transfer any such
shares unless he shall have given to the Company, through its Secretary, at
least fifteen (15) business days' written notice of the proposed transfer, the
number of shares proposed to be transferred, the price at which the proposed
transfer is to be made, and the name of the prospective transferee. During such
fifteen (15) business days, the Company shall have the sole option to exercise
its right of redemption consistent with the terms of Section 5 of this
Certificate.
IN WITNESS WHEREOF, Comdial Corporation has caused this
Certificate of Designation to be duly executed by William G. Mustain, its
President, and attested to by Wayne R. Wilver, its Secretary, and has caused the
corporate seal to be affixed hereto, this 1st day of February, 1994.
COMDIAL CORPORATION
By: /s/ William G. Mustain
_____________________________
William G. Mustain, President
(Corporate Seal)
ATTEST:
/s/ Wayne R. Wilver
__________________________
Wayne R. Wilver, Secretary
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