<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1995
REGISTRATION NO. 33-60033
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
COLONIAL DATA TECHNOLOGIES CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2763229
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
80 PICKETT DISTRICT ROAD, NEW MILFORD, CONNECTICUT 06776
(203) 355-3178
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WALTER M. FIEDEROWICZ
COLONIAL DATA TECHNOLOGIES CORP.
80 PICKETT DISTRICT ROAD
NEW MILFORD, CONNECTICUT 06776
(203) 355-3178
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
THOMAS L. FAIRFIELD, ESQ. DEAN F. HANLEY, ESQ.
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P. FOLEY, HOAG & ELIOT
GOODWIN SQUARE, 225 ASYLUM STREET ONE POST OFFICE SQUARE
HARTFORD, CONNECTICUT 06103 BOSTON, MASSACHUSETTS 02109
(203) 293-3500 (617) 832-1000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following 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 the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to item
11(a)(1) of this Form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED (1) AGGREGATE OFFERING PRICE REGISTRATION FEE
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<S> <C> <C>
Common Stock, $0.01 par value....... $59,843,125(1) $20,636(2)
</TABLE>
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(1) Calculated in accordance with Rule 457(o) under the Securities Act of
1933.
(2) Of the total registration fee, $16,249 has previously been paid and $4,387
is being paid concurrently with the filing of this amendment.
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 SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
The Exhibit Index appears on page of the sequentially numbered pages of
this Registration Statement. This Registration Statement, including exhibits,
contains pages.
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<PAGE>
CROSS REFERENCE SHEET SHOWING THE LOCATION
IN THE PROSPECTUS OF THE ITEMS ON FORM S-2
<TABLE>
<CAPTION>
ITEM AND CAPTION LOCATION IN PROSPECTUS
---------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front and Outside Back Cover
Pages
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges............................ Prospectus Summary; Risk Factors
4. Use of Proceeds..................... Use of Proceeds
5. Determination of Offering Price..... *
6. Dilution............................ *
7. Selling Security Holders............ Principal and Selling Stockholders
8. Plan of Distribution................ Underwriting
9. Description of Securities to be
Registered......................... Outside Front Cover Page;
Description of Capital Stock
10. Interests of Named Experts and
Counsel............................ Legal Matters; Experts
11. Information with Respect to the
Registrant......................... Prospectus Summary; Risk Factors;
Selected Consolidated Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Price Range of Common
Stock; Principal and Selling
Stockholders; Consolidated
Financial Statements; Description
of Capital Stock; Shares Eligible
for Future Sale
12. Incorporation of Certain Information
by Reference....................... Incorporation of Certain Documents
by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ *
</TABLE>
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* Not Applicable
<PAGE>
PROSPECTUS
- ----------
2,300,000 SHARES
[LOGO OF COLONIAL
DATA TECHNOLOGIES COLONIAL DATA TECHNOLOGIES CORP.
CORP. APPEARS HERE]
COMMON STOCK
Of the 2,300,000 shares of Common Stock offered hereby, 1,500,000 shares are
being issued and sold by Colonial Data Technologies Corp. ("CDT" or the
"Company"), and 800,000 shares are being sold by the Selling Stockholders. The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders".
The Common Stock is listed on the American Stock Exchange under the symbol
"CDT". The last reported sale price for the Common Stock on July 12, 1995 was
$23 1/2 per share. See "Price Range of Common Stock".
----------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 6 OF THIS PROSPECTUS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share....... $22.625 $1.244 $21.381 $21.381
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Total(3)........ $52,037,500 $2,861,200 $32,071,500 $17,104,800
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Before deducting expenses of the offering payable by the Company and the
Selling Stockholders, estimated at $385,000 and $15,000, respectively.
(3) The Company and certain Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to an aggregate of 345,000
additional shares of Common Stock solely to cover over-allotments, if any.
If this option is exercised in full, the total Price to Public,
Underwriting Discount, Proceeds to Company, and Proceeds to Selling
Stockholders will be $59,843,125, $3,290,380, $35,171,745 and $21,381,000,
respectively. See "Underwriting".
----------------
The shares of Common Stock are offered by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part and
certain other conditions. It is expected that certificates for such shares
will be available for delivery at the offices of First Albany Corporation,
Albany, New York, on or about July 18, 1995.
FIRST ALBANY CORPORATION
NATWEST SECURITIES LIMITED
VOLPE, WELTY & COMPANY
JULY 13, 1995
<PAGE>
Colonial Data provides telecommunications companies with products and services
to support their deployment of intelligent network services...
. The Company leases Caller ID equipment to
US West subscribers to lower the initial
consumer outlay for the intelligent network
service.
. Bell Atlantic has retained Colonial Data to
develop and implement marketing programs for
intelligent network services.
. NYNEX purchases Colonial Data Caller ID adjunct
devices for use in targeted giveaway programs to [PHOTO APPEARS HERE]
attract new subscribers.
. Colonial Data has entered into a strategic alliance
with US Order to manufacture and market ADSI-based
smart telephones to the telecommunications industry.
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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 AMERICAN STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
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----------------
2
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by the more detailed information
and Consolidated Financial Statements and Notes appearing elsewhere in this
Prospectus.
THE COMPANY
The Company designs, develops and markets telecommunications products that
support intelligent network services being developed and implemented by the
regional Bell operating companies ("RBOCs") and other telephone operating
companies ("telcos"). In recent years, CDT has concentrated its product
development and marketing efforts on products that support Caller ID, an
intelligent network service that allows subscribers to view the telephone
number and the directory name of a calling party before the call is answered,
and to store that information in memory. The Company also repairs and
refurbishes telecommunications products for commercial customers and provides
other services that support the development and implementation of intelligent
network services.
The Company has become a leading provider of Caller ID equipment, having sold
or leased more than 3,000,000 units. The Company is also the largest lessor of
such equipment in the United States, with over 500,000 leased units in service
as of May 31, 1995. The Company currently offers 14 models of Caller ID adjunct
units and three models of screen telephones with integrated Caller ID. CDT also
introduced an adjunct unit, known as SCWID, in April 1995 that allows Caller ID
to work with Call Waiting. CDT recently expanded its Caller ID presence through
its acquisition of the Canadian Caller ID business of TIE/communications, Inc.
in May 1995.
Caller ID is one of several intelligent network services being offered by
telcos as a way of generating additional revenues from existing subscribers.
Caller ID is the first such service to require specialized subscriber telephone
equipment. Availability of Caller ID service has expanded rapidly over the last
several years and, as of July 1995, the service had been approved in 48 states.
The Company estimates that as of that date, subscriber enrollment was
approximately 6% of total subscribers in available areas, which is much lower
than enrollment rates for certain other intelligent network services such as
Call Waiting, which has achieved 40% market penetration in certain available
areas. Accordingly, the Company believes that significant potential growth
opportunities exist as telcos increase their efforts to promote Caller ID and
as market acceptance of Caller ID increases. The Company also believes that its
SCWID unit will further enhance the value of both Caller ID and Call Waiting.
CDT is positioning itself to take advantage of other opportunities arising from
the development of intelligent network services. In January 1995, CDT
established a strategic alliance with US Order to jointly develop an Analog
Display Services Interface ("ADSI")-compatible "smart telephone", a telephone
with a central processing unit, a backlit display screen, a keyboard, a
magnetic stripe card reader and memory. CDT will manufacture and exclusively
market this smart telephone, initial shipments of which are expected by the
first quarter of 1996, to RBOCs and other telcos. Smart telephones are designed
to make intelligent network services more accessible to telephone subscribers.
In May 1995, the Company and Barry Blau & Partners, Inc., the third largest
direct marketing firm in the United States, formed a joint venture to market
intelligent network services to end users on behalf of RBOCs. The joint
venture, Worldwide Telecom Partners, Inc., commenced business in May 1995 with
an engagement to market Caller ID services to Bell Atlantic customers in New
Jersey.
The Company distributes its products through direct fulfillment sales and
leasing arrangements with telcos and sales to telcos, retailers and other
equipment manufacturers. The Company's principal customers include US West,
NYNEX, BellSouth and Sears. CDT also has established direct fulfillment
relationships with Bell Atlantic, BellSouth, Ameritech and Frontier.
3
<PAGE>
The Company believes its success is a result of increased availability and
market acceptance of Caller ID and other intelligent network services, CDT's
strong relationships with telcos, retailers and other equipment manufacturers,
its ability to develop and provide advanced Caller ID products, and its focus
on lowering production costs. The Company actively assists RBOCs and other
telcos in offering intelligent network services through innovative programs,
such as the leasing program developed with US West. CDT's long-standing
relationships with the telcos and Bellcore, the research entity funded jointly
by the RBOCs and other telcos, enable the Company to stay informed of and
respond to technological developments relating to intelligent network services
generally and to Caller ID specifically. The Company also believes that its
repair and refurbishment capabilities increase and diversify its revenue base
and strengthen its relationships with its telco customers.
Colonial Data Technologies Corp. was incorporated in 1982, became a
Massachusetts corporation in 1983 and was redomiciled in Delaware in May 1995.
The Company's principal executive offices are located at 80 Pickett District
Road, New Milford, Connecticut 06776, and its telephone number is (203) 355-
3178.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors".
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............... 1,500,000 shares
Common Stock offered by the Selling Stockholders.. 800,000 shares
Common Stock to be outstanding after the offering. 15,242,384 shares(1)
Use of proceeds by the Company.................... For general corporate
purposes, including
financing the Company's
leasing activities, working
capital, new product
introductions, expansion of
research and development
activities and expansion of
customer service, sales and
marketing operations. See
"Use of Proceeds".
AMEX symbol....................................... CDT
</TABLE>
- --------
(1) Includes 150,598 shares to be purchased by Selling Stockholders pursuant to
the exercise of outstanding options and warrants and sold in connection
with this offering. At May 31, 1995, options and warrants to acquire
517,717 shares of Common Stock were outstanding. Also gives effect to the
issuance of 170,743 shares of Common Stock by the Company on June 9, 1995
in exchange for 230,000 shares of US Order common stock. See "Principal and
Selling Stockholders" and "Business--Products and Services".
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------
1990 1991 1992 1993 1994 1994 1995
------- ------ ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Revenues.............. $11,029 $8,006 $ 9,722 $17,439 $36,829 $ 6,043 $15,206
Gross profit.......... 3,647 2,564 2,913 5,235 12,601 1,926 6,105
Income from opera-
tions................ 884 252 551 2,053 6,300 889 3,838
Net income............ 544 47 311 1,103 3,578 495 2,414
Net income per share.. $ .06 $ .00 $ .03 $ .10 $ .30 $ .04 $ .18
Fully diluted weighted
average shares
outstanding.......... 9,558 9,623 10,849 10,910 11,806 11,292 13,764
OTHER OPERATING DATA:
Caller ID units sold.. 155 200 245 410 987 145 407
Leased Caller ID units
in service at end of
period............... -- -- 9 180 440 193 475
<CAPTION>
DECEMBER 31, MARCH 31, 1995
-------------------------------------- -------------------
AS
1990 1991 1992 1993 1994 ACTUAL ADJUSTED(1)
------- ------ ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $ 2,428 $3,902 $ 4,076 $ 2,326 $23,930 $17,518 $50,114
Equipment............. 589 612 795 3,272 5,755 6,767 6,767
Total assets.......... 6,043 5,772 5,641 10,487 33,133 36,987 72,285
Short- and long-term
borrowings........... 2,174 646 183 2,130 2,000 -- --
Stockholders' equity.. 3,017 4,514 4,825 6,082 28,353 31,082 67,071
</TABLE>
- --------
(1) Adjusted to reflect the sale of shares of Common Stock offered by the
Company hereby at the public offering price of $22.625 per share, the
exercise of 81,522 stock options at an exercise price of $.21 per share and
related income tax benefit and 69,076 warrants at an exercise price of
$2.92 per share by certain Selling Stockholders, and the application of the
estimated net proceeds therefrom. Also gives effect to the issuance of
170,743 shares of Common Stock by the Company on June 9, 1995 in exchange
for 230,000 shares of US Order common stock. See "Capitalization", "Use of
Proceeds" and "Business--Products and Services".
----------------
References to the "Company" or "CDT" in this Prospectus, unless the context
requires otherwise, refer to Colonial Data Technologies Corp. and its
subsidiaries, Colonial Technologies Corp., a Delaware corporation (the
"Delaware Subsidiary"), and CDT Canada Corp., an Ontario corporation (the
"Canadian Subsidiary").
Except as otherwise noted, all information contained in this Prospectus assumes
that the Underwriters' over-allotment option is not exercised.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following factors
should be considered carefully by prospective investors in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby.
RELIANCE ON CALLER ID REVENUES
During the year ended December 31, 1994 and the three months ended March 31,
1995, 90% and 95%, respectively, of the Company's revenues were derived from
sales and leases of its Caller ID units. The sale or lease of these units is
directly linked to the implementation and promotion of Caller ID service by
telcos. The timing of such implementation may be affected by the telcos'
ability to obtain necessary regulatory approvals, by switch and software
upgrades and by other factors. There can be no assurance that telcos will
continue to introduce and promote this service successfully or that it will
gain widespread market acceptance. Delays in the introduction of Caller ID
service in local markets or failure of this service to gain widespread market
acceptance would materially and adversely affect the Company's business,
operating results and financial condition. Subscriber acceptance of Caller ID
service to date has been and may in the future be negatively affected by
various factors, including the pricing of Caller ID service and equipment, the
fact that the service is currently available only when the caller is within
the same local calling area as the subscriber and the ability of callers to
block the display of their name and number. See "Business - Industry
Background", "- Products and Services" and "- Government Regulation".
COMPETITION
The market for the Company's products is highly competitive and subject to
rapid technological change. At present, the Company's principal competitors
are CIDCO Incorporated ("CIDCO"), AT&T Corp. ("AT&T") and Northern Telecom
Ltd. ("Northern Telecom"). The Company's Caller ID products also compete with
Caller ID telephones offered by Panasonic Co. ("Panasonic"), Sony Corp.
("Sony") and Thomson Consumer Electronics, Inc. ("Thomson"). The smart
telephone intended to be marketed by the Company through an alliance with US
Order, Inc. ("US Order") is subject to competition from smart telephones
marketed by Philips Home Services, Inc. ("Philips"), AT&T and Northern Telecom
as well as other emerging platforms for interactive applications delivered
through personal computers and cable television. The Company expects
competition to increase in the future from existing and new competitors,
possibly including telcos or other current customers, from network switch-
based services and from the increased application of cellular technology. The
Company's primary current and potential competitors in the market for products
that support intelligent network services have substantially greater
financial, marketing and technical resources than the Company. Increased
competition could materially and adversely affect the Company's results of
operations through price reductions and loss of market share.
The Company competes with a large number of competitors for its repair
services and other services supporting the development and implementation of
intelligent network services. Several of the Company's competitors in the
market for such services have substantially greater financial, marketing and
technological resources than the Company. There can be no assurance that the
Company will be able to continue to compete successfully against its existing
competitors or that it will be able to compete successfully against new
competitors. See "Business - Competition".
LEASING PROGRAMS
Since 1992, the Company has leased Caller ID units to US West Communications,
Inc. ("US West") subscribers through an arrangement in which US West performs
the monthly billing and collections and the Company provides all other
fulfillment and product support services. This program has grown from 9,000
leased units in service in 1992 to over 500,000 leased units in service as of
May 31, 1995. The lease arrangements are in place
6
<PAGE>
in 12 states. The lease agreement provides that the lease may be cancelled at
any time, and the Company treats these leases as operating leases. If US West
were to terminate the program or large numbers of individual customers were to
exercise their right to cancel their leases, the Company's business, operating
results and financial condition would be materially and adversely affected.
The Company intends to offer leasing programs to additional telco customers.
However, there can be no assurance that such programs will be successfully
established or maintained. Customer cancellations of existing leases could
result from, among other reasons, the Company's new product introductions,
including SCWID units and smart telephones, and other changes in technology.
See "Business - Strategy", "- Marketing and Distribution".
CONCENTRATION OF DISTRIBUTION OF PRODUCTS AND SERVICES
The Company sells its products and services to telcos, individual telephone
subscribers, other equipment manufacturers on a private label basis ("private
label customers") and retail chains. In addition, the Company leases its
products to individual telco subscribers. Sales and leases to individual telco
subscribers are largely dependent on direct fulfillment distribution
arrangements with certain RBOCs and other telcos. Since the Company views the
telcos with which it maintains direct fulfillment relationships as its
customers, it considers its customer base to be highly concentrated. In 1994,
the Company's five largest customers (including telcos with which the Company
maintains direct fulfillment relationships) accounted for 79%, of which the
top two accounted for 55%, of its revenues. In the three months ended March
31, 1995, the five largest customers accounted for 83%, of which the top two
accounted for 58%, of the Company's revenues. The Company's current telco
fulfillment arrangements are not exclusive and may be terminated by either
party. US West, BellSouth Corp. ("BellSouth") and NYNEX Corporation ("NYNEX")
each accounted for over 10% of the Company's total revenues for 1994. The loss
of any one or more of the Company's major customers or the termination of its
distribution arrangements with any telco could materially and adversely affect
the Company's business, operating results, and financial condition. See
"Business - Marketing and Distribution".
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY EMPLOYEES
During recent periods, the Company has experienced a rapid rate of growth.
Although the Company attempts to forecast growth accurately, there can be no
assurance that it will be able to consistently make accurate forecasts.
Failure to make such accurate forecasts, or the failure or inability of the
Company to manage its growth successfully, could result in problems with
respect to, among other things, the size or quality of the Company's work
force, the adequacy of the Company's and its suppliers' production facilities,
the adequacy of its management information systems and inventory controls, a
high backlog of product orders and delays in customer service and support.
The Company has responded to the growth in its business by significantly
increasing its service, support and administrative facilities and staff.
However, there can be no assurance that the Company will be able on a timely
basis to anticipate its future requirements for personnel, facilities or
systems or to maintain the levels of customer service that it has provided in
the past. The inability of the Company to anticipate and meet these
requirements, or a decline in the quality of the Company's customer service or
delays in the delivery of the Company's products could materially and
adversely affect the Company's business. See "Business - Manufacturing".
The Company is highly dependent on certain key executive officers and
technical employees, the loss of any of whom could have an adverse impact on
the future operations of the Company. The Company may need to hire additional
skilled personnel to support the continued growth of its business. Competition
for such personnel is intense, and the inability to attract and retain
additional qualified employees or the loss of current key employees could
materially and adversely affect the Company's business, operating results and
financial condition. See "Business - Employees" and "Management".
TECHNOLOGICAL CONSIDERATIONS
The Company's business activities are concentrated in fields characterized by
rapid and significant technological advances. There can be no assurance that
the Company will remain competitive technologically or that the
7
<PAGE>
Company's products, processes, or services will continue to be reflective of
such advances. Failure to introduce new products or product enhancements that
achieve market acceptance on a timely basis could materially and adversely
affect the Company's business, operating results and financial condition. The
Company has recently introduced a new product, SCWID, which integrates Caller
ID with Call Waiting, and is working with its strategic partner to develop a
new smart telephone designed to enable the use of intelligent network services
that are expected to be made available through telcos. There can be no
assurance that the Company will not encounter unanticipated technical,
marketing or other problems or delays relating to new products, features or
services which the Company has recently introduced or which the Company may
introduce in the future. Moreover, there can be no assurance that the
Company's new products, features or services will be successful, that the
introduction of new products, features or services by the Company or its
competitors will not materially and adversely affect the sales of the
Company's existing products or that the Company will be able to adapt to
future changes in the telecommunications industry. Most of the Company's
competitors and potential competitors, such as telcos and telecommunications
equipment manufacturers, have significantly greater financial, technological
and research and development resources than the Company. See "Business -
Products and Services", "- Product Development", "- Competition" and "-
Patents, Proprietary Rights and Licenses".
LIMITED PROPRIETARY PROTECTION
The Company possesses limited patent or registered intellectual property
rights with respect to its technology. Although the Company has applied for a
patent on its SCWID product, there can be no assurance that a patent will be
issued to the Company for the SCWID product or that such patent, if issued,
will afford effective protection of the Company's technology.
The Company depends in part upon its proprietary technology and know-how to
differentiate its products from those of its competitors. The Company is
relying on a strategic partner for the design of a new smart telephone and
works closely with third parties with respect to product design and
engineering. The Company also relies on a combination of contractual rights
and trade secret laws to protect its proprietary technology. There can be no
assurance, however, that competitors will not obtain unauthorized access to
the Company's proprietary technology, that third parties will not misuse the
technology to which the Company has granted access, or that the Company's
contractual or legal remedies will be sufficient to protect the Company's
interests in its proprietary technology. There can be no assurance that the
Company will be able to successfully develop new technology or gain access to
such technology or that third parties will not be able to develop similar,
alternative technology independently. Therefore, existing and potential
competitors may be able to develop products that are competitive with the
Company's products and such competition could adversely affect the prices for
the Company's products or the Company's market share. See "Business - Patents,
Proprietary Rights and Licenses".
A portion of the messaging technology used in the Company's Caller ID products
is licensed on an exclusive basis from AT&T. However, AT&T has reserved for
itself and its subsidiaries the right to use that technology for all purposes
relating to its and its subsidiaries' business. AT&T's Caller ID patents are
licensed by AT&T to the Company and others, including the Company's
competitors. If the AT&T license were terminated and the Company were unable
to negotiate a new patent license agreement with AT&T, the Company would no
longer be authorized to manufacture or sell Caller ID products in the United
States other than to the RBOCs and to AT&T, and the Company's business would
be materially and adversely affected. See "Business - Patents, Proprietary
Rights and Licenses".
DEPENDENCE ON STRATEGIC ALLIANCE; MARKET ACCEPTANCE OF SMART TELEPHONES
The Company views its alliance with US Order as a key factor in its
development and commercialization of smart telephones. The Company has entered
into an agreement to form a strategic alliance with US Order pursuant to which
the Company will manufacture and sell to telco customers smart telephones that
have ADSI capability. The smart telephones are being developed in conjunction
with US Order, with features including a display screen, an embedded central
processing unit ("CPU"), a standard typewriter or "QWERTY" keyboard and a
magnetic stripe card reader. Under the strategic alliance with US Order, the
Company has agreed that, after the introduction of the smart telephone product
and through January 17, 2000, all ADSI-compatible smart telephones that it
manufactures, distributes or markets to telcos will be pursuant to the US
Order agreement. US
8
<PAGE>
Order can manufacture and exclusively market ADSI-compatible smart telephones
outside of the telco market but must pay the Company a 10% royalty for each
such sale or lease pursuant to the agreement. US Order may terminate the
strategic alliance agreement if the Company ceases to distribute
telecommunications products to at least four telcos during any twelve-month
period. The Company's success in the smart telephone market depends on US
Order's ability to meet design specifications and delivery requirements for
its products and services. If the smart telephone under development with US
Order is not successful, the Company's entry into the market for smart
telephones will be materially and adversely affected. See "Business - Products
and Services".
The Company's future growth and profitability will depend, in part, upon the
consumer acceptance of smart telephone technologies and a significant
expansion in the consumer market for telephone-based interactive applications
technologies. Even if these markets experience substantial growth, there can
be no assurance that the Company's products or services will be successful or
benefit from such growth. The Company's smart telephone is designed to support
ADSI-based intelligent network services such as integrated Caller ID and Call
Waiting with call disposition features, as well as new applications such as
home banking, catalogue shopping and national directory assistance. There can
be no assurance of the timing of introduction of, necessary regulatory
approvals for, or market acceptance of these services and applications. The
Company faces competition in these markets from other emerging interactive
applications delivered through personal computers, cable television and
Integrated Service Digital Network (ISDN). The Company has yet to market smart
telephones or interactive applications. The Company currently anticipates its
initial shipments of smart telephones will occur by the first quarter of 1996.
See "Business - Industry Background", "- Strategy" and "- Products and
Services".
VARIATIONS IN OPERATING RESULTS
The Company's revenues and operating results may vary from quarter to quarter
due to a variety of factors, some of which are beyond the Company's control.
Factors that may cause fluctuations in quarterly results include the timing of
the initiation of Caller ID or other intelligent network services by a telco;
the timing and extent of promotional activities by a telco; the rate of
customer acceptance of Caller ID and other intelligent network services; the
timing and market acceptance of new product introductions; disruptions in
sources of supply; changes in service charges by a telco; the timing and the
level of expenditures for sales, marketing and new product development by the
Company and its competitors; the effects of regulation on Caller ID and other
intelligent network services; general economic conditions; and other factors.
No assurance can be given that such quarterly variations will not occur in the
future and, accordingly, the results of any one quarter may not be indicative
of the operating results for future quarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Quarterly
Results".
DEPENDENCE ON FOREIGN PRODUCTION; LIMITED SOURCES OF SUPPLY
The Company's Caller ID units and other products have been manufactured
principally by a single manufacturer with manufacturing facilities in Hong
Kong and the People's Republic of China. It is also intended that the
Company's smart telephones will be manufactured by the same company. These
facilities are supplemented, in part, by limited manufacturing facilities in
Connecticut and Canada. The availability or cost of the Company's products may
be adversely affected by political, economic or labor conditions in the
countries where those products are manufactured, including the 1997 return of
Hong Kong to China, by fluctuations in currency exchange rates and by other
factors. In addition, a change in the tariff structure or other trade policies
of the United States could adversely affect the Company's foreign
manufacturing strategies.
The key components used in the Company's products are currently being
purchased from multiple sources, except for its application specific
integrated circuit ("ASIC") chips, which are purchased from a single source.
The only supply contract to which the Company is a party is with the maker of
its ASIC chips. The Company has no other supply contracts for its components.
Although the Company believes it could develop other sources for each of the
components for its products, the process could take several months, and the
inability or refusal of any such source to continue to supply components could
have a material adverse effect on the Company pending
9
<PAGE>
the development of an alternative source. The Company is working with another
ASIC supplier to design and develop a new ASIC chip to help meet future
production requirements. See "Business - Manufacturing".
REGULATION
In the United States, Caller ID and other intelligent network services are
subject to federal and state regulation. On May 4, 1995, the Federal
Communications Commission ("FCC") issued an order effective December 1, 1995,
requiring the passage of the calling party's number ("CPN") on an interstate
basis where a RBOC or other telco has switching architecture capable of
supporting the service. The FCC order requires RBOCs and other telcos to
provide per-call blocking of the CPN for interstate calls where technically
feasible and permits state public utility commissions to authorize per-line
blocking for interstate calls. In general, state public utility commissions
have required RBOCs and other telcos to provide per-call and/or per-line
blocking of the CPN on calls within the local calling area, thereby allowing
the caller to prevent the display of his or her name and number, which
diminishes the usefulness and may adversely impact market acceptance of Caller
ID services. The California Public Utilities Commission and AT&T have filed
petitions for review in federal court, which have been consolidated,
challenging portions of the FCC order. Certain other parties have also
objected to or sought clarification of portions of the FCC order. Caller ID
and other intelligent network services may in the future be subject to further
regulation by the federal government, state public utility commissions and
other regulatory authorities, as well as court challenges, including possible
challenges due to protests from special interest groups that object to such
services on the basis of privacy concerns. The Company is unable to predict
what effect, if any, further regulation, court challenges or other objections
may have on the FCC order or Caller ID service. As of July 1, 1995, Caller ID
service was not available in California and Hawaii. In Canada, the Canadian
Radio-television and Telecommunications Commission regulates Caller ID and
intelligent network services. The Company believes that Canadian regulation of
telecommunications devices for intelligent network services is not more
burdensome than regulation in the United States. See "Business - Government
Regulation".
CONTROL BY OFFICERS AND DIRECTORS
Upon completion of this offering, the Company's officers and directors will
beneficially own an aggregate of approximately 23% of the Company's
outstanding Common Stock. Accordingly, these stockholders, if acting together,
would be able to exert controlling influence over the outcome of matters
requiring stockholder approval, such as the election of the Company's
directors, amendments to the Company's Certificate of Incorporation, mergers
and certain other matters. The concentration of ownership could have the
effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Stockholders".
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered by the Company, after deducting the estimated offering
expenses and underwriting discount and commissions payable by the Company,
will be approximately $31,686,000 (approximately $34,786,000 if the
Underwriters' over-allotment option is exercised in full). The Company will
not receive any proceeds from the sale of Common Stock by the Selling
Stockholders.
The Company expects to use the net proceeds from this offering for general
corporate purposes, including (i) financing the Company's leasing activities,
(ii) working capital, (iii) new product introductions, including SCWID units
and smart telephones, (iv) expansion of the Company's research and development
activities and (v) expansion of the Company's customer service, sales and
marketing operations. Net proceeds may also be used to acquire or invest in
complementary businesses or technologies through potential future
acquisitions, joint ventures or other arrangements with third parties or
through internal development. The Company does not currently have any
agreements with respect to any such acquisitions, joint ventures or
arrangements. Pending such uses, the Company intends to invest the net
proceeds from the offering in investment grade, interest-bearing instruments.
The amounts and timing of the Company's expected expenditures will depend on
the progress of the Company's marketing programs, research and development,
product advances and other factors.
10
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the American Stock Exchange under the
symbol CDT.
The table below sets forth for the periods indicated the high and low
quarterly sales prices of the Company's Common Stock as reported by the
American Stock Exchange. The third quarter of 1995 reflects the high and low
sales prices for such quarter through July 12, 1995.
<TABLE>
<CAPTION>
PRICE RANGE
-----------------------
HIGH LOW
----------- -----------
<S> <C> <C>
1995
Third Quarter (through July 12, 1995)............. $ 24 $ 18 3/4
Second Quarter.................................... 22 3/8 14 1/8
First Quarter..................................... 19 1/8 12 1/4
1994
Fourth Quarter.................................... 15 3/8 4 3/8
Third Quarter..................................... 5 3/8 4
Second Quarter.................................... 6 5/8 4 1/8
First Quarter..................................... 7 1/8 3 7/8
1993
Fourth Quarter.................................... 4 1/2 1 1/16
Third Quarter..................................... 1 9/16 7/8
Second Quarter.................................... 1 5/16 7/8
First Quarter..................................... 1 3/4 7/8
</TABLE>
On May 31, 1995, there were 674 holders of record of the Company's Common
Stock. On July 12, 1995, the last reported sales price of the Company's Common
Stock was $23 1/2 per share.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock. The
Company currently intends to retain all earnings for the operation and
expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. The Company's existing bank line of
credit agreement prohibits the Company from paying dividends.
11
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company as
of March 31, 1995 and as adjusted to give effect to the sale of the 1,500,000
shares of Common Stock offered by the Company (at the public offering price of
$22.625 per share, and after deducting the underwriting discount and other
estimated expenses of the offering), and the exercise and related income tax
benefit of 81,522 options at an exercise price of $.21 per share and 69,076
warrants at an exercise price of $2.92 per share by the Selling Stockholders.
The table also gives effect to the issuance of 170,743 shares of Common Stock
by the Company on June 9, 1995 in exchange for 230,000 shares of US Order
common stock. See "Use of Proceeds", "Description of Capital Stock" and
"Business - Products and Services". This information should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1995
-------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Stockholders' Equity:
Common Stock, $.01 par value; 20,000,000 shares
authorized; 13,390,253 shares issued and
outstanding actual; 15,242,384 shares issued and
outstanding, adjusted(1)........................ $ 134 $ 152
Additional paid-in capital......................... 22,407 58,378
Retained earnings.................................. 8,492 8,492
Unrealized appreciation of security held-for-sale.. 49 49
----------- ----------
Total stockholders' equity..................... $ 31,082 $ 67,071
=========== ==========
</TABLE>
- --------
(1) Includes 150,598 shares to be purchased by Selling Stockholders pursuant
to the exercise of outstanding options and warrants and sold in connection
with this offering. At March 31, 1995, options and warrants to acquire
531,507 shares of Common Stock were outstanding. See "Principal and
Selling Stockholders".
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. The statement of earnings data for the
years ended December 31, 1992, 1993 and 1994 and the balance sheet data as of
December 31, 1993 and 1994 have been derived from the Company's consolidated
financial statements which have been audited by Deloitte & Touche LLP,
independent certified public accountants. The consolidated financial
statements for those periods and the independent auditors' report thereon are
included elsewhere in this Prospectus. The selected statement of earnings data
for 1990 and 1991 and selected balance sheet data as of December 31, 1990,
1991 and 1992 are derived from audited financial statements not included in
this Prospectus. The consolidated financial information for the three months
ended March 31, 1994 and 1995 have not been audited, but, in the opinion of
the management of the Company, all adjustments necessary for a fair
presentation have been included. All such adjustments are of a normal
recurring nature. The results of operations for the three months ended March
31, 1995 are not necessarily indicative of the results of operations that may
be expected for the entire fiscal year. The data presented below should be
read in connection with the Consolidated Financial Statements of the Company,
together with the Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Prospectus.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
STATEMENT OF EARNINGS DATA: ------- ------ ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Products.................. $ 9,455 $6,480 $8,071 $11,667 $22,016 $ 3,492 $ 9,702
Leases.................... -- -- 142 3,525 11,630 1,704 4,793
Services.................. 1,574 1,526 1,509 2,247 3,183 847 711
------- ------ ------ ------- ------- ------- --------
Total revenues.......... 11,029 8,006 9,722 17,439 36,829 6,043 15,206
Cost of sales:
Products.................. 6,137 4,312 5,684 7,977 15,939 2,569 6,699
Leases.................... -- -- 114 2,456 6,137 986 1,921
Services.................. 1,245 1,130 1,011 1,771 2,152 562 481
------- ------ ------ ------- ------- ------- --------
Total cost of sales..... 7,382 5,442 6,809 12,204 24,228 4,117 9,101
------- ------ ------ ------- ------- ------- --------
Gross profit................ 3,647 2,564 2,913 5,235 12,601 1,926 6,105
Selling, general and
administrative expenses.... 2,460 2,015 2,066 2,855 5,519 941 1,989
Research and development.... 303 297 296 327 782 96 278
------- ------ ------ ------- ------- ------- --------
Income from operations...... 884 252 551 2,053 6,300 889 3,838
Other income (expenses)..... (32) (170) (9) (101) (132) (26) 186
------- ------ ------ ------- ------- ------- --------
Income before income taxes.. 852 82 542 1,952 6,168 863 4,024
Income taxes................ 308 35 231 849 2,590 368 1,610
------- ------ ------ ------- ------- ------- --------
Net income.................. $ 544 $ 47 $ 311 $ 1,103 $ 3,578 $ 495 $ 2,414
======= ====== ====== ======= ======= ======= ========
Fully diluted weighted
average shares outstanding. 9,558 9,623 10,849 10,910 11,806 11,292 13,764
Primary and fully diluted
net income per share....... $ .06 $ .00 $ .03 $ .10 $ .30 $ .04 $ .18
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
MARCH 31,
1990 1991 1992 1993 1994 1995
BALANCE SHEET DATA: ------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Working capital......... $2,428 $3,902 $4,076 $ 2,326 $23,930 $17,518
Equipment............... 589 612 795 3,272 5,755 6,767
Total assets............ 6,043 5,772 5,641 10,487 33,133 36,987
Short- and long-term
borrowings............. 2,174 646 183 2,130 2,000 --
Stockholders' equity.... 3,017 4,514 4,825 6,082 28,353 31,082
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company designs, develops and markets telecommunications products that
support intelligent network services being developed and implemented by the
RBOCs and telcos. The Company also repairs and refurbishes telecommunications
products for commercial customers and provides other services that support the
development and implementation of intelligent network services. The Company
has provided maintenance and repair service for telecommunications equipment
since its formation and began to sell telephones and other telecommunications
equipment in 1985. In 1987 the Company entered the Caller ID equipment
business when it introduced the first commercially available Caller ID unit.
Since 1992, the Company has also leased Caller ID units to US West
subscribers. Substantially all of the Company's revenues in 1994 and the first
quarter of 1995 were derived from sales and leases of Caller ID products.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
the Company's Consolidated Financial Statements as a percentage of total
revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1992 1993 1994 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Products..................... 83.0% 66.9% 59.8% 57.8% 63.8%
Leases....................... 1.5 20.2 31.6 28.2 31.5
Services..................... 15.5 12.9 8.6 14.0 4.7
------- ------- ------- ------- -------
Total revenues............. 100.0 100.0 100.0 100.0 100.0
Cost of sales(1):
Products..................... 70.4 68.4 72.4 73.6 69.0
Leases....................... 80.3 69.7 52.8 57.9 40.1
Services..................... 67.0 78.8 67.6 66.4 67.7
Total cost of sales........ 70.0 70.0 65.8 68.1 59.9
------- ------- ------- ------- -------
Gross profit................... 30.0 30.0 34.2 31.9 40.1
Selling, general and
administrative expenses....... 21.3 16.3 15.0 15.6 13.1
Research and development....... 3.0 1.9 2.1 1.6 1.8
------- ------- ------- ------- -------
Income from operations......... 5.7 11.8 17.1 14.7 25.2
Other income (expenses)........ (0.1) (0.6) (0.4) (0.4) 1.3
------- ------- ------- ------- -------
Income before income taxes..... 5.6 11.2 16.7 14.3 26.5
Income taxes................... 2.4 4.9 7.0 6.1 10.6
------- ------- ------- ------- -------
Net income..................... 3.2% 6.3% 9.7% 8.2% 15.9%
======= ======= ======= ======= =======
</TABLE>
- --------
(1) Percentages related to cost of sales represent percentages of each revenue
category and, as a result, are not additive.
THREE MONTHS ENDED MARCH 31, 1994 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Revenues
Revenues for the first quarter of 1994 were $6,043,000 compared to $15,206,000
in the first quarter of 1995. Caller ID revenues were $5,087,000 in the first
quarter of 1994 compared to $14,430,000 in the first quarter of 1995, with
approximately 67% of the increase being generated by sales and 33% from
leasing. The growth in Caller ID revenues was primarily a result of higher
sales volume of Caller ID units and continued expansion of
14
<PAGE>
the US West leasing program. This growth was stimulated by increased
availability and acceptance of Caller ID service resulting from additional
state regulatory approvals and marketing and promotional campaigns conducted
by telcos and the Company. Service revenues declined from $847,000 in 1994 to
$711,000 in 1995 due to the substantial completion of one repair contract and
the timing of certain non-recurring projects.
Cost of Sales and Gross Profit
Cost of sales increased from $4,117,000 in the first quarter of 1994 to
$9,101,000 in the first quarter of 1995 due to costs associated with the
increases in both sales and leasing of Caller ID units. Gross profit margin
derived from sales of products increased from 26% in the first quarter of 1994
to 31% in the first quarter of 1995, primarily as a result of changes in
product mix in connection with promotional activities undertaken by certain
telco customers. Gross profit margin derived from Caller ID leasing increased
from 42% in the first quarter of 1994 to 60% in the first quarter of 1995 as a
result of an increase in the number of fully depreciated units under lease,
increased leasing of higher margin units and generally lower production costs.
The combined result of these factors was the improvement in the overall gross
margin from 32% in 1994 to 40% in 1995. The Company anticipates that gross
profit margins may fluctuate due to changes in product mix, the introduction
of new products and the maturation and expansion of leasing programs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 111% from $941,000 for
the first quarter of 1994 to $1,989,000 for the same period in 1995, but
decreased from 16% to 13% of total revenues for the respective periods. The
most significant component of the expense increase was salaries and employee
related expenses resulting from an increase in personnel to support higher
business volume. The Company anticipates that personnel additions will
continue as revenue levels increase. Other major components of the increase
were commission and royalty expenses associated with higher Caller ID
revenues.
Research and Development
First quarter research and development expenses increased 190% from 1994 to
1995 primarily due to services performed by the Company's principal
manufacturer on a contract basis, the hiring of additional personnel to
support higher levels of new product development activity, research and
development activities related to the introduction of its SCWID product, and
the development of its smart telephone planned for introduction by the first
quarter of 1996.
Other Income (Expenses)
Net other expenses, consisting primarily of interest expense in 1994, was
$26,000 in the first quarter of 1994 compared to net other income of $186,000
in the first quarter of 1995. In 1994, interest expense resulted from
borrowings under the Company's revolving line of credit, which was utilized to
fund expansion of the lease base and working capital. In 1995, interest income
was earned on the unused proceeds of the Company's October 1994 Common Stock
offering.
Income Taxes
Income taxes were $368,000 in the first quarter of 1994 compared to $1,610,000
in the first quarter of 1995. The effective income tax rates decreased from
43% in 1994 to 40% in 1995 because of a change in the mix of taxable income by
state.
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
- --------------------------------------------
Revenues
Total revenues increased from $9,722,000 in 1992 to $17,439,000 in 1993 and
$36,829,000 in 1994. Caller ID revenues increased from $7,514,000 in 1992 to
$14,692,000 in 1993 and $33,234,000 in 1994. This growth,
15
<PAGE>
which was attributable primarily to higher unit sales volume and expansion of
the leasing program, was stimulated by increased availability and acceptance
of Caller ID service resulting from regulatory approvals and marketing and
promotional campaigns by telcos and the Company.
Of the $7,178,000 increase in Caller ID revenues from 1992 to 1993, $3,383,000
was generated from a leasing program implemented by the Company for US West
subscribers. Of the $18,542,000 increase in Caller ID revenues in 1994,
$8,105,000 was attributable to the US West leasing program. The success of the
leasing program resulted from additional state approvals for US West to offer
Caller ID service, combined with promotional campaigns in new and existing
areas.
Service revenues increased from $1,509,000 in 1992 to $2,247,000 in 1993 and
$3,183,000 in 1994. The growth in service revenues in 1993 and 1994 was due
primarily to new business from a telco customer. Sales of miscellaneous
telephone products declined from $699,000 in 1992 to $500,000 in 1993 and
$412,000 in 1994 as the Company continued to focus its marketing and new
product development on Caller ID.
Cost of Sales and Gross Profit
Cost of sales increased from $6,809,000 in 1992 to $12,204,000 in 1993 and
$24,228,000 in 1994 as a result of the increases in sales and leasing of
Caller ID units and increased service activity. Gross profit margin derived
from sales of products was 30% in 1992, 32% in 1993 and 28% in 1994. The
changes in gross profit margin were caused by changes in product mix among the
various models of Caller ID units being marketed by the Company. Gross profit
margin derived from Caller ID leasing was 20% in 1992, 30% in 1993 and 47% in
1994. Gross profit margin was lower in 1992 because of start up costs
associated with the leasing program. Gross profit margin for services was 33%
in 1992, 21% in 1993 and 32% in 1994. The increase in service costs in 1993
was primarily attributable to start up costs associated with a new contract
from a service customer. As a result of the foregoing factors, overall gross
profit margins were 30%, 30% and 34% for 1992, 1993 and 1994, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2,066,000 in 1992 compared
with $2,855,000 in 1993 and $5,519,000 in 1994. Higher commission and royalty
expense payable on Caller ID revenues plus an increase in customer service
staffing were the major components of the increase in 1994.
Research and Development
Research and development expenses were $296,000 in 1992 compared to $327,000
in 1993 and $782,000 in 1994. The 139% increase from 1993 to 1994 resulted
from increased product development activity by the Company and its principal
manufacturer, including work on the Company's SCWID product, integrating
Caller ID with Call Waiting.
Other Expenses
Net other expense, consisting primarily of interest expense, increased from
$9,000 in 1992 to $101,000 in 1993 and $132,000 in 1994 due to increased
borrowing under the Company's revolving line of credit. Increased borrowings
were used to fund higher levels of inventories, leased equipment and increases
in accounts receivable.
Income Taxes
Income taxes increased from $231,000 in 1992 to $849,000 in 1993 and
$2,590,000 in 1994 based on higher taxable income. The effective income tax
rate was 43% in 1992 and 1993 and 42% in 1994.
16
<PAGE>
QUARTERLY RESULTS
The following tables set forth unaudited selected financial information for
the periods indicated, as well as such information expressed as a percentage
of total revenues for the same period. This information has been derived from
unaudited consolidated financial statements which, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information. The
results of operations for any quarter are not necessarily indicative of the
results to be expected for any future period. See "Risk Factors - Variations
in Operating Results".
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
3/31/93 6/30/93 9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 12/31/94 3/31/95
------- ------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Products............... $ 2,451 $ 2,066 $ 3,051 $ 4,099 $ 3,492 $ 4,669 $ 5,898 $ 7,957 $ 9,702
Leases................. 240 709 1,080 1,496 1,704 1,945 3,452 4,529 4,793
Services............... 326 534 690 697 847 776 607 953 711
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 3,017 3,309 4,821 6,292 6,043 7,390 9,957 13,439 15,206
Cost of sales:
Products............... 1,692 1,372 2,045 2,868 2,569 3,392 4,269 5,709 6,699
Leases................. 169 507 745 1,035 986 1,119 1,828 2,204 1,921
Services............... 238 412 559 562 562 539 413 638 481
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of sales.. 2,099 2,291 3,349 4,465 4,117 5,050 6,510 8,551 9,101
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 918 1,018 1,472 1,827 1,926 2,340 3,447 4,888 6,105
Selling, general and
administrative
expenses............... 601 601 715 938 941 1,223 1,654 1,701 1,989
Research and
development............ 74 88 84 81 96 99 91 496 278
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. $ 243 $ 329 $ 673 $ 808 $ 889 $ 1,018 $ 1,702 $ 2,691 $ 3,838
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income.............. $ 137 $ 179 $ 354 $ 433 $ 495 $ 568 $ 981 $ 1,534 $ 2,414
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income per share.... $ .01 $ .02 $ .03 $ .04 $ .04 $ .05 $ .09 $ .12 $ .18
======= ======= ======= ======= ======= ======= ======= ======= =======
Fully diluted weighted
average shares
outstanding............ 10,831 10,791 10,817 11,203 11,292 11,249 11,211 13,254 13,764
======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
3/31/93 6/30/93 9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 12/31/94 3/31/95
------- ------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Products............... 81.2% 62.5% 63.3% 65.1% 57.8% 63.2% 59.2% 59.2% 63.8%
Leases................. 8.0 21.4 22.4 23.8 28.2 26.3 34.7 33.7 31.5
Services............... 10.8 16.1 14.3 11.1 14.0 10.5 6.1 7.1 4.7
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales:(1)
Products............... 69.0 66.6 67.0 70.0 73.6 72.6 72.4 71.7 69.0
Leases................. 70.8 71.1 69.0 69.0 57.9 57.5 53.0 48.7 40.1
Services............... 73.0 77.2 81.0 80.6 66.4 69.5 68.0 66.9 67.7
Total cost of sales.. 69.6 69.2 69.5 71.0 68.1 68.3 65.4 63.6 59.9
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 30.4 30.8 30.5 29.0 31.9 31.7 34.6 36.4 40.1
Selling, general and
administrative......... 19.9 18.2 14.8 14.9 15.6 16.6 16.6 12.7 13.1
Research and
development............ 2.4 2.7 1.7 1.3 1.6 1.3 0.9 3.7 1.8
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. 8.1% 9.9% 14.0% 12.8% 14.7% 13.8% 17.1% 20.0% 25.2%
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income.............. 4.6% 5.4% 7.4% 6.8% 8.2% 7.7% 9.9% 11.4% 15.9%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) Percentages related to cost of sales represent percentages of each revenue
category and, as a result, are not additive.
17
<PAGE>
Total revenues have grown during the period from the first quarter of 1993
through the first quarter of 1995, with some fluctuation between quarters.
This growth has primarily resulted from increased sales and leases of Caller
ID units, partially offset by fluctuating service activity. Income from
operations during the quarters presented has also grown, with some variation
resulting primarily from fluctuations in revenues.
The Company's quarterly operating results may fluctuate as a result of a
number of factors, some of which are beyond the Company's control. Factors
which may cause fluctuations in quarterly results include the timing of the
initiation of Caller ID or other intelligent network services by a telco; the
timing and extent of promotional activities by a telco; the rate of customer
acceptance of Caller ID and other intelligent network services; the timing and
market acceptance of new product introductions; disruptions in sources of
supply; changes in service charges by a telco; the timing and the level of
expenditures for sales, marketing and new product development by the Company
and its competitors; the effects of regulation on Caller ID and other
intelligent network services; general economic conditions; and other factors.
Because the Company operates on a relatively small backlog, quarterly sales
and operating results generally depend on the volume and timing of orders
received during or just prior to the start of a quarter. The Company's expense
levels are based in part on its forecasts of future revenue and, if such
revenue were to be below expectations, the Company's operating results could
be adversely affected. Accordingly, there can be no assurance that the Company
will be profitable in any particular quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for cash are for the acquisition of equipment for
leasing and for other equipment purchases and to fund working capital,
primarily related to inventory and accounts receivable. Inventory and accounts
receivable were $6,473,000 and $5,102,000, respectively, on December 31, 1994
compared to $2,991,000 and $2,804,000, respectively, on December 31, 1993.
Inventory and accounts receivable increased to $6,804,000 and $8,370,000,
respectively, as of March 31, 1995. The increase in inventory during 1994 and
the first quarter of 1995 was planned to ensure that units were available for
timely fulfillment of lease and sales orders. The increase in accounts
receivable of $3,292,000 in the first quarter of 1995 resulted from higher
sales and the timing of certain collections. Additions to leased equipment
from the Company's US West lease program totaled $4,043,000 for 1993,
$6,453,000 for 1994 and $1,056,000 for the first quarter of 1995. Other
machinery and equipment purchases in the first quarter of 1995 of $928,000
were made to support the Company's growth. Working capital increased from
$2,326,000 at December 31, 1993 to $23,930,000 at December 31, 1994 and
decreased to $17,518,000 at March 31, 1995. To improve the yield on its cash
and equivalent holdings, in February 1995, the Company acquired a United
States Treasury Note with a February 1997 maturity. This note is reported at
market value as a noncurrent asset held for sale and, if necessary, can be
liquidated to meet future cash requirements. Working capital, adjusted to
include the value of the Treasury Note, was $23,512,000 at March 31, 1995.
These cash requirements were financed primarily by cash provided by operations
of $2,185,000 in 1993, $4,370,000 in 1994 and $3,289,000 in the first quarter
of 1995, by the Company's credit facility and by net proceeds of $16.1 million
from a Common Stock offering completed in October 1994. In addition, the
Company maintains a $4 million line of credit under a revolving loan agreement
to meet short term cash requirements. The Company utilized $3.3 million of the
proceeds from its October 1994 stock offering to reduce its bank debt. The
Company elected to reduce the credit line from $8 million to $4 million in the
first quarter of 1995. At March 31, 1995, approximately $3.3 million of the
line of credit was available to fund drawdowns and additional letters of
credit ("LCs"). The Company issues LCs to its principal manufacturer in
connection with the purchase of inventory. Issuances of LCs result in the
utilization of available funds under the revolving loan arrangement. The loan
agreement is subject to renewal on April 30, 1996.
In order to meet the Company's needs for cash during the foreseeable future,
including cash required to fund acquisition of leased equipment, inventory
purchases, accounts receivable, new product introductions, research and
development activities and customer service, sales and marketing operations,
the Company will utilize existing cash, the proceeds from this offering, line
of credit availability and cash provided by operations.
18
<PAGE>
BUSINESS
The Company designs, develops and markets telecommunications products that
support intelligent network services being developed and implemented by the
RBOCs and other telcos. In recent years, CDT has concentrated its product
development and marketing efforts on products that support Caller ID, an
intelligent network service that allows subscribers to view the telephone
number and the directory name of a calling party before the call is answered,
and to store that information in memory. The Company also repairs and
refurbishes telecommunications products for commercial customers and provides
other services that support the development and implementation of intelligent
network services.
The Company has become a leading provider of Caller ID equipment, having sold
or leased more than 3,000,000 units. The Company is also the largest lessor of
such equipment in the United States, with over 500,000 leased units in service
as of May 31, 1995. The Company currently offers 14 models of Caller ID
adjunct units and three models of screen telephones with integrated Caller ID.
CDT also recently expanded its Caller ID business through its acquisition of
the Canadian Caller ID business of TIE/communications, Inc. ("TIE") in May
1995.
INDUSTRY BACKGROUND
General
Deregulation and technological advances have intensified competition among
existing operators of telecommunications networks and encouraged the entrance
of new service providers. In the United States, RBOCs, other telcos and long
distance carriers are increasingly competing with one another and with new
competitive service providers, such as cellular and other wireless service
networks, that have entered the local and long distance markets. RBOCs and
other telcos are responding to increasing competition by introducing value-
added, intelligent network services and lowering their cost structures.
Certain intelligent network services such as Call Waiting, Call Forwarding and
Speed Dialing have been available to telephone customers since 1968. In the
mid 1980s, Bell Communications Research, Inc. ("Bellcore") developed a series
of intelligent network services targeted to residential customers known as
Custom Local Area Signaling Services ("CLASS"). These services include Repeat
Dialing, Selective Call Forward, Automatic Call Back, Selective Call Block,
Distinctive Ringing, Call Trace and Caller ID.
In order to deploy these intelligent network services, the telcos have been
upgrading their telecommunications networks to support a set of standards,
known as the Intelligent Networks ("IN"). IN supports open, distributed
switching and processing capabilities and allows the telco to create, modify
and deploy new services quickly and economically. An important aspect of IN is
a signaling protocol called Signaling System No. 7 ("SS7"). Based upon
industry sources, the Company estimates that within the RBOCs over 70% of
telephone lines have been upgraded for SS7 capabilities.
The RBOCs and other telcos have made significant reductions in their employee
base over the past ten years and have announced additional planned reductions
over the next few years. In order to maintain a consistent level of service
with fewer employees, certain RBOCs and other telcos have outsourced certain
areas of their business, such as the marketing of intelligent network
services, telephone refurbishing operations and other functional areas. The
Company believes that further outsourcing by RBOCs and other telcos could
create significant opportunities for companies providing telecommunications
equipment and services.
Caller ID Service
Caller ID is a CLASS service that displays information about the incoming call
(including the number and name of the caller and the time and date of the
call) on a device located near the telephone (in the case of an adjunct unit)
or on a display screen located on the telephone (in the case of an integrated
Caller ID telephone). The
19
<PAGE>
actual information displayed depends on the Caller ID equipment and whether
the call is local or outside the local calling area. CDT introduced the first
commercially available Caller ID units in connection with the introduction of
such services by New Jersey Bell in 1987.
While the introduction of Caller ID provided users with significant service
benefits in terms of privacy, security, and efficiency for the user,
deployment of the service met resistance from certain state regulatory
agencies and special interest groups. As a result, the deployment of Caller ID
services is today principally limited to transferring the calling party
information between callers within the same local calling area. Calls from
outside the local calling area are currently not identified to the user of the
Caller ID service. However, on May 4, 1995, the FCC issued an order, effective
December 1, 1995, that requires all telephone service providers with SS7
switching capability to transmit calling party number information to each
other on interstate calls within the United States (except for public pay
phones and party lines). The Company believes that the FCC's action, which is
subject to certain court challenges and other objections, will make Caller ID
services more useful and more appealing to Caller ID subscribers. See
"Business - Government Regulation".
As of July 1, 1995, Caller ID is offered by telcos in all or part of 48
states. Caller ID is not yet offered in California and Hawaii, principally for
regulatory reasons. The Company estimates that the current penetration rate of
Caller ID service is approximately 6% of the total subscribers in those areas
in the United States that have Caller ID capabilities and have received
regulatory approval. The Company believes that significant growth
opportunities for products incorporating Caller ID exist in the United States
market as telcos increase their marketing efforts to provide more intelligent
network services such as Caller ID.
While Caller ID has been successful in Canada, where it has achieved 20%
penetration of available lines according to industry estimates, the service is
not yet widely available in markets outside of the United States and Canada.
The Company believes that further opportunities for Caller ID may emerge over
the long term in international markets.
Emergence of ADSI-Based Network Services
In addition to CLASS services such as Caller ID, Bellcore has developed ADSI,
a standard protocol defining the flow of voice and data information between
telecommunications network elements (such as switches, voice mail platforms
and intelligent peripherals) and a subscriber's terminal equipment (such as
screen telephones, personal computers and smart telephones). By deploying the
ADSI protocol in the telecommunications network, RBOCs and other telcos
increasingly will be able to offer additional intelligent network services and
third-party interactive applications.
New ADSI-based services will include Caller ID with Call Waiting together with
call disposition. By subscribing to Caller ID with Call Waiting, a subscriber
who receives a call waiting signal could look at the display screen on the
smart telephone and see the name and number of the calling party before
deciding whether to answer the call, send a prerecorded message telling the
calling party to wait, forward the call to voice mail or drop the line.
Additional services are expected to include home banking, on-line directory
assistance, e-mail, paging, electronic yellow pages, stock quotations, news,
weather and advanced home shopping.
The Company believes that a significant application for smart telephones will
be home banking services, as financial institutions look for solutions that
reduce the cost of doing business, provide fee-based income and strengthen
their customer relationships, and as RBOCs and other telcos seek to provide
additional intelligent network services. While the Company is seeking to
capitalize on what it believes will be market opportunities related to ADSI-
based services, such as home banking, consumer preferences are difficult to
predict, and there can be no assurance of the success of any ADSI-based
service or of the Company in introducing planned products and services in this
area.
The following diagram illustrates the evolution and increased functionality of
Caller ID through a series of display screens as they would appear on Caller
ID adjunct devices and smart telephones.
20
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Caller ID
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------ ----------------------------------------- -----------------------------------------
Caller ID Caller ID Deluxe: Name and Number Out-of-Area Caller ID
- ------------------------------------------ ----------------------------------------- -----------------------------------------
<S> <C> <C>
========================================== ========================================= =========================================
555-1234 Jones, William Jones, William
555-1234 212-555-1234
10/21 6:30 PM New Call #: 12 10/21 6:30 PM New Call #: 12 10/21 6:30 PM New Call #: 12
========================================== ========================================= =========================================
Caller ID service allows the Switch and software upgrades have Effective December 1, 1995,
consumer to view the number allowed telcos to pass both the name pursuant to an FCC order, Caller
of a calling party within and number of the calling party to ID subscribers will begin receiving
the local calling area before the Caller ID subscriber. out-of-area Caller ID information
actually answering the call. on calls originating within the
United States. See "Business --
Government Regulation".
- ------------------------------------------------------------------------------------------------------------------------------------
Caller ID + Call Waiting ("SCWID")
- ------------------------------------------------------------------------------------------------------------------------------------
[PHOTO The integration of Caller ID and Call =========================================
APPEARS Waiting allows a subscriber to view the Jones, William
HERE] name and number of a calling party as the
Call Waiting signal is delivered. The 212-555-1234
consumer must subscribe to both services
and purchase a SCWID Caller ID unit. 10/21 6:30 PM New Call #: 12
=========================================
- ------------------------------------------------------------------------------------------------------------------------------------
ADSI-Compatible Telephone
- ------------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
PHOTO APPEARS HERE ===============================================================================
talking to: call from:
Jones, William Smith, Jane
212-555-1234 617-555-2345
answer the call send hold message
route to voice mail send busy message
===============================================================================
-----------------------------------------------------------------------------------------
The Company's smart telephone products will support the ADSI
protocol and will increase the functionality of integrated Caller ID and
Call Waiting by enabling sophisticated call disposition features giving
consumers greater flexibility in how they communicate. The
Company's first smart telephone is expected to be available by the first
quarter of 1996. See "Business -- Products and Services".
</TABLE>
21
<PAGE>
STRATEGY
The Company's principal business objective is to be a leading provider of
telecommunications equipment that supports the deployment of intelligent
network services. The Company also seeks to provide services to the RBOCs and
other telcos that assist in the rapid deployment and penetration of
intelligent network services, including Caller ID, and enhance the Company's
overall working relationships with its RBOC and other telco customers. The
Company considers the following to be important elements of its strategy:
Enhance Relationships with RBOCs and other Telcos
CDT focuses on providing RBOCs and other telcos with innovative products which
support intelligent network services, marketing and support services for those
products and repair and refurbishing of telecommunications equipment. The
Company believes that by developing broad relationships with its RBOC and
other telco customers, it will be able to provide an increasing number of
products and services to these customers.
Assist RBOCs in Increasing the Penetration of Intelligent Network Services
The RBOCs are seeking to increase the penetration of intelligent network
services in order to generate increased revenue per subscriber and strengthen
customer relationships in an increasingly competitive environment. The Company
not only provides equipment, but also provides marketing, fulfillment and
leasing programs to its RBOC and other telco customers. These services enable
RBOCs and other telcos to outsource non-strategic functions of their business
to CDT and reduce their operating costs.
Expand Leasing Programs with RBOCs and other Telco Customers
In 1992, the Company entered into a leasing agreement with US West, whereby
the Company leases Caller ID units directly to US West customers. The leasing
program enables subscribers to pay a monthly fee for the service and the
equipment and provides CDT with a stream of recurring revenues. This program
has grown from 9,000 leased units in service in 1992 to more than 500,000
leased units in service as of May 31, 1995. The Company seeks to expand its
leasing program with US West and to other RBOCs and telcos. In addition, the
Company believes that leasing will be an increasingly attractive option for
telcos and telco customers for higher-priced equipment, such as ADSI-
compatible smart telephones.
Provide High Quality, Innovative Products at Low Cost
The Company seeks to increase consumer demand for intelligent network services
by offering high quality products that are innovative, easy to use and
aesthetically pleasing. The Company's new product efforts are focused on
developing additional product features, enhancements to existing products and
new products. The Company recently introduced its SCWID unit, which integrates
Caller ID with Call Waiting, and has entered into a strategic partnership with
US Order to provide RBOC and telco customers with ADSI-compatible smart
telephones.
The Company focuses on providing low cost products by integrating its product
designs and engineering methods to reduce the cost and number of components,
while maintaining quality and reliability. When possible, the Company
integrates the functionality of multiple components onto an ASIC chip to
reduce the per unit cost of its products. In addition, the Company's smart
telephones, which are being developed in conjunction with US Order, will use
proprietary digital signal processing (DSP) architecture that will allow the
product to be manufactured with fewer components than other currently
available smart telephones.
Identify Complementary Joint Venture and Acquisition Opportunities
The Company has identified joint venture and acquisition opportunities to
complement and enhance its strategy of supporting its RBOC customers in their
deployment of intelligent network services.
22
<PAGE>
. In 1995, the Company acquired the Canadian Caller ID business of TIE,
facilitating CDT's ability to market Caller ID adjunct devices,
integrated Caller ID telephones and Caller ID answering machines in
Canada, to widen its product offerings, strengthen its product
development capability and add manufacturing capacity.
. The Company recently formed Worldwide Telecom Partners, Inc. ("Worldwide
Telecom") pursuant to a joint venture with Barry Blau & Partners, Inc.
for the marketing of intelligent network services to end users on behalf
of the RBOCs and other telcos.
. The Company entered into a strategic alliance with US Order to
manufacture and market smart telephones designed to support ADSI-
compatible network services and interactive applications such as home
banking, national directory assistance, catalogue shopping and prepaid
long distance.
PRODUCTS AND SERVICES
Since introducing the first commercially available Caller ID unit in 1987, the
Company has developed and marketed Caller ID products with increased
functionality to meet the needs of its RBOC and other telco customers. During
the years ended December 31, 1992, 1993 and 1994 and the three months ended
March 31, 1995, 77%, 84%, 90% and 95%, respectively, of the Company's revenues
were derived from sale and leasing of its Caller ID units.
Entry Level Caller ID Adjunct Devices
The Company provides low-priced, entry level Caller ID devices primarily to
support RBOC marketing and promotional campaigns in which a telco may give
away or subsidize the purchase of a Caller ID adjunct device when a consumer
subscribes for the service. The units display only the number of an incoming
call and are capable of storing calling information for up to 50 calls. The
Company believes that RBOCs utilize lower-priced products to reduce the
initial consumer expenditure required to obtain the service and, as a result,
may subsequently achieve higher penetration rates for Caller ID in selected
markets.
Full-Featured Caller ID Adjunct Devices
The Company's full-featured products display all transmitted information
before the incoming phone call is answered and store this information in
memory. Among the features available on the Company's full-featured products
are memory capacity for up to 94 calls, a "blocked call"/"new call" light, a
patented "Block the Blocker" feature, a bilingual display and a "message
waiting alert" light that indicates to a network voice mail subscriber that a
new voice mail message has been received. "Block the Blocker" is a feature
that detects when call block is used by a caller, provides a message to that
caller that the Caller ID subscriber does not accept blocked calls and
disconnects the call. The Company's full-featured Caller ID adjunct devices
have suggested retail prices of $49.99 to $79.99.
Integrated Phones and Answering Machines
Recently, the Company has begun to market a line of telephones with integrated
Caller ID functionality. In the fourth quarter of 1995, the Company plans to
introduce a digital answering machine with Caller ID functions. The Company's
integrated telephones have suggested retail prices of $69.99 to $109.99.
SCWID (Integrated Caller ID and Call Waiting)
The integration of Caller ID and Call Waiting allows a subscriber to both
services to view the directory name and telephone number of an incoming call
as the Call Waiting signal is delivered. The Company's SCWID adjunct device
also allows a consumer to store approximately 85 names and numbers in memory.
The Company has applied for a patent for its SCWID technology. The Company has
shipped limited quantities of its SCWID adjunct device to US West customers
for evaluation and market trials. US West is currently conducting such trials
with this device in certain service areas. The SCWID adjunct device has a
suggested retail price of $89.99.
23
<PAGE>
ADSI-Compatible Smart Telephones
The Company is developing ADSI-compatible smart telephones in conjunction with
its strategic alliance partner, US Order. The Company believes that this
alliance will help strengthen the Company's product offerings for the next
generation of intelligent network capability. CDT's smart telephone products
will be ADSI-compatible and will feature a backlit display screen capable of
displaying text and graphics, an embedded CPU, a QWERTY keyboard, a magnetic
stripe card reader and memory. The Company expects to offer its smart
telephone by the first quarter of 1996 at a suggested retail price point of
$200 or less.
The Company's smart telephone is designed not only to simplify the use of
existing intelligent network services, but also to support new network
services such as integrated Caller ID and Call Waiting with call disposition
and to support interactive applications such as home banking, catalogue
shopping, national directory assistance, e-mail and paging. CDT believes that
the marketing of smart telephones will be actively supported by RBOCs and
other telcos which are seeking to offer intelligent network services to their
customers, and by banks which are seeking to reduce costs through the adoption
by consumers of home banking services.
Under the Company's strategic alliance with US Order, the Company has agreed
that until January 17, 2000, all smart telephones that it produces and sells
to telcos will be pursuant to the US Order agreement. During the term of the
agreement, the Company will manufacture and exclusively market the smart
telephone to telco customers. For each such smart telephone that the Company
sells or leases through December 31, 1997, the Company will pay US Order a
royalty of 10% of the sale or lease price, with the royalty thereafter subject
to annual good faith renegotiations. The strategic alliance may be terminated
by the Company if the smart telephone under development is not available for
commercial distribution by April 1, 1996. The agreement grants US Order the
right to manufacture and exclusively market ADSI-compatible smart telephones
outside of the telco market, and provides that US Order will pay CDT a royalty
of 10% of the sale or lease price for each such sale or lease. US Order may
terminate the strategic alliance agreement if the Company ceases to distribute
telecommunications products to at least four telcos during any twelve-month
period. CDT will exclusively purchase from US Order and resell interactive
applications made available by US Order, such as national directory assistance
and home catalogue shopping.
In accordance with the Company's strategic alliance agreement with US Order,
and an exchange agreement entered into on April 6, 1995, the Company exchanged
170,743 shares of the Company's Common Stock for 230,000 shares of common
stock of US Order with an equivalent fair market value. The agreement also
provides for the Company and US Order to exchange up to an additional $3
million in fair market value of each other's common stock in April 1996 with a
maximum of 200,000 shares.
Services
For a number of years, the Company has provided telephone repair and
refurbishment services to RBOCs, other telcos and certain telephone equipment
manufacturers for a wide variety of telecommunications products, including
corded and cordless telephones, key telephone business systems, coin
telephones and leased telephone products. In 1994, more than 100,000 units of
telecommunications equipment were repaired or refurbished by the Company. The
Company believes that its capabilities in this area have strengthened its
relationship with the RBOCs and other telcos. Among the current customer base
are AT&T, Southern New England Telecommunications Corp. ("SNET"), TIE, Nitsuko
America Corp. and Sears, Roebuck & Co. ("Sears").
Additionally, through its joint venture, Worldwide Telecom, the Company seeks
to market intelligent network services to end users on behalf of RBOCs. This
joint venture commenced activity in May 1995 with an engagement from Bell
Atlantic Corp. ("Bell Atlantic") to market Caller ID services to Bell Atlantic
customers in New Jersey. See "Business - Marketing and Distribution".
MARKETING AND DISTRIBUTION
The Company markets its products and services through a direct sales force of
nine employees, supported by its marketing department, and currently uses nine
independent sales representative firms.
24
<PAGE>
The Company's distribution strategy is to make its products available to
potential end users through multiple distribution channels described below.
Direct Fulfillment Arrangements
The Company sells telecommunications products to RBOC and other telco
subscribers through direct fulfillment arrangements with US West, NYNEX, Bell
Atlantic, Ameritech Corp. ("Ameritech"), Frontier Corporation ("Frontier") and
BellSouth. In addition, the Company leases products on a direct fulfillment
basis to customers of US West. In most instances, the telco representatives
market both Caller ID service and CDT equipment to subscribers and transmit
equipment orders to CDT electronically on a daily basis. The Company then
ships its equipment directly to the subscribers and bills the telco, which, in
turn, bills its subscribers directly or through a third party. As part of
promotional campaigns, some RBOCs may elect to purchase Caller ID units from
the Company and distribute them to their subscribers free of charge. The
Company provides an 800 number service and support to help the subscriber
understand how to utilize the Caller ID service and equipment.
The Company continually seeks to strengthen its current telco marketing
alliances and to develop new alliances. The Company believes that marketing of
Caller ID service and equipment is more successful when the subscriber can
subscribe to Caller ID service and purchase or lease Caller ID equipment from
a single source, especially when payment for equipment can be made either on
an installment basis or by monthly lease payments through the subscriber's
phone bill. The Company believes that subscriber satisfaction with Caller ID
service is enhanced when the subscriber receives Caller ID equipment promptly
after ordering the service and is provided an 800 number for service and
support.
Direct Marketing on Behalf of Telcos
On May 16, 1995 the Company entered into a joint venture agreement with the
direct marketing firm of Barry Blau & Partners, Inc. The joint venture will
operate through a newly formed and jointly owned corporation, Worldwide
Telecom. The Company owns 50% of the joint venture. The joint venture
agreement is terminable by either party upon sufficient advance notice to the
other to enable Worldwide Telecom to complete performance of any outstanding
contracts with telcos.
The purpose of the joint venture is to provide telecommunications products
combined with marketing services to the telecommunications and other
appropriate industries. The Company believes that outsourcing of certain
marketing functions by RBOCs and other telcos may increase as they restructure
or downsize their businesses. It is anticipated that Worldwide Telecom will
engage in marketing to telco customers through direct mail and telemarketing
and provide direct fulfillment for product orders.
In May 1995, Worldwide Telecom was engaged to market Caller ID services to
Bell Atlantic customers in New Jersey. Worldwide Telecom recently completed
its first mailing of approximately 1,000,000 pieces of direct mail advertising
and is currently conducting outbound telemarketing to potential Caller ID
customers among Bell Atlantic subscribers.
Direct Sales to Telcos
Through its direct sales force and sales representatives, the Company sells
Caller ID units in quantity to a number of telcos, including BellSouth, NYNEX,
Bell Atlantic and others, either under the CDT name or the respective telco's
trade name. The Company, through the Canadian Subsidiary, sells its products
directly to Bell Canada Inc. and to other telcos in Canada.
Retail/Private Label Customer Sales
The Company sells Caller ID units to national, regional and local retailers
and private label customers. A substantial portion of the Company's retail
sales are made through manufacturers' representatives or distributors
25
<PAGE>
with the support of the Company's sales personnel. The Company's private label
customers include Gemini Industries, Inc., Recoton Corp. and Northern Telecom.
The Company's retail customers include Sears and Home Depot Inc. in the United
States and Consumers Distributing Co. and Price/Costco Inc. in Canada.
PRODUCT DEVELOPMENT
The Company's product development efforts are focused on new products that
support intelligent network services, product enhancements, international
standards compliance and the continued improvement of hardware components to
reduce manufacturing costs. The Company's product development group is
experienced in engineering products for high-volume assembly, stressing low-
cost manufacturing design while maintaining quality, consistency and
reliability. The Company's products utilize proprietary electrical, mechanical
and software design.
The Company has a strategic alliance agreement with US Order pursuant to which
the Company and US Order will jointly develop and the Company will manufacture
and sell to telco customers smart telephones based on the ADSI protocol. See
"Business - Products and Services".
In 1992, 1993 and 1994 and for the three months ended March 31, 1995, the
Company's research and development expenditures were $296,000, $327,000,
$782,000 and $278,000, respectively.
At June 1, 1995, nine employees were engaged in product development including
five in the Company's New Milford, Connecticut facility and four in the
Company's Brampton, Ontario, Canada facility. On September 15, 1994, the
Company entered into an agreement with Standard Telecommunications Ltd. of
Hong Kong ("STL"), an affiliate of the Company's principal manufacturer, to
provide additional design, engineering and product development support
services to the Company on a subcontract basis. In addition, the Company
expects to increase the number of personnel devoted to product development
efforts.
There can be no assurance that the Company's product development efforts will
result in commercially successful products, or that the Company's products
will not be rendered obsolete by changing technology or new product
introductions by others. See "Risk Factors - Technological Considerations".
MANUFACTURING
The Company presently uses STL and certain of its affiliates, which have ISO
certified facilities located in Hong Kong and the People's Republic of China,
to manufacture its Caller ID units and substantially all of its other
products. These facilities are supplemented, in part, by limited manufacturing
facilities in Connecticut and Canada. The availability or cost of the
Company's products may be adversely affected by political, economic or labor
conditions in the countries where those products are manufactured, including
the 1997 return of Hong Kong to China, by fluctuations in currency exchange
rates and by other factors. In addition, a change in the tariff structure or
other trade policies of the United States could adversely affect the Company's
foreign manufacturing strategies.
The Company does not have any production contracts with its assembly
contractors. The Company's manufacturer performs comprehensive inspection and
statistical process control testing, utilizing the Company's internally
designed automated testing equipment. To date, the Company has not experienced
significant returns of defective products. See "Risk Factors - Dependence on
Foreign Production; Limited Sources of Supply".
In May 1995, the Company, through its Canadian Subsidiary, acquired certain
assets of TIE's Canadian subsidiary related to TIE's Canadian Caller ID
business. In connection with that acquisition, the Company entered into a
sublease for a facility in Brampton, Ontario, Canada and hired 15 people to
staff the Company's operations from such facility. In addition to design and
sales functions, the facility supports manufacturing capability sufficient to
supply its needs for the Canadian market.
26
<PAGE>
In the United States, the Company's manufacturing operations are limited to
the testing, quality control and shipping of finished products and the
purchase and inventory management of two key components of the Company's
products.
The key components used in the Company's products are currently being
purchased from two sources, except for its ASIC chips, which are purchased
from a single source. The only supply contract to which the Company is a party
is with the maker of its ASIC chips. The Company has no other supply contracts
for its components. Although the Company believes it could develop other
sources for each of the components for its products, the process could take
several months, and the inability or refusal of any such source to continue to
supply components could have a material adverse effect on the Company pending
the development of an alternative source. The Company is working with another
ASIC supplier to design and develop a new ASIC chip to help meet future
production requirements.
COMPETITION
The market for the Company's products and services is highly competitive and
subject to rapid technological change. At present, the Company's principal
competitors are CIDCO, AT&T and Northern Telecom. The Company's Caller ID
products also compete with Caller ID telephones offered by Panasonic, Sony and
Thomson. The smart telephone intended to be marketed by the Company through an
alliance with US Order is subject to competition from smart telephones
marketed by Philips, AT&T and Northern Telecom as well as other emerging
platforms for interactive applications delivered through personal computers
and cable television. The Company expects competition to increase in the
future from existing and new competitors, possibly including telcos or other
current customers, from network switch-based services and from the increased
application of cellular technology. The Company's primary current and
potential competitors in the market for products that support intelligent
network services have substantially greater financial, marketing and technical
resources than the Company. Increased competition could materially and
adversely affect the Company's results of operations through price reductions
and loss of market share.
The Company competes with a large number of competitors for its repair
services and other services supporting the development and implementation of
intelligent network services. Several of the Company's competitors in the
market for such services have substantially greater financial, marketing and
technological resources than the Company. There can be no assurance that the
Company will be able to continue to compete successfully against its existing
competitors or that it will be able to compete successfully against new
competitors. See "Risk Factors - Competition".
The Company believes that the principal competitive factors in its markets are
knowledge of the requirements of the various RBOCs and other telcos, product
reliability, product design, the quality of its repair and support services,
customer service and support, and price relative to performance. The Company
competes in the market for products that support intelligent network services
principally on the basis of its relationships with telcos, product design and
reliability, low product pricing and emphasis on the leasing program.
GOVERNMENT REGULATION
In the United States, Caller ID and other intelligent network services offered
by telcos are subject to federal and state regulation. Although Caller ID is
currently available in 48 states, during the past several years, protests by
special interest groups and regulatory concerns regarding the privacy aspects
of the service have been effective in both slowing down the regulatory
approval process and, in most states, requiring free per-call or per-line call
blocking to be offered by the telcos, thereby allowing a caller to prevent the
display of his or her name and number. As of July 1, 1995, Caller ID service
was not available in California and Hawaii.
In most states, the telcos have been instrumental in gaining regulatory
approval of the service and have sought to address privacy concerns by
offering a "call blocking" service. However, in certain states, regulatory
delays have caused telcos to postpone the introduction of Caller ID service
and in others, such as California, telcos have chosen not to introduce the
service because of the undue burden of restrictions proposed by regulatory
authorities.
27
<PAGE>
On May 4, 1995, the FCC issued an order which requires that, effective
December 1, 1995, all U.S. telephone service providers with SS7 switching
architecture must transmit to each other without charge Caller ID number
information on interstate calls within the United States (except for public
payphones and party lines). The FCC's order also requires that telcos that
offer Caller ID service must provide to their telephone subscribers without
charge a per-call blocking mechanism to block the transmission of their Caller
ID information on interstate calls and must inform subscribers that their
telephone numbers may be identified to a called party and how to use this
blocking capability.
Although the FCC order mandates implementation after December 1, 1995, no
assurance can be given that the service will be available to residential
subscribers after that date, if at all. Several factors may delay, prevent or
substantially limit the implementation or market acceptance of Caller ID. For
example, state regulatory approval must be received before the service can be
offered, and the availability of Caller ID service in a particular area
requires end-to-end interconnection of SS7 networks between telcos and other
carriers. Further, the FCC order requires telcos to offer free per-call
blocking for interstate calls to all customers to protect privacy interests
and permits state public utility commissions to authorize per-line blocking
for interstate calls. Such blocking, if widely adopted, could limit the
usefulness and marketability of the Caller ID service. The California Public
Utilities Commission and AT&T have filed petitions for review in federal
court, which have been consolidated, challenging portions of the FCC order.
Certain other parties have also objected to or sought clarification of
portions of the FCC order. Caller ID service may in the future be subject to
further state and federal legislation and regulation and court challenges. The
Company is unable to predict what effect, if any, further regulation, court
challenges or other objections may have on the FCC order or Caller ID service.
In Canada, the Canadian Radio-television and Telecommunications Commission
regulates Caller ID and intelligent network services. The Company believes
that Canadian regulation of telecommunications devices for intelligent network
services is not more burdensome than regulation in the United States. In
Canada, Caller ID service is available on a national and local basis on
networks with SS7 architecture. See "Risk Factors - Regulation".
PATENTS, PROPRIETARY RIGHTS AND LICENSES
The Company holds limited patent or registered intellectual property rights
with respect to its products. The Company has been issued a patent for its
"Block the Blocker" feature. The Company has also applied for a patent on its
SCWID product. However, there can be no assurance that a patent will be issued
to the Company for its SCWID product or that such patent, if issued, will
afford effective protection of the Company's technology. The Company also
believes that, because of the rapid pace of technological change in the voice
and data communications market, the knowledge, ability and experience of the
Company's employees, the frequency of product enhancements and the quality of
support services provided by the Company will all contribute to the Company's
success.
The Company additionally relies on trade secret laws to establish and maintain
its proprietary rights to its products. Although the Company has obtained
confidentiality agreements from its key executives and engineers in its
product development group, there can be no assurance that third parties will
not independently develop the same or similar alternative technology, obtain
unauthorized access to the Company's proprietary technology or misuse the
technology to which the Company has granted access.
A portion of the messaging technology used in the Company's Caller ID products
is licensed from AT&T on an exclusive basis. However, AT&T reserved to itself
and its subsidiaries the right to use the technology for all purposes relating
to its and its subsidiaries' businesses. AT&T's Caller ID patents are licensed
by AT&T to the Company and others, including the Company's competitors. AT&T
receives royalties from sales and leases of the Company's Caller ID products
other than to AT&T. The Company incurred royalty expense of $277,000, $684,000
and $285,000 in 1993, 1994 and the three months ended March 31, 1995,
respectively. The AT&T license agreement has no expiration date but is
terminable by AT&T for breach on two months' written notice unless within such
time all specified breaches have been remedied. If the AT&T license were
terminated and the Company were unable to negotiate a new patent license
agreement with AT&T, the Company would no longer be authorized to manufacture
or sell Caller ID products in the United States other than to the RBOCs and to
AT&T. Additionally, under the agreement, CDT granted AT&T a non-exclusive,
royalty-free license to all patents on inventions which are improvements or
modifications based upon the technology licensed from AT&T.
28
<PAGE>
LITIGATION
The Company is not a party to any material legal proceedings.
EMPLOYEES
At June 1, 1995, the Company employed 129 full-time persons, of whom 62 were
engaged in repair and manufacturing, nine in product development, nine in
sales and marketing, 24 in customer service, 12 in operations and 13 in
management, finance and administration. The Company has no collective
bargaining agreement with its employees and believes that its relationship
with its employees is good. See "Risk Factors - Management of Growth;
Dependence on Key Employees".
PROPERTIES
The Company maintains its principal administrative, development and support
facility at a building located in New Milford, Connecticut which consists of
approximately 63,000 square feet. The Company leases this facility under a
lease dated as of September 1, 1994 that expires in August 2004. The rent is
$2.20 per square foot per year plus taxes, operating expenses and insurance.
The Company's lease includes an option to purchase the building at fair market
value as defined in the lease at any time from July 1, 1999 until the
expiration of the lease. The Company believes that the New Milford facility is
suitable and adequate for the current and foreseeable future business of the
Company.
The facility is owned by Cee Associates Limited Partnership, a partnership in
which Robert J. Schock, Chief Executive Officer of the Company, and
Constantine S. Macricostas and Frederick P. Masotta, Jr., directors of the
Company, are limited partners and the Company is the sole general partner. The
limited partners have a 99% interest in the partnership. Rent paid by the
Company to the partnership for the year ended December 31, 1994 was
approximately $125,000. The Company believes that the lease terms are no less
favorable than those available from a disinterested third party. Financing for
the acquisition of the facility by the partnership in 1983 was provided
through industrial development bonds issued by the Connecticut Development
Authority. The outstanding principal amount of the bonds was approximately
$1,400,000 at March 31, 1995. The bonds are secured by a mortgage on the
facility but are non-recourse to the partnership. As a result of a default by
another tenant in the building under its lease, the former bondholder declared
a default under the bonds and commenced a foreclosure proceeding with respect
to the facility. In connection with the settlement of the foreclosure
litigation, a company owned 97% by Walter M. Fiederowicz, a director and
chairman of the Company, and 1% each by Robert J. Schock, Frederick P.
Masotta, Jr. and Constantine S. Macricostas, agreed to purchase the bonds in
an arm's-length transaction with the bondholder for $550,000. The company
which purchased the bonds also paid approximately $100,000 in property taxes
owing with respect to the facility. As an accommodation while that company
secured financing, the Company briefly acquired the bonds in the settlement in
June 1994, and then transferred the bonds in the same month to the new
bondholders at cost. The foreclosure litigation was withdrawn in connection
with the settlement without the admission of any liability on the part of the
Company. The Company believes that the value of the facility is substantially
less than the outstanding principal amount of the bonds.
Certain environmental contamination occurred in the part of the facility
formerly occupied by another tenant and the Connecticut Department of
Environmental Protection ("DEP") performed a clean-up and removed such
contamination. The DEP notified Cee Associates Limited Partnership in the
first quarter of 1994 that it is a responsible party for the costs of the
environmental clean-up performed at the facility and demanded payment by the
partnership of $125,000. The Company has not received any notice of any
violation of environmental laws by the Company or any notice of any direct
claim against the Company associated with the contamination or clean-up at the
facility. The Company does not believe that the foregoing will have a
materially adverse effect on the Company.
The Company also maintains a manufacturing, research and sales facility in
Brampton, Ontario, Canada which consists of 15,750 square feet. The Company
leases this facility under a sublease dated on May 1, 1995 that expires
October 31, 1996. The rent is $5.75 (Canadian) per square foot per year plus
taxes, operating expenses and insurance.
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<PAGE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert J. Schock(1)(2)....... 54 President, Chief Executive Officer and
Director
Walter M. Fiederowicz(2)..... 48 Chairman of the Board of Directors
Joseph W. Cline.............. 46 Vice President - Sales and Marketing
Daniel V. Cusack............. 48 Senior Vice President
John N. Giamalis............. 37 Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary
William L. Nutter............ 59 Vice President - Research, Development and
Engineering
Frederick P. Masotta,
Jr.(1)(3)................... 63 Director
Constantine S.
Macricostas(3).............. 60 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Executive Committee.
(3) Member of Audit Committee
ROBERT J. SCHOCK has served as President and Chief Executive Officer of the
Company since September 1989 and as President of the Delaware Subsidiary since
1981. From 1977 to 1980, Mr. Schock was director of national operations for
ICOT Corporation, a telecommunications equipment manufacturer. From 1966 to
1977, Mr. Schock held a variety of positions with Xerox Corporation, including
product manager, regional sales operations manager and regional manager for
microsystems.
WALTER M. FIEDEROWICZ has been Chairman of the Board of Directors since August
1994, a director of the Company since September 1989 and a director of the
Delaware Subsidiary since 1985. From 1979 to December 1988, Mr. Fiederowicz
was a partner of the law firm of Cummings & Lockwood and served as counsel to
that firm from December 1988 until September 1990. From January 1991 until
July 1994, he held various positions, including chairman, and served as a
director of Conning Corporation, the parent company of an investment firm. He
is also a director of Photronics, Inc., a photomask manufacturer. Mr.
Fiederowicz was chairman and director of Covenant Mutual Insurance Company, a
property and casualty insurance company ("Covenant") from 1989 until March
1993, and was president and chief executive officer of Covenant from 1989
until December 1992. Covenant was placed in rehabilitation by the Insurance
Commissioner of the State of Connecticut in 1993 and subsequently liquidated
as a result of losses in connection with insurance claims relating to
Hurricane Andrew. Mr. Fiederowicz is a director of Barry Blau & Partners, Inc.
and trustee of its employee stock ownership plan.
JOSEPH W. CLINE has served as Vice President - Sales and Marketing since
January 1995. Previously, Mr. Cline was President of SNET's Deregulated
Products Group where he led SNET's customer premises and equipment business on
a regional and national basis. Mr. Cline has more than 20 years of experience
in the telecommunications industry, having held positions in systems planning
and development, product management and development, sales and marketing and
management with SNET.
DANIEL V. CUSACK has served as Senior Vice President of the Company since May
1995, as Vice President - Manufacturing from September 1989 to May 1995 and as
Vice-President of Manufacturing of the Delaware Subsidiary since January 1981.
From 1976 to 1980, Mr. Cusack was a field service manager of ICOT Corporation.
JOHN N. GIAMALIS has served as Vice President, Finance, Treasurer, Chief
Financial Officer and Secretary since May 1995 and was Director of Finance for
the Company from March 1995 to May 1995. From 1992 to 1995 Mr. Giamalis was
the Vice President and Treasurer of Connecticut National Life Insurance
Company where he served as its principal financial officer. From 1990 to 1992
and 1983 to 1985, Mr. Giamalis held positions with
30
<PAGE>
the Travelers Corporation, including Director of Corporate Financial Planning.
From 1985 to 1990, he was with Deloitte & Touche LLP, holding the position of
Senior Audit Manager from 1987 to 1990.
FREDERICK P. MASOTTA, JR. has been a director of the Company since September
1989 and a director of the Delaware Subsidiary since 1981. For more than the
last five years he has been president of Craftsmen, Inc., a privately-held
construction company.
CONSTANTINE S. MACRICOSTAS has been a director of the Company since September
1989 and a director of the Delaware Subsidiary since 1987. Since 1974, Mr.
Macricostas has served in several positions including as chairman and chief
executive officer of Photronics, Inc., a photomask manufacturer. He also
serves as a director of Nutmeg Federal Savings and Loan Association and Orbit
Semiconductor Inc., a semiconductor manufacturer.
WILLIAM L. NUTTER has served as Vice President - Research, Development and
Engineering of the Company since December 1989. Prior thereto, Mr. Nutter was
employed by AT&T for 28 years in a number of positions. Immediately prior to
joining the Company, Mr. Nutter served as Manager of Terminal Product
Development for AT&T Network Systems.
The Audit Committee is responsible for recommending the independent auditors
for the Company and consults with and reviews the services provided by the
Company's independent auditors.
The Compensation Committee reviews and recommends to the Board the
compensation and benefits of all officers of the Company. The Compensation
Committee also administers the Company's 1983 Stock Option Plan and 1994 Long-
Term Incentive Plan.
The Executive Committee is authorized to exercise the powers of the Board of
Directors during intervals between Board meetings, subject to limitations set
by the Board and the Company's By-Laws. The Executive Committee's approval of
any extraordinary transactions is subject to Board ratification.
All directors hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualified. Executive officers are
appointed by and serve at the discretion of the Board of Directors. There are
no family relationships among any of the directors or executive officers of
the Company. Directors are entitled to receive a fee of $800 per meeting.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the aggregate and
percentage ownership of the Company's Common Stock as of May 31, 1995, and as
adjusted to reflect the sale of 2,300,000 shares of Common Stock offered
hereby by the Company and the Selling Stockholders pursuant to this offering,
by (i) each holder known by the Company to beneficially own more than five
percent of the Company's Common Stock, (ii) each of the Company's directors,
(iii) all directors and executive officers as a group and (iv) each Selling
Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)(2)
-------------------------- SHARES TO BE ----------------------
NUMBER SOLD IN NUMBER
5% STOCKHOLDERS OF SHARES PERCENT OFFERING(2) OF SHARES PERCENT
- --------------- ------------ --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Photronics, Inc......... 854,755 6.3% 225,000 629,755 4.1%
1061 East Indian Town
Road
Jupiter, FL 33477
DIRECTORS
Robert J. Schock........ 1,054,295(3) 7.8 150,000 904,295 5.9
Frederick P. Masotta,
Jr. ................... 744,526(4) 5.5 50,242 694,284 4.6
Walter M. Fiederowicz... 278,416(5) 2.0 75,000 203,416 1.3
Constantine S.
Macricostas............ 140,590(6) 1.0 75,000 65,590 *
OTHER SELLING
STOCKHOLDERS
Daniel V. Cusack........ 410,840(7) 3.0 75,000 335,840 2.2
David S. Allsopp........ 65,420 * 24,670 40,750 *
Robin Davis............. 37,005(8) * 37,005 -- --
John R. Lakian.......... 37,004 * 37,004 -- --
George R. Begley........ 37,004 * 7,004 30,000 *
Joseph DeFelice......... 27,137(9) * 27,137 -- --
Jan Pilkington-Miksa.... 17,004 * 12,004 5,000 *
Robert M. Wallace....... 4,934(10) * 4,934 -- --
Directors and executive
officers as a group (8
persons)............... 2,765,100(11) 20.1 425,242 2,339,858 15.3
</TABLE>
- --------
* Less than one percent.
(1) Except as otherwise indicated, the named person has the sole voting and
investment power with respect to the shares of the Company's Common Stock
set forth opposite each person's name, subject to the information
contained in the footnotes to the table; gives effect to the issuance of
170,743 shares of Common Stock by the Company on June 9, 1995 in exchange
for 230,000 shares of US Order common stock. See "Business - Products and
Services" .
(2) Assumes no exercise of the Underwriters' over-allotment option to
purchase up to an aggregate of 345,000 shares of Common Stock [145,000
shares from the Company and 200,000 shares from Photronics, Inc. (25,000
shares); Margaret A. Schock (75,000 shares); Frederick P. Masotta, Jr.
(25,000 shares); Daniel V. Cusack (37,500 shares); and Geraldine
Fiederowicz (37,500 shares)].
(3) Includes 480,295 shares held by his wife as to which Mr. Schock disclaims
beneficial ownership. Mr. Schock may be deemed to share voting and
investment power over such shares. All shares shown as being sold by Mr.
Schock are owned by his wife, Margaret A. Schock.
(4) Includes 6,522 shares for which Mr. Masotta holds options exercisable
within 60 days.
(5) Represents 278,416 shares held by his wife as to which Mr. Fiederowicz
disclaims beneficial ownership. Mr. Fiederowicz may be deemed to share
voting and investment power over such shares. All shares shown as being
sold by Mr. Fiederowicz are owned by his wife, Geraldine Fiederowicz.
Excludes all shares owned by Photronics, Inc., of which Mr. Fiederowicz
is a director but as to which Mr. Fiederowicz disclaims beneficial
ownership.
(6) Includes 100,590 shares for which Mr. Macricostas holds options
exercisable within 60 days but does not include 854,755 shares held by
Photronics, Inc., of which Mr. Macricostas is chairman of board of
directors and chief executive officer and a controlling shareholder. Mr.
Macricostas disclaims beneficial ownership of such shares. Mr.
Macricostas may be deemed to share voting and investment power over such
shares.
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<PAGE>
(7) Includes 94,500 shares held by his wife and children as to which Mr.
Cusack disclaims beneficial ownership. Mr. Cusack may be deemed to share
voting and investment power over such shares.
(8) Includes 37,005 shares for which Mr. Davis holds warrants exercisable
within 60 days.
(9) Includes 27,137 shares for which Mr. DeFelice holds warrants exercisable
within 60 days.
(10) Includes 4,934 shares for which Mr. Wallace holds warrants exercisable
within 60 days.
(11) Includes 135,445 shares for which executive officers and directors hold
options exercisable within 60 days.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $.01 par value per share.
COMMON STOCK
As of May 31, 1995, 13,421,043 shares of Common Stock were issued and
outstanding (not including 431,372 shares of Common Stock issuable upon
exercise of outstanding stock options and 86,345 shares issuable upon exercise
of outstanding warrants).
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by stockholders and do not have cumulative voting rights.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election. The Company's Board of Directors is not classified. Holders of
Common Stock are entitled ratably to dividends which may be paid out of
legally available funds (see "Dividend Policy") and any distributions of
assets remaining after payment of liabilities in the event of a liquidation,
dissolution or winding up of the Company. The holders of Common Stock have no
preemptive or subscription rights, nor are there any redemption or conversion
right provisions with respect to Common Stock. All outstanding shares of
Common Stock are fully paid and non-assessable and, upon payment therefor, the
shares of Common Stock to be issued pursuant to this offering will be fully
paid and non-assessable.
WARRANTS
As of May 31, 1995 there were outstanding warrants expiring on March 31, 1997
to purchase an aggregate of 86,345 shares of Common Stock at an exercise price
of $2.92 per share. The exercise price is subject to adjustment for stock
splits, stock dividends and certain other changes in capital structure. The
holders of the warrants and the holders of 115,682 shares of Common Stock
previously issued pursuant to the exercise of warrants have "piggy-back"
registration rights, which entitle them to include such shares in registered
offerings of securities by the Company, subject to certain conditions.
LIMITATION OF LIABILITY
The Company's Certificate of Incorporation provides that the personal
liability of the directors of the Company is eliminated to the fullest extent
permitted by the provisions of Section 102(b)(7) of the General Corporation
Law of the State of Delaware, which Section provides that the liability of a
director to the corporation or its stockholders for monetary damage for breach
of fiduciary duty as a director may be limited or eliminated, except liability
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under section 174
of the Delaware General Corporation Law or (iv) for any transaction from which
the director derived an improper personal benefit.
33
<PAGE>
The Company's Certificate of Incorporation and By-Laws further provide for the
indemnification of the Company's directors and officers to the fullest extent
permitted by the Delaware General Corporation Law.
A principal effect of these provisions is to limit or eliminate the potential
liability of the Company's directors for monetary damages arising from
breaches of their fiduciary duty of care, unless the breach involves one of
the four exceptions described in (i) through (iv) above.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 15,242,384 shares of
Common Stock outstanding (assuming no exercise of the Underwriters' over-
allotment option). All of the shares outstanding after the offering will be
freely tradeable by persons other than "affiliates" of the Company, without
restriction under the Securities Act of 1933, as amended (the "Securities
Act"), except as follows. First, the Selling Stockholders, as well as certain
other stockholders, have agreed not to offer, sell or otherwise dispose of any
of the 3,413,863 shares of Common Stock beneficially owned by them for a
period of 180 days after the date of this Prospectus without the prior written
consent of First Albany Corporation on behalf of itself and the other
Representatives of the Underwriters. In addition, 707,336 shares are
"restricted securities" within the meaning of Rule 144 under the Securities
Act, and may only be sold pursuant to a registration statement under the
Securities Act or an applicable exemption from the registration requirements
of the Securities Act, including Rule 144. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common
control with, such issuer. Sales of significant numbers of shares of the
Common Stock in the public market could adversely affect the market price of
the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities.
In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated), who has beneficially owned restricted securities
(as that term is defined in Rule 144) for at least two years from the later of
the date such securities were acquired from the Company or (if applicable) the
date they were acquired from an affiliate, is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of Common Stock (approximately 152,424
shares immediately after the offering, assuming no exercise of the
Underwriters' over-allotment option) or the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the date on which
notice of such sale was filed under Rule 144, provided certain requirements
concerning availability of public information, manner of sale and notice of
sale are satisfied. In addition, any stockholder deemed to be an affiliate of
the Company must comply with the restrictions and requirements of Rule 144,
other than the two-year holding period requirement, in order to sell shares of
Common Stock that are not restricted securities. Under Rule 144(k), if a
period of at least three years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the
date they were acquired from an affiliate of the Company, a stockholder who is
not an affiliate of the Company at the time of sale and has not been an
affiliate at any time during the 90 days prior to the sale would be entitled
to sell the shares immediately without compliance with the foregoing
requirements under Rule 144.
As of May 31, 1995, options to purchase a total of 431,372 shares of Common
Stock were outstanding under the Company's two option plans (of which options
to purchase 286,472 shares were then exercisable). An additional 342,600
shares were available for future stock option grants under the one plan which
is still effective. Options for 81,522 shares will be exercised by Selling
Stockholders in connection with this offering.
As of May 31, 1995 there were outstanding warrants to purchase an aggregate of
86,345 shares of Common Stock at an exercise price of $2.92 per share. The
holders of the warrants have "piggy-back" registration rights,
34
<PAGE>
which entitle them to include shares issuable upon exercise of the warrants in
registered offerings of securities by the Company, subject to certain
conditions. Certain holders of warrants have exercised such registration
rights in connection with this offering. After the offering, warrants to
purchase an aggregate of 17,269 shares of Common Stock will be outstanding.
The warrants expire on March 31, 1997.
The exchange agreement with US Order provides that US Order has "piggy-back"
registration rights with respect to all shares issued to US Order pursuant to
the agreement, including 170,743 shares issued in June 1995 and up to 200,000
additional shares issuable in April 1996. Beginning January 1, 1996, these
rights entitle US Order to include such shares in registered offerings of
securities by the Company, subject to certain conditions and limitations.
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company and the Selling Stockholders have agreed
to sell to them, severally, the respective numbers of shares of Common Stock
set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES OF COMMON STOCK
----------- ----------------------
<S> <C>
First Albany Corporation.............................. 766,670
NatWest Securities Limited............................ 766,665
Volpe, Welty & Company................................ 766,665
---------
Total............................................... 2,300,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions, including the absence of any material
adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of the Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
of such shares are purchased.
The Company and the Selling Stockholders have been advised that the
Underwriters propose to offer the shares of Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $0.72 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $0.10 per share to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Underwriters.
Pursuant to the Underwriting Agreement, the Company and certain Selling
Stockholders have granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 345,000
additional shares of Common Stock (145,000 shares from the Company and 200,000
shares from the Selling Stockholders) at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 2,300,000, and the Company
and such Selling Stockholders will be obligated, pursuant to the option, to
sell such shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of
Common Stock offered hereby. If purchased, the Underwriters will offer such
additional shares on the same terms as those on which the 2,300,000 shares are
being offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
35
<PAGE>
The Selling Stockholders and certain other stockholders of the Company have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of First Albany Corporation on behalf of itself and the other
Underwriters.
The Underwriters have informed the Company that the Underwriters do not intend
to confirm sales to any accounts over which they exercise discretionary
authority.
NatWest Securities Limited, a United Kingdom broker-dealer and a member of the
Securities and Futures Authority Limited, has agreed that, as part of the
distribution of the Common Stock offered hereby and subject to certain
exceptions, it will not offer or sell any Common Stock within the United
States, its territories or possessions, or to persons who are citizens thereof
or residents therein. The Underwriting Agreement does not limit sale of the
Common Stock offered hereby outside of the United States.
NatWest Securities Limited has further represented and agreed that (a) it has
not offered or sold and will not offer or sell in the United Kingdom by means
of any document, any Common Stock other than to persons whose ordinary
business it is to buy or sell shares or debentures (whether as principal or
agent) or in circumstances which do not constitute an offer to the public
within the meaning of the Companies Act 1985; (b) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Common Stock in, from or
otherwise involving the United Kingdom; and (c) it has issued or passed on and
will issue or pass on to any person in the United Kingdom any document
received by it in connection with the issue of Common Stock only if that
person is of a kind described in Article 9(3) of the Financial Services Act
1986 (Investment Advertisement) (Exemptions) Order 1988, as amended.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company and the Selling Stockholders by LeBoeuf, Lamb, Greene &
MacRae, L.L.P., Hartford, Connecticut. Certain legal matters in connection
with the offering will be passed upon for the Underwriters by Foley, Hoag &
Eliot, Boston, Massachusetts.
EXPERTS
The consolidated financial statements as of December 31, 1993 and 1994 and for
each of the three years in the period ended December 31, 1994 included in this
Prospectus and the related financial statements incorporated by reference in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and
incorporated herein by reference, and have been so included in reliance upon
the reports of such firm given upon its authority as experts in accounting and
auditing.
36
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 and files reports and other information with the
Securities and Exchange Commission (the "Commission") in accordance therewith.
Reports, proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities of
the Commission located at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at the following Regional Offices of the Commission: 7 World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Reports, proxy statements and
other information filed by the Company with the American Stock Exchange can be
inspected at such exchange.
The Company has filed with the Commission a Registration Statement on Form S-2
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, including the exhibits and schedules thereto, may be inspected at
the principal offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such materials may be obtained upon written request
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C., at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Each of (i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, File No. 0-15562, and (ii) the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1995, File No. 0-15562,
each as filed by the Company with the Commission, is incorporated in this
Prospectus by reference. Any statement contained in a document incorporated by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement.
Copies of any documents incorporated by reference in this Prospectus (other
than exhibits to such documents, unless they are specifically incorporated by
reference), may be obtained from the principal executive offices of the
Company without charge, by any person, including any beneficial owner, to whom
this Prospectus is delivered, upon oral or written request to Secretary,
Colonial Data Technologies Corp., 80 Pickett District Road, New Milford,
Connecticut 06776, telephone (203) 355-3178.
37
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUAL FINANCIAL STATEMENTS
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets, December 31, 1993 and 1994................. F-3
Consolidated Statements of Earnings for the Years Ended December 31,
1992, 1993 and 1994.................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1992, 1993 and 1994....................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1992, 1993 and 1994.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Condensed Balance Sheets as of December 31, 1994 and March
31, 1995............................................................... F-13
Consolidated Condensed Statements of Earnings for the Three Months Ended
March 31, 1994 and 1995................................................ F-14
Consolidated Condensed Statement of Stockholders' Equity for the Three
Months Ended March 31, 1995............................................ F-15
Consolidated Condensed Statements of Cash Flows for the Three Months
Ended March 31, 1994 and 1995.......................................... F-16
Notes to Consolidated Condensed Financial Statements.................... F-17
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Colonial Data Technologies Corp.
New Milford, Connecticut
We have audited the accompanying consolidated balance sheets of Colonial
Data Technologies Corp. and its subsidiary (the "Company") as of December 31,
1993 and 1994, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Colonial Data Technologies
Corp. and its subsidiary as of December 31, 1993 and 1994, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
January 19, 1995
F-2
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1993 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 11 $14,013
Accounts receivable (net of allowance of $15 in 1993 and $56
in 1994) (Note 8)........................................... 2,804 5,102
Income taxes receivable...................................... 863
Merchandise sold under contract (Note 2)..................... 699
Inventories.................................................. 2,991 6,473
Prepaid expenses............................................. 108 128
Deferred income taxes (Note 5)............................... 118 131
------- -------
Total current assets....................................... 6,731 26,710
EQUIPMENT (Note 3):
Leased....................................................... 2,638 5,001
Other........................................................ 634 754
------- -------
Total equipment............................................ 3,272 5,755
DEFERRED INCOME TAXES (Note 5)................................. 484 668
------- -------
$10,487 $33,133
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable............................................. $ 894 $ 1,497
Accrued liabilities.......................................... 516 579
Accrued salaries............................................. 268
Income taxes payable......................................... 672 263
Deferred revenue............................................. 193 173
Short-term borrowings (Note 4)............................... 2,130
------- -------
Total current liabilities.................................. 4,405 2,780
LONG-TERM BORROWINGS (Note 4).................................. 2,000
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDERS' EQUITY (Note 6):
Common stock, par value $.01, authorized 12,500,000 shares in
1993 and 20,000,000 shares in 1994, issued and outstanding
9,948,300 shares in 1993 and 13,299,241 shares in 1994...... 99 133
Additional paid-in capital................................... 3,483 22,142
Retained earnings............................................ 2,500 6,078
------- -------
Total stockholders' equity................................. 6,082 28,353
------- -------
$10,487 $33,133
======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES (Notes 2 and 8):
Products................................. $ 8,071 $ 11,667 $ 22,016
Leases................................... 142 3,525 11,630
Services................................. 1,509 2,247 3,183
---------- ---------- ----------
Total revenues......................... 9,722 17,439 36,829
COST OF SALES:
Products................................. 5,684 7,977 15,939
Leases................................... 114 2,456 6,137
Services................................. 1,011 1,771 2,152
---------- ---------- ----------
Total cost of sales.................... 6,809 12,204 24,228
---------- ---------- ----------
GROSS PROFIT............................... 2,913 5,235 12,601
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 2,066 2,855 5,519
RESEARCH AND DEVELOPMENT................... 296 327 782
---------- ---------- ----------
INCOME FROM OPERATIONS..................... 551 2,053 6,300
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense......................... (12) (105) (224)
Interest income.......................... 2 75
Other.................................... 1 4 17
---------- ---------- ----------
Total other expense.................... (9) (101) (132)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................. 542 1,952 6,168
INCOME TAXES (Note 5)...................... 231 849 2,590
---------- ---------- ----------
NET INCOME................................. $ 311 $ 1,103 $ 3,578
========== ========== ==========
PRIMARY AND FULLY DILUTED NET INCOME PER
SHARE..................................... $ .03 $ .10 $ .30
========== ========== ==========
WEIGHTED AVERAGE SHARES:
Primary.................................. 10,785,236 10,867,047 11,731,325
========== ========== ==========
Fully diluted............................ 10,848,802 10,910,480 11,805,992
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
---------- ----- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1991........ 9,823,050 $ 99 $ 3,329 $1,086 $ 4,514
Net income...................... 311 311
---------- ---- ------- ------ -------
BALANCE, December 31, 1992........ 9,823,050 99 3,329 1,397 4,825
Issuance of common stock due to
exercise of stock options and
warrants....................... 125,250 154 154
Net income...................... 1,103 1,103
---------- ---- ------- ------ -------
BALANCE, December 31, 1993........ 9,948,300 99 3,483 2,500 6,082
Issuance of common stock, net of
related costs (Note 6)......... 2,400,000 24 16,078 16,102
Issuance of common stock due to
exercise of stock options and
warrants and related income tax
benefit........................ 950,941 10 2,581 2,591
Net income...................... 3,578 3,578
---------- ---- ------- ------ -------
BALANCE, December 31, 1994........ 13,299,241 $133 $22,142 $6,078 $28,353
========== ==== ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994
----- ------ -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 311 $1,103 $ 3,578
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 255 1,808 4,159
Loss on disposal of assets......................... 174
Provision for bad debts............................ 3 5 72
Increase in reserve for inventories................ 68 94
Deferred income taxes.............................. (640) (197)
Changes in assets and liabilities:
Accounts receivable.............................. (601) (1,207) (2,370)
Merchandise sold under contract.................. 1,195 714 605
Inventories...................................... (393) (1,299) (3,482)
Prepaid expenses................................. 121 (55) (20)
Accounts payable................................. (198) 657 603
Income taxes receivable and payable.............. 128 582 843
Accrued liabilities.............................. 83 449 311
----- ------ -------
Net cash provided by operating activities...... 904 2,185 4,370
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures:
Leased equipment................................... (241) (4,043) (6,453)
Other equipment.................................... (297) (242) (363)
Proceeds from sale of equipment...................... 100
----- ------ -------
Net cash used in investing activities.......... (438) (4,285) (6,816)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of
related costs and related income tax benefit........ 154 16,578
Net (repayments) proceeds from borrowings............ (463) 1,947 (130)
----- ------ -------
Net cash (used in) provided by financing
activities.................................... (463) 2,101 16,448
----- ------ -------
NET INCREASE IN CASH................................... 3 1 14,002
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......... 7 10 11
----- ------ -------
CASH AND CASH EQUIVALENTS AT END OF YEAR............... $ 10 $ 11 $14,013
===== ====== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Colonial Data Technologies Corp. (together with its wholly-owned
subsidiary, the "Company") designs, develops and markets telecommunications
products that support enhanced network services being developed and
implemented by the regional Bell operating companies and other telephone
operating companies. The Company also repairs and refurbishes
telecommunications products for commercial customers.
Consolidation - The consolidated financial statements include the accounts
of the Company after elimination of all intercompany balances and
transactions. Certain 1992 and 1993 amounts were reclassified to conform to
the 1994 presentation.
Revenue Recognition - Revenue is recorded when products and repair
merchandise are shipped to the customer. Lease revenue is recorded based on
the units in service at the end of the prior month since these leases are
cancelable at any time.
Cash and Cash Equivalents - Cash and cash equivalents consist of cash and
short-term U.S. Treasury bills, with original maturities of ninety days or
less.
Inventories - Inventories are recorded at the lower of cost or market with
cost determined on a weighted average basis and consist primarily of finished
goods.
Equipment - Equipment is carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. The cost
and accumulated depreciation of assets sold or retired are removed from the
respective accounts and any gain or loss is reflected in net income.
Maintenance and repairs are charged to expense as incurred.
Income Taxes - Income taxes are computed on the basis of consolidated
financial statement income. Deferred income taxes reflect the tax effects of
differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income tax purposes.
Net Income per Share - Net income per share of common stock is based upon
the weighted average number of shares outstanding during the year. Net income
per share gives effect to the exercise of stock options and warrants using the
treasury stock method. Stock options and warrants are not considered in the
calculation when they have an antidilutive effect.
2. MERCHANDISE SOLD UNDER CONTRACT
On July 2, 1991, the Company entered into a sales agreement with a
distributor for the sale of 70% of the Company's inventories as of June 30,
1991. The accounting treatment of this sale has been to recognize revenue upon
the receipt of payments from the distributor. Accordingly, $1,846,000,
$869,000, and $319,000 of revenue was recorded for the years ended December
31, 1992, 1993 and 1994, respectively.
F-7
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. EQUIPMENT
Equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1993 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Leased equipment........................................ $ 4,251 $ 9,902
Molds and tools......................................... 648 756
Plant equipment......................................... 444 640
Leasehold improvements.................................. 262 333
Transportation equipment................................ 134 140
Furniture and fixtures.................................. 49 72
------- -------
5,788 11,843
Accumulated depreciation................................ (2,516) (6,088)
------- -------
$ 3,272 $ 5,755
======= =======
</TABLE>
4. BORROWINGS
On April 11, 1994, the Company changed its banking relationship and signed a
new loan agreement which increased its credit line from $3.5 million to $6
million. On August 29, 1994, the Company amended its revolving loan agreement
to increase its credit line from $6 million to $8 million. The loan agreement
is subject to renewal on April 30, 1996. The loan is secured by substantially
all of the Company's assets. The loan agreement bears interest at an annual
rate of 1/4% above the bank's prime rate. The bank's prime rate was 8 1/2% per
annum at December 31, 1994. At December 31, 1994, $2 million was outstanding
on the credit line. The loan agreement contains restrictive covenants, the
most significant of which are certain financial ratios and prohibition of
dividends.
Under the previous bank credit agreement that expired on April 30, 1994, the
Connecticut Development Authority guaranteed 20% of the loan in an amount not
to exceed $700,000. The agreement provided that the Company may obtain letters
of credit for overseas purchases or request cash advances. The loan was
secured by substantially all of the Company's assets. The loan agreement bore
interest at an annual rate of 3/4% above the bank's prime rate. The bank's
prime rate was 6% per annum at December 31, 1993.
Cash paid for interest for the years ended December 31, 1992, 1993, and 1994
was $16,000, $93,000 and $235,000, respectively.
5. INCOME TAXES
Income taxes (benefit) consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1992 1993 1994
---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................ $163 $1,073 $2,288
State.......................................... 68 416 499
---- ------ ------
231 1,489 2,787
Deferred:
Federal ....................................... (463) (230)
State.......................................... (177) 33
---- ------ ------
(640) (197)
---- ------ ------
$231 $ 849 $2,590
==== ====== ======
</TABLE>
F-8
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net deferred income tax asset includes the following components at
December 31:
<TABLE>
<CAPTION>
1993 1994
----- -----
(IN
THOUSANDS)
<S> <C> <C>
Current deferred tax asset:
Accounts receivable allowance............................. $ 6 $ 21
Reserve for inventories................................... 28 18
Accrued liabilities....................................... 108 115
----- -----
142 154
Current deferred tax liability - prepaid expenses........... (24) (23)
----- -----
Net current deferred asset.................................. 118 131
Noncurrent deferred tax asset - depreciation................ 484 668
----- -----
Total net deferred tax asset................................ $602 $799
===== =====
</TABLE>
A reconciliation between the income taxes computed by applying the federal
statutory rate to income before income taxes to the actual income taxes is as
follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Federal income taxes at statutory rate..................... 34% 34% 34%
Nondeductible expenses..................................... 2 1 1
State income taxes - net of federal tax benefit............ 9 9 6
Other...................................................... (2) (1) 1
--- --- ---
43% 43% 42%
=== === ===
</TABLE>
Cash paid for income taxes for the years ended December 31, 1992, 1993, and
1994 was approximately $85,000, $933,000 and $1,944,000, respectively.
6. STOCKHOLDERS' EQUITY
Stock Offering
On October 21, 1994, the Company sold 3,680,000 shares of the Company's
common stock, of which 2,400,000 shares were issued by the Company and
1,280,000 shares were sold by certain selling stockholders. The net proceeds
to the Company from the sale of the 2,400,000 shares of common stock were
$16,102,000 after deducting the applicable issuance costs and expenses. The
net proceeds were used to raise funds to support the growth of the Company's
leasing activities, for working capital and general corporate purposes and
repayment of certain indebtedness.
Stock Options
The Company's board of directors authorized the issuance of options for
purchase of common stock for key employees. The options entitle the holder to
purchase the Company's common stock at the fair market value at the date of
grant. 304,762 of the options issued are currently exercisable, and expire at
December 31, 1996.
The Company's board of directors as part of its 1994 Long-Term Incentive
Plan authorized 500,000 stock options to be available for grants. 108,400
options were granted to key employees, which entitle the holder to purchase
the Company's common stock at a stated price. The options vest periodically
through 1998 and expire in 2004.
F-9
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the changes in stock options is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICES NUMBER OF SHARES
--------------- ----------------
<S> <C> <C>
Outstanding, December 31, 1991........... $.21 - $6.00 1,349,870
Canceled............................... $6.00 (100,000)
---------
Outstanding, December 31, 1992........... $.21 - $3.00 1,249,870
Canceled............................... $.21 (2,000)
Exercised.............................. $.21 (3,000)
---------
Outstanding, December 31, 1993........... $.21 - $3.00 1,244,870
Granted................................ $4.50 - $8.50 108,400
Canceled............................... $.21 - $3.00 (116,526)
Exercised.............................. $.21 (823,582)
---------
Outstanding, December 31, 1994........... $.21 - $8.50 413,162
=========
</TABLE>
Warrants
The Company has 184,758 warrants outstanding as of December 31, 1994. These
warrants (expiration date of March 31, 1997) entitle the holder to purchase
one share of the Company's common stock at $2.92 per share. A summary of the
changes in warrants is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICES NUMBER OF SHARES
--------------- ----------------
<S> <C> <C>
Outstanding, December 31, 1991 and
1992.................................. $1.25 - $2.92 434,367
Exercised............................ $1.25 (122,250)
--------
Outstanding, December 31, 1993......... $1.25 - $2.92 312,117
Exercised............................ $1.25 - $2.92 (127,359)
--------
Outstanding, December 31, 1994......... $2.92 184,758
========
</TABLE>
Preferred Stock
The Company has authorized and unissued 6,250 shares of Series Preferred
Stock with $.01 par value.
7. LEASE
The Company signed a new lease agreement for its principal administrative,
development and support facility which consists of approximately 63,000 square
feet with Cee Associates Limited Partnership ("Cee") in September 1994 that
expires August 2004. The Company's lease includes an option to purchase the
building at fair market value as defined in the lease at any time from July 1,
1999 until the expiration of the lease. The lease agreement includes the
rental of an additional 30,000 square feet of office and warehouse space. The
rent is $2.20 per square foot per year plus taxes, operating expenses and
insurance. Cee is a partnership in which the Company is a general partner and
certain directors and an officer of the Company are limited partners. In June
1994, the Company acquired and then sold at cost the industrial development
bonds that were an obligation of the partnership to a company owned by certain
directors of the Company for $550,000. The trustee of the bonds had previously
brought an action against this partnership. This action was withdrawn without
the admission of any liability on the part of the Company or the partnership.
The annual rental payments were approximately $66,000, $65,000 and $125,000 in
1992, 1993, and 1994, respectively.
F-10
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancelable operating leases with
initial or remaining terms in excess of one year at December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1995....................................................... $ 139
1996....................................................... 139
1997....................................................... 139
1998....................................................... 139
1999....................................................... 139
2000-2004.................................................. 652
------
$1,347
======
</TABLE>
8. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company sells its products
primarily to retailers and regional Bell operating companies in the United
States. The Company believes that the concentration of credit risk in its
trade receivables is substantially mitigated by the Company's ongoing credit
evaluation process and relatively short collection terms. The Company does not
generally require collateral from customers. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information. Historically,
the Company has not incurred any significant credit related losses.
Sales to two customers were approximately 19% and 15% of total sales for the
year ended December 31, 1992. The Company had two customers which represented
approximately 40% and 10% of the total accounts receivable at December 31,
1992.
Sales to two customers were approximately 20% and 18% of total sales for the
year ended December 31, 1993. The Company had two customers which represented
approximately 42% and 20% of total accounts receivable at December 31, 1993.
Sales to three customers were approximately 33%, 22% and 12% of total sales
for the year ended December 31, 1994. The Company had three customers which
represented approximately 22%, 27%, and 16% of total accounts receivable at
December 31, 1994.
9. COMMITMENTS AND CONTINGENCIES
The Company has a nonexclusive license with AT&T for a portion of its
messaging technology used in the Company's Caller ID products. For licensed
products leased, sold or put in use, the Company pays a royalty to AT&T.
Royalty expense was $78,000, $277,000 and $684,000 for the years ended
December 31, 1992, 1993 and 1994, respectively.
The Company was contingently liable for outstanding letters of credit for
overseas purchases or request cash advances totaling $500,000 and $700,000 at
December 31, 1993 and 1994, respectively.
The Company has become informed that certain environmental contamination
existed in the part of the Company's premises occupied by another tenant and
that the Connecticut Department of Environmental Protection has performed a
clean-up and removed such contamination. The Company has not received any
notice of any violation of environmental laws or regulations by the Company or
any notice of any claim against the Company associated with the contamination
or clean-up at the premises. The Company does not believe that the
F-11
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
foregoing will have a material adverse effect on the Company's consolidated
financial position or results of operations.
10. QUARTERLY FINANCIAL DATA - UNAUDITED
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Fiscal 1993
Revenues.............................. $3,017 $3,309 $4,821 $6,292 $17,439
Gross profit.......................... 918 1,018 1,472 1,827 5,235
Net income............................ 137 179 354 433 1,103
Net income per share.................. $ .01 $ .02 $ .03 $ .04 $ .10
Fiscal 1994
Revenues.............................. $6,043 $7,390 $9,957 $13,439 $36,829
Gross profit.......................... 1,926 2,340 3,447 4,888 12,601
Net income............................ 495 568 981 1,534 3,578
Net income per share.................. $ .04 $ .05 $ .09 $ .12 $ .30
</TABLE>
F-12
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 AND MARCH 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1995
------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash..................................................... $14,013 $ 7,639
Accounts receivable (net of allowance of $56 in 1994 and
$80 in 1995)............................................ 5,102 8,370
Income taxes receivable.................................. 863 118
Inventories.............................................. 6,473 6,804
Prepaid expenses......................................... 128 346
Deferred income taxes.................................... 131 146
------- -------
Total current assets................................... 26,710 23,423
EQUIPMENT:
Leased................................................... 5,001 4,838
Other.................................................... 754 1,929
------- -------
Total equipment........................................ 5,755 6,767
DEFERRED INCOME TAXES...................................... 668 803
SECURITY HELD-FOR-SALE (Note 2)............................ 5,994
------- -------
$33,133 $36,987
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable......................................... $ 1,497 $ 2,773
Accrued liabilities...................................... 579 525
Accrued salaries......................................... 268 213
Income taxes payable..................................... 263 2,013
Deferred revenue......................................... 173 381
------- -------
Total current liabilities.............................. 2,780 5,905
LONG-TERM BORROWINGS (Note 3).............................. 2,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 4):
Common stock, par value $.01, authorized 20,000,000
shares, issued and
outstanding 13,299,241 shares in 1994 and 13,390,253
shares in 1995.......................................... 133 134
Additional paid-in capital............................... 22,142 22,407
Retained earnings........................................ 6,078 8,492
Unrealized appreciation of security held-for-sale........ 49
------- -------
Total stockholders' equity............................. 28,353 31,082
------- -------
$33,133 $36,987
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
F-13
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Products.............................................. $ 3,492 $ 9,702
Leases................................................ 1,704 4,793
Services.............................................. 847 711
---------- ----------
Total revenues...................................... 6,043 15,206
COST OF SALES:
Products.............................................. 2,569 6,699
Leases................................................ 986 1,921
Services.............................................. 562 481
---------- ----------
Total cost of sales................................. 4,117 9,101
---------- ----------
GROSS PROFIT............................................ 1,926 6,105
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............ 941 1,989
RESEARCH AND DEVELOPMENT................................ 96 278
---------- ----------
INCOME FROM OPERATIONS.................................. 889 3,838
NET OTHER (EXPENSE) INCOME.............................. (26) 186
---------- ----------
INCOME BEFORE INCOME TAXES.............................. 863 4,024
INCOME TAXES............................................ 368 1,610
---------- ----------
NET INCOME.............................................. $ 495 $ 2,414
========== ==========
PRIMARY AND FULLY DILUTED NET INCOME PER SHARE.......... $ .04 $ .18
========== ==========
WEIGHTED AVERAGE SHARES:
Primary............................................... 11,285,252 13,764,213
========== ==========
Fully diluted......................................... 11,291,771 13,764,296
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
F-14
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK APPRECIATION
---------------- ADDITIONAL OF SECURITY
PAR PAID-IN RETAINED HELD-FOR-
SHARES VALUE CAPITAL EARNINGS SALE TOTAL
---------- ----- ---------- -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994................... 13,299,241 $133 $22,142 $6,078 $28,353
Issuance of common
stock due to exercise
of stock options and
warrants............. 91,012 1 265 266
Net income............ 2,414 2,414
Unrealized
appreciation of
security held-for-
sale................. $49 49
---------- ---- ------- ------ --- -------
BALANCE, March 31, 1995. 13,390,253 $134 $22,407 $8,492 $49 $31,082
========== ==== ======= ====== === =======
</TABLE>
See notes to consolidated condensed financial statements.
F-15
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
----- -------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 495 $ 2,414
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................... 735 972
Provision for bad debts.................................... 24
Increase in reserve for inventories........................ 144
Deferred income taxes...................................... (200) (150)
Changes in assets and liabilities:
Accounts receivable...................................... 699 (3,292)
Merchandise sold under contract.......................... 145
Inventories.............................................. (467) (475)
Prepaid expenses......................................... (238) (218)
Accounts payable......................................... (196) 1,276
Income taxes receivable and payable...................... (42) 2,495
Accrued liabilities...................................... 82 99
----- -------
Net cash provided by operating activities.............. 1,013 3,289
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (355) (1,984)
Purchase of security held-for-sale........................... (5,945)
----- -------
Net cash used in investing activities.................. (355) (7,929)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock....................... 58 266
Net repayments on borrowings................................. (720) (2,000)
----- -------
Net cash used in financing activities.................. (662) (1,734)
----- -------
NET DECREASE IN CASH........................................... (4) (6,374)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 11 14,013
----- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................... $ 7 $ 7,639
===== =======
Cash paid for:
Interest..................................................... $ 34 $ 4
Income taxes................................................. 610 114
</TABLE>
See notes to consolidated condensed financial statements.
F-16
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED MARCH 31, 1994 AND 1995 (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. They do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, except as disclosed herein, there has been no material
change in the information disclosed in the notes to consolidated financial
statements included in the Annual Report on Form 10-K of Colonial Data
Technologies Corp. for the year ended December 31, 1994. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1995 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1995.
2. ACCOUNTING POLICY - SECURITY HELD-FOR-SALE
The Company began reporting its investment holdings according to Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Accordingly, a U.S. Treasury Note
with a February 1997 maturity, which the Company will use to fund working
capital, is classified as a noncurrent asset held for sale and carried at
market value. Changes in the market value of securities held for sale are
included in stockholders' equity, net of applicable income taxes.
3. BORROWINGS
On February 22, 1995, the Company elected to amend its loan agreement and
reduce its credit line from $8 million to $4 million. The loan agreement is
subject to renewal on April 30, 1996.
4. SUBSEQUENT EVENTS
Stockholders' Equity
In May 1995, the stockholders approved the Company's reincorporation into
Delaware from Massachusetts. As a result of this reincorporation, the
Company's authorized class of preferred stock, of which no shares were issued
and outstanding, was eliminated.
US Order
In April 1995, the Company entered into a stock exchange agreement with US
Order, Inc. ("US Order") a strategic alliance partner for analog display
services interface protocol capable "smart telephones." Under the terms of the
agreement, on the date of closing of a US Order public offering of equity
securities, the Company will exchange unregistered common stock for 230,000
shares of US Order restricted common stock. The value of this exchange was
based on US Order's value at their initial public offering price and an equal
value of the Company's common stock based on the average closing price for a
specified period of time, as defined in the agreement, preceding the date of
the exchange. On June 2, 1995, US Order's initial public offering was
effective at a price per share of $14.75. Accordingly, 170,743 shares of the
Company's unregistered common stock were issued to US Order on June 9, 1995.
The agreement provides for the Company and US Order to exchange on April 15,
1996 the lesser of 200,000 shares of each company's common stock or $3 million
of the Company's unregistered common stock, subject to certain conditions, for
$3 million of US Order's restricted common stock. Each company's stock will be
valued at the average closing price of their respective common stock for a
specified period of time, as defined in the
F-17
<PAGE>
COLONIAL DATA TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
agreement, preceding the date of the exchange. Both companies will have
certain "piggyback" registration rights and rights of first refusal with
respect to each others' stock.
CDT Canada Corp.
In May 1995, the Company purchased the Canadian Caller ID business of
TIE/communications, Inc. through an acquisition of certain assets. The
acquisition costs and operations purchased were not significant to the
Company. In connection with the acquisition, a newly formed subsidiary, CDT
Canada Corp. will manage the Company's Canadian operations, which will include
a manufacturing, engineering and sales facility in Brampton, Ontario, Canada.
Worldwide Telecom Partners, Inc.
In May 1995, the Company acquired a 50% interest in a joint venture,
Worldwide Telecom Partners, Inc. The venture will also be owned by Barry Blau
& Partners, Inc. The venture will provide marketing services to the
telecommunications industry. The cost of this investment was not significant.
Common Stock Offering
In July 1995, the Company commenced the public offering of 2,300,000 shares
(exclusive of the underwriters' over-allotment option) of the Company's common
stock, of which 1,500,000 shares will be issued by the Company and 800,000
shares will be sold by certain selling stockholders.
F-18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
THAT INFORMATION CONTAINED HEREINIS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 10
Price Range of Common Stock............................................... 11
Dividend Policy........................................................... 11
Capitalization............................................................ 12
Selected Consolidated Financial Data...................................... 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 14
Business.................................................................. 19
Management................................................................ 30
Principal and Selling Stockholders........................................ 32
Description of Capital Stock.............................................. 33
Shares Eligible for Future Sale........................................... 34
Underwriting.............................................................. 35
Legal Matters............................................................. 36
Experts................................................................... 36
Available Information..................................................... 37
Incorporation of Certain Documents by Reference........................... 37
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,300,000 SHARES
[LOGO OF COLONIAL DATA
TECHNOLOGIES CORP.
APPEARS HERE]
COLONIAL DATA
TECHNOLOGIES CORP.
COMMON STOCK
------------------
P R O S P E C T U S
------------------
FIRST ALBANY CORPORATION
NATWEST SECURITIES LIMITED
VOLPE, WELTY & COMPANY
JULY 13, 1995
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Graphic Appendix List
Page Picture Description
2 Right side of page. Collage of Caller ID adjunct unit,
integrated Caller ID telephone, Caller ID with Call Waiting
unit (SCWID) adjunct unit and ADSI-compatible smart telephone.
21 Middle of page. A drawing of a man in profile talking on a
telephone.
Bottom of page. A picture of a telephone with display screen
and function keys.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are estimates of the expenses which will be paid by the
Company and the Selling Stockholders in connection with the Registration
Statement:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 20,636
NASD Filing Fee................................................. 5,473
Legal Fees and Expenses......................................... 135,000
Accounting Fees and Expenses.................................... 60,000
Blue Sky Fees and Expenses...................................... 1,000
Printing and Engraving Expenses................................. 100,000
Custodian and Escrow Fees....................................... 5,500
Miscellaneous................................................... 72,391
--------
$400,000
========
</TABLE>
Except for the filing fees with the Securities and Exchange Commission, all of
the foregoing expenses have been estimated and are subject to future
contingencies. Of the estimated expenses noted above, approximately $385,000
shall be paid by the Company and approximately $15,000 shall be paid by the
Selling Stockholders, which represents custodian and escrow fees and legal
fees and expenses related to the cost of including in this Registration
Statement the shares to be sold by the Selling Stockholders.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law ("DGCL") authorizes,
inter alia, a corporation generally to indemnify any person ("indemnitee") who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was
a director, officer, employee or agent of the corporation, or is or was
service at the request of the corporation, in a similar position with another
corporation or entity, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. With respect to actions or suits by or in the right of the
corporation; however, an indemnitee who acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation is generally limited to attorney's fees and other expenses, and no
indemnification shall be made if such person is adjudged liable to the
corporation unless and only to the extent that a court of competent
jurisdiction determines that indemnification is appropriate. Section 145
further provides that any indemnification shall be made by the corporation
only as authorized in each specific case upon a determination by the (i)
stockholders, (ii) board of directors by a majority voted of a quorum
consisting of directors who were not parties to such action, suit or
proceeding or (iii) independent counsel if a quorum of disinterested directors
so directs, that indemnification of the indemnitee is proper because he has
met the applicable standard of conduct. Section 145 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise.
Article XI of the Company's By-Laws provides, in substance, that directors,
officers, employees and agents shall be indemnified to the fullest extent
permitted by Section 145 of the DGCL.
Article Tenth of the Company's Certificate of Incorporation provides that
the Company shall indemnify any and all persons permitted to be indemnified by
Section 145 of DGCL to the fullest extent permitted by the DGCL.
II-1
<PAGE>
The form of Underwriting Agreement filed as Exhibit 1. to this Registration
Statement contains certain provisions for indemnification of directors and
officers of the Company and the Underwriters against civil liabilities under
the Securities Act.
ITEM 16. EXHIBITS(* denotes filed herewith)
<TABLE>
<C> <S>
*1. Underwriting Agreement.
*4.1 Specimen Certificate for shares of Common Stock of the Registrant.
4.2 Form of Representative's Warrants, as amended (Incorporated by
reference to Exhibit 4.3 to Registrant's Registration Statement on
Form S-4, File No. 33-30242).
4.3 Form of Agreement Amending Representative's Warrants dated as of May
30, 1989 entered into between Registrant and the warrant holders
(Incorporated by reference to Exhibit 2.10 to the Registrant's
Registration Statement on Form S-4, File No. 33-30242).
*5. Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
10.1 First Amendment to the Rise Technology Inc. 1983 Stock Option Plan (as
amended and restated effective August 5, 1987) (Incorporated by
reference to Exhibit 2.11 to the Registrant's Registration Statement
on Form S-4, File No. 33-30242).
10.2 Nonqualified Stock Option Substitution Agreement for Nonemployee
Directors of Registrant (Incorporated by reference to Exhibit 2.12 to
the Registrant's Registration Statement on Form S-4, File No. 33-
30242).
10.3 Nonqualified Stock Option Substitution Agreement for Employees of
Registrant (Incorporated by reference to Exhibit 2.13 to the
Registrant's Registration Statement on Form S-4, File No. 33-30242).
10.4 Technical Information and Patent License Agreement effective as of
August 1, 1987 by and between American Telephone and Telegraph and
the Registrant's Delaware subsidiary (Incorporated by reference to
Exhibit 1 to Registrant's Report on Form 10-Q for the quarter ended
September 30, 1989, No. 0-15562).
10.5 Certificate of Limited Partnership of Cee Associates Limited
Partnership (Incorporated by reference to Exhibit 8 to Registrant's
Report on Form 10-Q for the quarter ended September 30, 1989, No. 0-
15562).
10.6 Loan Agreement dated September 2, 1983 by and between the Connecticut
Development Authority and Cee Associates Limited Partnership
(Incorporated by reference to Exhibit 9 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1989, No. 0-15562).
10.7 Indenture of Trust dated September 2, 1983 by and between the
Connecticut Development Authority and Citytrust, as Trustee
(Incorporated by reference to Exhibit 10 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1989, No. 0-15562).
10.8 Guaranty dated September 2, 1983 from Christos J. Totolis, Robert J.
Schock and Frederick Masotta in favor of Citytrust, as Trustee
(Incorporated by reference to Exhibit 12 to Registrant's Report on
Form 10-Q for the quarter ended September 30, 1989, No. 0-15562).
10.9 Purchase Agreement, effective October 15, 1989, by and between Bell
South Service Incorporated and Registrant (Incorporated by reference
to Exhibit 19.1 to the Registrant's Report on Form 10-Q for the
quarter ended March 31, 1990, No. 0-15562).
10.10 Employment Agreement dated as of May 12, 1992, by and between the
Registrant's Delaware subsidiary and Robert J. Schock (Incorporated
by reference to Exhibit 10.83 to the Registrant's Report on Form 10-K
for the year ended December 31, 1992, No. 0-15562).
10.11 Agreement between U S West Business Resources, Inc., as agent for U S
West Communications, Inc., and the Registrant, as amended by
Amendment No. One, dated July 23, 1993 (Incorporated by reference to
Exhibit 1 to Registrant's Report on Form 10-Q for the quarter ended
June 30, 1993, File No. 0-15562).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.12 Loan and Security Agreement, dated April 11, 1994, between
Registrant's Delaware subsidiary and People's Bank (Incorporated by
reference to Exhibit 1 to Registrant's Report on Form 10-Q for the
quarter ended June 30, 1994, File No. 0-15562).
10.13 Continuing Guaranty dated April 11, 1994 from the Registrant to
People's Bank (Incorporated by reference to Exhibit 4 to Registrant's
Report on Form 10-Q for the quarter ended June 30, 1994, File No. 0-
15562).
10.14 Application and Reimbursement Agreement for Irrevocable Documentary
Letter of Credit between the Registrant's Delaware subsidiary and
People's Bank (Incorporated by reference to Exhibit 5 to Registrant's
Report on Form 10-Q for the quarter ended June 30, 1994, File No. 0-
15562).
10.15 Registrant's 1994 Long Term Incentive Plan (Incorporated by reference
to Exhibit 5 to Registrant's Report on Form 10-Q for the quarter
ended June 30, 1994, File No. 0-15562).
10.16 Form of Incentive Stock Option Agreement (Incorporated by reference to
Exhibit 6 to Registrant's Report on Form 10-Q for the quarter ended
June 30, 1994, File No. 0-15562)
10.17 First Amendment to Loan and Security Agreement, dated as of August 29,
1994, between the Registrant's Delaware subsidiary and People's Bank
(Incorporated by reference to Exhibit 10.27 to Registrant's
Registration Statement on Form S-2, File No. 33-84274).
10.18 Form of Revolving Credit Note, dated August 29, 1994, from the
Registrant's Delaware subsidiary to People's Bank (Incorporated by
reference to Exhibit 10.28 to Registrant's Registration Statement on
Form S-2, File No. 33-84274).
10.19 Confirmation of Continuing Guaranty, dated as of August 29, 1994 from
the Registrant to People's Bank (Incorporated by reference to Exhibit
10.29 to Registrant's Registration Statement on Form S-2, File
No. 33-84274).
10.20 Strategic Alliance Agreement, dated September 1994, between the
Registrant and Standard Telecommunications, Ltd. (Incorporated by
reference to Exhibit 10.30 to Registrant's Registration Statement on
Form S-2, File No. 33-84274)
10.21 Lease Agreement dated as of September 1, 1994 between Cee Associates
Limited Partnership and the Registrant's Delaware subsidiary
(Incorporated by reference to Exhibit 10.31 to Registrant's
Registration Statement on Form S-2, File No. 33-84274).
10.22 Strategic Alliance Agreement, dated as of January 16, 1995, between
the Registrant and US Order (Incorporated by reference to Exhibit
10.26 to Registrant's Report on Form 10-K of the year ended December
31, 1994, File No. 0-15562).
10.23 Amendment No. 2, dated September 29, 1994, to Agreement between U S
West Communications, Inc. and the Registrant (Incorporated by
reference to Exhibit 10.27 to Registrant's Report on Form 10-K of the
year ended December 31, 1994, File No. 0-15562).
10.24 Letter evidencing amendment to credit facility dated March 24, 1995
from People's Bank to the Registrant's Delaware subsidiary
(Incorporated by reference to Exhibit 10 to Registrant's Report on
Form 10-Q for the quarter ended March 31, 1995, File No. 0-15562).
10.25 Stock Exchange Agreement by and among US Order, Inc. and the
Registrant dated as of April 6, 1995 (Incorporated by reference to
Exhibit 10.29 to Registrant's Registration Statement on Form 8-B,
File No. 1-11057).
10.26 Joint Venture Agreement between Barry Blau & Partners, Inc. and the
Registrant dated as of May 16, 1995 (Incorporated by reference to
Exhibit 10.30 to Registrant's Registration Statement on Form 8-B,
File No. 1-11057, as amended on July 11, 1995 by Amendment No. 1
thereto).
10.27 Sublease made as of May 1, 1995 between TIE/communications Canada Inc.
and CDT Canada Corp. (Incorporated by reference to Exhibit 10.31 to
Registrant's Registration Statement on Form 8-B, File No. 1-11057).
10.28 Listing Agreement, dated May 19, 1995, between the Registrant and the
American Stock Exchange.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
11. Statement regarding computation of per share earnings (Incorporated by
reference to Exhibit 11 to the Registrant's Report on Form 10-K for
the year ended December 31, 1994, File No. 0-15562).
23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in the
opinion listed as Exhibit 5 hereto and incorporated herein by
reference).
24. Power of Attorney (included on signature pages of the registration
statement filed with the Commission on June 7, 1995).
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchase.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE TOWN OF NEW MILFORD, STATE OF CONNECTICUT ON THE 12TH DAY
OF JULY, 1995.
Colonial Data Technologies Corp.
By: /s/ Robert J. Schock
---------------------------------
ROBERT J. SCHOCK
ITS PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Robert J. Schock President and Chief July 12, 1995
- ------------------------------------- Executive Officer,
ROBERT J. SCHOCK Director (Principal
Executive Officer)
/s/ John N. Giamalis Vice President - July 12, 1995
- ------------------------------------- Finance,
JOHN N. GIAMALIS Secretary,
Treasurer,
(Principal
Financial and
Accounting Officer)
/s/ Walter M. Fiederowicz Chairman of the July 12, 1995
- ------------------------------------- Board of Directors
WALTER M. FIEDEROWICZ
* Director July 12, 1995
- -------------------------------------
FREDERICK P. MASOTTA, JR.
* Director July 12, 1995
- -------------------------------------
CONSTANTINE S. MACRICOSTAS
* By /s/ Robert J. Schock
---------------------------------
ROBERT J. SCHOCK
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE IN SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF DOCUMENT NUMBERED COPY
----------- ----------------------- --------------------
<C> <S> <C>
1. Underwriting Agreement.....................
4.1 Specimen Certificate for shares of Common
Stock of the Registrant...................
5. Opinion of LeBoeuf, Lamb, Greene & MacRae,
L.L.P. ...................................
23.1 Consent of Deloitte & Touche LLP...........
23.2 Consent of LeBoeuf, Lamb, Greene & MacRae,
L.L.P. (included in the opinion listed as
Exhibit 5 hereto and included herein by
reference)................................
</TABLE>
<PAGE>
Exhibit 1
2,300,000 Shares/1/
COLONIAL DATA TECHNOLOGIES CORP.
Common Stock
UNDERWRITING AGREEMENT
----------------------
July 13, 1995
FIRST ALBANY CORPORATION
NATWEST SECURITIES LIMITED
VOLPE, WELTY & COMPANY
As Representatives of the several
Underwriters named in Schedule II hereto
c/o First Albany Corporation
41 State Street
Albany, New York 12207
Gentlemen:
Colonial Data Technologies Corp., a Delaware corporation (the "Company"),
and the stockholders of the Company listed in Schedule I hereto (the "Selling
Stockholders") severally propose to sell to the several Underwriters named in
Schedule II hereto (the "Underwriters") an aggregate of 2,300,000 shares (the
"Firm Shares") of Common Stock, $0.01 par value (the "Common Stock"), of the
Company. The Firm Shares consist of 1,500,000 authorized but unissued shares of
Common Stock to be issued and sold by the Company and 800,000 outstanding shares
of Common Stock to be sold by the Selling Stockholders. In addition, the
Company has granted to the several Underwriters an option to purchase up to
145,000 additional shares of Common Stock, and certain Selling Stockholders have
granted to the several Underwriters an option to purchase up to 200,000
additional shares of Common Stock, on the terms and for the purposes set forth
in Section 3 hereof (such 345,000 shares being referred to hereinafter as the
"Option Shares"). The Firm Shares and any Option Shares purchased pursuant to
this Underwriting Agreement are herein collectively called the "Securities."
References to the "Company" herein, unless the context requires otherwise, refer
to the Company and its subsidiaries as a consolidated operation. For purposes
of this Agreement, Worldwide Telecom Partners, Inc., a Delaware corporation,
shall be deemed to be a subsidiary of the Company.
- ---------------------------
/1/ Plus an option to purchase up to 345,000 additional shares to cover over-
allotments.
<PAGE>
The Company and the Selling Stockholders hereby confirm their agreement
with respect to the sale of the Securities to the several Underwriters, for whom
you are acting as Representatives (the "Representatives").
1. Registration Statement. A registration statement on Form S-2 (File
----------------------
No. 33-60033) with respect to the Securities, including a prospectus subject to
completion, 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; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to the registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion sent or given to
any person prior to the effective date of such registration statement, including
all documents incorporated by reference therein, and of any abbreviated
registration statement filed pursuant to Rule 462(b) have been delivered to you.
The Company and the transactions contemplated by this Agreement meet the
requirements for using Form S-2 under the Act.
If the registration statement relating to the Securities has been
declared effective under the Act by the Commission, the Company will, pursuant
to Rule 424(b) of the Rules and Regulations or by means of a post-effective
amendment to the registration statement that includes a final form of
prospectus, prepare and promptly file with the Commission the information
omitted from the registration statement pursuant to Rule 430A(a) of the Rules
and Regulations or, if First Albany Corporation, on behalf of the several
Underwriters, shall have agreed to the utilization of a term sheet pursuant to
and satisfying the requirements of Rule 434 of the Rules and Regulations ("Term
Sheet"), the information required to be included in such Term Sheet. If the
registration statement relating to the Securities has not been declared
effective under the Act by the Commission, the Company will prepare and promptly
file an amendment to the registration statement, including a final form of
prospectus, or, if First Albany Corporation, on behalf of the several
Underwriters, shall have agreed to the utilization of a Term Sheet, including
the information required to be included in such Term Sheet. The Company will
file any such Term Sheet with the Commission in a timely manner pursuant to Rule
424(b). The term "Registration Statement" as used herein shall mean such
registration statement, including financial statements, schedules and exhibits,
in the form in which it became or becomes, as the case may be, effective
(including, if the Company omitted information from the registration statement
pursuant to Rule 430A(a) or if the Company utilizes a Term Sheet, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d)) and, in the event of
any amendment thereto or the filing of any abbreviated registration statement
pursuant to Rule 462(b) relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The
-2-
<PAGE>
term "Prospectus" as used herein shall mean the prospectus relating to the
Securities included in the Registration Statement at the time it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a), the
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 430A(b)); provided, however, that if in
reliance on Rule 434 and with the consent of First Albany Corporation, on behalf
of the several Underwriters, the Company shall have provided to the Underwriters
for use in connection with the offering of the Securities a Term Sheet, the term
"Prospectus" shall mean the "prospectus subject to completion" (as defined in
Rule 434(g)) last provided to the Underwriters by the Company and circulated by
the Underwriters to all prospective purchasers of the Securities, together with
such Term Sheet (including the information deemed to be a part of the
Registration Statement at the time it became effective pursuant to Rule 434(d)).
Notwithstanding the foregoing, if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of the
Securities that differs from the prospectus referred to in the immediately
preceding sentence (whether or not such revised prospectus is required to be
filed with the Commission pursuant to Rule 424(b)), the term "Prospectus" shall
refer to such revised prospectus from and after the time it is first provided to
the Underwriters for such use. If in reliance on Rule 434 and with the consent
of First Albany Corporation, on behalf of the several Underwriters, the Company
shall have provided to the Underwriters for use in connection with the offering
of the Securities a Term Sheet, the Prospectus and the Term Sheet, taken
together, will not be materially different from the prospectus in the
Registration Statement. The term "Preliminary Prospectus" as used herein means
(i) any prospectus subject to completion included in the Registration Statement
prior to the time it became or becomes, as the case may be, effective under the
Act, except that if any prospectus subject to completion filed by the Company
with the Commission pursuant to Rule 424(a) or any other prospectus subject to
completion 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(a)) differs from the prospectus
subject to completion included in the Registration Statement prior to the time
it became or becomes, as the case may be, effective under the Act, the term
"Preliminary Prospectus" shall refer to such differing prospectus subject to
completion from and after the time such prospectus subject to completion is
filed with the Commission or transmitted to the Commission for filing pursuant
to Rule 424(a) or from and after the time it is first provided to the
Underwriters by the Company for such use, and (ii) any prospectus subject to
completion as described in Rule 430A or Rule 434(g). Any reference to the
Registration Statement, the Prospectus or the Preliminary Prospectus shall be
deemed to refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-2 under the Act, as of the date of the
Registration Statement, the Prospectus or any Preliminary Prospectus, as the
case may be, and any reference to any amendment or supplement to the
Registration Statement, the Prospectus or any Preliminary Prospectus shall be
deemed to refer to and include any documents filed after such date under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), which,
upon filing, are incorporated by reference therein, as required by Item 12 of
Form S-2. As used herein, the term "Incorporated Documents" means the documents
which at the time are incorporated by reference in the Registration Statement,
the Prospectus or any Preliminary Prospectus or any amendment or supplement
thereto.
-3-
<PAGE>
2. Representations and Warranties of the Company and the Selling
-------------------------------------------------------------
Stockholders.
- ------------
(a) The Company represents and warrants to, and agrees with, the
several 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 (or, if not filed, at the time it is first provided
to the Underwriters by the Company for use in connection with the offering of
the Securities), 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, or by any Underwriter
through you, specifically for use in the preparation thereof.
(ii) As of the time the Registration Statement (or any post-
effective 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 (in
each case, as so amended and/or supplemented) will conform or conformed in all
material respects to the requirements of the Act and the Rules and Regulations,
(B) the Registration Statement (as so amended) 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 (as so supplemented) 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, or by any Underwriter through 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. The
Incorporated Documents heretofore filed, when they were filed (or, if any
amendment with respect to any such document was filed, when such amendment was
filed), conformed in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission thereunder; any further
Incorporated Documents so filed will, when they are filed, conform in all
material respects with the Exchange Act and the rules and regulations
thereunder; no such document when it was filed (or, if an amendment with respect
to any such document was filed, when such amendment was filed), contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and no such further amendment will contain any 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.
-4-
<PAGE>
(iii) The consolidated 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, if any, 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. Deloitte & Touche, 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. The summary financial and statistical data included in
the Registration Statement fairly present the information shown therein and have
been compiled on a basis consistent with the financial statements presented in
the Registration Statement.
(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 could have a material adverse effect upon the business,
condition (financial or otherwise) or properties of the Company and its
subsidiaries, taken as a whole.
(v) Except as expressly 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 its
subsidiaries 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 there has not 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 options or warrants outstanding as of the date
the Registration Statement was filed), 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 its
subsidiaries, or any material adverse change, or any development 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 its subsidiaries or, to the best
knowledge of the Company after due
-5-
<PAGE>
inquiry, any of its or their officers or directors, 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 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 indemnification 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 will not result in a breach or violation of
any of the terms and 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
Certificate of Incorporation 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; 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 any blue sky or
state securities laws or regulations applicable to the public offering of Common
Stock by the several Underwriters contemplated hereby ("Blue Sky Laws"), or 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; 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 and 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 duly and validly issued and
will be fully paid and nonassessable; and the capital stock of the Company,
including the Common Stock, conforms to the description thereof in the
Registration Statement and Prospectus. Except as described in the 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
-6-
<PAGE>
shares of Common Stock pursuant to the Company's Certificate of Incorporation,
by-laws or any material 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
the Company's subsidiaries have been duly and validly authorized and issued and
are fully paid and nonassessable, and 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 Statement and the Prospectus,
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 set
forth in the Registration Statement and the Prospectus.
(x) Each of the Company and 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 each of
the Company and its subsidiaries is in compliance with all applicable federal,
state, local and foreign laws, regulations, orders and decrees, except, in
either of the foregoing cases, where the failure to 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) are not
material in amount and 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.
(xii) Each of the Company and 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 its subsidiaries. Except as stated in the Registration Statement and
Prospectus, no activity engaged in by or
-7-
<PAGE>
aspect of the business of the Company or 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 or might be material to the business, condition (financial or
otherwise), prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, and neither the Company nor its subsidiaries
have received any notice alleging any such infringement or that any such fee is
due. Except as disclosed in the Prospectus, to the knowledge of the Company,
none of the activities engaged in by the Company or its subsidiaries infringes
or conflicts with the Intellectual Property rights of others. To the knowledge
of the Company, no officer or employee of the Company or its subsidiaries is
obligated under any contract or subject to any judgment, decree or order of any
court or administrative agency that would interfere in any material respect with
the use of such person's best efforts to promote the interests of the Company
and its subsidiaries or which would conflict in any material respect with the
business of the Company and its subsidiaries as described in the Registration
Statement. To the knowledge of the Company, no prior or subsequent employer of
any employee of the Company or its subsidiaries has any right to or interest in
any inventions, improvements, discoveries or other information assigned to or
owned by the Company or its subsidiaries and material to the conduct of the
business of the Company and its subsidiaries as currently conducted and as
currently proposed to be conducted.
(xiii) Neither the Company nor 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 its
subsidiaries is subject.
(xiv) The Company and its subsidiaries have filed on a timely
basis all federal, state, local and foreign income, franchise and other tax
returns required to be filed (or timely 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 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 Company's Common Stock is registered under Section 12(b)
of Exchange Act; and the Securities have been conditionally approved for listing
on the American Stock Exchange ("AMEX") and, on the date the Registration
Statement became or becomes effective, such listing became or will become
effective.
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(xvii) Other than its wholly owned subsidiaries, Colonial
Technologies Corp., a Delaware corporation, and CDT Canada Corp., a Canadian
corporation, the interest of Colonial Technologies Corp. in Cee Associates
Limited Partnership, a Connecticut limited partnership, as disclosed in the
Prospectus, the Company's ownership of shares of the capital stock of US Order,
Inc., a Delaware corporation, as disclosed in the Prospectus, and the Company's
interest in Worldwide Telecom Partners, Inc., a Delaware corporation, as
disclosed in the Prospectus, the Company owns no capital stock or other equity
or ownership 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 applied
on a consistent basis 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 promptly taken
with respect to any differences.
(xix) Other than as expressly contemplated by this Agreement, the
Company has not incurred and 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.
(xx) Neither the Company nor its subsidiaries have been advised,
or has reason to believe, that it is not conducting business in compliance with
all of the laws, rules and regulations of the jurisdictions in which they are
conducting business except where failure to 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.
(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 its subsidiaries 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 Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in
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such a manner as to ensure that it will not become an "investment company"
within the meaning of the 1940 Act and such rules and regulations.
(xxiv) Neither the Company nor its subsidiaries have at any time
since September 1989 in the case of the Company, since January 1981 in the case
of Colonial Technologies Corp., since May 1, 1995 in the case of CDT Canada
Corp. and since May 5, 1995 in the case of Worldwide Telecom Partners, Inc., (i)
made any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any federal or state governmental officer of official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(xxv) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock, to
facilitate the sale or resale of the Securities.
(b) Each of the Selling Stockholders severally represents and warrants
to, and agrees with, the several 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 transferability, legends, proxies,
equities or other encumbrances; and upon delivery of and payment for such
Securities hereunder, the several 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 is not
selling such Securities, directly or indirectly, for the benefit of the Company,
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.
(ii) Such Selling Stockholder has duly executed and delivered a
Custody and Escrow Agreement ("Custody Agreement"), which Custody Agreement is a
valid and binding obligation of such Selling Stockholder, to People's Bank, as
custodian and escrow agent (the "Custodian"); pursuant to the Custody Agreement
such Selling Stockholder has placed in custody with the Custodian, for delivery
under this Agreement, the stock certificates representing the Securities to be
sold by such Selling Stockholder or warrant agreements or option agreements
under which such Selling Stockholder has all necessary rights to acquire the
Securities to be sold by such Selling Stockholder, together with instruments
sufficient to exercise such rights and funds sufficient to pay in full the
exercise price thereof, and such Selling Stockholder has taken all actions
necessary to cause the exercise of any such warrants or options as of the date
this Agreement became or becomes effective; such stock certificates represent,
or will represent upon issuance pursuant to the exercise of any such warrants or
options, validly issued, outstanding, fully paid and
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nonassessable shares of Common Stock; and such stock certificates were or will
be, as the case may be, duly and properly endorsed in blank for transfer, or
were or will be, as the case may be, accompanied by all documents duly and
properly executed that are necessary to effect and validate 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 executed
and delivered to Walter M. Fiederowicz and John N. Giamalis, as attorneys-in-
fact (the "Attorneys-in-Fact"), an irrevocable power of attorney (a "Power of
Attorney") authorizing and directing the Attorneys-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, desirable or appropriate hereunder.
(iv) This Agreement, the Custody Agreement and the Power of
Attorney have each been duly 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 indemnification 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. The
execution and delivery of this Agreement, the Custody Agreement and the Power of
Attorney and the performance of the terms hereof and thereof and the
consummation of the transactions herein and therein contemplated will not result
in a breach or violation of any of the terms and provisions of, or constitute a
default under, any trust, agreement or instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound or to which
any of such Selling Stockholder's property is subject, or any law, regulation,
order or decree of any court or of any regulatory body or agency applicable to
such Selling Stockholder other than any Blue Sky Law or the by-laws and rules of
the NASD relating to corporate financing arrangements; 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,
the Custody Agreement and the Power of Attorney or for the consummation of the
transactions contemplated hereby and thereby, including the sale of the
Securities being sold by such Selling Stockholder, except such as may be
required under the Act and other than any Blue Sky Law or the by-laws and rules
of the NASD relating to corporate financing arrangements.
(v) 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.
(vi) Such Selling Stockholder has reviewed the Registration
Statement and the Prospectus and to the best knowledge of such Selling
Stockholder neither the Registration Statement nor the Prospectus contains any
untrue statement of a material fact or
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<PAGE>
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading regarding such Selling Stockholder,
the Company or otherwise.
(vii) To the best knowledge of such Selling Stockholder, the
representations and warranties of the Company contained in paragraph (a) of this
Section 2 are true and correct.
(viii) Such Selling Stockholder has not since the filing of the
Registration Statement (1) sold, bid for, purchased, attempted to induce any
person to purchase, or paid anyone any compensation for soliciting purchases of,
Common Stock or (2) paid or agreed to pay to any person any compensation for
soliciting another to purchase any securities of the Company (except for the
sale of Securities and except for any exercise of options and warrants in
connection with the sale of Securities, by the Selling Stockholders under this
Agreement).
(ix) 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 shall be deemed a representation and
warranty by the Company to each Underwriter 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 shall be deemed a
representation and warranty by such Selling Stockholder to each Underwriter 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 1,500,000 Firm Shares, and each Selling
Stockholder agrees to sell the number of Firm Shares set forth opposite the name
of such Selling Stockholder in Schedule I hereto, to the several Underwriters,
and each Underwriter agrees, severally and not jointly, to purchase from the
Company and the Selling Stockholders the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto. The purchase price
for each Firm Share shall be $21.381 per share. The obligation of each
Underwriter to each of the Company and the Selling Stockholders shall be to
purchase from each of the Company and the Selling Stockholders that number of
Firm Shares (to be adjusted by the Representatives to avoid fractional shares)
which represents the same proportion of the number of Firm Shares to be sold by
each of the Company and the Selling Stockholders pursuant to this Agreement as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto represents to the total number of Firm Shares to be purchased
by all Underwriters pursuant to this Agreement. In making this Agreement, each
Underwriter is contracting severally and not jointly; except as provided in
paragraph (c) of
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this Section 3 and in Section 8 hereof, the agreement of each Underwriter is to
purchase only the respective number of Firm Shares specified in Schedule II.
Certificates in negotiable form for the total number of the Securities
to be sold hereunder by the Selling Stockholders (including certificates
representing Securities issued or issuable upon the exercise or warrants or
options as described in Section 2(b) hereof) have been placed in custody with
the Custodian pursuant to the Custody Agreement executed by each Selling
Stockholder for delivery of all Firm Shares and Option Shares to be sold
hereunder by the Selling Stockholders. Each of the Selling Stockholders
specifically agrees that the Firm Shares and Option Shares represented by the
certificates held in custody for the Selling Stockholders at any time under the
Custody Agreement, together with the warrant agreements or option agreements and
the other instruments and funds held in custody for the Selling Stockholders as
described in Section 2(b) hereof, are subject to the interests of the
Underwriters hereunder, that the arrangements made by the Selling Stockholders
for such custody are to that extent irrevocable, and that the obligations of the
Selling Stockholders hereunder shall not be terminable by any act or deed of the
Selling Stockholders (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law (including,
without limitation, the death of an individual Selling Stockholder or the
dissolution of a corporate Selling Stockholder) or by the occurrence of any
other event or events, except as set forth in the Custody Agreement. If any
such event should occur prior to the delivery to the Underwriters of the Firm
Shares or Option Shares hereunder, as the case may be, certificates for the Firm
Shares or Option Shares, as the case may be, shall be delivered by the Custodian
in accordance with the terms and conditions of this Agreement as if such event
has not occurred. The Custodian is authorized to receive and acknowledge
receipt of the proceeds of sale of the Firm Shares or Option Shares, as the case
may be, held by it against delivery of such Shares.
The Firm Shares will be delivered by the Company and the Custodian to
you for the accounts of the several Underwriters against payment of the purchase
price therefor by certified or official bank check or other next day funds
payable to the order of the Company and the Custodian, as appropriate, at the
offices of First Albany Corporation, 41 State Street, Albany, New York 12207 or
such other location as may be mutually acceptable, at 9:00 a.m., New York time,
(a) if this Agreement is executed and delivered after 4:30 p.m., New York time,
on the fourth (4th) full business day following the day that this Agreement is
executed and delivered, (b) if clause (a) of this sentence is inapplicable, then
on the third (3rd) full business day following the first day on which the
Securities are traded, or (c) if clauses (a) and (b) of this sentence are
inapplicable, then at such other time and date not later than seven (7) full
business days following the first day that the Securities are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of delivery being herein referred to as the "First Closing
Date"; provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
4(a)(v) hereof, the Representatives may, in their sole discretion, postpone the
First Closing Date until no later than two (2) full business days following
delivery of copies of the Prospectus to the Representatives. The certificates
for the Firm Shares, in definitive form and in such denominations and registered
in such names as you
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<PAGE>
may request upon at least two (2) business days' prior notice to the Company and
the Custodian, will be made available for checking and packaging at the offices
of First Albany Corporation, 41 State Street, Albany, New York 12207 or such
other location as may be mutually acceptable, at least one (1) business day
prior to the First Closing Date. If the Representatives so elect, delivery of
the Firm Shares may be made by credit through full fast transfer to the accounts
at the Depository Trust Company designated by the Representatives.
(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company, with respect to 130,000 of the Option Shares, and certain Selling
Stockholders, with respect to the number of Option Shares set forth opposite the
name of such Selling Stockholders in Schedule I hereto, hereby grant to the
several Underwriters an option to purchase all or any portion of the 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 the Representatives to the Company and to the Attorneys-in-
Fact setting forth the aggregate number of Option Shares as to which the several
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 the second (2nd) business
day after the date on which the option shall have been exercised, and provided,
further, that the Second Closing Date shall not be later than the third (3rd)
full business day following the date the Company and at least one of the
Attorneys-in-Fact shall have received written notice of the exercise of such
option. If the option granted hereunder is exercised, the number of Option
Shares to be purchased by each Underwriter shall be the same percentage of the
total number of Option Shares to be purchased by the several Underwriters as the
number of Firm Shares to be purchased by such Underwriter is of the total number
of Firm Shares to be purchased by the several Underwriters, as adjusted by the
Representatives in such manner as the Representatives deem advisable to avoid
fractional shares. If the option granted hereby is exercised in part, the
respective number of Option Shares to be sold by the Company and by each of the
Selling Stockholders listed in Schedule I hereto shall be determined on a pro
rata basis in accordance with the number of Option Shares to be sold by the
Company and the number of Option Shares set forth opposite the Selling
Stockholders' respective names on Schedule I hereto, adjusted by you in such
manner as to avoid fractional shares. You, as Representatives of the several
Underwriters, may cancel such option at any time prior to its expiration by
giving written notice of such cancellation to the Company. 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 Custodian to you for the
accounts of the several Underwriters against payment of the purchase price
therefor by certified or official bank check or other next day funds payable to
the order of the Custodian at the offices of First Albany Corporation, 41 State
Street, Albany, New York 12207 or such other
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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 First Albany Corporation,
41 State Street, Albany, New York 12207 or such other location as may be
mutually acceptable, at least one (1) business day prior to the Second Closing
Date. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts of The Depositary
Trust Company designated by the Representatives.
(c) It is understood that you, individually and not as Representatives
of the several Underwriters, may (but shall not be obligated to) make payment to
the Company or the Selling Stockholders, on behalf of any Underwriter for the
Securities to be purchased by such Underwriter. Any such payment by you shall
not relieve any such Underwriter of any of its obligations hereunder. Nothing
herein contained shall constitute any of the Underwriters an unincorporated
association or partner with the Company or the Selling Stockholders.
4. Covenants.
---------
(a) The Company covenants and agrees with the several Underwriters as
follows:
(i) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement filed pursuant to Rule 462(b) as
may be required subsequent to the date the Registration Statement is declared
effective to become effective as promptly as possible; the Company will notify
you, promptly after it shall receive notice thereof, of the time when the
Registration Statement, any subsequent amendment to the Registration Statement
or any abbreviated registration statement has become effective or any supplement
to the Prospectus has been filed; if the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to Rule 424(b) or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company utilizes a Term Sheet, the Company
will provide evidence satisfactory to you that the Prospectus and Term Sheet
meeting the requirements of Rule 434 have been filed within the time period
prescribed, with the Commission pursuant to Rule 424(b); if for any reason the
filing of the final form of Prospectus is required under Rule 424(b), it will
provide evidence satisfactory to you that Prospectus contains such information
as may be required by Rule 424(b) and the Rules and Regulations and has been
filed with the Commission within the time period prescribed; it will notify you
promptly of any request by the Commission for the amending or supplementing of
the Registration Statement or the Prospectus or for additional information;
promptly upon your request, it will prepare and file
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with the Commission any amendments or supplements to the Registration Statement
or Prospectus which, in your reasonable opinion, may be necessary or advisable
in connection with the distribution of the Securities by the Underwriters; it
will promptly prepare and file with the Commission, and promptly notify you of
the filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Securities is required to be
delivered under the Act, any event shall have occurred as a result of which the
Prospectus or any other prospectus relating to the Securities as then in effect
would include any 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 in which they were made, not misleading; and it will file no
amendment or supplement to the Registration Statement or Prospectus or the
Incorporated Documents, or, prior to the end of the period of time in which a
prospectus relating to the Securities is required to be filed under the Act,
file any document which upon filing becomes an Incorporated Document, which
shall not previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing,
subject, however to compliance with the Act and the Rules and Regulations, and
the Exchange Act and the rules and regulations of the Commission thereunder and
the provisions of this Agreement.
(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 use its best efforts in cooperation 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 required for the distribution of the
Securities, except that the Company shall not be required in connection
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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, as soon as
available, and, in the case of the Prospectus and any Term Sheet, in no event
later than the first full business day following the first day that the
Securities are traded, copies of the Registration Statement (four of which will
be manually signed and will include all exhibits), each Preliminary Prospectus,
the Prospectus, and all amendments and supplements to such documents, and the
Incorporated Documents (one of which will include all exhibits), in each case in
such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if First Albany Corporation, on behalf of the
several Underwriters, shall agree to the utilization of a Term Sheet, the
Company shall provide to you copies of the Preliminary Prospectus updated in all
respects through the date specified by you in such quantities as you may from
time to time reasonably request.
(vi) During a period of five years commencing with the date
hereof, the Company will furnish to the Representatives, and to each Underwriter
who may so request in writing, copies of all periodic and special reports
furnished to the stockholders of the Company and all information, documents and
reports filed with the Commission, NASD, the Nasdaq National Market, AMEX or any
other securities exchange.
(vii) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than the 45th day
after the end of the fiscal quarter of the Company first occurring after the
first anniversary of the effective date of the Registration Statement (or not
later than the 90th day after the end of such fiscal quarter, if such quarter is
the Company's fourth 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 and will advise you in writing
when such statement has been made available.
(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 9 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, any Term Sheet and the Incorporated Documents and
any amendment thereof or supplement to any of the foregoing, and the printing,
delivery, and shipping of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental
Blue Sky Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments or documents related to any of the foregoing, (C) all filing fees
and
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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)(iv) hereof, (D) the fees and expenses of the Custodian and any transfer
agent or registrar, (E) the filing fees incident to any required review by 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 by reason of action by
the Company pursuant to Section 9 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
several Underwriters for all out-of-pocket expenses and other disbursements
(including reasonable fees and disbursements of counsel) incurred by the
Underwriters in connection with their investigation, preparing to market and
marketing the Securities or in contemplation of performing their obligations
hereunder. The Company shall not in any event be liable to any of 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" and will file such reports with the
Commission with respect to the sale of the Securities and the application of the
proceeds therefrom as may be required by the Rules and Regulations.
(x) The Company will not, without the prior written consent of
the Representatives, 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 1983 Stock Option Plan or 1994 Long Term Incentive Plan (the
"Plans"), for a period of 180 days after the commencement of the public offering
of the Securities by the Underwriters. The Company will not, without the prior
written consent of First Albany Corporation on behalf of itself and the other
Representatives and subject to the Lock-Up Agreements (as more fully described
in Section (xi) below), grant any new option under any Plan which becomes
exercisable during such 180 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 satisfactory to you, from
each of the Selling Stockholders, each director and executive officer of the
Company, each person who is the beneficial owner of five percent (5%) or more of
the outstanding shares of Common Stock, and Ronald A. LaBarbera, stating that
such person agrees that he or she will not, without the prior written consent of
First Albany Corporation on behalf of itself and the other Representatives,
directly or indirectly offer for sale, sell, contract to sell or otherwise
dispose
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of any shares of Common Stock or rights to purchase Common Stock, except to the
Underwriters pursuant to this Agreement, for a period of 180 days after
commencement of the public offering of the Securities by the Underwriters as set
forth on Schedule III hereto.
(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.
(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) If at any time during the 90-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(xv) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(xvi) 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 will in the future 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.
(xvii) During a period of 180 days from the effective date of the
Registration Statement, the Company will not file a registration statement under
the Act, including any registration statement registering shares under any of
the Plans or any other employee benefit plan; provided that the Company shall be
permitted to (x) maintain the effectiveness of any currently effective
registration statement on Form S-8 relating to the 1983 Stock Option Plan or the
1994 Long Term Incentive Plan and (y) file a registration statement on Form S-8
covering the 500,000 shares of Common Stock authorized to be issued pursuant to
the 1994 Long Term Incentive Plan as of May 18, 1995.
(b) Each of the Selling Stockholders covenants and agrees with the
several Underwriters and the Company as follows:
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(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 such Selling
Stockholder, the fees of such Selling Stockholder's counsel and such Selling
Stockholder's proportionate share (based upon the number of Securities being
offered by such Selling Stockholder pursuant to the Registration Statement) of
the fees of the Custodian; provided, however, that such Selling Stockholder
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 at any time
pursuant to the Custody Agreement of such Selling Stockholder, together with the
warrant certificates or agreements or option agreements and the other
instruments and funds held in custody for the Selling Stockholders as described
in Section 2(b) hereof, are subject to the interest of the several Underwriters;
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, the certificates for the
Securities shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if 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 the prior written
consent of First Albany Corporation on behalf of itself and the other
Representatives, directly or indirectly 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 to the Underwriters pursuant to this
Agreement, for the period of 180 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 satisfactory to you, which Agreement has been
delivered to you prior to the effective date of the Registration Statement.
Such 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.
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(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.
(vi) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the federal income tax laws, including
the Tax Equity and Fiscal Responsibility Act of 1982 and the Interest and
Dividend Tax Compliance Act of 1983 with respect to the transactions herein
contemplated, each of the Selling Stockholders agrees to deliver to you prior to
or at the Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof), or such other information or
documentation as may be necessary, in your reasonable opinion, to evidence such
compliance.
5. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
several Underwriters hereunder are subject to the accuracy of, 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), as the case may be, 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) The Registration Statement shall have become effective not later
than 2:00 p.m., New York time, on the date of this Agreement, or such later time
and date as you, as Representatives of the several Underwriters, shall approve,
and all filings required by Rule 424 and Rule 430A of the Rules and Regulations
shall have been timely made; 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
threatened; and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to your satisfaction.
(b) No Underwriter shall 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.
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(c) Except as expressly 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 its subsidiaries 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, there shall not
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 options or warrants outstanding as of the date the Registration
Statement was filed), 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 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, as
Representatives of the several Underwriters, the opinion of LeBoeuf, Lamb,
Greene & MacRae, L.L.P., counsel for the Company, dated such Closing Date and
addressed to you, to the effect that:
(i) Each of the Company and its subsidiaries 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 its properties and conduct its business as currently being
carried on and as described in the Registration Statement and Prospectus, and
the Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction set forth on Schedule IV hereto.
(ii) The authorized and outstanding capital stock of the Company,
and, to the best of such counsel's knowledge, all securities convertible into or
exercisable for capital stock of the Company, as of the date indicated in the
Prospectus, is as set forth in the Prospectus under the caption
"Capitalization," including the footnotes to the table included under such
caption; the capital stock of the Company conforms as to legal matters to the
description thereof contained in the Prospectus under the caption "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. The certificates for the Securities to be
issued and sold by the Company hereunder as delivered to the Underwriters are in
due and proper form. Except as described in the 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 Certificate of
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<PAGE>
Incorporation, by-laws or any agreement or other instrument known to such
counsel to which the Company is a party or by which the Company is bound. To
the best of such counsel's knowledge, 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, except such rights as
are otherwise described in the Prospectus and which have been satisfied or
waived, and except for technical compliance with the notice provisions
applicable to the registration rights attaching to the warrants described in the
Prospectus as having registration rights.
(iii) All of the issued and outstanding shares of capital stock of
the Company's subsidiaries have been duly and validly authorized and issued and
are fully paid and nonassessable, and, to the best of such counsel's knowledge,
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. To the best of 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 any subsidiary any shares
of the capital stock of the Company or any subsidiary of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of 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, to the knowledge of such counsel,
threatened by the Commission; any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has been
made in the manner and within the time period required by Rule 424(b).
(v) The descriptions in the Registration Statement and
Prospectus of statutes, legal and governmental proceedings and contracts,
insofar as such descriptions purport to summarize matters of law, are accurate
summaries and fairly present the information required to be disclosed with
respect thereto; and such counsel does not know of any statutes or legal or
governmental proceedings required to be described in the Prospectus that are not
described as required, or of any contracts or documents of a character required
to be described in the Registration Statement or Prospectus or included as
exhibits to the Registration Statement that are not described or included as
required.
(vi) The Company has full corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the several Underwriters
the Securities to be issued and sold by it hereunder. 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 indemnification hereunder may be
limited by federal or state securities laws and except as such enforceability
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 will not result in a breach
or violation of any of the terms
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<PAGE>
and provisions of, or constitute a default under, any statute, any rule,
regulation, license, authorization, approval or permit issued or promulgated by
any governmental agency or body having jurisdiction over the Company or any
material agreement or instrument known to such counsel 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 Certificate of Incorporation, or by-laws, or any material order,
judgment, writ or decree known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its respective
properties; 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 any Blue Sky Laws or the by-laws or rules of the
NASD applicable to the corporate finance arrangements of the transactions
contemplated hereby).
(vii) To the best of such counsel's knowledge, the Company holds,
and is operating in compliance in all material respects 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, except where the failure to hold or to be so in compliance would not
have a material adverse effect on the business, condition (financial or
otherwise), prospects, net worth or results or results of operations of the
Company and its subsidiaries, taken as a whole.
(viii) To the best of such counsel's knowledge, neither the
Company nor its subsidiaries is in violation of its respective charter or by-
laws, and the Company is not in breach of or otherwise in default in the
performance of any material obligation, agreement or condition contained in any
bond, debenture, note, contract, indenture, loan agreement, permit, approval,
registration, judgment, decree, order, statute, rule or regulation or any other
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 is subject.
(ix) 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 has examined documents referred to in the
Registration Statement and Prospectus, 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, no information has come to the attention
of such counsel which causes such counsel to believe
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that the Registration Statement or any amendment thereof, at the time the
Registration Statement became effective and as of such Closing Date, 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 its 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.
(x) Except as set forth in the Prospectus, such counsel knows of
no pending or threatened action, suit, claim, proceeding or investigation before
any court or governmental agency or body that, if determined adversely to the
Company, would have a material adverse effect on the Company and its
subsidiaries, taken as a whole, or which would limit, revoke, cancel, suspend,
or cause not be renewed any existing license, certificate, registration,
approval or permit from any state, federal or regulatory authority that is
material to the conduct of the business or the Company and its subsidiaries,
taken as a whole, as presently conducted.
(xi) To the best of 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.
(xii) The Company is not an "Investment Company" within the
meaning of the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
(xiii) The statements under the captions "Risk Factors--
Regulation," "Business--Products and Services," "Business--Government
Regulation," "Business--Properties," "Description of Capital Stock" and "Shares
Eligible for Future Sale" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or of matters of law, are
accurate summaries and fairly and correctly present, in all material respects,
the information called for with respect to such documents and matters.
(xiv) Such other matters as you may reasonably request.
In rendering such opinion such counsel may rely (i) as to matters of
law other than the law of the State of New York, the general corporate law of
the State of Delaware and federal law, upon the opinion or opinions of local
counsel provided that the extent of such reliance is specified in such opinion
and that such counsel shall state that such opinion or opinions of local counsel
are satisfactory to them and that they believe they and you are justified in
relying thereon and (ii) as to matters of fact, to the extent such counsel deems
reasonable, upon certificates of officers of the Company and its subsidiaries
provided that the extent of such reliance is specified in such opinion. Copies
of any opinion or certificate relied upon shall be delivered to you as
Representatives of the Underwriters.
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(e) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of LeBoeuf, Lamb,
Greene & MacRae, L.L.P., counsel for the Selling Stockholders, dated such
Closing Date and addressed to you, to the effect that:
(i) Each Selling Stockholder is the sole record and beneficial
owner of the Securities to be sold by such Selling Stockholder; upon delivery of
the certificates for the Securities to be sold by such Selling Stockholder
pursuant to this Agreement, against payment therefor by the Underwriters, valid
title to such Securities will pass to the Underwriters and 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 knowledge of
an adverse claim), free and clear of any security interests, claims, liens,
restrictions on transferability, legends, proxies, equities or other
encumbrances of which such counsel has knowledge. The certificates for the
Securities to be sold by the Selling Stockholders hereunder as delivered to the
Underwriters are in due and proper form.
(ii) Each Selling Stockholder 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 Agreement and the Powers of Attorney
have been duly and validly executed and delivered by (or by the Attorneys-in-
Fact, or any of them, on behalf of) each Selling Stockholder and are valid and
binding agreements of such Selling Stockholder, enforceable against such Selling
Stockholder in accordance with their respective terms (except as rights to
indemnification 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 similar laws affecting creditors' rights generally
and subject to general principles of equity).
(iii) In the case of each Selling Stockholder, the execution and
delivery of this Agreement, the Custody Agreement and the Power of Attorney and
the performance of the terms hereof and thereof and the consummation of the
transactions herein and therein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any statute, rule or regulation or any agreement or instrument known to such
counsel to which such Selling Stockholder is a party or by which such Selling
Stockholder is bound or to which any of its property is subject, or any order or
decree known to such counsel of any court or government agency or body having
jurisdiction over such Selling Stockholder or any of its respective properties;
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, the Custody Agreement and the Power of Attorney
or for the consummation of the transactions contemplated hereby and thereby,
including the sale of the Securities being sold by such Selling Stockholder,
except such as may be required under the Act (provided, that no opinion need be
expressed in this paragraph with respect to any Blue Sky Laws or the by-laws or
rules of the NASD applicable to the corporate financing arrangements of the
transactions described herein).
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(iv) Such other matters as you may reasonably request.
In rendering such opinion such counsel may rely, as to matters of
fact, to the extent such counsel deems reasonable, upon certificates of the
Selling Stockholders and representations and warranties of the Selling
Stockholders contained herein and in the Power of Attorney, without independent
verification, provided that the extent of such reliance is specified in such
opinion. Copies of any opinion or certificate relied upon shall be delivered to
you, as Representatives of the Underwriters.
(f) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, such opinion or opinions from
Foley, Hoag & Eliot, counsel for the several Underwriters, dated such Closing
Date and addressed to you, with respect to such 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, as Representatives of the several
Underwriters, shall have received a letter of Deloitte & Touche, 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 Representatives and counsel thereto.
(h) On each Closing Date, there shall have been furnished to you, as
Representatives of the Underwriters, a certificate, dated such Closing Date and
addressed to you, signed by the Chairman of the Board or the President and by
the chief financial officer of the Company, to the effect that (and you shall be
satisfied that as of such date):
(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 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) The Registration Statement has become effective and 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
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(iii) The signers of said certificate have carefully examined the
Registration Statement and the Prospectus, and any amendments thereof or
supplements thereto, and (A) such documents contain all statements and
information required to be included therein, 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 there has occurred no event
required to be set forth in an amended or supplemented prospectus which has not
been so set forth, (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, neither
the Company nor its subsidiaries 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 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 options or warrants
outstanding as of the date the Registration Statement was filed), 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 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 (D) 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 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, as
Representatives of the several Underwriters, 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 Attorneys-in-Fact to the
effect that (and you shall be satisfied that) 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 Company and the Selling Stockholders shall have furnished to
you and counsel for the Underwriters such additional documents, certificates and
evidence as you or they may have reasonably requested.
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(k) The Securities shall be approved for listing, subject to notice of
official issuance, on AMEX.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are 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.
If any of the conditions hereinabove provided for in this Section 5
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Stockholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Selling Stockholders, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 4(a)(viii), 4(b)(i) and 6 hereof).
6. Indemnification and Contribution.
--------------------------------
(a) The Company and each Selling Stockholder, severally and not
jointly, agree to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of the Act against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, covenant or agreement of the Company or any
Selling Stockholder, as the case may be, herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (iii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter and
each such controlling person for any legal or other expenses reasonably incurred
by such Underwriter or such controlling person in connection with investigating
or defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that (i) the Company and the Selling Stockholders will not be
liable in any such case to the extent that any such loss, claim, damage or
liability 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 such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof, (ii) each Selling Stockholder will only be liable in any
such case to the extent that any such loss, claim, damage or liability 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 such amendment or supplement, in reliance upon
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and in conformity with written information furnished to the Company by or on
behalf of such Selling Stockholder specifically for use in the preparation
thereof, and (iii) the indemnity obligation contained in this paragraph (a) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Securities which are the subject thereof (or to the
benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Securities a copy of the Prospectus (or
the Prospectus as amended or supplemented) was not sent or delivered to such
person and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with Section 4(a)(v) hereof. In addition to their other obligations
under this Section 6(a), the Company and the Selling Stockholders agree that, as
an interim measure during the pendency of any such claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 6(a),
they will reimburse the Underwriters on a monthly basis for all reasonable legal
and other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Company's and the Selling Stockholders' obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction.
Notwithstanding the foregoing, the obligation of the Selling Stockholders
pursuant to the immediately preceding sentence shall be limited to claims,
actions, investigations, inquiries or other proceedings arising out of or based
upon any statement or omission, or any alleged statement or omission, described
in clause (ii) of the proviso to the first sentence of this Section 6(a). Any
such interim reimbursement payments that are not made to the Underwriters within
30 days of a request for reimbursement shall bear interest at the prime rate (or
reference rate or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by Citibank, N.A. (the "Prime
Rate") from the date of such request. In no event shall the liability of any
Selling Stockholder for indemnification under this Section 6(a) exceed the
lesser of (i) that proportion of the total of such losses, claims, damages or
liabilities indemnified against equal to the proportion of the total Securities
sold hereunder which is being sold by such Selling shareholder, or (ii) the
proceeds received by such Selling Stockholder from the Underwriters in the
offering. This indemnity agreement will be in addition to any liability which
the Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the Registration
Statement, the Selling Stockholders, and each person, if any, who controls the
Company or the Selling Stockholders within the meaning of the Act, against any
losses, claims, damages or liabilities to which the Company or any such
director, officer, Selling Stockholder or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any 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 the alleged omission to state
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therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, Selling Stockholder or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding; provided, however, that each
Underwriter will be liable in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. In
addition to their other obligations under this Section 6(b), the Underwriters
agree that, as an interim measure during the pendency of any such claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission or any alleged statement or omission, described in this
Section 6(b), they will reimburse the Company and the Selling Stockholders on a
monthly basis for all reasonable legal and other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company and the
Selling Stockholders for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
Any such interim reimbursement payments that are not made to the Company or
Selling Stockholders within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 6, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
6(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 6(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the failure to give such
notice shall not relieve the indemnifying party or parties from any liability
which it or they may have to the indemnified party for contribution or otherwise
than on account of the provisions of Section 6(a) or (b). In case any such
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein 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 shall
pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing,
the indemnifying party shall pay as incurred the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such
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proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party or that representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. If is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one separate firm
for all such indemnified parties. Such firm shall be designated in writing by
you in the case of parties indemnified pursuant to Section 6(a) and by the
Company and the Selling Stockholders in the case of parties indemnified pursuant
to Section 6(b). The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 6(a) and (b) hereof,
including the amounts of any requested reimbursement payments, the method of
determining such amounts and the basis on which such amounts shall be
apportioned among the indemnifying parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the National Association of Securities Dealers, Inc.
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein designating
the arbitration tribunal. In the event the party demanding arbitration does not
make such designation of an arbitration tribunal in such demand or notice, then
the party responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 6(a) and (b) hereof and will not resolve the
ultimate propriety or enforceability of the obligation to indemnify for expenses
that is created by the provisions of such Sections 6(a) and (b).
(d) If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 6(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), 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 (or
actions or proceedings in respect thereof) referred to in Section 6(a) or (b)
above 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. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under Section 6(c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits 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
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omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), 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 the 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 or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such 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 Section
6(d) were determined by pro rata allocation (even if the Underwriters were
treated as an entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 6(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 6(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6(d), (i) no Underwriter shall be
required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the shares purchased by such Underwriter, (ii) 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, and (iii) no Selling Stockholder
shall be required to contribute any amount in excess of the lesser of (A) that
proportion of the total of such losses, claims, damages or liabilities
indemnified or contributed against equal to the proportion of the total
Securities sold hereunder which is being sold by such Selling Stockholder, or
(B) the proceeds received by such Selling Stockholder from the Underwriters in
the offering. The Underwriters' obligations in this Section 6(d) to contribute
are several in proportion to their respective underwriting obligations and not
joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 6 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of this Section 6,
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and are fully informed regarding such provisions. They further acknowledge that
the provisions of this Section 6 fairly allocate the risks in light of the
ability of the parties to investigate the Company and its business in order to
assure that adequate disclosure is made in the Registration Statement, any
Preliminary Prospectus, the Prospectus and any Supplement or amendment thereto,
as required by the Act. The parties have been advised that federal or state
public policy, as interpreted by the courts in certain jurisdictions, may be
contrary to certain of the provisions of this Section 6, and the parties hereto
hereby expressly waive and relinquish any right or ability to assert such public
policy as a defense to a claim under this Section 6 and further agree not to
attempt to assert any such defense.
7. Representations, Warranties and Agreements to Survive Delivery. All
--------------------------------------------------------------
representations, warranties, and agreements of the Company and each Selling
Stockholder herein or in certificates delivered pursuant hereto, and the
agreements of the several Underwriters, the Company and such Selling Stockholder
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 such Selling Stockholder or any
controlling person thereof, and shall survive delivery of, and payment for, the
Securities to and by the Underwriters hereunder.
8. Substitution of Underwriters.
----------------------------
(a) If on the First Closing Date or the Second Closing Date, as the
case may be, any Underwriter or Underwriters shall fail to take up and pay for
the amount of the Securities agreed by such Underwriter or Underwriters to be
purchased hereunder upon tender of the Securities in accordance with the terms
hereof (otherwise than by reason of any default on the part of the Company or a
Selling Stockholder), you, as Representatives of the Underwriters, shall use
your best efforts to procure within 24 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company and the Selling
Stockholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase.
(b) If during such 24 hours you, as such Representatives, shall not
have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (i) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (ii) if the aggregate number of shares of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company and the Selling Stockholders or you as the Representatives
of the Underwriters will have the right, by written notice given within the
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next 24-hour period to the parties to this Agreement, to terminate this
Agreement. In the event of any such termination neither the Company nor the
Selling Stockholder shall be under any liability to any Underwriter (except to
the extent provided in Section 4(a)(viii), Section 4(b)(i) and Section 6 hereof)
nor shall any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some reason permitted under this Agreement, to purchase the
amount of Firm Shares or Option Shares, as the case may be, agreed by such
Underwriter to be purchased hereunder, which Underwriter shall remain liable to
the Company, and the Selling Stockholders and the other Underwriters for
damages, if any, resulting from such default) be under any liability to the
Company or the Selling Stockholders (except to the extent provided in Section 6
hereof).
If Firm Shares or Option Shares, as the case may be, to which a
default relates are to be purchased by the non-defaulting Underwriters or by any
other party or parties, the Representatives or the Company shall have the right
to postpone the First Closing Date or the Second Closing Date, as the case may
be, for not more than seven business days in order that the necessary changes in
the Registration Statement, Prospectus and any other documents, as well as any
other arrangements, may be effected. As used herein, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 6.
9. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at 10:00 a.m., New York
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; provided, that if the Registration Statement
is effective at the time this Agreement is executed, this Agreement shall become
effective at such time 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, as Representatives of the
several Underwriters, 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.
(b) You, as Representatives of the several Underwriters, 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 any Selling Stockholder 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 likely to involve a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company
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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, in each case 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 its subsidiaries, (v) trading on the New York Stock Exchange, the
American Stock Exchange, or the Nasdaq National Market 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, the American Stock Exchange or the Nasdaq National Market,
by such Exchange or Market or by order of the Commission or any other
governmental authority having jurisdiction, (vii) a banking moratorium shall
have been declared by federal or New York, California or Connecticut
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 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.
10. Default by the Selling Stockholders or the Company. If the Selling
--------------------------------------------------
Stockholders shall fail at the First Closing Date or Second Closing Date, as the
case may be, to sell and deliver the number of Securities which such Selling
Stockholders are obligated to sell hereunder, then the Underwriters may at your
option, by written notice from you to the Company, 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 has agreed to sell hereunder.
In the event of a default by the Selling Stockholders as referred to
in this Section, either you or the Company shall have the right to postpone the
First Closing Date or Second Closing Date, as the case may be, 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
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terminate without any liability on the part of any non-defaulting party. If the
Company shall fail at the Second Closing Date to sell and deliver the number of
Option Shares which the Company is obligated to sell and deliver at the Second
Closing Date, then the Underwriters may at your option, by written notice from
you to the Company, either (a) terminate this Agreement without any liability on
the part of any non-defaulting party or (b) elect to purchase the Option Shares
which the Selling Stockholders have agreed to sell hereunder.
No action taken pursuant to this Section shall relieve the Company or
the Selling Stockholders so defaulting from liability, if any, in respect of
such default.
11. Information Furnished by Underwriters. The statements set forth in
-------------------------------------
the last paragraph of the cover page (to the extent related to the Underwriters)
of any Preliminary Prospectus and the Prospectus; 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 constitute
the only written information furnished by or on behalf of the Underwriters
referred to in Section 2 and Section 6 hereof.
12. In all dealings hereunder, you as the Representatives of the several
Underwriters shall act on behalf of each of the Underwriters, and the parties
hereto shall be entitled to act and rely upon any statement, request, notice or
agreement on behalf of any Underwriter made or given by you jointly or by any of
you on behalf of you as the Representatives; and in all dealings with the
Selling Stockholders hereunder, you and the Company shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of such Selling
Stockholders made or given by any or all of the Attorneys-in-Fact for such
Selling Stockholders.
13. Notices. Except as otherwise provided herein, all communications
-------
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to the Representatives c/o First Albany
Corporation, 41 State Street, Albany, New York 12207, except that notices given
to an Underwriter pursuant to Section 6 hereof shall be sent to such Underwriter
at the address stated in the Underwriters' Questionnaire furnished by such
Underwriter in connection with this offering; if to the Company, shall be
mailed, telegraphed or delivered to it at 80 Pickett District Road, New Milford,
Connecticut, 06776 Attention: Walter M. Fiederowicz, Chairman; if to 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
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.
14. 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
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include any purchaser, as such purchaser, of any of the Securities from any of
the several Underwriters.
15. Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the substantive laws of the State of New York (without regard to
its choice of law rules).
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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 several Underwriters in accordance
with its terms.
Very truly yours,
COLONIAL DATA TECHNOLOGIES
CORP.
By:/s/ Walter M. Fiederowicz
--------------------------------
Walter M. Fiederowicz, Chairman
THE SELLING STOCKHOLDERS
LISTED IN SCHEDULE I
By:/s/ John N. Giamalis
--------------------------------
Attorney-in-Fact
Confirmed as of the date first above
mentioned, on behalf of themselves
and the other several Underwriters
named in Schedule II hereto.
FIRST ALBANY CORPORATION
By:/s/ Timothy R. Welles
----------------------------
Senior Vice President
NATWEST SECURITIES LIMITED
By:/s/ Paul ffolkes Davis
----------------------------
Managing Director
VOLPE, WELTY & COMPANY
By:/s/ Robert M. Whelan, Jr.
----------------------------
General Partner
-39-
<PAGE>
SCHEDULE I
Selling Stockholders
<TABLE>
<CAPTION>
Number of Maximum Number Percentage of
Firm Shares of Option Shares Total Number of
Name to be Sold Subject to Option Option Shares
- ---- ----------- ----------------- ---------------
<S> <C> <C> <C>
Photronics, Inc. 225,000 25,000 12.50%
Margaret A. Schock 150,000 75,000 37.50
Frederick P. Masotta, Jr. 50,242 25,000 12.50
Daniel V. Cusack 75,000 37,500 18.75
Constantine S. Macricostas 75,000 - -
Geraldine Fiederowicz 75,000 37,500 18.75
David S. Allsopp 24,670 - -
Robin Davis 37,005 - -
John R. Lakian 37,004 - -
Jan I. Pilkington-Miksa 12,004 - -
George R. Begley 7,004 - -
Joseph DeFelice 27,137 - -
Robert M. Wallace 4,934 - -
======= ======= =======
800,000 200,000 100.00%
</TABLE>
-40-
<PAGE>
SCHEDULE II
Underwriters
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares/1/
- ----------- --------------
<S> <C>
First Albany Corporation 766,670
NatWest Securities Limited 766,665
Volpe, Welty & Company 766,665
Total Underwriters (3) 2,300,000
=========
</TABLE>
- -----------------------
/1/ The Underwriters may purchase up to an additional 345,000 Option Shares, to
be the extent the option described in Section 3 of the Agreement is exercised,
in the proportions and in the manner described in the Agreement.
-41-
<PAGE>
SCHEDULE III
Lock-Up Agreements
<TABLE>
<CAPTION>
Name Number of Shares Lock-Up Period
---- ---------------- --------------
<S> <C> <C>
Photronics, Inc. 629,755 180 days
Robert J. Schock 904,295 180 days
Frederick P. Masotta, Jr. 694,284 180 days
William L. Nutter 128,100 180 days
Daniel V. Cusack 304,340 180 days
John N. Giamalis 0 180 days
Ronald A. LaBarbera 400,000 180 days
Walter M. Fiederowicz 203,416 180 days
Joseph W. Cline 8,333 180 days
Constantine S. Macricostas 65,590 180 days
David S. Allsopp 40,750 180 days
Robin Davis 0 180 days
Jan I. Pilkington-Miksa 5,000 180 days
John R. Lakian 0 180 days
George R. Begley 30,000 180 days
Joseph DeFelice 0 180 days
Robert M. Wallace 0 180 days
</TABLE>
-42-
<PAGE>
SCHEDULE IV
Foreign Qualification
Arizona
Colorado
Connecticut
Delaware
Idaho
Iowa
Nebraska
New Mexico
Oregon
Washington
Wyoming
Ontario
-43-
<PAGE>
Exhibit 4.1
[FRONT OF FORM OF STOCK CERTIFICATE]
[LOGO]
COLONIAL DATA TECHNOLOGIES CORP.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
COMMON STOCK -- SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 195642 103
THIS CERTIFIES THAT _______________________ is the owner of ______________
fully paid and non-assessable shares of common stock, par value $.01 per share,
of Colonial Data Technologies Corp., transferable on the books of the
Corporation in person or by duly authorized attorney upon surrender of this
certificate properly endorsed.
This Certificate and the shares represented hereby are issued and held
subject to the laws of the State of Delaware, the Certificate of Incorporation
of the Corporation, as amended, and the By-Laws of the Corporation, as amended.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and sealed
with the facsimile seal.
Dated:______________________________
____________________________________ _____________________________
John N. Giamalis Robert J. Schock
Treasurer President
[SEAL]
Countersigned: AMERICAN STOCK TRANSFER & TRUST COMPANY (NEW YORK, NY), Transfer
Agent and Registrar
By: ______________________________
Authorized Signature
<PAGE>
[BACK OF FORM OF STOCK CERTIFICATE]
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT --
TEN ENT -- as tenants by the ________ Custodian ________
entireties (Cust) (Minor)
__________
JT TEN -- as joint tenants with
right of survivorship under Uniform Gifts to Minors Act
and not as tenants in
common _____________________________
(state)
Additional abbreviations may also be used though not in the above list.
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 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>
Exhibit 5
LeBouef, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, CT 06103
(203) 293-3500
July 12, 1995
Colonial Data Technologies Corp.
80 Pickett District Road
New Milford, CT 06776
Re: Registration Statement No. 33-60033
-----------------------------------
Gentlemen:
We refer to the Registration Statement on Form S-2, No. 33-60033 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), filed by Colonial Data Technologies Corp., a Delaware
corporation (the "Company"), with the Securities and Exchange Commission (the
"Commission"). The Registration Statement covers up to 2,645,000 shares (the
"Shares") of common stock par value $.01 per share, of the Company to be offered
to the public by First Albany Corporation, NatWest Securities Limited and Volpe,
Welty & Company (the "Underwriters"), pursuant to the Registration Statement.
We have examined the originals, or photostatic or certified copies, of
such records of the Company, certificates of officers of the Company and of
public officials, and such other documents as we have deemed relevant and
necessary as the basis of the opinion set forth below. In such examination we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as photostatic or certified copies and the
authenticity of the originals of such copies.
Based upon our examination, we are of the opinion that the issuance of
the Shares has been duly and validly authorized by the Company and that the
Shares, when sold to the Underwriters, will be legally issued, fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm appearing under the
caption "Legal Matters" in the Prospectus forming part of the Registration
Statement. In giving this consent, we do not hereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
/s/ LeBoeuf, Lamb, Greene &
MacRae, L.L.P.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Colonial Data Technologies Corp. and its subsidiary on Form S-2 of our
report dated January 19, 1995, appearing in and incorporated by reference in
the Annual Report on Form 10-K of Colonial Data Technologies Corp. and its
subsidiary for the year ended December 31, 1994 and to the use in this
Registration Statement of our report dated January 19, 1995 and to the
reference to us under the heading "Experts" in the Prospectus, which is part
of this Registration Statement.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
July 13, 1995
