<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 20, 1995
REGISTRATION NO. 33-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
DATA TRANSLATION, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 3573 04-2532613
(State or other jurisdiction
of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
100 LOCKE DRIVE, MARLBORO, MA 01752-1192, (508) 481-3700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ALFRED A. MOLINARI, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
100 Locke Drive, Marlboro, MA 01752-1192 (508) 481-3700
(Name address, including zip code, and telephone number, including area code, of
agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
HEMMIE CHANG, ESQ. STUART M. CABLE, ESQ.
ROPES & GRAY GOODWIN, PROCTER & HOAR
One International Place Exchange Place
Boston, MA 02110-2624 Boston, MA 02109-2881
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
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, check the following box. / /
If this Form is filed to register additional securities for offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
===================================================================================================
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.... 1,713,500 shares $19.00 $32,556,500 $11,226
===================================================================================================
<FN>
(1) Includes 223,500 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
</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> 2
DATA TRANSLATION, INC.
CROSS REFERENCE SHEET BETWEEN ITEMS
IN PART I OF FORM S-1 AND THE PROSPECTUS
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<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTIONS CAPTION IN PROSPECTUS
----------------------------------------------------- ---------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Outside Front Cover Page of Pro-
spectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Prospectus Summary; Use of Pro-
ceeds
5. Determination of Offering Price...................... Front Cover Page of Prospectus;
Underwriting
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Principal and Selling
Stockholders
8. Plan of Distribution................................. Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered........... Front Cover Page of Prospectus;
Description of Capital Stock
10. Interests of Named Experts and Counsel............... Certain Relationships and Related
Transactions
11. Information with Respect to Registrant............... Inside Front and Outside Back
Cover Pages of Prospectus;
Prospectus Summary; Risk Factors;
Dividend Policy; Capitalization;
Selected Financial Data;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Management; Certain
Relationships and Related
Transactions; Principal and
Selling Stockholders; Description
of Capital Stock; Shares Eligible
for Future Sale; Consolidated
Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Not Applicable
</TABLE>
<PAGE> 3
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.
SUBJECT TO COMPLETION, DATED OCTOBER 20, 1995
PROSPECTUS
dated , 1995
1,490,000 SHARES
LOGO
COMMON STOCK
Of the shares offered hereby, 1,400,000 are being sold by Data Translation, Inc.
("Data Translation" or the "Company") and 90,000 shares are being sold by the
Selling Stockholders. See "Principal and Selling Stockholders." The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders.
The shares of Common Stock are listed on the Nasdaq National Market under the
symbol "DATX." On October 18, 1995 the last reported sale price of the Common
Stock on the Nasdaq National Market was $19.00 per share. See "Price Range of
Common Stock."
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN RISK FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 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>
PROCEEDS
PRICE TO UNDERWRITING PROCEEDS TO TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------------------------
Total (3)..................... $ $ $ $
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated offering expenses payable by the Company of
$400,000.
(3) The Company has granted the Underwriters an over-allotment option to
purchase an additional 223,500 shares of Common Stock, exercisable within 30
days after the date of this Prospectus at the Price to Public less the
Underwriting Discount. If all such shares are purchased, the total Price to
Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters subject to prior sale
and when, as and if delivered to and accepted by the Underwriters. It is
expected that delivery of the certificates for the shares will be made at the
offices of Piper Jaffray Inc. in Minneapolis, Minnesota on or about, November
, 1995.
PIPER JAFFRAY INC. HAMBRECHT & QUIST
<PAGE> 4
[Data Translation logo]
[Media 100 user interface photograph]
[Media 100 logo] Media 100(R)'s 3-Window graphical user
interface makes digital media authoring
easy for both professional and new users.
[Venetian blind
transition photograph]
[Center peel special effect photograph]
[Media 100 logo] Media
100, version 2.5,
provides one of the
industry's widest
selection of real time
and accelerated video
special effects
available from a video
desktop system,
including venetian blind
transition (above) and
center peel (left).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR IN
THE OVER-THE-COUNTER MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S COMMON
STOCK ON NASDAQ IN ACCORDANCE WITH RECENTLY ADOPTED RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
Data Translation(R), Media 100(R), GLOBAL LAB(R), DT-Open Layers(R),
DTVEETM, FidelityTM, FulcrumTM, All-On-OneTM Mastering, FX OptionTM, EDL
OptionTM, PlatinumTM Support, Suite DealTM, CG OptionTM, VincentTM, Power
OptionTM, HDR OptionTM, FastFXTM, PowerLogTM, Whole DealTM, and Component
OptionTM are trademarks of the Company. This Prospectus includes trademarks and
tradenames of companies other than Data Translation.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements included elsewhere in this
Prospectus. Unless otherwise specified, all information in this Prospectus
assumes that the Underwriters' over-allotment option is not exercised.
References to a fiscal year of the Company refer to the twelve months ended
November 30 of such year. Unless otherwise indicated, all information contained
in this Prospectus gives effect to a two-for-one stock split in the form of a
stock dividend of one share of Common Stock for every two shares outstanding for
holders of record on July 17, 1995, effective on July 31, 1995.
THE COMPANY
Data Translation, Inc. ("Data Translation" or the "Company") is a leader in
the design, development and manufacture of high performance digital media, data
acquisition and imaging products. The Company's principal products are Media
100(R), a digital media product that enables video producers to produce
broadcast quality videos on a Macintosh computer, and digital signal processing
boards and software, which use personal computers to receive analog signals,
convert them to digital form and process the digital data. The Company's
strategy is to leverage its core competence in digital media and digital signal
processing to identify growth opportunities and develop products for emerging
markets. The Company currently sells products through the following three
business groups: digital media, data acquisition and imaging, and networking
distribution.
Digital media technology is fundamentally changing the way videos are made
in much the same way that desktop publishing revolutionized the production of
the printed page. Storing images and sounds on hard disk rather than on
videotape allows the user to access any scene or sound in real time. Media 100
is simpler, faster and less costly than traditional analog video production
equipment. The Company targets the corporate and institutional market which
includes a growing market of new users in addition to existing users of video
production equipment. Since introducing Media 100 in August 1993, the Company
has sold approximately 3,300 systems.
In August 1995, the Company introduced version 2.5 of Media 100, which
incorporates a board that is compatible with the Peripheral Component
Interconnect (PCI) standard. This board, named VincentTM, is the first such
board in the digital media market to be compatible with the newly introduced
PCI-based Power Macintosh computers, as well as PCI-based personal computers
using Intel microprocessors, such as Pentium, and Microsoft Windows. By
committing to an open standard and continuous development of a complete range of
software and hardware options and upgrades, the Company believes that it is well
positioned to continue to be a leader in its target market. Media 100 sales
represented approximately 39.6% of the Company's total net sales in the nine
months ended August 31, 1995.
The Company's core technology is the conversion of analog signals
representing physical events into digital computer data and the processing of
such data. For more than two decades, the Company's data acquisition and imaging
products have provided engineers and scientists with accurate and timely data
for measurement, analysis and process control in a wide range of industrial,
scientific and medical applications. The Company has sold more than 320,000 data
acquisition and imaging products since its inception. In 1995, the Company has
incorporated several new technologies in its data acquisition and imaging
products, including the high speed PCI bus and software that is compatible with
Windows 95 software.
The Company also distributes, integrates and supports enterprise wide
networking products in the United Kingdom, which are manufactured by third party
suppliers. The Company believes its knowledge of the latest networking
technologies, such as asynchronous transfer mode (ATM), will enable it to
benefit from expected continued growth in this market. In addition, the Company
believes that its networking technology expertise will contribute to the
development of new digital media and imaging products.
Data Translation sells its digital media products through a group of
specialized value added resellers and distributors and its data acquisition,
imaging and externally sourced networking products through a comprehensive,
widely distributed catalog and an in-house telemarketing staff.
3
<PAGE> 6
The Company was incorporated in 1973 as a Massachusetts corporation. Its
principal executive offices are at 100 Locke Drive, Marlboro, Massachusetts
01752-1192 and its telephone number is (508) 481-3700. Unless the context
otherwise indicates, references to the Company or Data Translation include its
consolidated subsidiaries.
THE OFFERING
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<S> <C>
Common Stock offered by the Company.................. 1,400,000 shares
Common Stock offered by the Selling Stockholders..... 90,000 shares
Common Stock outstanding after this Offering......... 7,596,433 shares(1)
Use of Proceeds...................................... For working capital, research and
development, marketing expenses,
capital expenditures and other
general corporate purposes. See "Use
of Proceeds."
Nasdaq National Market Symbol........................ DATX
</TABLE>
- ---------------
(1) Based on the number of shares outstanding on October 11, 1995. Excludes
1,079,185 shares of Common Stock issuable upon exercise of stock options
outstanding at October 11, 1995. See Note 3 of Notes to Consolidated Financial
Statements included elsewhere in this Prospectus.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, AUGUST 31,
----------------------------------- ------------------------
1992 1993 1994 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales:
Digital media................................ -- $ 1,118 $12,415 $ 7,916 $20,323
Data acquisition and imaging................. $24,775 23,733 22,440 16,953 16,359
Networking distribution...................... 8,787 10,850 15,382 10,886 14,604
------- ------- ------- ------- -------
Total net sales.................................. 33,562 35,701 50,237 35,755 51,286
Cost of sales.................................... 16,285 18,533 26,819 19,122 26,679
Income (loss) from operations.................... (3,209) (4,209) 405 (50) 2,762
Net income (loss)................................ $(2,458) $(4,298) $ 320 $ (60) $ 3,164
Net income (loss) per share...................... $ (0.59) $ (1.01) $ 0.07 $ (0.01) $ 0.48
Weighted average number of shares outstanding.... 4,162 4,256 4,764 4,348 6,621
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AUGUST 31, 1995
-----------------------------
ACTUAL AS ADJUSTED(1)
------- ---------------
<S> <C> <C>
Cash, cash equivalents and marketable securities....................................... $13,630 $38,301
Working capital........................................................................ 20,340 45,011
Total assets........................................................................... 36,541 61,212
Long-term debt......................................................................... -- --
Total liabilities...................................................................... 12,597 12,597
Total stockholders' equity............................................................. 23,944 48,615
</TABLE>
- ---------------
(1) Adjusted to give effect to the sale of 1,400,000 shares of Common Stock
offered by the Company hereby at a public offering price of $19.00 per
share, after deducting the estimated underwriting discounts and commissions
and offering expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."
4
<PAGE> 7
RISK FACTORS
In evaluating the Company's business, prospective investors should
carefully consider the following risk factors, in addition to the other
information contained in this Prospectus.
Reliance on Media 100(R). For the nine months ended August 31, 1995,
approximately 39.6% of the Company's net sales were attributable to the
Company's digital media system, Media 100. The Company expects that sales of
Media 100 will account for a significant and growing proportion of the Company's
overall sales for the foreseeable future. The Company has sold Media 100
primarily to corporate and institutional users, many of whom will require only
one or a limited number of systems. Accordingly, the Company's ability to
increase sales of Media 100 will depend in large part on its ability to expand
its customer base and no assurance can be given that increased sales will result
in profitability. Any competitive, technological or other factor adversely
affecting sales of Media 100 would have a material adverse effect on the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Pending Litigation. In June 1995, a lawsuit was filed against the Company
by Avid Technology, Inc. ("Avid"), a Massachusetts-based company, in the United
States District Court for the District of Massachusetts. The complaint alleges
patent infringement by the Company arising from the manufacture, sale and use of
the Company's Media 100 line of products. The complaint includes requests for
injunctive relief, treble damages, interest, costs and fees. In July 1995, the
Company filed an Answer and Counterclaim denying any infringement and asserting
that the patent in question is invalid. The Company intends to vigorously defend
the lawsuit, which is currently early in the pre-trial stage. In addition, Avid
has filed papers in the United States Patent and Trademark Office requesting
reissuance of the patent and stating that it seeks patent claims broader than
those set forth in the existing patent. The reissuance proceedings remain
pending. If such broader claims were to issue, the Company expects that Avid
would seek to incorporate such claims into the litigation, although Avid has
made no reference to the reissue proceedings in the litigation to date. If the
Company does not prevail in the action, it could be required to pay substantial
damages for infringement and cease offering products that allegedly infringe
such patent, either of which results would have a material adverse effect on the
Company. Alternatively, the Company could be required to seek to obtain a
license under the patent. If so, there can be no assurance that such a license
would be available to the Company or, if available, that the terms of any such
license would be satisfactory. Moreover, the pendency and expense of the
litigation could adversely affect the Company's business, market share,
financial condition and operating results, regardless of the outcome of the
litigation. There can be no assurance that the Company will prevail in the
litigation, or that any of the above-described effects of the litigation,
whether or not successful, will not be material. See "-- Reliance on Media 100."
Dependence on Digital Media Market. Media 100 is targeted primarily at the
corporate and institutional market. Many of these corporate and institutional
users currently rely on traditional analog editing processes. Digital editing
alternatives are relatively new and currently account for a small portion of
this market. The Company's future growth will depend, in part, on the rate at
which these users convert to digital editing processes and the rate at which
digital media gains new users drawn to video. There can be no assurance that the
use of digital media products will expand among corporations and institutions or
professional or mass market users. See "Business -- Digital Media -- Market."
Competition. The markets in which the Company participates are highly
competitive and product ease of use, performance and price are of prime
importance. In the emerging corporate and institutional market for digital
media, the Company has encountered competition primarily from Avid, which has
greater financial resources than the Company, as well as Truevision Inc. (a
subsidiary of RasterOps Corp.) ("Truevision") and Radius Inc. Because this
market is new and still evolving, it is difficult to predict future sources of
competition; however, competitors may foreseeably include larger vendors, such
as Matsushita Electric Industrial Company Limited, through its subsidiary
Panasonic Co. ("Matsushita"), which currently compete in the market of
professional users. To the extent that the Company has sold into the market of
professional users, the Company has encountered competition primarily from Avid
and ImMix (a division of Scitex America) ("ImMix"). In addition, competition in
this segment comes from comparably sized or smaller competitors, such as Matrox
Electronic Systems Ltd. ("Matrox") and FAST Electronic GmbH ("FAST") as well as
much larger vendors, such as Matsushita, which has introduced digital, nonlinear
editing systems. The Company expects that other vendors of
5
<PAGE> 8
analog videotape editing equipment, such as Sony Corporation ("Sony"), many of
which have substantially greater financial, technical and marketing resources
than the Company, will develop and introduce competing digital, nonlinear
systems. The Company's competitors may have greater financial, technical and
marketing resources than the Company. See "Business -- Digital Media --
Competition."
The markets for the Company's data acquisition and imaging and
externally-sourced networking products are highly competitive. Data Translation
competes in the data acquisition market principally with National Instruments
Corporation and Keithley Instruments, Inc. and in the imaging market with Matrox
and Imaging Technology Inc., all of which may have substantially greater
financial, technical and marketing resources than the Company. The Company also
competes with a number of smaller competitors in each of these markets. These
data acquisition and imaging markets and the Company's share of such markets
have been adversely affected in recent years by reduced government funding of
research, increased competition and lower levels of corporate capital
expenditures. There can be no assurance that such markets will grow in the
future or that the Company can maintain its position in such markets. See
"Business -- Data Acquisition and Imaging -- Competition."
In the market for networking products in the United Kingdom, the Company
competes with Azlan Group PLC and Persona Group PLC and numerous other larger
competitors that have substantially greater financial, technical and marketing
resources than the Company as well as numerous smaller competitors. See
"Business -- Networking Distribution Business -- Competition."
There can be no assurance that any of the Company's competitors will not be
able to develop products comparable or superior to those offered by the Company
or to adapt more quickly than the Company to new technologies or evolving
customer requirements.
Dependence on Proprietary Technology. The Company's success is heavily
dependent upon its proprietary technology. The Company relies principally upon
trademark, copyright and trade secret protection to protect its proprietary
technology. There can be no assurance such measures are adequate to protect the
Company's proprietary technology or that third parties will not assert
infringement claims in the future or that such claims will not be successful.
See "Business -- Proprietary Rights."
Need to Respond to Technological Change. The markets for the Company's
products are characterized by rapidly changing technology, evolving industry
standards and frequent new product introductions. The Company's future success
will depend in part upon its ability to enhance its existing products and to
introduce new products and features to meet changing customer requirements and
emerging industry standards. There can be no assurance that the Company will
successfully complete the development of these products or that the Company's
current or future products will achieve market acceptance. In order to appeal to
lower end mass market users, the Company plans to announce the introduction of a
lower cost model of Media 100, with fewer features, in early 1996. In addition,
the Company may announce other new products from time to time. Any delay or
failure of these products to achieve market acceptance would adversely affect
the Company's business. Furthermore, there can be no assurance that, despite
significant testing, errors will not be found in new products and upgrades after
commencement of commercial shipments, which could result in delay in or loss of
market acceptance. In addition, there can be no assurance that products or
technologies developed by others will not render the Company's products or
technologies non-competitive or obsolete.
The introduction of new or enhanced products also requires the Company to
manage the transition from existing products in order to meet changes in
customer ordering patterns, manage levels of product inventory and ensure that
adequate supplies of new products can be delivered to meet customer demand. New
product introductions could contribute to quarterly fluctuations in operating
results as orders for new products commence and orders for existing products
decline. New products could also have the effect of decreasing customer demand
for the Company's current products. See "Business -- Research and Development."
Risks Associated with Development and Maintenance of Distribution
Channel. The Company utilizes a network of specialized value added resellers
("VARs") to sell and support Media 100. The Company relies to a significant
extent on these VARs, rather than on a direct sales force, to sell Media 100.
Some of these VARs also offer competing products or systems, and there can be no
assurance that these VARs will devote the resources necessary to market and sell
Media 100 effectively. In addition, many of these VARs are small organizations
6
<PAGE> 9
with limited capital. Furthermore, the Company will be required to expand its
network of VARs into other markets and for such new products as the lower cost
model of Media 100 in order to increase its sales of Media 100. There can be no
assurance that the Company's network of VARs will be able to sell the Company's
products effectively or that the Company will be able to expand such networks
successfully. See "Business -- Digital Media -- Customers and Sales."
Dependence on Macintosh Computer. The Company's current digital media
product operates on Apple Computer, Inc.'s Macintosh. In addition, the Company
plans to develop a significant portion of its future digital media products to
operate on a Macintosh computer. The Company's operating results could be
adversely affected if its customers and resellers are not able to obtain
sufficient quantities of the required Macintosh or if Apple Computer, Inc.
decreases or discontinues sales of the Macintosh. Also, changes to the operating
system or architecture of the Macintosh, could require the Company to adapt its
products to those changes and any inability to do so, or delays in doing so,
could adversely affect the Company's business. In addition, there can be no
assurance that technical improvements in PC-based products targeted to the
corporate and institutional, professional or mass markets will not enable such
products to compete directly with the Company's digital media system.
Dependence on Key Suppliers. Many of the numerous raw materials, parts and
components purchased for use in the Company's hardware and software applications
are off-the-shelf items readily available from alternative vendors. Several,
however, are custom-made for the Company to meet its specifications and
applications or are manufactured by a single supplier. Certain components used
by the Company do not have ready substitutes or have been subject to
industry-wide shortages. There can be no assurance that the Company's
inventories would be adequate to meet the Company's production needs during any
interruption of supply. The Company's inability to develop alternative supply
sources, if required, or a reduction or stoppage in supply, could adversely
affect its operations until new sources of supply become available. See
"Business -- Manufacturing."
In addition, the Company distributes networking products in the United
Kingdom that are manufactured by several suppliers, such as 3Com Corporation,
Hewlett-Packard Company, Sonix Communications Ltd, Shiva Corporation and U.S.
Robotics Inc. The continued sales of the Company's externally sourced networking
products depends on the continued availability of products from these suppliers.
There can be no assurance that these suppliers will continue to supply
networking products to the Company or that the Company will be able to obtain
adequate alternative sources of networking products if these suppliers ceased
providing products to the Company. There also can be no assurance that these
suppliers will not significantly alter their pricing. See "Business --
Networking Distribution Business."
Dependence on Key Personnel. The Company's future success depends to a
significant extent on its senior management and other key employees, including
key development and engineering personnel. The loss of the Company's founder,
current Chairman and Chief Executive Officer, Alfred A. Molinari, Jr. or the
current Vice President/General Manager of the Multimedia Group and Director,
John A. Molinari, could have a material adverse effect upon the Company's
results of operations. The Company also believes that its future success will
depend in large part on its ability to attract and retain additional key
employees. Competition for such personnel in computer-related industries is
intense and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. See "Business -- Employees."
Significant Unallocated Proceeds. The Company has not yet identified
specific uses for a significant portion of the expected net proceeds of this
offering. See "Use of Proceeds." Pending their use for other specific business
purposes, the proceeds of this offering will be invested primarily in government
securities or cash equivalents. Such investment may result in the Company
obtaining lower yields on the funds than might be available in the securities
markets generally.
7
<PAGE> 10
USE OF PROCEEDS
The net proceeds to be received by Data Translation from the sale of the
Common Stock offered by the Company is estimated, at an assumed offering price
of $19.00 per share, to be $24,671,000 ($28,673,000 if the Underwriters'
over-allotment option is exercised in full), in each case after deducting
estimated Underwriters' discount and estimated offering expenses. The net
proceeds will be used for working capital, research and development, marketing
expenses, capital expenditures and other general corporate purposes. Pending
such uses, the net proceeds are expected to be invested in short-term,
interest-bearing investment grade securities.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders. See "Principal and Selling Stockholders."
DIVIDEND POLICY
Data Translation has never declared or made any cash or other distributions
to its stockholders. Data Translation currently intends to reinvest any earnings
to finance future growth. Accordingly, the Board of Directors does not
anticipate paying any cash or other dividends in the foreseeable future.
CAPITALIZATION
The following table sets forth the capitalization of the Company at August
31, 1995 and as adjusted to give effect to the sale of the 1,400,000 shares of
Common Stock offered by the Company at an estimated offering price of $19.00 per
share, net of underwriting discounts and estimated offering expenses. See "Use
of Proceeds."
<TABLE>
<CAPTION>
AUGUST 31, 1995
------------------------
ACTUAL AS ADJUSTED
------- ------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt................................. -- --
Stockholders' equity:
Preferred stock, $.01 par value per share;
1,000,000 shares authorized; none issued
or outstanding............................ -- --
Common stock, $.01 par value per share;
10,000,000 shares authorized; 7,051,794
shares issued, and 8,451,794 as
adjusted(1)............................... $ 71 $ 85
Capital in excess of par value............... 15,685 40,342
Retained earnings............................ 10,058 10,058
Cumulative translation adjustment............ 34 34
Less treasury stock, 869,096 shares, at
cost...................................... (1,843) (1,843)
Unrealized holding loss on available for sale
securities................................ (61) (61)
------- ------------
Total stockholders' equity................ $23,944 $ 48,615
------- ------------
Total capitalization.................... $23,944 $ 48,615
======= ============
</TABLE>
- ---------------
(1) Excludes 1,087,920 shares of Common Stock issuable upon exercise of stock
options outstanding at August 31, 1995. See Note 3 of Notes to Consolidated
Financial Statements included elsewhere in this Prospectus.
8
<PAGE> 11
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the Nasdaq National Market under
the symbol "DATX." The following table sets forth, for the periods indicated,
the high and low closing prices per share of the Company's Common Stock as
quoted on the Nasdaq National Market. The following gives effect to the
Company's two-for-one stock split effective on July 31, 1995.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED NOVEMBER 30, 1993
First Quarter............................................................. $ 4 3/4 $3 3/8
Second Quarter............................................................ 5 1/8 3 7/16
Third Quarter............................................................. 4 7/8 3 1/2
Fourth Quarter............................................................ 5 1/4 3
FISCAL YEAR ENDED NOVEMBER 30, 1994
First Quarter............................................................. $ 5 1/8 $3
Second Quarter............................................................ 7 1/2 4 5/8
Third Quarter............................................................. 8 1/4 6 3/8
Fourth Quarter............................................................ 7 7/8 6 5/8
FISCAL YEAR ENDING NOVEMBER 30, 1995
First Quarter............................................................. $11 1/4 $7 1/8
Second Quarter............................................................ 16 1/4 10 3/4
Third Quarter............................................................. 17 5/8 13 1/16
Fourth Quarter through October 18, 1995................................... 19 3/4 16 3/8
</TABLE>
The last reported sale price per share of the Company's Common Stock as
reported on the Nasdaq National Market on a recent date is set forth on the
cover page of this Prospectus. As of October 11, 1995, the Company had 6,196,433
shares of Common Stock outstanding and approximately 204 holders of record.
9
<PAGE> 12
SELECTED FINANCIAL DATA
The following data has been derived from the Company's consolidated
financial statements which have been audited by Arthur Andersen LLP, independent
public accountants, as of and for the fiscal years ended November 30, 1990,
1991, 1992, 1993 and 1994 and as of and for the nine month periods ended August
31, 1994 and 1995. The data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the notes thereto and other financial
information included elsewhere in this Prospectus.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED NOVEMBER 30, AUGUST 31,
------------------------------------------------------- -------------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Digital media..................... -- -- -- $ 1,118 $12,415 $ 7,916 $20,323
Data acquisition and imaging...... $27,894 $25,647 $24,775 23,733 22,440 16,953 16,359
Networking distribution........... 8,862 8,206 8,787 10,850 15,382 10,886 14,604
------- ------- ------- ------- ------- ------- -------
Total net sales....................... 36,756 33,853 33,562 35,701 50,237 35,755 51,286
Cost of sales......................... 18,722 16,409 16,285 18,533 26,819 19,122 26,679
------- ------- ------- ------- ------- ------- -------
Gross profit...................... 18,034 17,444 17,277 17,168 23,418 16,633 24,607
Research and development expenses..... 4,629 4,694 5,566 6,392 6,821 5,180 5,488
Selling and marketing expenses........ 11,383 11,081 10,976 11,438 12,781 9,070 13,158
General and administrative expenses... 3,838 3,830 3,944 3,547 3,411 2,433 3,199
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations..... (1,816) (2,161) (3,209) (4,209) 405 (50) 2,762
Interest income....................... 646 493 304 244 152 118 494
Interest expense...................... (13) (85) (10) (37) (10) (5) (17)
Other income (expense)................ (17) (146) (135) (320) (28) (39) 6
------- ------- ------- ------- ------- ------- -------
Income (loss) before tax
provision (benefit)............. (1,200) (1,899) (3,050) (4,322) 519 24 3,245
Tax provision (benefit)............... (865) (729) (592) (24) 199 84 81
------- ------- ------- ------- ------- ------- -------
Net income (loss)................. $ (335) $(1,170) $(2,458) $(4,298) $ 320 $ (60) $ 3,164
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share........... $ (0.06) $ (0.26) $ (0.59) $ (1.01) $ 0.07 $ (0.01) $ 0.48
======= ======= ======= ======= ======= ======= =======
Weighted average number of shares
outstanding......................... 5,578 4,562 4,162 4,256 4,764 4,348 6,621
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------------------------------------- AUGUST 31,
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Cash, cash equivalents and marketable
securities...................................... $ 8,154 $ 8,559 $ 6,334 $ 4,117 $ 4,079 $13,630
Working capital................................... 13,358 12,419 10,760 7,173 8,378 20,340
Total assets...................................... 25,621 21,192 18,778 16,161 19,199 36,541
Total liabilities................................. 5,773 4,434 4,710 6,115 8,215 12,597
Long-term debt.................................... -- -- -- -- -- --
Total stockholders' equity........................ 19,848 16,758 14,068 10,046 10,984 23,944
</TABLE>
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in December 1973. The Company currently sells
products through the following three business groups: digital media, data
acquisition and imaging, and networking distribution.
The Company historically experienced substantial growth in total net sales
and net income with total net sales increasing to $41,984,000 in fiscal 1989.
Total net sales declined in fiscal 1990 and remained relatively flat from fiscal
1990 through fiscal 1993. Losses from fiscal 1990 through fiscal 1993 were due
to a number of factors, including a decline in government spending on research
and development, increased competition in the data acquisition and imaging
market, a cyclical downturn in capital spending by the Company's traditional
customers, overall price reductions for computer products and a slowdown in the
growth of scientific product sales.
In fiscal 1994, total net sales began to increase due to the growth in the
networking distribution business of the Company's United Kingdom subsidiary, as
well as the dramatic growth in unit sales of the Company's digital media
product, Media 100. Although sales from the networking distribution business
have increased, these sales carry a significantly lower gross margin than the
other product lines offered by the Company, thus adversely affecting the
Company's overall gross margin. Management expects this trend to be offset by
increased sales of Media 100, which carries a higher margin.
From fiscal 1990 to fiscal 1994, research and development expenses
increased from $4,629,000 to $6,821,000, principally as a result of the
development of Media 100. At the same time, the Company continued to invest in
its data acquisition and imaging business, which led to the introduction of
DTVEE(TM) software and the Fidelity(TM) and Fulcrum(TM) series of products.
RESULTS OF OPERATIONS
The following table shows certain consolidated statement of operations data
as a percentage of total net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
NOVEMBER 30, AUGUST 31,
----------------------------- ------------------
1992 1993 1994 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales:
Digital media............................................... -- 3.1% 24.7% 22.1% 39.6%
Data acquisition and imaging................................ 73.8% 66.5 44.7 47.4 31.9
Networking distribution..................................... 26.2 30.4 30.6 30.5 28.5
----- ----- ----- ----- -----
Total net sales................................................. 100.0 100.0 100.0 100.0 100.0
Gross margin.................................................... 51.5 48.1 46.6 46.5 48.0
Research and development expenses............................... 16.6 17.9 13.6 14.5 10.7
Selling and marketing expenses.................................. 32.7 32.0 25.4 25.3 25.7
General and administrative expenses............................. 11.8 10.0 6.8 6.8 6.2
----- ----- ----- ----- -----
Income (loss) from operations................................... (9.6) (11.8) 0.8 (0.1) 5.4
Interest income (expense) and other, net........................ 0.5 (0.3) 0.2 0.1 0.9
Provision (benefit) for income taxes............................ (1.8) (0.1) 0.4 0.2 0.1
----- ----- ----- ----- -----
Net income (loss)............................................... (7.3)% (12.0)% 0.6% (0.2)% 6.2%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THE NINE MONTHS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
Net sales for the nine month period ended August 31, 1995 were $51,286,000,
an increase of $15,531,000, or 43.4%, over the same period a year ago. The
increase was primarily a result of higher unit sales from Media 100 which
increased 156.7% to $20,323,000 and accounted for 39.6% of the Company's total
net sales, compared to $7,916,000, or 22.1%, in the same period a year ago.
During the first nine months of fiscal 1995, networking distribution sales
increased $3,718,000, or 34.2%, from the comparable period in fiscal 1994 due to
increased demand in the market for networking products. Data acquisition and
imaging net sales were down slightly despite an increase in unit sales from the
same period in fiscal 1994 and represented 31.9% of the
11
<PAGE> 14
Company's total net sales compared to 47.4% in fiscal 1994. These lower net
sales represent a shift in the data acquisition and imaging market toward new,
lower priced hardware and software solutions.
Gross margin for the first nine months of fiscal 1995 was 48.0% compared to
46.5% in the comparable period of a year ago. This increase reflects higher
margins on the Company's manufactured products due to higher utilization of the
Company's manufacturing capacity as well as a favorable product mix. In
addition, networking distribution sales constituted a lesser percentage of the
Company's total net sales, thereby increasing gross margins since the networking
products carry a significantly lower gross margin than the Company's
manufactured products.
Income from operations for the first nine months of fiscal 1995 was
$2,762,000, compared to a loss on operations of $50,000 in the same period of
last year. The operating income reflects the higher net sales and gross margins,
partially offset by higher operating expenses of $5,162,000. Selling and
marketing expenses and general and administrative expenses as a percentage of
total sales were relatively flat for the two nine month periods. Research and
development expenses increased $308,000 from the comparable period in the prior
year, reflecting the continued investment in product development. However, as a
percentage of total sales research and development expenses represented 10.7%
compared to 14.5% for the prior period, reflecting the impact of increased
networking distribution sales of products manufactured by third parties and the
156.7% growth in Media 100 sales in this period. Although operating expenses
were higher than the same period of a year ago, as a percent of total net sales,
operating expenses decreased from 46.6% to 42.6%.
Interest income was $494,000 for the first nine months of fiscal 1995
compared to $118,000 in the comparable period of 1994 reflecting an increase in
cash balances on hand during 1995.
The tax provision of $81,000 for the first nine months of fiscal 1995
compares to a $84,000 tax provision for the same period of a year ago. These tax
provisions are a result of profitable operations in the United Kingdom.
Substantially all of the potential tax provision resulting from profitable
operations in the Company's domestic operations is expected to be offset by net
operating loss carryforwards. For a discussion of the net operating loss
carryforwards, see Note 7 to Consolidated Financial Statements.
Net income for the first nine months of fiscal 1995 was $3,164,000 or $0.48
per share compared to net loss of $60,000 or $0.01 per share for the same period
in 1994.
COMPARISON OF FISCAL 1994 TO FISCAL 1993
Total net sales for the fiscal year ended November 30, 1994 were
$50,237,000, which was an increase of 40.7% or $14,536,000 over the same period
of a year ago. The increase was primarily a result of shipments of Media 100
which began in the third quarter of fiscal 1993, as well as higher net sales
from the networking distribution business in the United Kingdom. Media 100
accounted for 24.7% of the Company's total net sales in fiscal 1994. During
fiscal 1994, networking distribution sales remained at approximately 30.6% of
total net sales. The increase in networking distribution sales of 41.8% over the
same period of a year ago represents improved performance of Data Translation
Networking Limited since a new management team was installed in November, 1991,
as well as the growth in the enterprise wide networking market in the United
Kingdom. Net sales from the Company's data acquisition and imaging products
declined $1,293,000 or 5.4% compared to fiscal 1993, primarily due to changes in
the product mix, including the introduction of new, lower priced hardware
products.
While total net sales increased 40.7% in fiscal 1994, the gross margin
decreased to 46.6% of total net sales compared to 48.1% of total net sales in
fiscal 1993. The lower gross margin was primarily a result of lower gross
margins on networking distribution sales.
Income from operations for fiscal 1994 was $405,000 compared to an
operating loss of $4,209,000 for the prior fiscal year. Income from operations
primarily reflects higher net sales of Media 100 and networking distribution,
partially offset by lower gross margins in networking distribution and an
increase in operating expenses of $1,636,000. Selling and marketing expenses
have increased by $1,343,000, or 11.7%, from the comparable period, largely due
to the additional costs associated with the sales and promotion of Media 100.
Research and development expenses have increased by $429,000 from a year ago,
demonstrating the Company's
12
<PAGE> 15
continued investment in product development. The increased expenses were
partially offset by a decrease in general and administrative expenses of
approximately $136,000.
The tax provision of $199,000 for fiscal 1994 compared to a tax benefit of
$24,000 for fiscal 1993. The tax provision for fiscal 1994 reflects taxable
operations of the Company's United Kingdom subsidiary. Any potential tax
benefits due to operating losses by the Company's domestic operations have not
been recognized and any potential deferred tax asset has been fully reserved as
disclosed in the Notes to the Consolidated Financial Statements.
In fiscal 1994, the Company returned to profitability with a third quarter
profit of $236,000 and a fourth quarter profit of $380,000. Net income for
fiscal 1994 was $320,000, compared to a net loss of $4,298,000 for the prior
fiscal year. The return to profitability reflects the increase in total net
sales, partially offset by lower gross margins and higher operating expenses.
Net income per share was $0.07 for fiscal 1994, compared to a $1.01 net loss per
share in fiscal 1993.
COMPARISON OF FISCAL 1993 TO 1992
Total net sales for the fiscal year ended November 30, 1993 were
$35,701,000, a 6.4% increase over the $33,562,000 from the same period in 1992.
The higher net sales for fiscal 1993 were primarily a result of higher sales
from the networking distribution business in the United Kingdom. The additional
net sales of $1,118,000 attributable to shipments of Media 100 was largely
offset by a decline in net sales for the Company's data acquisition and imaging
products of $1,042,000 from the prior year.
While total net sales have increased by 6.4% in fiscal 1993, cost of sales
have increased by 13.8% lowering the gross margin to 48.1% of total net sales
compared to 51.5% for fiscal 1992. This lower gross margin is primarily a result
of the increased networking product sales which carried a much lower gross
margin than the Company's traditional products and have become a greater
proportion of total net sales.
The operating loss in fiscal 1993 was $4,209,000 compared to an operating
loss of $3,209,000 in fiscal 1992. The larger operating loss in fiscal 1993
primarily reflected the Company's ongoing commitment to the product development
and promotion of Media 100 in the United States. These expenses were partially
offset by lower general and administrative expenses.
The Company's European operations realized other income of $932,000 in
fiscal 1993 resulting primarily from the forgiveness of intercompany balances to
the parent upon closure of the Company's French subsidiary. The U.S. operations
simultaneously recognized the loss from this forgiveness. There were no
significant components of other income (expense) in fiscal 1992.
The tax benefit of $24,000 for fiscal 1993 was significantly less than the
$592,000 tax benefit reported in fiscal 1992. The fiscal 1993 tax benefit was
impacted by the nonrecognition of potential tax loss carryforwards resulting
from losses by the Company's domestic and European operations.
The net loss for the fiscal year ended November 30, 1993 was $4,298,000
compared to $2,458,000 for the fiscal year 1992. This increased net loss
reflects the higher operating expenses and the nonrecognition of potential tax
benefits as discussed above. The net loss per share for fiscal year 1993 was
$1.01 compared to $0.59 for the same period in 1992.
13
<PAGE> 16
QUARTERLY COMPARISONS
The following tables set forth certain quarterly consolidated financial
data for 1994 and the first fiscal three quarters of 1995. This quarterly
information is unaudited and has been prepared on the same basis as the annual
consolidated financial statements and, in management's opinion, reflects all
adjustments, consisting only of normal recurring adjustments, required for a
fair presentation for the periods presented. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
FEB. 28, MAY 31, AUG. 31, NOV. 30, FEB. 28, MAY 31, AUG. 31,
1994 1994 1994 1994 1995 1995 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales:
Digital media......................... $1,623 $2,840 $3,453 $4,499 $5,207 $6,979 $8,137
Data acquisition and imaging.......... 5,943 5,601 5,408 5,488 5,775 5,001 5,583
Networking distribution............... 3,386 3,770 3,730 4,496 3,855 5,396 5,353
-------- -------- -------- -------- -------- -------- --------
Total net sales........................... 10,952 12,211 12,591 14,483 14,837 17,376 19,073
Cost of sales............................. 5,890 6,543 6,688 7,698 7,711 9,035 9,933
-------- -------- -------- -------- -------- -------- --------
Gross profit.......................... 5,062 5,668 5,903 6,785 7,126 8,341 9,140
Research and development expenses......... 1,697 1,793 1,691 1,641 1,683 1,844 1,961
Selling and marketing expenses............ 2,811 3,040 3,219 3,711 3,936 4,666 4,556
General and administrative expenses....... 805 852 775 978 916 958 1,325
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations......... (251) (17) 218 455 591 873 1,298
Interest income........................... 35 49 34 34 143 217 135
Interest expense.......................... (1) (3) (1) (5) (8) -- (9)
Other income (expense).................... (27) (9) (3) 11 (5) 3 8
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes............ (244) 20 248 495 721 1,093 1,432
Tax provision............................. 12 60 12 115 14 62 6
-------- -------- -------- -------- -------- -------- --------
Net income (loss)..................... $ (256) $ (40) $ 236 $ 380 $ 707 $1,031 $1,426
======== ========= ========= ========= ======== ========= =========
Net income (loss) per share............... $(0.06) $(0.01) $ 0.05 $ 0.08 $ 0.11 $ 0.15 $ 0.21
======== ========= ========= ========= ======== ========= =========
Weighted average number of shares
outstanding............................. 4,324 4,372 4,914 5,066 6,422 6,686 6,812
</TABLE>
AS A PERCENTAGE OF TOTAL NET SALES:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Digital media......................... 14.8% 23.3% 27.4% 31.1% 35.1% 40.2% 42.7%
Data acquisition and imaging.......... 54.3 45.9 43.0 37.9 38.9 28.8 29.3
Networking distribution............... 30.9 30.9 29.6 31.0 26.0 31.1 28.1
-------- -------- -------- -------- -------- -------- --------
Total net sales........................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales............................. 53.8 53.6 53.1 53.2 52.0 52.0 52.1
-------- -------- -------- -------- -------- -------- --------
Gross profit.......................... 46.2 46.4 46.9 46.8 48.0 48.0 47.9
Research and development expenses......... 15.5 14.7 13.4 11.3 11.3 10.6 10.3
Selling and marketing expenses............ 25.7 24.9 25.6 25.6 26.5 26.9 23.9
General and administrative expenses....... 7.4 7.0 6.2 6.8 6.2 5.5 6.9
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations......... (2.3) (0.1) 1.7 3.1 4.0 5.0 6.8
Interest income........................... 0.3 0.4 0.3 0.2 1.0 1.2 0.7
Interest expense.......................... 0.0 0.0 0.0 0.0 (0.1) 0.0 0.0
Other income (expense).................... (0.2) (0.1) 0.0 0.1 0.0 0.0 0.0
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes............ (2.2) 0.2 2.0 3.4 4.9 6.3 7.5
Tax provision............................. 0.1 0.5 0.1 0.8 0.1 0.4 0.0
-------- -------- -------- -------- -------- -------- --------
Net income (loss)..................... (2.3)% (0.3)% 1.9% 2.6% 4.8% 5.9% 7.5%
======== ========= ========= ========= ======== ========= =========
</TABLE>
The Company has experienced progressively higher quarterly total net sales
for the last consecutive seven fiscal quarters. These results are principally
attributable to sales of Media 100 which the Company began shipping in August
1993 and to a lesser extent, the increase in sales from the networking
distribution business in the United Kingdom. As sales of Media 100, which carry
a higher margin, have increased as a proportion of total net sales, the
Company's overall gross margin has improved, offset in part by higher net sales
from the networking distribution business which carries a significantly lower
gross margin than the Company's other product lines. Since the Company has
historically operated with a small backlog, sales for any quarter are
14
<PAGE> 17
dependent on orders booked and shipped during that quarter. Operating expenses
which are relatively fixed and based principally on future sales expectations
could adversely affect operating results if sales do not meet the Company's
expectations in any quarter.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1995, the Company's cash and cash
equivalents balance increased by $5,480,000 while marketable securities
increased $4,071,000. These increases were primarily a result of a December 1994
public stock offering generating net proceeds of approximately $8,802,000. The
net proceeds were invested in U.S. Treasury bills with maturities ranging from
three months to one year. Cash generated from operations amounted to $2,076,000.
This was the result of net income of $3,164,000, partially offset by higher
working capital requirements for the Company's growing operations.
As of August, 1995, the Company had a line of credit in the United Kingdom
equivalent to approximately $600,000, of which approximately $544,000 was
outstanding. The Company is currently negotiating a higher line of credit of
approximately $1,200,000 for its networking operations in the United Kingdom.
The Company believes that the net proceeds from this Offering, together
with existing cash and cash generated from future operations, will be sufficient
to meet the Company's cash requirements for the foreseeable future.
On December 1, 1994 the Company adopted SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." The adoption of SFAS No. 115
did not have a material impact on the Company's financial position or results
from operations.
15
<PAGE> 18
BUSINESS
COMPANY OVERVIEW
Data Translation is a leader in the design, development and manufacture of
high performance digital media, data acquisition and imaging products. The
Company's principal products are Media 100, a digital media product that enables
video producers to produce broadcast quality videos on a Macintosh computer, and
digital signal processing boards and software, which use personal computers to
receive analog signals, convert them to digital form and process the digital
data. The Company's strategy is to leverage its core competence in digital media
and digital signal processing to identify growth opportunities and develop
products for emerging markets. The Company currently sells products through the
following three business groups: digital media, data acquisition and imaging,
and networking distribution.
Media 100 is fundamentally an analog and digital conversion system, like
Data Translation's earlier products, that enables users to capture video and
audio into a Macintosh, perform random-access ("nonlinear") video editing and
audio mixing, and directly produce a finished program with broadcast quality
picture and compact disc quality sound. By combining high output quality with
simple user operation, Media 100 targets a large market of video program
producers, including nonbroadcast users, such as advertising agencies,
independent producers, businesses, law firms, universities, governments and
hospitals. The Company is targeting this growing corporate and institutional
market which includes new users in addition to existing users of production
video equipment. By eliminating the need to use comparatively complex and
expensive mechanical videotape equipment to make a video, Media 100 empowers
these individuals to compose finished videos largely on their own at relatively
low cost.
In August 1995, the Company introduced version 2.5 of Media 100 which
incorporates a board that is compatible with the PCI standard. This board, named
Vincent(TM), is the first such board in the digital media market to be
compatible with the newly introduced PCI-based Power Macintosh computers, as
well as PCI-based personal computers using Intel microprocessors, such as
Pentium, and Microsoft Windows.
The market for the Company's data acquisition and imaging products is
primarily technical users, such as engineers and scientists, interested in
incorporating the Company's systems in their final product. These final products
are designed for scientific research and analysis, test and measurement and
industrial inspection. As such, the markets are affected by the level of
government funding of research and of capital expenditures by companies. The
Company has incorporated several new technologies in its data acquisition and
imaging products, including the high speed PCI bus and software that is
compatible with Windows 95 software.
The Company also distributes, integrates and supports enterprise wide
networking products manufactured by third party suppliers in the United Kingdom
through a subsidiary. The products distributed include networking products from
3Com Corporation ("3Com") and Hewlett-Packard Company ("Hewlett-Packard"). The
Company believes its knowledge of the latest networking technologies, such as
ATM, will enable it to benefit from expected continued growth in this market. In
addition, the Company believes that its networking technology expertise will
contribute to the development of new digital media and imaging products. In
September 1995, the networking distribution subsidiary became the first value
added network distributor in the United Kingdom to be awarded the ISO 9002
accreditation, the international standard for quality systems.
The Company's digital media, data acquisition and imaging and networking
distribution businesses are described below. For operating information by
geographic region, see Note 8 of Notes to Consolidated Financial Statements
included elsewhere in this Prospectus.
DIGITAL MEDIA
Market
New video and audio technologies are changing the way video, film and other
digital media are produced and edited. Much like desktop publishing has replaced
offset printing, digital, nonlinear video production technology, which allows
users to instantly access any scene or sound from anywhere on a disk, has
fundamentally improved the efficiency and productivity of working with video.
This advancement has been
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facilitated by an exponential increase in microprocessing power, declining data
storage costs and improved software programming tools.
Industry sources have estimated that sales of desktop video will reach $4.8
billion in 1995, a 50% increase from the $3.2 billion in sales in 1994. The
Company believes the corporate and institutional market includes a growing
market of new users as well as existing users of video production equipment. The
mass market is still emerging and will be determined, the Company believes, on
the basis of price and applicable open standards.
The Company believes there are three general types of end users of digital
media production systems as illustrated below. Within this market, the Company
primarily targets the corporate and institutional users. The Company believes
that customers will migrate down from costly high-end systems as well as migrate
upward from non-integrated lower quality systems to a more cost effective and
integrated high quality production system, such as Media 100.
[Triangle representing
the breakdown of
digital media production
system users]
- Professional Users are broadcast, television and film producers,
independent video post-production facilities and cable television
stations that create finalized video programs for others or for
broadcast. These users typically spend $50,000 or more on a video editing
system.
- Corporate and Institutional Users include businesses, hospitals,
advertising agencies, law firms, government agencies, colleges and
universities. These are users who are creating videos themselves. The
average cost of a system for a corporate or institutional user ranges
between $15,000 and $50,000.
- Mass market users are early stage users who desire to use video for
informal presentations, for consumer-type video needs or for in-house
communication within corporations or institutions. They are using a non-
integrated system and are attracted by the low purchase price of $15,000
or less.
Strategy
The Company's strategy in digital media is to target corporate and
institutional users by offering a product that combines high output quality with
ease of use at an affordable price. The Company's strategy includes the elements
described below.
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- Ease of Use. By simplifying the process of working with video, the
Company focuses not only on existing users of video equipment but new
users. The Company's aim is to make video personal by empowering
individuals to complete video projects on their own or within small
departments from a Macintosh.
- Expanding the Market. The Company intends to continue to lower its
manufacturing costs and reduce the price of Media 100 to capture
additional market share and ultimately to increase revenues. The Company
believes that its strategy of reducing the price of a Media 100 system
over time, as well as Media 100's ease of use, will result in a
substantial increase in the number of new users of Media 100. See
"Business -- Digital Media -- Product and Options."
- Open Systems Architecture. The Company uses open standards in designing
the hardware and software system components to give Macintosh end users
the flexibility to select the system components themselves, including the
model of Macintosh, monitors and disk drives.
- High Quality Video and Audio. The Company builds high performance
hardware and software systems to support broadcast quality pictures and
compact disc quality sound.
- Complete Solution. The Company is committed to providing a product to
accomplish online and off-line draft editing all on one system
(All-On-One(TM) Mastering) with high output quality and additional
features, such as titling, special effects and animation.
- Distribution Through VARs and Distributors. The Company sells Media 100
through VARs and distributors and not directly to its customers as
certain of its competitors do. The Company believes that by not directly
competing with its VARs and distributors, it has established a loyal
distribution channel.
Recent Developments
In August 1995, the Company began shipments of a new generation of Media
100, version 2.5, which incorporates the Company's proprietary Vincent platform.
This system is comprised of a single PCI board, as compared to the previous
version of the Media 100 system consisting of two NuBus boards, and additional
software and hardware to support faster, higher-quality effects and graphics
processing. The board, named Vincent, is the first such board in the digital
media market to be competitive with the PCI standard. Vincent operates on the
newly introduced PCI-based Power Macintosh computers and PCI-based personal
computers using Intel microprocessors, such as Pentium, and Microsoft Windows.
Media 100 version 2.5 has a built-in waveform monitor and vectorscope as well as
new features for manipulating up to eight tracks of audio in real time while
playing video.
In the first quarter of 1996, the Company plans to announce a lower cost
model of Media 100 with fewer features, which will be compatible with its
existing products and other third party video editing software applications such
as Adobe Premiere. The Company intends to offer a means for users to upgrade
their system to add features and capabilities. The Company plans to market and
sell this product through its existing channel of video-expert value-added
resellers as well as through an expanded number of computer-oriented resellers.
The Company intends to market this product to Apple QuickTime(TM) users,
professional consumers and other entry-level users interested in editing video
on a Macintosh. The Company initially anticipates an end user price of under
$5,000 for the product itself and under $15,000 for a completely-configured
systems including a Macintosh computer and disk drives. This lower cost model is
part of the Company's strategy to expand the market for digital media.
Product and Options
The Media 100 product line consists of a core system composed of either the
Vincent PCI platform or two NuBus boards, software, and a variety of software
and support options. This approach allows users to choose which features to buy
and allows them to easily upgrade their digital media systems over time
according to their needs and budget. In addition, by offering only a single core
system at relatively low cost, the Company facilitates entry level purchases and
simplifies its own operations as well as those of its resellers, distributors
and end users.
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The Company markets Media 100 as an open system. Users can choose required
system components themselves, including the model of Macintosh, monitors, and
disk drives. These components are standard to personal computing and widely
available. Authorized resellers through which Data Translation sells Media 100
can integrate these components for end users; however, users who already own
some or all required system components may purchase Media 100 and selected
options alone from a reseller.
Media 100 and its related options are described in the table below. The
Company is also developing additional software option packages with enhanced
features, including advanced editing and advanced special effects. Prices listed
below do not include the base Macintosh system and disk drives, nor do they
reflect VAR and distributor discounts, which range from approximately 25% to
45%. Completely configured Media 100 systems range in price from approximately
$25,000 to $40,000, of which the Company receives from approximately $5,000 to
$13,000. The Company continually reviews the pricing of Media 100 and related
software options to be competitive in the market.
<TABLE>
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</TABLE>
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<TABLE>
<S> <C> <C> <C>
SUGGESTED U.S.
RETAIL PRICE
FIRST AS OF
PRODUCT AND SHIPPED DESCRIPTION OCTOBER 1, 1995
OPTIONS
- ------------------------------------------------------------------------------------------------
Media 100(R) August Core system with software upgrades for composing $10,995 (PCI)
Version 2.5 1995 finished video programs, includes either the $8,995 (NuBus)
Vincent PCI platform or two NuBus boards, one
junction box, cables, software and documentation.
POWER Option(TM) December Software option for All-On-One(TM) Mastering $3,995
1994 (batch digitizing), FastFX(TM) (accelerated
rendering), and PowerLog(TM) (logging).
HDR Option(TM) December "High Data Rate" software option for maximizing $5,995
1994 Media 100 core system's video picture quality and
expanding audio from four to eight real time
tracks.
Suite Deal(TM) May Bundled option package, including FX Option (over $3,995
1994 50 different video effects), CG Option (character
generation), EDL Option (edit decision list
support), and Platinum Support Agreement (support
and upgrade contract available in North America).
Whole Deal(TM) December Bundled option package, including Suite Deal, $11,995
1994 POWER Option, and HDR Option.
Platinum(TM) March Technical support, upgrade, and maintenance $1,495
Support 1994 contract in North America
Agreement
- ------------------------------------------------------------------------------------------------
</TABLE>
Media 100
Media 100 is a digital video system that captures complete source video
(both fields) and compact disc quality audio and stores this source material
digitally on standard SCSI disk drives connected to the user's Macintosh. To
perform editing, users can instantly access any scene or sound from anywhere on
the disk. This random-access, or nonlinear, real time performance greatly
enhances editing by simplifying the process and eliminating the shuttling
wait-time and rerecording time of working from videotape. When Media 100 plays
back video for preview, display, or final recording, the output quality is
online, which means it is virtually indistinguishable from the quality produced
by videotape equipment used for broadcasting. Media 100's user interface, built
to Macintosh user interface standards, simplifies editing and is expandable with
software options to perform effects, graphics, titling, and other advanced
operations.
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POWER Option
POWER Option is a software option which contains powerful features to make
creating a video easier. This option includes All-On-One Mastering, which lets
users edit large quantities of source video in a draft mode ("offline") and
finish with online output quality all on one system. Other features include
FastFX for accelerating video effects rendering and PowerLog logging.
HDR Option
HDR Option is a software option which improves the Media 100 core system's
video output quality through the support of broadcast component signal inputs
and outputs, as well as by allowing users to reduce compression levels to as low
as 4:1 for NTSC and 5:1 for PAL video formats. This option also expands the core
system's real time audio mixing from four to eight tracks.
Suite Deal
Suite Deal is a bundled option package which includes: FX Option for
supporting over 50 video effect types using an open, "plug in" architecture
licensed from Adobe Systems; CG Option for keying high-quality, anti-aliased
titles and graphics over video; EDL Option for generating a standard-format edit
decision list (EDL); and, in North America, the Platinum Support Agreement (as
described below).
Whole Deal
Whole Deal is a bundled option package which includes Suite Deal, POWER
Option, and HDR Option at a reduced price.
Platinum Support Agreement
Platinum Support Agreement gives Media 100 users a year of toll-free
technical support, automatic, free upgrades, and preferred pricing on upgrades,
replacement hardware, and some new products, and a subscription to a quarterly
newsletter. The Platinum Support Agreement is available only in North America.
Technology and Product Features
Data Translation has designed Media 100 as an integrated hardware and
software system which offers high performance and is compatible with the
Macintosh. The Company believes the basic performance of its hardware and
software produces broadcast quality picture and compact disc quality sound, with
an open system design. Data Translation's control of the development, design and
manufacturing of both the hardware and software of Media 100 allows it to
conform one to the other, specifically and solely to support the user
requirements of the target market.
Media 100's core hardware includes broadcast quality video input and output
decoder/encoder subsystems, a proprietary, dynamically-variable JPEG compression
subsystem, a 16-bit eight-track real time digital audio subsystem, and two
high-speed 32-bit microprocessors responsible for transferring digital audio and
video data, at throughput rates up to 30 megabytes per second, inside the
Macintosh in lieu of using the Macintosh processor alone as other video editing
systems do. The latest version of this hardware consists of the Vincent
platform, operates with excellent noise immunity and is the primary technical
facilitator of real time, nonlinear performance with output which provides
broadcast quality video and compact disc quality audio. The output video is 30
frames per second, 60 fields per second (NTSC) or 25 frames per second, 50
fields per second (PAL) and synchronized to multiple tracks of compact disc
quality audio.
The software features a proprietary operating system which is unseen by
users and integrated with the standard Macintosh operating system. This software
governs low-level Media 100 hardware operations to ensure real time performance,
particularly by controlling the two onboard microprocessors in concert with the
Macintosh processor. Layered on top of this low level of software, Media 100
incorporates a higher layer of software called application software, through
which the user controls every function of the Media 100 system.
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Customers and Sales
In the United States, the Company authorizes and sells through a network of
specialized VARs who integrate and support Media 100 systems sales. The Company
has focused on attracting a loyal and growing following of highly qualified VARs
in the United States by offering attractive margins and factory support. The
Company does not compete with its resellers by selling directly to end users.
Internationally, the Company authorizes and sells solely through subsidiaries
and distributors, which act as resellers or establish reseller networks in their
respective territories. The Company typically enters into agreements with its
international distributors which usually are terminable for cause and has
arrangements with its domestic distributors which are generally terminable by
either party at will.
The Company manages its sales through a team of regional managers and sales
support personnel. Both the Company and resellers provide end user customer
support which provides 90 days of free technical support. By purchasing a
Platinum Support Agreement, end users in North America may extend that support
for additional one year periods.
The table below sets forth examples of users of Media 100.
<TABLE>
<S> <C> <C>
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-------------------------------------------------------------------------------
CATEGORY USER USER APPLI
- ------------------------------------------------------------------------------------------------
Professional
Independent Video National Cave Art MTV/Nickelodeon
Production Tippett Studios "Three Wishes" being released by
Rysher Entertainment
Thunder Sky Pictures Corporate communications & tradeshow
displays
Video Professor Teaches popular software
applications
Broadcast Services of Alaska CBS Sunday Morning Wildlife
Videography
Music Video Todd Rundgren Interactive music
David Bowie Music video and CD-Rom titles
Norfolk Music Gloria Estefan music video
Electronic Games Broderbund Software PC games
Stargate Films Sega/Nintendo "Tom Cat Alley" game
Cable Television CNN Interactive CD-Rom programs
MTV Music Video production
Corporate/Institutional
Corporate Video Thom McAn Training and employee bulletins
MGM Grand Hotel & Casino Giant videowall display
Ryder Systems, Inc. Training and employee communications
Snap-on, Inc. Employee and marketing
communications
Ford Motor Company In-house management training
Education Cornell University World's largest lecture class
Middlebury College Language tutorial
NYU Center for Digital Multimedia Training multimedia authorization
The University of Iowa Broadcast TV education
Hospital Brigham And Women's Hospital Patient education
Johns Hopkins Bayview Medical Videotape for teaching
Government Central Intelligence Agency President Clinton's daily briefings
Federal Judicial Center Training court personnel
Advertising J. Walter Thompson Electronic storyboards
Big Idea Productions Children's products cartoon
- ------------------------------------------------------------------------------------------------
</TABLE>
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Competition
The digital media systems market is highly competitive and fragmented with
a large number of suppliers providing different types of products, both linear
and nonlinear, to different segments of the market. The primary competitive
factors in markets composed of either existing users of videotape equipment or
new users are: (i) ability to do fast, easy nonlinear editing; (ii) open system
design and support for continuous feature improvement, especially for advanced
features like digital video effects; (iii) online picture and audio quality;
(iv) ability to edit and to create special features such as titling and
animation all on one system; and (v) price.
In the emerging market of corporate and institutional users, the Company
has encountered competition primarily from Avid, which has greater financial
resources than the Company, as well as Truevision and Radius Inc. Because this
market is new and still evolving, it is difficult to predict future sources of
competition; however, competitors will also include larger vendors, such as
Matsushita, which currently compete in the market of professional users.
To the extent that the Company has sold into the market of professional
users, the Company has encountered competition primarily from Avid and ImMix in
this market. In addition, competition in this area comes from comparably sized
or smaller competitors, such as Matrox and FAST, as well as much larger vendors,
such as Matsushita, which has announced plans to introduce digital, nonlinear
editing systems. The Company expects that other vendors of analog videotape
editing equipment, such as Sony, many of which have substantially greater
financial, technical and marketing resources than the Company, will develop and
introduce competing digital, nonlinear systems.
DATA ACQUISITION AND IMAGING
Market
The primary markets for data acquisition and imaging products are
scientific research and analysis, test and measurement and machine vision and
inspection. End users include original equipment manufacturers, research
laboratories, universities, hospitals and government agencies. Users require
highly accurate, real time measurement and control of analog signals, such as
temperature, pressure, sound and video.
The Company believes it is one of the top five suppliers in each market
although the data acquisition and imaging markets are highly fragmented. These
markets have been adversely affected in recent years by reduced government
funding of research and lower levels of corporate capital expenditures. Industry
organizations estimate overall sales in these markets were approximately
$270,000,000 in 1994.
Strategy
In the data acquisition and imaging area, the Company is focused on
providing system solutions which include not only exceptional hardware but also
powerful, easy to use software. The Company will continue to invest in its
current data acquisition and imaging markets, while identifying new applications
and growth opportunities in the industrial control, high end test and
measurement and machine vision and inspection markets. One of the Company's
primary goals for 1995 was to adopt new technologies to increase the
marketability of its data acquisition and imaging products.
Products
The Company's data acquisition and imaging products are designed to
facilitate (i) the high-speed capture of analog signals representing physical
events, such as temperature, pressure, sound and video, (ii) the fast conversion
of such signals into digital form and (iii) the use of such digital signals in
PCs for processing. These capabilities permit customers to use PCs to identify,
measure, analyze and control physical phenomena (data acquisition) and to
analyze or enhance video images (imaging).
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<PAGE> 25
The diagram below illustrates how Data Translation's data acquisition and
imaging products work.
[Illustrations of analog devices
transmitting data to a personal computer
containing the Company's plug-in boards
and application software.]
The Company's data acquisition and imaging systems consist of plug-in cards
and Windows-based software which provide an integrated, high performance systems
solution to the general scientific and measurement marketplace. These systems
allow customers to configure their own PC-based data acquisition, signal
processing or imaging system with higher performance and lower cost than
alternative pre-packaged or custom-integrated systems. Users are able to
integrate these products more quickly into their systems, thereby reducing their
development time. DT-Open Layers(R) forms the basis of several key software
products manufactured by the Company, the most important of which are DTVEETM
for Microsoft Windows, GLOBAL LAB(R) Image and Software Development Kits
("SDKs"). Over a three year period the Company defined and developed DT-Open
Layers, a standard set of software protocols under the Microsoft Windows
operating system. DT-Open Layers simplifies programming and accelerates the
development of new software products and permits customers to replace circuit
boards and add new functions. These products offer leading-edge functionality
for data acquisition and imaging under Windows while allowing customers to
protect their software investments and develop solutions more quickly.
The Company sells over 300 data acquisition and imaging products, which
range in retail price as of October 1, 1995 from $595 to $4,995. Domestically,
the Company sells such products directly and internationally, the Company sells
both directly and through distributors. Such prices do not reflect distributor
discounts for international sales, which range from approximately 20% to 35% on
hardware products and up to approximately 50% on software applications.
Data acquisition products provide capabilities ranging from simple
measurement to advanced digital signal processing (DSP) functions. While
researchers, systems integrators and original equipment manufacturers ("OEMs")
have been predominant data acquisition users in the past, new data acquisition
markets have emerged in the industrial and medical areas, such as industrial
inspection, medical diagnostic/therapeutic applications, high-performance
control, vibration analysis, acoustics, test and measurement and liquid and gas
chromatography applications. Customers incorporate Data Translation's data
acquisition boards into PCs to measure real-world parameters, including
temperature, pressure, acceleration and sound; to analyze this data; and to use
the results to control real-world events and processes. For example, an
equipment manufacturer in Canada uses the Company's Fulcrum(TM) board to monitor
and control the vibration of magnetic ball bearings in large pump shafts.
The Company's imaging products may be used in a number of applications. In
scientific imaging applications, images can be captured from video cameras for
analysis, or images can be captured from cameras mounted on microscopes to
identify and count cells. In machine vision applications, images can be captured
and processed immediately in real time for fast, accurate inspection of
manufactured parts. In medical applications,
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<PAGE> 26
images can be captured from different diagnostic devices, such as CAT scanners
or ultrasound imaging devices, for enhancement, analysis and display. For
example, the Company's MACH series imaging board is used in an opthamology
system which maps the camera for the purpose of making a diagnosis or fitting a
contact lense.
The Company has incorporated several new technologies in its products. For
example, the Company's frame grabber, a product which combines software with
proprietary circuits that permit users to acquire data from a variety of video
inputs, now utilizes the PCI bus architecture. In addition, the Company has
begun using the Display Connect Interface ("DCI") standard in certain of the
Company's frame grabber products. Finally, the Company has adopted the Personal
Computer Memory Card International Association ("PCMCIA") standard, a new
technology for the portable acquisition of data.
The Company's new data acquisition and imaging products include the
following:
- DT7101 memory card, a PCMCIA standard product targeted at the portable
data acquisition and field services markets;
- DT3001 data acquisition product, which utilizes the PCI bus;
- DTVEE(TM) 3.0, an upgrade of the Company's visual programming application
software for building data acquisition systems, which now has improved
functionality, user interface functions and performance; and
- Frame Grabber SDK, DT-Open Layers support for the Company's frame grabber
products.
Customers and Sales
The Company sells its data acquisition and imaging products to end users
and OEMs for use primarily in the scientific, medical and industrial markets.
End users include manufacturers, research laboratories, universities, hospitals
and government agencies.
Data Translation sells its data acquisition and imaging products through a
comprehensive, widely distributed annual catalog, an in-house telemarketing
force and extensive advertising and promotional campaigns. The Company has a
full-time sales and administrative staff of over 30 employees in the United
States to support catalog sales. International sales are supported by three
subsidiaries and various distributors throughout Europe, Asia and the Pacific
rim.
Competition
Data Translation competes in the data acquisition market principally with
National Instruments Corporation and Keithley Instruments, Inc. and in the
imaging market with Matrox and Imaging Technology, Inc., all of which may have
substantially greater financial, technical and marketing resources than the
Company. The Company also competes with a number of smaller companies in each of
these markets. The Company's data acquisition and imaging products compete on
the basis of ability to supply an integrated system solution of hardware and
software, price and performance.
NETWORKING DISTRIBUTION BUSINESS
Market
The market in the United Kingdom for networking products is composed
principally of businesses and organizations which require high performance
products and the technical support to integrate such products into their
systems. In the United Kingdom, the Company, through a subsidiary, distributes
networking products manufactured by third party suppliers. The Company believes
the market for enterprise wide networking products in the United Kingdom will
continue to grow as has the market in the United States.
Strategy
In the networking distribution market in the United Kingdom, the Company
seeks to grow its business with the enterprise wide networking business in
general and to expand its supplier and reseller base. Data Translation works to
build highly valued relationships with suppliers and customers which it believes
have been the key to its growth.
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As part of its overall strategy, the Company believes that its knowledge of
the latest networking products and technologies contributes to the development
of products in the digital media and imaging markets. For example, new
technologies, such as ATM, will allow video transmission in real time from
remote locations and therefore affect the future evolution of Media 100 in a
network environment. Another part of the Company's strategy is to focus on
emerging high value-added technologies. The Company believes that it
distinguishes itself from other distributors by the fact that a significant
number of its employees, including sales personnel, in its networking
distribution business are technically trained. In September 1995, the Company's
networking distribution subsidiary became the first value added network
distributor in the United Kingdom, to be awarded the ISO 9002 accreditation, the
international standard for quality systems.
Products and Services
Data Translation distributes externally sourced network peripherals in the
United Kingdom. These products are manufactured by several suppliers, including
3Com, Hewlett-Packard, Sonix Communications Ltd., Shiva Corporation and U.S.
Robotics Inc. The primary products are high value added, systems-oriented
solutions that interconnect computers and networks, such as routers, switches,
bridges and hubs. 3Com recently recognized Data Translation Ltd. as its top
distributor of internetworking products for 3Com's fiscal year 1995. The Company
enters into annual contracts with its suppliers, some of which sell directly
into the market.
In addition, the Company builds its customer base by supplying its
customers with services such as technical training, maintenance and
sophisticated technical support on a fee for services basis. The Company relies
on highly trained sales and support engineers to provide the latest networking
tools and systems to help increase a customer's productivity and information
exchange.
Customers and Sales
The Company distributes networking products principally to a large number
of VARs, systems integrators and retail dealers and, to a lesser extent, to end
users in the United Kingdom. As with its data acquisition and imaging products,
the Company distributes its networking products through a comprehensive, widely
distributed annual catalog, an in-house telemarketing force and extensive
advertising and promotional campaigns. In addition, the Company uses a direct
sales team in the United Kingdom.
Competition
The Company attempts to distinguish itself in the United Kingdom by selling
high value added products and services and offering the latest state-of-the-art
networking products. The Company's direct competitors in the United Kingdom
networking distribution business are Azlan Group PLC and Persona Group PLC and
numerous other larger competitors that have substantially greater financial,
technical and marketing resources than the Company as well as numerous smaller
competitors. Competition in the United Kingdom for networking products is based
primarily on price and value added services.
RESEARCH AND DEVELOPMENT
The Company intends to continue to invest in research and development for
new products and for enhancements to existing products. The Company is targeting
spending on research and development at an annual rate of approximately 10% of
total net sales. For the nine months ended August 31, 1995, the Company invested
approximately $5,488,000 in product development.
The Company employed, as of September 30, 1995, 69 full-time engineers
whose primary duties relate to product development. Outside firms and
consultants are selectively engaged to develop or assist with development of
products when favorable opportunities exist.
For Media 100, the Company is focused on continued software and hardware
development. The Media 100 application software is being improved to include
advanced features. In addition, the Company has developed support for operating
with the computer video standard developed by Apple QuickTime, and is continuing
to develop greater support for operating with QuickTime applications from third
parties.
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<PAGE> 28
In the data acquisition and imaging area, the new areas for hardware
development include the integration of ASICs (application specific integrated
circuits) into circuit boards, which will reduce cost and advance the
development of new computer bus technologies (e.g., PCMCIA and PCI). The
Company's software development in data acquisition and imaging centers on
supporting the introduction of Windows 95. The Company is also developing
graphical programming application software, which will simplify application
development by the customer.
MANUFACTURING
Data Translation manufactures all of its products at its facility in
Marlboro, Massachusetts. The Company believes its control of manufacturing
significantly contributes to hardware design improvements, and allows for
quicker turn-around of engineering changes for shipment to the market. The
Company periodically assesses its production efficiencies against the benefits
of outsourcing certain hardware production.
In manufacturing, the Company seeks to be the leader in both technology and
management. The Company has adopted the philosophy of Total Quality Management
(TQM), which is a systematic approach to continuous improvement. In September
1994, the Company achieved ISO 9001 Quality System Certification, a
certification by an internationally accredited organization that the Company has
a documented quality system. ISO 9001 certification is a requirement for some
exports to the European Community and is seen as a sales advantage by many
United States customers. The Company uses work cells with higher volume products
which, together with Just-In-Time techniques, allows the Company to reduce
throughput time and provide five day shipment on most customer orders.
The Company's fully integrated assembly and test operations enable it to
produce approximately 30,000 assembled printed circuit boards per year. In
addition, circuit boards and modules are designed using advanced
computer-aided-design (CAD) technology. Manufacturing capabilities include the
assembly of fine pitch, surface mounted electronic devices utilizing state of
the art pick and place robotics for high density, multi-layered, single or
double sided boards. A majority of the Company's shipments incorporate
surface-mount components. Initial testing is performed to assure that products
are free from process-related defects after assembly. Following this, a complete
functional test is performed twice on each board, with an environmental stress
screen between tests to eliminate defects and assure long-term reliability of
products. The Company uses automated test equipment to assure product quality,
improve throughput and increase production yields.
Components used in circuit board assembly are generally available from
several distributors and manufacturers, although in the case of certain
products, only one or two manufacturers are capable of the appropriate circuit
board assembly. Suppliers are selected based on their ability to provide
defect-free products quickly at low cost. Data Translation continuously measures
the performance of key suppliers. Special programs are used to speed
availability of material and protect the Company from unplanned shifts in
product demand. These programs include ship-to-stock, and point-of-use bonding,
a program where suppliers hold material on-site at Data Translation and as the
material is used, title transfers to Data Translation and payment is made.
Certain components used by the Company do not have ready substitutes or have
been subject to industry-wide shortages. There can be no assurance that the
Company's inventories would be adequate to meet the Company's production needs
during any interruption of supply. The Company's inability to develop
alternative supply sources, if required, or a reduction or stoppage in supply,
could adversely affect its operations until new sources of supply become
available.
PROPRIETARY RIGHTS
The Company owns eight United States patents and has seven pending patent
applications in the United States, none of which the Company believes is
material. The Company has applied for five separate patents covering elements of
the Media 100 core system. See "-- Legal Proceedings."
The Company believes that its success depends primarily on the proprietary
know-how, innovative skills, technical competence and marketing abilities of its
employees.
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BACKLOG
Most customers order products on an as-needed basis, relying, in the case
of most products, on the Company's five-day delivery capability. As a result,
the Company believes that its backlog at any point in time is not indicative of
its future sales.
EMPLOYEES
As of September 30, 1995, the Company employed approximately 323 persons
worldwide, an increase of approximately 66 employees since October, 1994. None
of the employees is represented by a labor union. The Company believes it has
good relations with its employees.
Competition for employees with the skills required by the Company is
intense in the geographic areas in which the Company's operations are located.
The Company believes that its future success will depend on its continued
ability to attract and retain qualified employees, especially in research and
development.
PROPERTIES
The Company maintains its principal executive, engineering, manufacturing
and sales operations in a 103,000 square foot facility located in Marlboro,
Massachusetts. The building is rented under leases with a related party trust
expiring in 1999. See "Certain Relationships and Related Transactions."
The United Kingdom operations are conducted in an 18,050 square foot
facility in Wokingham, Berkshire, England, that is leased by the Company through
a United Kingdom subsidiary under a twenty-five year net lease. The subsidiary
has an option to terminate the lease in 1997. The minimum annual basic rent is
approximately $257,000 per year.
The German operations are conducted in a 2,420 square foot office facility
in Bietigheim-Bissingen, Germany that is leased under a five-year renewable
lease, expiring in 2000, by Data Translation GmbH. The minimum annual basic rent
is approximately $52,000 per year.
The Italian operations are conducted in an 1,100 square foot office
facility in Brescia, Italy that is leased under a six-year lease, expiring in
1998, by Data Translation S.r.1. The minimum annual basic rent is approximately
$24,000 per year.
LEGAL PROCEEDINGS
In June 1995, a lawsuit was filed against the Company by Avid, a
Massachusetts-based company, in the United States District Court for the
District of Massachusetts. The complaint alleges patent infringement by the
Company arising from the manufacture, sale and use of the Company's Media 100
line of products. The complaint includes requests for injunctive relief, treble
damages, interest, costs and fees. In July 1995, the Company filed an Answer and
Counterclaim denying any infringement and asserting that the patent in question
is invalid. The Company intends vigorously to defend the lawsuit, which is
currently early in the pre-trial stage. In addition, Avid has filed papers in
the United States Patent and Trademark Office requesting reissuance of the
patent and stating that it seeks patent claims broader than those set forth in
the existing patent. The reissuance proceedings remain pending. If such broader
claims were to issue, the Company expects that Avid would seek to incorporate
such claims into the litigation, although Avid has made no reference to the
reissue proceedings in the litigation to date. If the Company does not prevail
in the action, it could be required to pay substantial damages for infringement
and cease offering products that allegedly infringe such patent, either of which
results would have a material adverse effect on the Company. Alternatively, the
Company could be required to seek to obtain a license under the patent. If so,
there can be no assurance that such a license would be available to the Company
or, if available, that the terms of any such license would be satisfactory.
Moreover, the pendency and expense of the litigation could adversely affect the
Company's business, market share, financial condition and operating results,
regardless of the outcome of the litigation. There can be no assurance that the
Company will prevail in the litigation, or that any of the above-described
effects of litigation, whether or not successful, will not be material.
From time to time, the Company is involved in other disputes and/or
litigation encountered in its normal course of business. The Company does not
believe that the ultimate impact of the resolution of such other outstanding
matters will have a material effect on the Company's financial condition or
results of operations. See Note 6(b) of Notes to Consolidated Financial
Statements.
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<PAGE> 30
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION WITH DATA TRANSLATION
- ------------------------- ---- -------------------------------------------------------
<S> <C> <C>
Alfred A. Molinari, 54 Chairman and Chief Executive Officer
Jr.....................
Peter J. Rice............ 43 Vice President -- Finance and Chief Financial Officer
Ellen W. Harpin.......... 39 Vice President -- Administration
John A. Molinari......... 33 Vice President/General Manager -- Multimedia Group
and Director
Mark L. Basler........... 33 Vice President/General Manager -- Data Acquisition and
Imaging Group
Paul Klinkby-Silver...... 36 Vice President/General Manager -- Data Translation
Networking Ltd.
Kim Gray................. 35 Vice President -- Operations
R. Bradford Malt......... 41 Director and Clerk
Paul J. Severino......... 48 Director
James M. Dow............. 45 Director
</TABLE>
Mr. A. Molinari is the founder of the Company, and has been the Chief
Executive Officer and a director of the Company since its inception in 1973 and
is a director of its subsidiaries. He was appointed Chairman of the Company in
June 1995. Mr. Molinari served as director of Viewlogic Systems, Inc., which is
a supplier of electronic design automation solutions, from July 1992 to February
1995.
Mr. Rice was appointed Vice President -- Finance and Chief Financial
Officer in July 1995. Prior to joining the Company, he was Vice President and
Corporate Controller, Chief Accounting Officer for M/A-Com Inc., a New York
Stock Exchange listed company. Mr. Rice, a CPA, spent several years in public
accounting and has extensive experience with publicly-traded companies.
Ms. Harpin was appointed Vice President -- Administration in July 1995. She
has been employed by the Company since March 1983 and has served as Vice
President -- Finance and Administration, Treasurer, Vice President --
Manufacturing and Director of Sales.
Mr. J. Molinari was appointed Vice President/General Manger-Multimedia
Group in November 1990. He was elected a director of the Company in June 1995.
Prior to that, he had been Vice President-Marketing and Sales since January
1989. He has been employed by the Company since August 1984 in other sales and
marketing positions. He is the son of Alfred A. Molinari, Jr.
Mr. Basler was appointed Vice President/General Manager -- Data Acquisition
and Imaging Group in July 1995. Prior to that he had been General
Manager -- Data Acquisition and Imaging Group since March 1994. From 1985 until
joining the Company, he served in several engineering and marketing management
positions for the Semiconductor Group of Analog Devices, Inc.
Mr. Klinkby-Silver was appointed Vice President/General Manager of Data
Translation Networking Ltd. in July of 1995. Prior to that, he had been General
Manager of the United Kingdom Networking Group since November 1991. Prior to
joining the Company, he was Director and Co-owner of a systems integration
company, Solv, PLC, which was in the business of reselling IBM RS6000 systems
from 1989 to 1991.
Ms. Gray was appointed Vice President -- Operations in July 1995. She has
been with the Company since 1979 and during her tenure has held various
positions in materials, production and manufacturing service, most recently as
director of operations.
Mr. Malt is the Clerk of the Company and has been a director since March
1982. Mr. Malt is a partner of Ropes & Gray, which is general counsel to the
Company.
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<PAGE> 31
Mr. Severino has been a director of the Company since April 1985. He is
currently Chairman of the Board of Bay Networks, Inc., a supplier of
internetworking communication products. Since June 1992, he has been a director
of MTDC (Massachusetts Technology Development Corporation).
Mr. Dow was elected a director of the Company in June 1995. He is the
founder and Chairman of
Microcom, Inc. He is also a director of each of Windata Inc., Amberwave Systems,
Inc. and Massachusetts High Technology Council and a Trustee of the Dana Farber
Cancer Institute.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries to or on behalf
of the Chief Executive Officer and each of the executive officers whose cash
compensation exceeded $100,000 annually (the "Named Executive Officers") in the
most recently ended fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------ ------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(1) COMPENSATION($)(2)
- -------------------------------------- ------ -------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Alfred A. Molinari, Jr................ 1994 $206,700 $20,335 -- $ 422
Chief Executive Officer and Director 1993 206,700 -- 20,000 3,138
1992.. 206,700 -- 20,000 4,553
John E. Barker(3)..................... 1994 115,825 -- -- 152
Vice President -- Engineering -- 1993 145,000 10,000 10,000 2,008
Multimedia Group 1992 145,000 -- 10,000 4,407
Ellen W. Harpin....................... 1994 104,712 5,250 20,000 214
Vice President -- Administration 1993 100,000 -- 5,000 1,559
1992 76,155(4) -- 20,000 2,485
John A. Molinari...................... 1994 112,500 12,007 100,000 230
Vice President/General 1993 100,000 -- 27,000 117
Manager -- Multimedia Group and
Director 1992 96,785 -- 20,000 162
Paul Klinkby-Silver................... 1994(5) 120,427 69,752 20,000 9,705
Vice President/General 1993(5) 102,942 58,176 -- 11,840
Manager -- Data Translation 1992(5) 103,546 34,558 15,000 230
Networking Ltd.
</TABLE>
- ---------------
(1) The Company has not issued stock appreciation rights or granted restricted
stock awards. In addition, the Company does not maintain a "long-term
incentive plan," as that term is defined in applicable rules.
(2) The Company's contributions to a defined contribution plan for fiscal 1993
were $2,981 for Mr. A. Molinari, $1,865 for Dr. Barker and $1,442 for Ms.
Harpin. The remaining amounts for fiscal 1993 represent the dollar value of
premiums paid by the Company on term life insurance for the benefit of the
Named Executive Officers. The amounts indicated for Mr. Klinkby-Silver also
include Company contributions to a Company sponsored pension plan.
(3) Dr. Barker resigned and left the Company in June 1994.
(4) Ms. Harpin's annual salary was fixed at $100,000 for fiscal 1992; however,
due to a three-month maternity leave during fiscal 1992 she did not receive
the full amount of such annual salary.
(5) Dollar amounts based on a blended exchange rate for the respective year.
29
<PAGE> 32
STOCK OPTIONS
The following table provides information concerning the grant of stock
options under the Key Employee Incentive Plan (1992) to the Named Executive
Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
--------------------------------------------------- STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS EXERCISE OPTION TERM
UNDERLYING GRANTED TO OR BASE ---------------------
OPTIONS EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE ($) ($)
- -------------------------- ------------ ------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Alfred A. Molinari, Jr.... -- -- -- -- -- --
Ellen W. Harpin........... 20,000(1) 5.6% $ 6.125 4/6/00 $ 41,662 $ 94,516
John A. Molinari.......... 100,000(2) 28.0 6.738 4/6/99 247,395 472,580
Paul Klinkby-Silver....... 20,000(3) 5.6 7.375 9/15/04 92,762 235,077
</TABLE>
- ---------------
(1) These options become exercisable over five years, 20% on each anniversary of
the grant, and expire six years after grant. The exercise price is the fair
market value of the Common Stock on the date of grant.
(2) These options become exercisable over four years, 25% on each anniversary of
the grant, and expire five years after grant. The exercise price is 110% of
the fair market value of the Common Stock on the date of grant.
(3) These options become exercisable three years after grant and expire ten
years after grant.
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Executive Officers, concerning the unexercised options held as of the end of the
fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
SHARES OPTIONS AT FY-END(#) OPTIONS AT FY-END ($)(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alfred A. Molinari,
Jr................ 40,000 $ 121,400 27,000 25,000 $ 127,700 $ 83,000
Ellen W. Harpin..... 36,000 190,500 46,066 37,600 206,647 109,100
John A. Molinari.... 43,666 121,610 24,750 130,250 109,794 175,731
Paul
Klinkby-Silver.... 6,000 22,500 9,000 20,000 42,750 2,500
</TABLE>
- ---------------
(1) Market value of underlying securities at November 30, 1994, minus the
exercise price of "in-the-money" options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
R. Bradford Malt who is a director and Clerk of the Company and serves on
the Compensation Committee is a partner of Ropes & Gray, which is general
counsel to the Company.
30
<PAGE> 33
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 11, 1995 (except as noted
below) by (i) each person (or group of affiliated persons) known by the Company
to be the beneficial owner of more than 5% of the Company's Common Stock, (ii)
each of the Company's directors, (iii) the Named Executive Officers, (iv) all
executive officers and directors as a group and (v) the Selling Stockholders.
Except as otherwise indicated in the footnotes to this table, the Company
believes that the persons named in this table have sole voting and investment
power with respect to all the shares of Common Stock indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE OFFERING(1) NUMBER OF AFTER OFFERING
------------------- SHARES -------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Alfred A. Molinari, Jr.(2).................. 1,102,068 17.8% 50,000 1,052,068 13.9%
100 Locke Drive
Marlboro, Massachusetts 01752
Paul J. Severino(3)......................... 132,340 2.1 40,000 92,340 1.2
8 Federal Street
Billerica, Massachusetts 01821
R. Bradford Malt(4)......................... 34,600 * -- 34,600 *
One International Place
Boston, Massachusetts 02110
James M. Dow................................ -- -- -- -- --
500 River Ridge Drive
Norwood, Massachusetts 02062
Peter J. Rice............................... -- -- -- -- --
100 Locke Drive
Marlboro, Massachusetts 01752
Ellen W. Harpin(5).......................... 26,956 * -- 26,956 *
100 Locke Drive
Marlboro, Massachusetts 01752
John A. Molinari(6)......................... 136,112 2.2 -- 136,112 1.8
100 Locke Drive
Marlboro, Massachusetts 01752
Paul Klinkby-Silver(7)...................... 9,000 * -- 9,000 *
Data Translation Networking Ltd.
The Mulbury Business Park, Wokingham,
Berkshire, England RG11 2QJ
All executive officers and directors as a
group (11 persons in all)................. 1,451,930 23.4 90,000 1,361,930 17.9
ADDITIONAL 5% STOCKHOLDERS
Berger Associates Inc.(8)................... 335,000 5.4 -- 335,000 4.4
210 University Boulevard, Suite 900
Denver, CO 80206
West Highland Capital, Inc.(9).............. 560,000 9.0 -- 560,000 7.4
300 Drake's Landing Road, Suite 290
Greenbrae, California 94904
</TABLE>
31
<PAGE> 34
- ---------------
* Represents less than 1%.
(1) The number and percent of the outstanding shares of Common Stock treating
as outstanding all shares issuable on exercise of options held by a
particular beneficial owner that are included in the first column.
(2) Includes 5,000 shares subject to options exercisable before April 11,
1996. Does not include 28,458 shares owned by Mr. A. Molinari's wife,
16,656 shares owned by her as a guardian for their children or 13,000
shares owned by their children, as to all of which Mr. Molinari disclaims
beneficial ownership.
(3) Includes 32,000 shares subject to options exercisable before April 11,
1996.
(4) Includes 32,000 shares subject to options exercisable before April 11,
1996.
(5) Includes 26,000 shares subject to options exercisable before April 11,
1996.
(6) Includes 5,500 shares subject to options exercisable before April 11,
1996.
(7) Includes 9,000 shares subject to options exercisable before April 11,
1996.
(8) Berger Associates, Inc. is a registered investment advisor to the Berger
Small Company Growth Fund which holds the shares of the Common Stock in
its account and has the right to receive all dividends therefrom and the
proceeds from the sale thereof. Kansas City Southern Industries, Inc.
("KCSI") is the parent holding company of Berger Associates, Inc. KCSI
owns approximately 80% of Berger Associates, Inc., but KCSI does not own
of record any shares of the Company's Common Stock, nor does it exercise
any voting or investment power over shares of the Common Stock. KCSI
specifically disclaims beneficial ownership over any shares of the Common
Stock.
(9) West Highland Capital, Inc. and its affiliates collectively hold 560,000
shares of the Company's Common Stock (the "West Highland Shares").
According to a Schedule 13D filed with the Commission on May 10, 1995, (i)
West Highland Capital, Inc. beneficially owns all 560,000 of the West
Highland Shares, (ii) Lang H. Gerhard beneficially owns 509,600 of the
West Highland Shares, (iii) West Highland Partners, L.P. beneficially owns
418,380 of the West Highland Shares and (iv) Buttonwood Partners L.P.
beneficially owns 91,220 of the West Highland Shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its domestic headquarters (the "facilities") from a
related party trust, Nason Hill Trust (the "Trust"), a nominee trust of which
Alfred A. Molinari, Jr., Chairman and Chief Executive Officer of the Company,
and his wife are the sole trustees and beneficiaries.
The Company's facilities are leased from the Trust under operating leases
expiring on December 1, 1999. Pursuant to an amendment dated November 29, 1989,
the annual lease payments are equal to the sum of (i) $1,092,000 and (ii) any
additional interest costs payable by the Trust in such year under a note in
favor of Shawmut Bank, N.A. due to the failure of the Company to maintain the
financial ratios required for the most favorable interest rate under such note.
In addition to such lease payments, the Company bears all of the tax, insurance
and other costs of operating the facilities and, under certain circumstances,
various costs and expenses associated with the series of industrial revenue
bonds, the proceeds of which were used in connection with the facilities. Total
rental expense charged to operations under the leases as then in effect was
$1,092,000 for fiscal 1992, 1993 and 1994 and $819,000 for the nine month period
ended August 31, 1995.
The Company believes that the terms of its leases with the Trust are at
least as favorable as it could have obtained in an arm's-length transaction with
an unrelated third party. The leases have been approved by those Company
directors who have no beneficial interest in the Trust.
R. Bradford Malt, who has been a director of the Company since March, 1982,
is a partner of Ropes & Gray, which is general counsel to the Company. John A.
Molinari, a director and Vice President/General Manager -- Multimedia Group, is
the son of Alfred A. Molinari, Jr.
32
<PAGE> 35
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, $0.01 par value (the "Common Stock") and 1,000,000 shares of
Preferred Stock, $0.01 par value (the "Preferred Stock").
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. Holders of Common Stock have no
preemptive rights and have no rights to convert their Common Stock into any
other securities. All of the outstanding shares of Common Stock are fully paid
and nonassessable, and the shares of Common Stock to be outstanding upon
completion of this offering will be fully paid and non-assessable. As of October
11, 1995, there were 6,196,433 shares of Common Stock outstanding and held of
record by stockholders.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by law, from time to time to issue up to an aggregate of 1,000,000 shares of
Preferred Stock with such powers, designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be determined by the Board of
Directors in a resolution or resolutions providing for the issue of such
Preferred Stock. Thus, any series may, if so determined by the Board of
Directors, have full voting rights with the Common Stock or superior or limited
voting rights, be convertible into Common Stock or another security of the
Company, and have such other preferences, relative rights, and limitations as
the Company's Board of Directors shall determine. As a result, any series of
Preferred Stock could have rights which would adversely affect the voting power
of the Common Stock. The shares of any class or series of Preferred Stock need
not be identical. The issuance of Preferred Stock could have the effect of
delaying or preventing a change in control of the Company without any further
action by shareholders. The Company has no present intention to issue any
Preferred Stock.
CERTAIN CHARTER AND BY-LAW ANTI-TAKEOVER AND OTHER PROVISIONS
The Company's Articles of Organization provide, among other things, that,
subject to certain exceptions, the affirmative vote of the holders of 75% of the
Common Stock and any other voting securities outstanding shall be required to
approve (i) any merger or consolidation of the Company with any person or entity
which, together with its associates and affiliates, becomes the owner of 5% or
more of the Company's outstanding capital stock after November 1, 1984 (a
"Related Person"), (ii) any sale, lease, exchange, transfer or other disposition
of more than 10% of the assets of the Company to a Related Person or more than
10% of the assets of a Related Person to the Company, (iii) the issuance of any
securities of the Company to a Related Person, (iv) the acquisition by the
Company of any securities of a Related Person or (v) certain redemptions or
recapitalizations involving Common Stock which take place within five years
after a Related Person becomes a Related Person; provided, that such stockholder
approval shall not be required if the proposed transaction is approved by a
two-thirds vote of the directors of the Company who were members of the Board of
Directors before each Related Person involved in the transaction became a
Related Person.
The Articles provide that no director of the Company shall be liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty, except to the extent such exculpation from liability is not permitted
under Massachusetts business corporation law. This provision does not prevent
stockholders from obtaining injunctive or other equitable relief against
directors nor does it shield directors from liability under federal or state
securities laws. The By-laws provide that the Company shall indemnify its
directors and officers to the full extent permitted by law.
33
<PAGE> 36
The Company's By-laws provide that stockholders may take action by written
consent without a meeting, provided that all stockholders entitled to vote on
the matter consent to the action, in writing, and written consents are filed
with the records of the meeting of stockholders.
MASSACHUSETTS ANTI-TAKEOVER LAWS
The By-laws provide that the provisions of Chapter 110D of the
Massachusetts General Laws, the Control Share Statute, will not apply to the
Company. The Control Share Statute, however, provides that the Company may in
the future become subject to the statute by vote of its Board of Directors. In
general, if this statute were applicable, it would provide that any person or
entity that acquired 20% or more of the Company's outstanding voting stock could
not vote such stock unless the other stockholders of the Company were to so
authorize.
The Company has opted out of the provisions of Chapter 156B, Section 50A,
of the Massachusetts General Laws providing for an automatic classified board of
directors for any corporation which has a class of voting stock registered under
the Securities Exchange Act of 1934 and the Company's Articles do not provide
for such a classified board of directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston.
34
<PAGE> 37
UNDERWRITING
Piper Jaffray Inc. and Hambrecht & Quist LLC (the "Underwriters") have
agreed, subject to the terms of the Purchase Agreement, to purchase from the
Company and the Selling Stockholders 1,490,000 shares of Common Stock. The
Underwriters are committed to purchase and pay for all such shares if any are
purchased.
The Company and the Selling Stockholders have been advised by the
Underwriters that the Underwriters propose to offer the shares to the public
initially at the Price to Public set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow and such dealers may reallow a concession not
in excess of $ per share on sales to certain other brokers and dealers. After
the offering the Price to Public, concession and reallowance may be changed by
the Underwriters.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, under which the
Underwriters may purchase up to an additional 223,500 shares at the Price to
Public less the Underwriting Discount set forth on the cover page of this
Prospectus. The Underwriters may exercise the option only to cover
over-allotments, if any.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933, as
amended (the "Securities Act"), or to contribute to payments which the
Underwriters may be required to make in respect thereof.
The Company and the Selling Stockholders will agree, for a period of 120
days after the date of the Purchase Agreement, not to directly or indirectly
sell, offer to sell, grant any option for the sale of, or otherwise dispose of,
any shares of Common Stock, or any options or other rights to purchase any
shares of Common Stock, without Piper Jaffray Inc.'s prior written consent,
except for (i) sales to the Underwriters pursuant to the Purchase Agreement and
(ii) in the case of the Company, sales in connection with the exercise of
options granted pursuant to the Company's existing stock option plans.
In connection with this offering, the Underwriters and certain selling
group members may engage in passive market making transactions in the Company's
Common Stock on NASDAQ immediately prior to the commencement of the sale of the
shares in this offering, in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Passive market making
consists of displaying bids on NASDAQ limited by the bid prices of market makers
not connected with this offering and making purchases limited by such prices and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited in amount to a specified percentage of the passive market
maker's average daily trading volume in the common Stock during a specified
period prior to the filing of this Prospectus with the Commission and must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Ropes & Gray, Boston,
Massachusetts. Certain matters will be passed on for the Underwriters by
Goodwin, Procter & Hoar, Boston, Massachusetts.
EXPERTS
The Consolidated Financial Statements included in this Prospectus and
elsewhere in this registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
35
<PAGE> 38
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Company's Common Stock is listed on the Nasdaq National
Market and reports, proxy statements and other information concerning the
Company can be inspected at the offices of the Nasdaq at Nasdaq, 1735 K Street,
N.W., Washington, DC 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the securities offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement, including exhibits filed as part thereof and
otherwise incorporated herein. Statements made in this Prospectus as to the
contents of any contract, agreement or other document filed as an exhibit to the
Registration Statement or incorporated by reference therein, while complete in
all material respects, do not necessarily describe all terms or provisions of
such contract, agreement or other document. For a complete description,
reference is made to each such contract, agreement or other document filed as an
exhibit to the Registration Statement or incorporated by reference therein.
Copies of the Registration Statement and the exhibits may be inspected, without
charge, at the offices of the Commission, or obtained at prescribed rates from
the Public Reference Section of the Commission at the address set forth above.
36
<PAGE> 39
DATA TRANSLATION, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of November 30, 1993 and 1994 and August 31, 1995...... F-3
Consolidated Statements of Operations for the Fiscal Years Ended November 30, 1992,
1993 and 1994 and for the Nine Months Ended August 31, 1994 and 1995................ F-4
Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended November 30,
1992, 1993 and 1994 and for the Nine Months Ended August 31, 1995................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended November 30, 1992,
1993 and 1994 and for the Nine Months Ended August 31, 1994 and 1995................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Data Translation, Inc.:
We have audited the accompanying consolidated balance sheets of Data
Translation, Inc. (a Massachusetts corporation) and subsidiaries as of November
30, 1993 and 1994 and as of August 31, 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended November 30, 1994 and the nine month periods
ended August 31, 1994 and 1995. 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 audits 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 Data Translation, Inc. and
subsidiaries as of November 30, 1993 and 1994 and as of August 31, 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended November 30, 1994 and the nine month periods ended August 31,
1994 and 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 17, 1995
F-2
<PAGE> 41
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER NOVEMBER
30, 30, AUGUST 31,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents..................... $1,528,000 $1,592,000 $7,072,000
Marketable securities......................... 2,589,000 2,487,000 6,558,000
Accounts receivable, net of reserves of
$321,000, $435,000 and $506,000 in 1993,
1994 and 1995, respectively................. 5,704,000 9,045,000 11,948,000
Inventories................................... 2,644,000 2,759,000 5,915,000
Prepaid expenses.............................. 578,000 647,000 1,381,000
Prepaid income taxes.......................... 243,000 61,000 60,000
---------- ---------- ----------
Total current assets..................... 13,286,000 16,591,000 32,934,000
---------- ---------- ----------
Equipment and leasehold improvements, net.......... 2,663,000 2,367,000 3,384,000
Other assets -- net................................ 212,000 241,000 223,000
---------- ---------- ----------
Total Assets....................................... $16,161,000 $19,199,000 $36,541,000
========== ========== ==========
Current Liabilities:
Accounts payable.............................. $2,686,000 $3,745,000 $4,378,000
Due to related party.......................... 546,000 546,000 273,000
Borrowings from bank.......................... -- -- 544,000
Accrued expenses.............................. 2,881,000 3,697,000 5,912,000
Deferred revenue.............................. -- 225,000 1,487,000
---------- ---------- ----------
Total current liabilities................ 6,113,000 8,213,000 12,594,000
---------- ---------- ----------
Commitments and Contingencies (Note 6)
Deferred income taxes.............................. 2,000 2,000 3,000
Stockholders' Equity:
Preferred Stock, $.01 par value, Authorized --
1,000,000 shares, none issued............... -- -- --
Common Stock, $.01 par value, Authorized --
10,000,000 shares, issued -- 6,563,450,
6,765,472 and 7,051,794 in 1993, 1994 and
1995, respectively.......................... 66,000 68,000 71,000
Capital in excess of par value................ 8,289,000 8,739,000 15,685,000
Retained earnings............................. 6,574,000 6,894,000 10,058,000
Cumulative translation adjustment............. (102,000) 64,000 34,000
Less treasury stock, at cost, 2,254,496 shares
in 1993 and 1994 and 869,096 in 1995........ (4,781,000) (4,781,000) (1,843,000)
Unrealized holding loss on available for sale
securities.................................. -- -- (61,000)
---------- ---------- ----------
Total stockholders' equity............... 10,046,000 10,984,000 23,944,000
---------- ---------- ----------
Total Liabilities and Stockholders' Equity......... $16,161,000 $19,199,000 $36,541,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 42
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEARS ENDED NOVEMBER 30, AUGUST 31,
-------------------------------------- -------------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net sales:
Digital media.................... $ -- $1,118,000 $12,415,000 $7,916,000 $20,323,000
Data acquisition and imaging..... 24,775,000 23,733,000 22,440,000 16,953,000 16,359,000
Networking distribution.......... 8,787,000 10,850,000 15,382,000 10,886,000 14,604,000
---------- ---------- ---------- ---------- -----------
Total net sales....................... 33,562,000 35,701,000 50,237,000 35,755,000 51,286,000
Cost of sales......................... 16,285,000 18,533,000 26,819,000 19,122,000 26,679,000
---------- ---------- ---------- ---------- -----------
Gross profit..................... 17,277,000 17,168,000 23,418,000 16,633,000 24,607,000
Research and development expenses..... 5,566,000 6,392,000 6,821,000 5,180,000 5,488,000
Selling and marketing expenses........ 10,976,000 11,438,000 12,781,000 9,070,000 13,158,000
General and administrative expenses... 3,944,000 3,547,000 3,411,000 2,433,000 3,199,000
---------- ---------- ---------- ---------- -----------
Income (loss) from operations.... (3,209,000) (4,209,000) 405,000 (50,000) 2,762,000
Interest income....................... 304,000 244,000 152,000 118,000 494,000
Interest expense...................... (10,000) (37,000) (10,000) (5,000) (17,000)
Other income (expense)................ (135,000) (320,000) (28,000) (39,000) 6,000
---------- ---------- ---------- ---------- -----------
Income (loss) before tax
provision (benefit)............ (3,050,000) (4,322,000) 519,000 24,000 3,245,000
Tax provision (benefit)............... (592,000) (24,000) 199,000 84,000 81,000
---------- ---------- ---------- ---------- -----------
Net income (loss)..................... $(2,458,000) $(4,298,000) $ 320,000 $ (60,000) $ 3,164,000
========== ========== ========== ========== ==========
Net income (loss) per share (Note
2).................................. $ (0.59) $ (1.01) $ 0.07 $ (0.01) $ 0.48
========== ========== ========== ========== ==========
Weighted average number of common and
common equivalent shares
outstanding......................... 4,162,000 4,256,000 4,764,000 4,348,000 6,621,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 43
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
$.01 PAR VALUE HOLDING
--------------------------------- LOSS ON
CAPITAL IN CUMULATIVE AVAILABLE
ISSUED EXCESS OF RETAINED TRANSLATION TREASURY FOR SALE
SHARES AMOUNT PAR VALUE EARNINGS ADJUSTMENT STOCK SECURITIES
--------- ------- ----------- ------------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1991..... 6,362,006 $64,000 $ 7,847,000 $13,330,000 $ 278,000 $(4,761,000 ) $ --
Proceeds from stock plans...... 77,682 1,000 141,000 -- -- -- --
Translation adjustment......... -- -- -- -- (354,000 ) -- --
Net loss....................... -- -- -- (2,458,000 ) -- -- --
Purchase of treasury stock..... -- -- -- -- -- (20,000 ) --
--------- ------- ----------- ------------ ---------- ------------ --------
Balance, November 30, 1992..... 6,439,688 $65,000 $ 7,988,000 $10,872,000 $ (76,000 ) $(4,781,000 ) $ --
Proceeds from stock plans...... 123,762 1,000 301,000 -- -- -- --
Translation adjustment......... -- -- -- -- (26,000 ) -- --
Net loss....................... -- -- -- (4,298,000 ) -- -- --
--------- ------- ----------- ------------ ---------- ------------ --------
Balance, November 30, 1993..... 6,563,450 $66,000 $ 8,289,000 $ 6,574,000 $(102,000 ) $(4,781,000 ) $ --
Proceeds from stock plans...... 248,986 2,000 761,000 -- -- -- --
Effect of stock-for-stock
exercise..................... (46,964 ) -- (311,000) -- -- -- --
Translation adjustment......... -- -- -- -- 166,000 -- --
Net income..................... -- -- -- 320,000 -- -- --
--------- ------- ----------- ------------ ---------- ------------ --------
Balance, November 30, 1994..... 6,765,472 $68,000 $ 8,739,000 $ 6,894,000 $ 64,000 $(4,781,000 ) $ --
Proceeds from stock plans...... 286,322 3,000 1,082,000 -- -- -- --
Public sale of treasury stock,
net of issuance costs of
$375,000..................... -- -- 5,864,000 -- -- 2,938,000 --
Translation adjustment......... -- -- -- -- (30,000 ) -- --
Net income..................... -- -- -- 3,164,000 -- -- --
Unrealized holding loss on
available for sale
securities................... -- -- -- -- -- -- (61,000)
--------- ------- ----------- ------------ ---------- ------------ --------
Balance, August 31, 1995....... 7,051,794 $71,000 $15,685,000 $10,058,000 $ 34,000 $(1,843,000 ) $(61,000)
========= ======= ========== =========== ========= =========== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 44
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED NOVEMBER 30, ENDED
AUGUST 31,
------------------------------------ -----------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................ $(2,458,000) $(4,298,000) $ 320,000 $ (60,000) $3,164,000
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities --
Depreciation and amortization................................ 2,225,000 1,735,000 1,693,000 1,254,000 1,287,000
Deferred income taxes........................................ (9,000) (9,000) -- -- 1,000
Loss on sale of equipment.................................... 24,000 8,000 4,000 9,000 2,000
(Gain) loss on sale of marketable securities................. (11,000) (20,000) 3,000 3,000 34,000
Changes in assets and liabilities --
Accounts receivable........................................ (736,000) (156,000) (3,341,000) (2,207,000) (2,903,000)
Income tax refund receivable............................... (331,000) 546,000 -- -- --
Inventories................................................ (54,000) (530,000) (115,000) (589,000) (3,156,000)
Prepaid expenses........................................... (142,000) 121,000 (69,000) (362,000) (734,000)
Prepaid income taxes....................................... 412,000 (25,000) 182,000 166,000 1,000
Accounts payable........................................... 218,000 802,000 1,059,000 268,000 633,000
Due to related party....................................... -- 546,000 -- (273,000) (273,000)
Accrued expenses........................................... (236,000) 466,000 816,000 572,000 2,214,000
Deferred revenue........................................... -- -- 225,000 -- 1,262,000
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating activities........ $(1,098,000) $ (814,000) $ 777,000 $(1,219,000) $1,532,000
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements.............. (1,132,000) (1,246,000) (1,215,000) (785,000) (2,176,000)
Proceeds from sale of equipment................................ 39,000 53,000 7,000 -- 5,000
Increase in other assets....................................... (182,000) (133,000) (199,000) (150,000) (107,000)
Purchases of marketable securities............................. (8,664,000) (4,021,000) (943,000) (862,000) (9,132,000)
Proceeds from sales of marketable securities................... 5,467,000 5,569,000 1,042,000 1,009,000 4,966,010
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) investing activities........ $(4,472,000) $ 222,000 $(1,308,000) $ (788,000) $(6,444,000)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from bank........................................... 303,000 (400,000) -- 95,000 544,000
Proceeds from stock plans...................................... 142,000 301,000 452,000 407,000 1,085,000
Purchases of treasury stock.................................... (20,000) -- -- -- --
Net proceeds from public sale of treasury stock................ -- -- -- -- 8,802,000
---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities.................. $ 425,000 $ (99,000) $ 452,000 $ 502,000 $10,431,000
---------- ---------- ---------- ---------- ----------
EXCHANGE RATE EFFECTS............................................ (288,000) 2,000 143,000 134,000 (39,000)
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. $(5,433,000) $ (689,000) $ 64,000 $(1,371,000) $5,480,000
CASH AND CASH EQUIVALENTS, beginning of period................... 7,650,000 2,217,000 1,528,000 1,528,000 1,592,000
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period......................... $2,217,000 $1,528,000 $1,592,000 $ 157,000 $7,072,000
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash received (paid) for income taxes.......................... $ 208,000 $ 487,000 $ (11,000) $ (10,000) $ 21,000
========== ========== ========== ========== ==========
Cash paid for interest......................................... $ 10,000 $ 37,000 $ 10,000 $ 5,000 $ 17,000
========== ========== ========== ========== ==========
OTHER TRANSACTIONS NOT PROVIDING (USING) CASH:
Decrease in value of marketable securities..................... $ -- $ -- $ -- $ -- $ 61,000
Increase in unrealized holding loss on available for sale
securities................................................... -- -- -- -- (61,000)
---------- ---------- ---------- ---------- ----------
$ -- $ -- $ -- $ -- $ --
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 45
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Data Translation, Inc. (the "Company") was incorporated in 1973 as a
Massachusetts corporation. The Company designs, develops and manufactures high
performance digital media, data acquisition and imaging products for use with
personal computers. The Company's principal products are digital signal
processing boards and software which receive analog signals, convert them to
digital form and process the digital data. In addition, the Company distributes,
integrates and supports enterprise-wide networking products in the United
Kingdom, which are manufactured by third-party suppliers.
The consolidated financial statements reflect the application of certain
significant accounting policies as described in this note and elsewhere in the
accompanying consolidated financial statements and notes.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
(b) Cash, Cash Equivalents and Marketable Securities
Cash equivalents are carried at cost, which approximates market value, and
have original maturities of less than three months. Cash equivalents include
money market accounts, U.S. Treasury bills and repurchase agreements with
overnight maturities.
Effective December 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under this standard, the Company is
required to classify all investments in debt and equity securities into one or
more of the following three categories: held-to-maturity, available-for-sale or
trading. All marketable securities classified as held-to-maturity are recorded
at their amortized cost. Available-for-sale securities are recorded at fair
market value with unrealized gains and losses excluded from earnings and
reported to stockholders' equity. Trading securities are also recorded at fair
market value and unrealized gains and losses are included in earnings.
Marketable securities held as of August 31, 1995, consist of the following:
<TABLE>
<CAPTION>
MATURITY MARKET VALUE
----------------- ------------
<S> <C> <C>
Investments held to maturity:
U.S. Treasury Bills.................................. less than 1 year $3,930,000
==========
Investments available for sale:
U.S. Treasury Notes.................................. 1 - 3 years $1,489,000
U.S. Agency Bonds.................................... 1 - 5 years 553,000
U.S. Agency Bonds.................................... 6 - 10 years 286,000
----------
Total U.S. Agency Bonds...................... 839,000
Utility Bonds........................................ 1 - 5 years 295,000
Corporate Obligations................................ 10+ years 5,000
----------
Total investments available for sale......... $2,628,000
==========
</TABLE>
Marketable securities had a cost of $2,589,000, $2,600,000 and $6,619,000
at November 30, 1993, 1994 and August 31, 1995, respectively, and a market value
of $2,655,000, $2,487,000 and $6,558,000, respectively. To reduce the carrying
amount of the portfolio to market value at November 30, 1994, a valuation
allowance in the amount of $113,000 was established with a corresponding charge
to net income. The valuation allowance has been reflected as a separate
component of shareholders' equity on August 31, 1995 pursuant to the provisions
of SFAS No. 115.
F-7
<PAGE> 46
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market and consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------- AUGUST 31,
1993 1994 1995
--------- --------- ----------
<S> <C> <C> <C>
Raw materials........................... $ 854,000 $ 617,000 $2,256,000
Work-in-process......................... 246,000 434,000 226,000
Finished goods.......................... 1,544,000 1,708,000 3,433,000
--------- --------- ----------
$2,644,000 $2,759,000 $5,915,000
========= ========= =========
</TABLE>
Work-in-process and finished goods inventories include material, labor and
manufacturing overhead. Management performs periodic reviews of inventory and
disposes of items not required by their manufacturing and marketing plan.
(d) Depreciation and Amortization
The Company provides for depreciation and amortization, using the
straight-line and declining balance methods, by charges to operations in amounts
that allocate the cost of the equipment and leasehold improvements over the
following estimated useful lives:
<TABLE>
<CAPTION>
DESCRIPTION USEFUL LIVES
-------------------------------------------------------------- --------------
<S> <C>
Machinery and equipment....................................... 3 to 7 years
Furniture and fixtures........................................ 7 years
Vehicles...................................................... 3 years
</TABLE>
Leasehold improvements are amortized over the shorter of their economic
life or the life of the lease.
(e) Equipment and Leasehold Improvements, Net
Equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization, and consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------- AUGUST 31,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Machinery and equipment............ $14,319,000 $15,198,000 $17,077,000
Furniture and fixtures............. 2,182,000 2,219,000 2,348,000
Vehicles........................... 85,000 86,000 86,000
Leasehold improvements............. 1,650,000 1,659,000 1,753,000
---------- ---------- ----------
$18,236,000 $19,162,000 $21,264,000
Less accumulated depreciation and
amortization..................... 15,573,000 16,795,000 17,880,000
---------- ---------- ----------
$2,663,000 $2,367,000 $3,384,000
========== ========== ==========
</TABLE>
(f) Foreign Currency
The Company translates the assets and liabilities of foreign subsidiaries
at the rates of exchange in effect at year-end. Revenues and expenses are
translated using exchange rates in effect during the year. Gains and losses from
foreign currency translation are credited or charged to "Cumulative translation
adjustment" included in stockholders' equity in the accompanying consolidated
balance sheets. Foreign currency transaction gains and losses are included in
"Other Expense" on the accompanying consolidated statements of operations.
Foreign currency transaction losses totaled $211,000 for the year ended November
30, 1993. Foreign currency transaction gains and losses were not significant for
the years ended November 30, 1992 and 1994 or for the nine months ended August
31, 1994 or 1995.
F-8
<PAGE> 47
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(g) Revenue Recognition
The Company recognizes revenue when products are shipped or, for
post-contract support agreements, ratably over the term of the agreements. The
Company's policy is to defer the revenue associated with any vendor and
post-contract support obligations remaining at the time of shipment until the
related obligations are satisfied. Costs of service and warranty are not
significant and are charged to operations as incurred. Revenues from hardware
systems with other than incidental software components and stand-alone software
sales are recognized upon shipment, provided that no significant vendor or
post-contract support obligations remain outstanding and collection of the
resulting receivable is deemed probable.
(h) Capitalized Software Development Costs
The Company capitalizes certain computer software development costs.
Capitalization of costs commences upon establishing technological feasibility.
Capitalized costs, net of accumulated amortization, were approximately $188,000,
$215,000 and $195,000 as of November 30, 1993, 1994 and August 31, 1995,
respectively, and are included in other assets. These costs are amortized on a
straight-line basis over two years, which approximates the economic life of the
product. Amortization expense, included in cost of sales in the accompanying
consolidated statements of operations, amounted to $143,000, $70,000, $170,000,
$125,000 and $125,000 in 1992, 1993, 1994 and the nine months ended August 31,
1994 and 1995, respectively.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is determined by dividing net income (loss) by
the weighted average number of common and common equivalent shares outstanding
during each period. Common equivalent shares have been calculated in accordance
with the treasury stock method and are included for all periods where their
effect is dilutive. Fully diluted net income (loss) per share has not been
separately presented, as the amounts would not be materially different from net
income (loss) per share.
3. STOCKHOLDERS' EQUITY
a. Stock Split
On June 28, 1995, the Board of Directors approved a 2 for 1 stock split
effected in the form of a dividend for all shareholders of record as of July 17,
1995. All share and per share data included in these financial statements have
been retroactively restated to reflect the stock split.
b. Stock options
Prior to April 1992, options were granted under the Company's 1982 Key
Employee Incentive Plan (the "1982 Plan"). Subject to certain limitations
imposed by the 1982 Plan, options were granted at a price determined by the
Board. The Board resolved to issue options under the 1982 Plan at not less than
100% of fair market value. The options expire six years from the date of grant
and become exercisable at the rate of 20% per year beginning one year from the
date of grant. No further options may be granted under the 1982 Plan.
In 1992, the Company adopted the 1992 Key Employee Incentive Plan (the
"1992 Plan"), and 1,000,000 shares of common stock were reserved for issuance.
Options granted pursuant to the 1992 Plan may, at the discretion of the Board,
be incentive stock options as defined by the Internal Revenue Code. Subject to
the provisions of the 1992 Plan, options granted are at a price as specified by
the Board. The Board has to date issued options under the 1992 plan at not less
than 100% of fair market value. The options become exercisable at a rate of 20%
per year beginning one year from the date of grant unless otherwise specified by
the Board. The Board will determine when the options will expire, but in no
event will the option period exceed ten years. No options may be granted under
the 1992 Plan on or after February 20, 2002.
F-9
<PAGE> 48
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information concerning stock options for each of the three years ended
November 30, 1994 and the nine months ended August 31, 1995 follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE
OPTIONS RANGE
--------- ------------
<S> <C> <C>
Outstanding at November 30, 1991.................... 681,184 $1.38 - $ 6.75
Options granted..................................... 364,400 1.82 - 3.03
Options exercised................................... (6,800) 1.38 - 1.75
Options expired/canceled............................ (148,250 1.38 - 6.75
---------
Outstanding at November 30, 1992.................... 890,534 $1.38 - $ 6.75
Options granted..................................... 276,500 3.63 - 4.95
Options exercised................................... (77,586) 1.38 - 3.38
Options expired/canceled............................ (117,246) 1.50 - 5.82
---------
Outstanding at November 30, 1993.................... 972,202 $1.38 - $ 6.75
Options granted..................................... 356,700 4.13 - 7.38
Options exercised................................... (208,490) 1.38 - 6.75
Options expired/canceled............................ (90,436) 1.38 - 7.00
---------
Outstanding at November 30, 1994.................... 1,029,976 $1.38 - $ 7.38
Options granted..................................... 331,000 7.50 - 15.75
Options exercised................................... (263,366) 1.38 - 6.75
Options expired/canceled............................ (9,690) 1.50 - 11.00
---------
Outstanding at August 31, 1995...................... 1,087,920 $1.38 - $15.75
========
Exercisable at August 31, 1995...................... 204,160 $1.50 - $ 7.50
========
Available for grant at August 31, 1995.............. 9,980
========
</TABLE>
In 1994, the Company amended the 1986 Employee Stock Purchase Plan (the
"Plan"), pursuant to which an additional 200,000 shares of common stock were
reserved for issuance for a total of 600,000 shares. Employees who have worked
for the Company for at least six months are eligible to participate in the Plan.
The Plan allows participants to purchase common stock of the Company at 85% of
the fair market value as defined. Under the Plan, the Company issued 70,881,
46,176, 38,222 and 22,930 shares in fiscal years 1992, 1993 and 1994, and the
nine month period ended August 31, 1995, respectively. At August 31, 1995 there
were 193,604 shares available for purchase under the Plan.
4. RETIREMENT PLAN
In November 1985, the Company adopted an employee savings plan (the
"Savings Plan") in compliance with Section 401(k) of the Internal Revenue Code.
The Savings Plan provides for annual Company contributions of up to 3% of total
salary per participant. These contributions vest incrementally over a five-year
period. The Company's contributions to the Savings Plan charged to operations
were $120,000, $78,000, $0, $0, and $25,000 in 1992, 1993 and 1994 and the nine
months ended August 31, 1994 and 1995, respectively.
The Company does not provide postretirement benefits to any employees as
defined under SFAS No. 106, "Employer's Accounting for Postretirement Benefits
Other Than Pensions."
5. BANK FACILITIES
The Company's United Kingdom subsidiaries, Data Translation Ltd. and Data
Translation Networking Ltd., jointly have a bank overdraft facility of
approximately $600,000. The facility bears interest at the bank's base rate plus
1 3/4%. No amounts were outstanding at November 30, 1993 or 1994. Approximately
$544,000 was outstanding at August 31, 1995.
F-10
<PAGE> 49
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LEASE COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company has operating lease agreements expiring December 1, 1999 for a
building and property owned by a related party trust. The agreements provide for
aggregate minimum annual rental payments plus other expenses of the lessor on a
net basis. Total rental expense charged to operations on these leases was
$1,092,000 for each of the years ended November 30, 1992, 1993 and 1994, and
$819,000 for the nine months ended August 31, 1994 and 1995.
In addition, the Company leases sales facilities and equipment under leases
expiring through 1998. Rent expense under these agreements totaled $497,000,
$354,000 and $342,000 in fiscal years 1992, 1993 and 1994, respectively, and
$207,000 and $481,000 for the nine months ended August 31, 1994 and 1995,
respectively.
Future minimum lease payments under all operating leases are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, AMOUNT
----------------------------------------------------------- ----------
<S> <C>
1995....................................................... $ 434,000
1996....................................................... 1,658,000
1997....................................................... 1,548,000
1998....................................................... 1,212,000
1999....................................................... 1,099,000
----------
Total minimum lease payments............................... $5,951,000
=========
</TABLE>
(b) Contingencies
On June 7, 1995, a lawsuit was filed against the Company by Avid
Technology, Inc., in the United States District Court for the District of
Massachusetts. The complaint generally alleges patent infringement by the
Company arising from the manufacture, sale, and use of the Company's Media 100
product. The complaint includes requests for injunctive relief, treble damages,
interest, costs and fees. In July, 1995, the Company filed an Answer and
Counterclaim denying any infringement and asserting that the patent is invalid.
The Company intends to vigorously defend the lawsuit. There can be no assurance
that the Company will prevail in the litigation, or that any of the effects of
the litigation, whether or not successful, will not be material.
From time to time, the Company is involved in other disputes and/or
litigation encountered in its normal course of business. The Company does not
believe that the ultimate impact of the resolution of such other outstanding
matters will have a material effect on the Company's financial condition or
results of operations.
7. INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued SFAS No.
109, "Accounting for Income Taxes." The Company has adopted the provisions of
SFAS No. 109 by retroactively restating all periods presented in the
accompanying consolidated financial statements. There was no effect on net
income (loss) or financial position of adopting the provisions of SFAS No. 109
for any period presented.
F-11
<PAGE> 50
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax liability recognized in the
accompanying consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------- AUGUST 31,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets..................................... $3,280,000 $3,563,000 $ 2,746,000
Deferred tax liabilities................................ (264,000 ) (271,000 ) (291,000)
----------- ----------- -----------
Subtotal........................................... 3,016,000 3,292,000 2,455,000
Valuation allowance..................................... (3,018,000 ) (3,294,000 ) (2,458,000)
----------- ----------- -----------
$ (2,000 ) $ (2,000 ) $ (3,000)
========== ========== ==========
</TABLE>
Due to the uncertainty surrounding the timing of realizing the benefits of
its favorable tax attributes in future income tax returns, the Company has
placed a valuation allowance against its otherwise recognizable deferred tax
assets.
The approximate tax effect of each type of temporary difference and
carryforward before allocation of the valuation allowance is summarized as
follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------- AUGUST 31,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net operating losses.................................... $1,707,000 $1,638,000 $ 263,000
Other temporary differences, principally nondeductible
reserves.............................................. 882,000 989,000 1,347,000
Research and development credits........................ 377,000 615,000 795,000
Alternative minimum tax credits......................... 50,000 50,000 50,000
---------- ---------- ----------
$3,016,000 $3,292,000 $2,455,000
========= ========= =========
</TABLE>
The tax credit and net operating loss carryforwards expire at various dates
through 2008. The Tax Reform Act of 1986 contains provisions that may limit the
net operating loss and tax credit carryforwards available to be used in any
given year in the event of significant changes in ownership, as defined.
The income tax provision (benefit) shown on the accompanying consolidated
statements of operations comprise the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------------------------ AUGUST 31, AUGUST 31,
1992 1993 1994 1994 1995
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Federal:
Current (benefit)................. $ (359,000) $ -- $ -- $ -- $ 21,000
Deferred (prepaid)................ (84,000) -- -- -- --
------------ ------------ ------------ ---------- ----------
(443,000) -- -- -- 21,000
------------ ------------ ------------ ---------- ----------
State:
Current........................... -- -- -- -- --
Deferred (prepaid)................ (26,000) -- -- -- --
------------ ------------ ------------ ---------- ----------
(26,000) -- -- -- --
------------ ------------ ------------ ---------- ----------
Foreign -- Current (benefit)........... (123,000) (24,000) 199,000 84,000 60,000
------------ ------------ ------------ ---------- ----------
$ (592,000) $(24,000) $ 199,000 $ 84,000 $ 81,000
========== ========== ========== ======== ========
</TABLE>
F-12
<PAGE> 51
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective income tax rate varies from the amount computed using the
statutory U.S. income tax rate as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
NOVEMBER 30,
------------------------- AUGUST 31,
1992 1993 1994 1995
----- ----- ----- ----------
<S> <C> <C> <C> <C>
Tax provision (benefit) at statutory rate.............. (34.0%) (34.0%) 34.0% 34.0%
Federal losses not benefited........................... 10.9 42.7 -- *
Foreign losses not benefited........................... 8.3 -- 11.4 *
Foreign benefit from loss carryforward................. -- (3.7) -- --
Foreign taxes.......................................... -- -- 1.9 *
Effect of tax-exempt income............................ -- -- -- --
Tax credits and other.................................. (4.6) (5.6) (9.0) *
----- ----- ----- -----
(19.4%) (0.6%) 38.3% 2.5%
===== ===== ===== ==========
</TABLE>
- ---------------
* Not meaningful, as the potential tax provision resulting from profitable
domestic operations has been principally offset by net operating loss
carryforwards.
The 1992 benefit is the result of carrying back losses to 1989 and 1988,
respectively, in which the statutory U.S. tax rates were 34%.
8. GEOGRAPHIC INFORMATION
Operations in various geographic areas for the three years ended November
30, 1994 and the nine months ended August 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
FISCAL 1992
Sales to unaffiliated customers(1)......... $ 19,498,000 $14,064,000 $ -- $33,562,000
Sales or transfers between geographic
areas.................................... 2,625,000 -- (2,625,000) --
------------ ----------- ----------- -----------
Total net sales............................ 22,123,000 14,064,000 (2,625,000) 33,562,000
------------ ----------- ----------- -----------
Income (loss) from operations.............. (2,310,000) (936,000) 37,000 (3,209,000)
Interest income -- net..................... 277,000 17,000 -- 294,000
Other income (expense)..................... 29,000 (164,000) -- (135,000)
------------ ----------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes......................... $ (2,004,000) $(1,083,000) $ 37,000 $(3,050,000)
=========== ========== =========== ===========
Identifiable assets........................ $ 15,287,000 $ 5,627,000 $(2,136,000) $18,778,000
=========== ========== =========== ===========
FISCAL 1993
Sales to unaffiliated customers(1)......... $ 19,807,000 $15,894,000 $ -- $35,701,000
Sales or transfers between geographic
areas.................................... 2,672,000 -- (2,672,000) --
------------ ----------- ----------- -----------
Total net sales............................ 22,479,000 15,894,000 (2,672,000) 35,701,000
------------ ----------- ----------- -----------
Income (loss) from operations.............. (3,752,000) (546,000) 89,000 (4,209,000)
Interest income (expense) -- net........... 226,000 (19,000) -- 207,000
Other income (expense)..................... (1,252,000) 932,000 -- (320,000)
------------ ----------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes......................... $ (4,778,000) $ 367,000 $ 89,000 $(4,322,000)
=========== ========== =========== ===========
Identifiable assets........................ $ 11,953,000 $ 5,959,000 $(1,751,000) $16,161,000
=========== ========== =========== ===========
</TABLE>
F-13
<PAGE> 52
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
FISCAL 1994
Sales to unaffiliated customers(1)......... $ 28,964,000 $21,273,000 $ -- $50,237,000
Sales or transfers between geographic
areas.................................... 3,328,000 -- (3,328,000) --
------------ ----------- ----------- -----------
Total net sales............................ 32,292,000 21,273,000 (3,328,000) 50,237,000
------------ ----------- ----------- -----------
Income (loss) from operations.............. 142,000 324,000 (61,000) 405,000
Interest income (expense) -- net........... 145,000 (3,000) -- 142,000
Other income (expense)..................... (151,000) 236,000 (113,000) (28,000)
------------ ----------- ----------- -----------
Income (loss) before provision for income
taxes.................................... $ 136,000 $ 557,000 $ (174,000) $ 519,000
=========== ========== =========== ===========
Identifiable assets........................ $ 13,239,000) $ 8,401,000 $(2,441,000) $19,199,000
=========== ========== =========== ===========
FISCAL 1995 (THROUGH AUGUST 31, 1995)
Sales to unaffiliated customers(1)......... $ 31,208,000 $20,078,000 $ -- $51,286,000
Sales or transfers between geographic
areas.................................... 3,167,000 -- (3,167,000) --
------------ ----------- ----------- -----------
Total net sales............................ 34,375,000 20,078,000 (3,167,000) 51,286,000
------------ ----------- ----------- -----------
Income (loss) from operations.............. 2,933,000 (137,000) (34,000) 2,762,000
Interest income (expense) -- net........... 492,000 (15,000) -- 477,000
Other income (expense)..................... (37,000) 43,000 -- 6,000
------------ ----------- ----------- -----------
Income (loss) before provision for income
taxes.................................... $ 3,388,000 $ (109,000) $ (34,000) $3,245,000
=========== ========== =========== ===========
Identifiable assets........................ $ 29,302,000 $10,273,000 $(3,034,000) $36,541,000
=========== ========== =========== ===========
</TABLE>
- ---------------
(1) Foreign sales from the United States to unaffiliated customers for the years
ended November 30, 1992, 1993 and 1994 and the nine month period ended
August 31, 1995 were approximately $3,772,000, $3,511,000, $7,153,000, and
$3,167,000, respectively.
9. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------- AUGUST 31,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Accrued commissions.................... $ 436,000 $ 417,000 $ 220,000
Payroll and related taxes.............. 614,000 752,000 1,591,000
Other.................................. 1,831,000 2,528,000 4,101,000
------------ ------------ ------------
$2,881,000 $3,697,000 $5,912,000
============= ============= =============
</TABLE>
F-14
<PAGE> 53
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activity in the Company's accounts
receivable reserve account:
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO EXCHANGE RATE BALANCE AT
BEGINNING COST AND DIFFERENCE END
OF YEAR EXPENSE AND DEDUCTIONS OF YEAR
---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
For the Year Ended November 30, 1992:
Allowance for doubtful accounts (deducted
from accounts receivable).............. $ 260,000 $165,000 $ 78,000* $ 347,000
======== ======== ======== ========
For the Year Ended November 30, 1993:
Allowance for doubtful accounts (deducted
from accounts receivable).............. $ 347,000 $148,000 $174,000* $ 321,000
======== ======== ======== ========
For the Year Ended November 30, 1994:
Allowance for doubtful accounts (deducted
from accounts receivable).............. $ 321,000 $297,000 $183,000* $ 435,000
======== ======== ======== ========
For the Nine Months Ended August 31, 1995:
Allowance for doubtful accounts (deducted
from accounts receivable).............. $ 435,000 $138,000 $ 67,000* $ 506,000
======== ======== ======== ========
</TABLE>
- ---------------
* Includes exchange rate differences of $22,000, $3,000, $(6,000) and $0 in
1992, 1993, 1994 and 1995, respectively.
F-15
<PAGE> 54
[Imported graphic file picturing a
clock.]
[Media 100 logo] Media 100 allows
easy import/export of files created
in a broad range of third party
multimedia software programs
including graphics and audio files
for Macintosh/IBM/Silicon Graphics
systems.
[Chameleon superimposed on DTVEETM
software interface.]
Data Translation's data acquisition
and imaging systems provide
integrated high performance
solutions to the general scientific
and measurement marketplace. With
the industry's most flexible
interface, DTVEE graphical
programming software lets you
control exactly the way your
application performs.
[Data Translation Logo]
[Animation graphic of film box and
canister.]
[Media 100 logo] Media 100
functions as a high-end animation
workstation enabling users of
desktop animation software such as
advertising agencies and post
production houses to output their
work at broadcast quality.
<PAGE> 55
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE 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, ANY SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES ON AN OFFER TO OR A
SOLICITATION OF ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE 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
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 5
Use of Proceeds..................... 8
Dividend Policy..................... 8
Capitalization...................... 8
Price Range of Common Stock......... 9
Selected Financial Data............. 10
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 11
Business............................ 16
Management.......................... 28
Principal and Selling
Stockholders...................... 31
Certain Relationships and Related
Transactions...................... 32
Description of Capital Stock........ 33
Underwriting........................ 35
Legal Matters....................... 35
Experts............................. 35
Available Information............... 36
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
1,490,000 SHARES
LOGO
COMMON STOCK
---------------------------------
PROSPECTUS
---------------------------------
PIPER JAFFERY INC.
HAMBRECHT & QUIST
November , 1995
<PAGE> 56
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated fees and expenses incurred by the Registrant and by the
Selling Stockholders in connection with the offering will be borne by the
Registrant and are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.......... $ 11,226
National Association of Securities Dealers, Inc. Filing
Fee........................................................ 3,756
Printing Expenses............................................ 100,000
Legal Fees and Expenses...................................... 150,000
Accounting Fees and Expenses................................. 100,000
Transfer Agent Fees and Expenses............................. 5,500
Blue Sky Fees and Expenses................................... 10,000
Miscellaneous................................................ 19,518
--------
Total.............................................. $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 67 of Chapter 156B of the General Laws of The Commonwealth of
Massachusetts provides that indemnification of directors, officers, employees
and other agents of a corporation may be provided by a corporation to whatever
extent authorized by (i) the articles of organization, or (ii) a by-law adopted
by the stockholders or (iii) a vote adopted by the holders of a majority of the
shares of stock entitled to vote on the election of directors. Section 9 of the
Registrant's by-laws requires the Registrant, to the extent legally permissible,
to indemnify each of its directors and officers (including persons who serve at
its request as directors, officers or trustees of another organization in which
it has any interest, as a shareholder, creditor or otherwise) against all
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and counsel fees, reasonably incurred
by him in connection with the defense or disposition of any action, suit or
other proceedings, whether civil or criminal, in which he may be involved or
with which he may be threatened, while in office or thereafter, by reason of his
being or having been such a director, officer or trustee, except with respect to
any matter as to which he shall have been adjudicated in any proceeding not have
acted in good faith in the reasonable belief that his action was in the best
interests of the corporation; provided, however, that as to any matter disposed
of by a compromise payment by such director or officer, pursuant to a consent
decree or otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless such compromise shall be approved as in the
best interests of the corporation, after notice that it involves such
indemnification: (a) by a disinterested majority of the directors then in
office; or (b) by a majority of the disinterested directors then in office,
provided that there has been obtained an opinion in writing of independent legal
counsel to the effect that such director or officer appears to have acted in
good faith in the reasonable belief that his action was in the best interests of
the corporation; or (c) by the holders of a majority of the outstanding stock at
the time entitled to vote for directors, voting as a single class, exclusive of
any stock owned by an interested director or officer. Expenses, including
counsel fees, reasonably incurred by any director or officer in connection with
the defense or disposition of any such action, suit or other proceeding may be
paid from time to time by the corporation in advance of the final disposition
thereof upon receipt of an undertaking by such director or officer to repay the
amounts so paid to the corporation if it is ultimately determined that
indemnification for such expenses is not authorized under this section. The
right of indemnification is not exclusive of and does not affect any other
rights to which any director or officer may be entitled. As used in Section 9 of
the Registrant's by-laws, the terms "director" and "officer" include their
respective heirs, executors and administrators, and an "interested" director or
officer is one against whom in such capacity the proceedings in question or
another proceeding on the same or similar grounds is then pending. Nothing
contained in Section 9 of the Registrant's by-laws affects any rights to
indemnification to which corporate personnel other than directors and officers
may be entitled by contract or otherwise under law.
II-1
<PAGE> 57
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS.
The exhibits listed in the Exhibit Index are filed with or incorporated by
reference in this Registration Statement.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement
3.1 Articles of Organization of Data Translation, Inc., as amended(10)
3.2 By-laws of Data Translation, Inc., as amended(10)
4 Specimen common stock certificate
5 Opinion of Ropes & Gray
10.1 Key Employee Incentive Plan (1982) and form of Stock Option Certificate(3) (7)
10.2 1986 Employee Stock Purchase Plan, as amended (3) (8)
10.3 Data Translation, Inc. Double Sheltered Retirement Plan(2)
10.4 Lease dated as of December 1, 1979 with Nason Hill Trust, as amended(1)
10.5 Lease dated as of April 1, 1981 with Nason Hill Trust, as amended(1)
10.6.A Fifth amendment to lease dated as of April 22, 1987(4)
10.6.B Sixth amendment to lease dated as of April 5, 1988(5)
10.6.C Seventh amendment to lease dated as of June 22, 1988(5)
10.6.D Eighth amendment to lease dated as of November 29, 1989(6)
10.7 Letter agreement between the Company and Nason Hill Trust dated as of November 29,
1989(6)
10.8 Form of Employee Agreement(1)
10.9 Key Employee Incentive Plan (1992)(9)
10.10 Adobe Premiere Plug-In Linking Utilities License Agreement with Adobe Systems
Incorporated dated January 8, 1993(10)
10.11 Adobe Premiere Plug-Ins Reproduction and License Agreement with Adobe Systems
Incorporated effective as of January 8, 1993(10)
10.12 Software License Agreement with Hewlett-Packard Company dated January 14, 1993(10)
21 Subsidiaries of Data Translation, Inc.
23.1 Consent of Ropes & Gray (contained in Exhibit 5)
23.2 Consent of Arthur Andersen LLP
24 Power of Attorney (included in the signature pages of this Registration Statement)
</TABLE>
- ---------------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-1 (No. 33-94121).
(2) Incorporated herein by reference to the Company's 1985 Annual Report on
Form 10-K.
(3) Incorporated herein by reference to the Company's 1986 Annual Report on
Form 10-K.
(4) Incorporated herein by reference to the Company's 1987 Annual Report on
Form 10-K.
(5) Incorporated herein by reference to the Company's 1988 Annual Report on
Form 10-K.
(6) Incorporated herein by reference to the Company's 1989 Annual Report on
Form 10-K.
(7) Incorporated herein by reference to the Company's 1990 Annual Report on
Form 10-K.
(8) Incorporated herein by reference to the Company's Registration Statement on
Form S-8 (No. 33-6238).
(9) Incorporated herein by reference to the Company's Registration Statement on
Form S-8 (No. 33-50692).
(10) Incorporated herein by reference to the Company's Registration Statement on
Form S-1 (No. 33-85232).
II-2
<PAGE> 58
(B) THE FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not required, are not
applicable or the information is otherwise set forth in the Consolidated
Financial Statements and notes thereto.
ITEM 17. UNDERTAKINGS.
(a) 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 described above in Item 14,
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 Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(b) The undersigned Registrant hereby undertakes:
(i) That for purposes of determining any liability under the
Securities Act of 1933, information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of this registration statement as of the time is was
declared effective.
(ii) That 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 the initial bona fide offering thereof.
II-3
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Marlboro, Massachusetts,
as of the 20th day of October, 1995.
DATA TRANSLATION, INC.
By: /s/ ALFRED A. MOLINARI, JR.
.................................
ALFRED A. MOLINARI, JR.
President
POWER OF ATTORNEY
We, the undersigned officers and directors of Data Translation, Inc.,
hereby severally constitute and appoint Alfred A. Molinari, Jr. and Peter J.
Rice, and each of them singly, our true and lawful attorneys with full power to
them, and each of them singly, to sign for us and in our names in the capacities
indicated below, the Registration Statement filed herewith and any and all
amendments to said Registration Statement (including post-effective amendments),
and generally to do all such things in our name and behalf in our capacities as
officers and directors to enable Data Translation, Inc. to comply with the
provisions of the Securities Act of 1933, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Registration
Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ ---------------------------- ------------------
<S> <C> <C>
/s/ ALFRED A. MOLINARI, JR. President and Director October 20, 1995
........................................ (Principal Executive
ALFRED A. MOLINARI, JR. Officer)
/s/ PETER J. RICE Vice President (Principal October 20, 1995
........................................ Financial Officer)
PETER J. RICE
/s/ GARY B. GODIN Chief Accounting Officer and October 20, 1995
........................................ Controller
GARY B. GODIN
/s/ PAUL J. SEVERINO Director October 20, 1995
........................................
PAUL J. SEVERINO
/s/ R. BRADFORD MALT Director October 20, 1995
........................................
R. BRADFORD MALT
/s/ JAMES M. DOW Director October 20, 1995
........................................
JAMES M. DOW
/s/ JOHN A. MOLINARI Director October 20, 1995
........................................
JOHN A. MOLINARI
</TABLE>
II-4
<PAGE> 60
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------
<S> <C> <C>
1 Form of Underwriting Agreement
4 Specimen Common Stock Certificate
5 Opinion of Ropes & Gray
21 Subsidiaries of Data Translation, Inc.
23.2 Consent of Independent Public Accountants
</TABLE>
<PAGE> 1
Exhibit 1
1,490,000 SHARES(1)
DATA TRANSLATION, INC.
COMMON STOCK
PURCHASE AGREEMENT
November ___, 1995
PIPER JAFFRAY INC.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
HAMBRECHT & QUIST
50 Rowes Wharf
4th Floor
Boston, MA 02110
Ladies and Gentlemen:
Data Translation, Inc., a Massachusetts corporation (the "Company"),
and the stockholders of the Company listed in Schedule I hereto (the "Selling
Stockholders") severally propose to sell to Piper Jaffray Inc. and Hambrecht &
Quist LLC (the "Underwriters") an aggregate of 1,490,000 shares (the "Firm
Shares") of Common Stock, $0.01 par value (the "Common Stock"), of the Company.
The Firm Shares consist of 1,400,000 authorized but unissued shares of Common
Stock to be issued and sold by the Company and 90,000 outstanding shares of
Common Stock to be sold by the Selling Stockholders. The Company has also
granted to the Underwriters options to purchase in the aggregate up to 223,500
additional shares of Common Stock, on the terms and for the purposes set forth
in Section 3 hereof (the "Option Shares"). The Firm Shares and the Option Shares
purchased pursuant to this Purchase Agreement are herein collectively called the
"Securities."
The Company and the Selling Stockholders hereby confirm their agreement
with respect to the sale of the Securities to the Underwriters.
1. Registration Statement. A registration statement on Form S-1 (File
No. 33-_______) with respect to the Securities, including a preliminary form of
prospectus, including the exhibits, financial statements and schedules each as
amended by one or more amendments at the time the registration statement becomes
effective, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations ("Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder and has been filed with the Commission or will be
so filed. Copies of such registration statement with amendments with each
related
(1) PLUS AN OPTION TO PURCHASE UP TO 223,500 ADDITIONAL SHARES TO COVER
OVER-ALLOTMENTS.
<PAGE> 2
preliminary prospectus have been delivered to you.
If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, it will prepare and file a
prospectus pursuant to Rule 424(b) that discloses the information previously
omitted from the prospectus in reliance upon Rule 430A. Such registration
statement as amended at the time it is or was declared effective by the
Commission, and, in the event of any amendment thereto after the effective date
and prior to the First Closing Date (as hereinafter defined), such registration
statement as so amended (but only from and after the effectiveness of such
amendment), including the information deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A(b), if applicable,
is hereinafter called the "Registration Statement." The prospectus included in
the Registration Statement at the time it is or was declared effective by the
Commission is hereinafter called the "Prospectus," except that if any prospectus
filed by the Company with the Commission pursuant to Rule 424(b) of the Rules
and Regulations or any other prospectus provided to the Underwriters by the
Company for use in connection with the offering of the Securities (whether or
not required to be filed by the Company with the Commission pursuant to Rule
424(b) of the Rules and Regulations) differs from the prospectus on file at the
time the Registration Statement is or was declared effective by the Commission,
the term "Prospectus" shall refer to such differing prospectus from and after
the time such prospectus is filed with the Commission or transmitted to the
Commission for filing pursuant to such Rule 424(b) or from and after the time it
is first provided to the Underwriters by the Company for such use. The term
"Preliminary Prospectus" as used herein means any preliminary prospectus
included in the Registration Statement and distributed prior to the time it
becomes or became effective under the Act and any prospectus subject to
completion as described in Rule 430A of the Rules and Regulations.
2. Representations and Warranties of the Company and the Selling
Stockholders.
(a) The Company represents and warrants to, and agrees with,
the Underwriters as follows:
(i) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission and each
Preliminary Prospectus, at the time of filing thereof, did 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, in the light of the circumstances under which they were made,
not misleading; except that the foregoing shall not apply to statements
in or omissions from any Preliminary Prospectus in reliance upon, and
in conformity with, written information furnished to the Company by
you, specifically for use in the preparation thereof.
(ii) As of the time the Registration Statement (or any
post-effective
2
<PAGE> 3
amendment thereto) is or was declared effective by the Commission, upon
the filing or first delivery to the Underwriters of the Prospectus (or
any supplement to the Prospectus) and at the First Closing Date and
Second Closing Date (as hereinafter defined), (A) the Registration
Statement and Prospectus will conform or conformed in all material
respects to the requirements of the Act and the Rules and Regulations,
(B) the Registration Statement will not or did not include 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, and (C) the Prospectus will not or did not include 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, in light of the circumstances in which they are or were made,
not misleading; except that the foregoing shall not apply to statements
in or omissions from any such document in reliance upon, and in
conformity with, written information furnished to the Company by you,
specifically for use in the preparation thereof. If the Registration
Statement has been declared effective by the Commission, no stop order
suspending the effectiveness of the Registration Statement has been
issued, and no proceeding for that purpose has been initiated or, to
the Company's knowledge, threatened by the Commission.
(iii) The financial statements of the Company, together with
the notes thereto, set forth in the Registration Statement and
Prospectus comply in all material respects with the requirements of the
Act and fairly present the financial condition of the Company as of the
dates indicated and the results of operations and changes in
stockholders equity and cash flows for the periods therein specified in
conformity with generally accepted accounting principles as in effect
in the United States consistently applied throughout the periods
involved (except as otherwise stated therein); and the supporting
schedules included in the Registration Statement present fairly the
information required to be stated therein. No other financial
statements or schedules are required to be included in the Registration
Statement or Prospectus. Arthur Andersen LLP, who have expressed their
opinion with respect to the financial statements and schedules filed as
a part of the Registration Statement and included in the Registration
Statement and Prospectus, are independent public accountants as
required by the Act and the Rules and Regulations.
(iv) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation. Each of the
Company and its subsidiaries has full corporate power and authority to
own, lease and operate its properties and conduct its business as
currently being carried on and as described in the Registration
Statement and Prospectus, and is duly qualified to do business as a
foreign corporation in good standing in each domestic and foreign
jurisdiction in which it owns or leases real property or in which the
conduct of its business makes such qualification necessary and in which
the failure to so qualify would have a material adverse effect upon the
business, financial condition
3
<PAGE> 4
or properties of the Company and its subsidiaries, taken as a whole.
(v) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its
subsidiaries other than in the ordinary course has incurred any
material liabilities or obligations, direct or contingent, or entered
into any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock,
except as contemplated in the Prospectus and Registration Statement and
there has not other than in the ordinary course been any change in the
capital stock (other than a change in the number of outstanding shares
of Common Stock due to the issuance of shares upon the exercise of
outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options, warrants,
convertible securities or other rights to purchase the capital stock,
of the Company or any of its subsidiaries, or any material adverse
change, or any development reasonably likely to involve a prospective
material adverse change, in the general affairs, condition (financial
or otherwise), business, key personnel, property, prospects, net worth
or results of operations of the Company and its subsidiaries, taken as
a whole.
(vi) Except as set forth in the Prospectus, there is not
pending or, to the knowledge of the Company, threatened or
contemplated, any action, suit or proceeding to which the Company or
any of its subsidiaries or, to the best knowledge of the Company after
due inquiry, any of its officers, is a party before or by any domestic
or foreign court or governmental agency, authority or body, or any
arbitrator, which might result in any material adverse change in the
condition (financial or otherwise), business, prospects, net worth, or
results of operations of the Company and its subsidiaries, taken as a
whole, or prevent the consummation of the transactions contemplated
hereby.
(vii) There are no contracts or documents of the Company or any
of its subsidiaries that are required to be described in the Prospectus
or filed as exhibits to the Registration Statement by the Act or by the
Rules and Regulations that have not been accurately described in all
material respects or so filed.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company, and constitutes a valid, legal and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by federal or state securities
laws and except as such enforceability against the Company may be
limited by bankruptcy, insolvency, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principles of equity. The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated
in each case by the Company will not result in a breach or violation of
any of the terms and
4
<PAGE> 5
provisions of, or constitute a default under, any statute, any material
agreement or instrument to which the Company is a party or by which it
is bound or to which any of its property is subject, the Company's
Articles of Organization or by-laws, or any order, rule, regulation or
decree of any court or governmental agency or body having jurisdiction
over the Company or any of its properties, provided, that the foregoing
shall not be deemed to refer to blue sky or state securities laws or
regulations applicable to the public offering of Common Stock by the
Underwriters contemplated hereby ("Blue Sky Laws") or to the by-laws or
rules of the National Association of Securities Dealers, Inc. ("NASD")
relating to the corporate financing arrangements applicable to the
transactions contemplated hereby. No consent, approval, authorization
or order of, or filing with, any court or governmental agency or body
is required for the execution, delivery and performance of this
Agreement or for the consummation of the transactions contemplated
hereby, including the issuance or sale of the Securities by the
Company, except such as may be required under the Act, any Blue Sky
Law, or the by-laws or rules of the NASD relating to the corporate
financing arrangements, and the Company has full power and authority to
enter into this Agreement and to authorize, issue and sell the
Securities as contemplated by this Agreement.
(ix) All of the issued and outstanding shares of capital stock
of the Company, including the outstanding shares of Common Stock, are
duly authorized and validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws,
were not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities; the Securities
which may be sold hereunder by the Company have been duly authorized
and, when issued, delivered and paid for in accordance with the terms
hereof, will have been validly issued and will be fully paid and
nonassessable, and the capital stock of the Company, including the
Common Stock, conforms in all material respects to the description
thereof in the Registration Statement and Prospectus. Except as
otherwise stated in the Registration Statement and Prospectus, there
are no preemptive rights or other rights to subscribe for or to
purchase, or any restriction upon the voting or transfer of, any shares
of Common Stock pursuant to the Company's Articles of Organization,
by-laws or any agreement or other instrument to which the Company is a
party or by which the Company is bound. Except as described in the
Prospectus, neither the filing of the Registration Statement nor the
offering or sale of the Securities as contemplated by this Agreement
gives rise to any rights for or relating to the registration of any
shares of Common Stock or other securities of the Company. All of the
issued and outstanding shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued and are fully
paid and nonassessable, and, except as otherwise described in the
Registration Statement and Prospectus and except for any directors'
qualifying shares, the Company owns of record and beneficially, free
and clear of any security interests, claims, liens, proxies, equities
or other encumbrances, all of the issued and outstanding shares of such
stock. Except as described in the Registration
5
<PAGE> 6
Statement and the Prospectus or issued pursuant to the Company's 1986
Employee Stock Purchase Plan, Key Employee Incentive Plan (1980), Key
Employee Incentive Plan (1982) or Key Employee Incentive Plan (1992),
there are no options, warrants, agreements, contracts or other rights
in existence to purchase or acquire from the Company or any subsidiary
of the Company any shares of the capital stock of the Company or any
subsidiary of the Company. The Company has an authorized and
outstanding capitalization as of respective the date set forth in the
Registration Statement and the Prospectus as set forth in the
Registration Statement and the Prospectus, respectively.
(x) The Company and each of its subsidiaries holds, and is
operating in compliance with, all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and orders of any
governmental or self-regulatory body required for the conduct of its
business and all such franchises, grants, authorizations, licenses,
permits, easements, consents, certifications and orders are valid and
in full force and effect; and the Company and each of its subsidiaries
is in compliance with all applicable federal, state, local and foreign
laws, regulations, orders and decrees, except, in any of the foregoing
cases, where the failure be so in compliance would not have a material
adverse effect on the business, condition (financial or otherwise),
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole.
(xi) The Company and its subsidiaries have good and marketable
title to all property and assets described in the Registration
Statement and Prospectus as being owned by them, in each case free and
clear of all liens, claims, security interests or other encumbrances
except such as (i) are described in the Registration Statement and the
Prospectus or (ii) do not materially adversely affect the business,
condition (financial or otherwise), prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a whole; the
property held under lease by the Company and its subsidiaries is held
by them under valid, subsisting and enforceable leases with only such
exceptions with respect to any particular lease as do not interfere in
any material respect with the conduct of the business of the Company or
its subsidiaries, taken as a whole.
(xii) The Company and each of its subsidiaries owns or
possesses adequate rights to use all patents, patent applications,
trademarks, service marks, trade names, trademark registrations,
service mark registrations, copyrights, licenses, inventions, know-how,
trade secrets and rights ("Intellectual Property") necessary for the
conduct of the business of the Company and its subsidiaries as
currently carried on and as described in the Registration Statement and
Prospectus, including the Intellectual Property described or referred
to in the Prospectus as being owned or used by the Company or any
subsidiary. Except as stated in the Registration Statement and
Prospectus or as disclosed to you in a letter from the Company dated
November __,
6
<PAGE> 7
1995, no activity engaged in by or aspect of the business of the
Company or any of its subsidiaries uses or involves or gives rise to
any infringement of, or license or similar fees for, any Intellectual
Property or other similar rights of others, which infringements or fees
are materially adverse to the business or prospects of the Company and
its subsidiaries, taken as a whole, and neither the Company nor any of
its subsidiaries has received any notice alleging any such infringement
or that any such fee is due. To the knowledge of the Company, no prior
employer of any employee of the Company or any of its subsidiaries has
any right to or interest in any inventions, improvements, discoveries
or other information assigned to the Company or any of its subsidiaries
and material to the conduct of the business of the Company and its
subsidiaries, taken as a whole, as currently conducted and as currently
proposed to be conducted.
(xiii) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in breach of or
otherwise in default in the performance of any material obligation,
agreement or condition contained in any bond, debenture, note,
indenture, loan agreement or any other material contract, lease or
other instrument to which it is subject or by which any of them may be
bound, or to which any of the material property or assets of the
Company or any of its subsidiaries is subject, which violation or
default would have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(xiv) The Company and its subsidiaries have filed all federal,
state, local and foreign income and franchise tax returns required to
be filed (or filed for extensions thereof) and are not in default in
the payment of any taxes which were payable pursuant to said returns or
any assessments with respect thereto, other than any which the Company
or any of its subsidiaries is contesting in good faith, or where the
failure to timely file such return or pay such taxes would not have a
material adverse effect on the business, condition (financial or
otherwise), prospects, net worth or results of operations of the
Company and its subsidiaries, taken as a whole.
(xv) The Company has not distributed and will not distribute
any prospectus or other offering material in connection with the
offering and sale of the Securities other than any Preliminary
Prospectus or the Prospectus or other materials permitted by the Act.
(xvi) The Securities have been approved for designation subject
to notice of issuance, on the National Market System of the National
Association of Securities Dealers Automated Quotation System
("NASDAQ").
(xvii) Other than the stock of the subsidiaries of the Company
listed in Exhibit 21.1 to the Registration Statement and securities of
entities in which the Company holds a passive investment representing a
less than five (5) percent beneficial interest in such entity, the
Company owns no capital stock or other equity or ownership
7
<PAGE> 8
or proprietary interest in any corporation, partnership, association,
trust or other entity.
(xviii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xix) Other than as contemplated by this Agreement, the Company
has not incurred any liability for any finder's or broker's fee or
agent's commission in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated
hereby.
(xx) Neither the Company nor any of its affiliates is presently
doing business with the government of Cuba or with any person or
affiliate located in Cuba.
(xxi) The Company and its subsidiaries maintain insurance of
the types and in the amounts reasonably deemed by the Company to be
adequate for their respective businesses and to be consistent with
insurance coverage maintained by similar companies in similar business,
including, but not limited to, insurance covering real and personal
property owned or leased by the Company or any subsidiary against
theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force
and effect.
(xxii) The Company and its subsidiaries are not involved in any
labor dispute or disturbance nor, to the knowledge of the Company, is
any such dispute or disturbance threatened.
(xxiii) The operations of the subsidiaries of the Company
(other than Data Translation Networking Ltd.) are not in the aggregate
material to the operations of the Company and its subsidiaries taken as
a whole.
(b) Each Selling Stockholder severally and not jointly
represents and warrants to, and agrees with, the Underwriters as follows:
(i) Such Selling Stockholder is the record and beneficial owner
of, and has, and on the First Closing Date and/or the Second Closing
Date, as the case may be, will have, good, valid and marketable title
to the Securities to be sold by such Selling Stockholder, free and
clear of all security interests, claims, liens, restrictions on
8
<PAGE> 9
transferability, legends, proxies, equities or other encumbrances; and
upon delivery of and payment for such Securities hereunder, the
Underwriters will acquire valid and marketable title thereto, free and
clear of any security interests, claims, liens, restrictions on
transferability, legends, proxies, equities or other encumbrances. Such
Selling Stockholder is selling the Securities to be sold by such
Selling Stockholder for such Selling Stockholder's own account, and no
part of the proceeds of such sale received by such Selling Stockholder
will inure, either directly or indirectly, to the benefit of the
Company other than as described in the Registration Statement and
Prospectus.
(ii) Such Selling Stockholder has duly authorized, executed and
delivered a Power of Attorney and Custody Agreement ("Custody
Agreement"), which Custody Agreement is a valid and binding obligation
of such Selling Stockholder, to The First National Bank of Boston, as
Custodian (the "Custodian"); pursuant to the Custody Agreement the
Selling Stockholder has placed in custody with the Custodian, for
delivery under this Agreement, the certificates representing the
Securities to be sold by such Selling Stockholder; and such
certificates were duly and properly endorsed in blank for transfer, or
were accompanied by all documents duly and properly executed that are
necessary to effect the transfer to the Underwriters of title thereto,
free of any legend, restriction on transferability, proxy, lien or
claim, whatsoever.
(iii) Such Selling Stockholder has the power and authority to
enter into this Agreement and to sell, transfer and deliver the
Securities to be sold by such Selling Stockholder; and such Selling
Stockholder has duly authorized, executed and delivered to Peter J.
Rice, as attorney-in-fact (the "Attorney-in-Fact"), an irrevocable
power of attorney (a "Power of Attorney") authorizing and directing
the Attorney-in-Fact, or any of them, to effect the sale and delivery
of the Securities being sold by such Selling Stockholder, to enter
into this Agreement and to take all such other action as may be
necessary hereunder.
(iv) This Agreement, the Custody Agreement and the Power of
Attorney have each been duly authorized, executed and delivered by or
on behalf of such Selling Stockholder and each constitutes a valid and
binding agreement of such Selling Stockholder, enforceable against such
Selling Stockholder in accordance with its terms, except as rights to
indemnity or contribution hereunder or thereunder may be limited by
federal or state securities laws and except as such enforceability may
be limited by bankruptcy, insolvency, reorganization or laws affecting
the rights of creditors generally and subject to general principles of
equity.
(vi) Such Selling Stockholder owns the Securities such Selling
Stockholder is selling as an individual or as a custodian for a minor,
and not as a trustee or in any other similar capacity.
9
<PAGE> 10
(vii) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with
the offering and sale of the Securities other than any Preliminary
Prospectus or the Prospectus or other materials permitted by the Act to
be distributed by such Selling Stockholder.
(viii) Such Selling Stockholder has not taken and will not
take, directly or indirectly any action designed to, or which might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Company's Common Stock, to facilitate
the sale or resale of the Securities.
(c) Any certificate signed by any officer of the Company and
delivered to you or to counsel for the Underwriters pursuant to this Agreement
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby; any certificate signed by or on behalf of any
Selling Stockholder as such and delivered to you or to counsel for the
Underwriters pursuant to this Agreement shall be deemed a representation and
warranty by such Selling Stockholder to the Underwriters as to the matters
covered thereby.
3. Purchase, Sale and Delivery of Securities.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell 1,400,000 Firm Shares, and each
Selling Stockholder agrees, severally and not jointly, to sell the number of
Firm Shares set forth opposite the name of such Selling Stockholder in Schedule
I hereto, to the Underwriters, and the Underwriters agree to purchase from the
Company and the Selling Stockholders the Firm Shares. The purchase price for
each Firm Share shall be $[_______] per share.
The Firm Shares will be delivered by the Company and the
Custodian to you against payment of the purchase price therefor by same day
funds payable to the order of the Company and the Custodian, as appropriate, at
the offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South 9th Street,
Minneapolis, MN, 55402 or such other location as may be mutually acceptable, at
9:00 a.m. on the third full business day following the date hereof (or, the
fourth full business day if this Agreement is executed after 4:30 p.m. Eastern
Standard Time on the date hereof), or at such other time as you and the Company
determine, such time and date of delivery being herein referred to as the "First
Closing Date." The Firm Shares, in definitive form and in such denominations and
registered in such names as you may request upon at least two business days'
prior notice to the Company and the Custodian, will be made available for
checking and packaging at the offices of Piper Jaffray Inc., Piper Jaffray
Tower, 222 South 9th Street, Minneapolis, MN, 55402 or such other location as
may be mutually acceptable, on the business day prior to the First Closing Date.
(b) On the basis of the representations, warranties and
agreements herein
10
<PAGE> 11
contained, but subject to the terms and conditions herein set forth, the Company
agrees to grant to the Underwriters an option to purchase up to 223,500 Option
Shares at the same purchase price as the Firm Shares, for use solely in covering
any over-allotments made by the Underwriters in the sale and distribution of the
Firm Shares. The option granted hereunder may be exercised at any time (but not
more than once) within 30 days after the effective date of this Agreement upon
written notice by you to the Company and Attorneys-in-Fact setting forth the
aggregate number of Option Shares as to which the Underwriters are exercising
the option, the names and denominations in which the certificates for the Option
Shares are to be registered and the date and time, as determined by you, when
the Option Shares are to be delivered, such time and date being herein referred
to as the "Second Closing" and "Second Closing Date", respectively; provided,
however, that the Second Closing Date shall not be earlier than the First
Closing Date nor earlier than three nor later than 10 full business days after
the date on which the option shall have been exercised. No Option Shares shall
be sold and delivered unless the Firm Shares previously have been, or
simultaneously are, sold and delivered.
The Option Shares will be delivered by the Company and the
Custodian to you for the account of the Underwriters against payment of the
purchase price therefor by same day funds payable to the order of the Company or
the Custodian, as appropriate, at the offices of Piper Jaffray, Inc., Piper
Jaffray Tower, 222 South 9th Street, Minneapolis, MN, 55402 or such other
location as may be mutually acceptable at 9:00 a.m. on the Second Closing Date.
The Option Shares in definitive form and in such denominations and registered in
such names as you have set forth in your notice of option exercise, will be made
available for checking and packaging at the office of Piper Jaffray, Inc., Piper
Jaffray Tower, 222 South 9th Street, Minneapolis, MN, 55402 or such other
location as may be mutually acceptable, on the business day prior to the Second
Closing Date.
4. Covenants.
(a) The Company covenants and agrees with the Underwriters as
follows:
(i) If the Registration Statement has not already been declared
effective by the Commission, the Company will use its best efforts to
cause the Registration Statement and any post-effective amendments
thereto to become effective as promptly as possible; the Company will
notify you promptly of the time when the Registration Statement or any
post-effective amendment to the Registration Statement has become
effective or any supplement to the Prospectus has been filed and of any
request by the Commission for any amendment or supplement to the
Registration Statement or Prospectus or additional information; if the
Company has elected to rely on Rule 430A of the Rules and Regulations
or the filing of the Prospectus is otherwise required under Rule 424(b)
of the Rules and Regulations, the Company will file a Prospectus
containing the information omitted therefrom pursuant to such Rule 430A
or otherwise with the Commission within the time period required by,
and otherwise in accordance
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<PAGE> 12
with the provisions of, Rule 424(b) and, if applicable, Rule 430A of
the Rules and Regulations; and the Company will not file any amendment
or supplement to the Registration Statement or Prospectus to which you
or your counsel shall reasonably object by notice to the Company after
having been furnished a copy a reasonable time prior to the filing.
(ii) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or suspending the use of the Prospectus, of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceeding for any such purpose; and the Company will promptly use its
best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such a stop order should
be issued.
(iii) Within the time during which a prospectus relating to the
Securities is required to be delivered under the Act, the Company will
comply with all requirements imposed upon it by the Act, as now and
hereafter amended, and by the Rules and Regulations, as from time to
time in force, so far as necessary to permit the continuance of sales
of or dealings in the Securities as contemplated by the provisions
hereof and the Prospectus. If during such period any event occurs as a
result of which the Prospectus or any other prospectus relating to the
Securities as then in effect would include an untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances then existing,
not misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the
Act, the Company will promptly notify you and will promptly amend the
Registration Statement or supplement the Prospectus (at the expense of
the Company) so as to correct such statement or omission or effect such
compliance.
(iv) The Company will cooperate with you to qualify the
Securities for offering and sale under the securities laws of such
jurisdictions as you reasonably designate and to continue such
qualifications in effect so long as legally required for the
distribution of the Securities, except that the Company shall not be
required in connection therewith to qualify as a foreign corporation or
to execute a general consent to service of process in any state.
(v) The Company will furnish to the Underwriters copies of the
Registration Statement (two of which will be signed and will include
all exhibits), each Preliminary Prospectus, the Prospectus, and all
amendments and supplements to such documents, in each case as soon as
available and in such quantities as you may from time to time
reasonably request.
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<PAGE> 13
(vi) During a period of five years commencing with the date
hereof, the Company will furnish to you as you may so request in
writing, copies of all periodic and special reports furnished to the
stockholders of the Company and filed with the Commission, the NASD,
NASDAQ or any securities exchange.
(vii) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 15
months after the end of the Company's current fiscal quarter, an
earnings statement (which need not be audited) covering a 12-month
period beginning after the effective date of the Registration Statement
that shall satisfy the provisions of Section 11(a) of the Act and Rule
158 of the Rules and Regulations.
(viii) The Company, whether or not the transactions
contemplated hereunder are consummated or this Agreement is prevented
from becoming effective under the provisions of Section 8(a) hereof or
is terminated, will pay or cause to be paid (A) all expenses (including
transfer taxes allocated to the respective transferees) incurred in
connection with the delivery to the Underwriters of the Securities, (B)
all expenses and fees (including, without limitation, fees and expenses
of the Company's accountants and counsel but, except as otherwise
provided below, not including fees of the Underwriters' counsel) in
connection with the preparation, printing, filing, delivery, and
shipping of the Registration Statement (including the financial
statements therein and all amendments, schedules, and exhibits
thereto), the Securities, each Preliminary Prospectus, the Prospectus,
and any amendment thereof or supplement thereto, and the printing,
delivery, and shipping of this Agreement and other underwriting
documents, including Blue Sky Memoranda, (C) all filing fees and
reasonable fees and disbursements of the Underwriters' counsel incurred
in connection with the qualification of the Securities for offering and
sale by the Underwriters or by dealers under the securities or blue sky
laws of the states and other jurisdictions which you shall designate in
accordance with Section 4(a) hereof, (D) the fees and expenses of any
transfer agent or registrar, (E) the filing fees incident to any
required review by the NASD of the terms of the sale of the Securities,
(F) listing fees, if any, and (G) all other costs and expenses incident
to the performance of its obligations hereunder that are not otherwise
specifically provided for herein. If the sale of the Securities
provided for herein is not consummated either by reason of action by
the Company pursuant to Section 8(a) hereof which prevents this
Agreement from becoming effective, or by reason of any failure, refusal
or inability on the part of the Company or the Selling Stockholders to
perform any agreement on its or their part to be performed, or because
any other condition of the Underwriters' obligations hereunder required
to be fulfilled by the Company or the Selling Stockholders is not
fulfilled, the Company will reimburse the Underwriters for all
out-of-pocket disbursements (including reasonable fees and
disbursements of counsel) reasonably incurred by the Underwriters in
connection with their investigation, preparing to market and marketing
the Securities or in contemplation of performing their obligations
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<PAGE> 14
hereunder. The Company shall not in any event be liable to the
Underwriters for loss of anticipated profits from the transactions
covered by this Agreement.
(ix) The Company will apply the net proceeds from the sale of
the Securities to be sold by it hereunder for the purposes set forth in
the Prospectus under "Use of Proceeds".
(x) The Company will not, without the prior written consent of
Piper Jaffray Inc., offer for sale, sell, contract to sell, grant any
option for the sale of or otherwise issue or dispose of any Common
Stock or any securities convertible into or exchangeable for, or any
options or rights to purchase or acquire, Common Stock, except (i) to
the Underwriters pursuant to this Agreement, or (ii) to the holders of
options granted or to be granted under the Company's 1986 Employee
Stock Purchase Plan and Key Employee Incentive Plan (1992) (the
"Plans"), for a period of 120 days after the commencement of the public
offering of the Securities by the Underwriters. The Company will not,
without the prior consent of Piper Jaffray Inc., or subject to the
Lock-Up Agreements (as more fully described in Section (xi) below),
grant any new option under either Plan which becomes exercisable during
such 120 day period.
(xi) The Company either has caused to be delivered to you or
will cause to be delivered to you prior to the effective date of the
Registration Statement a Lock-Up Agreement, in form and substance
reasonably satisfactory to you, from each of the Selling Stockholders
and certain other persons named in the Prospectus, stating that such
person agrees that he or she will not, without your prior written
consent, offer for sale, sell, contract to sell or otherwise dispose of
any shares of Common Stock or rights to purchase Common Stock, except
(i) to the Underwriters pursuant to this Agreement, (ii) exercises of
options and (iii) a transfer by, gift of up to 20,000 shares of Common
Stock by Alfred A Molinari, Jr. for a period of 120 days after
commencement of the public offering of the Securities by the
Underwriters.
(xii) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which has constituted, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities, and has not
effected any sales of Common Stock which are required to be disclosed
in response to Item 701 of Regulation S-K under the Act which have not
been so disclosed in the Registration Statement.
(xiii) The Company will not incur any liability for any
finder's or broker's fee or agent's commission in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(xiv) The Company will inform the Florida Department of Banking
and Finance at any time prior to the consummation of the distribution
of the Securities by
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<PAGE> 15
the Underwriters if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba.
Such information will be provided as required after the commencement
thereof or after a change occurs with respect to previously reported
information.
(xv) The Company is familiar with the Investment Company Act of
1940, as amended, and the rules and regulations thereunder, and has in
the past conducted its affairs and, during a period of three years
commencing with the date hereof will conduct its affairs, in such a
manner so as to insure that the Company was not and will not be an
"Investment Company" within the meaning of the Investment Company Act
of 1940 and the rules and regulations thereunder.
(b) Each Selling Stockholder covenants and agrees with the
Underwriters as follows:
(i) Such Selling Stockholder will pay all taxes, if any, on the
transfer and sale, respectively, of the Securities being sold by such
Selling Stockholder and except as otherwise agreed to by the Company
and the Selling Stockholder, the fees of such Selling Stockholder's
counsel if such Selling Stockholder elects to be represented by counsel
other than Company counsel; provided, however, that each Selling
Stockholder severally agrees to reimburse the Company for any
reimbursement made by the Company to the Underwriters pursuant to
Section 4(a)(viii) hereof to the extent such reimbursement resulted
from the failure or refusal on the part of such Selling Stockholder to
comply under the terms or fulfill any of the conditions of this
Agreement, which failure or refusal arises out of or results from (A)
the breach by such Selling Stockholder of any representation or
warranty herein or in such Selling Stockholder's Power of Attorney, or
(B) any act taken or attempted to be taken by such Selling Stockholder
in its own right and in derogation of the authority granted by such
Selling Stockholder in such Power of Attorney.
(ii) The Securities to be sold by such Selling Stockholder,
represented by the certificates on deposit with the Custodian pursuant
to the Custody Agreement of such Selling Stockholder, are subject to
the interest of the Underwriters and the other Selling Stockholders;
the arrangements made for such custody are, except as specifically
provided in the Custody Agreement, irrevocable; and the obligations of
such Selling Stockholder hereunder shall not be terminated, except as
provided in this Agreement or in the Custody Agreement, by any act of
such Selling Stockholder, by operation of law, whether by the
liquidation, dissolution or merger of such Selling Stockholder, by the
death of such Selling Stockholder, or by the occurrence of any other
event. If any Selling Stockholder should liquidate, dissolve or be a
party to a merger or if any other such event should occur before the
delivery of the Securities hereunder, certificates for the Securities
deposited with the Custodian shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if
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<PAGE> 16
such liquidation, dissolution, merger or other event had not occurred,
whether or not the Custodian shall have received notice thereof.
(iii) Such Selling Stockholder will not, without your prior
written consent, offer for sale, sell, contract to sell, grant any
option for the sale of or otherwise dispose of any Common Stock or any
securities convertible into or exchangeable for, or any options or
rights to purchase or acquire, Common Stock, except (i) to the
Underwriters pursuant to this Agreement, (ii) exercises of options and
(iii) a transfer by gift of up to 20,000 shares of Common Stock by
Alfred A. Molinari, Jr., for the period of 120 days after the
commencement of the public offering of the Securities by the
Underwriters as set forth in a Lock-Up Agreement, in form and
substance reasonably satisfactory to you which Agreement has been
delivered to you prior to the effective date of the Registration
Statement. Each Selling Stockholder agrees and consents to the entry
of stop transfer instructions with the Company's transfer agent
against the transfer of shares of Common Stock held by such Selling
Stockholder, except in accordance with the terms hereof.
(iv) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(v) Such Selling Stockholder shall immediately notify you
if any event occurs, or of any change in information relating to such
Selling Stockholder or the Company or any new information relating to
the Company or relating to any matter stated in the Prospectus or any
supplement thereto, which results in the Prospectus (as supplemented)
including an untrue statement of a material fact or omitting to state
any material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading to the
extent such event or change relates to written information
specifically provided to the Company by such Selling Stockholders for
use in the Prospectus.
5. Conditions of Underwriters Obligations. The obligations of
the Underwriters hereunder are subject to the accuracy as of the date hereof
and at each of the First Closing Date and the Second Closing Date (as if made
at such Closing Date), of and compliance with all representations, warranties
and agreements of the Company and the Selling Stockholders contained herein, to
the performance by the Company and the Selling Stockholders of their respective
obligations hereunder and to the following additional conditions:
(a) No stop order suspending the effectiveness of the
Registration Statement or any amendment thereof shall have been issued; no
proceedings for the issuance of such an order shall have been initiated or to
the Company's knowledge, threatened; and any request of the Commission for
additional information (to be included in the Registration Statement or the
16
<PAGE> 17
Prospectus or otherwise) shall have been complied with to your reasonable
satisfaction.
(b) The Underwriters shall not have advised the Company
that the Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto, contains an untrue statement of fact which, in your
reasonable opinion, is material, or omits to state a fact which, in your
reasonable opinion, is material and is required to be stated therein or
necessary to make the statements therein not misleading.
(c) Except as contemplated by the Registration Statement
and in the Prospectus, subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, neither
the Company nor any of its subsidiaries other than in the ordinary course shall
have incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock; and,
except as contemplated by the Registration Statement and Prospectus, subsequent
to the respective dates as of which information is given in the Registration
Statement and Prospectus there shall not other than in the ordinary course have
been any change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt of the Company, or any issuance of options,
warrants, convertible securities or other rights to purchase the capital stock
of the Company or any of its subsidiaries, or any material adverse change or
any development likely to involve a prospective material adverse change
(whether or not arising in the ordinary course of business), in the general
affairs, condition (financial or otherwise), business, key personnel, property,
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, that, in your reasonable judgment, makes it
impractical or inadvisable to offer or deliver the Securities on the terms and
in the manner contemplated in the Prospectus.
(d) On each Closing Date, there shall have been furnished
to you, the opinion of Ropes & Gray, counsel for the Company, or in the case of
Data Translation Networking Ltd. ("Limited"), United Kingdom counsel reasonably
acceptable to the Underwriters, dated such Closing Date or in the case of the
opinion of United Kingdom counsel, a reasonably contemporaneous date prior to
such Closing Date and addressed to you, to the effect that:
(i) Each of the Company and Limited has been duly
organized and is validly existing as a corporation in corporate good
standing under the laws of its jurisdiction of incorporation. Each of
the Company and Limited has full corporate power and authority to own
its properties and conduct its business as currently being carried on
and as described in the Registration Statement and Prospectus.
(ii) The capital stock of the Company conforms in all
material respects as to legal matters to the description thereof
contained in the Prospectus under the caption
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<PAGE> 18
"Description of Capital Stock." All of the issued and outstanding
shares of the capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. The
Securities to be issued and sold by the Company hereunder have been
duly authorized and, when issued, delivered and paid for in accordance
with the terms of this Agreement, will have been validly issued and
will be fully paid and nonassessable. Except as otherwise stated in
the Registration Statement and Prospectus, there are no preemptive
rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock
pursuant to the Company's Articles of Organization, by-laws or any
agreement filed as an exhibit to the Registration Statement.
(iii) All of the issued and outstanding shares of capital
stock of Limited have been duly authorized and validly issued and are
fully paid and nonassessable, and, except as otherwise described in
the Registration Statement and Prospectus and except for directors'
qualifying shares, the Company owns of record all of the issued and
outstanding shares of such stock. To such counsel's knowledge, except
as described in the Registration Statement and Prospectus, there are
no options, warrants, agreements, contracts or other rights in
existence to purchase or acquire from the Company or Limited any
shares of the capital stock of the Company or Limited.
(iv) The Registration Statement has become effective under
the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or threatened by the
Commission.
(v) The Company has full corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Securities to be issued and sold by it hereunder.
This Agreement has been duly authorized, executed and delivered by the
Company; the execution, delivery and performance of this Agreement and
the consummation of the transactions herein contemplated will not
result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any applicable law or regulation or any
agreement filed as an exhibit to the Registration Statement, the
Company's Articles of Organization or by-laws; and no consent,
approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement or for the consummation of the
transactions contemplated hereby, including the issuance or sale of
the Securities by the Company, except such as have been obtained
(specifying the same) or except such as may be required under the Act
(provided, that no opinion need be expressed in this paragraph with
respect to compliance with the anti-fraud provisions of any federal or
state securities laws or any Blue Sky Laws or the by-laws or rules of
the NASD applicable to the corporate finance arrangements of the
transactions contemplated hereby).
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<PAGE> 19
(vi) The Registration Statement and the Prospectus, and
any amendment thereof or supplement thereto, comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; such counsel has participated in conferences with
officers and other representatives of the Company, and the Company's
independent public accountants, at which conferences the contents of
the Registration Statement and Prospectus and related matters were
discussed and, although such counsel is not passing upon, and does not
assume responsibility for, the accuracy, completeness or fairness of
the statements contained in the Registration Statement and Prospectus
and has not made any independent confirmation or verification thereof;
on the basis of the foregoing (and relying, as to materiality, to a
large extent upon the statements of officers and other representatives
of the Company), no information has come to the attention of such
counsel which causes such counsel to believe that the Registration
Statement or any amendment thereof, at the time the Registration
Statement became effective, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus (as of the effective date and as of
such Closing Date), as amended or supplemented, includes any untrue
statement of material fact or omits to state a material fact necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading; it being understood that such
counsel need express no opinion as to the financial statements and
notes thereto, financial statement schedules and other financial and
statistical data included in any of the documents mentioned in this
clause.
(vii) To such counsel's knowledge, no holders of shares of
Common Stock or other securities of the Company have registration
rights with respect to securities of the Company, other than as
described in the Prospectus.
(viii) The Company is not an "Investment Company" as defined
in Section 3(a) of the Investment Company Act of 1940, as amended.
(ix) The statements under the captions "Description of
Capital Stock" in the Prospectus, insofar as such statements
constitute a summary of matters of law, are fair and accurate
summaries in all material respects.
In rendering such opinion such counsel may rely as to matters of fact,
to the extent such counsel deems reasonable upon certificates of officers of
the Company and its subsidiaries. Copies of any opinion or certificate relied
upon shall be delivered to you.
(e) On each Closing Date, there shall have been furnished
to you the opinion of Ropes & Gray, dated such Closing Date and addressed to
you, to the effect that:
(i) Immediately prior to the Closing Date, each of the
Selling Stockholders was the sole registered owner of the Securities
to be sold by such Selling Stockholder;
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<PAGE> 20
upon registration of the Securities in the names of the Underwriters
in the stock records of the Company, the Underwriters will acquire all
the rights of such Selling Stockholder in the Securities (assuming the
Underwriters purchased the Securities in good faith and without notice
of an adverse claim), free and clear of any adverse claim, lien in
favor of the Company and restrictions on transfer imposed by the
Company.
(ii) The Attorney-in-Fact has the power and
authority to enter into the Custody Agreement, the Power of Attorney
and this Agreement and to perform and discharge such Selling
Stockholder's obligations thereunder and hereunder; and this
Agreement, the Custody Agreements and the Powers of Attorney have been
duly and validly authorized, executed and delivered by (or by any
Attorney-in-Fact, or any of them, on behalf of) the Selling
Stockholders.
In rendering such opinion such counsel may rely as to matters of fact,
to the extent such counsel deems reasonable upon certificates of the
Attorney-in-Fact or Selling Stockholders. Copies of any opinion or
certificate relied upon shall be delivered to you.
(f) On each Closing Date, there shall have been furnished
to you such opinion or opinions from Goodwin, Procter & Hoar, counsel for the
Underwriters, dated such Closing Date and addressed to you, with respect to the
formation of the Company, the validity of the Securities, the Registration
Statement, the Prospectus and other related matters as you reasonably may
request, and such counsel shall have received such papers and information as
they request to enable them to pass upon such matters.
(g) On each Closing Date you shall have received a
letter from Arthur Andersen LLP, dated such Closing Date and addressed to you,
confirming that they are independent public accountants within the meaning of
the Act and are in compliance with the applicable requirements relating to the
qualifications of accountants under Rule 2-01 of Regulation S-X of the
Commission, and stating, as of the date of such 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 such letter), the conclusions and
findings of said firm with respect to the financial information and other
matters covered by its letter delivered to you concurrently with the execution
of this Agreement, and the effect of the letter so to be delivered on such
Closing Date shall be to confirm the conclusions and findings set forth in such
prior letter. All such letters shall be in a form reasonably satisfactory to
the Underwriters and counsel thereto.
(h) On each Closing Date, there shall have been furnished
to you a certificate, dated such Closing Date and addressed to you, executed on
behalf of the Company, by the President and by the chief financial officer of
the Company, to the effect that:
(i) The representations and warranties of the Company in
this Agreement are true and correct as if made at and as of such
Closing Date, and the Company has
20
<PAGE> 21
complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to such Closing
Date;
(ii) No stop order or other order suspending the
effectiveness of the Registration Statement or any amendment thereof
or the qualification of the Securities for offering or sale has been
issued, and no proceeding for that purpose has been instituted or, to
the best of their knowledge, is contemplated by the Commission or any
state or regulatory body; and
(iii) The signers of said certificate on behalf of the
Company have carefully examined the Registration Statement and the
Prospectus, and any amendments thereof or supplements thereto, and (A)
the Registration Statement, or any amendment thereof, does not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and the Prospectus, as amended or
supplemented, does not include any untrue statement of material fact
or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, (B) since the effective date of the Registration Statement
and except as contemplated in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries other than
in the ordinary course has incurred any material liabilities or
obligations, direct or contingent, or entered into any material
transactions, not in the ordinary course of business, or declared or
paid any dividends or made any distribution of any kind with respect
to its capital stock; and except as contemplated by the Prospectus,
there has not, other than in the ordinary course, been any change in
the capital stock (other than a change in the number of outstanding
shares of Common Stock due to the issuance of shares upon the exercise
of outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options, warrants,
convertible securities or other rights to purchase the capital stock,
of the Company, or any of its subsidiaries, or any material adverse
change or any development involving a prospective material adverse
change (whether or not arising in the ordinary course of business), in
the general affairs, condition (financial or otherwise), business, key
personnel, property, prospects, net worth or results of operations of
the Company and its subsidiaries, taken as a whole, and (C) except as
stated in the Registration Statement and the Prospectus, there is not
pending, or, to the knowledge of the Company, threatened or
contemplated, any action, suit or proceeding to which the Company or
any of its subsidiaries is a party before or by any court or
governmental agency, authority or body, or any arbitrator, which might
result in any material adverse change in the condition (financial or
otherwise), business, prospects or results of operations of the
Company and its subsidiaries, taken as a whole.
(i) On each Closing Date, there shall have been furnished
to you a certificate or certificates, dated such Closing Date and addressed to
you, signed by each of the Selling Stockholders or any of such Selling
Stockholder's Attorney-in-Fact to the effect that
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<PAGE> 22
the representations and warranties of such Selling Stockholder contained in
this Agreement are true and correct as if made at and as of such Closing Date,
and that such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on such Selling Stockholder's part to be performed
or satisfied at or prior to such Closing Date.
(j) The Firm Shares and Option Shares, if any, shall be
approved for designation, subject to notice of issuance, on the NASDAQ National
Market System.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and counsel for the Underwriters.
The Company will furnish you with such conformed copies of such opinions,
certificates, letters and other documents as you shall reasonably request.
6. Indemnification and Contribution.
(a) The Company and each Selling Stockholder, severally
and not jointly, agree to indemnify and hold harmless the Underwriters against
any losses, claims, damages or liabilities, joint or several, to which the
Underwriters may become subject, under the Act or otherwise (including in
settlement of any litigation if such settlement is effected with the written
consent of the Company and/or such Selling Stockholders, as the case may be),
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, including
the information deemed to be a part of the Registration Statement at the time
of effectiveness pursuant to Rule 430A, if applicable, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, (but only
if used during the period specified in Section 4(a)(iii) above), or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading, and will reimburse the Underwriters for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
against such loss, claim, damage, liability or action; provided, however, that
neither the Company nor any Selling Stockholder shall be liable in any such
case to the extent that any such loss, claim, damage, liability or action (i)
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by you, or by any Underwriter directly or through you, specifically for
use in the preparation thereof, or (ii) is asserted by a person to whom a copy
of the Prospectus (as then amended or supplemented, if the Company shall have
furnished to the Underwriters copies, in such number as may have been
reasonably requested by them, of any amendment or supplement thereto) shall not
have been delivered by or on behalf of the Underwriters, if required by law so
to have been delivered, at or prior to the written confirmation of the sale of
Securities to such person, if the Prospectus
22
<PAGE> 23
(as so amended or supplemented) would have cured the misstatement or omission
which gave rise to such loss, claim, damage, liability or action.
Notwithstanding anything in this Agreement, (i) each Selling
Stockholder shall only be liable to the extent such untrue statement omission
was made in reliance on and in conformity with written information furnished by
the Selling Stockholder in such capacity to the Company or the Underwriters
specifically for use in the preparation of the Registration Statement and
Prospectus; and (ii) the aggregate liability of any Selling Stockholder for
indemnification and contribution pursuant to this Agreement shall not exceed an
amount equal to the proceeds of the sale of the Securities by the Selling
Stockholder after deducting all underwriting discounts and commissions and
other costs and expenses paid or to be paid by such Selling Stockholder in
connection with or relating to the transactions contemplated by this Agreement.
(b) The Underwriters, severally and not jointly, will
indemnify and hold harmless the Company and each Selling Stockholder against
any losses, claims, damages or liabilities to which the Company and the Selling
Stockholders may become subject, under the Act or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Underwriters), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any such amendment or supplement, in reliance
upon and in conformity with written information furnished to the Company by
you, specifically for use in the preparation thereof, and will reimburse the
Company and the Selling Stockholders for any legal or other expenses reasonably
incurred by the Company or any such Selling Stockholder in connection with
investigating or defending against any such loss, claim, damage, liability or
action.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to any indemnified party. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, whether or not such notice is given, and, to the extent that it
shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such indemnified
party, and after written notice from the indemnifying party to such indemnified
party of the indemnifying
23
<PAGE> 24
party's election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof. An indemnifying party shall not be obligated under
any settlement agreement relating to any action under this Section 6 to which
it has not agreed in writing.
(d) If the indemnification provided for in this Section 6
is unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above, (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Securities 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 and
the Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and Selling Stockholders
bear to the total underwriting discounts and commissions received by the
Underwriters, 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, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relevant intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company, the Selling Stockholders and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (d) were to
be determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the first
sentence of this subsection (d). The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending against any action or claim which is the subject of
this subsection (d). Notwithstanding the provisions of this subsection (d),
the Underwriters shall not be required to contribute any amount in excess of
the amount by which the total price at which the Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages that the Underwriters have otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
The aggregate liability of any Selling Stockholder for indemnification and
contribution pursuant to this Agreement shall not exceed an amount equal to the
proceeds of the sale of the Securities by the Selling Stockholder after
deducting all
24
<PAGE> 25
underwriting discounts and commissions and other costs and expenses paid or to
be paid by such Selling Stockholder in connection with or relating to the
transactions contemplated by this Agreement. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of the Company and the Selling
Stockholders under this Section 6 shall be in addition to any liability other
than to the Underwriters which the Company and the Selling Stockholders may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls the Underwriters within the meaning of Section 15
of the Act; and the obligations of the Underwriters under this Section 6 shall
be in addition to any liability, other than to the Company and Selling
Stockholders, that the Underwriters may otherwise have and shall extend, upon
the same terms and conditions, to each director of the Company (including any
person who, with his consent, is named in the Registration Statement as about
to become a director of the Company), to each officer of the Company who has
signed the Registration Statement and to each person, if any, who controls the
Company or any Selling Stockholder within the meaning of Section 15 of the Act.
7. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties, and agreements of the Company and
the Selling Stockholders herein or in certificates delivered pursuant hereto,
and the agreements of the Underwriters, the Company and the Selling
Stockholders contained in Section 6 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any controlling person thereof, or the Company or any of its
officers, directors, or controlling persons, or any Selling Stockholders or any
controlling person thereof, and shall survive delivery of, and payment for, the
Securities to and by the Underwriters hereunder.
8. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at 10:00 a.m.,
Boston time, on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective time of the
Registration Statement as you in your discretion shall first release the
Securities for sale to the public. For the purpose of this Section, the
Securities shall be deemed to have been released for sale to the public upon
release by you of the publication of a newspaper advertisement relating thereto
or upon release by you of telexes offering the Securities for sale to
securities dealers, whichever shall first occur. By giving notice as
hereinafter specified before the time this Agreement becomes effective, you, or
the Company may prevent this Agreement from becoming effective without
liability of any party to any other party, except that the provisions of
Section 4(a)(viii), Section 4(b)(i) and Section 6 hereof shall at all times be
effective.
25
<PAGE> 26
(b) You shall have the right to terminate this Agreement
by giving notice as hereinafter specified at any time at or prior to the First
Closing Date, and the option referred to in Section 3(b), if exercised, may be
cancelled at any time prior to the Second Closing Date, if (i) the Company or
the Selling Stockholders shall have failed, refused or been unable, at or prior
to such Closing Date, to perform any agreement on its part to be performed
hereunder, (ii) any other condition of the Underwriters obligations hereunder
is not fulfilled, (iii) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have
occurred any material adverse change or any development involving prospective
material adverse change in or affecting the condition, financial or otherwise,
of the Company and its subsidiaries taken as a whole or the earnings, business
affairs, management, or business prospects of the Company and its subsidiaries,
taken as a whole, whether or not arising in the ordinary course of business,
(iv) any federal or state statute, regulation, rule or order of any court or
other governmental authority shall have been enacted, published, decreed or
otherwise promulgated which in your reasonable opinion materially and adversely
affects or will materially and adversely affect the business or operations of
the Company or any of its subsidiaries, (v) trading on the New York Stock
Exchange or the American Stock Exchange shall have been wholly suspended, (vi)
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required, on the New York Stock
Exchange or the American Stock Exchange, by such Exchange or by order of the
Commission or any other governmental authority having jurisdiction, (vii) a
banking moratorium shall have been declared by Federal, New York or Minnesota
authorities, or (viii) there has occurred any material adverse change in the
financial markets in the United States or an outbreak of major hostilities (or
an escalation thereof) in which the United States is involved, a declaration of
war by Congress, any other substantial national or international calamity or
any other event or occurrence of a similar character shall have occurred since
the execution of this Agreement that, in your reasonable judgment, makes it
impractical or inadvisable to proceed with the completion of the sale of and
payment for the Securities. Any such termination shall be without liability of
any party to any other party except that the provisions of Section 4(a)(viii),
Section 4(b)(i) and Section 6 hereof shall at all times be effective.
(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section, the
Company and an Attorney-in-Fact, on behalf of the Selling Stockholders, shall
be notified promptly by you by telephone or telegram, confirmed by letter. If
the Company elects to prevent this Agreement from becoming effective, you and
an Attorney-in-Fact, on behalf of the Selling Stockholders, shall be notified
by the Company by telephone or telegram, confirmed by letter.
9. Default by One or More of the Selling Stockholders or the
Company. If one or more of the Selling Stockholders shall fail at the First
Closing Date to sell and deliver the number of Securities which such Selling
Stockholder or Selling Stockholders are obligated to sell hereunder, and the
Company and the remaining Selling Stockholders do not exercise the right, which
is hereby granted to increase, pro rata or otherwise, the number of Securities
to be sold by them hereunder to the total number of Securities to
26
<PAGE> 27
be sold by the Company and all Selling Stockholders as set forth in Schedule I,
then the Underwriters may at your option, by written notice from you to the
Company and the non-defaulting Selling Stockholders, either (a) terminate this
Agreement without any liability on the part of any non-defaulting party or (b)
elect to purchase the Securities which the Company and the non-defaulting
Selling Stockholders have agreed to sell hereunder.
In the event of a default by any Selling Stockholder as
referred to in this Section, either you or the Company or, by joint action
only, the non-defaulting Selling Stockholders shall have the right to postpone
the First Closing Date for a period not exceeding seven days in order to effect
any required changes in the Registration Statement or Prospectus or in any
other documents or arrangements.
If the Company shall fail at the First Closing Date to sell
and deliver the number of Securities which it is obligated to sell hereunder,
then this Agreement shall terminate without any liability on the part of any
non-defaulting party.
No action taken pursuant to this Section shall relieve the
Company or any Selling Stockholders so defaulting from liability, if any, in
respect of such default.
10. Information Furnished by Underwriters. The statements set
forth in the last paragraph of the cover page (to the extent related to the
Underwriters), in the stabilization legend on page 2 of the Preliminary
Prospectus and the Prospectus; and under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus; and any other written information
which specifies that it is for use in the Registration Statement or Prospectus
constitute the written information furnished by or on behalf of the
Underwriters referred to in Section 2 and Section 6 hereof.
11. In all dealings hereunder, the parties hereto shall be
entitled to act and rely upon any statement, request, notice or agreement made
or given by you; and in all dealings with any Selling Stockholder hereunder,
you and the Company shall be entitled to act and rely upon any statement,
request, notice or agreement on behalf of such Selling Stockholder made or
given by an Attorney-in-Fact for such Selling Stockholder.
12. Notices. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, faxed, telegraphed or delivered to the
Underwriters c/o Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth
Street, Minneapolis, Minnesota 55402, facsimile no. (612) 342-1037; if to the
Company, shall be mailed, faxed, telegraphed or delivered to it at 100 Locke
Drive, Marlboro, MA 01752-1192, facsimile no. (508) 481-8620 Attention: Alfred
A. Molinari, Jr., President; if to any of the Selling Stockholders, at the
address of the Attorneys-in-Fact as set forth in the Powers of Attorney, or in
each case to such other address as the person to be notified may have requested
in writing. All notices given by telegram shall be promptly
27
<PAGE> 28
confirmed by letter. Any party to this Agreement may change such address for
notices by sending to the parties to this Agreement written notice of a new
address for such purpose.
13. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns and the controlling persons, officers and
directors referred to in Section 6. Nothing in this Agreement is intended or
shall be construed to give to any other person, firm or corporation any legal
or equitable remedy or claim under or in respect of this Agreement or any
provision herein contained. The term "successors and assigns" as herein used
shall not include any purchaser, as such purchaser, of any of the Securities
from the Underwriters.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of New York
(without regard to its choice of law rules).
[REMAINDER OF THIS PAGE INTENTIONALLY BLANK]
28
<PAGE> 29
Please sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement between the
Company, the Selling Stockholders and the Underwriters in accordance with its
terms.
Very truly yours,
DATA TRANSLATION, INC.
By:
----------------------------------
President
SELLING STOCKHOLDERS
By:
----------------------------------
Attorney-in-Fact
Confirmed as of the date
first above written.
PIPER JAFFRAY INC.
By:
----------------------------------
Vice President
HAMBRECHT & QUIST LLC
By:
----------------------------------
29
<PAGE> 30
SCHEDULE I
Selling Stockholders
<TABLE>
<CAPTION>
Number of
Firm Shares
Name to be Sold
- ---- -----------
<S> <C>
Alfred A. Molinari, Jr. 50,000
Paul J. Severino 40,000
------
Total 90,000
</TABLE>
30
<PAGE> 1
Exhibit 4
COMMON STOCK COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON,
NEW YORK CITY, CHICAGO OR LOS ANGELES
CUSIP 238015 101
SEE REVERSE FOR CERTAIN DEFINITIONS AND
A STATEMENT AS TO THE EXISTENCE OF CERTAIN
PREFERENCES, POWERS, QUALIFICATIONS AND RIGHTS.
DATA TRANSLATION(R)
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF
ONE CENT ($.01) PER SHARE OF THE COMMON STOCK OF
DATA TRANSLATION, INC.
transferable on the books of the Corporation only by the holder hereof
in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares
represented hereby are received and held subject to the laws of
The Commonwealth of Massachusetts, and to the Articles of Organization
and Bylaws of the corporation, all as from time to time amended.
This certificate is not valid unless countersigned by the Transfer Agent
and registered by the Registrar. Witness the facsimile seal of
the Corporation and the facsimile signature of its duly authorized officers.
Dated: _____________________
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT AND REGISTRAR
[SEAL] BY __________________________________________
AUTHORIZED OFFICER
_________________________________
PRESIDENT AND TREASURER
<PAGE> 2
DATA TRANSLATION, INC.
The Corporation is authorized to issue Preferred Stock and Common
Stock. The Preferred Stock may be divided into and issued in series, having
such preferences, voting powers, qualifications and special and relative rights
as shall be established by the Board of Directors from time to time. The
Corporation will furnish to the holder hereof upon written request and without
charge a copy of the full text, as set forth in the Corporation's Articles of
Organization, of the preferences, voting powers, qualifications and special and
relative rights of each class of its capital stock (and each series, if any, of
its Preferred Stock) authorized to be issued as of the date of such request.
For value received
-------------------------------------------------
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL
SECURITY OR OTHER
IDENTIFYING NUMBER
OF ASSIGNEE
- ---------------------- ----------------------------------------------------
- -----------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -----------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated
------------------------- ---------------------------------------------
NOTICE: The signature to this assignment must
correspond with the name as written upon the
face of the Certificate, in every particular,
without alteration or enlargement, or any
change whatever.
<PAGE> 1
Exhibit 5
[ROPES & GRAY LETTERHEAD]
October 19, 1995
Data Translation, Inc.
100 Locke Drive
Marlboro, MA 01752-1192
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-1 (the "Registration Statement"), filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, for the registration of up to 1,713,500 shares of Common Stock, $0.01
par value (the "Shares"), of Data Translation, Inc., a Massachusetts
corporation (the "Company"). The Shares are to be sold pursuant to an
Underwriting Agreement to be entered into between and among the Company, the
Selling Stockholders named in Schedule I to said Underwriting Agreement (the
"Selling Stockholders") and Piper Jaffray Inc. and Hambrecht & Quist LLP in
said Underwriting Agreement (the "Agreement").
We have acted as counsel for the Company and the Selling Stockholders
in connection with the issue and sale by the Company and the sale by the
Selling Stockholders of the Shares. For purposes of our opinion, we have
examined and relied upon such documents, records, certificates and other
instruments as we have deemed necessary.
We express no opinion as to the applicability of, compliance with or
effect of federal law or the law of any jurisdiction other than the Business
Corporation Law of The Commonwealth of Massachusetts.
Based on the foregoing, we are of the opinion that (i)the Shares have
been duly authorized; (ii) the Shares being sold by the Selling Stockholders
which are outstanding on the date hereof have been validly issued and are fully
paid and nonassessable; and (iii) when issued and sold by the Company in
accordance with the terms of the Underwriting Agreement, the Shares being sold
by the Company will be validly issued, fully paid and nonassessable.
<PAGE> 2
[ROPES & GRAY LOGO]
Data Translation, Inc. -2- October 19, 1995
We hereby consent to the filing of this opinion as part of the
Registration Statement and to the use of our name therein and in the related
prospectuses under the caption "Legal Matters."
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is
in effect.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
SGM:3082652.01
<PAGE> 1
Exhibit 21
DATA TRANSLATION, INC.
LIST OF SUBSIDIARIES
Data Translation Networking Limited, a United Kingdom Company
Data Translation, GmbH, a German Company
Data Translation, S.R.L., an Italian Company
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 17, 1995
