<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1995
33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADC TELECOMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0743912
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12501 WHITEWATER DRIVE
MINNETONKA, MINNESOTA 55343
(612) 938-8080
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------------
MR. ROBERT E. SWITZ
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
ADC TELECOMMUNICATIONS, INC.
12501 WHITEWATER DRIVE
MINNETONKA, MINNESOTA 55343
(612) 938-8080
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
Lee R. Mitau, Esq. Gregory M. Gallo, Esq.
Dorsey & Whitney P.L.L.P. Gray Cary Ware & Freidenrich,
Pillsbury Center South A Professional Corporation
220 South Sixth Street 400 Hamilton Avenue
Minneapolis, Minnesota 55402-1498 Palo Alto, California 94301-1825
(612) 340-2600 (415) 328-6561
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED (1) PER UNIT (2) PRICE (2) FEE
<S> <C> <C> <C> <C>
6,325,000
Common Stock, $.20 par value................ shares $30.00 $189,750,000 $65,432
<FN>
(1) Including 825,000 shares which the Underwriters may purchase to cover
over-allotments, if any.
(2) Estimated solely for the purposes of calculating the registration fee,
based on the average of the high and low sale prices of the Common Stock as
reported on The Nasdaq Stock Market on May 12, 1995.
</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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
The shares of Common Stock registered by this registration statement are to
be issued pursuant to two forms of prospectus: one to be used in connection with
a United States offering (the "U.S. Prospectus") and one to be used in
connection with a concurrent international offering (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus will be
identical except for the front and back cover pages. The form of U.S. Prospectus
is included herewith in its entirety. Only the front and back cover pages of the
International Prospectus are included, appearing at the end of the U.S.
Prospectus.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
Subject to Completion, dated May 19, 1995
PROSPECTUS
5,500,000 SHARES
[LOGO]
COMMON STOCK
----------------
All of the shares of Common Stock offered hereby are being sold by ADC
Telecommunications, Inc. ("ADC" or the "Company"). Of the 5,500,000 shares,
4,400,000 shares are being offered in the United States by the U.S. Underwriters
(the "U.S. Offering") and 1,100,000 shares are being offered outside the United
States by the International Managers (the "International Offering" and together
with the U.S. Offering, the "Offerings"). The public offering price and
underwriting discounts and commissions are identical for both Offerings.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "ADCT." On May 17, 1995, the last reported sale price of the Company's
Common Stock on the Nasdaq National Market was $32.00 per share. See "Price
Range of Common Stock and Dividend Policy."
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Discounts
Price to and Proceeds to
Public Commissions (1) Company (2)
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total (3).......................... $ $ $
<FN>
(1) The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the Offerings of $475,000 payable by
the Company.
(3) The Company has granted the U.S. Underwriters and the International
Managers 30-day options to purchase up to 825,000 additional shares of
Common Stock on the same terms and conditions as set forth above, solely to
cover over-allotments, if any. If such options are exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to the Company will be $ , $ and $ , respectively. See
"Underwriting."
</TABLE>
---------------------
The shares of Common Stock offered by this Prospectus are offered by the
U.S. Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
U.S. Underwriters and to certain other conditions. It is expected that delivery
of the certificates for the shares of Common Stock will be made at the offices
of Lehman Brothers Inc., New York, New York, on or about June , 1995.
---------------------
LEHMAN BROTHERS GOLDMAN, SACHS & CO.
June , 1995
<PAGE>
[INT'L VERSION]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
Subject to Completion, dated May 19, 1995
PROSPECTUS
5,500,000 SHARES
[LOGO]
COMMON STOCK
----------------
All of the shares of Common Stock offered hereby are being sold by ADC
Telecommunications, Inc. ("ADC" or the "Company"). Of the 5,500,000 shares,
1,100,000 shares are being offered outside the United States by the
International Managers (the "International Offering") and 4,400,000 shares are
being offered in the United States by the U.S. Underwriters (the "U.S. Offering"
and together with the International Offering, the "Offerings"). The public
offering price and underwriting discounts and commissions are identical for both
Offerings.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "ADCT." On May 17, 1995, the last reported sale price of the Company's
Common Stock on the Nasdaq National Market was $32.00 per share. See "Price
Range of Common Stock and Dividend Policy."
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Discounts
Price to and Proceeds to
Public Commissions (1) Company (2)
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total (3).......................... $ $ $
<FN>
(1) The Company has agreed to indemnify the International Managers and the U.S.
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the Offerings of $475,000 payable by
the Company.
(3) The Company has granted the International Managers and the U.S.
Underwriters 30-day options to purchase up to 825,000 additional shares of
Common Stock on the same terms and conditions as set forth above, solely to
cover over-allotments, if any. If such options are exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to the Company will be $ , $ and $ , respectively. See
"Underwriting."
</TABLE>
---------------------
The shares of Common Stock offered by this Prospectus are offered by the
International Managers subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
International Managers and to certain other conditions. It is expected that
delivery of the certificates for the shares of Common Stock will be made at the
offices of Lehman Brothers Inc., New York, New York, on or about June , 1995.
---------------------
LEHMAN BROTHERS GOLDMAN SACHS INTERNATIONAL
June ,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 reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company with the Commission
pursuant to the Exchange Act may 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 located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material also can be obtained from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
Registration Statement) under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of 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.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission (File No. 0-1424) pursuant
to the Exchange Act are incorporated herein by reference: (i) the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1994; (ii) the
Company's Quarterly Report on Form 10-Q for the quarterly period ended January
31, 1995; (iii) the description of the Company's Common Stock contained in Item
1 of Amendment No. 2 on Form 8 to the Company's Registration Statement on Form
8-A filed with the Commission on August 16, 1989; and (iv) the description of
the Company's Common Stock Purchase Rights contained in its Registration
Statement on Form 8-A filed with the Commission on September 23, 1986, as
amended by an Amendment No. 1 on Form 8 to the Company's Registration Statement
on Form 8-A on August 16, 1989.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement incorporated herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of the Registration Statement or this Prospectus. The Company will provide
without charge to each person to whom this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
which are incorporated herein by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
such document). Requests for such documents should be directed to ADC
Telecommunications, Inc., Investor Relations, 4900 West 78th Street,
Minneapolis, Minnesota 55435, or by calling (612) 938-8080.
---------------------
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
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE
10b-6A UNDER THE EXCHANGE ACT. SEE "UNDERWRITING."
---------------------
Soneplex-Registered Trademark-, NetStar-Registered Trademark-,
FiberGuide-Registered Trademark-, Homeworx-TM-, DV6000-TM-, PixlNet-TM-,
CityWide-TM-, CityCell-TM-, CityRad-TM-, AAC-1-TM-, AAC-3-TM-, PatchMate-TM- and
LightTracer-TM- are trademarks of the Company. All other trademarks appearing in
this Prospectus are the property of their respective holders.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING NOTES THERETO,
APPEARING ELSEWHERE IN, OR INCORPORATED BY REFERENCE INTO, THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED: (I) ALL SHARE AND PER SHARE AMOUNTS HAVE BEEN
RESTATED TO REFLECT A TWO-FOR-ONE STOCK SPLIT OF THE COMPANY'S COMMON STOCK,
$.20 PAR VALUE (THE "COMMON STOCK"), EFFECTED IN THE FORM OF A 100% STOCK
DIVIDEND IN JUNE 1993 AND AN ADDITIONAL TWO-FOR-ONE STOCK SPLIT OF THE COMMON
STOCK EFFECTED IN THE FORM OF A 100% STOCK DIVIDEND IN FEBRUARY 1995; (II) THE
TERMS "COMPANY" AND "ADC" REFER TO ADC TELECOMMUNICATIONS, INC. AND ITS WHOLLY
OWNED SUBSIDIARIES, UNLESS THE CONTEXT OTHERWISE REQUIRES; (III) 1992, 1993,
1994 AND 1995 REFER TO THE COMPANY'S FISCAL YEARS ENDED OR ENDING OCTOBER 31,
1992, 1993, 1994 AND 1995, RESPECTIVELY; AND (IV) THE INFORMATION CONTAINED IN
THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
ADC designs, manufactures and markets transmission, networking, access and
connectivity products for use in broadband global networks. The Company's wide
range of products employ fiber, hybrid fiber coax, wireless and traditional
copper-based technologies. The Company's customers include: public network
providers, which consist of all seven of the Regional Bell Operating Companies
("RBOCs"), other telephone companies, long distance carriers, wireless service
providers, the major cable TV operators and other domestic public network
providers; private and governmental network providers (such as various large
business customers and governmental agencies); and international network
operators. The Company also sells indirectly to these customers through the
major telecommunications original equipment manufacturers ("OEMs"). The
Company's products enable these network providers to build and upgrade their
networks to support increasing user demand for voice, data and video services.
ADC seeks to capitalize on opportunities in the evolving global
telecommunications market by providing equipment, services and integrated
solutions for its customers' voice, data and video needs. Key components of the
Company's strategy include: (i) focusing on broadband (1.544 Mbps or higher)
network opportunities, (ii) providing end-to-end network solutions, (iii)
leveraging technological capabilities across product groups, (iv) expanding
international presence and (v) pursuing strategic alliances and acquisitions.
ADC offers a broad line of telecommunications equipment that provides customers
with solutions for key network needs from the central office, through the local
loop, into the customer premise and across the enterprise network. ADC seeks to
leverage its substantial expertise in fiber optics, broadband, video and
wireless technologies across its product groups in order to develop new product
architectures and network management tools for its customers' evolving voice,
data and video network needs in a variety of applications.
The Company's products can be categorized into three general product groups:
transmission, enterprise networking and broadband connectivity. These product
groups accounted for 23%, 28% and 49%, respectively, of the Company's net sales
for the year ended October 31, 1994 and 28%, 24% and 48%, respectively, of the
Company's net sales for the six months ended April 30, 1995. The Company's
emphasis on fiber optic products is demonstrated by ADC's increasing net sales
of fiber optic products over each of the last three years.
A majority of the Company's sales are made by a direct sales force, and the
Company maintains sales offices throughout the United States and also maintains
offices in Canada, Europe, the Pacific Rim, Australia and Central and South
America. The public network providers, private and governmental network
providers and international sales accounted for 57%, 28% and 15%, respectively,
of the Company's net sales in 1994 and 57%, 25%, and 18%, respectively, of net
sales for the six months ended April 30, 1995.
The Company was incorporated under the laws of the State of Minnesota in
1953. The Company's principal offices are located at 12501 Whitewater Drive,
Minnetonka, Minnesota 55343 and its telephone number at that location is (612)
938-8080.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered............................ 5,500,000 shares
Common Stock to be outstanding after the
offering....................................... 61,645,662 shares(1)
Nasdaq National Market symbol................... ADCT
Use of Proceeds................................. General corporate purposes, including
working capital, capital expenditures and
possible acquisitions or strategic
alliances. See "Use of Proceeds."
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED OCTOBER 31, APRIL 30,
---------------------------------- ----------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.......................................... $ 316,496 $ 366,118 $ 448,735 $ 204,749 $ 262,116
Gross profit....................................... $ 161,422 $ 187,546 $ 227,287 $ 103,342 $ 128,411
Operating income (2)............................... $ 35,873 $ 50,449 $ 64,379 $ 26,758 $ 31,384
Net income before extraordinary item (3)........... $ 21,026 $ 31,636 $ 40,521 $ 16,780 $ 20,855
Net income......................................... $ 21,026 $ 31,636 $ 39,071 $ 15,330 $ 20,855
Average common shares outstanding.................. 54,176 54,998 55,610 55,520 55,974
Earnings per share before extraordinary item (3)... $ .39 $ .58 $ .73 $ .30 $ .37
Earnings per share................................. $ .39 $ .58 $ .70 $ .27 $ .37
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1995
OCTOBER 31, --------------------------
1994 ACTUAL AS ADJUSTED(4)
--------------- ---------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................................... $ 49,512 $ 37,135 $ 205,180
Working capital................................................... 132,015 149,389 317,434
Total assets...................................................... 334,684 353,297 521,342
Total debt........................................................ 810 410 410
Total stockholders' investment.................................... 264,758 286,937 454,982
<FN>
- ------------------------
(1) Based on actual shares outstanding as of April 30, 1995. Excludes an
aggregate of 4,772,360 shares reserved for issuance under the Company's
incentive and stock option plans, of which options to purchase 2,956,396
shares were outstanding as of April 30, 1995.
(2) Operating income was reduced by expenses primarily related to reductions in
personnel which totalled $3,800,000 in the year ended October 31, 1992 and
$3,914,000 in the six months ended April 30, 1995. See Note 9 of Notes to
Consolidated Financial Statements.
(3) An extraordinary charge of $1,450,000 (or $.03 per share), net of income
taxes, recorded in the quarter ended January 31, 1994, represents the
charge to clean up and repair the damage from an earthquake at the
Company's facility in California. See Note 2 of Notes to Consolidated
Financial Statements.
(4) Adjusted to reflect the sale of the 5,500,000 shares offered by the
Company, at the assumed public offering price of $32.00 per share.
</TABLE>
4
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in or incorporated by reference into this Prospectus
before purchasing the Common Stock offered hereby:
RAPID TECHNOLOGICAL CHANGE AND IMPORTANCE OF NEW PRODUCTS
The telecommunications equipment industry is characterized by rapid
technological change, evolving industry standards, changing market conditions
and frequent new product introductions and enhancements. The introduction of
products embodying new technologies or the emergence of new industry standards
can render existing products or products under development obsolete or
unmarketable. The Company's ability to anticipate changes in technology and
industry standards and to successfully develop and introduce new products on a
timely basis will be a significant factor in the Company's ability to grow and
remain competitive. New product development often requires long-term forecasting
of market trends, development and implementation of new technologies and
processes and a substantial capital commitment. In particular, the Company has
recently invested substantial resources toward the development of new products
such as its Homeworx system utilizing hybrid fiber coax technology. The Company
has shipped the Homeworx system for video-only applications to a limited number
of customers for initial deployment and is engaged in extensive field testing of
versions of its Homeworx system designed for deployment in integrated video and
telephony and telephony-only broadband applications. Development and customer
acceptance of new products is inherently uncertain, and there can be no
assurance that the Company will successfully complete the development of the
enhanced versions of the Homeworx system for telephony applications or other new
products on a timely basis or that such products will be commercially
successful. Any failure by the Company to anticipate or respond on a
cost-effective and timely basis to technological developments, changes in
industry standards or customer requirements, or any significant delays in
product development or introduction, could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business--Product Groups" and "--Research and Development."
UNCERTAIN MARKET FOR BROADBAND NETWORK PRODUCTS
Historically, the Company's principal product offerings have generally
consisted of copper-based and fiber-based products designed to address the needs
of its customers for transmission, enterprise networking and connectivity
applications on traditional telephony networks. With the growth of multimedia
applications and the associated development of enhanced voice, data and video
transmission services, the Company's more recent product offerings and research
and development efforts have increasingly focused on emerging technologies and
applications relating to the broadband telecommunications equipment market. The
market for broadband telecommunications equipment is evolving and rapidly
changing. The Company's future growth is dependent in part on its ability to
successfully develop and commercially introduce new products in each of its
product groups addressing this market, as well as the growth in this market. The
growth in the market for such broadband telecommunications products is dependent
on a number of factors, including the amount of capital expenditures by public
network providers, regulatory and legal developments and end-user demand for
integrated voice, data, video and other network services. There can be no
assurance that the Company's new or enhanced products will meet with market
acceptance or be profitable. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Results of Operations."
COMPETITION
Competition in the telecommunications equipment industry is intense, and the
Company believes that competition may increase substantially with the deployment
of broadband networks and potential regulatory changes. Many of the Company's
foreign and domestic competitors have more extensive engineering, manufacturing,
marketing, financial and personnel resources than those of the Company. The
Company believes its success in competing with other manufacturers of
telecommunications equipment depends primarily on its engineering, manufacturing
and marketing skills, the price, quality and reliability of its products, and
its delivery and service capabilities. While the market for the Company's
products has not historically been characterized by significant price
competition, the Company may face increasing pricing pressures from current and
future competitors in certain or all of the markets for its products. In
addition, the Company believes that technological change, the increasing
addition of data, video and other services to
5
<PAGE>
networks, continuing regulatory change and industry consolidation or new
entrants will continue to cause rapid evolution in the competitive environment
of the telecommunications equipment market, the full scope and nature of which
is difficult to predict at this time. Increased competition could result in
price reductions, reduced margins and loss of market share by the Company. There
can be no assurance that the Company will be able to compete successfully with
its existing or new competitors or that competitive pressures faced by the
Company will not materially and adversely affect its business, operating results
and financial condition. See "Business--Competition."
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may fluctuate significantly from quarter to
quarter due to several factors, including without limitation the volume and
timing of orders from and shipments to major customers, the timing of new
product announcements by and the availability of product from the Company or its
competitors, overall level of capital expenditures by public network providers,
market acceptance of new and enhanced versions of the Company's products,
variations in the mix of products sold by the Company or its sales channels and
the availability and cost of key components. The Company's expense levels are
based in part on expectations of future revenues. If revenue levels in a
particular period do not meet expectations, operating results will be adversely
affected. In addition, the Company's results of operations are subject to
seasonal factors. The Company historically has experienced a stronger demand for
its products in the fourth fiscal quarter, primarily as a result of customer
budget cycles and Company year-end incentives, and has experienced a weaker
demand for its products in the first fiscal quarter, primarily as a result of
the number of holidays in late November, December and early January and a
general industry slowdown during that period. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--Quarterly Results of Operations."
CHANGING REGULATORY ENVIRONMENT
The telecommunications industry is subject to regulation in the United
States and other countries. Federal and state regulatory agencies regulate most
of the Company's domestic customers. The Company's business is dependent upon
the continued growth of the telecommunications industry in the United States and
internationally. Legislation has been introduced in the U.S. Congress that would
lift certain restrictions on the ability of companies, including RBOCs and other
customers of the Company, to compete with the Company; however, the outcome and
the scope of the legislative process and the resulting effect on the market for
the Company's products is difficult to predict at this time. Changes in current
or future laws or regulations, in the United States or elsewhere, could
materially and adversely affect the Company's business. See "Business--Industry
Background."
INTERNATIONAL OPERATIONS
International sales accounted for 15.6%, 16.1%, 15.0% and 17.8% of the
Company's net sales in fiscal 1992, 1993, 1994 and the six months ended April
30, 1995, respectively, and the Company believes that International sales may
increase as a percentage of net sales in the future. In addition, the Company
owns or has subcontracted for manufacturing operations located in Mexico,
Australia and China. Due to its export sales and international manufacturing
operations, the Company is subject to the risks of conducting business
internationally, including unexpected changes in legislative or regulatory
requirements, currency fluctuations which could materially and adversely affect
U.S. dollar revenues or operating expenses, tariffs and other barriers and
restrictions, potentially longer payment cycles, greater difficulty in accounts
receivable collection, potentially adverse taxes, and the burdens of complying
with a variety of foreign laws and telecommunications standards. The Company
also is subject to general geopolitical risks, such as political and economic
instability and changes in diplomatic and trade relationships, in connection
with its international operations. There can be no assurance that such factors
will not materially and adversely affect the Company's operations in the future
or require the Company to modify significantly its current business practices.
In addition, the laws of certain foreign countries may not protect the Company's
proprietary technology to the same extent as do the laws of the United States.
See "Business--Sales and Marketing" and "--Manufacturing and Facilities."
6
<PAGE>
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's future success depends in part upon its proprietary
technology. Although the Company attempts to protect its proprietary technology
through patents, copyrights and trade secrets, it also believes that its future
success will depend upon product development, technological expertise and
marketing efforts. There can be no assurance that the Company will be able to
protect its technology or that competitors will not be able to develop similar
technology independently. The Company has received and may in the future receive
from third parties, including some of its competitors, notices claiming that it
is infringing third-party patents or other proprietary rights. There can be no
assurance that the Company would prevail in any litigation over third-party
claims, or that it would be able to license any valid and infringed patents on
commercially reasonable terms. Furthermore, litigation, regardless of its
outcome, could result in substantial cost to and diversion of effort by the
Company. Any litigation or successful infringement claims by third parties could
materially and adversely affect the Company's business, operating results and
financial condition. See "Business--Product Groups" and "--Research and
Development."
VOLATILITY OF STOCK PRICE
Based on the trading history of its stock, the Company believes factors such
as announcements of new products by the Company or its competitors, quarterly
fluctuations in the Company's financial results, customer contract awards,
developments in telecommunications regulation and general conditions in the
telecommunications equipment industry have caused and are likely to continue to
cause the market price of the Company's Common Stock to fluctuate substantially.
In addition, telecommunications equipment company stocks have experienced
significant price and volume fluctuations that often have been unrelated to the
operating performance of such companies. This market volatility may adversely
affect the market price of the Company's Common Stock. See "Price Range of
Common Stock and Dividend Policy."
7
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,500,000 shares of
Common Stock being offered hereby are estimated to be $168,045,000 ($193,323,000
if the Underwriters' over-allotment option is exercised in full), assuming a
public offering price of $32.00 per share and after deducting estimated
underwriting discounts and commissions and offering expenses. The Company
intends to use the net proceeds for general corporate purposes, including
working capital, capital expenditures and possible acquisitions or strategic
alliances. The Company believes that success in its industry requires
substantial financial liquidity and capital to maintain the flexibility to take
advantage of business opportunities as they arise. The Company also continually
evaluates investment in or the acquisition of complementary businesses, assets
and technologies and may use a portion of the net proceeds of this offering for
such investments or acquisitions. The Company is presently evaluating various
potential acquisitions; however, at this time the Company has no agreements or
commitments with respect to any material investment or acquisition. Pending such
uses, the Company intends to invest the net proceeds in short-term, investment
grade, interest-bearing obligations.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "ADCT." The following table sets forth, for the periods indicated, high
and low sale prices for the Common Stock on the Nasdaq National Market. All
prices have been restated to reflect a two-for-one stock split effected in the
form of a 100% stock dividend in June 1993 and an additional two-for-one stock
split effected in the form of a 100% stock dividend in February 1995.
<TABLE>
<CAPTION>
LOW HIGH
------- -------
<S> <C> <C>
FISCAL YEAR ENDED OCTOBER 31, 1993
First Quarter................................... $ 9 1/8 $12 3/8
Second Quarter.................................. 9 3/8 11 3/4
Third Quarter................................... 10 1/8 15 5/8
Fourth Quarter.................................. 14 5/8 22
FISCAL YEAR ENDED OCTOBER 31, 1994
First Quarter................................... 15 1/2 19 3/8
Second Quarter.................................. 16 1/8 21 3/8
Third Quarter................................... 18 1/8 23 3/8
Fourth Quarter.................................. 18 3/4 23 7/8
FISCAL YEAR ENDING OCTOBER 31, 1995
First Quarter................................... 19 3/4 25 1/2
Second Quarter.................................. 22 5/8 34 1/4
Third Quarter (through May 17, 1995)............ 29 3/4 33 1/2
</TABLE>
No cash dividends have been declared or paid during the past five years. The
Company currently anticipates that it will retain any future earnings for use in
its business and does not anticipate paying any cash dividends in the
foreseeable future. The Company's revolving credit agreements have certain
restrictions on the payment of cash dividends. As of April 30, 1995, there were
approximately 2,450 holders of record of the Common Stock.
8
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at April 30, 1995 and as adjusted to give effect to the issuance and
sale by the Company of the 5,500,000 shares of Common Stock offered hereby, at
an assumed public offering price of $32.00 per share and the application of the
estimated net proceeds therefrom. The financial data in the following table
should be read in conjunction with the Company's Consolidated Financial
Statements (and notes thereto) at April 30, 1995 contained in this Prospectus or
incorporated by reference herein.
<TABLE>
<CAPTION>
AS OF APRIL 30, 1995
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current maturities.................................................. $ -- $ --
Stockholders' Investment:
Preferred Stock, no par value, 10,000,000 shares authorized; none issued or
outstanding........................................................................... -- --
Common Stock, $.20 par value, 100,000,000 shares authorized; 56,146,000 shares issued
and outstanding; 61,646,000 shares issued and outstanding, as adjusted (1)............ 11,229 12,329
Paid-in capital........................................................................ 31,703 198,648
Retained earnings...................................................................... 246,331 246,331
Deferred compensation.................................................................. (875) (875)
Cumulative translation adjustment...................................................... (1,451) (1,451)
---------- -----------
Total stockholders' investment....................................................... 286,937 454,982
---------- -----------
Total capitalization............................................................... $ 286,937 $ 454,982
---------- -----------
---------- -----------
<FN>
- ------------------------
(1) Excludes an aggregate of 4,772,360 shares reserved for issuance under the
Company's incentive and stock option plans, of which options to purchase
2,956,396 shares were outstanding as of April 30, 1995.
</TABLE>
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of October 31,
1993 and 1994 and for the years ended October 31, 1992, 1993 and 1994 have been
derived from the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus. The selected consolidated financial data presented
below as of October 31, 1990, 1991 and 1992 and for the years ended October 31,
1990 and 1991 have been derived from the Consolidated Financial Statements of
the Company not included in this Prospectus. The selected consolidated financial
data presented below as of and for the six months ended April 30, 1994 and 1995
have been derived from unaudited interim consolidated financial statements of
the Company. In the opinion of the Company's management, the unaudited interim
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting of normal recurring adjustments, necessary to fairly state the
information set forth therein. The results of operations for the six months
ended April 30, 1995 are not necessarily indicative of the results to be
expected for a full year. Such data should be read in conjunction with the
consolidated financial statements, related notes and other financial information
contained in this Prospectus or incorporated by reference herein. See "Documents
Incorporated by Reference."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED OCTOBER 31, APRIL 30,
----------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales....................................... $ 259,802 $ 293,839 $ 316,496 $ 366,118 $ 448,735 $ 204,749 $ 262,116
Cost of product sold............................ 133,802 148,614 155,074 178,572 221,448 101,407 133,705
--------- --------- --------- --------- --------- --------- ---------
Gross profit.................................... 126,000 145,225 161,422 187,546 227,287 103,342 128,411
--------- --------- --------- --------- --------- --------- ---------
Expenses:
Development and product engineering........... 25,462 32,315 36,063 40,988 48,974 23,250 29,146
Selling and administration.................... 62,793 74,369 82,966 93,311 110,799 51,767 62,401
Goodwill amortization......................... 920 1,953 2,720 2,798 3,135 1,567 1,566
Personnel reduction........................... -- -- 3,800 -- -- -- 3,914
--------- --------- --------- --------- --------- --------- ---------
Total expenses.............................. 89,175 108,637 125,549 137,097 162,908 76,584 97,027
--------- --------- --------- --------- --------- --------- ---------
Operating income................................ 36,825 36,588 35,873 50,449 64,379 26,758 31,384
Other income (expense), net:
Interest...................................... 1,255 (108) (942) 183 1,158 297 1,203
Other......................................... 92 (75) (205) (895) (1,216) (421) --
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and extraordinary
item........................................... 38,172 36,405 34,726 49,737 64,321 26,634 32,587
Provision for income taxes...................... 15,269 14,380 13,700 18,101 23,800 9,854 11,732
--------- --------- --------- --------- --------- --------- ---------
Net income before extraordinary item............ 22,903 22,025 21,026 31,636 40,521 16,780 20,855
Extraordinary item, net of taxes (1)............ -- -- -- -- (1,450) (1,450) --
--------- --------- --------- --------- --------- --------- ---------
Net income...................................... $ 22,903 $ 22,025 $ 21,026 $ 31,636 $ 39,071 $ 15,330 $ 20,855
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Average common shares outstanding............... 53,060 53,476 54,176 54,998 55,610 55,520 55,974
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per share before extraordinary item
(1)............................................ $ .43 $ .41 $ .39 $ .58 $ .73 $ .30 $ .37
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per share.............................. $ .43 $ .41 $ .39 $ .58 $ .70 $ .27 $ .37
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Orders (2)...................................... $ 265,272 $ 284,993 $ 322,823 $ 375,637 $ 462,332 $ 205,891 $ 269,679
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents....................... $ 25,978 $ 30,109 $ 20,484 $ 16,324 $ 49,512 $ 21,764 $ 37,135
Working capital................................. 65,190 79,005 75,284 87,630 132,015 104,214 149,389
Total assets.................................... 181,665 247,169 240,762 280,054 334,684 293,767 353,297
Total debt...................................... 6,098 45,046 14,434 1,110 810 810 410
Total stockholders' investment.................. 134,013 158,374 182,188 220,394 264,758 237,163 286,937
<FN>
- ------------------------------
(1) An extraordinary charge of $1,450,000 (or $.03 per share), net of income
taxes, recorded in the quarter ended January 31, 1994, represents the
charge to clean up and repair the damage from an earthquake at the
Company's facility in California.
(2) Orders reported for each period reflect purchase orders received during
such period for which shipment has been scheduled within one year.
Substantially all of the Company's products are shipped within the period
that the related orders are received. As a result, orders correspond
generally to net sales for the specified period and are not necessarily
indicative of future results.
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company offers a broad range of products to address key areas of the
telecommunications network infrastructure. To meet its customers' needs, the
Company offers equipment, services and integrated solutions within the following
general functional product groups: transmission, enterprise networking and
broadband connectivity. The Company's transmission products are sold primarily
to public network providers in the United States and internationally. The
Company's enterprise networking products are sold primarily to private voice,
data and video network providers around the world. The Company's broadband
connectivity products are sold to both public and private network providers.
Historically, the Company's principal product offerings have generally
consisted of copper-based and fiber-based products designed to address the needs
of its customers for transmission, enterprise networking and connectivity on
traditional telephony networks. With the growth of multimedia applications and
the associated development of enhanced voice, data and video services, the
Company's more recent product offerings and research and development efforts
have increasingly focused on emerging technologies and applications relating to
the broadband telecommunications equipment market. The market for broadband
telecommunications equipment is evolving and rapidly changing. There can be no
assurance that the Company's new or enhanced products will meet with market
acceptance or be profitable.
RESULTS OF OPERATIONS
The percentage relationships to net sales of certain income and expense
items for the three years ended October 31, 1994 and the six month periods ended
April 30, 1994 and 1995 are contained in the following table:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED OCTOBER 31, ENDED APRIL 30,
------------------------------- --------------------
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 product sold................................................... (49.0) (48.8) (49.3) (49.5) (51.0)
--------- --------- --------- --------- ---------
Gross profit........................................................... 51.0 51.2 50.7 50.5 49.0
Expenses:
Development and product engineering.................................. (11.4) (11.2) (11.0) (11.3) (11.1)
Selling and administration........................................... (26.2) (25.5) (24.7) (25.3) (23.8)
Goodwill amortization................................................ (.9) (.7) (.7) (.8) (.6)
Personnel reduction.................................................. (1.2) -- -- -- (1.5)
--------- --------- --------- --------- ---------
Operating income....................................................... 11.3 13.8 14.3 13.1 12.0
Other income (expense), net:
Interest............................................................. (.3) .1 .3 .1 .5
Other................................................................ -- (.3) (.3) (.2) --
--------- --------- --------- --------- ---------
Income before income taxes and extraordinary item...................... 11.0 13.6 14.3 13.0 12.5
Provision for income taxes............................................. (4.4) (5.0) (5.3) (4.8) (4.5)
--------- --------- --------- --------- ---------
Net income before extraordinary item................................... 6.6 8.6 9.0 8.2 8.0
Extraordinary item, net of taxes....................................... -- -- (.3) (.7) --
--------- --------- --------- --------- ---------
Net income............................................................. 6.6% 8.6% 8.7% 7.5% 8.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
11
<PAGE>
The following table sets forth the Company's net sales for the three years
ended October 31, 1994 and the six month periods ended April 30, 1994 and 1995
for each of the functional product groups described above:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, SIX MONTHS ENDED APRIL 30,
--------------------------------------------------------- -------------------------------------
1992 1993 1994 1994 1995
----------------- ----------------- ----------------- ----------------- -----------------
PRODUCT GROUP NET SALES % NET SALES % NET SALES % NET SALES % NET SALES %
- ------------------------------ --------- ----- --------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Transmission.................. $ 60,500 19.1% $ 69,386 18.9% $103,694 23.1% $ 45,762 22.3% $ 74,751 28.5%
Enterprise networking......... 84,227 26.6 95,540 26.1 123,300 27.5 55,196 27.0 62,112 23.7
Broadband connectivity........ 171,769 54.3 201,192 55.0 221,741 49.4 103,791 50.7 125,253 47.8
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total......................... $316,496 100.0% $366,118 100.0% $448,735 100.0% $204,749 100.0% $262,116 100.0%
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
</TABLE>
SIX MONTHS ENDED APRIL 30, 1995 COMPARED TO SIX MONTHS ENDED APRIL 30, 1994
NET SALES. Net sales for the six months ended April 30, 1995 were $262.1
million, a 28.0% increase over $204.7 million of net sales for the six months
ended April 30, 1994. This increase was primarily the result of a 63.3% increase
in net sales of transmission products, predominantly fiber optic systems sold to
public telecommunications network providers. Net sales of fiber optic products
represented 39.7% and 33.5% of total net sales for the six months ended April
30, 1995 and 1994, respectively.
In the six months ended April 30, 1995, net sales of broadband connectivity
products increased 20.7% over the six months ended April 30, 1994, reflecting
the Company's success in selling these products into new global broadband market
applications. The Company believes that future sales of broadband connectivity
products will continue to account for a substantial portion of the Company's
revenues, although net sales of these products may continue to decline as a
percentage of total net sales primarily due to the ongoing evolution of
technologies in the telecommunications marketplace.
Net sales of enterprise networking products for the six months ended April
30, 1995 increased 12.5% over the six months ended April 30, 1994. This increase
reflects significant growth in net sales of access equipment, which was
partially offset by a decrease in net sales of Local Area Network ("LAN")
equipment. Recognizing changes in the competitive environment for LAN equipment,
the Company has realigned its Kentrox Industries Inc. ("Kentrox") and Fibermux
Corporation ("Fibermux") subsidiaries, which market primarily enterprise
networking products, into one business unit to better address the industry trend
toward integration of LAN and Wide Area Network ("WAN") technologies and
products. See "Business -- Product Groups -- Enterprise Networking."
GROSS PROFIT. The gross profit percentage was 49.0% of net sales for the
six months ended April 30, 1995 compared to a gross profit percentage of 50.5%
for the six months ended April 30, 1994. The decline in gross profit percentage
was primarily the result of a change in product sales mix toward sales of newer,
lower margin products which address emerging broadband applications. The
Company's future gross profit percentage will continue to be affected by product
mix, the timing of new product introductions and manufacturing volume, among
other factors.
OPERATING EXPENSES. Operating expenses were $97.0 million for the six
months ended April 30, 1995, an increase of 26.7% over $76.6 million of
operating expenses for the six months ended April 30, 1994. Operating expenses
represented 37.0% of net sales for the six months ended April 30, 1995 compared
to 37.4% of net sales for the six months ended April 30, 1994. The increase in
absolute dollars of operating expenses from period to period was due primarily
to the expanded operations associated with higher revenue levels, and a charge
of $3.9 million related primarily to a personnel reduction at Fibermux resulting
from the realignment of the Company's Kentrox and Fibermux subsidiaries. This
charge increased operating expenses as a percentage of net sales by 1.5% for the
six months ended April 30, 1995. All other operating expense categories
decreased as a percentage of net sales for the six months ended April 30, 1995,
reflecting the Company's operating leverage as net sales increased. See Note 9
of Notes to Consolidated Financial Statements.
12
<PAGE>
Development and product engineering expenses were $29.1 million for the six
months ended April 30, 1995, an increase of 25.4% over $23.3 million for the six
months ended April 30, 1994, reflecting substantial product development efforts
in each of the Company's three functional product groups. Selling and
administration expenses were $62.4 million for the six months ended April 30,
1995, an increase of 20.5% over $51.8 million of such expenses for the six
months ended April 30, 1994, primarily as a result of selling activities
associated with new product introductions and additional personnel costs related
to expanded operations.
The Company believes that, given the rapidly changing technological and
competitive environment in the telecommunications equipment industry, continued
commitment to product development efforts will be required for the Company to
remain competitive. Accordingly, the Company intends to continue to allocate
substantial resources to product development for each of its three functional
product groups. However, the Company recognizes the need to balance the cost of
product development with expense control.
OTHER INCOME (EXPENSE), NET. For the six month periods ended April 30, 1995
and 1994, net interest income represents interest income on cash balances. See
"--Liquidity and Capital Resources."
INCOME TAXES. The Company's effective income tax rate was 36.0% for the six
months ended April 30, 1995 and 37.0% for the six months ended April 30, 1994.
These rates reflect $1.6 million of non-deductible goodwill amortization
included in operating expenses in each of the six month periods and the
beneficial impact of tax credits.
EXTRAORDINARY ITEM. An extraordinary charge of $1.5 million (or $.03 per
share), net of income taxes, was recorded in the six month period ended April
30, 1994, representing expenses related to the clean up and repair of damage to
the Fibermux facility resulting from an earthquake in January 1994. See Note 2
of Notes to Consolidated Financial Statements
NET INCOME. Reflecting all of the matters discussed above, net income was
$20.9 million (or $.37 per share) for the six months ended April 30, 1995, an
increase of 36.0% over $15.3 million (or $.27 per share) for the six months
ended April 30, 1994.
YEARS ENDED OCTOBER 31, 1994, 1993 AND 1992
NET SALES. Net sales for the year ended October 31, 1994 were $448.7
million, a 22.6% increase over net sales of $366.1 million for the year ended
October 31, 1993. Net sales in 1993 reflected a 15.7% increase over net sales of
$316.5 million for the year ended October 31, 1992. The increase in net sales
from 1992 to 1993 and from 1993 to 1994 reflected increased net sales in each
year from each of the Company's three general product groups.
The 1994 and 1993 increases in net sales of transmission products were
attributable principally to sales of new products, primarily to public
telecommunications network providers. The 1994 and 1993 increases in net sales
of networking products primarily represent increased sales of public network
access equipment to private network customers.
Within the broadband connectivity product group, net sales of ADC's digital
signaling cross-connect ("DSX") modules and bays have declined as a percentage
of total net sales to 27.2% in 1994 from 28.7% in 1993 and 29.0% in 1992.
Although these products currently account for a substantial portion of the
Company's revenues, management believes that future sales of DSX and other
copper products utilizing telephone jacks will continue gradually to decline as
a percentage of total net sales primarily due to the ongoing evolution of
technologies within the telecommunications marketplace and the addition of new
products to the ADC product portfolio. As a result, the Company anticipates that
net sales of the broadband connectivity product group will continue gradually to
decline as a percentage of the Company's total net sales. See "Business --
Industry Background."
Net sales of fiber optic products represented 34.8%, 34.2% and 29.9% of
total net sales in 1994, 1993 and 1992, respectively. These year-to-year
increases reflect the Company's increasing emphasis on development and marketing
of fiber optic products.
13
<PAGE>
GROSS PROFIT. The 1994 decrease in gross profit percentage, to 50.7% of net
sales, primarily reflects a less favorable product sales mix in 1994. The slight
1993 increase in gross profit percentage to 51.2% of net sales from 51.0% of net
sales in 1992 primarily reflects a more favorable product sales mix, successful
manufacturing cost reduction efforts and higher net sales volumes in 1993.
OPERATING EXPENSES. Operating expenses for the year ended October 31, 1994
were $162.9 million, an 18.8% increase over operating expenses of $137.1 million
for the year ended October 31, 1993. The 1993 level represented a 9.2% increase
over 1992 operating expenses of $125.5 million. These expenses represented
36.3%, 37.4% and 39.7% of net sales in 1994, 1993 and 1992, respectively. The
lower 1994 and 1993 levels primarily reflect effective cost controls, higher net
sales levels and the absence of the 1992 personnel reduction charge, which
represented 1.2% of net sales in that year.
The 19.5% and 13.7% increases in development and product engineering
expenses in 1994 and 1993, respectively, also reflect significant investments in
new product development. The Company has been able to maintain its development
and product engineering expenses as a relatively constant percentage of net
sales during the 1992 to 1994 period by planning for and controlling such
expenditures.
The 18.7% and 12.5% increases in selling and administrative expenses in 1994
and 1993, respectively, also reflect increased marketing and selling activities
associated with new product introductions and expansion of markets, and growth
of the Company which has resulted in higher compensation expenses, including
increased incentive-based and stock-based compensation. Due to effective
management of expenditures, the Company has decreased its ratio of selling and
administration expenses as a percentage of net sales over the three-year period.
Company management has reclassified amortization of goodwill expense from
"other non-operating expense" to "operating expenses" to conform with internal
financial performance measurement. This expense represents amortization of the
goodwill portions of the acquisition prices for Fibermux, Kentrox and American
Lightware Systems, Inc. ("ALS"), beginning at the respective acquisition dates.
The major technological changes underway in the telecommunications industry
will require the Company to continue investing significantly in product
development. Company management recognizes the need to balance the cost of
product development with expense control. See "Business -- Research and
Development."
OTHER INCOME (EXPENSE), NET. The interest income (expense) category
reflected net interest income earned on cash balances during 1994 and 1993 and
net interest expense during 1992. See "-- Liquidity and Capital Resources."
INCOME TAXES. Effective tax rates were 37.0%, 36.4% and 39.5% in 1994, 1993
and 1992, respectively. In addition to the non-deductible goodwill amortization
amounts discussed above which impact all three years, the 1994 and 1993 rates
reflect a 1% higher federal statutory rate as well as the beneficial impact of
tax credits. See Note 7 of Notes to Consolidated Financial Statements.
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No.
109 requires the recognition of deferred tax liabilities or assets for the
expected future tax consequences of temporary differences between the book and
tax bases of assets and liabilities. SFAS No. 109 was adopted prospectively and
the cumulative impact of adoption was not material.
EXTRAORDINARY ITEM. An extraordinary charge of $1.5 million, (or $.03 per
share), net of income taxes, was recorded in the quarter ended January 31, 1994,
representing expenses related to the clean up and repair of damage to the
Fibermux facility resulting from an earthquake. See Note 2 of Notes to
Consolidated Financial Statements
NET INCOME. As a result of all of the items discussed above, net income for
the year ended October 31, 1994 was $39.1 million (or $.70 per share),
representing a 23.5% increase over net income of $31.6 million (or $.58 per
share) for the year ended October 31, 1993. Net income for 1993 represented a
50.5% increase over net income of $21.0 million (or $.39 per share) for the year
ended October 31, 1992.
14
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
Statement of operations data and the percentage relationships to net sales
of that data for each of the Company's last ten quarters (contained in the
following tables) have been derived from the unaudited, interim consolidated
financial statements of the Company. In the opinion of the Company's management,
this information has been presented on the same basis as the audited financial
statements and include all adjustments, consisting of normal recurring
adjustments, necessary to fairly state the information set forth therein. The
Company's operating results may fluctuate significantly from quarter to quarter
due to several factors. The Company's expense levels are based in part on
expectations of future revenues. If revenue levels in a particular period do not
meet expectations, operating results will be adversely affected. In addition,
the Company's results of operations are subject to seasonal factors. The Company
historically has experienced a stronger demand for its products in the fourth
fiscal quarter, primarily as a result of customer budget cycles and Company
year-end incentives, and has experienced a weaker demand for its products in the
first fiscal quarter, primarily as a result of the number of holidays in late
November, December and early January and a general industry slowdown during that
period.
<TABLE>
<CAPTION>
1993 1994
------------------------------------------------ --------------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
----------- ----------- ----------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 78,648 $ 88,999 $ 93,346 $ 105,125 $ 91,176 $ 113,573 $ 115,688 $ 128,298
Cost of product sold............ 38,510 43,708 44,708 51,646 45,247 56,160 57,346 62,695
----------- ----------- ----------- --------- ----------- --------- --------- ---------
Gross profit.................... 40,138 45,291 48,638 53,479 45,929 57,413 58,342 65,603
----------- ----------- ----------- --------- ----------- --------- --------- ---------
Expenses:
Development and product
engineering.................. 9,537 10,282 10,080 11,089 11,003 12,247 12,515 13,200
Selling and administration.... 21,428 23,036 23,435 25,412 23,879 27,888 27,434 31,607
Goodwill amortization......... 698 698 701 701 784 783 784 784
Personnel reduction........... -- -- -- -- -- -- -- --
----------- ----------- ----------- --------- ----------- --------- --------- ---------
Total expenses................ 31,663 34,016 34,216 37,202 35,666 40,918 40,733 45,591
----------- ----------- ----------- --------- ----------- --------- --------- ---------
Operating income................ 8,475 11,275 14,422 16,277 10,263 16,495 17,609 20,012
Other income (expense), net:
Interest...................... 21 68 42 52 133 164 318 543
Other......................... (146) (131) (119) (499) 230 (651) (471) (324)
----------- ----------- ----------- --------- ----------- --------- --------- ---------
Income before income taxes and
extraordinary item............. 8,350 11,212 14,345 15,830 10,626 16,008 17,456 20,231
Provision for income taxes...... 3,090 4,148 5,164 5,699 3,931 5,923 6,459 7,487
----------- ----------- ----------- --------- ----------- --------- --------- ---------
Net income before extraordinary
item........................... 5,260 7,064 9,181 10,131 6,695 10,085 10,997 12,744
Extraordinary item, net of
taxes (1)...................... -- -- -- -- (1,450) -- -- --
----------- ----------- ----------- --------- ----------- --------- --------- ---------
Net income...................... $ 5,260 $ 7,064 $ 9,181 $ 10,131 $ 5,245 $ 10,085 $ 10,997 $ 12,744
----------- ----------- ----------- --------- ----------- --------- --------- ---------
----------- ----------- ----------- --------- ----------- --------- --------- ---------
Average common shares
outstanding.................... 54,648 54,968 55,088 55,282 55,470 55,568 55,658 55,740
----------- ----------- ----------- --------- ----------- --------- --------- ---------
----------- ----------- ----------- --------- ----------- --------- --------- ---------
Earnings per share before
extraordinary item (1)......... $ .10 $ .13 $ .17 $ .18 $ .12 $ .18 $ .20 $ .23
----------- ----------- ----------- --------- ----------- --------- --------- ---------
----------- ----------- ----------- --------- ----------- --------- --------- ---------
Earnings per share.............. $ .10 $ .13 $ .17 $ .18 $ .09 $ .18 $ .20 $ .23
----------- ----------- ----------- --------- ----------- --------- --------- ---------
----------- ----------- ----------- --------- ----------- --------- --------- ---------
Orders (2)...................... $ 78,363 $ 93,214 $ 95,020 $ 109,040 $ 97,206 $ 108,796 $ 119,160 $ 137,170
----------- ----------- ----------- --------- ----------- --------- --------- ---------
----------- ----------- ----------- --------- ----------- --------- --------- ---------
<CAPTION>
1995
--------------------
1ST QTR. 2ND QTR.
--------- ---------
<S> <C> <C>
Net sales....................... $ 121,774 $ 140,342
Cost of product sold............ 62,402 71,303
--------- ---------
Gross profit.................... 59,372 69,039
--------- ---------
Expenses:
Development and product
engineering.................. 13,209 15,937
Selling and administration.... 29,763 32,638
Goodwill amortization......... 784 782
Personnel reduction........... -- 3,914
--------- ---------
Total expenses................ 43,756 53,271
--------- ---------
Operating income................ 15,616 15,768
Other income (expense), net:
Interest...................... 656 547
Other......................... 80 (80)
--------- ---------
Income before income taxes and
extraordinary item............. 16,352 16,235
Provision for income taxes...... 5,886 5,846
--------- ---------
Net income before extraordinary
item........................... 10,466 10,389
Extraordinary item, net of
taxes (1)...................... -- --
--------- ---------
Net income...................... $ 10,466 $ 10,389
--------- ---------
--------- ---------
Average common shares
outstanding.................... 55,849 56,094
--------- ---------
--------- ---------
Earnings per share before
extraordinary item (1)......... $ .19 $ .18
--------- ---------
--------- ---------
Earnings per share.............. $ .19 $ .18
--------- ---------
--------- ---------
Orders (2)...................... $ 124,680 $ 144,999
--------- ---------
--------- ---------
<FN>
- ------------------------------
(1) An extraordinary charge of $1,450,000 (or $.03 per share), net of income
taxes recorded in the quarter ended January 31, 1994, represents the charge
to clean up and repair the damage from an earthquake at the Company's
facility in California.
(2) Orders reported for each period reflect purchase orders received during
such period for which shipment has been scheduled within one year.
Substantially all of the Company's products are shipped within the period
that the related orders are received. As a result, orders correspond
generally to net sales for the specified period and are not necessarily
indicative of future results.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
-------------------------------------------------------------------------------------
1993 1994
----------------------------------------- -----------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of product sold.............. (49.0) (49.1) (47.9) (49.1) (49.6) (49.4) (49.6) (48.9)
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit...................... 51.0 50.9 52.1 50.9 50.4 50.6 50.4 51.1
Expenses:
Development and product
engineering.................... (12.1) (11.6) (10.8) (10.5) (12.1) (10.8) (10.8) (10.3)
Selling and administration...... (27.2) (25.8) (25.1) (24.2) (26.2) (24.6) (23.7) (24.6)
Goodwill amortization........... (.9) (.8) (.7) (.7) (.8) (.7) (.7) (.6)
Personnel reduction............. -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total expenses.................. (40.2) (38.2) (36.6) (35.4) (39.1) (36.1) (35.2) (35.5)
-------- -------- -------- -------- -------- -------- -------- --------
Operating income.................. 10.8 12.7 15.5 15.5 11.3 14.5 15.2 15.6
Other income (expense), net:
Interest........................ -- .1 .1 -- .1 .2 .3 .4
Other........................... (.2) (.2) (.2) (.5) .2 (.6) (.4) (.3)
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes and
extraordinary item............... 10.6 12.6 15.4 15.0 11.6 14.1 15.1 15.7
Provision for income taxes........ (3.9) (4.7) (5.6) (5.4) (4.3) (5.2) (5.6) (5.8)
-------- -------- -------- -------- -------- -------- -------- --------
Net income before extraordinary
item............................. 6.7 7.9 9.8 9.6 7.3 8.9 9.5 9.9
Extraordinary item, net of
taxes............................ -- -- -- -- (1.5) -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income........................ 6.7% 7.9% 9.8% 9.6% 5.8% 8.9% 9.5% 9.9%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
<CAPTION>
1995
-------------------
1ST QTR. 2ND QTR.
-------- --------
<S> <C> <C>
Net sales......................... 100.0% 100.0%
Cost of product sold.............. (51.2) (50.8)
-------- --------
Gross profit...................... 48.8 49.2
Expenses:
Development and product
engineering.................... (10.9) (11.3)
Selling and administration...... (24.4) (23.3)
Goodwill amortization........... (.7) (.6)
Personnel reduction............. -- (2.8)
-------- --------
Total expenses.................. (36.0) (38.0)
-------- --------
Operating income.................. 12.8 11.2
Other income (expense), net:
Interest........................ .5 .4
Other........................... .1 --
-------- --------
Income before income taxes and
extraordinary item............... 13.4 11.6
Provision for income taxes........ (4.8) (4.2)
-------- --------
Net income before extraordinary
item............................. 8.6 7.4
Extraordinary item, net of
taxes............................ -- --
-------- --------
Net income........................ 8.6% 7.4%
-------- --------
-------- --------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
During the years ended October 31, 1994, 1993 and 1992, cash and cash
equivalents, primarily short-term investments in commercial paper with
maturities of less than 90 days, increased $33.2 million, decreased $4.1 million
and decreased $9.6 million, respectively. The 1994 increase primarily reflects
increased cash provided from operating activities and the absence of debt
repayments, offset by $7.1 million of acquisition payments. In 1993 and 1992,
property and equipment additions and long-term debt repayments, offset by cash
generated from operating activities, represented the majority of the decreases.
During the three years ended October 31, 1994, 1993 and 1992, property and
equipment additions net of retirements totaled $21.8 million, $21.2 million and
$15.8 million, respectively.
Cash and cash equivalents, primarily short-term investments in commercial
paper with maturities of less than 90 days, decreased $12.4 million during the
six months ended April 30, 1995 and increased $5.4 million during the six months
ended April 30, 1994. The major elements of the 1995 decrease were net income
before depreciation, totaling $32.4 million, offset by property and equipment
additions of $12.1 million, acquisition payments of $4.7 million, and the $24.7
million increase in inventory and receivable levels (reflecting the acquisition
as well as growth in business). In the six months ended April 30, 1994, the
major elements of the increase were net income before depreciation, totaling
$26.5 million, partially offset by property and equipment additions of $10.3
million and acquisition payments of $7.1 million.
The Company may borrow up to $40.0 million under revolving credit
agreements. Borrowings under these agreements bear interest at floating
short-term market rates, may be repaid any time without penalty and may be
converted to term loans bearing interest principally at the prime rate, payable
in annual installments through December 2000. At April 30, 1995, the entire
$40.0 million of borrowings under these agreements was available to the Company,
and it had no long-term debt outstanding.
Management believes that the net proceeds from this offering, cash generated
from operating activities, borrowings available under revolving credit
agreements and cash balances will be adequate to fund the Company's anticipated
capital and operating requirements through 1996. However, the Company may find
it necessary to seek additional sources of financing to support its capital
needs, for additional working capital, potential investments or acquisitions or
otherwise. There is no assurance that such financing would be available on
commercially reasonable terms or at all. Total property and equipment additions
for 1995 are expected to be approximately $30 million.
16
<PAGE>
BUSINESS
ADC designs, manufactures and markets transmission, enterprise networking
and connectivity products for use in broadband global networks. The Company's
wide range of products employ fiber, hybrid fiber coax, wireless and traditional
copper-based technologies. The Company's customers include: public network
providers, which consist of all seven of the RBOCs, other telephone companies,
long distance carriers, wireless service providers, the major cable TV operators
and other domestic public network providers; private and governmental network
providers; international network operators; and telecommunications OEMs. The
Company's products enable these network providers to build and upgrade their
networks to support increasing user demand for voice, data and video services.
INDUSTRY BACKGROUND
Since the 1970's, the telecommunications equipment industry has grown and
changed substantially, primarily as a result of continuous technological
development, increased demand for the transmission of data and video traffic
over public and private networks, market convergence and a changing regulatory
and competitive environment.
Several important technological developments have spurred the evolution of
the telecommunications equipment industry. The development of cost-effective
digital technology has been particularly important and has resulted in an
increasing trend over the past decade to replace analog technology in
transmission networks. More recently, the use of integrated circuits in both
public and private telecommunications equipment has allowed network equipment to
perform high speed switching, network performance monitoring, network
management, information compression, data translation and other functions,
thereby allowing the network to address increasingly complex tasks and users'
needs. In addition, fiber-based systems have increasingly replaced copper-based
transmission systems. The increasing shift to fiber-based systems has been
principally due to the ability of fiber optics to carry large volumes of
information at high speeds, its insensitivity to electromagnetic interference
and the high transmission quality made possible by the physical properties of
light. In future years, the telecommunications equipment industry also may be
significantly affected by the continuing development of wireless communications
technology, which could substantially extend the reach of current communications
networks.
Demands on network infrastructure have grown substantially in the past
decade. Networks increasingly are required to transmit a combination of data and
video to communicate information, conduct business and deliver entertainment.
Such demands have prompted the development and use of "broadband" networks,
which feature the improved reliability and increased speed of transmission
generally required for data and video transmission over the network.
Specifically, the industry term "broadband" refers to all transmission speeds of
T1 (1.544 million bits per second) and higher. Growth in broadband network
applications has fueled increased infrastructure investment by network operators
in order to expand network capacity and provide new applications and services to
meet users' needs.
In addition, there has been substantial growth in wireless communications
such as cellular telephone services, and the prospect for increasing use of
satellite-based services and personal communications services ("PCS"). This
growth has been spurred by the convenience of mobility and the limits of
wireline infrastructure. In particular, in countries without reliable or
extensive wireline systems, wireless service could ultimately provide the
primary service platform for both mobile and fixed telecommunications
applications, because of the potential savings in installation time and cost.
The evolution in technology and user needs has been accompanied by changes
in the domestic and international regulatory environment. Since the divestiture
of the AT&T regional operating companies in 1984, the RBOCs have been prevented
from manufacturing equipment for use in telecommunications networks. As the
RBOCs have embarked on aggressive expansion plans, significant opportunities
have been created for independent telecommunications equipment manufacturers
such as the Company. The policy of deregulation currently being followed by the
Federal Communications Commission and other important regulatory agencies
throughout the world has increased opportunities for independent companies to
supply products and services within public telephone system markets and within
private voice, data and video
17
<PAGE>
communications markets. Although the ultimate impact is uncertain, current
telecommunications legislation being discussed in the U.S. Congress may result
in new competitors, including the RBOCs, entering the telecommunications
equipment market.
Outside of the United States, the telecommunications equipment market has
also expanded and changed significantly in recent years, as network users have
increasingly demanded access to voice, data and video communications
capabilities. Many countries without reliable or extensive wireline systems are
seeking to develop and enhance their telecommunications infrastructure. This
growth in demand for network services and infrastructure has been accompanied by
changes in the international regulatory environment. In many countries,
government operated telecommunications monopolies are being converted to private
network services providers, and competition among such carriers may intensify.
The Company believes that "broadband global networking," or the emerging
series of worldwide broadband networks, represents a key enabling capability for
meeting the information needs of network users. The addition of high speed data
and video traffic has driven the need for broadband infrastructure and has
enabled the creation of a wide range of new applications, including video on
demand, distance learning, telecommuting and remote medical imaging. The Company
participates in this emerging broadband global network market by providing a
broad variety of equipment, services and integrated product solutions.
STRATEGY
ADC's strategy is to capitalize on opportunities in the evolving global
telecommunications market by providing equipment, services and integrated
solutions for its customers' voice, data and video telecommunications networks.
ADC's broad range of products addresses key areas of the telecommunications
network infrastructure, and these products are used to connect physical
networks, access network services, transport network traffic and manage
networks. ADC's diverse product offerings address the needs of its many
customers which include the RBOCs, other telephone companies, long distance
carriers, wireless service providers, the major cable TV operators, other public
network providers, private network providers and telecommunications OEMs. Key
components of the Company's strategy include:
-FOCUS ON BROADBAND NETWORK OPPORTUNITIES. In recent years, broadband
requirements for both public and private networks have grown significantly.
Accordingly, ADC is focusing its product development and marketing efforts on
opportunities in emerging broadband networks. In the public network market,
broadband deployment has been driven by telephone and cable television providers
seeking to establish the infrastructure required to offer video, telephony,
entertainment and other interactive services to residential customers over a
single network. In the private network market, broadband requirements have been
driven by the growth of voice, data and video applications utilizing increasing
amounts of bandwidth. Examples of products developed by ADC targeting these
opportunities include the Company's Homeworx system that has been designed to
enable telephone and cable television companies to provide a range of voice and
video services to residential customers; the Soneplex product that allows
business customers to transmit broadband traffic across their private networks
and access various switched and dedicated services provided by the networks; and
the AAC-3 ATM access concentrator that is being developed to allow customers to
access switched voice, data and video traffic on public networks from their
private networks.
-PROVIDE END-TO-END NETWORK SOLUTIONS. ADC offers a broad line of
telecommunications equipment that addresses customers' key network needs from
the central office, through the local loop (the portion of a network that
connects a subscriber's equipment to a local central office), into the customer
premise and across enterprise networks. Through internal development and
acquisitions, ADC has formed its expertise in three major network areas:
transmission, enterprise networking and broadband connectivity. ADC is currently
enhancing its systems integration capability to enable it to offer customers
more complete solutions to their network needs.
-LEVERAGE TECHNOLOGICAL CAPABILITIES ACROSS PRODUCT GROUPS. ADC has
developed substantial expertise in fiber optics, broadband, video and wireless
technologies. The Company has built these core competencies through internal
development, acquisitions, joint ventures and licensing arrangements. ADC's
strategy is to leverage these core competencies across its product groups in
order to develop new product architectures
18
<PAGE>
and network management tools for its customers' evolving voice, data and video
network needs in various market areas. An example of this effort is the
continuing development of the Company's wireless technologies for use in
converging wired and wireless applications such as potential wireless local loop
products.
-EXPAND INTERNATIONAL PRESENCE. ADC believes that significant growth in
telecommunications equipment market may occur outside the United States as a
result of deregulation and the need of many foreign countries to substantially
expand or enhance their telecommunications services. ADC's strategy is to expand
its international presence by increasing its international sales and marketing
resources, leveraging its existing customer relationships, developing additional
international distribution channels and seeking strategic alliances and
acquisitions.
-PURSUE STRATEGIC ALLIANCES AND ACQUISITIONS. ADC has sought and will
continue to seek alliances and acquisitions to: (i) add key technologies that it
can leverage across its businesses, (ii) broaden its product offerings, (iii)
enter attractive new markets and (iv) expand or enhance its distribution
channels. Examples of such alliances and acquisitions include: ADC's OEM
relationship with Premisys Communications, Inc. in the integrated access device
market; its joint development effort with Tektronix, Inc. in the area of test
and monitoring systems; its marketing relationships in the ATM access equipment
market; its acquisition of ALS in the video transmission area; its acquisition
of Kentrox in the public network access product area; and its acquisition of
Australia-based AOFR Pty. Ltd. in the fiber optic connectors area.
PRODUCT GROUPS
The Company's products can be categorized into three general functional
groups: (i) transmission, (ii) enterprise networking and (iii) broadband
connectivity. These product groups accounted for 23%, 28% and 49%, respectively,
of the Company's net sales for the year ended October 31, 1994 and 28%, 24%, and
48%, respectively, for the six months ended April 30, 1995. Each of these
product groups is discussed below.
TRANSMISSION
ADC's transmission products provide electronic and optical signal generation
within predominantly public networks. Certain of the transmission products also
provide access to the network in order to monitor, test and reroute circuits
within telecommunications transmission systems. ADC's transmission products are
designed for use in copper-based, coax-based, fiber-based or wireless
transmission networks. Transmission products include fiber optic video delivery
products, other high speed voice, data and video delivery and access platforms,
wireless microcell systems, test and monitoring systems and digital repeaters.
Certain of the Company's transmission products are described below.
DV6000 AND OTHER FIBER VIDEO DELIVERY EQUIPMENT. The DV6000 system
transmits a variety of signal types using a high speed, uncompressed digital
format (2.4 billion bits per second) over fiber in the super trunking portions
of broadcast and interactive video networks. This system is used in significant
public residential broadband networks, such as Viacom Cable's San Francisco Bay
Area video backbone network and the regional headend network in Florida of TCI
Cablevision of Florida, Inc. ADC's PixlNet multipoint videoconferencing system
provides a public network switched digital video system for user-initiated video
conference management. The PixlNet system is currently being tested in customer
field trials. The Company also manufactures various analog video transmission
systems.
HOMEWORX ACCESS TRANSPORT PLATFORM. The Company's Homeworx access transport
platform is a customer loop transmission system for small business and
residential customers utilizing hybrid fiber coax technology. The Homeworx
system has been designed for deployment on video-only, integrated video and
telephony and telephony-only broadband networks, but currently is only available
in the video-only version. The Homeworx system has been selected for video-only
use in the residential broadband networks of Ameritech Corporation, Southern New
England Telephone Corporation, Cox Cable Communications, Inc. and Cable Bahamas,
and the Company began shipping product to certain of these customers in 1994.
Versions allowing integrated video and telephony and telephony-only for
broadband networks are under development. The enhanced telephony version of the
Homeworx system is scheduled to commence test trials with a limited number of
customers in July 1995. Also, Optus Vision Pty. Ltd. in Australia has elected to
use
19
<PAGE>
the telephony capability of the integrated video and telephony Homeworx system
in its residential broadband network, and the Company currently plans to begin
shipping this product commercially in the first quarter of 1996. Additionally,
the system is being tested by several of the Company's public network provider
customers both in the United States and internationally. There is no assurance,
however, that the enhanced versions of Homeworx will be developed on a timely
basis or achieve market acceptance.
SONEPLEX SERVICE DELIVERY PRODUCT PLATFORM. The Company's Soneplex platform
is an integrated transmission system that enables public network providers to
deliver T1, T3 (44.6 million bits per second) and other high rate services from
their networks to customer premises over copper or fiber for business customers.
The Soneplex platform enables end user customers to transmit voice, data and
video traffic across their private network and to access various switched and
dedicated services provided by public networks. The Company's Soneplex family of
platforms and modules employ electrical to optical conversion for transport of
voice, data and video over fiber facilities and High bit rate Digital Subscriber
Line ("HDSL") transmission technology for transport of high bandwidth services
over copper-based systems. Soneplex products also integrate circuit performance
monitoring and test access capabilities to help public network carriers provide
reliable service at a low operational cost. The Company has under development
new modules and capabilities for the Soneplex platform, including Synchronous
Optical Network ("SONET") internetworking. There is no assurance that the SONET
version of Soneplex will be developed on a timely basis or achieve market
acceptance.
CITYWIDE PRODUCTS. The Company's CityWide family of wireless systems
products includes the CityCell radio frequency and wideband digital microcells
for adding and extending cellular communication coverage, primarily in large
urban areas. CityCell has been commercially deployed by six RBOC cellular
network providers. The Company's CityRad air-to-air re-radiator with traffic
level monitoring is designed to extend wireless coverage without adding
microcells.
TEST AND MONITORING SYSTEMS. The Company manufactures a variety of remote
digital test and performance monitoring products for copper-based and
fiber-based systems.
DIGITAL REPEATERS. The Company's copper-based digital repeaters are used
primarily in central office applications to regenerate digital signals that have
degraded because of transmission over long distances.
ATM SWITCH. The Company has entered into a marketing arrangement with an
OEM under which the Company has the exclusive right to market an ATM switching
system that supports advanced high speed data and video applications, primarily
in public networks. The Company has installed customer test sites for this ATM
switching system. However, there is no assurance that the ATM switching system
will be developed on a timely basis or achieve market acceptance.
ENTERPRISE NETWORKING
ADC's enterprise networking products provide interconnection and
transmission of voice, data and video signals within a private network and also
provide access to the public network. These products are designed for use in
copper-based and fiber optic networks. Certain of the Company's enterprise
networking products are described below.
PUBLIC NETWORK ACCESS EQUIPMENT. The Company manufactures a family of
Channel Service Unit ("CSU") and Data Service Unit ("DSU") products that are
used to interconnect digitally the public network and the private network. This
equipment monitors circuits and provides system protection and other network
management functions. Certain of these products also enable the customer to test
the performance of its voice network and allow connection of voice, data and
video circuits. These products support T1 and T3 services and a variety of data
protocols, including Frame Relay, Switched Multi-megabit Data Service ("SMDS")
and ATM. The Company recently began shipping its AAC-1 ATM access concentrator
that transports T1 voice, data and video signals. The Company is currently
developing the AAC-3 ATM access concentrator (for T3 signal speeds). The AAC-3
is expected to enter customer field trials and be commercially released late in
calendar 1995. There is no assurance that the AAC-3 will be developed on a
timely basis or achieve market acceptance. The Company has jointly announced
interoperability of its ATM access equipment with ATM equipment suppliers such
as Fore Systems Inc. and Cascade Communications Corp. and with long distance
carriers such as Wiltel, Inc.
20
<PAGE>
INTERNETWORKING PRODUCTS. Internetworking products include fiber optic
backbones used to transport high speed multiple voice, data and video signals
simultaneously over private networks and link LANs, mainframes, minicomputers,
personal computers, telephone systems and video equipment with diverse protocols
within private networks or over the public network; intelligent wiring hub
products that interconnect workstations, personal computers and terminals,
utilizing many different LAN protocols and types of cables; and network
management systems.
PATCH/SWITCH SYSTEM AND PATCHMATE MODULE. The Company's Patch/Switch system
is a data network management product that provides access to and monitors, tests
and reconfigures digital data circuits and permits local or remote switching to
alternate circuits or backup equipment. This system is modular, permitting the
user to select and combine the particular functions desired in a system. The
PatchMate Module is a manually operated electromechanical device used to gain
access to the network in order to monitor, test and reconfigure digital data
circuits.
Recognizing changes in the competitive environment for LAN equipment, the
Company has realigned its Kentrox and Fibermux subsidiaries into one business
unit to better address the industry trend toward integration of LAN and WAN
technologies and products. This group combines LAN and WAN expertise in order to
develop, manufacture and distribute advanced network access and transport
products for use in current and future broadband enterprise networks. The
Company recorded a one-time charge of $3.9 million related to a personnel
reduction at the Fibermux facility and other expenses resulting from the
realignment. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Results of Operations and Note 9 of Notes to
Consolidated Financial Statements."
BROADBAND CONNECTIVITY
ADC's broadband connectivity products provide the physical contact points
for connecting different telecommunications system components and gaining access
to telecommunications system circuits for the purpose of installing, testing,
monitoring or reconfiguring such circuits. These products are sold to the RBOCs,
other telephone companies, long distance carriers, other public network
providers, private network providers and telecommunications OEMs. A majority of
the Company's broadband connectivity products are designed for use in
copper-based transmission networks, with the remainder designed for use in coax,
fiber optic or wireless transmission networks. Broadband connectivity products
include various network access/connection devices for copper networks, various
network access/connection devices for fiber optic networks, modular fiber optic
cable routing systems and outside plant cabinets and enclosures. Certain of the
Company's broadband connectivity products are described below.
JACKS, PLUGS AND PATCH CORDS. Jacks and plugs are the basic components used
to gain access to copper telecommunications circuits for testing and
maintenance. Patch cords are wires or cables with a plug on each end. ADC
incorporates its jacks, plugs and patch cords into its own products and also
sells them in component form, primarily to OEMs. These components are generally
manufactured to industry-recognized compatibility and reliability standards as
off-the-shelf items.
JACKFIELDS AND PATCH BAYS. A jackfield is a module containing an assembly
of jacks wired to terminal blocks or connectors and used by telecommunications
companies to gain access to copper communication circuits for testing or
patching the circuits. ADC manufactures jackfields in both longframe and bantam
formats, including prewired and connectorized models. When testing a large
number of circuits, series of jackfields are combined in specialized rack
assemblies, which often may include test modules. These are called patch bays.
ADC manufactures a range of jackfields and patch bays in various configurations.
DSX PRODUCTS. ADC manufactures digital signaling cross-connect (DSX)
modules and bays which are jackfields and patch bays designed to gain access to
and cross-connect digital copper circuits for both voice and data transmission.
Since the introduction of DSX products in 1977, the Company has continued to
expand and refine its DSX product offerings, and has become a leading
manufacturer of products for the mechanical termination and interconnection of
digital circuits used in voice and data transmission. During
21
<PAGE>
1994, ADC added DS-3 Digital Distribution Point ("DDP") products to its line of
DSX products. DDP products are mechanical alternatives to hard-wiring equipment
used for cable management and circuit access in software based digital
cross-connect systems.
TERMINAL BLOCK AND FRAME PRODUCTS. Terminal blocks are molded plastic
blocks with contact points used to facilitate multiple wire interconnections.
ADC manufactures a wide variety of terminal blocks. The Company's cross-connect
frames are terminal block assemblies used to connect the external wiring of a
telecommunications network to the internal wiring of a telephone operating
company central office or to interconnect various pieces of equipment within a
telephone company.
FIBER OPTIC PATCH CORDS. Fiber optic patch cords are functionally similar
to copper patch cords and are the basic components used to gain access to fiber
telecommunications circuits for testing, maintenance, cross-connection and
configuration purposes. The Company's LightTracer fiber optic patch cords
provide immediate identification of fiber optic connections. The Company
incorporates its fiber optic patch cords into its own products and also sells
them in component form, principally to OEMs.
FIBER DISTRIBUTION PANELS AND FRAMES. Fiber distribution panels and frames
are functionally similar to copper jackfields and frames with the added feature
of additional bend protection. They also provide interconnection points between
fiber optic cables entering a building and fiber optic cables connected to fiber
optic equipment within the building.
FIBERGUIDE SYSTEM. The FiberGuide system is a modular routing system which
provides a segregated, protected method of storing and routing fiber patch cords
and cables within buildings.
OUTSIDE PLANT PRODUCTS. Outside plant ("OSP") products consist of cabinets
and other enclosures configured to locate and integrate the functions of passive
fiber optic equipment and electronic transmission systems outside the telephone
central office/cable TV headend switching and transmission facilities. The
Company's OSP products provide flexible network management, remote transmission
capability and environmental protection for various telecommunications
topologies and architectures. OSP products designed for broadband residential
loop applications also provide power supply and coaxial splicing and tapping
functions.
In addition, the Company has under development new broadband network
measurement and monitoring solutions for the telecommunications and cable TV
industries. ADC has entered into a memorandum of understanding with Tektronix,
Inc. to jointly develop and manufacture broadband network systems for managing,
testing and monitoring physical layer integrity and signal transmission quality.
These systems are expected to be released in phases over the next two years, and
are to contain components from both ADC and Tektronix, Inc. and be sold and
serviced by ADC. There can be no assurance that these systems will be released
on a timely basis, or achieve market acceptance.
The Company also provides engineer, furnish and install ("EF&I") services,
consisting of layout and installation of new telecommunications networks,
modification of existing networks or the addition of equipment to existing
networks. The Company sells its EF&I services primarily to telephone operating
companies, other common carriers and users of private telecommunications
networks.
SALES AND MARKETING
ADC sells its products to customers in three primary markets: (i) the United
States public telecommunications network market, (ii) the private and
governmental voice, data and video network market in the United States, and
(iii) the international public and private network market. The public,
private/governmental and international market segments accounted for 57%, 28%
and 15%, respectively, of the Company's net sales for the year ended October 31,
1994, and 57%, 25%, and 18%, respectively, of the Company's net sales for the
six months ended April 30, 1995.
The Company's customers include: (i) public network providers, which consist
of all seven of the RBOCs, other telephone companies, long distance carriers,
wireless service providers, all of the major cable
22
<PAGE>
TV operators and other domestic public network providers; (ii) private and
governmental network providers, such as various large business customers and
governmental agencies; and (iii) international network operators. The Company
also sells product for each of these customer groups to the major
telecommunications OEMs.
Purchases of products by public network providers and the OEMs which supply
such companies have accounted for the largest portion of the Company's net sales
in recent periods. The Company's transmission and broadband connectivity
products for public network providers are primarily located in central
transmission facilities (such as telephone company network central offices,
cable TV company network supertrunks and headend offices, and wireless network
base stations, all of which contain the equipment used in switching and
transmitting incoming and outgoing circuits). Increasingly, portions of the
Company's public network transmission systems are located in the public network
outside plant facilities (outside the central transmission buildings) and on
customers' premises. The Company's private and governmental network customers
generally purchase the Company's enterprise-wide communications systems and
public network access equipment for location on their premise network.
The Company also markets its products outside the United States primarily to
telephone operating companies and cable TV companies for public
telecommunications networks located in Canada, Europe, the Pacific Rim,
Australia and Central and South America.
A majority of the Company's sales are made by a direct sales force, and the
Company maintains sales offices throughout the United States and also maintains
offices in Canada, Europe, the Pacific Rim, Australia and Central and South
America. The Company's products are sold in the United States by approximately
119 field sales representatives located in 26 sales offices throughout the
country, and by several dealer organizations and distributors. The Company sells
its products to foreign customers through 23 employee field salespersons, eight
foreign independent sales representatives and 77 foreign distributors, as well
as through United States public and private network providers who also
distribute outside the United States.
The Company also has a customer service group that supports field sales
personnel and is responsible for application engineering, customer training,
entering orders and supplying delivery status information, and a field service
engineering group that provides on-site service to customers.
RESEARCH AND DEVELOPMENT
The Company believes that its future success depends on its ability to adapt
to the rapidly changing telecommunications environment, to maintain its
significant expertise in core technologies and to continue to meet and
anticipate its customers' needs. The Company continually reviews and evaluates
technological changes affecting the telecommunications market and invests
substantially in applications-based research and development. The Company is
committed to an ongoing program of new product development that combines
internal development efforts with acquisitions, joint ventures and licensing or
marketing arrangements relating to new products and technologies from sources
outside the Company.
In recent periods, increasingly significant portions of new
telecommunications equipment purchased by public network providers and private
network customers have utilized fiber optic transmission technology and have
employed digital technology. In the future, these telecommunications network
equipment purchasing trends will include increasingly sophisticated, software
intensive, switching and network management systems. In addition, there has been
significantly increased demand for wireless communications services and higher
speed transmission technologies. As a result, the Company's internal and
external product development activities are directed at the integration of fiber
optic technology into additional products, the continuing development of its
Homeworx system for telephony and integrated video and telephony applications,
the development of network systems software, the continuing development of
wireless microcell products, the incorporation of ATM technology into voice,
data and video products for both public and private telecommunications networks
and the addition of video compression technology to its product line. The
Company is also developing copper and fiber optic products for applications in
the local loop.
23
<PAGE>
New product development often requires long-term forecasting of market
trends, development and implementation of new processes and technologies and a
substantial capital commitment. As a result of these and other factors,
development and customer acceptance of new products is inherently uncertain, and
there can be no assurance that such products will be developed on a timely basis
or achieve market acceptance.
COMPETITION
Competition in the telecommunications equipment industry is intense, and the
Company believes that competition may increase substantially with the deployment
of broadband networks and potential regulatory changes. Many of the Company's
foreign and domestic competitors have more extensive engineering, manufacturing,
marketing, financial and personnel resources than those of the Company. The
Company's transmission products are competitive with products offered by several
other companies, including AT&T Technologies, Inc., Northern Telecom, Inc. and
Motorola, Inc. The Company's enterprise networking products compete with the
products of a number of other companies, two of which (Bay Networks, Inc. and
Cabletron Systems Inc.) are dominant in its intelligent wiring hub markets, and
face both strong price competition and pressure from alternative distribution
strategies utilized by these other companies. The Company's broadband
connectivity products are competitive with the products offered by numerous
other companies, including AT&T Technologies, Inc. and Switchcraft, Inc., a
subsidiary of Raytheon Company. In addition, the Company faces increasing
competition from a number of other smaller competitors, none of which is
dominant at this time.
The rapid technological developments within the telecommunications industry
have resulted in frequent changes to the Company's group of competitors. The
Company believes its success in competing with other manufacturers of
telecommunications products depends primarily on its engineering, manufacturing
and marketing skills, the price, quality and reliability of its products and its
delivery and service capabilities. While the market for the Company's products
has not historically been characterized by significant price competition, the
Company may face increasing pricing pressures from current and future
competitors in certain or all of the markets for its products.
The Company believes that technological change, the increasing addition of
data, video and other services to networks, continuing regulatory change and
industry consolidation or new entrants will continue to cause rapid evolution in
the competitive environment of the telecommunications equipment market, the full
scope and nature of which is difficult to predict at this time. Increased
competition could result in price reductions, reduced margins and loss of market
share by the Company. The Company believes industry regulatory change may create
new opportunities for suppliers of telecommunications equipment. The Company
expects, however, that such opportunities may attract increased competition from
others as well. In addition, the Company expects that AT&T Technologies, Inc.
will continue to be a major supplier to the RBOCs, and is competing more
extensively outside the RBOC market. The Company also believes that the rapid
technological changes which characterize the telecommunications industry will
continue to make the markets in which the Company competes attractive to new
entrants. There can be no assurance that the Company will be able to compete
successfully with its existing or new competitors or that competitive pressures
faced by the Company will not materially and adversely affect its business,
operating results and financial condition.
MANUFACTURING AND FACILITIES
The Company manufactures a wide variety of products which are fabricated,
assembled and tested in its own facilities or in subcontracted facilities. To
seek to reduce costs, the Company also takes advantage of off-shore assembly and
sourcing. The manufacturing process for the Company's electronic products
consists primarily of assembly and testing of electronic systems built from
fabricated parts, printed circuit boards and electronic components. The
manufacturing process for the Company's electromechanical products consists
primarily of fabrication of jacks, plugs, and other basic components from raw
materials, assembly of components and testing. The Company's sheet metal,
plastic molding, stamping and machining capabilities permit the Company to
configure components to customer specifications.
24
<PAGE>
The Company's corporate headquarters are currently located in two leased
buildings in Minnetonka, Minnesota. The Company also leases facilities in
Minnetonka for its Minnesota fiber optic operations and its engineering, product
management, manufacturing and manufacturing support operations for its
transmission products. The Company owns two buildings in Bloomington, Minnesota,
which house manufacturing and manufacturing support operations.
The Company owns two facilities in Le Sueur, Minnesota, which are used for
electromechanical assembly and warehouse space. The Company leases additional
warehouse space on a short-term basis from time to time to meet its needs. The
Company owns another facility in Bloomington, Minnesota, which is leased to an
unaffiliated company. In addition, the Company owns approximately 38 acres of
undeveloped land in Eden Prairie, Minnesota.
The Company leases space in Richardson, Texas for an engineering development
center and leases sales office facilities in the United States, Canada, Mexico,
Venezuela, the United Kingdom, Germany, Belgium, Australia and Singapore. The
Company owns a facility in Portland, Oregon, which serves as the office and
manufacturing facility for certain of its enterprise networking products and
leases space in Waseca, Minnesota, which serves as a research and development
center. The Company leases space in Meriden, Connecticut as the office and
manufacturing facility for certain of its transmission products. The Company
also leases space in Chatsworth, California for certain of its enterprise
networking operations.
Leases for the Company's headquarters, sales offices and manufacturing
facilities expire at different times through 2000 and are generally renewable on
a fixed term or month-to-month basis.
EMPLOYEES
As of April 30, 1995, there were 2,725 persons employed by the Company. The
Company considers relations with its employees to be good.
25
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK
This is a general discussion of certain U.S. federal income and estate tax
consequences of the ownership and disposition of Common Stock by a non-U.S.
holder. This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code") and administrative and judicial interpretations as of the
date hereof, all of which may be retroactively changed. This discussion does not
address all the aspects of U.S. federal income and estate taxation that may be
relevant to non-U.S. holders in light of their particular circumstances. Nor
does it address tax consequences under the laws of any U.S. state, municipality
or other taxing jurisdiction or under the laws of any country other than the
United States. Prospective non-U.S. holders should consult their own tax
advisors about the particular tax consequences to them of holding and disposing
of Common Stock.
A "non-U.S. holder" is a person or entity that, for U.S federal income tax
purposes, is a non-resident alien individual, a foreign corporation (one
organized outside the United States), a foreign partnership or a foreign state
or trust. A non-U.S. citizen individual may be deemed to be a resident alien of
the United States by reason of (a) becoming a lawful permanent resident, (b) in
certain circumstances an election where the individual is present at least 31
days in the relevant tax year or (c) by being present in the United States on at
least 31 days in the calendar year and for an aggregate of 183 days taking into
account certain days during the three-year period ending with the current
calendar year. For purposes of this determination, all of the days the
individual is present in the United States during the current year, one-third of
the days the individual is present during the immediately preceding year, and
one-sixth of the days the individual is present during the second preceding year
are taken into account. Resident aliens are subject to U.S. federal tax as if
they were U.S. citizens.
DIVIDENDS
In the event that dividends are paid to a non-U.S. holder of Common Stock,
such dividends will be subject to federal withholding tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. Under current
U.S. Treasury regulations, dividends paid to an address outside the United
States in a foreign country are presumed to be paid to a resident of such
country for purposes of the withholding tax. Under the current interpretation of
U.S. Treasury regulations, the same presumption applies to determine the
applicability of a reduced rate of withholding under a U.S. tax treaty. Thus,
non-U.S. holders receiving dividends at addresses outside the United States are
not yet required to file tax forms to obtain the benefit of an applicable treaty
rate. If there is excess withholding on a person eligible for a treaty benefit,
the person can file for a refund with the U.S. Internal Revenue Service.
Under U.S. Treasury regulations which were proposed in 1984 and which have
not yet been put into effect, to claim the benefits of a tax treaty a non-U.S.
holder of Common Stock would have to file certain forms accompanied by
statements from a competent authority of the treaty country attesting to the
holder's eligibility to claim treaty benefits.
Generally, upon the filing of a Form 4224 with the Company, there is no
withholding tax on dividends that are effectively connected with the non-U.S.
holder's conduct of a trade or business within the United States. Instead, the
effectively connected dividends are subject to tax at rates applicable to U.S.
persons. Effectively connected dividends received by a foreign corporation may
be subject to an additional "branch profits tax" at a 30% rate (or a lower rate
under an applicable income tax treaty) when such dividends are deemed
repatriated from the United States.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of Common Stock unless (i) the
gain is effectively connected with a trade or business of the non-U.S. holder in
the United States, (ii) in the case of a non-U.S. holder who is an individual
and holds the Common Stock as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year of the disposition, (iii)
in the case of a non-resident individual who is a partner in a foreign
partnership holding the Common Stock, such non-resident individual is present in
the United States for
26
<PAGE>
183 or more days in the taxable year of the disposition or the gain is
effectively connected with a trade or business conducted by such partnership in
the United States, (iv) the non-U.S. holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain United States expatriates, or
(v) the Company is or has been a "U.S. real property holding corporation" for
federal income tax purposes. The Company has not been and does not anticipate
becoming a "U.S. real property holding corporation" for U.S. federal income tax
purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, the Company must report to the Internal Revenue Service the
amount of dividends paid, the name and address of the recipient and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or other agreements, the Internal Revenue Service may make its reports
available to tax authorities in the recipients's country of residence. No
further information reporting and no backup withholding is required. Dividends
not subject to withholding tax may be subject to backup withholding if the
non-U.S. holder is not an "exempt recipient" and fails to provide its tax
identification number and other information to the Company.
If the proceeds of a disposition of Common Stock are paid over by or through
a U.S. office of a broker, the payment is subject to information reporting and
possible backup withholding at a 31% rate unless the disposing holder certifies
as to his name, address and non-United States status or otherwise establishes an
exemption. Generally, United States information reporting and backup withholding
currently will not apply to a payment of disposition proceeds if the payment is
made outside the United States through a non-U.S. office of a non-U.S. broker
and the payor does not have actual knowledge that the payee is a U.S. citizen,
resident, or a domestic partnership, corporation, estate or trust.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
FEDERAL ESTATE TAXES
Common Stock held at death by an individual who is neither a citizen nor
domiciled in the United States for federal estate tax purposes will be subject
to federal estate tax, unless an applicable estate tax treaty provides
otherwise. Domicile is acquired by living in the United States with no definite
present intention of leaving. An estate of an individual who is neither a
citizen nor domiciled in the United States is generally allowed a statutory
credit which is the equivalent of an exclusion of $60,000 of assets from the
U.S. estate tax. Tax treaties may permit a larger credit.
27
<PAGE>
UNDERWRITING
Under the terms of, and subject to the conditions contained in, the U.S.
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement (the "Registration Statement") of which this Prospectus
forms a part, the Underwriters named below (the "U.S. Underwriters"), for whom
Lehman Brothers Inc. and Goldman, Sachs & Co. are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company, and the
Company has agreed to sell to each U.S. Underwriter, the aggregate number of
shares of Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc..............................................................
Goldman, Sachs & Co..............................................................
----------
Total........................................................................ 4,400,000
----------
----------
</TABLE>
Under the terms of, and subject to the conditions contained in, the
International Underwriting Agreement, the form of which is filed as an exhibit
to the Registration Statement, the managers named below of the concurrent
offering of the Common Stock outside the United States (the "International
Managers" and together with the U.S. Underwriters, the "Underwriters") have
severally agreed to purchase from the Company, and the Company has agreed to
sell to each International Manager, the aggregate number of shares of Common
Stock set forth opposite the name of each such International Manager below:
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers International (Europe)...........................................
Goldman Sachs International......................................................
----------
Total........................................................................ 1,100,000
----------
----------
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting Agreement
(collectively, the "Underwriting Agreements") provide that the obligations of
the U.S. Underwriters and the International Managers to purchase shares of
Common Stock are subject to certain conditions, and that if any of the foregoing
shares of Common Stock are purchased by the U.S. Underwriters pursuant to the
U.S. Underwriting Agreement or by the International Managers pursuant to the
International Underwriting Agreement, all the shares of Common Stock agreed to
be purchased by either the U.S. Underwriters or the International Managers, as
the case may be, pursuant to their respective Underwriting Agreements must be so
purchased. The offering price and underwriting discounts and commissions for the
U.S. Offering and the International Offering are identical. The closing of the
U.S. Offering is a condition to the closing of the International Offering, and
the closing of the International Offering is a condition to the closing of the
U.S. Offering.
The Company has been advised that the U.S. Underwriters and the
International Managers propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain selected dealers (who may include the U.S.
Underwriters and the International Managers) at such public offering price less
a concession not in excess of $ per share. The U.S. Underwriters and the
International Managers may allow and the selected dealers may reallow a
concession not in excess of $ per share to certain other brokers and
dealers. After commencement of the public offering, the public offering price,
the concession to selected dealers and the reallowance to other dealers may be
changed by the U.S. Underwriters or the International Managers.
The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an aggregate of 660,000 and 165,000
additional shares of Common Stock, respectively, exercisable solely to cover
over-allotments, at the offering price to the public less the underwriting
discounts and commissions, shown on the cover page of this Prospectus. Either or
both of such options may be exercised at any time until 30 days after the date
of the U.S. Underwriting Agreement and the International Underwriting Agreement,
respectively. To the extent that either option is exercised, each U.S.
Underwriter
28
<PAGE>
or International Manager, as the case may be, will be committed, subject to
certain conditions, to purchase a number of the additional shares of Common
Stock proportionate to such U.S. Underwriter's or International Manager's
initial commitment as indicated in the preceding tables.
The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including liabilities under
the Securities Act, and to contribute to payments the U.S. Underwriters and the
International Managers may be required to make in respect thereof.
The Company has agreed that without the written consent of the
Representatives and, it will not offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities, convertible or
exchangeable therefor, for a period of 90 days from the date of this Prospectus,
subject to limited exceptions.
The Company's directors and executive officers, who collectively held as of
December 31, 1994 an aggregate of 753,620 shares of Common Stock (including
shares issuable upon exercise of options), have agreed that without the consent
of the Representatives they will not offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable therefor for a period of 90 days from the date of this Prospectus.
The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers pursuant to which
each U.S. Underwriter has agreed that, as part of the distribution of the shares
of Common Stock offered in the U.S. Offering, (i) it is not purchasing any such
shares for the account of anyone other than a U.S. Person (as defined below) and
(ii) it has not offered or sold and will not offer, sell, resell or deliver,
directly or indirectly, any of such shares or distribute any prospectus relating
to the U.S. Offering to anyone other than a U.S. Person. In addition, pursuant
to such agreement each International Manager has agreed that, as part of the
distribution of the shares of Common Stock offered in the International
Offering, (i) it is not purchasing any such shares for the account of a U.S.
Person and (ii) it has not offered or sold, and will not offer, sell, resell or
deliver, directly or indirectly, any of such shares or distribute any prospectus
relating to the International Offering to any U.S. Person. Each International
Manager has also agreed that it will offer to sell shares only in compliance
with all relevant requirements of any applicable laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Underwriting Agreements and the
Agreement Between U.S. Underwriters and International Managers, including (i)
certain purchases and sales between the U.S. Underwriters and the International
Managers, (ii) certain offers, sales, resales, deliveries or distributions to or
through investment advisors or other persons exercising investment discretion,
(iii) purchases, offers or sales by a U.S. Underwriter who is also acting as an
International Manager or by an International Manager who is also acting as a
U.S. Underwriter and (iv) other transactions specifically approved by the
Representatives and the International Managers. As used herein, (a) the term
"United States" means the United States of America (including the District of
Columbia) and its territories, its possessions and other areas subject to its
jurisdiction, and (b) the term "U.S. Person" means any resident or national of
the United States, any corporation, partnership or other entity created or
organized in or under the laws of the United States or any estate or trust the
income of which is subject to United States income taxation regardless of the
source of its income (other than the foreign branch of any U.S. Person), and
includes any United States branch of a Person other than a U.S. Person.
Certain of the Underwriters and selling group members (if any) that
currently act as market makers for the Common Stock may engage in "passive
market making" in the Common Stock on the Nasdaq in accordance with Rule 10b-6A
under the Exchange Act. Rule 10b-6A permits, upon the satisfaction of certain
conditions, underwriters and selling group members participating in a
distribution that are also Nasdaq market makers in the security being
distributed to engage in limited market making transactions during the period
when Rule 10b-6 under the Exchange Act would otherwise prohibit such activity.
Rule 10b-6A prohibits underwriters and selling group members engaged in passive
market making generally from entering a bid or effecting a purchase at a price
that exceeds the highest bid for those securities displayed on the Nasdaq by a
market marker that is not participating in the distribution. Under Rule 10b-6A,
each underwriter or selling group member engaged in passive market making is
subject to a daily net purchase
29
<PAGE>
limitation equal to 30% of such entity's average daily trading volume during the
two full consecutive calendar months immediately preceding the date of the
filing of the registration statement under the Securities Act pertaining to the
security to be distributed.
From time to time, certain of the Underwriters or their affiliates have
provided, and may continue to provide, investment banking services to the
Company.
VALIDITY OF SHARES
The validity of the Common Stock offered hereby will be passed upon for the
Company by Dorsey & Whitney P.L.L.P., Minneapolis, Minnesota. Certain legal
matters will passed upon for the Underwriters by Gray Cary Ware & Freidenrich, A
Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated balance sheets of the Company as of October 31, 1993 and
1994, and the consolidated statements of income, stockholders' investment and
cash flows for each of the three years in the period ended October 31, 1994,
together with the related financial statement schedules thereto, contained in or
incorporated by reference in this Prospectus and in the Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
30
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Income.......................................... F-4
Consolidated Statements of Stockholders' Investment........................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ADC Telecommunications, Inc.:
We have audited the accompanying consolidated balance sheets of ADC
TELECOMMUNICATIONS, INC. AND SUBSIDIARIES as of October 31, 1994 and 1993, and
the related consolidated statements of income, stockholders' investment and cash
flows for each of the three years in the period ended October 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, the financial statements referred to above present fairly,
in all material respects, the financial position of ADC Telecommunications, Inc.
and Subsidiaries as of October 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
December 16, 1994
F-2
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
------------------
1993 1994
-------- -------- APRIL 30,
1995
-----------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents....................... $ 16,324 $ 49,512 $ 37,135
Accounts receivable, net of reserves of $2,541,
$2,494 and $3,203.............................. 66,830 75,348 82,564
Inventories, net of reserves of $5,048, $5,668
and $7,322..................................... 48,278 64,203 83,333
Prepaid income taxes and other.................. 11,099 10,305 10,743
-------- -------- -----------
Total current assets.......................... 142,531 199,368 213,775
-------- -------- -----------
Property and Equipment:
Land and buildings.............................. 30,794 31,620 32,412
Machinery and equipment......................... 100,117 114,337 125,373
Furniture and fixtures.......................... 15,617 16,232 17,657
Accumulated depreciation and amortization....... (83,652) (96,057) (104,176)
-------- -------- -----------
Total property and equipment.................. 62,876 66,132 71,266
-------- -------- -----------
Other Assets, principally goodwill................ 74,647 69,184 68,256
-------- -------- -----------
$280,054 $334,684 $353,297
-------- -------- -----------
-------- -------- -----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current maturities of long-term debt............ $ 300 $ 400 $ 410
Accounts payable................................ 21,194 22,132 22,706
Accrued compensation and benefits............... 20,490 30,916 25,613
Accrued income taxes............................ 2,368 5,804 4,137
Other accrued liabilities....................... 10,549 8,101 11,520
-------- -------- -----------
Total current liabilities..................... 54,901 67,353 64,386
Deferred Income Taxes............................. 3,949 2,163 1,974
Long-Term Debt, less current maturities above..... 810 410 --
-------- -------- -----------
Total liabilities............................. 59,660 69,926 66,360
-------- -------- -----------
Stockholders' Investment:
Common stock (27,697, 27,888 and 56,146 shares
issued and outstanding)........................ 5,539 5,577 11,229
Paid-in capital................................. 29,465 34,851 31,703
Retained earnings............................... 186,405 225,476 246,331
Deferred compensation........................... (1,015) (1,146) (875)
Cumulative translation adjustment............... -- -- (1,451)
-------- -------- -----------
Total stockholders' investment................ 220,394 264,758 286,937
-------- -------- -----------
$280,054 $334,684 $353,297
-------- -------- -----------
-------- -------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED OCTOBER 31, ENDED APRIL 30,
---------------------------------- ----------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES......................................... $ 316,496 $ 366,118 $ 448,735 $ 204,749 $ 262,116
COST OF PRODUCT SOLD.............................. 155,074 178,572 221,448 101,407 133,705
---------- ---------- ---------- ---------- ----------
GROSS PROFIT...................................... 161,422 187,546 227,287 103,342 128,411
---------- ---------- ---------- ---------- ----------
Gross profit percentage....................... 51.0% 51.2% 50.7% 50.5% 49.0%
---------- ---------- ---------- ---------- ----------
EXPENSES:
Development and product engineering............. 36,063 40,988 48,974 23,250 29,146
Selling and administration...................... 82,966 93,311 110,799 51,767 62,401
Goodwill amortization........................... 2,720 2,798 3,135 1,567 1,566
Personnel reduction............................. 3,800 -- -- -- 3,914
---------- ---------- ---------- ---------- ----------
Total expenses................................ 125,549 137,097 162,908 76,584 97,027
---------- ---------- ---------- ---------- ----------
OPERATING INCOME.................................. 35,873 50,449 64,379 26,758 31,384
---------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE), NET:
Interest...................................... (942) 183 1,158 297 1,203
Other......................................... (205) (895) (1,216) (421) --
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM............................................. 34,726 49,737 64,321 26,634 32,587
PROVISION FOR INCOME TAXES........................ 13,700 18,101 23,800 9,854 11,732
---------- ---------- ---------- ---------- ----------
NET INCOME BEFORE EXTRAORDINARY ITEM.............. 21,026 31,636 40,521 16,780 20,855
EXTRAORDINARY ITEM, NET OF TAXES.................. -- -- (1,450) (1,450) --
---------- ---------- ---------- ---------- ----------
NET INCOME........................................ $ 21,026 $ 31,636 $ 39,071 $ 15,330 $ 20,855
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
AVERAGE COMMON SHARES OUTSTANDING................. 54,176 54,998 55,610 55,520 55,974
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
EARNINGS PER SHARE BEFORE EXTRAORDINARY ITEM...... $ 0.39 $ 0.58 $ 0.73 $ 0.30 $ 0.37
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
EARNINGS PER SHARE................................ $ 0.39 $ 0.58 $ 0.70 $ 0.27 $ 0.37
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
-------------------- PAID-IN RETAINED DEFERRED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION ADJUSTMENT
--------- --------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE OCTOBER 31, 1991.......................... 13,429 $ 2,686 $ 22,285 $ 133,743 $ (340) $ --
Stock issued for employee benefit plans........... 181 36 3,460 -- (1,484) --
Reduction of deferred compensation................ -- -- -- -- 776 --
Net income........................................ -- -- -- 21,026 -- --
--------- --------- --------- ---------- ------------- -----------
BALANCE OCTOBER 31, 1992.......................... 13,610 2,722 25,745 154,769 (1,048) --
Stock split effected in the form of a stock
dividend......................................... 13,778 2,756 (2,756) -- -- --
Stock issued for employee benefit plans........... 309 61 6,476 -- (781) --
Reduction of deferred compensation................ -- -- -- -- 814 --
Net income........................................ -- -- -- 31,636 -- --
--------- --------- --------- ---------- ------------- -----------
BALANCE OCTOBER 31, 1993.......................... 27,697 5,539 29,465 186,405 (1,015) --
Stock issued for employee benefit plans........... 191 38 5,386 -- (1,262) --
Reduction of deferred compensation................ -- -- -- -- 1,131 --
Net income........................................ -- -- -- 39,071 -- --
--------- --------- --------- ---------- ------------- -----------
BALANCE OCTOBER 31, 1994.......................... 27,888 5,577 34,851 225,476 (1,146) --
Stock split effected in the form of a stock
dividend*........................................ 28,044 5,609 (5,609) -- -- --
Stock issued for employee benefit plans*.......... 214 43 2,461 -- -- --
Reduction of deferred compensation*............... -- -- -- -- 271 --
Translation adjustment*........................... -- -- -- -- -- (1,451)
Net income*....................................... -- -- -- 20,855 -- --
--------- --------- --------- ---------- ------------- -----------
BALANCE APRIL 30, 1995*........................... 56,146 $ 11,229 $ 31,703 $ 246,331 $ (875) $ (1,451)
--------- --------- --------- ---------- ------------- -----------
--------- --------- --------- ---------- ------------- -----------
<FN>
- ------------------------
*Unaudited
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED APRIL
OCTOBER 31, 30,
---------------------------------- ----------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 21,026 $ 31,636 $ 39,071 $ 15,330 $ 20,855
Adjustments to reconcile net income to net cash from
operating activities--
Depreciation and amortization.............................. 19,878 20,587 23,366 11,213 11,567
Reduction in deferred compensation......................... 776 814 1,131 543 271
Decrease in deferred income taxes.......................... (243) (444) (1,786) (1,332) (189)
Other...................................................... -- 115
Changes in assets and liabilities..........................
Accounts receivable...................................... (6,041) (19,416) (8,518) (2,718) (6,516)
Inventories.............................................. 1,364 (9,215) (15,925) (7,734) (18,142)
Prepaid income taxes and other assets.................... (921) (3,586) 1,010 814 (283)
Accounts payable......................................... 560 2,967 8,438 514 482
Accrued liabilities...................................... (1,644) 6,105 11,414 5,562 (4,855)
---------- ---------- ---------- ---------- ----------
Total cash from operating activities................... 34,755 29,448 58,201 22,192 3,305
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Property and equipment additions, net...................... (15,780) (21,243) (21,788) (10,261) (12,108)
Acquisition payments....................................... -- (2,199) (7,087) (7,087) (4,676)
Investment in technology................................... -- (763) -- -- --
Long-term investments...................................... -- (1,835) -- -- (1,000)
---------- ---------- ---------- ---------- ----------
Total cash used for investment activities.............. (15,780) (26,040) (28,875) (17,348) (17,784)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in long-term debt................................. (30,612) (13,324) (300) (300) (400)
Common stock issued........................................ 2,012 5,756 4,162 896 2,504
---------- ---------- ---------- ---------- ----------
Total cash from (used for) financing activities........ (28,600) (7,568) 3,862 596 2,104
---------- ---------- ---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH...................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (9,625) (4,160) 33,188 5,440 (12,377)
CASH AND CASH EQUIVALENTS, beginning of period............... 30,109 20,484 16,324 16,324 49,512
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period..................... $ 20,484 $ 16,324 $ 49,512 $ 21,764 $ 37,135
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES:
Interest paid.............................................. $ 2,271 $ 308 $ 574 $ 80 $ 69
Income taxes paid.......................................... $ 13,361 $ 18,206 $ 21,802 $ 6,752 $ 13,560
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS AND OPERATIONS--The consolidated financial statements include the
accounts of ADC Telecommunications, Inc. (a Minnesota corporation) and its
wholly-owned subsidiaries, referred to collectively herein as the Company. All
significant intercompany transactions and balances have been eliminated in
consolidation.
The Company designs, manufactures and markets a broad range of transmission,
and networking systems, and physical connectivity products for broadband
telecommunications networks utilizing copper, coax, fiber optic and wireless
transmission methods. Revenue is recognized at the time of shipment. Export
sales were $49,347,000, $58,919,000, and $67,113,000 for the years ended October
31, 1992, 1993 and 1994, and $29,500,000 and $46,627,000 for the six months
ended April 30, 1994 and 1995, respectively.
CASH EQUIVALENTS--Cash equivalents primarily represent short-term
investments in commercial paper with maturities of three months or less. These
investments are reflected in the accompanying consolidated balance sheets at
cost, which approximates market.
INVENTORIES--Inventories include material, labor and overhead and are stated
at the lower of first-in, first-out cost or market. Inventories consisted of:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------- APRIL 30,
1993 1994 1995
--------- --------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Purchased materials and manufactured products........................ $ 42,889 $ 57,031 $ 75,471
Work-in-process...................................................... 5,389 7,172 7,862
--------- --------- -----------
$ 48,278 $ 64,203 $ 83,333
--------- --------- -----------
--------- --------- -----------
</TABLE>
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Additions and improvements to property and equipment are capitalized at cost
while maintenance and repair expenditures are charged to operations as incurred.
Depreciation charges are computed using the straight-line method for
financial reporting purposes and both straight-line and accelerated methods for
income tax purposes. For financial reporting purposes, depreciation is provided
over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................................. 5-30
Machinery and equipment................................................................ 3-10
Furniture and fixtures................................................................. 3-10
</TABLE>
GOODWILL AND OTHER INTANGIBLES--The excess of the cost over the net assets
of acquired businesses (goodwill of $77,000,000 at October 31, 1993 and 1994 and
at April 30, 1995) is being amortized on a straight-line basis over 25 years.
Related accumulated amortization was $8,653,000, $11,788,000, and $13,355,000 at
October 31, 1993 and 1994 and April 30, 1995, respectively. Other intangibles
are being amortized on a straight-line basis over five years.
FOREIGN CURRENCY TRANSLATION--The functional currency for the majority of
the Company's foreign operations is the applicable local currency. The
translation to U.S. dollars is performed for balance sheet accounts using
exchange rates in effect at the balance sheet date and for revenue and expense
accounts using a weighted average exchange rate during the period. The gains or
losses resulting from such translation are included in stockholders' investment.
Prior to 1995, the Company's primary functional currency was the U.S. dollar.
The functional currency changed as a result of substantial changes in the
Company's foreign operations.
F-7
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS--The Company's policy is to expense all
research and development costs in the period incurred.
WARRANTY COSTS--The Company warrants most of its products against defects in
materials and workmanship under normal use and service for periods extending to
fifteen years. Historically, warranty costs have been insignificant. The Company
maintains reserves for warranty costs based on this experience.
EARNINGS PER SHARE--Earnings per share is computed using the weighted
average number of common shares outstanding during the year, after consideration
of the dilutive effect of stock options and restricted stock awards.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform to the current year financial statement presentation. These
reclassifications had no impact on previously reported results of operations or
stockholders' investment.
NEW ACCOUNTING PRONOUNCEMENTS--A new accounting standard, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
requires impairment losses on long-lived assets to be recognized when an asset's
book value exceeds its expected future cash flows (undiscounted). The Company
anticipates adopting this standard on November 1, 1996 and does not expect that
adoption will have a material impact on the financial position or results of
operations of the Company.
INTERIM RESULTS (UNAUDITED)--The accompanying consolidated balance sheet at
April 30, 1995 and the consolidated statements of income and cash flows for the
six months ended April 30, 1994 and 1995, and the consolidated statement of
stockholders' investment for the six months ended April 30, 1995 are unaudited.
In the opinion of the Company's management, the unaudited interim consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments, consisting of
only normal recurring adjustments, necessary to fairly state the information set
forth therein. The results of operations for the six months ended April 30, 1995
are not necessarily indicative of the results to be expected for the fiscal year
ending October 31, 1995. The information disclosed in these notes to
consolidated financial statements related to these periods is unaudited.
(2) EXTRAORDINARY ITEM:
The building that serves as headquarters for Fibermux Corporation
(Fibermux), a wholly-owned subsidiary of the Company, suffered damage as a
result of the earthquake that struck Los Angeles on January 17, 1994. The
facility sustained damages of $2,300,000 (net of the related $850,000 tax
benefit). All operations resumed by February 8, 1994.
(3) ACQUISITIONS:
Effective May 6, 1991, the Company acquired Fibermux. During the third
quarter of 1990, the Company acquired technology and other assets of TELINQ
Systems Incorporated and the stock of American Lightwave Systems, Inc. (ALS).
Payments related to these acquisitions through April 30, 1995 totalled
$74,050,000.
These acquisitions have been accounted for as purchases. Accordingly, the
total purchase prices were allocated to the net assets acquired based on
estimated fair values at the dates of the acquisitions. The excess of cost over
the net assets acquired has been recorded as goodwill. The results of operations
have been included in the Consolidated Statements of Income from the respective
acquisition dates. The inclusion of financial data for these acquisitions prior
to the dates of acquisition would not have materially affected reported results.
(4) DEBT:
The Company has revolving credit agreements which permit borrowing up to
$40,000,000 on an unsecured basis, principally at prevailing market rates of
interest. The agreements require, among other
F-8
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) DEBT: (CONTINUED)
matters, that the Company meet certain defined net worth, interest coverage and
liability to equity ratios, and restrict cash dividends. The Company was in
compliance with these covenants at April 30, 1995. The Company pays commitment
fees based upon the average unused amounts of the commitments. There are no
compensating balance requirements.
In May 1991, the Company borrowed $40,000,000 under the revolving credit
agreements to partially finance the acquisition of Fibermux. The debt
outstanding under such agreements was repaid during 1992 and 1993. There was no
outstanding debt under these agreements during 1994 or during the six months
ended April 30, 1995. The weighted average annual interest rates during the
period borrowings were outstanding were 5.3%, and 4.9% for 1992 and 1993,
respectively.
At October 31, 1993 and 1994, and at April 30, 1995, the Company had a
mortgage note payable of $1,100,000, $810,000, and $410,000, respectively,
collateralized by certain land, buildings and equipment. The note is payable in
annual installments of approximately $400,000 through 1996 and bears interest at
a rate of 7.55%.
(5) EMPLOYEE BENEFIT PLANS:
PENSION PLAN--The Company maintains a defined benefit plan covering a
majority of its employees. The Company funds the plan in accordance with the
requirements of Federal laws and regulations. Plan assets consist of fixed
income securities and a managed portfolio of equity securities.
Pension expense included the following components:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost for benefits earned during the period....................... $ 1,412 $ 1,828 $ 1,804
Interest cost on the projected benefit obligation........................ 1,207 1,348 1,522
Return on assets......................................................... (1,216) (2,137) (633)
Net amortization and deferral............................................ 266 984 (700)
--------- --------- ---------
$ 1,669 $ 2,023 $ 1,993
--------- --------- ---------
--------- --------- ---------
Discount rate used to determine actuarial present value of benefits at
October 31.............................................................. 7.0% 7.0% 7.5%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The rate of compensation used to measure the projected benefit obligation
was 6% in 1992, 5% in 1993 and 5% in 1994. The expected long-term rate of return
on plan assets was 9%.
F-9
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) EMPLOYEE BENEFIT PLANS: (CONTINUED)
The following table sets forth the funded status of the plan as of October
31:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation:
Vested........................................................................ $ (16,282) $ (17,857)
Nonvested..................................................................... (1,248) (1,405)
---------- ----------
Total....................................................................... (17,530) (19,262)
Excess of projected benefit obligation over accumulated benefit obligation...... (4,216) (3,164)
---------- ----------
Projected benefit obligation.................................................... (21,746) (22,426)
Market value of plan assets..................................................... 16,990 17,589
---------- ----------
Unfunded projected benefit obligation........................................... (4,756) (4,837)
Unrecognized net (gain) loss.................................................... (872) (1,922)
Unrecognized prior service cost................................................. 2,092 1,967
Unrecognized transition liability............................................... 993 922
---------- ----------
Total accrued pension liability............................................. $ (2,543) $ (3,870)
---------- ----------
---------- ----------
</TABLE>
The Company also maintains supplemental defined benefit retirement plans for
members of the Board of Directors and for certain officers. The cost of these
plans was $257,000, $210,000, and $352,000 for 1992, 1993 and 1994,
respectively.
RETIREMENT SAVINGS PLAN--The Company has a voluntary plan of investment
available to any employee who has completed one year of service. The Company
contributes 1% of wages to the Retirement Savings Plan on behalf of all
employees covered under the plan. Based on Company performance, salary deferrals
up to 6% of wages are partially matched by the Company. Employees are fully
vested in salary deferrals and Company contributions at all times. The
contributions to this plan totalled $2,639,000, $3,210,000, and $6,778,000 in
1992, 1993 and 1994, respectively. A portion of the cash contributions is
invested in the Company's stock by the Plan's trustee.
STOCK AWARD PLANS--The Company maintains a Stock Incentive Plan which
provides for the granting of certain stock awards, including stock options at
fair market value and restricted shares, to key employees of the Company.
The Company also maintains a Non-Employee Director Stock Option Plan in
order to enhance the ability to attract and retain the services of experienced
and knowledgeable outside directors. The plan provides for granting a maximum of
110,000 nonqualified stock options at fair market value.
The Company issued shares of common stock to certain employees which are
restricted as to their transferability through October 31, 1996. The market
value of such stock at the date of issuance is being amortized over the
restricted period. The unamortized amount of the resulting deferred compensation
is recorded as a reduction of stockholders' investment. In addition, the Company
awarded stock retention bonuses which provide for cash payments to offset the
personal income taxes incurred upon the lapsing of stock restriction. The
compensation expense associated with this plan was $1,008,000, $1,938,000, and
$3,213,000 for the years ended October 31, 1992, 1993 and 1994, and $1,331,000
and $306,000 for the six months ended April 30, 1994 and 1995, respectively.
F-10
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) EMPLOYEE BENEFIT PLANS: (CONTINUED)
The following schedule summarizes activity in the plans:
<TABLE>
<CAPTION>
STOCK RESTRICTED GRANT
OPTIONS STOCK PRICE
---------- ---------- ---------
<S> <C> <C> <C>
Outstanding at October 31, 1992..................................... 2,805,680 248,936 $ 3-$9
Granted........................................................... 186,400 56,600 $ 10-$21
Exercised......................................................... (949,474) -- $ 3-$9
Restrictions lapsed............................................... -- (46,000) $ 5-$9
Cancelled......................................................... (157,866) (38,420) $ 6-$13
---------- ----------
Outstanding at October 31, 1993..................................... 1,884,740 221,116 $ 3-$21
Granted........................................................... 448,270 68,230 $ 16-$22
Exercised......................................................... (324,398) -- $ 3-$11
Restrictions lapsed............................................... -- (172,316) $ 6-$15
Cancelled......................................................... (35,806) (16,220) $ 6-$19
---------- ----------
Outstanding at October 31, 1994..................................... 1,972,806 100,810 $ 3-$22
Granted*.......................................................... 1,439,013 9,000 $ 20-$32
Exercised*........................................................ (382,278) -- $ 3-$19
Restrictions lapsed*.............................................. -- (720) $ 18-$22
Cancelled*........................................................ (164,285) (17,950) $ 18-$32
---------- ----------
Outstanding at April 30, 1995*...................................... 2,865,256 91,140 $ 3-$32
---------- ---------- ---------
---------- ---------- ---------
Exercisable at April 30, 1995....................................... 1,284,267 -- $ 3-$27
---------- ---------- ---------
---------- ---------- ---------
<FN>
- ------------------------
* Unaudited
</TABLE>
(6) CAPITAL STOCK:
AUTHORIZED STOCK--The Company is authorized to issue 100,000,000 shares of
common stock at 20 cents par value and 10,000,000 shares of preferred stock, no
par value. The Board of Directors has the power to determine the dividend,
voting, conversion and redemption rights of each series of preferred stock which
they may create. There are no preferred shares issued.
STOCK SPLIT--On January 24, 1995 the Company declared a two-for-one stock
split effected in the form of a 100% stock dividend paid February 28, 1995 to
stockholders of record as of February 15, 1995. On May 26, 1993, the Company
declared a two-for-one stock split effected in the form of a 100% stock dividend
paid June 28, 1993 to stockholders of record as of June 15, 1993. The share and
per share information in the accompanying financial statements have been
adjusted to reflect the effect of the stock dividends.
SHAREHOLDER RIGHTS PLAN--The Company has a Shareholder Rights Plan which
provides that if any person or group acquires 20% or more of the Company's
common stock, each Right not owned by such person or group will entitle its
holder to purchase, at the Right's then-current purchase price ($8 1/3 at April
30, 1995), common stock of the Company having a value of twice the Right's
purchase price. The Rights would not be triggered, however, if the acquisition
of 20% or more of the Company's common stock is pursuant to a tender offer or
exchange for all outstanding shares of the Company's common stock which is
determined by the Board of Directors to be fair and in the best interests of the
Company and its shareholders. If the Board of Directors determines that a 10%
shareholder's interest is likely to have an adverse effect on the long-term
interests of the Company and its shareholders, the Rights may also become
exercisable. The Rights are redeemable at 5/6 cent any time prior to the time
they become exercisable. The Rights will expire on October 6, 1996 if not
previously redeemed or exercised.
F-11
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES:
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109
requires the recognition of deferred tax liabilities or assets for the expected
future tax consequences of temporary differences between the book and tax bases
of assets and liabilities. SFAS No. 109 was adopted prospectively and the
cumulative impact of adoption was not material.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current taxes payable--
Federal.............................................................. $ 12,071 $ 17,820 $ 21,357
Foreign.............................................................. 567 426 330
State................................................................ 1,629 2,859 3,211
--------- --------- ---------
14,267 21,105 24,898
Deferred............................................................... (567) (3,004) (1,098)
--------- --------- ---------
Total provision...................................................... $ 13,700 $ 18,101 $ 23,800
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company records a reduction in income taxes payable for qualifying tax
credits in the year in which they occur.
The benefit for deferred taxes is primarily due to timing differences in the
tax deductibility of employee benefit plan costs, depreciation and certain
accrued expenses and reserves which are not yet deductible for income tax
purposes.
The effective income tax rate differs from the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate............................................................. 34% 35% 35%
Current year tax credits utilized for research and development..................... (3) (2) (2)
Goodwill........................................................................... 3 2 2
State income taxes, net............................................................ 3 3 3
Other, net......................................................................... 2 (2) (1)
-- -- --
Effective income tax rate........................................................ 39% 36% 37%
-- -- --
-- -- --
</TABLE>
The Company's effective tax rate of 36% for the six months ended April 30,
1995 is based on the 1995 estimated annual rate.
F-12
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES: (CONTINUED)
Deferred tax assets and liabilities as of October 31, 1994 are comprised of
the following:
<TABLE>
<CAPTION>
Current deferred tax assets:
<S> <C>
Asset valuation reserves......................................... $ 3,059
Accrued liabilities.............................................. 4,339
Other............................................................ 326
---------
Total.......................................................... $ 7,724
---------
---------
Non-current deferred tax assets (liabilities):
Depreciation..................................................... $ (2,536)
Other............................................................ 373
---------
Total.......................................................... $ (2,163)
---------
---------
</TABLE>
The Company's United States income tax returns for years through 1993 have
been examined. Management believes that adequate provision for income taxes has
been made for all periods through April 30, 1995.
(8) COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES--A portion of the Company's operations are conducted using
leased equipment and facilities. These leases are non-cancellable and renewable
with expiration dates ranging through the year 2004. The rental expense included
in the accompanying consolidated income statements was $5,324,000, $5,347,000,
and $5,411,000 for the years ended October 31, 1992, 1993 and 1994, and
$2,387,000 and $2,679,000 for the six months ended April 30, 1994 and 1995,
respectively.
The following is a schedule of future minimum rental payments required under
all non-cancellable operating leases as of October 31, 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1995...................................................... $ 5,078
1996...................................................... 3,711
1997...................................................... 2,281
1998...................................................... 1,753
1999 and Thereafter....................................... 3,274
-------
$ 16,097
-------
-------
</TABLE>
CONTINGENCIES--The Company is exposed to a number of asserted and unasserted
potential claims encountered in the normal course of business. In the opinion of
management, the resolution of these matters will not have a material adverse
effect on the Company's financial position or results of operations.
CHANGE OF CONTROL--The Board of Directors has approved the extension of
certain employee benefits, including salary continuation to key employees, in
the event of a change of control of the Company. The Board has retained the
flexibility to cancel such provisions under certain circumstances.
(9) PERSONNEL REDUCTION (UNAUDITED):
During the six months ended April 30, 1995, the Company initiated a
realignment of its Kentrox and Fibermux subsidiaries into one business unit. The
Company recorded a one-time charge of $3,914,000 in conjunction with the
realignment, primarily related to reductions in personnel. The realignment
terminated approximately 110 Fibermux employees primarily in sales and
administration and engineering. Substantially all termination benefits are
expected to be paid by October 31, 1995.
F-13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE U.S. UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---
<S> <C>
Available Information.............................. 2
Documents Incorporated by Reference................ 2
Prospectus Summary................................. 3
Risk Factors....................................... 5
Use of Proceeds.................................... 8
Price Range of Common Stock and Dividend Policy.... 8
Capitalization..................................... 9
Selected Consolidated Financial Data............... 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 11
Business........................................... 17
Certain United States Federal Tax Considerations
for Non-U.S. Holders of Common Stock............. 26
Underwriting....................................... 28
Validity of Shares................................. 30
Experts............................................ 30
Index to Consolidated Financials Statements........ F-1
</TABLE>
5,500,000 SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
June , 1995
---------------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[INT'L VERSION]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE INTERNATIONAL MANAGERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---
<S> <C>
Available Information.............................. 2
Documents Incorporated by Reference................ 2
Prospectus Summary................................. 3
Risk Factors....................................... 5
Use of Proceeds.................................... 8
Price Range of Common Stock and Dividend Policy.... 8
Capitalization..................................... 9
Selected Consolidated Financial Data............... 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 11
Business........................................... 17
Certain United States Federal Tax Considerations
for Non-U.S. Holders of Common Stock............. 26
Underwriting....................................... 28
Validity of Shares................................. 30
Experts............................................ 30
Index to Consolidated Financials Statements........ F-1
</TABLE>
5,500,000 SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
June , 1995
---------------------
LEHMAN BROTHERS
GOLDMAN SACHS INTERNATIONAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses will be paid by the Company in connection with the
distribution of the securities registered hereby and do not include the
underwriting discount to be paid to the Underwriters. All such expenses, except
for the SEC Registration Fee, the NASD Filing Fee and the Nasdaq Stock Market
Listing Fee, are estimated.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 65,432
NASD Filing Fee................................................... 19,475
Nasdaq Stock Market Listing Fee................................... 17,500
Legal Fees and Expenses........................................... 150,000
Accountants' Fees and Expenses.................................... 30,000
Printing and Engraving Expenses................................... 100,000
Blue Sky Fees and Expenses........................................ 20,000
Transfer Agent's and Registrar's Fees............................. 15,000
Miscellaneous..................................................... 57,593
---------
Total........................................................... $ 475,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Minnesota Statutes Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan; (2) acted in good faith; (3) received no
improper personal benefit and Section 302A.255 (with respect to director
conflicts of interest), if applicable, has been satisfied; (4) in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful; and (5) reasonably believed that the conduct was in the best interests
of the corporation in the case of acts or omissions in such persons official
capacity for the corporation or reasonably believed that the conduct was not
opposed to the best interests of the corporation in the case of acts or
omissions in such person's official capacity for other affiliated organizations.
Article IX of the Bylaws of the Company provides that the Company shall
indemnify officers and directors to the extent permitted by Section 302A.521 as
now enacted or hereafter amended.
The Company also maintains an insurance policy or policies to assist in
funding indemnification of directors and officers for certain liability.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.
1.2 Form of International Underwriting Agreement.
5 Opinion and consent of Dorsey & Whitney P.L.L.P.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Dorsey & Whitney P.L.L.P. (included in Exhibit 5).
24 Powers of attorney.
</TABLE>
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
A. UNDERTAKINGS REGARDING RULE 415.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.
(b) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that paragraphs (a) and (b) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant
to section 13 or 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
B. UNDERTAKING REGARDING RULE 430A.
The undersigned registrant further undertakes that:
(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.
(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.
C. UNDERTAKING REGARDING INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any
II-2
<PAGE>
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-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 S3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on May 18, 1995.
ADC TELECOMMUNICATIONS, INC.
By: /s/ WILLIAM J. CADOGAN
-----------------------------------
William J. Cadogan
CHAIRMAN OF THE BOARD, PRESIDENT,
CHIEF EXECUTIVE OFFICER AND CHIEF
OPERATING OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 18, 1995.
Signature Title
- ------------------------------------------ -----------------------------------
Chairman of the Board, President,
/s/ WILLIAM J. CADOGAN Chief Executive Officer and Chief
- ------------------------------------------ Operating Officer
William J. Cadogan (principal executive officer)
/s/ ROBERT E. SWITZ Vice President, Chief Financial
- ------------------------------------------ Officer and Secretary (principal
Robert E. Switz financial officer)
/s/ CHARLES T. ROEHRICK
- ------------------------------------------ Vice President and Controller
Charles T. Roehrick (principal accounting officer)
JAMES C. CASTLE, Ph.D.* Director
THOMAS E. HOLLORAN* Director
B. KRISTINE JOHNSON* Director
CHARLES W. OSWALD* Director
ALAN E. ROSS* Director
JEAN-PIERRE ROSSO* Director
DONALD M. SULLIVAN* Director
WARDE F. WHEATON* Director
JOHN D. WUNSCH* Director
*By /s/ ROBERT E. SWITZ
--------------------------------------
Robert E. Switz
ATTORNEY-IN-FACT
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT FORM OF FILING
- --------- ------------------------------------------------------------------------ --------------------------
<C> <S> <C>
1.1 Form of U.S. Underwriting Agreement. Electronic Transmission
1.2 Form of International Underwriting Agreement. Electronic Transmission
5 Opinion and consent of Dorsey & Whitney P.L.L.P. Electronic Transmission
23.1 Consent of Arthur Andersen LLP. Electronic Transmission
23.2 Consent of Dorsey & Whitney P.L.L.P. (included in Exhibit 5). Electronic Transmission
24 Powers of attorney. Electronic Transmission
</TABLE>
<PAGE>
ADC TELECOMMUNICATIONS, INC.
COMMON STOCK
U.S. UNDERWRITING AGREEMENT
May , 1995
LEHMAN BROTHERS INC.
GOLDMAN, SACHS & CO.
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
ADC Telecommunications, Inc. a Minnesota corporation (the "Company"),
proposes to sell 4,400,000 shares (the "Firm Stock") of the Company's Common
Stock, par value $0.20 per share (the "Common Stock"). In addition, the Company
proposes to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional 660,000 shares of the
Common Stock on the terms and for the purposes set forth in Section 2 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock". This is to confirm the agreement
concerning the purchase of the Stock from the Company by the Underwriters.
It is understood by all parties that the Company is concurrently entering
into an agreement dated the date hereof (the "International Underwriting
Agreement") providing for the sale by the Company of 1,265,000 shares of Common
Stock (including the over-allotment option thereunder) (the "International
Stock") through arrangements with certain underwriters outside the United States
(the "International Managers"), for whom Lehman Brothers International (Europe)
and Goldman Sachs International are acting as lead managers. The U.S.
Underwriters (as defined in the International Underwriting Agreement) and the
International Managers simultaneously are entering into an agreement between the
U.S. and international underwriting syndicates (the "Agreement Between U.S.
Underwriters and International Managers") which provides for, among other
things, the transfer of shares of Common Stock between the two syndicates. Two
forms of prospectus are to be used in connection with the offering and sale of
shares of Common Stock contemplated by the foregoing, one relating to the Stock
and the other relating to the International Stock. The latter form of prospectus
will be identical to the former except for certain substitute pages as included
in the registration statement and amendments thereto referred to below. Except
as used in Sections 2, 3, 4, 9, and 10 herein, and except as the context may
otherwise require, references herein to the Stock shall include all the shares
which may be sold pursuant to either this Agreement or the International
Underwriting Agreement, and references herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall include
both the U.S. and international versions thereof.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company
represents, warrants and agrees that:
(a) A registration statement on Form S-3 and any amendment thereto, with
respect to the Stock has (i) been prepared by the Company in conformity with
the requirements of the United States Securities Act of 1933 (the
"Securities Act") and the rules and regulations (the "Rule and Regulations")
of the United States Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the Securities Act and
(iii) become effective under the Securities Act. Copies of such registration
statement and the amendment thereto, if any, have been delivered by the
Company to you as the representatives (the "Representatives") of the
Underwriters. As used in this Agreement, "Effective Time" means the date and
the time as of which such registration statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in such registration
statement, or amendments thereof, before it became
<PAGE>
effective under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the Representatives pursuant
to Rule 424(a) of the Rules and Regulations; "Registration Statement" means
such registration statement, as amended at the Effective Time, including any
documents incorporated by reference therein at such time and all information
contained in the final prospectus filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations in accordance with Section 5(a) hereof
and deemed to be a part of the registration statement as of the Effective
Time pursuant to paragraph (b) of Rule 430A of the Rules and Regulations;
and "Prospectus" means such final prospectus, as first filed with the
Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules and
Regulations. Reference made herein to any Preliminary Prospectus or to the
Prospectus shall be deemed to refer to and include any documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
Securities Act, as of the date of such Preliminary Prospectus or the
Prospectus, as the case may be, and any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be deemed
to refer to and include any document filed under the United States
Securities Exchange Act of 1934 (the "Exchange Act") after the date of such
Preliminary Prospectus or the Prospectus, as the case may be, and
incorporated by reference in such Preliminary Prospectus or the Prospectus,
as the case may be; and any reference to any amendment to the Registration
Statement shall be deemed to include any annual report of the Company filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
after the Effective Time that is incorporated by reference in the
Registration Statement. The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, the Preliminary Prospectus and
the Prospectus and any further amendments or supplements to the Registration
Statement or the Prospectus will, when they become effective or are filed
with the Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and do not
and will not, as of the applicable effective date (as to the Registration
Statement and any amendment thereto) and as of the applicable filing date
(as to the Prospectus and any amendment or supplement thereto) contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; PROVIDED that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The documents incorporated by reference in the Prospectus, when they
became effective or were filed with the Commission, as the case may be,
conformed in all material respects to the requirements of the Securities Act
or Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an 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; and any further documents so filed and incorporated by reference
in the Prospectus, when such documents are filed with Commission will
conform in all material respects to the requirements of the Securities Act
or the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(d) The Company and each of its subsidiaries which is a significant
subsidiary (as defined in this Section 1(d)) have been duly incorporated and
are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation, are duly qualified to do
business and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of property or the
conduct of their respective businesses requires such qualification, and have
all power and authority necessary to own or hold their respective properties
and to conduct the businesses in which they are engaged. For purposes of
this Agreement, "Significant Subsidiary" shall mean Applied Optical Fiber
Research, Fibermux Corporation, Kentrox Industries, Inc., ADC Video Systems,
and any "significant subsidiary", as such term is defined in Rule 405 of the
Rules and Regulations.
2
<PAGE>
(e) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable, have been, with respect to shares issued within the
five-year period preceding the date of this Agreement, issued in compliance
with all applicable federal and state securities laws, and conform to the
description thereof contained in the Prospectus; and all of the issued
shares of capital stock of each subsidiary of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable and
(except for directors' qualifying shares) are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or
claims.
(f) The unissued shares of the Stock to be issued and sold by the
Company to the Underwriters hereunder and to the International Managers
under the International Underwriting Agreement have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein and in the International Underwriting Agreement, will be
duly and validly issued, fully paid and non-assessable; and the Stock will
conform to the descriptions thereof contained in the Prospectus.
(g) This Agreement has been duly authorized, executed and delivered by
the Company.
(h) The execution, delivery and performance of this Agreement and the
International Underwriting Agreement by the Company and the consummation of
the transactions contemplated hereby and thereby will not conflict with or
result in a material breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions result
in any violation of the provisions of the charter or by-laws of the Company
or any of its subsidiaries or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or assets; and
except for the registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or qualifications as may
be required under the Exchange Act and applicable state or foreign
securities laws in connection with the purchase and distribution of the
Stock by the Underwriters and the International Managers, no consent,
approval, authorization or order of, or filing or registration with, any
such court or governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby and thereby.
(i) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company
to file a registration statement under the Securities Act with respect to
any securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Securities Act.
(j) Except as described in the Prospectus, the Company has not sold or
issued any shares of Common Stock during the six-month period preceding the
date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act, other than shares issued pursuant
to employee benefit plans, qualified stock options plans or other employee
compensation plans or pursuant to outstanding options, rights or warrants,
all in compliance with applicable federal and state securities laws.
(k) Neither the Company nor any of its subsidiaries has sustained, since
the date of the latest audited financial statements included or incorporated
by reference in the Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, there has not been any change in the
capital stock or long-term debt of the Company or any of its subsidiaries or
any material adverse change,
3
<PAGE>
or any development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus.
(l) The financial statements (including the related notes and supporting
schedules) filed as part of the Registration Statement or included in the
Prospectus present fairly the financial condition and results of operations
of the entities purported to be shown thereby, at the dates and for the
periods indicated, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved.
(m) Arthur Andersen LLP, who have certified certain financial statements
of the Company, whose report appears in the Prospectus and who have
delivered the initial letter referred to in Section 7(f) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations during the periods covered by the financial statements
on which they reported contained or incorporated in the Prospectus.
(n) The Company and each of its subsidiaries own or possess adequate
rights to use all patents, patent applications, trademarks, service marks,
trade names, trademark registrations, service mark registrations, copyrights
and licenses material to the conduct of their respective businesses and have
no reason to believe that the conduct of their respective businesses will
conflict with, and have not received any notice of any claim of conflict
with, any such rights of others which could have a material adverse effect
on the general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries.
(o) There are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property or
assets of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, might have a
material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of the
Company and its subsidiaries; and to the best of the Company's knowledge, no
such proceedings are threatened by governmental authorities or threatened by
others.
(p) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(q) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(r) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of
its subsidiaries or, to the knowledge of the Company, any of their
predecessors in interest at, upon or from any of the property now or
previously owned or leased by the Company or its subsidiaries in violation
of any applicable law, ordinance, rule, regulation, order, judgment, decree
or permit or which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except for
any violation or remedial action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all such
violations and remedial actions, a material adverse effect on the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; there has been no spill,
discharge, leak, emission, injection, escape, dumping or release of any kind
onto such property or into the environment surrounding such property of any
toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Company or any of its subsidiaries or
with respect to which the Company or any of its subsidiaries have knowledge,
except for any such spill, discharge, leak, emission, injection, escape,
dumping or release which would not have or would not be reasonably likely to
have, singularly or in the aggregate with all such spills, discharges,
leaks, emissions,
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injections, escapes, dumpings and releases, a material adverse effect on the
general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries; and the terms
"hazardous wastes", "toxic wastes", "hazardous substances" and "medical
wastes" shall have the meanings specified in any applicable local, state,
federal and foreign laws or regulations with respect to environmental
protection.
(s) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has had (nor does
the Company have any knowledge of any tax deficiency which, if determined
adversely to the Company or any of its subsidiaries, might have) a material
adverse effect on the consolidated financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries.
(t) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
which could have a material adverse effect on the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries for which the Company would
have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of,
or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"), in each case which could
have a material adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries; and each "pension plan" for which the Company would have
any liability that is intended to be qualified under Section 401(a) of the
Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of such
qualification, except for such loss as would not have a material adverse
effect on the general affairs, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries.
(u) The Company (i) makes and keeps materially accurate books and
records and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted only in
accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at reasonable
intervals.
(v) Neither the Company nor any of its subsidiaries (i) is in violation
of its charter or by-laws, (ii) is in default in any material respect, and
no event has occurred which, with notice or lapse of time or both, would
constitute such a default, in the due performance or observance of any term,
covenant or condition contained in any material indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which it is a
party or by which it is bound or to which any of its properties or assets is
subject except for such default or events which would not have a material
adverse effect on the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries or (iii) is in violation in any material respect of any law,
ordinance, governmental rule, regulation or court decree to which it or its
property or assets may be subject, except for such violation as would not
cause a material adverse effect on the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries or has failed to obtain any material license,
permit, certificate, franchise or other governmental authorization or permit
necessary to the ownership of its property or to the conduct of its
business.
2. PURCHASE OF THE STOCK BY THE UNDERWRITERS. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 4,400,000 shares of
the Firm Stock, to the several Underwriters and each of the Underwriters,
severally and
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not jointly, agrees to purchase the number of shares of the Firm Stock set
opposite that Underwriter's name in Schedule 1 hereto. The respective purchase
obligations of the Underwriters with respect to the Firm Stock shall be rounded
among the Underwriters to avoid fractional shares, as the Representatives may
determine.
In addition, the Company grants to the Underwriters an option to purchase up
to 660,000 shares of Option Stock. Such option is granted solely for the purpose
of covering over-allotments in the sale of Firm Stock and is exercisable as
provided in Section 4 hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set opposite the name of such Underwriter in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Stock shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase Option Stock other than in 100 share amounts. The
price of both the Firm Stock and any Option Stock shall be $ per share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on the First Delivery Date or the Second Delivery Date (as hereinafter
defined), as the case may be, except upon payment for all the Stock to be
purchased on such Delivery Date as provided herein and in the International
Underwriting Agreement.
3. OFFERING OF STOCK BY THE UNDERWRITERS.
Upon authorization by the Representatives of the release of the Firm Stock,
the several Underwriters propose to offer the Firm Stock for sale upon the terms
and conditions set forth in the Prospectus. Each U.S. Underwriter agrees that,
except to the extent permitted by the Agreement Between U.S. Underwriters and
International Managers, it will not offer or sell any of the Stock outside of
the United States.
4. DELIVERY OF AND PAYMENT FOR THE STOCK. Delivery of and payment for the
Firm Stock shall be made at the office of Dorsey & Whitney P.L.L.P., Pillsbury
Center South, 220 South Sixth Street, Minneapolis, Minnesota, at 10:00 A.M., New
York City time, on the fifth full business day following the date of this
Agreement or at such other date or place as shall be determined by agreement
between the Representatives and the Company. This date and time are sometimes
referred to as the "First Delivery Date." On the First Delivery Date, the
Company shall deliver or cause to be delivered certificates representing the
Firm Stock to the Representatives for the account of each Underwriter against
payment to or upon the order of the Company of the purchase price by certified
or official bank check or checks payable in New York Clearing House (next-day)
funds. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Firm Stock shall be registered in
such names and in such denominations as the Representatives shall request in
writing not less than two full business days prior to the First Delivery Date.
For the purpose of expediting the checking and packaging of the certificates for
the Stock, the Company shall make the certificates representing the Firm Stock
available for inspection by the Representatives in New York, New York, not later
than 2:00 P.M., New York City time, on the business day prior to the First
Delivery Date.
At any time on or before the thirtieth day after the date of this Agreement
the option granted in Section 2 may be exercised by written notice being given
to the Company by the Representatives. Such notice shall set forth the aggregate
number of shares of Option Stock as to which the option is being exercised, the
names in which the shares of Option Stock are to be registered, the
denominations in which the shares of Option Stock are to be issued and the date
and time, as determined by the Representatives, when the shares of Option Stock
are to be delivered; PROVIDED, HOWEVER, that this date and time shall not be
earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the place
specified in the first sentence of the first paragraph of this Section 4 (or at
such other place as shall be determined by agreement between the Representatives
and the Company) at 10:00 A.M., New York City time, on the Second Delivery Date.
On the
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Second Delivery Date, the Company shall deliver or cause to be delivered the
certificates representing the Option Stock to the Representatives for the
account of each Underwriter against payment to or upon the order of the Company
of the purchase price by certified or official bank check or checks payable in
New York Clearing House (next-day) funds. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each Underwriter hereunder. Upon delivery, the
Option Stock shall be registered in such names and in such denominations as the
Representatives shall request in the aforesaid written notice. For the purpose
of expediting the checking and packaging of the certificates for the Option
Stock, the Company shall make the certificates representing the Option Stock
available for inspection by the Representatives in New York, New York, not later
than 2:00 P.M., New York City time, on the business day prior to the Second
Delivery Date.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:
(a) To prepare the Prospectus in a form approved by the Representatives
and to file such Prospectus pursuant to Rule 424(b) under the Securities Act
not later than Commission's close of business on the second business day
following the execution and delivery of this Agreement or, if applicable,
such earlier time as may be required by Rule 430A(a)(3) under the Securities
Act; to make no further amendment or any supplement to the Registration
Statement or to the Prospectus prior to the last Delivery Date except as
permitted herein; to advise the Representatives, promptly after it receives
notice thereof, of the time when any amendment to the Registration Statement
has been filed or becomes effective or any supplement to the Prospectus or
any amended Prospectus has been filed and to furnish the Representatives
with copies thereof; to file promptly all reports and any definitive proxy
or information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the delivery of
a prospectus is required in connection with the offering or sale of the
Stock; to advise the Representatives, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Stock for offering
or sale in any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus or
for additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or suspending any such qualification, to use
promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to the Representatives and to counsel for the
Underwriters a signed copy of the Registration Statement as originally filed
with the Commission, and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits other
than this Agreement and the computation of per share earnings) and, (ii)
each Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus and (iii) any document incorporated by reference in the
Prospectus (excluding exhibits thereto); and, if the delivery of a
prospectus is required at any time after the Effective Time in connection
with the offering or sale of the Stock or any other securities relating
thereto and if at such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the
Securities Act or the Exchange Act, to notify the Representatives and, upon
their request, to file such document and to prepare and furnish without
charge to each Underwriter and to any dealer in securities as many copies as
the Representatives may from time to time reasonably request of an amended
or supplemented Prospectus which will correct such statement or omission or
effect such compliance.
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<PAGE>
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the Prospectus
that may, in the judgment of the Company or the Representatives, be required
by the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus, any document
incorporated by reference in the Prospectus or any Prospectus pursuant to
Rule 424 of the Rules and Regulations, to furnish a copy thereof to the
Representatives and counsel for the Underwriters and obtain the consent of
the Representatives to the filing;
(f) As soon as practicable after the Effective Date (it being understood
that the Company shall have until at least 410 days after the end of the
Company's current fiscal quarter), to make generally available to the
Company's security holders and to deliver to the Representatives an earnings
statement of the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Securities Act and the Rules and
Regulations (including, at the option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to furnish
to the Representatives copies of all materials furnished by the Company to
its shareholders and all public reports and all reports and financial
statements furnished by the Company to the principal national securities
exchange upon which the Common Stock may be listed pursuant to requirements
of or agreements with such exchange or to the Commission pursuant to the
Exchange Act or any rule or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering and
sale under the securities laws of such jurisdictions as the Representatives
may request and to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Stock; provided that in
connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in
any jurisdiction;
(i) For a period of 90 days from the date of the Prospectus, not to
offer for sale, sell or otherwise dispose of (or enter into any transaction
which is designed to, or could be expected to, result in the disposition by
any person of), directly or indirectly, any shares of Common Stock (other
than the Stock and shares issued pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans existing
on the date hereof or pursuant to currently outstanding options, warrants or
rights), or sell or grant options, rights or warrants with respect to any
shares of Common Stock (other than the grant of options pursuant to option
plans existing on the date hereof), without the prior written consent of the
Representatives.
6. EXPENSES. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statement and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statement as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus or any document
incorporated by reference therein, all as provided in this Agreement; (d) the
costs of producing and distributing this Agreement, the Agreement Between U.S.
Underwriters and International Managers, any Supplemental Agreement Among U.S.
Underwriters and any other related documents in connection with the offering,
purchase, sale and delivery of the Stock; (e) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of sale of the Stock; (f) any applicable listing or other
fees; (g) the fees and expenses of qualifying the Stock under the securities
laws of the several jurisdictions as provided in Section 5 (h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters); and (h) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement; PROVIDED that, except as provided in this Section 6 and in Section
11, the Underwriters shall pay their own costs and expenses, including the costs
and expenses of their counsel, any transfer taxes on the Stock which they may
sell and the expenses of advertising any offering of the Stock made by the
Underwriters.
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7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations of
the Underwriters hereunder are subject to the accuracy, when made and on each
Delivery Date, of the representations and warranties of the Company contained
herein, to the performance by the Company of its obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 5(a); no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement or the Prospectus or otherwise
shall have been complied with.
(b) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the International
Underwriting Agreement, the Stock, the Registration Statement and the
Prospectus, and all other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably satisfactory in all
material respects to counsel for the Underwriters, and the Company shall
have furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(c) Dorsey & Whitney P.L.L.P. shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed to
the Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation,
are duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its respective ownership or
lease of property or the conduct of its business requires such
qualification and has all power and authority necessary to own or hold
their respective properties and conduct the businesses in which it is;
(ii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
(including the shares of Stock being delivered on such Delivery Date)
have been duly and validly authorized and issued, are fully paid and non-
assessable, and conform to the description thereof contained in the
Prospectus;
(iii) There are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any shares
of the Stock pursuant to the Company's charter or by-laws or any
agreement or other instrument known to such counsel;
(iv) To such counsel's knowledge and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to
which the Company is a party or of which any property or assets of the
Company is the subject which is required to be described in the
Prospectus that is not described as required; and, to the best of such
counsel's knowledge, no such proceedings are overtly threatened by
governmental authorities or threatened by others;
(v) The Registration Statement was declared effective under the
Securities Act as of the date and time specified in such opinion, the
Prospectus was filed with the Commission pursuant to the subparagraph of
Rule 424(b) of the Rules and Regulations specified in such opinion on the
date specified therein and no stop order suspending the effectiveness of
the Registration Statement has been issued and, to the knowledge of such
counsel, no proceeding for that purpose is pending or threatened by the
Commission;
(vi) The Registration Statement and the Prospectus and any further
amendments or supplements thereto made by the Company prior to such
Delivery Date (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Securities Act
and the Rules and Regulations; the documents incorporated by reference in
the Prospectus and any further amendment or supplement to any such
incorporated document made by the Company prior to such Delivery Date
(other than the financial statements and related schedules therein, as to
which such
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<PAGE>
counsel need express no opinion), when they became effective or were
filed with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the Securities Act or the
Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder;
(vii) To counsel's knowledge, there are no contracts or other
documents which are required to be described in the Prospectus or filed
as exhibits to the Registration Statement by the Securities Act or by the
Rules and Regulations which have not been described or filed as exhibits
to the Registration Statement or incorporated therein by reference as
permitted by the Rules and Regulations;
(viii) This Agreement and the International Underwriting Agreement have
been duly authorized, executed and delivered by the Company;
(ix) The issue and sale of the shares of Stock being delivered on
such Delivery Date by the Company and the compliance by the Company with
all of the provisions of this Agreement , and the International
Underwriting Agreement and the consummation of the transactions
contemplated hereby and thereby will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument known to such counsel to which the Company
or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of
the Company or any of its subsidiaries or any statute or any order, rule
or regulation known to such counsel of any court or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries
or any of their properties or assets; and, except for the registration of
the Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
the Exchange Act and applicable state or foreign securities laws in
connection with the purchase and distribution of the Stock by the
Underwriters and the International Managers, no consent, approval,
authorization or order of, or filing or registration with, any such court
or governmental agency or body is required for the execution, delivery
and performance of this Agreement, or the International Underwriting
Agreement by the Company and the consummation of the transactions
contemplated hereby and thereby; and
(x) To such counsel's knowledge, there are no contracts, agreements
or understandings between the Company and any person granting such person
the right to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
In rendering such opinion, such counsel may (i) state that its opinion is
limited to matters governed by the Federal laws of the United States of
America and the laws of Minnesota; (ii) rely, as to questions of law not
involving the laws of the United States or the State of Minnesota, upon
opinions of local counsel, provided such counsel is satisfactory to counsel
for the Underwriters and furnishes a copy of its opinion to the
Representatives. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and dated
such Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that (x) such counsel has acted as counsel to
the Company on a regular basis (although the Company is also represented,
with respect to patent and certain other matters, by other outside counsel),
has acted as counsel to the Company in connection with the preparation of
the Registration Statement, and (y) based on the foregoing, no facts have
come to the attention of such counsel which lead it to believe that (I) the
Registration Statement (other than the financial statements, the related
notes and schedules thereto), as of the Effective Date, contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading, or that the Prospectus (other than
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the financial statements, the related notes and schedules thereto), contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or (II) any document incorporated by reference in the Prospectus
or any further amendment or supplement to any such incorporated document
(other than the financial statements, the related notes and schedules
thereto) made by the Company prior to such Delivery Date, when they became
effective or were filed with the Commission, as the case may be, contained,
in the case of a registration statement which became effective under the
Securities Act, any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make
the statements therein not misleading, or, in the case of other documents
which were filed under the Exchange Act with the Commission, an untrue
statement of a material fact or omitted to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The foregoing opinion and statement
may be qualified by a statement to the effect that such counsel does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus except
for the statements in the Registration Statement and Prospectus that relate
to the Stock and concern legal matters, including statements made under the
caption "Description of Capital Stock."
(d) The Representatives shall have received from Gray Cary Ware &
Freidenrich, counsel for the Underwriters, such opinion or opinions, dated
such Delivery Date, with respect to the issuance and sale of the Stock, the
Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably require, and the Company shall have furnished
to such counsel such documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
(e) At the time of execution of this Agreement, the Representatives
shall have received from Arthur Andersen LLP a letter, in form and substance
satisfactory to the Representatives, addressed to the Underwriters and dated
the date hereof (i) confirming that they are independent public accountants
within the meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date
hereof (or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is given in
the Prospectus, as of a date not more than five days prior to the date
hereof), the conclusions and findings of such firm with respect to the
financial information and other matters ordinarily covered by accountants'
"comfort letters" to underwriters in connection with registered public
offerings.
(f) With respect to the letter of Arthur Andersen LLP referred to in the
preceding paragraph and delivered to the Representatives concurrently with
the execution of this Agreement (the "initial letter"), the Company shall
have furnished to the Representatives a letter (the "bring-down letter") of
such accountants, addressed to the Underwriters and dated such Delivery Date
(i) confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule 2-01 of
Regulation S-X of the Commission, (ii) stating, as of the date of the
bring-down letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five days
prior to the date of the bring-down letter), the conclusions and findings of
such firm with respect to the financial information and other matters
covered by the initial letter and (iii) confirming in all material respects
the conclusions and findings set forth in the initial letter.
(g) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the Company in
Section 1 are true and correct as of such Delivery Date; the Company has
complied with all its agreements contained herein; and the conditions set
forth in Sections 7(a) and 7(h) have been fulfilled; and
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(ii) They have carefully examined the Registration Statement and the
Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (B) since the Effective Date no event has occurred
which should have been set forth in a supplement or amendment to the
Registration Statement or the Prospectus.
(h) (i) Neither the Company nor any of its Significant Subsidiaries
shall have sustained since the date of the latest audited financial
statements included or incorporated by reference in the Prospectus any loss
or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus or (ii) since such date there shall not
have been any change in the capital stock or long-term debt of the Company
or any of its Subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its Significant Subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is, in the judgment of the Representatives,
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Stock being
delivered on such Delivery Date on the terms and in the manner contemplated
in the Prospectus.
(i) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been suspended
or minimum prices shall have been established on any such exchange or such
market by the Commission, by such exchange or by any other regulatory body
or governmental authority having jurisdiction, (ii) a banking moratorium
shall have been declared by Federal or New York or Minnesota authorities,
(iii) the United States shall have become engaged in hostilities, there
shall have been an escalation in hostilities involving the United States or
there shall have been a declaration of a national emergency or war by the
United States or (iv) there shall have occurred such a material adverse
change in general economic, political or financial conditions (or the effect
of international conditions on the financial markets in the United States
shall be such) as to make it, in the judgment of a majority in interest of
the several Underwriters, impracticable or inadvisable to proceed with the
public offering or delivery of the Stock being delivered on such Delivery
Date on the terms and in the manner contemplated in the Prospectus.
(j) The National Market System shall have approved the Stock for
inclusion, subject only to official notice of issuance.
(k) You shall have received from each of Merchant & Gould and Schwegman,
Lundberg & Woessner, P.A., patent counsel for the Company, an opinion
addressed to the Underwriters and dated the Closing Date, covering the
following matters, and if Option Stock is purchased at any date after the
Closing Date, additional opinions from such counsel, addressed to the
Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinion remain valid as of such
later date:
Such counsel are familiar with the technology used by the Company in
its business and the manner of its use thereof and have read the
Registration Statement and the Prospectus, including particularly the
portions of the Registration Statement and the Prospectus referring to
patents, trade secrets, trademarks, service marks or other proprietary
information or materials and:
(i) The Statements in the Registration Statement and the
Prospectus under the caption "Risk Factors -- Intellectual Property,"
and "Business," to the best of such counsel's knowledge and belief,
are accurate and complete statements or summaries of the matters
therein set forth and nothing has come to such counsel's attention
that causes such counsel to believe that the above-described portions
of the Registration Statement and the Prospectus contain any
12
<PAGE>
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading;
(ii) to the best of such counsel's knowledge, there are no legal
or governmental proceedings pending relating to patent rights, trade
secrets, trademarks, service marks or other proprietary information
or materials of the Company, and to the best of such counsel's
knowledge no such proceedings are threatened or contemplated by
governmental authorities or others;
(iii) such counsel do not know of any contracts or other
documents, relating to governmental regulation affecting the Company
or the Company's patents or proprietary information, of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the
Prospectus that are not filed or described as required;
(iv) except as set forth in the Registration Statement and the
Prospectus, in such counsel's opinion, there exists no patent issued,
or of which such counsel are aware without any formal search or
complete factual and legal analysis having been performed which, if
properly construed, would prevent the Company or any of its
Subsidiaries from proceeding with its business as presently conducted
and as proposed to be conducted as described in the Registration
Statement and the Prospectus.
(l) The closing under the International Underwriting Agreement shall
have occurred concurrently with the closing hereunder on the First Delivery
Date.
(m) You shall have received from counsel reasonably acceptable to you an
opinion relating to the matters described in Section 7(c)(i) hereof with
respect to the following foreign subsidiaries of the Company: [to come]
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and sales of
Stock), to which that Underwriter or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading and shall reimburse each Underwriter and each such
controlling person promptly upon demand for any legal or other expenses
reasonably incurred by that Underwriter or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
any untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the Prospectus
or in any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company through the Representatives by or
on behalf of any Underwriter specifically for inclusion therein.
(b) Each Underwriter, severally and not jointly, shall indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who
13
<PAGE>
controls the Company within the meaning of the Securities Act, from and against
any loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company or any such director, officer or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through the Representatives by or
on behalf of that Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling person for
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any Underwriter may otherwise have to the
Company or any such director, officer or controlling person.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
claim or the commencement of that action; PROVIDED, HOWEVER, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have under this Section 8 except to the extent it has been materially
prejudiced by such failure and, PROVIDED FURTHER, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Section 8. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; PROVIDED, HOWEVER, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Underwriters against the Company
under this Section 8 if, in the reasonable judgment of the Representatives, it
is advisable for the Representatives and those Underwriters and controlling
persons to be jointly represented by separate counsel, and in that event the
fees and expenses of such separate counsel shall be paid by the Company. An
indemnifying party will not, without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld), settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding. An indemnified party will not, without the prior written
consent of the indemnifying party (which consent shall not be unreasonably
withheld), settle or compromise any such action, but if settled with the consent
of the indemnifying party or if there be a final judgment of the plaintiff in
any such action, the indemnifying party agrees to indemnify and hold harmless
any indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for any
reason be unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability,
or any action in respect thereof, referred to therein, then each indemnifying
party shall, in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such proportion
as
14
<PAGE>
shall be appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other from the offering of the Stock or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other with respect to
the statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other with respect to such offering shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Stock purchased under this Agreement (before deducting expenses) received by the
Company on the one hand, and the total underwriting discounts and commissions
received by the Underwriters with respect to the shares of the Stock purchased
under this Agreement, on the other hand, bear to the total gross proceeds from
the offering of the shares of the Stock under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Underwriters, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section were to be 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 into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section shall be deemed to include, for
purposes of this Section 8(d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8(d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Stock underwritten by it and distributed
to the public was offered to the public exceeds the amount of any damages which
such Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute as provided in this Section 8(d) are several in proportion to
their respective underwriting obligations and not joint.
(e) The Underwriters severally confirm that the statements with respect to
the public offering of the Stock by the Underwriters set forth on the cover page
of, the legend concerning over-allotments on the inside front cover page of and
under the caption "Underwriting" in, the Prospectus are correct, and the Company
agrees that such items constitute the only information furnished in writing to
the Company by or on behalf of the Underwriters specifically for inclusion in
the Registration Statement and the Prospectus.
9. DEFAULTING UNDERWRITERS.
If, on either Delivery Date, any Underwriter defaults in the performance of
its obligations under this Agreement, the remaining non-defaulting Underwriters
shall be obligated to purchase the Stock which the defaulting Underwriter agreed
but failed to purchase on such Delivery Date in the respective proportions which
the number of shares of the Firm Stock set opposite the name of each remaining
non-defaulting Underwriter in Schedule 1 hereto bears to the total number of
shares of the Firm Stock set opposite the names of all the remaining
non-defaulting Underwriters in Schedule 1 hereto; PROVIDED, HOWEVER, that the
remaining non-defaulting Underwriters shall not be obligated to purchase any of
the Stock on such Delivery Date if the total number of shares of the Stock which
the defaulting Underwriter or Underwriters agreed but failed to purchase on such
date exceeds 9.09% of the total number of shares of the Stock to be purchased on
such Delivery Date, and any remaining non-defaulting Underwriter shall not be
obligated to purchase more than 110% of the number of shares of the Stock which
it agreed to purchase on such Delivery Date pursuant to the terms of Section 2.
If the foregoing maximums are exceeded, the remaining non-defaulting
Underwriters, or those other underwriters satisfactory to the Representatives
who so agree, shall have the right, but shall not be obligated, to purchase, in
such proportion as may be agreed upon among them, all the Stock to
15
<PAGE>
be purchased on such Delivery Date. If the remaining Underwriters or other
underwriters satisfactory to the Representatives do not elect to purchase the
shares which the defaulting Underwriter or Underwriters agreed but failed to
purchase on such Delivery Date, this Agreement (or, with respect to the Second
Delivery Date, the obligation of the Underwriters to purchase, and of the
Company to sell, the Option Stock) shall terminate without liability on the part
of any non-defaulting Underwriter or the Company except that the Company will
continue to be liable for the payment of expenses to the extent set forth in
Sections 6 and 11. As used in this Agreement, the term "Underwriter" includes,
for all purposes of this Agreement unless the context requires otherwise, any
party not listed in Schedule 1 hereto who, pursuant to this Section 9, purchases
Firm Stock which a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If other
underwriters are obligated or agree to purchase the Stock of a defaulting or
withdrawing Underwriter, either the Representatives or the Company may postpone
the Delivery Date for up to seven full business days in order to effect any
changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statement, the Prospectus or
in any other document or arrangement.
10. TERMINATION. The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the Company
prior to delivery of and payment for the Firm Stock if, prior to that time, any
of the events described in Sections 7(h) or 7(i) shall have occurred or if the
Underwriters shall decline to purchase the Stock for any reason permitted under
this Agreement.
11. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If (a) the Company shall fail
to tender the Stock for delivery to the Underwriters by reason of any failure,
refusal or inability on the part of the Company to perform any agreement on its
part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company is not fulfilled,
the Company will reimburse the Underwriters for all reasonable out-of-pocket
expenses (including fees and disbursements of counsel) incurred by the
Underwriters in connection with this Agreement and the proposed purchase of the
Stock, and upon demand the Company shall pay the full amount thereof to the
Representatives(s). If this Agreement is terminated pursuant to Section 10 by
reason of the default of one or more Underwriters, the Company shall not be
obligated to reimburse any defaulting Underwriter on account of those expenses.
12. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) If to the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department (Fax:
212-526-6588), with a copy, in the case of any notice pursuant to Section
11(d), to the Director of Litigation, Office of the General Counsel, Lehman
Brothers Inc., 3 World Financial Center, 10th Floor, New York, NY 10285;
(b) If to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: William J. Cadogan;
PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
13. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of and be binding upon the Underwriters, the Company and their
respective successors. This Agreement and the terms and provisions hereof are
for the sole benefit of only those persons, except that (A) the representations,
warranties, indemnities and agreements of the Company contained in this
Agreement shall also be deemed to be for the benefit of the person or persons,
if any, who control any Underwriter within the meaning of Section 15 of the
Securities Act and for the benefit of each International Manager (and
controlling persons thereof) who offers or sells any shares of Common Stock in
accordance with the terms of the Agreement
16
<PAGE>
Between U.S. Underwriters and International Managers; and (B) the indemnity
agreement of the Underwriters contained in Section 8(b) of this Agreement shall
be deemed to be for the benefit of directors of the Company, officers of the
Company who have signed the Registration Statement and any person controlling
the Company within the meaning of Section 15 of the Securities Act. Nothing in
this Agreement is intended or shall be construed to give any person, other than
the persons referred to in this Section 13, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained
herein.
14. SURVIVAL. The respective indemnities, representations, warranties and
agreements of the Company and the Underwriters contained in this Agreement or
made by or on behalf on them, respectively, pursuant to this Agreement, shall
survive the delivery of and payment for the Stock and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of them
or any person controlling any of them.
15. DEFINITION OF THE TERMS "BUSINESS DAY" AND "SUBSIDIARY". For purposes
of this Agreement, (a) "business day" means any day on which the New York Stock
Exchange, Inc. is open for trading and (b) "subsidiary" has the meaning set
forth in Rule 405 of the Rules and Regulations.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF NEW YORK.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement the Company and the
Underwriters, please indicate your acceptance in the space provided for that
purpose below.
Very truly yours,
ADC TELECOMMUNICATIONS, INC.
By
--------------------------------------
William J. Cadogan
Accepted:
LEHMAN BROTHERS INC.
GOLDMAN, SACHS & CO.
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
----------------------------------------------
AUTHORIZED REPRESENTATIVE
17
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------- -------------
<S> <C>
Lehman Brothers Inc..............................................
Goldman, Sachs & Co..............................................
Total........................................................ 4,400,000
</TABLE>
<PAGE>
ADC TELECOMMUNICATIONS, INC.
COMMON STOCK
INTERNATIONAL UNDERWRITING AGREEMENT
May , 1995
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
GOLDMAN SACHS INTERNATIONAL
As Lead Managers of the several
International Managers named in Schedule 1,
C/O LEHMAN BROTHERS INTERNATIONAL (EUROPE)
1 Broadgate
London EC2M 7HA
England
Dear Sirs:
ADC Telecommunications, Inc. a Minnesota corporation (the "Company"),
proposes to sell 1,100,000 shares (the "Firm Stock") of the Company's Common
Stock, par value $0.20 per share (the "Common Stock"). In addition, the Company
proposes to grant to the International Managers named in Schedule 1 hereto (the
"International Managers") an option to purchase up to an additional 165,000
shares of the Common Stock on the terms and for the purposes set forth in
Section 2 (the "Option Stock"). The Firm Stock and the Option Stock, if
purchased, are hereinafter collectively called the "Stock". This is to confirm
the agreement concerning the purchase of the Stock from the Company by the
International Managers.
It is understood by all parties that the Company is concurrently entering
into an agreement dated the date hereof (the "U.S. Underwriting Agreement")
providing for the sale by the Company of 5,060,000 shares of Common Stock
(including the over-allotment option thereunder) (the "U.S. Stock") through
arrangements with certain underwriters inside the United States (the "U.S.
Underwriters"), for whom Lehman Brothers Inc. and Goldman, Sachs & Co. are
acting as representatives. The International Managers and the U.S. Underwriters
simultaneously are entering into an agreement between the U.S. and international
underwriting syndicates (the "Agreement Between U.S. Underwriters and
International Managers") which provides for, among other things, the transfer of
shares of Common Stock between the two syndicates. Two forms of prospectus are
to be used in connection with the offering and sale of shares of Common Stock
contemplated by the foregoing, one relating to the Stock and the other relating
to the U.S. Stock. The latter form of prospectus will be identical to the former
except for certain substitute pages as included in the registration statement
and amendments thereto referred to below. Except as used in Sections 2, 3, 4, 9,
and 10 herein, and except as the context may otherwise require, references
herein to the Stock shall include all the shares which may be sold pursuant to
either this Agreement or the U.S. Underwriting Agreement, and references herein
to any prospectus whether in preliminary or final form, and whether as amended
or supplemented, shall include both the U.S. and international versions thereof.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company
represents, warrants and agrees that:
(a) A registration statement on Form S-3 and any amendment thereto, with
respect to the Stock has (i) been prepared by the Company in conformity with
the requirements of the United States Securities Act of 1933 (the
"Securities Act") and the rules and regulations (the "Rule and Regulations")
of the United States Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the Securities Act and
(iii) become effective under the Securities Act. Copies of such registration
statement and the amendment thereto, if any, have been delivered by the
Company to you as the lead managers (the "Lead Managers") of the
International Managers. As used in this Agreement, "Effective Time" means
the date and the time as of which such registration statement, or the most
recent post-effective amendment thereto, if any, was declared effective by
the Commission; "Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in such registration
statement, or amendments thereof,
<PAGE>
before it became effective under the Securities Act and any prospectus filed
with the Commission by the Company with the consent of the Lead Managers
pursuant to Rule 424(a) of the Rules and Regulations; "Registration
Statement" means such registration statement, as amended at the Effective
Time, including any documents incorporated by reference therein at such time
and all information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations in
accordance with Section 5(a) hereof and deemed to be a part of the
registration statement as of the Effective Time pursuant to paragraph (b) of
Rule 430A of the Rules and Regulations; and "Prospectus" means such final
prospectus, as first filed with the Commission pursuant to paragraph (1) or
(4) of Rule 424(b) of the Rules and Regulations. Reference made herein to
any Preliminary Prospectus or to the Prospectus shall be deemed to refer to
and include any documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the Securities Act, as of the date of such Preliminary
Prospectus or the Prospectus, as the case may be, and any reference to any
amendment or supplement to any Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include any document filed under the United
States Securities Exchange Act of 1934 (the "Exchange Act") after the date
of such Preliminary Prospectus or the Prospectus, as the case may be, and
incorporated by reference in such Preliminary Prospectus or the Prospectus,
as the case may be; and any reference to any amendment to the Registration
Statement shall be deemed to include any annual report of the Company filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
after the Effective Time that is incorporated by reference in the
Registration Statement. The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, the Preliminary Prospectus and
the Prospectus and any further amendments or supplements to the Registration
Statement or the Prospectus will, when they become effective or are filed
with the Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and do not
and will not, as of the applicable effective date (as to the Registration
Statement and any amendment thereto) and as of the applicable filing date
(as to the Prospectus and any amendment or supplement thereto) contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; PROVIDED that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Lead Managers by or on behalf of any
International Manager specifically for inclusion therein.
(c) The documents incorporated by reference in the Prospectus, when they
became effective or were filed with the Commission, as the case may be,
conformed in all material respects to the requirements of the Securities Act
or Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an 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; and any further documents so filed and incorporated by reference
in the Prospectus, when such documents are filed with Commission will
conform in all material respects to the requirements of the Securities Act
or the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(d) The Company and each of its subsidiaries which is a Significant
Subsidiary (as defined in this Section 1(d)) have been duly incorporated and
are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation, are duly qualified to do
business and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of property or the
conduct of their respective businesses requires such qualification, and have
all power and authority necessary to own or hold their respective properties
and to conduct the businesses in which they are engaged. For purposes of
this Agreement, "Significant Subsidiary" shall mean Applied Optical Fiber
Research, Fibermux Corporation, Kentrox Industries, Inc., ADC Video Systems,
and any "significant subsidiary", as such term is defined in Rule 405 of the
Rules and Regulations.
2
<PAGE>
(e) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable, have been, with respect to shares issued within the
five-year period preceding the date of this Agreement, issued in compliance
with all applicable federal and state securities laws, and conform to the
description thereof contained in the Prospectus; and all of the issued
shares of capital stock of each subsidiary of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable and
(except for directors' qualifying shares) are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or
claims.
(f) The unissued shares of the Stock to be issued and sold by the
Company to the International Managers hereunder and to the Underwriters
under the U.S. Underwriting Agreement have been duly and validly authorized
and, when issued and delivered against payment therefor as provided herein
and in the U.S. Underwriting Agreement, will be duly and validly issued,
fully paid and non-assessable; and the Stock will conform to the
descriptions thereof contained in the Prospectus.
(g) This Agreement has been duly authorized, executed and delivered by
the Company.
(h) The execution, delivery and performance of this Agreement and the
U.S. Underwriting Agreement by the Company and the consummation of the
transactions contemplated hereby and thereby will not conflict with or
result in a material breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions result
in any violation of the provisions of the charter or by-laws of the Company
or any of its subsidiaries or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or assets; and
except for the registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or qualifications as may
be required under the Exchange Act and applicable state or foreign
securities laws in connection with the purchase and distribution of the
Stock by the International Managers and the U.S. Underwriters, no consent,
approval, authorization or order of, or filing or registration with, any
such court or governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby and thereby.
(i) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company
to file a registration statement under the Securities Act with respect to
any securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Securities Act.
(j) Except as described in the Prospectus, the Company has not sold or
issued any shares of Common Stock during the six-month period preceding the
date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act, other than shares issued pursuant
to employee benefit plans, qualified stock options plans or other employee
compensation plans or pursuant to outstanding options, rights or warrants,
all in compliance with applicable federal and state securities laws.
(k) Neither the Company nor any of its subsidiaries has sustained, since
the date of the latest audited financial statements included or incorporated
by reference in the Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, there has not been any change in the
capital stock or long-term debt of the Company or any of its subsidiaries or
any material adverse change,
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or any development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus.
(l) The financial statements (including the related notes and supporting
schedules) filed as part of the Registration Statement or included in the
Prospectus present fairly the financial condition and results of operations
of the entities purported to be shown thereby, at the dates and for the
periods indicated, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved.
(m) Arthur Andersen LLP, who have certified certain financial statements
of the Company, whose report appears in the Prospectus and who have
delivered the initial letter referred to in Section 7(f) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations during the periods covered by the financial statements
on which they reported contained or incorporated in the Prospectus.
(n) The Company and each of its subsidiaries own or possess adequate
rights to use all patents, patent applications, trademarks, service marks,
trade names, trademark registrations, service mark registrations, copyrights
and licenses material to the conduct of their respective businesses and have
no reason to believe that the conduct of their respective businesses will
conflict with, and have not received any notice of any claim of conflict
with, any such rights of others which could have a material adverse effect
on the general affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries.
(o) There are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property or
assets of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, might have a
material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of the
Company and its subsidiaries; and to the best of the Company's knowledge, no
such proceedings are threatened by governmental authorities or threatened by
others.
(p) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(q) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(r) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of
its subsidiaries or, to the knowledge of the Company, any of their
predecessors in interest at, upon or from any of the property now or
previously owned or leased by the Company or its subsidiaries in violation
of any applicable law, ordinance, rule, regulation, order, judgment, decree
or permit or which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except for
any violation or remedial action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all such
violations and remedial actions, a material adverse effect on the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; there has been no spill,
discharge, leak, emission, injection, escape, dumping or release of any kind
onto such property or into the environment surrounding such property of any
toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Company or any of its subsidiaries or
with respect to which the Company or any of its subsidiaries have knowledge,
except for any such spill, discharge, leak, emission, injection, escape,
dumping or release which would not have or would not be reasonably likely to
have, singularly or in the aggregate with all such spills, discharges,
leaks, emissions,
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injections, escapes, dumpings and releases, a material adverse effect on the
general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries; and the terms
"hazardous wastes", "toxic wastes", "hazardous substances" and "medical
wastes" shall have the meanings specified in any applicable local, state,
federal and foreign laws or regulations with respect to environmental
protection.
(s) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has had (nor does
the Company have any knowledge of any tax deficiency which, if determined
adversely to the Company or any of its subsidiaries, might have) a material
adverse effect on the consolidated financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries.
(t) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
which could have a material adverse effect on the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries for which the Company would
have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of,
or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"), in each case which could
have a material adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries; and each "pension plan" for which the Company would have
any liability that is intended to be qualified under Section 401(a) of the
Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of such
qualification, except for such loss as would not have a material adverse
effect on the general affairs, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries.
(u) The Company (i) makes and keeps materially accurate books and
records and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted only in
accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at reasonable
intervals.
(v) Neither the Company nor any of its subsidiaries (i) is in violation
of its charter or by-laws, (ii) is in default in any material respect, and
no event has occurred which, with notice or lapse of time or both, would
constitute such a default, in the due performance or observance of any term,
covenant or condition contained in any material indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which it is a
party or by which it is bound or to which any of its properties or assets is
subject except for such default or events which would not have a material
adverse effect on the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries or (iii) is in violation in any material respect of any law,
ordinance, governmental rule, regulation or court decree to which it or its
property or assets may be subject, except for such violation as would not
cause a material adverse effect on the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries or has failed to obtain any material license,
permit, certificate, franchise or other governmental authorization or permit
necessary to the ownership of its property or to the conduct of its
business.
2. PURCHASE OF THE STOCK BY THE INTERNATIONAL MANAGERS. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 1,100,000 shares of
the Firm Stock, to the several International Managers and each of the
International Managers, severally and not jointly, agrees to purchase the number
of shares of the Firm Stock set opposite
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that International Manager's name in Schedule 1 hereto. The respective purchase
obligations of the International Managers with respect to the Firm Stock shall
be rounded among the International Managers to avoid fractional shares, as the
Lead Managers may determine.
In addition, the Company grants to the International Managers an option to
purchase up to 165,000 shares of Option Stock. Such option is granted solely for
the purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 4 hereof. Shares of Option Stock shall be
purchased severally for the account of the International Managers in proportion
to the number of shares of Firm Stock set opposite the name of such
International Manager in Schedule 1 hereto. The respective purchase obligations
of each International Manager with respect to the Option Stock shall be adjusted
by the Lead Managers so that no International Manager shall be obligated to
purchase Option Stock other than in 100 share amounts. The price of both the
Firm Stock and any Option Stock shall be $ per share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on the First Delivery Date or the Second Delivery Date (as hereinafter
defined), as the case may be, except upon payment for all the Stock to be
purchased on such Delivery Date as provided herein and in the U.S. Underwriting
Agreement.
3. OFFERING OF STOCK BY THE INTERNATIONAL MANAGERS.
Upon authorization by the Lead Managers of the release of the Firm Stock,
the several International Managers propose to offer the Firm Stock for sale upon
the terms and conditions set forth in the Prospectus. Each International Manager
agrees that, except to the extent permitted by the Agreement Between U.S.
Underwriters and International Managers, it will not offer or sell any of the
Stock inside the United States.
4. DELIVERY OF AND PAYMENT FOR THE STOCK. Delivery of and payment for the
Firm Stock shall be made at the office of Dorsey & Whitney P.L.L.P., Pillsbury
Center South, 220 South Sixth Street, Minneapolis, Minnesota, at 10:00 A.M., New
York City time, on the fifth full business day following the date of this
Agreement or at such other date or place as shall be determined by agreement
between the Lead Managers and the Company. This date and time are sometimes
referred to as the "First Delivery Date." On the First Delivery Date, the
Company shall deliver or cause to be delivered certificates representing the
Firm Stock to the Lead Managers for the account of each International Manager
against payment to or upon the order of the Company of the purchase price by
certified or official bank check or checks payable in New York Clearing House
(next-day) funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each International Manager hereunder. Upon delivery, the Firm
Stock shall be registered in such names and in such denominations as the Lead
Managers shall request in writing not less than two full business days prior to
the First Delivery Date. For the purpose of expediting the checking and
packaging of the certificates for the Stock, the Company shall make the
certificates representing the Firm Stock available for inspection by the Lead
Managers in New York, New York, not later than 2:00 P.M., New York City time, on
the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this Agreement
the option granted in Section 2 may be exercised by written notice being given
to the Company by the Lead Managers. Such notice shall set forth the aggregate
number of shares of Option Stock as to which the option is being exercised, the
names in which the shares of Option Stock are to be registered, the
denominations in which the shares of Option Stock are to be issued and the date
and time, as determined by the Lead Managers, when the shares of Option Stock
are to be delivered; PROVIDED, HOWEVER, that this date and time shall not be
earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the place
specified in the first sentence of the first paragraph of this Section 4 (or at
such other place as shall be determined by agreement between the Lead Managers
and the Company) at 10:00 A.M., New York City time, on the Second Delivery Date.
On the
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Second Delivery Date, the Company shall deliver or cause to be delivered the
certificates representing the Option Stock to the Lead Managers for the account
of each International Manager against payment to or upon the order of the
Company of the purchase price by certified or official bank check or checks
payable in New York Clearing House (next-day) funds. Time shall be of the
essence, and delivery at the time and place specified pursuant to this Agreement
is a further condition of the obligation of each International Manager
hereunder. Upon delivery, the Option Stock shall be registered in such names and
in such denominations as the Lead Managers shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Company shall make the certificates
representing the Option Stock available for inspection by the Lead Managers in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:
(a) To prepare the Prospectus in a form approved by the Lead Managers
and to file such Prospectus pursuant to Rule 424(b) under the Securities Act
not later than Commission's close of business on the second business day
following the execution and delivery of this Agreement or, if applicable,
such earlier time as may be required by Rule 430A(a)(3) under the Securities
Act; to make no further amendment or any supplement to the Registration
Statement or to the Prospectus prior to the last Delivery Date except as
permitted herein; to advise the Lead Managers, promptly after it receives
notice thereof, of the time when any amendment to the Registration Statement
has been filed or becomes effective or any supplement to the Prospectus or
any amended Prospectus has been filed and to furnish the Lead Managers with
copies thereof; to file promptly all reports and any definitive proxy or
information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the delivery of
a prospectus is required in connection with the offering or sale of the
Stock; to advise the Lead Managers, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Stock for offering
or sale in any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus or
for additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or suspending any such qualification, to use
promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to the Lead Managers and to counsel for the
International Managers a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed with
the Commission, including all consents and exhibits filed therewith;
(c) To deliver promptly to the Lead Managers such number of the
following documents as the Lead Managers shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits other
than this Agreement and the computation of per share earnings) and, (ii)
each Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus and (iii) any document incorporated by reference in the
Prospectus (excluding exhibits thereto); and, if the delivery of a
prospectus is required at any time after the Effective Time in connection
with the offering or sale of the Stock or any other securities relating
thereto and if at such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the
Securities Act or the Exchange Act, to notify the Lead Managers and, upon
their request, to file such document and to prepare and furnish without
charge to each Underwriter and to any dealer in securities as many copies as
the Lead Managers may from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or omission or
effect such compliance.
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(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the Prospectus
that may, in the judgment of the Company or the Lead Managers, be required
by the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus, any document
incorporated by reference in the Prospectus or any Prospectus pursuant to
Rule 424 of the Rules and Regulations, to furnish a copy thereof to the Lead
Managers and counsel for the International Managers and obtain the consent
of the Lead Managers to the filing;
(f) As soon as practicable after the Effective Date (it being understood
that the Company shall have until at least 410 days after the end of the
Company's current fiscal quarter), to make generally available to the
Company's security holders and to deliver to the Lead Managers an earnings
statement of the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Securities Act and the Rules and
Regulations (including, at the option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to furnish
to the Lead Managers copies of all materials furnished by the Company to its
shareholders and all public reports and all reports and financial statements
furnished by the Company to the principal national securities exchange upon
which the Common Stock may be listed pursuant to requirements of or
agreements with such exchange or to the Commission pursuant to the Exchange
Act or any rule or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the Lead Managers
may reasonably request to qualify the Stock for offering and sale under the
securities laws of such jurisdictions as the Lead Managers may request and
to comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Stock; provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(i) For a period of 90 days from the date of the Prospectus, not to
offer for sale, sell or otherwise dispose of (or enter into any transaction
which is designed to, or could be expected to, result in the disposition by
any person of), directly or indirectly, any shares of Common Stock (other
than the Stock and shares issued pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans existing
on the date hereof or pursuant to currently outstanding options, warrants or
rights), or sell or grant options, rights or warrants with respect to any
shares of Common Stock (other than the grant of options pursuant to option
plans existing on the date hereof), without the prior written consent of the
Lead Managers.
6. EXPENSES. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statement and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statement as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus or any document
incorporated by reference therein, all as provided in this Agreement; (d) the
costs of producing and distributing this Agreement, the Agreement Between U.S.
Underwriters and International Managers, any Supplemental Agreement Among U.S.
Underwriters and any other related documents in connection with the offering,
purchase, sale and delivery of the Stock; (e) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of sale of the Stock; (f) any applicable listing or other
fees; (g) the fees and expenses of qualifying the Stock under the securities
laws of the several jurisdictions as provided in Section 5 (h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the International Managers); and (h) all other costs and
expenses incident to the performance of the obligations of the Company under
this Agreement; PROVIDED that, except as provided in this Section 6 and in
Section 11, the International Managers shall pay their own costs and expenses,
including the costs and expenses of their counsel, any transfer taxes on the
Stock which they may sell and the expenses of advertising any offering of the
Stock made by the International Managers.
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7. CONDITIONS OF INTERNATIONAL MANAGERS' OBLIGATIONS. The respective
obligations of the International Managers hereunder are subject to the accuracy,
when made and on each Delivery Date, of the representations and warranties of
the Company contained herein, to the performance by the Company of its
obligations hereunder, and to each of the following additional terms and
conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 5(a); no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement or the Prospectus or otherwise
shall have been complied with.
(b) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the U.S. Underwriting
Agreement, the Stock, the Registration Statement and the Prospectus, and all
other legal matters relating to this Agreement and the transactions
contemplated hereby shall be reasonably satisfactory in all material
respects to counsel for the International Managers, and the Company shall
have furnished to such counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(c) Dorsey & Whitney P.L.L.P. shall have furnished to the Lead Managers
its written opinion, as counsel to the Company, addressed to the
International Managers and dated such Delivery Date, in form and substance
reasonably satisfactory to the Lead Managers, to the effect that:
(i) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation,
are duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its respective ownership or
lease of property or the conduct of its business requires such
qualification and has all power and authority necessary to own or hold
their respective properties and conduct the businesses in which it is;
(ii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
(including the shares of Stock being delivered on such Delivery Date)
have been duly and validly authorized and issued, are fully paid and non-
assessable, and conform to the description thereof contained in the
Prospectus;
(iii) There are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any shares
of the Stock pursuant to the Company's charter or by-laws or any
agreement or other instrument known to such counsel;
(iv) To such counsel's knowledge and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to
which the Company is a party or of which any property or assets of the
Company is the subject which is required to be described in the
Prospectus that is not described as required; and, to the best of such
counsel's knowledge, no such proceedings are overtly threatened by
governmental authorities or threatened by others;
(v) The Registration Statement was declared effective under the
Securities Act as of the date and time specified in such opinion, the
Prospectus was filed with the Commission pursuant to the subparagraph of
Rule 424(b) of the Rules and Regulations specified in such opinion on the
date specified therein and no stop order suspending the effectiveness of
the Registration Statement has been issued and, to the knowledge of such
counsel, no proceeding for that purpose is pending or threatened by the
Commission;
(vi) The Registration Statement and the Prospectus and any further
amendments or supplements thereto made by the Company prior to such
Delivery Date (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Securities Act
and the Rules and Regulations; the documents incorporated by reference in
the Prospectus and any further amendment or supplement to any such
incorporated document made by the Company prior to such Delivery Date
(other than the financial statements and related schedules therein, as to
which such
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counsel need express no opinion), when they became effective or were
filed with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the Securities Act or the
Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder;
(vii) To counsel's knowledge, there are no contracts or other
documents which are required to be described in the Prospectus or filed
as exhibits to the Registration Statement by the Securities Act or by the
Rules and Regulations which have not been described or filed as exhibits
to the Registration Statement or incorporated therein by reference as
permitted by the Rules and Regulations;
(viii) This Agreement and the U.S. Underwriting Agreement have been
duly authorized, executed and delivered by the Company;
(ix) The issue and sale of the shares of Stock being delivered on
such Delivery Date by the Company and the compliance by the Company with
all of the provisions of this Agreement , and the U.S. Underwriting
Agreement and the consummation of the transactions contemplated hereby
and thereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of
the Company or any of its subsidiaries or any statute or any order, rule
or regulation known to such counsel of any court or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries
or any of their properties or assets; and, except for the registration of
the Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
the Exchange Act and applicable state or foreign securities laws in
connection with the purchase and distribution of the Stock by the
International Managers and U.S. Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such court
or governmental agency or body is required for the execution, delivery
and performance of this Agreement, or the U.S. Underwriting Agreement by
the Company and the consummation of the transactions contemplated hereby
and thereby; and
(x) To such counsel's knowledge, there are no contracts, agreements
or understandings between the Company and any person granting such person
the right to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
In rendering such opinion, such counsel may (i) state that its opinion is
limited to matters governed by the Federal laws of the United States of
America and the laws of Minnesota; (ii) rely, as to questions of law not
involving the laws of the United States or the State of Minnesota, upon
opinions of local counsel, provided such counsel is satisfactory to counsel
for the International Managers and furnishes a copy of its opinion to the
Lead Managers. Such counsel shall also have furnished to the Lead Managers a
written statement, addressed to the International Managers and dated such
Delivery Date, in form and substance satisfactory to the Lead Managers, to
the effect that (x) such counsel has acted as counsel to the Company on a
regular basis (although the Company is also represented, with respect to
patent and certain other matters, by other outside counsel), has acted as
counsel to the Company in connection with the preparation of the
Registration Statement, and (y) based on the foregoing, no facts have come
to the attention of such counsel which lead it to believe that (I) the
Registration Statement (other than the financial statements, the related
notes and schedules thereto), as of the Effective Date, contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading, or that the Prospectus (other than
10
<PAGE>
the financial statements, the related notes and schedules thereto), contains
any untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or (II) any document incorporated by reference in the Prospectus
or any further amendment or supplement to any such incorporated document
(other than the financial statements, the related notes and schedules
thereto) made by the Company prior to such Delivery Date, when they became
effective or were filed with the Commission, as the case may be, contained,
in the case of a registration statement which became effective under the
Securities Act, any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make
the statements therein not misleading, or, in the case of other documents
which were filed under the Exchange Act with the Commission, an untrue
statement of a material fact or omitted to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The foregoing opinion and statement
may be qualified by a statement to the effect that such counsel does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus except
for the statements in the Registration Statement and Prospectus that relate
to the Stock and concern legal matters, including statements made under the
caption "Description of Capital Stock."
(d) The Lead Managers shall have received from Gray Cary Ware &
Freidenrich, counsel for the International Managers, such opinion or
opinions, dated such Delivery Date, with respect to the issuance and sale of
the Stock, the Registration Statement, the Prospectus and other related
matters as the Lead Managers may reasonably require, and the Company shall
have furnished to such counsel such documents as they reasonably request for
the purpose of enabling them to pass upon such matters.
(e) At the time of execution of this Agreement, the Lead Managers shall
have received from Arthur Andersen LLP a letter, in form and substance
satisfactory to the Lead Managers, addressed to the International Managers
and dated the date hereof (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in compliance
with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date hereof (or, with respect to matters involving
changes or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not more than
five days prior to the date hereof), the conclusions and findings of such
firm with respect to the financial information and other matters ordinarily
covered by accountants' "comfort letters" to underwriters in connection with
registered public offerings.
(f) With respect to the letter of Arthur Andersen LLP referred to in the
preceding paragraph and delivered to the Lead Managers concurrently with the
execution of this Agreement (the "initial letter"), the Company shall have
furnished to the Lead Managers a letter (the "bring-down letter") of such
accountants, addressed to the International Managers and dated such Delivery
Date (i) confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule 2-01 of
Regulation S-X of the Commission, (ii) stating, as of the date of the
bring-down letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five days
prior to the date of the bring-down letter), the conclusions and findings of
such firm with respect to the financial information and other matters
covered by the initial letter and (iii) confirming in all material respects
the conclusions and findings set forth in the initial letter.
(g) The Company shall have furnished to the Lead Managers a certificate,
dated such Delivery Date, of its Chairman of the Board, its President or a
Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the Company in
Section 1 are true and correct as of such Delivery Date; the Company has
complied with all its agreements contained herein; and the conditions set
forth in Sections 7(a) and 7(h) have been fulfilled; and
11
<PAGE>
(ii) They have carefully examined the Registration Statement and the
Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (B) since the Effective Date no event has occurred
which should have been set forth in a supplement or amendment to the
Registration Statement or the Prospectus.
(h) (i) Neither the Company nor any of its Significant Subsidiaries
shall have sustained since the date of the latest audited financial
statements included or incorporated by reference in the Prospectus any loss
or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus or (ii) since such date there shall not
have been any change in the capital stock or long-term debt of the Company
or any of its Subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its Significant Subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is, in the judgment of the Lead Managers,
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Stock being
delivered on such Delivery Date on the terms and in the manner contemplated
in the Prospectus.
(i) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been suspended
or minimum prices shall have been established on any such exchange or such
market by the Commission, by such exchange or by any other regulatory body
or governmental authority having jurisdiction, (ii) a banking moratorium
shall have been declared by Federal or New York or Minnesota authorities,
(iii) the United States shall have become engaged in hostilities, there
shall have been an escalation in hostilities involving the United States or
there shall have been a declaration of a national emergency or war by the
United States or (iv) there shall have occurred such a material adverse
change in general economic, political or financial conditions (or the effect
of international conditions on the financial markets in the United States
shall be such) as to make it, in the judgment of a majority in interest of
the several International Managers, impracticable or inadvisable to proceed
with the public offering or delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the Prospectus.
(j) The National Market System shall have approved the Stock for
inclusion, subject only to official notice of issuance.
(k) You shall have received from each of Merchant & Gould and Schwegman,
Lundberg & Woessner, P.A., patent counsel for the Company, an opinion
addressed to the International Managers and dated the Closing Date, covering
the following matters, and if Option Stock is purchased at any date after
the Closing Date, additional opinions from such counsel, addressed to the
International Managers and dated such later date, confirming that the
statements expressed as of the Closing Date in such opinion remain valid as
of such later date:
Such counsel are familiar with the technology used by the Company in
its business and the manner of its use thereof and have read the
Registration Statement and the Prospectus, including particularly the
portions of the Registration Statement and the Prospectus referring to
patents, trade secrets, trademarks, service marks or other proprietary
information or materials and:
(i) The Statements in the Registration Statement and the
Prospectus under the caption "Risk Factors -- Intellectual Property,"
and "Business," to the best of such counsel's knowledge and belief,
are accurate and complete statements or summaries of the matters
therein set forth and nothing has come to such counsel's attention
that causes such counsel to believe that the above-described portions
of the Registration Statement and the Prospectus contain any
12
<PAGE>
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading;
(ii) to the best of such counsel's knowledge, there are no legal
or governmental proceedings pending relating to patent rights, trade
secrets, trademarks, service marks or other proprietary information
or materials of the Company, and to the best of such counsel's
knowledge no such proceedings are threatened or contemplated by
governmental authorities or others;
(iii) such counsel do not know of any contracts or other
documents, relating to governmental regulation affecting the Company
or the Company's patents or proprietary information, of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the
Prospectus that are not filed or described as required;
(iv) except as set forth in the Registration Statement and the
Prospectus, in such counsel's opinion, there exists no patent issued,
or of which such counsel are aware without any formal search or
complete factual and legal analysis having been performed which, if
properly construed, would prevent the Company or any of its
Subsidiaries from proceeding with its business as presently conducted
and as proposed to be conducted as described in the Registration
Statement and the Prospectus.
(l) The closing under the U.S. Underwriting Agreement shall have
occurred concurrently with the closing hereunder on the First Delivery Date.
(m) You shall have received from counsel reasonably acceptable to you an
opinion relating to the matters described in Section 7(c)(i) hereof with
respect to the following foreign subsidiaries of the Company: [to come]
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the International Managers.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless each International Manager
and each person, if any, who controls any International Manager within the
meaning of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Stock), to which that International Manager or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading and shall reimburse
each International Manager and each such controlling person promptly upon demand
for any legal or other expenses reasonably incurred by that International
Manager or controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action as
such expenses are incurred; PROVIDED, HOWEVER, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company through the Lead Managers by or on behalf
of any International Manager specifically for inclusion therein.
(b) Each International Manager, severally and not jointly, shall indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if
13
<PAGE>
any, who controls the Company within the meaning of the Securities Act, from and
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof, to which the Company or any such director, officer or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through the Lead Managers by or on
behalf of that International Manager specifically for inclusion therein, and
shall reimburse the Company and any such director, officer or controlling person
for any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any International Manager may otherwise have to
the Company or any such director, officer or controlling person.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
claim or the commencement of that action; PROVIDED, HOWEVER, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have under this Section 8 except to the extent it has been materially
prejudiced by such failure and, PROVIDED FURTHER, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Section 8. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; PROVIDED, HOWEVER, that
the Lead Managers shall have the right to employ counsel to represent jointly
the Lead Managers and those other International Managers and their respective
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the International Managers against
the Company under this Section 8 if, in the reasonable judgment of the Lead
Managers, it is advisable for the Lead Managers and those International Managers
and controlling persons to be jointly represented by separate counsel, and in
that event the fees and expenses of such separate counsel shall be paid by the
Company. An indemnifying party will not, without the prior written consent of
the indemnified parties (which consent shall not be unreasonably withheld),
settle or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding. An indemnified party will not, without the prior written
consent of the indemnifying party (which consent shall not be unreasonably
withheld), settle or compromise any such action, but if settled with the consent
of the indemnifying party or if there be a final judgment of the plaintiff in
any such action, the indemnifying party agrees to indemnify and hold harmless
any indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for any
reason be unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability,
or any action in respect thereof, referred to therein, then each indemnifying
party shall, in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such proportion
as
14
<PAGE>
shall be appropriate to reflect the relative benefits received by the Company on
the one hand and the International Managers on the other from the offering of
the Stock or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the International Managers on the other
with respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the International Managers on the other with respect to such
offering shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Stock purchased under this Agreement (before deducting
expenses) received by the Company on the one hand, and the total underwriting
discounts and commissions received by the International Managers with respect to
the shares of the Stock purchased under this Agreement, on the other hand, bear
to the total gross proceeds from the offering of the shares of the Stock under
this Agreement, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to whether the
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or the International Managers, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the International Managers agree that it
would not be just and equitable if contributions pursuant to this Section were
to be determined by pro rata allocation (even if the International Managers were
treated as one entity for such purpose) or by any other method of allocation
which does not take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as a result of the
loss, claim, damage or liability, or action in respect thereof, referred to
above in this Section shall be deemed to include, for purposes of this Section
8(d), any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(d), no International Manager
shall be required to contribute any amount in excess of the amount by which the
total price at which the Stock underwritten by it and distributed to the public
was offered to the public exceeds the amount of any damages which such
International Manager has otherwise paid or become liable to pay by reason of
any untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The International
Managers' obligations to contribute as provided in this Section 8(d) are several
in proportion to their respective underwriting obligations and not joint.
(e) The International Managers severally confirm that the statements with
respect to the public offering of the Stock by the International Managers set
forth on the cover page of, the legend concerning over-allotments on the inside
front cover page of and under the caption "Underwriting" in, the Prospectus are
correct, and the Company agrees that such items constitute the only information
furnished in writing to the Company by or on behalf of the International
Managers specifically for inclusion in the Registration Statement and the
Prospectus.
9. DEFAULTING INTERNATIONAL MANAGERS.
If, on either Delivery Date, any International Manager defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting International Managers shall be obligated to purchase the Stock
which the defaulting International Manager agreed but failed to purchase on such
Delivery Date in the respective proportions which the number of shares of the
Firm Stock set opposite the name of each remaining non-defaulting International
Manager in Schedule 1 hereto bears to the total number of shares of the Firm
Stock set opposite the names of all the remaining non-defaulting International
Managers in Schedule 1 hereto; PROVIDED, HOWEVER, that the remaining
non-defaulting International Managers shall not be obligated to purchase any of
the Stock on such Delivery Date if the total number of shares of the Stock which
the defaulting International Manager or International Managers agreed but failed
to purchase on such date exceeds 9.09% of the total number of shares of the
Stock to be purchased on such Delivery Date, and any remaining non-defaulting
International Manager shall not be obligated to purchase more than 110% of the
number of shares of the Stock which it agreed to purchase on such Delivery Date
pursuant to the terms of
15
<PAGE>
Section 2. If the foregoing maximums are exceeded, the remaining non-defaulting
International Managers, or those other underwriters satisfactory to the Lead
Managers who so agree, shall have the right, but shall not be obligated, to
purchase, in such proportion as may be agreed upon among them, all the Stock to
be purchased on such Delivery Date. If the remaining International Managers or
other underwriters satisfactory to the Lead Managers do not elect to purchase
the shares which the defaulting International Manager or International Managers
agreed but failed to purchase on such Delivery Date, this Agreement (or, with
respect to the Second Delivery Date, the obligation of the International
Managers to purchase, and of the Company to sell, the Option Stock) shall
terminate without liability on the part of any non-defaulting International
Manager or the Company except that the Company will continue to be liable for
the payment of expenses to the extent set forth in Sections 6 and 11. As used in
this Agreement, the term "International Manager" includes, for all purposes of
this Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 9, purchases Firm Stock which a
defaulting International Manager agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting International Manager of
any liability it may have to the Company for damages caused by its default. If
other underwriters are obligated or agree to purchase the Stock of a defaulting
or withdrawing International Manager, either the Lead Managers or the Company
may postpone the Delivery Date for up to seven full business days in order to
effect any changes that in the opinion of counsel for the Company or counsel for
the International Managers may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.
10. TERMINATION. The obligations of the International Managers hereunder
may be terminated by the Lead Managers by notice given to and received by the
Company prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Sections 7(h) or 7(i) shall have occurred
or if the International Managers shall decline to purchase the Stock for any
reason permitted under this Agreement.
11. REIMBURSEMENT OF INTERNATIONAL MANAGERS' EXPENSES. If (a) the Company
shall fail to tender the Stock for delivery to the International Managers by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed, or because any other
condition of the International Managers' obligations hereunder required to be
fulfilled by the Company is not fulfilled, the Company will reimburse the
International Managers for all reasonable out-of-pocket expenses (including fees
and disbursements of counsel) incurred by the International Managers in
connection with this Agreement and the proposed purchase of the Stock, and upon
demand the Company shall pay the full amount thereof to the Lead Managers. If
this Agreement is terminated pursuant to Section 10 by reason of the default of
one or more International Managers, the Company shall not be obligated to
reimburse any defaulting International Manager on account of those expenses.
12. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) If to the International Managers, shall be delivered or sent by
mail, telex or facsimile transmission to Lehman Brothers International
(Europe), 1 Broadgate, London EC2M 7HA, England, Attention: Syndicate
Department;
(b) If to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: William J. Cadogan;
PROVIDED, HOWEVER, that any notice to an International Manager pursuant to
Section 8(c) shall be delivered or sent by mail, telex or facsimile transmission
to such International Manager at its address set forth in its acceptance telex
to the Lead Managers, which address will be supplied to any other party hereto
by the Lead Managers upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the International Managers by Lehman Brothers International
(Europe) on behalf of the Representatives.
13. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of and be binding upon the International Managers, the Company
and their respective successors. This Agreement
16
<PAGE>
and the terms and provisions hereof are for the sole benefit of only those
persons, except that (A) the representations, warranties, indemnities and
agreements of the Company contained in this Agreement shall also be deemed to be
for the benefit of the person or persons, if any, who control any International
Manager within the meaning of Section 15 of the Securities Act and for the
benefit of each U.S. Underwriter (and controlling persons thereof) who offers or
sells any shares of Common Stock in accordance with the terms of the Agreement
Between U.S. Underwriters and International Managers; and (B) the indemnity
agreement of the International Managers contained in Section 8(b) of this
Agreement shall be deemed to be for the benefit of directors of the Company,
officers of the Company who have signed the Registration Statement and any
person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section 13, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
14. SURVIVAL. The respective indemnities, representations, warranties and
agreements of the Company and the International Managers contained in this
Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
15. DEFINITION OF THE TERMS "BUSINESS DAY" AND "SUBSIDIARY". For purposes
of this Agreement, (a) "business day" means any day on which the New York Stock
Exchange, Inc. is open for trading and (b) "subsidiary" has the meaning set
forth in Rule 405 of the Rules and Regulations.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF NEW YORK.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
17
<PAGE>
If the foregoing correctly sets forth the agreement the Company and the Lead
Managers, please indicate your acceptance in the space provided for that purpose
below.
Very truly yours,
ADC TELECOMMUNICATIONS, INC.
By
--------------------------------------
William J. Cadogan
Accepted:
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
GOLDMAN SACHS & INTERNATIONAL
For themselves and as Lead Managers
of the several International Managers named
in Schedule 1 hereto
By LEHMAN BROTHERS INTERNATIONAL (EUROPE)
By
----------------------------------------------
AUTHORIZED REPRESENTATIVE
18
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
- ----------------------------------------------------------------- -------------
<S> <C>
Lehman Brothers International (Europe)...........................
Goldman Sachs International......................................
Total........................................................ 1,100,000
</TABLE>
<PAGE>
EXHIBIT 5
[Letterhead of Dorsey & Whitney P.L.L.P.]
ADC Telecommunications, Inc.
12501 Whitewater Drive
Minnetonka, Minnesota 55343
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to ADC Telecommunications, Inc., a Minnesota
corporation (the "Company"), in connection with a Registration Statement on Form
S-3 (the "Registration Statement") to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the sale by
the Company of up to 6,325,000 shares of common stock of the Company, par value
$.20 per share (including 825,000 shares to be subject to the Underwriters'
over-allotment option)(the "Common Stock"), pursuant to an U.S. Underwriting
Agreement among the Company, Lehman Brothers Inc. and Goldman, Sachs & Co., as
representatives of several underwriters, and an International Underwriting
Agreement among the Company, Lehman Brothers and Goldman Sachs International as
International Managers.
We have examined such documents and have reviewed such questions of law as
we have considered necessary and appropriate for the purposes of our opinions
set forth below. In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Company, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Company and of public officials. We have
also assumed that the Common Stock will be issued and sold as described in the
Registration Statement.
Based on the foregoing, we are of the opinion that the shares of Common
Stock to be sold by the Company pursuant to the Registration Statement have been
duly authorized by all requisite corporate action and, upon issuance, delivery
and payment therefor as described in the Registration Statement, will be validly
issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Validity of Shares" in the Prospectus constituting part of the Registration
Statement.
Dated: May 18, 1995
Very truly yours,
LRM
/s/ Dorsey & Whitney P.L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
May 18, 1995
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below hereby constitutes and appoints William J. Cadogan, Robert E. Switz and
Charles T. Roehrick and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full powers of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities to sign a registration statement, and any
and all amendments thereto, including post-effective amendments, on Form S-3 for
the registration under the Securities Act of 1933 of shares of Common Stock of
ADC Telecommunications, Inc. ("ADC") to be sold by ADC in an underwritten public
offering, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 18, 1995
<TABLE>
<S> <C>
/s/ WILLIAM J. CADOGAN /S/ ROBERT E. SWITZ
- ------------------------------------------- -------------------------------------------
William J. Cadogan Robert E. Switz
/S/ CHARLES T. ROEHRICK /S/ JAMES C. CASTLE, PH.D.
- ------------------------------------------- -------------------------------------------
Charles T. Roehrick James C. Castle, Ph.D.
/S/ THOMAS E. HOLLORAN /S/ CHARLES W. OSWALD
- ------------------------------------------- -------------------------------------------
Thomas E. Holloran Charles W. Oswald
/S/ ALLEN E. ROSS /S/ B. KRISTINE JOHNSON
- ------------------------------------------- -------------------------------------------
Allen E. Ross B. Kristine Johnson
/S/ JOHN D. WUNSCH /S/ WARDE F. WHEATON
- ------------------------------------------- -------------------------------------------
John D. Wunsch Warde F. Wheaton
/S/ JEAN-PIERRE ROSSO /S/ DONALD M. SULLIVAN
- ------------------------------------------- -------------------------------------------
Jean-Pierre Rosso Donald M. Sullivan
</TABLE>
