SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from to
COMMISSION FILE NUMBER: 1-11057
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 No.)
80 Pickett District Road
New Milford, Connecticut 06776
(Address and Zip Code of principal executive offices)
(860) 210-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01 per share (Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 29, 1996: $292,296,668.
Number of shares outstanding as of February 29, 1996: 15,427,484
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for its Annual Meeting of
Stockholders presently scheduled for April 18, 1996 are incorporated by
reference into Part III of this report.
COLONIAL DATA TECHNOLOGIES CORP.
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . .
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . .
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . .
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . .
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . .
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . .
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . .
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . .
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . .
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . .
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I
ITEM 1. BUSINESS
General Overview
Colonial Data Technologies Corp. (the "Company" or "CDT") 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 and other emerging intelligent
network services. The Company and its strategic alliance partner have
developed a smart telephone, Telesmart 4000, which provides consumers call
management features and major new advances in interactive applications via
telephone. The Company currently offers 13 models of Caller ID adjunct units
and five models of screen telephones with integrated Caller ID. Through its
subsidiaries, the Company distributes small business telecommunications
systems with the Landmark [R] trademark and high-end consumer
telecommunications equipment, including advanced cordless products. 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.
Industry Background
Deregulation and technological advances have intensified competition among
existing operators of telecommunication networks and encouraged the entrance
of new service providers. In the United States, competition among RBOCs,
other telcos and long distance carriers and new service providers that have
entered the local and long distance markets, has increased and may increase
further as a result of the new federal telecommunications legislation, the
Telecommunications Act of 1996. RBOCs and other telcos are responding to
increasing competition by introducing value-added, intelligent network
services and lowering their cost structures.
In order to deploy intelligent network services, the telcos have been
upgrading their telecommunications networks to support a set of standards,
known as the Intelligent Networks ("IN"). IN supports open, distributed
switching and processing capabilities and allows the telcos to create, modify
and deploy new services quickly and economically. An important aspect of IN
is a signaling protocol called Signaling System No. 7 ("SS7").
Caller ID is a service that displays information about the incoming call
(including the number and name of the caller and the time and date of the
call) on a device located near the telephone (in the case of an adjunct unit)
or on a display screen located on the telephone (in the case of an integrated
Caller ID telephone). The actual information displayed depends on the Caller
ID equipment and whether the call is local or outside the local calling
area. As of December 31, 1995, Caller ID was offered by telcos in all or
part of 48 states and the District of Columbia but was not available in
California and Hawaii, principally for regulatory reasons. Caller ID
service is scheduled to be offered in California and Hawaii in 1996.
The Company estimates that the current penetration rate of Caller ID
service is approximately 10% of the total subscribers in those areas
in the United States that have Caller ID capabilities and have received
regulatory approval.
Until December 1, 1995, the deployment of Caller ID services was limited to
transferring the calling party information between callers within the same
local calling area. On December 1, 1995, the US Federal Communications
Commission ("FCC") issued an order that requires all telephone service
providers with SS7 switching capability to transmit calling party number
information to each other on interstate calls within the United States
(except for public pay phones and party lines). The Company believes that
the FCC's action remains subject to certain court challenges and other
objections. See "Government Regulation".
While Caller ID has been successful in Canada, where it has achieved a
penetration of 28% 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 services such as Caller ID, Bell Communications Research, Inc.
has developed Analog Display Services Interface ("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 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.
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, 1993, 1994 and 1995, 84%, 90% and 96%,
respectively, of the Company's revenues were derived from the 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 99 calls, a "blocked call"/"new call" light, a
patented "Block the Blocker" feature, a bilingual display and a "message
waiting alert" light that indicates to a network voice mail subscriber that a
new voice mail message has been received. "Block the Blocker" is a feature
that detects when call block is used by a caller, delivers a message to that
caller that the Caller ID subscriber does not accept blocked calls and
disconnects the call. The Company has entered into a licensing arrangement
with Timex Corporation for the use of its Indiglo [R] backlighting technology
for certain Caller ID products. The Company's full-featured Caller ID
adjunct devices have suggested retail prices of $39.95 to $79.99.
Integrated Telephones and Answering Machines
The Company has begun to market a line of telephones with integrated Caller
ID functionality. In the fourth quarter of 1995, the Company introduced a
digital answering machine with Caller ID functions. The Company's integrated
telephones have suggested retail prices of $59.99 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 SCWID adjunct device has a suggested retail price of $79.99.
ADSI-Compatible Smart Telephones
The Company is developing ADSI-compatible smart telephones in conjunction
with its strategic alliance partner, US Order, Inc. ("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
central processing unit, a QWERTY keyboard, a magnetic stripe card reader and
memory. The Company has been selected by NYNEX Corp. ("NYNEX") to supply
smart telephones and expects to begin shipping in the first half of 1996.
The suggested retail price of the smart telephone will be $289.99.
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 1996 with a
maximum of 200,000 shares.
Services
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. The Company believes that its capabilities in this area
have strengthened its relationship with the RBOCs and other telcos. During
1995, the Company's service customer base included Southern New England
Telecommunications Corp. ("SNET"), TIE/communications, Inc. ("TIE"), Nitsuko
America Corp., Conair Corp., and Sears, Roebuck & Co. ("Sears").
Additionally, through its joint venture with Blau Marketing Technologies,
Inc., Worldwide Telecom Partners, Inc. ("Worldwide Telecom"), the Company
markets intelligent network services to end users on behalf of RBOCs. This
joint venture recently completed a program that marketed Caller ID services
to Bell Atlantic Corp. ("Bell Atlantic") customers in Maryland, New Jersey
and Virginia. Additionally, Worldwide Telecom has been engaged by NYNEX to
market Caller ID and other intelligent network services to NYNEX customers in
Massachusetts and New York. See "Marketing and Distribution".
In addition to repair and refurbishment services, the Company offers
fulfillment services whereby the Company utilizes its systems and facilities
to provide customer service, inventory handling and management, and billing
services in connection with the distribution of telecommunications equipment.
Acquisitions and Agreements
During 1995, the Company identified joint venture, acquisition and other
opportunities to complement and enhance its strategy of supporting its RBOC
customers in their deployment of intelligent network services.
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 and to widen its
product offerings, strengthen its product development capability and add
manufacturing capacity.
The Company formed Worldwide Telecom pursuant to a joint venture agreement
with Blau Marketing Technologies, 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.
In November, the Company entered into an agreement with Southwestern Bell
Telecommunications, Inc. ("SBT") whereby it acquired the exclusive worldwide
distribution rights to the Landmark [R] line of business products, including
the digital key service units, key sets and ancillary devices sold with the
Landmark [R] trademark, and acquired the Landmark [R] trademark and certain
inventory. The Company believes that the introduction of national Caller ID
service following the regulatory changes effective in December 1995, will
likely result in increased demand for Caller ID products and services by
businesses. The Company believes that the SBT arrangement provides the
Company a platform from which to serve this market.
In December, the Company formed a new subsidiary, G-tel Corp., which acquired
assets and liabilities from G-Communications, Inc., a company engaged in the
development and distribution of telecommunications products primarily in the
retail and international marketplaces. In addition, CLT Telecommunications
Corp., a Taiwanese manufacturer with extensive experience in the design and
production of wireless telecommunications equipment, acquired a minority
equity interest in G-tel Corp.
Marketing and Distribution
The Company markets its products and services through a direct sales force of
14 employees, supported by its marketing department, and currently uses 33
independent sales representative firms. The Company's distribution strategy
is to make its products available to potential end users through multiple
distribution channels described below. Bell Atlantic, BellSouth Corp.
("BellSouth") and US West Communications, Inc. ("US West") each accounted for
more than 10% of the Company's total revenues for 1995.
Direct Fulfillment Arrangements
The Company sells telecommunications products to RBOC subscribers and other
telco subscribers through direct fulfillment arrangements with Ameritech
Corp. ("Ameritech"), Bell Atlantic, BellSouth, Frontier Corp., US West, and
NYNEX. 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
telephone 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
In May, 1995 the Company entered into a joint venture agreement with the
direct marketing firm of Blau Marketing Technologies, Inc. The joint venture
operates through a jointly owned corporation, Worldwide Telecom, which is 50%
owned by each of the joint venturers. The joint venture agreement is
terminable by either party upon sufficient advance notice to the other to
enable Worldwide Telecom to complete performance of any outstanding contracts
with telcos.
Worldwide Telecom has provided direct marketing services to Bell Atlantic and
NYNEX under several separate programs. The first such program with Bell
Atlantic customers in New Jersey included direct mail advertising with
follow-up outbound telemarketing to potential Caller ID customers. Following
the successful completion of this first program, Worldwide Telecom has
completed additional programs for Caller ID, Call Answering and Call Waiting
services. The Company intends to expand the activities of Worldwide Telecom
in 1996. The Company supplies all Caller ID units and product management
services for Worldwide Telecom, and recognized $2,813,000 in revenues for
products sold to Worldwide Telecom in 1995. See "Acquisitions and
Agreements".
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 Bell Atlantic,
BellSouth, NYNEX, and others, which units may be redistributed either under
the CDT name or the respective telco's trade name. The Company, through its
Canadian subsidiary, sells its products directly to Bell Canada Inc. and to
other telcos in Canada.
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. During
the fourth quarter of 1995, the Company was notified by US West that it would
discontinue leasing new units under the leasing program. Notwithstanding the
discontinuation of this program, previously existing leases will remain in
effect. The Company is not able to estimate the effect on future operations
of this discontinued leasing program. The Company believes that leasing will
be an attractive option for telcos and telco customers for higher priced
equipment, such as ADSI-compatible smart telephones and expects to expand its
leasing program to NYNEX and other telcos in 1996.
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 with
the support of the Company's sales personnel. The Company's private label
customers include Gemini Industries, Inc. and Northern Telecom Ltd. 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.
Seasonality
The Company's product lines are not subject to sales seasonality to a
material extent.
Backlog
At December 31, 1995, the Company did not have a significant backlog.
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.
At December 31, 1995, 11 employees were engaged in product development
including seven 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.
("STL") of Hong Kong, 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.
The Company has a strategic alliance agreement with US Order pursuant to
which the Company and US Order jointly develop and the Company will
manufacture and sell to telco customers smart telephones based on the ADSI
protocol. See "Products and Services".
In 1993, 1994 and 1995, the Company's research and development expenditures
were $327,000, $782,000 and $1,476,000, respectively.
Manufacturing
The Company's primary equipment manufacturer is STL and certain of its
affiliates, which have ISO certified facilities located in Hong Kong and the
People's Republic of China, for the manufacture of its Caller ID units and
other products. In connection with the licensing and distribution agreement
with SBT and the formation of the Company's G-tel Corp. subsidiary, the
Company established relationships with two additional manufacturers with ISO
certified facilities in Malaysia and Taiwan. The facilities of the Company's
suppliers are supplemented, in part, by the Company's own limited
manufacturing facilities in Connecticut and Canada. The availability or cost
of the Company's products may be affected by political, economic or labor
conditions in the countries where those products are manufactured, including
the 1997 return of Hong Kong to China, by fluctuations in currency exchange
rates and by other factors. In addition, a change in the tariff structure or
other trade policies of the United States could adversely affect the
Company's foreign manufacturing strategies.
The Company does not have any production contracts with its assembly
contractors. The Company's principal 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.
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 initially hired 15
people to staff the Company's operations from the facility. In addition to
design and sales functions, the facility supports manufacturing capability
sufficient to supply its needs for the Canadian market.
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 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 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 Incorporated, AT&T Corp. ("AT&T") and Northern Telecom
Ltd. The Company's Caller ID products also compete with Caller ID telephones
offered by Panasonic, Sony Corp. 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 Electronics N.V., AT&T
and Northern Telecom Ltd. 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.
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 flexibility of
marketing alternatives, including leasing.
Government Regulation
In the United States, Caller ID and other intelligent network services
offered by telcos are subject to federal and state regulation. Although
Caller ID is currently available in 48 states and the District of Columbia,
during the past several years, protests by special interest groups and
regulatory concerns regarding the privacy aspects of the service have been
effective in both slowing down the regulatory approval process and, in most
states, requiring free per-call or per-line call blocking to be offered by
the telcos, thereby allowing a caller to prevent the display of his or her
name and number. As of December 31, 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 call blocking services. 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.
An FCC order effective December 1, 1995 (the "FCC Order"), requires all U.S.
telephone service providers with SS7 switching architecture to transmit to
each other without charge Caller ID number information on interstate calls
within the United States (except for public pay phones and party lines). The
FCC's order also requires that telcos that offer Caller ID service must
provide to their telephone subscribers without charge a per-call blocking
mechanism to block the transmission of their Caller ID information on
interstate calls and must inform subscribers that their telephone numbers may
be identified to a called party and how to use this blocking capability.
Although the FCC Order was implemented December 1, 1995, several factors may
delay, prevent or substantially limit the implementation or market acceptance
of Caller ID. Before Caller ID service may be offered, the telco must
receive state regulatory approval. Also, 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 filed petitions for
review of the FCC Order in federal court challenging portions of the FCC
Order. Although the FCC Order withstood that particular challenge, other
parties have also objected to, sought delays in the implementation of or
sought clarification of the FCC Order. In addition, in the future,
Caller ID service may be subject to additional state and federal
legislation, regulation and court challenges. The Company is unable to
predict what effect, if any, further legislation, regulation, court
challenges or other objections may have on the FCC Order or
Caller ID service.
In Canada, the Canadian Radio-television and Telecommunications Commission
regulates Caller ID and intelligent network services. 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.
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. The Company has
rights to practice the inventions under certain of AT&T's Caller ID
patents. These patents are also licensed to 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 $1,129,000 in 1993, 1994 and 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.
Employees
At December 31, 1995, the Company employed 174 full-time persons, of whom 73
were engaged in repair and manufacturing, 11 in product development, 14 in
sales and marketing, 40 in customer service, 21 in operations, and 15 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.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Company desires to take advantage of the new "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 and is including the
following information in this Form 10-K in order to do so. The Act only
became law in late December 1995 and, except for the Conference Report, no
official interpretations of the Act's provisions have been published. Many
of the following important factors discussed below have been discussed in the
Company's prior SEC filings.
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect,
the Company's actual results and could cause the Company's actual
consolidated results for the first quarter of 1996, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or
on behalf of, the Company.
- The timing of implementation and promotion of Caller ID service by
telcos, and the timing of switch and software upgrades; delays in the
introduction of Caller ID service in local markets or failure of this
service to gain widespread market acceptance; the possible adverse
effect on subscriber acceptance of Caller ID service of various factors,
including the pricing of Caller ID service and equipment, the ability of
callers to block the display of their name and number and any features
of such service required or permitted by regulatory authorities which
may limit the usefulness thereof.
- The effects of competition and rapid technological change in the markets
for the Company's products and services; the introduction of new
products by new and existing competitors; the ability and willingness of
purchasers to substitute other products for the Company's products; the
effects of emerging platforms for interactive applications delivered
through personal computers and cable television; increasing competition
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 ability
of the Company to compete effectively with competitors and potential
competitors in the market for products that support intelligent network
services that have substantially greater financial, marketing and
technical resources than the Company; and possible price reductions and
loss of market share resulting from increased competition.
- The level of acceptance of the Company's leasing programs for Caller ID
and other products; the effect of any telco's decision to discontinue
leasing; and cancellation of existing leases by subscribers resulting
from, among other reasons, new product introductions, including smart
telephones, and other changes in technology.
- Dependence of sales and leases to individual telco subscribers on direct
fulfillment distribution arrangements with certain RBOCs and other
telcos and resulting concentration of customer base and resulting
adverse effects from the loss of any one or more of the Company's major
customers or the termination of the Company's distribution arrangements
with any telco.
- Failure to forecast growth accurately, or the failure or inability of
the Company to manage its growth successfully, resulting 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.
- Failure to anticipate on a timely basis the Company's future
requirements for personnel, facilities or systems or to maintain the
levels of customer service that it has provided in the past; and 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.
- The loss of any key executive officers or technical employees or the
inability to hire additional skilled personnel to support the continued
growth of the Company's business.
- Concentration of the Company's business activities in fields
characterized by rapid and significant technological advances and the
effects of any failure by the Company to remain competitive
technologically or failure of the Company's products, processes, or
services to continue to be reflective of technological advances, failure
to introduce new products or product enhancements that achieve market
acceptance on a timely basis; the occurrence of 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; lack of success of the Company s
new products, features or services; possible adverse effects of the
introduction of new products, features or services by the Company or its
competitors on the sales of the Company's existing products or services;
or failure by the Company to be able to adapt successfully to future
changes in the telecommunications industry.
- Risks associated with protection of Company's technology and
developments by or against the Company relating to intellectual property
rights and intellectual property licenses.
- Dependence on alliance with US Order with respect to development and
commercialization of smart telephones; US Order's right to terminate the
strategic alliance agreement if the Company ceases to distribute
telecommunications products to at least four telcos during any twelve-
month period; and dependence on US Order's ability to meet design
specifications and delivery requirements for its products and services.
- Level of consumer market acceptance of smart telephone technologies and
levels of expansion in the consumer market for telephone-based
interactive applications technologies; the timing of introduction of,
necessary regulatory approvals for, or market acceptance of ADSI-based
intelligent network services and applications; and effects of
competition in ADSI-based intelligent network services markets from
other emerging interactive applications delivered through personal
computers, cable television and Integrated Service Digital Network
(ISDN).
- Variations in the Company's revenues and operating results from quarter
to quarter due to a variety of factors, some of which are beyond the
Company's control; including 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 government 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.
- Dependence on a single foreign manufacturer with facilities in Hong Kong
and the People's Republic of China for production of most of the
Company's Caller ID units and other products; effects on the
availability or cost of the Company's products of 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; and possible effects of
changes in the tariff structure, trade policies, monetary and fiscal
policies or laws and regulations of the United States or other countries
on the Company's foreign manufacturing strategies.
- Lack of supply contracts for product components and possible delays or
costs arising in connection with arranging for substitute components.
- Effect of existing and future government regulation on Caller ID and
other intelligent network services, including 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 and the effects of changes in
law, such as the Telecommunications Act of 1996.
Many of the foregoing factors have been discussed in the Company's prior SEC
filings and, had the Act become effective at a different time, would have
been discussed in an earlier SEC filing instead of this Form 10-K. The
foregoing review of factors pursuant to the Private Litigation Securities
Reform Act of 1995 should not be construed as exhaustive or as any admission
regarding the adequacy of disclosures made by the Company prior to the
effective date of said Act.
ITEM 2. 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 that expires in 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.
Certain environmental contamination occurred in the part of the facility
formerly occupied by another tenant and the Connecticut Department of
Environmental Protection ("DEP") performed a clean-up and removed such
contamination. The DEP notified Cee Associates Limited Partnership, in which
the Company is a general partner, in the first quarter of 1994 that it is a
responsible party for the costs of the environmental clean-up performed at
the facility and demanded payment by the partnership of $125,000. 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 that expires October 31, 1996. The
rent is $5.75 (Canadian) per square foot per year plus taxes, operating
expenses and insurance.
In connection with the purchase of assets and assumption of liabilities from
G-Communications, Inc., the Company assumed from G-Communications, Inc. a
lease for a sales and warehouse facility which consists of 4,200 square
feet. The lease expires April 30, 1998, with rent increasing from $6.60
to $7.80 per square foot over the term of the lease plus taxes, operating
expenses and insurance.
The Company believes that its facilities are suitable and adequate for the
current and foreseeable future business of the Company, however the Company
will continue to assess its warehousing needs as the Company expands its
business.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*
The names of the executive officers of the Company are set forth below,
together with the positions held by each such person in the Company. All
executive officers are elected annually by the Board of Directors and serve
until their successors are duly elected and qualified. None of these
officers have family relationships with any other executive officer or
Director.
Name Age Position with the Company
---- --- -------------------------
Robert J. Schock 54 Chairman of the Board, President
and Chief Executive Officer
Timothy R. Welles 36 Executive Vice President and Chief
Operating Officer
Daniel V. Cusack 49 Executive Vice President
Joseph W. Cline 47 Executive Vice President
William L. Nutter 59 Vice President - Research,
Development and Engineering
John N. Giamalis 38 Vice President - Finance,
Treasurer, Chief Financial Officer
and Secretary
* As of March 7, 1996
Mr. Schock was appointed Chairman of the Board of the Company effective March
7, 1996. He has held the positions of President and Chief Executive Officer
and director of the Company since September 1989 and President and director
of the Company's principal 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.
Mr. Welles was elected Executive Vice President and Chief Operating Officer
and a director of the Company effective March 7, 1996. Prior to joining the
Company, Mr. Welles was Senior Vice President of First Albany Corporation, an
investment banking firm, from January 1994 to March 1996 with
responsibilities related primarily to corporate finance activities. Prior to
joining First Albany, Mr. Welles held various positions, most recently as
Managing Director, at Advest, Inc., an investment banking firm, from August
1989 to January 1994. Prior to joining Advest, Inc., Mr. Welles practiced
securities and corporate law at Cahill Gordon & Reindel in its New York
office.
Mr. Cusack was appointed Executive Vice President of the Company effective
March 7, 1996. Prior thereto he was Senior Vice President of the Company
from May 1995 to March 1996 and Vice President of Manufacturing of the
Company from September 1989 to May 1995. He has been Vice President of
Manufacturing of the Company's principal subsidiary since January 1981. From
1976 to 1980, Mr. Cusack was a field service manager of ICOT Corporation.
Mr. Cline was appointed Executive Vice President of the Company effective
March 7, 1996. Prior thereto, he was Vice President - Sales and Marketing of
the Company from January 1995 to March 1996. 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.
Mr. Nutter has been 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.
Mr. Giamalis has been 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 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Since February 9, 1996, the Company's Common Stock has been traded on the
Nasdaq National Market under the symbol CDTX. Prior to February 9, 1996, the
Company's Common Stock was listed on the American Stock Exchange under the
symbol CDT.
The table below sets forth the high and low quarterly sales prices for the
common stock as reported by the American Stock Exchange.
Price Range
High Low
1995
Fourth Quarter $23 $13 5/8
Third Quarter 27 1/4 16 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
On February 29, 1996, there were 569 holders of record of the Company's
Common Stock. On February 29, 1996, the last reported sales price of the
Company's Common Stock was $22.88 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.
Stock Repurchase Program
In October 1995, the Board of Directors approved a stock repurchase program
whereby the Company is authorized to repurchase from time to time up to
500,000 shares of its common stock not to exceed $10 million. As of December
31, 1995, the Company had repurchased 15,000 shares for $210,000.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the years ended is
derived from the consolidated financial statements of the Company which have
been audited by the Company's independent certified public accountants. The
data should be read in conjunction with the financial statements and notes
thereto and other financial information included elsewhere in this Form 10-K.
(In thousands, except per share data)
Year Ended December 31,
1991 1992 1993 1994 1995
Statement of
Earnings Data:
Revenues $8,006 $ 9,722 $17,439 $36,829 $74,194
Gross profit 2,564 2,913 5,235 12,601 29,954
Income from 252 551 2,053 6,300 18,898
operations
Net income 47 311 1,103 3,578 12,523
Primary and fully $.00 $.03 $.10 $.30 $.85
diluted net income
per share
Fully diluted 9,623 10,849 10,910 11,806 14,722
weighted average
shares
As of December 31,
1991 1992 1993 1994 1995
Balance Sheet Data:
Working capital $3,902 $4,076 $2,326 $23,930 $68,915
Property and 612 795 3,272 5,755 6,733
equipment
Total assets 5,772 5,641 10,487 33,133 86,405
Total borrowings 646 183 2,130 2,000 1,000
Stockholders' 4,514 4,825 6,082 28,353 80,568
equity
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information includes forward-looking statements, the
realization of which may be impacted by certain factors discussed under
Item 1 -- Business -- Cautionary Statement for Purposes of the "Safe
Harbor" Provisions of the Securities Litigation Reform Act of 1995.
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:
Year Ended December 31,
1993 1994 1995
Revenues:
Products 66.9% 59.8% 69.7%
Leases 20.2 31.6 27.4
Services 12.9 8.6 2.9
______ ______ ______
Total revenues 100.0 100.0 100.0
Cost of sales (1):
Products 68.4 72.4 66.7
Leases 69.7 52.8 41.4
Services 78.8 67.6 60.7
Total cost of sales 70.0 65.8 59.6
______ ______ ______
Gross profit 30.0 34.2 40.4
Operating expenses:
General and administrative 11.1 8.6 6.7
Selling and marketing 5.2 6.4 6.2
Research and development 1.9 2.1 2.0
______ ______ ______
Total operating expenses 18.2 17.1 14.9
______ ______ ______
Income from operations 11.8 17.1 25.5
Other income (expense) (0.6) (0.4) 1.8
______ ______ ______
Income before income taxes 11.2 16.7 27.3
Income taxes 4.9 7.0 10.4
______ ______ ______
Net income 6.3% 9.7% 16.9%
______ ______ ______
(1) Percentages related to cost of sales represent percentages of each
revenue category and, as a result, are not additive.
Years Ended December 31, 1994 and 1995
Revenues
Total revenues increased 101% from $36,829,000 in 1994 to $74,194,000 in
1995. This growth, which was attributable primarily to higher Caller ID unit
sales volume and expansion of the leasing program, was stimulated by the
addition of new RBOC and other telco customers together with the increased
availability and acceptance of Caller ID service resulting from regulatory
approvals. Caller ID revenues increased 115% from $33,234,000 in 1994 to
$71,344,000 in 1995; representing 90% and 96% of total revenues in 1994 and
1995, respectively. For the year ended December 31, 1995, a 135% increase in
product sales to $51,733,000 and a 75% increase in leasing revenues to
$20,325,000 resulted from these trends. Also contributing to the product
sales increase was $2,813,000 of revenues for products sold to the Company's
direct marketing joint venture, Worldwide Telecom and revenues of $2,718,000
from sales in the Company's acquired operations during 1995. During the
fourth quarter of 1995, the Company was notified by US West that it would
discontinue leasing new units under the leasing program. Notwithstanding the
discontinuation of this program, previously existing leases will remain in
effect. The Company expects to expand its leasing program to NYNEX and other
telcos in 1996. Service revenues decreased 33% from $3,183,000 in 1994 to
$2,136,000 in 1995. The decline in service revenues in 1995 was due
primarily to the completion of contracts with certain customers.
Cost of Sales and Gross Profit
Cost of sales increased from $24,228,000 in 1994 to $44,240,000 in 1995
primarily as a result of the increases in sales and leasing of Caller ID
units. Overall gross profit margins increased six percentage points from 34%
in 1994 to 40% in 1995. Gross profit margins derived from sales of products
increased five percentage points from 28% in 1994 to 33% in 1995 as a result
of a greater proportionate mix of higher margin direct fulfillment revenues,
the reduction in the cost of certain products due to design improvements and
volume discounts from vendors and efficiencies resulting from a larger
revenue base. Gross profit margins derived from Caller ID leasing increased
12 percentage points from 47% in 1994 to 59% in 1995 primarily as a result of
additional fully depreciated units in the lease base coupled with the leasing
of higher margin products.
General and Administrative Expenses
General and administrative expenses increased 57% from $3,182,000 in 1994 to
$4,984,000 in 1995. The increase resulted from additional personnel and
expenses required to support the growth in the Company's business, primarily
in the areas of finance and corporate administration. As a percentage of
total revenues, general and administrative expenses declined from 9% in 1994
to 7% in 1995.
Selling and Marketing Expenses
Selling and marketing expenses increased 97% from $2,337,000 in 1994 to
$4,596,000 in 1995. The increase resulted primarily from higher commission
and royalty expenses which vary directly with Caller ID revenues in addition
to higher customer service staffing to support increased business activity.
Also contributing to the increase in 1995 were incentives incurred with
certain direct fulfillment programs. Selling and marketing expenses as a
percentage of total revenues remained constant at 6% for the years ended
December 31, 1994 and 1995.
Research and Development Expenses
Research and development expenses increased 89% from $782,000 in 1994 to
$1,476,000 in 1995. The increase resulted from additional product
development activity, including work on the Company's smart telephone, SCWID
product, integrating Caller ID with Call Waiting, and the introduction of
other new products and the modification of existing products. Included in
research and development expenses is the cost of certain research and
development services provided by the Company's principal manufacturer, STL.
Other Income (Expense)
Other expense, consisting primarily of interest expense, was $132,000 in 1994
due to 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. In 1995, other income consists
primarily of investment income earned on the investment of proceeds from the
Company's secondary offerings completed in October 1994 and July 1995.
Income Taxes
Income taxes increased from $2,590,000 in 1994 to $7,687,000 in 1995 due to
a higher level of taxable income. The effective income tax rate declined
four percentage points from 42% in 1994 to 38% in 1995 as a result of the
apportionment of income to states with lower tax rates and due to certain
nontaxable investment income earned in connection with the investment of
proceeds from the Company's secondary stock offerings.
Net Income and Weighted Average Shares
As a result of the foregoing factors, net income increased 250% from
$3,578,000 in 1994 to $12,523,000 in 1995. The fully diluted weighted
average shares increased from 11,806,000 shares in 1994 to 14,722,000 shares
in 1995. The increase resulted primarily from the issuance of 1,645,000
shares in connection with a secondary common stock offering in July 1995 and
the issuance of 170,743 shares to US Order in May 1995.
Years Ended December 31, 1993 and 1994
Revenues
Total revenues increased 111% from $17,439,000 in 1993 to $36,829,000 in
1994. This growth, which was attributable primarily to higher Caller ID 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. Caller ID revenues increased 126% from $14,692,000 in 1993 to
$33,234,000 in 1994; representing 84% and 90% of total revenues in 1993 and
1994, respectively.
Of the $18,542,000 increase in Caller ID revenues from 1993 to 1994,
$8,105,000 was generated from a leasing program implemented by the Company
for US West subscribers. The growth 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 $2,247,000 in 1993 to $3,183,000 in 1994.
The growth in service revenues in 1993 and 1994 was due primarily to new
business from a telco customer.
Cost of Sales and Gross Profit
Cost of sales increased from $12,204,000 in 1993 to $24,228,000 in 1994
primarily as a result of the increases in sales and leasing of Caller ID
units. Gross profit margin derived from sales of products declined from 32%
in 1993 to 28% in 1994 due to 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 increased from 30% in 1993 to 47% in 1994 due
primarily to an increase in the number of fully depreciated units in the
lease base in addition to the leasing of higher margin products. Gross
profit margin for services was 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% and 34% for 1993 and 1994,
respectively.
General and Administrative Expenses
General and administrative expenses increased 64% from $1,938,000 in 1993 to
$3,182,000 in 1994. The increase resulted from additional personnel and
expenses required to support the growth in the Company's business, primarily
in the areas of finance and corporate administration. As a percentage of
total revenues, general and administrative expenses declined from 11% in 1993
to 9% in 1994.
Selling and Marketing Expenses
Selling and marketing expenses increased from $917,000 in 1993 to $2,337,000
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 Expenses
Research and development expenses increased 139% from $327,000 in 1993 to
$782,000 in 1994. The increase 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 and the
introduction of certain new products and the modification of existing
products.
Other Income (Expense)
Other expense, consisting primarily of interest expense increased from
$101,000 in 1993 to $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 $849,000 in 1993 to $2,590,000 in 1994 due to a
higher level of taxable income. The effective income tax rate declined from
43% in 1993 to 42% in 1994 primarily due to the apportionment of taxable
income to states with lower tax rates.
Net Income and Weighted Average Shares
As a result of the foregoing factors, net income increased 224% from
$1,103,000 in 1993 to $3,578,000 in 1994. The fully diluted weighted
average shares increased from 10,910,000 shares in 1993 to 11,806,000
shares in 1994. The increase resulted primarily from shares issued in
connection with a secondary common stock offering in October 1994 for
2,400,000 shares.
Liquidity and Capital Resources
The Company's cash requirements for operating and investing activities in
1995 were financed primarily by the net proceeds from two common stock
offerings aggregating approximately $51 million. In connection with the
offerings, which were completed in July 1995 and October 1994, the Company
issued 1,645,000 shares at $22.63 per share and 2,400,000 shares at $7.38
per share, respectively.
During 1995, the Company's cash, equivalents and short-term investments
increased by $17,619,000 resulting from the proceeds of the July 1995
offering, offset in part by cash used in operations, the funding of equipment
purchases and certain acquisitions. At December 31, 1995, the Company had
$31,632,000 in cash, cash equivalents and short-term investments. To improve
the yield on its cash and equivalent holdings, in 1995, the Company invested
in financial instruments that are diversified among high credit quality
securities. These investments are reported at cost, which approximates
market value, as short-term investments and cash equivalents.
The Company's principal needs for cash are for investments in property and
equipment and to fund working capital, primarily related to inventories and
accounts receivable. To support the Company's growth, capital expenditures
for the year ended December 31, 1995 aggregated $5,785,000. The Company's
working capital increased from $23,930,000 at December 31, 1994 to
$68,915,000 at December 31, 1995. The Company funded an increase in
inventories of $17,739,000 for the year ended December 31, 1995 to ensure
that units were available for timely fulfillment of sales orders, including
the purchase of certain longer lead-time parts. In addition, accounts
receivable increased by $10,831,000 for the year ended December 31, 1995 as a
result of higher sales and the timing of certain collections.
During the year ended December 31, 1995, the Company acquired the Canadian
Caller ID business of TIE, acquired certain inventories, distribution rights
and a trademark from SBT, acquired assets and assumed liabilities from G-
Communications, Inc., and funded its portion of a joint venture arrangement
entered into with Blau Marketing Technologies, Inc., investing a cumulative
total of $3,921,000.
The Company maintains a $4 million line of credit under a revolving loan
agreement with a bank to meet short term cash requirements and to fund
letters of credit in connection with commercial transactions. The Company
elected to reduce the credit line from $8 million to $4 million in the first
quarter of 1995. At December 31, 1995, $1 million of the line of credit was
available to fund draw downs and letters of credit. The loan agreement is
subject to renewal on April 30, 1996.
In order to meet the Company's anticipated needs for cash during the
foreseeable future, including amounts required to fund working capital,
infrastructure and systems and new product development, the Company will
utilize existing cash, equivalents and short-term investments, line of credit
availability and cash provided by operations. In addition, on October 26,
1995, the Board of Directors approved a stock repurchase program whereby the
Company is authorized to repurchase from time to time up to 500,000 shares of
its common stock not to exceed $10 million. As of December 31, 1995, the
Company had repurchased 15,000 shares for $210,000.
Other
The Company believes that inflation and changing prices have not had a
material effect on the Company's revenues and profitability during the past
three fiscal years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1995 . . . .
Consolidated Statements of Earnings for the Years Ended
December 31, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders' Equity for Years
Ended December 31, 1993, 1994 and 1995 . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1994 and 1995 . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . .
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. (the "Company") as of December 31, 1994 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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.
as of December 31, 1994 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Hartford, Connecticut
January 26, 1996
COLONIAL DATA TECHNOLOGIES CORP.
Consolidated Balance Sheets, December 31, 1994 and 1995
(In thousands, except share data)
ASSETS 1994 1995
CURRENT ASSETS:
Cash and cash equivalents $14,013 $15,873
Short-term investments 15,759
Accounts receivable (net of
allowance for doubtful accounts
of $56 in 1994 and $332 in 1995)
(Note 9) 5,102 16,069
Inventories (Note 3) 6,473 26,512
Deferred income taxes (Note 6) 131 168
Other assets 991 371
_______ _______
Total current assets 26,710 74,752
PROPERTY AND EQUIPMENT (Note 4):
Leased 5,001 3,541
Other 754 3,192
_______ _______
Total property and equipment 5,755 6,733
DEFERRED INCOME TAXES (Note 6) 668 599
INTANGIBLE ASSETS 675
INVESTMENTS (Note 2) 3,646
_______ _______
TOTAL ASSETS $33,133 $86,405
_______ _______
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,497 $ 2,483
Accrued expenses 622 1,610
Accrued royalties 398 528
Income taxes payable 263 216
Short-term borrowings (Note 5) 1,000
_______ _______
Total current liabilities 2,780 5,837
LONG-TERM BORROWINGS (Note 5) 2,000
COMMITMENTS AND CONTINGENCIES (Notes 8
and 11)
STOCKHOLDERS' EQUITY (Note 7):
Common stock, par value $.01,
authorized 20,000,000 shares,
issued and outstanding 13,299,241
shares in 1994; issued 15,432,484
and outstanding 15,417,484 in 1995 133 154
Additional paid-in capital 22,142 62,059
Retained earnings 6,078 18,601
Cumulative translation adjustment (36)
Treasury stock, at cost, 15,000
shares (210)
Total stockholders' equity 28,353 80,568
_______ _______
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $33,133 $86,405
_______ _______
See notes to consolidated financial statements.
COLONIAL DATA TECHNOLOGIES CORP.
Consolidated Statements of Earnings
For The Years Ended December 31, 1993, 1994 and 1995
(In thousands, except per share data)
1993 1994 1995
REVENUES (Note 9):
Products $11,667 $22,016 $51,733
Leases 3,525 11,630 20,325
Services 2,247 3,183 2,136
_______ _______ _______
Total revenues 17,439 36,829 74,194
COST OF SALES:
Products 7,977 15,939 34,520
Leases 2,456 6,137 8,424
Services 1,771 2,152 1,296
_______ _______ _______
Total cost of sales 12,204 24,228 44,240
_______ _______ _______
GROSS PROFIT 5,235 12,601 29,954
OPERATING EXPENSES:
General and administrative 1,938 3,182 4,984
Selling and marketing 917 2,337 4,596
Research and development 327 782 1,476
_______ _______ _______
Total operating expenses 3,182 6,301 11,056
_______ _______ _______
INCOME FROM OPERATIONS 2,053 6,300 18,898
OTHER INCOME (EXPENSE):
Investment income 4 92 1,351
Interest expense (105) (224) (39)
_______ _______ _______
Total other income (101) (132) 1,312
(expense) _______ _______ _______
INCOME BEFORE INCOME TAXES 1,952 6,168 20,210
INCOME TAXES (Note 6) 849 2,590 7,687
_______ _______ _______
NET INCOME $ 1,103 $ 3,578 $12,523
_______ _______ _______
PRIMARY AND FULLY DILUTED NET $.10 $.30 $.85
INCOME PER SHARE _______ _______ _______
WEIGHTED AVERAGE SHARES:
Primary 10,867 11,731 14,709
_______ _______ _______
Fully diluted 10,910 11,806 14,722
_______ _______ _______
See notes to consolidated financial statements.
COLONIAL DATA TECHNOLOGIES CORP.
Consolidated Statements of Stockholders' Equity
For The Years Ended December 31, 1993, 1994 and 1995
(In thousands)
Common Stock
------------
Shares Additional Cumulative
Outst- Par Paid-in Retained Translation Treasury
anding Value Capital Earnings Adjustment Stock Total
BALANCE, 9,823 $ 99 $ 3,329 $ 1,397 $ 4,825
December
31, 1992
Issuance 125 154 154
of common
stock due
to exercise
of stock
options and
warrants
Net income 1,103 1,103
______ ____ _______ _______ _______
BALANCE, 9,948 99 3,483 2,500 6,082
December
31, 1993
Issuance 2,400 24 16,078 16,102
of common
stock, net
of related
costs
(Note 7)
Issuance 951 10 2,581 2,591
of common
stock due
to exercise
of stock
options
and warrants
and related
income tax
benefit
Net income 3,578 3,578
______ ____ _______ _______ _______
BALANCE, 13,299 133 22,142 6,078 28,353
December
31, 1994
Issuance 1,645 16 34,681 34,697
of common
stock, net
of related
costs
(Note 7)
Issuance 317 3 1,845 1,848
of common
stock due
to exercise
of stock
options and
warrants
and related
income tax
benefit
Issuance 171 2 3,391 3,393
of shares
shares to
US Order,
Inc. (Note 2)
Acquisition (15) $(210) (210)
of treasury
stock
Net income 12,523 12,523
Translation $(36) (36)
adjustments ______ ____ _______ _______ ____ _____ _______
BALANCE, 15,417 $154 $62,059 $18,601 $(36) $(210) $80,568
December
31, 1995 ______ ____ _______ _______ ____ _____ _______
See notes to consolidated financial statements.
COLONIAL DATA TECHNOLOGIES CORP.
Consolidated Statements of Cash Flows
For The Years Ended December 31, 1993, 1994 and 1995
(In thousands)
1993 1994 1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $1,103 $ 3,578 $12,523
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:
Depreciation and amortization 1,808 4,159 4,990
Loss on disposal of assets 174
Provision for bad debts 5 72 480
Increase in reserve for 68 94 109
inventories
Deferred income taxes (640) (197) 32
Changes in assets and
liabilities:
Accounts receivable (493) (1,765) (10,831)
Inventories (1,299) (3,482) (17,739)
Prepaid expenses (55) (20) (213)
Accounts payable 657 603 614
Income taxes receivable 582 843 889
and payable
Accrued liabilities 449 311 1,036
______ _______ _______
Net cash provided by (used in) 2,185 4,370 (8,110)
operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures:
Leased equipment (4,043) (6,453) (3,123)
Other equipment (242) (363) (2,662)
Purchase of investments (22,836)
Proceeds from sale of 7,077
investments
Purchase of subsidiaries, net (3,668)
of cash acquired
Other investments (253)
______ _______ _______
Net cash used in investing (4,285) (6,816) (25,465)
activities
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of 154 16,578 36,645
common stock, net of related
costs and related income tax
benefit
Payments to acquire treasury (210)
stock
Net proceeds (repayments) from 1,947 (130) (1,000)
borrowings ______ _______ _______
Net cash provided by financing 2,101 16,448 35,435
activities ______ _______ _______
CASH AND CASH EQUIVALENTS:
NET INCREASE 1 14,002 1,860
BEGINNING OF YEAR 10 11 14,013
______ _______ _______
END OF YEAR $ 11 $14,013 $15,873
______ _______ _______
See notes to consolidated financial statements.
COLONIAL DATA TECHNOLOGIES CORP.
Notes to Consolidated Financial Statements
for the Years Ended December 31, 1993, 1994 AND 1995
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Colonial Data Technologies Corp. together with its
subsidiaries (the "Company") designs, develops and markets
telecommunications products that support intelligent network services
being developed and implemented by the regional Bell operating companies
and other telephone operating companies. Through its subsidiaries, the
Company distributes small business systems with the Landmark [R]
trademark and high-end consumer equipment, including advanced cordless
products. 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.
Consolidation - The consolidated financial statements include the
accounts of the Company after elimination of all intercompany balances
and transactions. Certain 1993 and 1994 amounts were reclassified to
conform to the 1995 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 investments with original maturities of three months or
less.
Short-term Investments - The Company reports its short-term investments
in marketable securities as available-for-sale. Realized gains or
losses are determined on the first-in, first-out method and are
reflected in net income. Short-term investments are reported at cost
which approximates fair value.
Inventories - Inventories are stated at the lower of cost or market
with cost determined on a weighted average basis.
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line
method based upon the estimated useful lives of the assets as follows:
Category Years
Leased equipment 1 1/2 - 2
Equipment 3 - 7
Molds and tools 3 - 5
Leasehold improvements 5 - 15
Transportation equipment 3 - 10
The cost and accumulated depreciation of assets sold or retired are
removed from the respective accounts and any gain or loss is reflected
in income. Maintenance and repairs are charged to expense as incurred.
Intangible Assets - The Company carries its intangible assets at cost
which are amortized using the straight-line method over 5 to 15 years.
The Company considers the impairment of long-lived assets based on an
assessment of the asset's ability to contribute to the profitability of
the Company using estimates of expected future cash flows.
Investments - The Company carries its investment in restricted US Order,
Inc. common stock at its original cost. The Company's investment in
Worldwide Telecom Partners, Inc. is recorded using the equity basis of
accounting.
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.
Estimates - In the preparation of financial statements, management makes
certain estimates and assumptions primarily relating to the allowance
for doubtful accounts, depreciable lives of property and equipment,
sales returns and inventories.
2. ACQUISITIONS AND AGREEMENTS
US Order, Inc.
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 exchanged 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 its 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 of $14.75 per
share. 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 common stock will be valued at the average closing
price of their respective common stock for a specified period of time,
as defined in the 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.
Worldwide Telecom Partners, Inc.
In May 1995, the Company acquired a 50% interest in a joint venture,
Worldwide Telecom Partners, Inc. The cost of this investment was not
significant. The venture provides marketing services to the
telecommunication industry. Accounts receivable and revenues for
products sold to Worldwide Telecom Partners, Inc. as of and for the year
ended December 31, 1995 are $1,496,000 and $2,813,000, respectively.
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.
Southwestern Bell Telecommunications, Inc. ("SBT") Agreement
On November 8, 1995, the Company, through one of its subsidiaries,
entered into an agreement with SBT for exclusive worldwide distribution
rights to SBT's Landmark [R] small business telephone systems and
acquired the Landmark [R] trademark and inventory. In addition, the
subsidiary received worldwide distribution rights to certain other small
business-oriented products.
G-tel Corp.
In December 1995, the Company acquired assets and assumed liabilities
from G-Communications, Inc. The acquisition costs and operations
purchased were not significant to the Company. In connection with the
acquisition, a newly-formed subsidiary, G-tel Corp. will manage the
subsidiary's operations, which will include a sales facility in
Irwindale, California.
3. INVENTORIES
Inventories consist of the following at December 31:
1994 1995
(in thousands)
Raw materials $ 624 $ 8,447
Finished goods 5,849 18,065
______ _______
$6,473 $26,512
______ _______
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1994 1995
(in thousands)
Leased equipment $ 9,902 $10,033
Equipment 712 1,311
Molds and tools 756 1,264
Leasehold improvements 333 1,171
Transportation equipment 140 1,106
_______ _______
11,843 14,885
Accumulated depreciation (6,088) (8,152)
_______ _______
$ 5,755 $ 6,733
_______ _______
5. BORROWINGS
On April 11, 1994, the Company entered into a 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. 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. The loan is secured by substantially all of
the Company's assets and 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, 1995. 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 and bore interest at an annual rate of 3/4% above the bank's
prime rate.
Cash paid for interest for the years ended December 31, 1993, 1994, and
1995 was $93,000, $235,000 and $39,000, respectively.
6. INCOME TAXES
Income taxes (benefit) consists of the following for the years ended
December 31:
1993 1994 1995
(in thousands)
Current:
Federal $1,073 $2,288 $6,326
State 416 499 1,329
______ ______ ______
1,489 2,787 7,655
Deferred:
Federal (463) (230) 17
State (177) 33 15
______ ______ ______
(640) (197) 32
______ ______ ______
$ 849 $2,590 $7,687
______ ______ ______
The net deferred income tax asset includes the following components at
December 31:
1994 1995
(in thousands)
Current deferred income tax asset:
Allowance for doubtful accounts $ 21 $122
Reserve for inventories 18 43
Accrued liabilities 115 27
____ ____
154 192
Current deferred income tax
liability - prepaid expenses (23) (24)
____ ____
Net current deferred income tax 131 168
asset
Noncurrent deferred income tax 668 599
asset - depreciation ____ ____
Total net deferred income tax $799 $767
asset ____ ____
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:
1993 1994 1995
Federal income taxes at statutory 34% 34% 35%
rate
Nondeductible expenses 1 1
State income taxes - net of 9 6 4
federal tax benefit
Other (1) 1 (1)
___ ___ ___
43% 42% 38%
___ ___ ___
Cash paid for income taxes for the years ended December 31, 1993, 1994,
and 1995 was approximately $933,000, $1,944,000 and $6,197,000,
respectively.
7. STOCKHOLDERS' EQUITY
Stock Offerings
On July 13, 1995, the Company completed a public offering of 2,645,000
shares of the Company's common stock, of which 1,645,000 shares were
issued by the Company and 1,000,000 shares were sold by certain selling
stockholders. The net proceeds to the Company from the sale of the
1,645,000 shares of common stock were approximately $34,697,000 after
deducting the applicable issuance costs and expenses.
On October 21, 1994, the Company completed a public offering of
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.
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. There are 153,750 options issued and currently
exercisable under the plan. All such options 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. At
December 31, 1995 there are 211,500 options granted to key employees,
which entitle the holder to purchase the Company's common stock at a
stated price. The options vest periodically through 1999 and expire in
2005.
A summary of the changes in stock options is as follows:
Exercise Number
Prices of Shares
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
Granted $14.13 -$20.25 122,500
Canceled $4.50 - $4.75 (13,000)
Exercised $.21 - $4.50 (157,412)
_________
Outstanding, December 31,
1995 $.21 - $20.25 365,250
_________
Warrants
The Company has warrants that expire March 31, 1997. A summary of the
changes in warrants is as follows:
Exercise Number of
Prices Shares
Outstanding, December 31,
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
Exercised $2.92 (160,088)
________
Outstanding, December 31,
1995 $2.92 24,670
________
Stock Repurchase Program
In October 1995, the Board of Directors approved a stock repurchase
program whereby the Company is authorized to repurchase from time to
time up to 500,000 shares of its common stock not to exceed $10
million. As of December 31, 1995, the Company had repurchased 15,000
shares for $210,000.
Preferred Stock
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. At December 31, 1994, the
Company had authorized and unissued 6,250 shares of Series Preferred
Stock with $.01 par value.
New Accounting Pronouncement
The Company has not adopted the recently issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-based Compensation,"
("SFAS 123") which is required to be adopted in the first quarter of
1996. The Company currently records compensation based on the
provisions of Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees," as allowed by SFAS 123. Although the
Company has not determined the ultimate impact of adopting SFAS 123 on
its present disclosure, it does not believe, based on the number of
options previously granted that the adoption will have a material impact
on its current disclosure.
8. LEASES
The Company leases facilities and equipment under noncancelable and
cancelable lease arrangements. The facility leases are for terms from
one to nine years. Rent expense under all operating leases was $65,000,
$125,000 and $201,000 in 1993, 1994 and 1995, respectively.
The Company leases its principal administrative, development and support
facility which consists of approximately 63,000 square feet from Cee
Associates Limited Partnership ("Cee"). 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 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. Rent expense paid to Cee was $65,000, $125,000 and
$139,000 in 1993, 1994 and 1995, respectively. 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.
Future minimum lease payments under noncancelable operating leases with
initial or remaining terms in excess of one year at December 31, 1995
were as follows:
(In thousands)
1996 $ 226
1997 171
1998 150
1999 139
2000 139
2001-2004 512
______
$1,337
______
9. 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 telephone operating companies and retailers 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. 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.
During the years ended December 31, 1993, 1994 and 1995, 84%, 90% and
96%, respectively, of the Company's revenues were derived from the sale
and leasing of its Caller ID units.
Revenues from three customers were approximately 29%, 19% and 11% of
total revenues for the year ended December 31, 1995. The Company had
two customers which represented approximately 20% and 18% of total
accounts receivable at December 31, 1995.
Revenues from three customers were approximately 33%, 22% and 12% of
total revenues for the year ended December 31, 1994. The Company had
three customers which represented approximately 27%, 22%, and 16% of
total accounts receivable at December 31, 1994.
Revenues from two customers were approximately 20% and 18% of total
revenues 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.
10. BENEFIT PLAN
On January 1, 1995, the Company originated a defined contribution plan
("Plan"). Participation in the Plan is available to employees who are
at least twenty-one years of age and have six months of service.
Company contributions to the Plan are based on a percentage of employee
contributions and were not significant for the year ended December 31,
1995.
11. 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 $277,000, $684,000 and $1,129,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.
The Company was contingently liable for outstanding letters of credit
for overseas purchases or request cash advances totaling $700,000 and
$2,050,000 at December 31, 1994 and 1995, respectively.
The Company was informed that certain environmental contamination
existed in the part of the Company's premises formerly 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 foregoing will have a
material adverse effect on the Company's consolidated financial position
or results of operations.
12. QUARTERLY FINANCIAL DATA - UNAUDITED
First Second Third Fourth Total
(In thousands, except per share data)
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
Fiscal 1995
Revenues $15,206 $18,308 $19,626 $21,054 $74,194
Gross profit 6,105 7,504 8,181 8,164 29,954
Net income 2,414 2,825 3,454 3,830 12,523
Net income
per share $ .18 $ .21 $ .23 $ .25 $ .85
Net income per share numbers are not necessarily additive due to
rounding differences.
* * * * *
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 401 of Regulation S-K with respect to
executive officers of the Company is included in Item 4A of this Form 10-K.
The information required by Item 401 of Regulation S-K with respect to the
directors of the Company is incorporated by reference to the Company's
definitive proxy statement (the "Definitive Proxy Statement") which will be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is incorporated by
reference to the Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is incorporated by
reference to the Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K is incorporated by
reference to the Definitive Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
See Item 8 of this Report
2. FINANCIAL STATEMENT SCHEDULES
See Item 8 of this Report
3. EXHIBITS (* denotes filed herewith)
3.1 Certificate of Incorporation of the Registrant (Incorporated
by reference to Exhibit 3.3 to the Registrant's Registration
Statement on Form 8-B, File No. 1-11057, as amended on July
11, 1995 by Amendment No. 1 thereto).
3.2 By-laws of the Registrant (Incorporated by reference to
Exhibit 3.3 to the Registrant's Registration Statement on Form
8-B, File No. 1-11057, as amended on July 11, 1995 by
Amendment No. 1 thereto).
4.1 Specimen Certificate for shares of Common Stock of the
Registrant (Incorporated by reference to Exhibit 4.1 to
Registrant's Registration Statement on Form S-2, File No. 33-
60033).
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).
10.1 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).
10.2 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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 Agreement between US West Business Resources, Inc., as agent
for US 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).
10.8 Loan and Security Agreement, dated April 11, 1994, between
Registrant's 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).
10.9 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).
10.10 Application and Reimbursement Agreement for Irrevocable
Documentary Letter of Credit between the Registrant's
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).
10.11 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).
10.12 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).
10.13 First Amendment to Loan and Security Agreement, dated as of
August 29, 1994, between the Registrant's 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).
10.14 Form of Revolving Credit Note, dated August 29, 1994, from the
Registrant's 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).
10.15 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).
10.16 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).
10.17 Lease Agreement dated as of September 1, 1994 between Cee
Associates Limited Partnership and the Registrant's subsidiary
(Incorporated by reference to Exhibit 10.31 to Registrant's
Registration Statement on Form S-2, File No. 33-84274).
10.18 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).
10.19 Amendment No. 2, dated September 29, 1994, to Agreement
between US 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).
10.20 Letter evidencing amendment to credit facility dated March 24,
1995 from People's Bank to the Registrant's 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).
10.21 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).
10.22 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).
10.23 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).
*10.24 Listing Agreement dated January 26, 1996 between the
Registrant and NASDAQ National Market System.
*10.25 Form of Incentive Stock Option Agreement pursuant to 1994
Long-Term Incentive Plan.
*10.26 Registrant's 401(k) Plan.
*21. Significant Subsidiaries of the Registrant.
*23. Consent of Deloitte & Touche LLP.
*27. Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
fourth quarter of the fiscal year covered by this report.
EXHIBIT INDEX
10.24 Listing Agreement dated January 26, 1996 between the
Registrant and NASDAQ National Market System.
10.25 Form of Incentive Stock Option Agreement pursuant to 1994
Long-Term Incentive Plan.
10.26 Registrant's 401(k) Plan.
21. Significant Subsidiaries of the Registrant.
23. Consent of Deloitte & Touche LLP.
27. Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COLONIAL DATA TECHNOLOGIES CORP.
(Registrant)
By: /s/ Robert J. Schock March 22, 1996
Robert J. Schock Date
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Robert J. Schock Chairman of the Board, March 22, 1996
Robert J. Schock President, Chief
Executive Officer,
Director (Principal
Executive Officer)
/s/ John N. Giamalis Vice President- March 22, 1996
John N. Giamalis Finance, Treasurer,
Secretary (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Timothy R. Welles Executive Vice March 22, 1996
Timothy R. Welles President, Chief
Operating Officer,
Director
/s/ Walter M. Fiederowicz Director March 22, 1996
Walter M. Fiederowicz
/s/Frederick P. Masotta, Jr. Director March 22, 1996
Frederick P. Masotta, Jr.
/s/ Constantine S. Macricostas Director March 22, 1996
Constantine S. Macricostas
Nasdaq National Market Listing Agreement
(This form is to be filed by issuers seeking initial inclusion or
by current Nasdaq National Market issuers who have changed their
name.)
Colonial Data Technologies Corp. (the "Company") in consideration
of the designation of its securities as Nasdaq National Market
securities hereby agrees with The Nasdaq Stock Market, Inc. that:
1. The Company certifies that it understands and agrees to
abide by the eligibility criteria for Nasdaq National Market
issuers contained in the NASD By-Laws as they may be amended from
time to time.
2. The Company agrees that it shall notify Nasdaq in writing of
any corporate action or other event which shall cause the Company
to case to be in compliance with the Nasdaq National Market
eligibility requirements within thirty (30) days of such act or
event.
3. The Company shall comply with such laws, statutes, rules,
regulations, policies, and procedures applicable to Nasdaq
National Market issuers, including but not limited to, those set
forth in Paragraph 1 above, as they are now in effect and as they
may be amended from time to time.
4. The Company understands that Nasdaq may remove its securities
from the Nasdaq National Market, pursuant to applicable procedures,
if it fails to meet one or more requirements of Paragraphs 1-3, of
this agreement.
5. The Company understands that if an exception to any of the
provisions of this agreement has been granted by a committee of
either the NASD or of The Nasdaq Stock Market, Inc., such
exception shall, during the time it is in effect, supersede any
conflicting provision of this agreement.
Nasdaq Warranties; Disclaimers of Warranties. For any goods or
services provided to Company, Nasdaq shall endeavor to provide
them in a good and workmanlike manner. BEYOND THE WARRANTIES
STATED IN THIS SECTION, THERE ARE NO OTHER WARRANTIES OF ANY
KIND, EXPRESS, IMPLIED OR STATUTORY (INCLUDING, THE IMPLIED
WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR
PURPOSE).
LIMITATION OF LIABILITY. (1) IN NO EVENT WILL NASDAQ OR ANY
AFFILIATE ("CORPORATIONS") BE LIABLE FOR TRADING LOSSES, LOSS OF
PROFITS, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL, OR
INCIDENTAL LOSS OR DAMAGE, EVEN IF THE CORPORATIONS HAVE BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
(2) IF THE CORPORATIONS ARE HELD LIABLE, THE LIABILITY OF
THE CORPORATIONS IS LIMITED:
(A) FOR GOODS AND SERVICES FOR WHICH THE COMPANY IS
SPECIFICALLY CHARGED, TO THE AMOUNT PAID BY COMPANY FOR THOSE
GOODS OR SERVICES DURING THE TWELVE MONTHS PRECEDING THE ACCRUAL
OF THE CLAIM; AND
(B) IN ALL OTHER INSTANCES, TO THE AMOUNT OF THE
ANNUAL LISTING FEE PAID BY COMPANY DURING THE TWELVE MONTHS
PRECEDING THE ACCRUAL OF THE CLAIM.
(3) FOR GOODS AND SERVICES PROVIDED UNDER A SEPARATE
WRITTEN AGREEMENT, THE LIMITATION OF LIABILITY PROVISIONS IN THAT
AGREEMENT SHALL GOVERN ANY CLAIMS RELATING TO OR ARISING FROM
THE PROVISION OF THOSE GOODS AND SERVICES.
(4) THIS SUBSECTION SHALL NOT RELIEVE THE CORPORATIONS FROM
LIABILITY FOR DAMAGES THAT RESULT FROM THEIR OWN GROSS NEGLIGENCE
OR WILLFUL TORTIOUS MISCONDUCT, OR FROM PERSONAL INJURY OR
WRONGFUL DEATH CLAIMS.
(5) THE CORPORATIONS SHALL NOT BE LIABLE FOR ANY THIRD
PARTIES' GOODS OR SERVICES.
(6) THE COMPANY AGREES THAT THESE TERMS REFLECT A
REASONABLE ALLOCATION OF RISK AND LIMITATION OF LIABILITY.
As an officer of the Company, I am authorized to execute this
agreement on the Company's behalf.
SIGNATURE
NAME WALTER M. FIEDEROWICZ
TITLE Chairman
DATE January 26, 1996
CORPORATE SEAL
(Optional)
Accepted at Washington, DC, The Nasdaq Stock Market, Inc.
SIGNATURE
NAME
TITLE
DATE
A countersigned copy of the Nasdaq National Market Listing
Agreement is available to the issuer or the issuer's counsel upon
written request to The Nasdaq Stock Market, Inc., Business
Development, 1735 K Street, NW, Washington, DC 20006-1500.
C O L O N I A L D A T A T E C H N O L O G I E S C O R P.
Incentive Stock Option Agreement
Incentive Stock Option Agreement (the "Agreement") made as
of this ____ day of ____________, 1995 between COLONIAL DATA
TECHNOLOGIES CORP., a Delaware corporation, (hereinafter called
the "Corporation") and __________________ (hereinafter called the
"Employee").
In consideration of the premises, the mutual covenants
hereinafter set forth, and other good and valuable consideration,
the Corporation and the Employee agree as follows:
1. Award of Option. The Corporation hereby awards to the
Employee, as a matter of separate inducement and agreement, and
not in lieu of salary or any other compensation for services, the
option (the "Option") to purchase an aggregate of _____ shares of
the Corporation's Common Stock pursuant to the incentive stock
option provisions contained in Section 7 of the Colonial Data
Technologies Corp. 1994 Long-Term Incentive Plan (the "Plan"), on
terms and conditions hereinafter set forth, at the purchase price
of $______ per share (such shares, number of shares and purchase
price being subject to adjustment as provided the Plan). The
date of grant of this Option is _____________, 1995. Capitalized
terms used herein and not otherwise defined herein shall have the
meanings set forth in the Plan.
2. Terms of the Plan. The Plan, a copy of which is
attached hereto, is incorporated herein by reference and is made
part of this Agreement as if fully set forth herein. This
Agreement is subject to, and the Corporation and the Employee
agree to be bound by, all of the terms and conditions of the Plan
as the same exists at the time this Agreement was entered. The
Plan shall control in the event there is any express conflict
between the Plan and the terms hereof, and on such matters that
are not expressly covered in the Agreement. Subsequent
amendments of the Plan shall not adversely affect the Employee's
rights under this Agreement.
3. Exercise of Option. The Option granted pursuant to
this Agreement shall become exercisable in installments in
accordance with the following schedule, in which time periods are
calculated from the date of grant of the Option covered by this
Agreement:
(a) First one-third of the aggregate number of shares
underlying the Option on or after one year provided the Employee
is then employed by the Corporation and/or one of its
subsidiaries;
(b) Second one-third of the aggregate number of shares
underlying the Option on or after two years provided the Employee
is then employed by the Corporation and/or one of its
subsidiaries; and
(c) Third one-third of the aggregate number of shares
underlying the Option on or after three years provided the
Employee is then employed by the Corporation and/or one of its
subsidiaries.
Each exercise must encompass at least one installment or 100
shares, whichever is less. In the event the Employee's exercise
includes a fractional share, the Corporation will not be required
to issue a fractional share but will pay the Employee in cash the
value of such fraction. All unexercised rights shall lapse and
forever terminate after the expiration of ten years from the date
the Option was granted, provided that if the Employee is a Ten
Percent Shareholder, all unexercised rights shall lapse and
forever terminate after the expiration of five years from the
date the Option was granted.
4. Termination of Employment.
(a) If the Employee's employment is terminated for any
reason other than death or Retirement, the term of any then
outstanding Option under this Agreement and Employee's rights, if
any, to exercise that portion of the Options which was
exercisable as of the last date of employment, shall terminate
thirty (30) days after the date of such termination of
employment.
(b) If the Employee's employment is terminated because of
Retirement, the term of any then outstanding Option under this
Agreement and Employee's rights, if any, to exercise that portion
of the Option which was exercisable as of the last date of
employment, shall terminate three months after the date of such
termination of employment.
(c) If the Grantee's employment is terminated because of
death, the term of any then outstanding Option under this
Agreement and Employee's rights, if any, to exercise that portion
of the Option which was exercisable as of the last date of
employment, shall terminate one year after the date of such
termination of employment.
(d) In no event may the period for exercising the Option
extend beyond the date on which the Option would otherwise
expire.
5. Manner of Exercise. Full payment for the shares
purchased shall be made at the time of any exercise of the Option
pursuant to this Agreement. The purchase price shall be payable
to the Corporation in United States dollars in cash or by check,
bank draft, or postal or express money order. Subject to the
terms and conditions hereof, the Option shall be exercisable by
notice to the Corporation on the form provided by the
Corporation, a copy of which is attached hereto. In the event
that the Option is being exercised by any person or persons other
than the Employee, the notice shall be accompanied by proof,
satisfactory to the Corporation, of the right of such person or
persons to exercise any right under this Agreement.
6. Rights of Employee. The grant of the Option shall give
the Employee neither any right to similar grants in future years
nor any right to be retained as an employee of the Corporation.
The right and power of the Corporation to dismiss or discharge
the Employee is specifically unqualifiedly unimpaired by this
Agreement. Neither the Employee nor any other person legally
entitled to exercise any rights under this Agreement shall be
entitled to any of the rights or privileges of a stockholder of
the Corporation with respect to any shares which may be issuable
upon any exercise pursuant to this Agreement, unless and until a
certificate or certificates representing such shares shall have
been actually issued and delivered to the Employee or such
person.
7. Non-Transferability of Option. Except as otherwise
provided herein, the Option and the rights and privileges
conferred hereby may not be sold, transferred, assigned,
exchanged, encumbered, pledged or otherwise hypothecated or
disposed of in any way, other than by will or the laws of descent
and distribution, and the Option shall be exercisable during the
Employee's lifetime only by the Employee.
8. Termination of Option upon Certain Events. In the
event the Corporation merges with or consolidates into another
corporation, or sells or transfers all or substantially all of
its assets, or distributes all or substantially all of its assets
to its stockholders in liquidation, or dissolves and terminates
its corporate existence (other than a merger in which the
Corporation is the surviving corporation and under the terms of
which the shares of Common Stock outstanding immediately prior
the merger remain outstanding and unchanged), all rights of the
Employee to exercise any then outstanding Option under this
Agreement, and such Option, shall wholly and completely terminate
at the time of any such merger, consolidation, sale or transfer
of assets, liquidation or dissolution, except to the extent that
any agreement or undertaking of any party to any such merger,
consolidation , or sale or transfer of assets, or any plan
pursuant to which such liquidation or dissolution is effected,
shall make specific provision with respect to such Option and the
rights of the Employee entitled to exercise such Option.
Notwithstanding the foregoing, the Committee may determine that
the Employee shall have the right, immediately prior to such
merger, consolidation, sale or transfer of assets, liquidation or
dissolution, to exercise the Option with respect to any or all of
the shares remaining subject to the Option, whether or not such
shares are then purchasable by him. To the extent that any such
exercise relates to the shares which are not otherwise
purchasable by the Employee at such time such exercise shall be
contingent upon the consummation of such merger, consolidation,
sale or transfer of assets, liquidation or dissolution. The
Committee shall notify the Employee of the provisions of any such
merger, consolidation, sale or transfer of assets, liquidation or
dissolution, not less that twenty (20) days prior to the
effective date thereof.
9. Notices. Each notice to the Corporation relating to
this Agreement shall be in writing and delivered in person or by
registered mail to the Corporation at its office, 80 Pickett
District Road, New Milford, Connecticut 06776, to the attention
of the Chief Financial Officer. All notices to the Employee or
other person or persons then entitled to exercise any right
pursuant to this Agreement shall be delivered to the Employee or
such other person or persons at the Employee's address specified
below or at such other address as the Employee or such other
person may specify in writing to the Corporation by a notice
delivered in accordance with this paragraph.
10. Restriction of Shares: The Corporation's obligation to
issue or deliver any certificate or certificates for shares of
Common Stock under this Agreement, and the transferability of
shares acquired by the exercise of the Option, shall be subject
to all of the following conditions:
(a) any registration or other qualification of such shares
under any state or federal law or regulation, or the maintaining
in effect of any such registration or other qualification which
the Corporation shall, in its absolute discretion upon the advice
of counsel, deem necessary or advisable provided that, the
Corporation shall have no obligation to register any securities
of the Corporation issued to or held by the Employee;
(b) the obtaining of any other consent, approval, or permit
from any state or federal governmental agency which the
Corporation shall, in its absolute discretion upon the advice of
counsel, determine to be necessary or advisable;
(c) each stock certificate issued pursuant to this
Agreement shall bear any legend deemed to be required by the
Corporation under federal and state securities laws including the
following legend unless the Corporation determines that such
legend is not required:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended (the
"Act") or under state securities laws. The securities may not be
sold, transferred, pledged or hypothecated unless such securities
are registered under the Act or pursuant to an opinion of counsel
acceptable to Colonial Data Technologies Corp. that such
registration is not required."
11. Miscellaneous. This Agreement comprises the whole
agreement between the parties hereto. It may not be modified or
terminated orally. This Agreement shall be governed by the laws
of the State of Delaware.
This Agreement shall inure to the benefit of, and be binding
upon, each successor of the Corporation and, to the extent
specifically provided herein and in the Plan, shall inure to the
benefit of and be binding upon the Employee's heirs, legal
representatives, and successors.
IN WITNESS WHEREOF, this Agreement is executed by the
Employee and by the Corporation through its duly authorized
officer or officers as of the day and year first above written.
COLONIAL DATA TECHNOLOGIES CORP.
By:___________________________________________
Robert J. Schock
President
E M P L O Y E E:
By:
Signature
Print Name
Address
Social Security Number
NATIONWIDE LIFE INSURANCE COMPANY
SALARY DEFERRAL [401(k)] AND SAVINGS
PROTOTYPE PROFIT SHARING PLAN AND TRUST
PLAN NO. 001
STANDARDIZED - INTEGRATED AND NON-INTEGRATED
Address of Authorized Representative: 25 Van Zant St., Unit #6,
East Norwalk, CT 06855
Telephone Number: 203-831-8181
The Employer hereby establishes a profit sharing plan and trust
for the benefit of its eligible employees and the eligible
employees of each Participating Employer which adopts the Plan.
The plan and trust shall consist of the Nationwide Life Insurance
Company Salary Deferral [401(k)] and Savings Prototype Profit
Sharing Plan and Trust and this Adoption Agreement.
1. Name of Employer: Colonial Data Technologies, Corp.
1A. Business Entity: [x] Corporation -- Date of Incorporation ___________
[ ] Partnership [ ] Sole Proprietor [ ] S Corporation [ ] Other:
1B. Type of Business: Electronic Communication Equipment Manufacturer
2. Employer Address: 80 Pickett District Road
New Milford, CT 06776
3. Employer Tax Year End 12/31 Employer Identification No. 06-1022744
4. Plan Name: Colonial Data Technologies Corp. 401(k) Plan Plan No. 001
5. Limitation Year (elect one):
[x] Calendar year
[ ] the period selected in Exhibit 1, Section 3
[ ] other 12 month period ending:
6. Plan Status (check a or b):
(a) [x] Newly Adopted Plan
(b) [ ] Amendment and restatement of the
Effective date of amendment
This amendment shall not apply to any Employee who
severed employment before the effective date of
the amendment. The Accrued Benefit and vesting
percentage of each Participant who is an Employee
on the effective date of the amendment shall be no
less than before the amendment.
EXHIBIT 1 - DEFINITIONS
1. "Break In Service" (Section 2.7) means employment of not
more than 500 (insert 500 or less) Hours Of Service during
an Eligibility Computation Period or Vesting Computation
Period.
NOTE: This Section must be completed if Exhibit 5,
Section 9(b) is selected.
2. "Compensation" (Section 2.10) means all of each Participant's
(elect a or b):
(a) [x] W-2 earnings and any Salary Deferral Contributions
for the period selected below.
(b) [ ] compensation as that term is defined for Code
Section 415(c)(3) purposes for the period selected
below.
[x] Check here if pursuant to Section 2.10, the Employer
shall include in the definition of Compensation in (a)
or (b) above contributions made pursuant to Section
125, 402(h) or 403(b) of the Code.
3. The compensation period under this Section shall be the
Section 2.10) (elect a, b or c):
(a) [x] Plan Year.
(b) [ ] taxable year ending with or within the Plan Year.
(c) [ ] limitation year ending with or within the Plan Year.
4. If an Eligible Employee becomes a Participant after the
beginning of the period selected above, Compensation shall
include for purposes of Employer Discretionary Contributions
and Qualified Non-Elective Contributions (elect a or b):
(a) [x] only the Compensation for the portion of the
period selected above during which he became a
Participant.
(b) [ ] the Compensation for the entire period selected
above in which he became a Participant.
5. "Effective Date" (Section 2.14) means January 1, 1995.
NOTE: If this is an amendment and restatement of an
existing plan, insert the original plan
effective date.
6. "Plan Year" (Section 2.36) means the 12 consecutive month
period, or such lesser period as a Participating Employer is
in business, beginning on the 1st day of January, and ending
on the 31st day of December in each year.
NOTE: The Plan Year should normally end on the last
day of the calendar year.
7. "Net Profits" (Section 2.26) Employer contributions shall be
made (elect one):
[ ] with [ ] without regard to the definition of
Net Profits in Section 2.26.
EXHIBIT 2 - ELIGIBILITY REQUIREMENTS
1. CLASSIFICATION REQUIREMENTS (Section 2.17) Classifications
of Employees that are not eligible to participate in the
Plan are (elect a or b and/or c):
(a) [x] None: all Employees are eligible.
(b) [ ] Covered by a Collective Bargaining Agreement:
included in a unit of employees where retirement
benefits have been the subject of good faith
bargaining between representatives of such
employee unit and the Participating Employer,
unless the resulting collective bargaining
agreement provides for the inclusion of such unit
of employees under this Plan.
(c) [ ] Non-resident aliens who receive no Earned Income
from a Participating Employer which constitutes
income from sources within the United States.
2. SERVICE AND AGE REQUIREMENTS (Section 3.1):
(a) To be eligible to participate, an Eligible Employee
must have completed the following Eligibility Service
requirements (complete both 1 and 2):
(1) On the Effective Date of the Plan, the following
requirements apply:
(i) (ii)
Service Age
[x] No Service Requirement [ ] No Age Requirement
[ ] _____ Months from Employment [x] 21 (Not to exceed Age 21)
Date (not to exceed 12)
[ ] 1 Year of Eligibility Service
(2) After the later of the Effective Date of the Plan
or effective date of amendment, the following
requirements apply:
(i) (ii)
Service Age
[ ] No Service Requirement [ ] No Age Requirement
[x] 6 Months from Employment [x] 21 (Not to exceed Age 21)
Date (not to exceed 12)
[ ] 1 Year of Eligibility Service
NOTE: The Service requirements in (1) and (2) above
must be the same if the Employer is a Self-Employed
Individual.
2. SERVICE AND AGE REQUIREMENTS (Section 3.1):
If the service requirement elected is a stated number
of months of service, each Eligible Employee who has
been employed with the Participating Employer for the
number of months elected shall be deemed to have
completed the service requirement regardless of the
number of Hours of Service actually performed.
(b) One year of Eligibility Service shall be credited to
the Eligible Employee on the last day of each
Eligibility Computation Period in which he completes
______ (not more than 1,000) Hours of Service.
3. ENTRY DATE (Section 3.1) The Entry Date shall be the (elect one):
(a) [ ] date coinciding with satisfaction of all
eligibility requirements.
(b) [ ] first day of the month coinciding with or next
following satisfaction of all eligibility
requirements.
(c) [ ] first day of the Plan Year quarter following
satisfaction of all eligibility requirements.
(d) [ ] Plan Anniversary (elect one):
[ ] preceding [ ] coinciding with or next
following-satisfaction of all eligibility
requirements ("coinciding" may not be elected
if Section 2(a)(1) or 2(a)(2) of this Exhibit
provides for Eligibility requirements of more
than 6 months or age 20 1/2).
(e) [x] Plan Anniversary or the first day of the seventh
month of the Plan Year coinciding with or next
following satisfaction of all eligibility
requirements.
EXHIBIT 3 - CONTRIBUTIONS AND ALLOCATION FORMULA
1. SALARY DEFERRAL CONTRIBUTION (Section 5.1) Participants
shall be permitted to make Salary Deferral Contributions.
(Complete (a) through (e):
(a) Minimum salary deferral percentage or amount is 1%
per payroll period.
(b) Maximum salary deferral percentage or amount is
15% per payroll period.
[x] Check here if the Participant may make a
special election to defer all or a portion
(including none) of any bonus or other single
sum payment to the Plan.
(c) A Participant may change his salary deferral percentage
(elect one):
(1) [ ] at any time
(2) [x] as of the first day of a Plan Year quarter
(3) [ ] as of a Plan Anniversary
(4) [ ] other: _______________
(d) A Participant may revoke his Salary Deferral Agreement
(elect one):
(1) [x] at any time
(2) [ ] as of the first day of a Plan Year quarter
(3) [ ] as of a Plan Anniversary
(4) [ ] other: _______________
(e) A Participant who has revoked his Salary Deferral
Agreement, may execute a new Agreement (elect one):
(1) [ ] at any time
(2) [x] as of the first day of a Plan Year quarter
(3) [ ] as of a Plan Anniversary
(4) [ ] _____ months after the date of revocation of his
Salary Deferral Agreement.
(5) [ ] other: _______________
NOTE: In Section c, d or e above, "other" must be at least
once a year.
2. EMPLOYEE (after tax) CONTRIBUTIONS (Section 5.4):
Participants shall (elect a or b):
(a) [ ] be permitted to make Employee Contributions.
(b) [x] not be permitted to make Employee Contributions.
3. EMPLOYER MATCHING CONTRIBUTION (Section 5.2) Each Participating Employer
shall (elect a or b):
(a) [x] make Employer Matching Contributions equal to (elect one):
(1) [x] 25% of the first 6% of Compensation which is
deferred under the Plan.
(2) [ ] ___% of the first ___% of Compensation contributed as
Employee Contributions under the Plan.
(3) [ ] Other: _______________
(b) [ ] not make Employer Matching Contributions.
4. EMPLOYER DISCRETIONARY CONTRIBUTIONS (Section 5.2) Each Participating
Employer shall (elect a or b):
(a) [x] make Employer Discretionary Contributions in such
amounts as may be determined by the Participating
Employer.
(b) [ ] not make Employer Discretionary Contributions.
5A. FORFEITURES (Section 10.2) Forfeitures from a Participant's
Employer Matching subaccount, except Excess Aggregate
Contributions, shall be (elect a or b):
(a) [ ] reallocated to Employer Matching subaccounts of
other Participants.
(b) [x] applied to reduce the next Participating Employer contribution.
5B. FORFEITURES (Section 10.2) Forfeitures from a Participant's
Employer Discretionary subaccount shall be (elect a or b):
(a) [ ] reallocated to Employer Discretionary subaccounts
of other Participants.
(b) [x] applied to reduce the next Participating Employer contribution.
6. FORFEITURES (Section 10.3A or B) Forfeitures from a Participant's
Employer Matching or Employer Discretionary subaccount shall occur:
(a) [x] upon distribution to a terminated Participant of
his vested Accrued Benefit, or his fifth consecutive Break
In Service, if earlier.
(b) [ ] after the Participant has incurred his fifth
consecutive Break In Service.
7. ALLOCATION FORMULA (Section 6.1): Employer Discretionary
Contributions and forfeitures arising from Employer Discretionary
subaccounts shall be allocated to the Employer Discretionary subaccount
of each Participant who has completed the requirements specified below
(elect a or b):
(a) [x] in the proportion that the Participant's
Compensation bears to the total compensation of
all Participants.
(b) [ ] in the proportion that the Participant's
Compensation in excess of the Integration Level
bears to the total Compensation of all
Participants in excess of the Integration Level,
provided that the maximum amount of contributions
and forfeitures so allocated for the Plan Year
shall not exceed the Integration Percentage set
forth below. Providing further, that the maximum
amount of contributions and forfeitures in excess
of the Integration Level shall not exceed the
amount of contributions and forfeitures allocated
below the Integration Level expressed as a
percentage of each Participant's Compensation by
the lesser of (a) or (b) where (a) equals the
percentage of each Participant's Compensation
below the Integration Level and (b) equals the
greater of either 5.7% or the percentage equal to
the portion of the tax rate under Code Section
3111(a) (in effect as of the beginning of the
year) which is attributable to old-age insurance.
Any contributions and forfeiture in excess of such
percentage shall be allocated to the sub-account
of each Participant in the proportion that his
Compensation bears to the total compensation of
all Participants (complete (1) and (2)):
(1) Integration Level (elect a, b or c):
(a) [ ] the Taxable Wage Base
(b) [ ] $________, and increasing by ____%
of the actual dollar increase in the
Taxable Wage Base for each subsequent
year
(c) [ ] $________
NOTE: (b) and (c) above must not include an amount in excess
of the Taxable Wage Base.
The Taxable Wage Base means the maximum amount of earnings
which may be considered wages for Social Security purposes
under Section 3121(a)(1) of the Code for each calendar year.
NOTE: A minimum contribution may need to be provided to each
Non-Key Employee as required by Section 11.2.
(2) The Integration Percentage is ____%
NOTE: If the Integration Level is the Taxable Wage Base,
the maximum integration percentage is 5.7% (or the rate
of tax under Code Section 3111(a) attributable to old
age insurance, if greater). If the Integration Level
is below the Taxable Wage Base, the maximum integration
percentage is: 5.4% if the Integration Level is more
than 80% but less than 100% of the Taxable Wage Base;
4.3% if the Integration Level is above $10,000 (or 1/5
of the Taxable Wage Base, if greater) but not more than
80% of the Taxable Wage Base; and 5.7% (or the rate of
tax under Code Section 3111(a) attributable to old age
insurance, if greater) if the Integration Level is at
or below $10,000 (or 1/5 of the Taxable Wage Base, if
greater).
8. ELIGIBILITY FOR ALLOCATION (Section 6.2) (complete a and b and note c):
(a) A Participant must complete the following Hours Of
Service during the Plan Year in order to share in the
Participating Employer Discretionary Contribution (or
forfeitures) for such Plan Year (elect one):
(1) [ ] 1,000 or more Hours of Service for Plan Years
beginning before January 1, 1990, and more
than 500 Hours of Service for Plan Years
beginning on or after January 1, 1990.
(2) [x] more than 500 Hours of Service.
(3) [ ] 1 or more Hours of Service.
(b) A Participant whose employment is terminated before the
end of the Plan Year but after completion of the number
of hours specified in (a) above shall (elect 1 or 2):
(1) [ ] not share in the Employer Discretionary
Contribution (or forfeitures) for such Plan
Years beginning before January 1, 1990, but
share for all subsequent years.
(2) [x] share in the Employer Discretionary
Contribution (or forfeitures) for such Plan
Year.
(c) A Participant who is employed on the last day of the
Plan Year beginning on or after January 1, 1990 must
receive an allocation for such Plan Year providing the
Participant completed 500 or more Hours of Service
during the Plan Year.
9. QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Section 2.37A)
(complete a, b, or c):
(a) Qualified Non-Elective Contributions shall (elect 1 or 2):
(1) [x] be permitted. Such contributions shall be
made at the discretion of the Participating
Employer and allocated on the basis of the
ratio in which a Participant's Compensation
bears to the total compensation for all
participants who are (elect (i) or (ii)):
(i) [x] Eligible Non-Highly Compensated
Employees who (elect one):
[ ] completed the requirements of Section 8 above.
[x] completed more than 500 Hours of Service
(insert 500 or less) during the Plan
Year and (complete one) [x] were [ ]
regardless of whether employed on the
last day of the Plan Year.
(ii) [ ] Eligible Employees who (elect one):
[ ] completed the requirements in Section 8
above.
[ ] completed more than _____ Hours of
Service (insert 500 or less) during the
Plan Year and (complete one) [ ] were [ ] regardless
of whether employed on the last day of the Plan Year.
(2) [ ] not be permitted.
(b) Qualified Non-Elective Contributions shall be taken
into account as (elect one):
(1) [ ] Salary Deferral Contributions for the purpose
of calculating the Actual Deferral Percentage
discrimination test.
(2) [ ] Matching Contributions for the purpose of
calculating the Average Contribution
Percentage discrimination test.
(3) [x] Salary Deferral Contributions to the extent
deemed necessary to satisfy the Actual
Deferral Percentage discrimination test. Any
remaining contributions shall be treated as
Matching Contributions for the purpose of
calculating the Average Contribution
Percentage discrimination test.
10. MATCHING CONTRIBUTION (Section 2.23A) If the Employer has
elected in Exhibit 3 to provide for Matching Contributions
and if Exhibit 5 provides that the Employer Matching
subaccount shall be 100% immediately vested, please complete
the following (otherwise check "not applicable" in (c)
below) (elect one):
Matching Contributions which are 100% vested when made shall
be taken into account as (elect a, b, or c):
(a) [ ] Salary Deferral Contributions for the purpose of
calculating the Actual Deferral Percentage
discrimination test.
(b) [ ] Matching Contributions for the purpose of
calculating the Average Contribution Percentage
discrimination test.
(c) [x] not applicable.
EXHIBIT 4 - INVESTMENTS
1. INVESTMENTS (Article VIII) All assets of the Plan shall be
invested by the Trustee, except that (elect a, b, c, or d
and complete (e) and (f):
(a) [ ] No exceptions
(b) [ ] The Employer shall direct the Trustee in selecting
(1) [ ] all subaccounts
(2) [ ] the following subaccounts: _______________
(c) [x] The Participant shall direct, from eligible
investments specified by the Plan Administrator,
the Trustee in selecting
(1) [x] all subaccounts
(2) [ ] the following subaccounts: _______________
(d) [ ] The Employer shall appoint an Investment Manager
to direct the Trustee in selecting
(1) [ ] all subaccounts
(2) [ ] the following subaccounts: _______________
Name:
Address:
Telephone Number:
(e) The entity or individual selected above may change,
subject to the rules of an Insurer or other investing
institution, its investment election with respect to
investments in its Account (elect one):
(1) [x] at any time
(2) [ ] no more frequently than once every 3 months
(3) [ ] no more frequently than once every 12 months
(4) [ ] other (at least annually)
(f) The entity or individual selected above may change,
subject to the rules of an Insurer or other investing
institution, its investment election with respect to
investments of future contributions (elect one):
(1) [x] at any time
(2) [ ] no more frequently than once every 3 months
(3) [ ] no more frequently than once every 12 months
(4) [ ] other (at least annually)
2. COMMON DUE DATE (Section 2.9) (elect a or b): N/A
(a) [ ] The ____ day of the month of ________ in each year.
(b) [ ] The following dates:
NOTE: "NA" should be placed in 2 above if
Insurance Contracts are not offered as
an investment option under the Plan.
EXHIBIT 5 - BENEFITS AND DISTRIBUTIONS
1. VESTING SCHEDULE (Section 10.1) (complete one box below) A
Participant's vested interest in his Employer Matching
subaccount, if any, and his Employer Discretionary
subaccount and Insurance Policies, if any, shall be
determined by the following schedule (elect one):
Years of (a) (b) (c) (d)
Vesting Service [ ] [ ] [ ] [x]
0 100% 0% 0% 0%
1 0 0 0%
2 0 20 40%
3 100 40 60%
4 60 80%
5 80 100%
6 100
NOTE: "(d)" above shall provide a vesting percentage for
all years of service equal to or exceeding (a), (b),
or (c) above.
2. VESTING COMPUTATION PERIOD (Section 2.49) The 12
consecutive month period ending on the 31st day of December
in each year.
NOTE: The Vesting Computation Period shall coincide with the Plan Year.
3. VESTING SERVICE (Section 2.50) One year of Vesting Service
shall be credited to a Participant for each Vesting
Computation Period during which he completes at least 1000
(not to exceed 1,000) Hours Of Service, beginning on his
Employment Date or Re-employment Date, subject to the
exclusions elected in Section 4.
4. EXCLUDED YEARS OF VESTING SERVICE (Section 2.50): In
addition to years of Vesting Service excluded by the Break
In Service rules, the following years of Vesting Service
shall be excluded in determining a Participant's vested
interest (elect a or b):
(a) [x] No Vesting Service shall be excluded.
(b) [ ] The following years of Vesting Service shall be
excluded (elect any that are applicable):
(1) [ ] years of Vesting Service completed before the
year in which the Participant attains age 18.
(2) [ ] years of Vesting Service completed before the
Effective Date of the Plan.
4A. ELAPSED TIME (Section 2.21):
[ ] Check here if the elapsed time provisions of Section
2.21 are to apply. If checked, Sections, 2 3 and 4
above are not applicable.
5. NORMAL RETIREMENT AGE (Section 2.27) A Participant's Normal
Retirement Age will be the day he (elect a or b):
(a) [x] attains age 65 (not more than 65).
(b) [ ] attains the later of age ____ (not more than 65)
or the ___th (insert 5 or less) anniversary of
his participation commencement date.
Participation commencement date is the first day
of the Plan Year in which the Participant began
participating in the Plan.
6. EARLY RETIREMENT (Section 10.5): (elect a or b):
(a) [ ] A Participant who has attained age _____ and
who is credited with _____ years of Vesting
Service may retire on his Early Retirement Date.
A Participant's Account (elect (1) or (2)):
(1) [ ] shall, if not previously 100% vested, be 100%
vested upon attainment of his Early
Retirement Age.
(2) [ ] shall be subject to the vesting schedule in
Exhibit 5.
(b) [x] Early retirement is not provided.
7. AGE 59 1/2 (Section 10.10) Age 59 1/2 distributions (elect
a or b):
(a) [x] are permitted.
(b) [ ] are not permitted.
8. HARDSHIP (Section 10.11) Hardship distributions
(elect a or b):
(a) [x] are permitted.
(b) [ ] are not permitted.
9. COMMENCEMENT OF BENEFITS (Section 10.12): Subject to the
requirement of Section 10.18, a Participant who terminates
his employment with his Participating Employer may receive a
distribution of his Accrued Benefit (elect a, b, or c):
(a) [x] within a reasonable time after termination of employment.
(b) [ ] after the Participant has incurred, within an
Eligibility Computation Period, a Break In
Service.
(c) [ ] only upon attainment of the Participant's Normal
Retirement Date, or if selected, Early Retirement
Date or age 59 1/2.
10. LOANS TO PARTICIPANTS (Section 10.17) Loans to Participants
are (elect a or b):
(a) [x] permitted and (complete one of the following boxes
[ ] are considered a general investment of the
Trust Fund [x] are considered an investment of the
Participant's Account.
(b) [ ] not permitted.
11. OPTIONAL FORMS OF BENEFITS (Section 10.23) In addition to
the lump sum normal form of benefit, and, if required to be
provided under the Plan, a Qualified Joint and Survivor
Annuity, the following option forms of benefits shall be
provided (elect any that are applicable):
(a) [ ] Straight Life Annuity
(b) [ ] Life Annuity - Ten Years Certain
(c) [ ] Joint and Survivor Annuity
(d) [ ] Ten Year Certain Fixed Payments
(e) [ ] Life Annuity - Twenty Year Certain
(f) [ ] Other:
(g) [ ] Other:
NOTE: [x] Check here if a lump sum normal form of
benefit will be the only form of benefit
offered under this Plan ((a) through (g) must
not be completed), and the Qualified Pre-
Retirement Survivor Annuity and Qualified
Joint and Survivor Annuity provisions will
not be applicable (Section 10.20).
NOTE: If this is an amendment and restatement of a prior
plan, the "other" line may be used to preserve an
optional form of benefit not currently offered by
Nationwide. In addition, an additional optional form
of benefit may be specified in the "other" line above
only if such form of benefit does not discriminate in
favor of any Highly Compensated Employee.
12. CASH OUT DISTRIBUTION (Section 10.15) Upon termination of
service, a Participant's vested Accrued Benefit of $3,500 or
less will (elect a or b):
(a) [x] be immediately distributed to the Participant.
(b) [ ] not be distributed to the Participant without his consent.
EXHIBIT 6 - PLAN ADMINISTRATOR
1. PLAN ADMINISTRATOR (Section 12.1) The Plan Administrator
shall be (elect a, b, c, or d):
(a) [x] the Employer.
(b) [ ] the Trustee.
(c) [ ] a committee consisting of at least three persons
appointed from time to time by the Board of
Directors of the Employer to serve without
compensation at the pleasure of the board. Any
person appointed a member of such committee shall
signify his acceptance of administrative
responsibility by filing written acceptance with
the board and with the committee. Any member of
the committee may resign by delivering his written
resignation to the board and the Secretary of the
committee, and such resignation shall become
effective on some specified future date not less
than 30 days after receipt of such resignation by
the board.
The committee may authorize one or more of its
member to execute or deliver any instrument or
make any payment on its behalf.
A majority of the members of the committee at the
time in office shall constitute a quorum for the
transaction of business. All resolutions or other
matters coming before the committee may be acted
upon by the members of the committee present at
any meeting or without a meeting by an instrument
in writing signed by a majority of the members of
the committee. In the event any such vote ends in
a deadlock, the board shall cast the deciding
vote.
(d) [ ] (Specify by name, title, or other description):
EXHIBIT 7 - LIMITATIONS ON ALLOCATIONS
1. OTHER QUALIFIED PLANS (Sections 7.3 and 7.4) If the
Employer maintains or ever maintained another qualified plan
in which any Participant in this Plan is (or was) a
Participant or could possibly become a Participant, you must
complete this section. The Employer must also complete this
Section if it maintains a welfare benefit fund, as defined
in Section 419(e) of the Code, or an individual medical
account, as defined in Section 415(1)(2) of the Code, under
which amounts are treated as annual additions with respect
to any Participant in this Plan. (complete a and b):
(a) The Employer must complete this Section if a
Participant is covered under another qualified defined
contribution plan maintained by the Employer, other
than a Master or Prototype Plan. (Complete 1, 2, or 3):
(1) [ ] The provisions of Section 7.2 will apply, as
if the other plan was a Master or Prototype
Plan.
(2) [ ] (Provide the method under which the plans
will limit total Annual Additions to the
Maximum Permissible Amount, and will properly
reduce any Excess Amounts, in a manner that
precludes Employer discretion.)
(3) [x] not applicable.
(b) If the Participant is or ever has been a Participant in
a defined benefit plan maintained by the Employer
(complete 1, 2, or 3):
(1) [ ] In any Limitation Year, the Annual Additions
credited to the participant under this Plan
may not cause the sum of the Defined Benefit
Plan Fraction and the Defined Contribution
Plan Fraction to exceed 1.0. If the
Participating Employer contributions that
would otherwise be allocated to the
Participant's Account during such year would
cause the 1.0 limitations to be exceeded, the
allocation will be reduced so that the sum of
the fractions equals 1.0. Any contributions
not allocated because of the preceding
sentence will be allocated to the remaining
Participants under the allocation formula
under the plan. If the 1.0 limitation is
exceeded because of an Excess Amount, such
Excess Amount will be reduced in accordance
with Section 7.1(d).
(2) [ ] (Provide the method under which the plan
involved will satisfy the 1.0 limitation in a
manner that precludes Employer discretion).
(3) [x] not applicable.
EXHIBIT 8 - TOP-HEAVY PROVISIONS
If this Plan covers employees under a collective bargaining
agreement that meets the requirements of Code Section 416(i)(4),
please check not applicable in all Sections below.
1. PARTICIPATING EMPLOYER MAINTAINING A DEFINED CONTRIBUTION
PLAN IN ADDITION TO THIS PLAN (Section 11.3) For any Plan
Year in which the Plan is top-heavy, each Participating
Employer (elect a, b, or c):
(a) [ ] shall contribute to this Plan an amount, which
when added to a Non-Key Employee's Employer
contribution and forfeiture, will equal 3% of his
Compensation (or such lesser amount as provided in
Section 11.3).
(b) [ ] shall satisfy the Section 11.3 required
contribution by making a contribution to the other
defined contribution plan for a Non-Key Employee
covered by both plans.
(c) [x] not applicable.
2. VESTING SCHEDULE FOR PLAN IN TOP-HEAVY STATUS (Section
11.5): A Participant's vested interest in his Employer
Matching and Employer Discretionary subaccounts, if any, and
in any Insurance Policies shall be determined by the Vesting
Schedule elected in Exhibit 5.
The Vesting Computation Period and the Hours Of Service
required for Vesting Service shall have the same meaning in
this Exhibit as that specified in Exhibit 5.
3. PARTICIPATING EMPLOYER MAINTAINING A DEFINED BENEFIT PLAN IN
ADDITION TO THIS PLAN (Section 11.4) For any Plan Year in
which the Plan is top-heavy, each Participating Employer
(elect a, b, or c):
(a) [ ] shall contribute to this Plan, for a Non-Key
Employee covered by both plans, an amount, which
when added to a Non-Key Employee's Employer
contribution and forfeiture, will equal 5% of his
Compensation.
(b) [ ] shall, in the defined benefit plan, for a Non-Key
Employee covered by both plans, provide a 2%
accrual per year of service to each Non-Key
Employee as required by Code Regulation 1.416-1(m)(2).
(c) [x] not applicable.
4. PARTICIPATING EMPLOYER MAINTAINING A DEFINED BENEFIT PLAN IN
ADDITION TO THIS PLAN - EXTRA TOP-HEAVY CONTRIBUTION/BENEFIT
(Sections 11.4 and 11.6): For each Plan Year in which the
Plan is top-heavy and the Top-Heavy Ratio is 90% or less,
each Participating Employer (elect a, b, c or d):
(a) [ ] shall contribute to this Plan, for a Non-Key
Employee covered by both plans an amount, which
when added to a Non-Key Employee's Employer
contribution and forfeiture, will equal 7 1/2% of
his Compensation.
(b) [ ] shall, in the defined benefit plan, for a Non-Key
Employee covered by both plans, provide a 3%
accrual per year of service to each Non-Key
Employee as required by Code Regulation 1.416-1(m)(14).
(c) [ ] will not make any additional minimum contribution or accrual.
(d) [x] not applicable.
NOTE: By selecting (a) or (b), the Employer is expanding
the maximum amount that can be contributed and/or
accrued under Section 7.5 for an Employee who is a
Participant in both a defined contribution and
defined benefit plan which are maintained (or
previously maintained) by the Employer.
5. PRESENT VALUE (Section 11.7): For purposes of computing
Present Value, the following will be used (complete a or b):
(a) Interest Rate ______%
Mortality Table ______
Valuation Date ______
(b) [x] not applicable.
NOTE: This Section only applies if the Participating Employer
is currently maintaining, or has previously maintained a
defined benefit plan.
EXECUTION
CAUTION: THE FAILURE TO PROPERLY COMPLETE THIS ADOPTION AGREEMENT MAY
RESULT IN DISQUALIFICATION OF THE PLAN.
The Employer hereby adopts this Plan and Trust, subject only to
acceptance by the Trustee. The Employer, by executing this
document, acknowledges that it has read this Plan and Trust, that
it has consulted legal counsel to the extent deemed necessary,
and it releases Nationwide from any liability resulting from
adoption of the Plan and Trust. However, subject to Section 8.1,
Nationwide Life Insurance Company will inform the Employer of any
amendments made to the Plan or of the discontinuance or abandonment
of the Plan.
IRS OPINION LETTER
An Employer who has ever maintained or who later adopts any plan
(including, after December 31, 1985, a welfare benefit fund, as
defined in Section 419(e) of the Code, which provides for post-
retirement medical benefits allocated to separate accounts for
Key Employees, as defined in Section 419A(d)(3) or an individual
medical account, as defined in Section 415(1)(2) of the Code) in
addition to this Plan may not rely on the opinion letter issued
by the National Office of the Internal Revenue Service as
evidence that this plan is qualified under Code Section 401. If
the Employer who adopts or maintains multiple plans wishes to
obtain reliance that his Plan(s) are qualified, application for a
determination letter should be made to the appropriate IRS Key
District Director office.
This Adoption Agreement may be used only in conjunction with
basic plan document number 05.
EMPLOYER
COLONIAL DATA TECHNOLOGIES, CORP.
(Name of Employer)
Date: December 29, 1994 By: /s/ Robert J. Schock
(Signature and Title)
TRUSTEE(S)
North Fork Bank Trust Department
Date: December 29, 1994 /s/ Patricia Smith
(All Trustee(s) must sign)
PARTICIPATING EMPLOYER(S)
Name of Employer(s)
Date: _________________
(Signature(s))
AFFILIATED EMPLOYER(S)
Name of Employer(s)
(No signature is required)
EXHIBIT NO. 21
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
Colonial Technologies Corp., a Delaware corporation
dba Colonial Data Technologies Corp.
EXHIBIT NO. 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements Nos. 33-55884 and 33-61283 of Colonial Data
Technologies Corp. on Form S-8 of our report dated January 26,
1996, appearing in this Annual Report on Form 10K of Colonial
Data Technologies Corp. for the year ended December 31, 1995.
Deloitte & Touche LLP
Hartford, Connecticut
March 22, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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