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Rule 424(b)(3)
Reg. No. 33-53429
PROSPECTUS
CONTROL DATA SYSTEMS, INC.
816,283 SHARES OF COMMON STOCK, $.01 PAR VALUE
This Prospectus relates to up to 816,283 shares (the "Shares") of Common
Stock of Control Data Systems, Inc. (the "Company") which may be offered for
resale by persons (the "Selling Shareholders") who acquired the shares in
connection with the Company's acquisition of Evernet Systems, Inc. in June 1993.
A Selling Shareholder may offer its shares from time to time for sale at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices. Offers and sales will be made through
agents that have not yet been determined as of the date hereof except as
described below and/or, as to certain of the Selling Shareholders, pursuant to
the Sales Agency Agreement as described below. Sales may also be made to
dealers or directly to purchasers. See "Plan of Distribution". The Company
will not receive any proceeds from sales of the Shares.
The Company's Common Stock is traded in the Nasdaq National Market under
the symbol "CDAT." The last reported sale price of the Company's Common Stock
on June 29, 1994, as reported by the Nasdaq National Market, was $9 1/8 per
share.
The Company will bear all expenses of the offering (estimated to be
$35,000), except that the Selling Shareholders will pay any applicable brokerage
discounts or commissions, as well as fees and disbursements of counsel to and
experts for the Selling Shareholders.
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FOR INFORMATION CONCERNING CERTAIN RISKS RELATING
TO AN INVESTMENT IN THE COMPANY'S COMMON STOCK
SEE "INVESTMENT CONSIDERATIONS."
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is June 30, 1994.
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No person is authorized to give any information or to make any
representations, other than those contained or incorporated by reference in this
Prospectus, in connection with the offering contemplated hereby, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
registered securities to which it relates. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained or incorporated by reference herein is
correct as of any time subsequent to its date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C., 20549, and at the Commission's regional offices in New York
(7 World Trade Center, Suite 1300, New York, New York 10048) and Chicago
(Suite 1400, Northwestern Atrium Center, 500 West Madison, Chicago, Illinois
60661). Copies of such material can be obtained from the Public Reference
Section of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K (Commission File No. 0-20252)
for its 1993 fiscal year ended January 1, 1994.
2. The Company's Quarterly Report on Form 10-Q (Commission File
No. 0-20252) for its fiscal quarter ended April 2, 1994.
3. The description of the Company's Common Stock, $.01 par value, which
is contained or incorporated by reference in the Company's
Registration Statement on Form 10 (Commission File No. 0-20252) filed
under the Exchange Act, including any amendment or report filed for
the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Shares shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document
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incorporated by reference or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for all purposes of this
Prospectus to the extent that a statement contained herein, therein or in any
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference in such
documents). Requests for such copies should be directed to Ralph W. Beha,
General Counsel and Secretary, Control Data Systems, Inc., 4201 Lexington Avenue
North, Arden Hills, Minnesota 55126-6198; telephone (612) 482-2401.
THE COMPANY
The Company is a systems integrator, developing and implementing open
systems solutions for the operational problems of customers worldwide. The
Company relies upon its computer professionals to provide the consulting
services required to define, develop, install and maintain computer-based
solutions. The Company has a growing family of open systems technology partners
and suppliers offering a range of hardware platforms and software products which
the Company then customizes for a particular customer environment. These
integration/consulting services--Control Data Brainware-TM---are based upon the
Company's 37 years of experience in implementing leading edge solutions for
complex computing environments. The Company serves customers in technical,
government and commercial markets.
The Company was established through Ceridian Corporation's transfer of its
Computer Products business to the Company and Ceridian's subsequent
distribution, in July 1992, of the Company's stock as a dividend to Ceridian's
stockholders. Since August, 1992 the Common Stock of the Company has been
traded on the Nasdaq National Market.
For the first 32 years of its history, the Company integrated its own
proprietary brand of computers. In 1989 it began a transition from the
development, manufacture and marketing of its own computers to the remarketing
of standard UNIX and/or Intel-based computer systems which, coupled with
networking and distributed applications, form what is often referred to as the
client/server computing environment. Today its integration services include
network design, installation and maintenance; application design and deployment;
remote and on-site systems management; electronic mail integration; and
manufacturing design, engineering and production.
The Company's principal offices are located at 4201 Lexington Avenue North,
Arden Hills, Minnesota 55126.
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INVESTMENT CONSIDERATIONS
The following factors should be carefully considered in evaluating an
investment in any shares of Common Stock offered hereby.
OPERATING RESULTS
Since 1989, the Company has been in a transition from being a developer and
manufacturer of a proprietary line of computers to being a systems integrator
developing and implementing open systems solutions for customers using products
developed and manufactured by third parties. This transition has caused year to
year declines in the revenues for sales and maintenance of its proprietary
products, which have been only partially offset by increasing integration
services revenues. For example, sales of proprietary products decreased from
$171.0 million in 1991 to $52.7 million in 1993. This trend, combined with a
growing proportion of lower margin open systems hardware products for the
Company, are expected to cause lower gross margins in 1994 and beyond. While
gross margins on particular product and service offerings vary widely, the
Company anticipates that average overall gross margins in the systems
integration business will be between 10 to 15 percentage points lower than in
the proprietary systems manufacturing business. In order to continue generating
consistent profits, it will be necessary to increase revenue volumes at a
greater rate than in past years when gross margins were at a higher level, and
to maintain lower overall expense levels as a percentage of revenue.
FLUCTUATIONS IN OPERATING RESULTS
Fluctuations in the Company's operating results, particularly from quarter
to quarter, are expected to continue for a number of reasons. The Company's
operations are highly decentralized and geographically dispersed, which
constrains the ability to reduce certain infrastructure costs if revenue volumes
unexpectedly decline. Historically, the Company has experienced increased
market demand for its products in the fourth calendar quarter as a result of its
customers' purchasing cycles. Order-to-installation cycles are shortening,
reducing backlog and diminishing the predictability of the Company's revenue
stream. In addition, the Company continues to focus on obtaining larger
contracts with large commercial and government customers. The timing of these
larger contracts may exacerbate quarter to quarter fluctuations. There can be
no assurance that the Company will maintain consistently profitable operations.
The market price of the Company's shares may rise or fall in response to
quarterly fluctuations in operating results to the extent that they deviate
substantially from the expectations of market analysts.
GOVERNMENT CONTRACTS
The Company estimates that contracts with the United States government
represented approximately 13.7%, 13.4%, and 15.0% of the Company's total
revenue in fiscal years 1993, 1992, and 1991, respectively. Generally, the
Company's contracts with the U.S. government contain provisions to the effect
that the contracts may be terminated at the convenience of the customer, and
that in the event of such termination, the Company would be entitled to receive
payment based on the cost incurred and the anticipated profit on the work
completed prior to termination. Unlike the large-scale proprietary computer
business, however, in which both government and commercial fixed-price contracts
entailed substantial risk of cost overruns, delay penalties, or cancellation
prior to completion, the longer-term systems integration contracts being entered
into by the Company, both with government and commercial customers, generally do
not entail manufacture by the Company of computers from its proprietary lines or
entail the development and manufacturing risks and expenses associated with such
manufacture, and, therefore, in the systems integration business the Company is
afforded greater opportunity to match costs to revenues more closely over time.
RESTRUCTURING
In June 1992, the Company recorded a restructuring charge of $114.9 million
and a charge of $14.9 million related to a change in valuation of spare parts
inventory. As of April 2, 1994, the Company still had $25 million of
restructure obligations, $15 million of which are expected to be paid in 1994.
Although in the past 20 months progress was made in reaching the Company's
transition objectives, the transition is not entirely complete. As a result,
the Company expects to continue to reduce the size of its infrastructure and
associated operating expenses, as well as redeploy certain personnel, with a
view to competing effectively as a worldwide systems integrator. The current
restructure reserves assume that the Company's transition will be completed by
the end of fiscal 1994. Consequently, these reserves only cover current and
future payments related to restructure actions and events planned for 1994 or
taken in prior years. These reserves do not provide for any significant
severance actions in fiscal 1995 and beyond, the early termination of lease
contracts for office or warehouse facilities beyond those already closed or
planned to be closed, or additional proprietary hardware finished goods or spare
parts inventory reserves beyond those budgeted in fiscal 1994.
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In light of continuing rapid change in the computer industry and other
uncertainties facing the Company, there can be no assurance that additional
restructuring actions or charges will not be required or that such charges could
not have a material adverse effect on the operations or financial results of the
Company.
NEED FOR CAPITAL
The Company's cash and short-term investments totaled $78.1 million at
April 2, 1994. In addition, as of April 2, 1994, the Company has available up
to $33.5 million under bank lines of credit in certain international
subsidiaries and a U.S. credit agreement which provides up to $10.0 million in
unsecured short-term financing. The above mentioned funds are expected to be
sufficient to meet the Company's operating requirements in 1994. To the extent
it may be necessary to supplement these sources of cash, the Company could seek
financing from strategic investors and through future debt or equity financing
in the public or private markets. The ability of the Company to borrow money or
to sell debt or equity securities will depend on its results of operations,
financial condition and business prospects, as well as on conditions then
prevailing in the computer industry and the relevant capital markets. There can
be no assurance that such additional capital will be available to the Company or
will be available on terms that are favorable to the Company.
INTERNATIONAL SALES
The Company's international revenues constituted 65.2%, 70.8%, and 68.0%,
of the Company's total revenues in 1993, 1992, and 1991, respectively. The
Company expects that international sales will continue to represent a
significant portion of its revenues in the future. The Company will continue to
be subject to the normal risks of conducting business internationally, including
political instability, unexpected changes in regulatory requirements,
fluctuating exchange rates, tariffs and other barriers, difficulties in staffing
and managing foreign subsidiary operations and potentially adverse tax
consequences. Other risks inherent in certain foreign countries include longer
payment cycles and greater difficulties in accounts receivable collection.
Longer payment cycles and greater difficulties in accounts receivable
collection have resulted in the Company historically taking significantly larger
reserves against receivables in foreign subsidiary operations than in domestic
operations, and the Company continues to follow this practice wherever prudent.
There can be no assurance that these factors will not at some point in the
future have a material impact on the operating results of the Company in any
given financial period. In addition, there can be no assurance that the Company
will be successful in transitioning the business of each of its foreign
subsidiary operations into the systems integration business model, due to the
diverse market, cultural and business environments in the various foreign
operations.
ABILITY TO HIRE AND RETAIN TECHNICAL RESOURCES
As the Company continues to expand its system integration activities it
will need to be able to hire and retain, in sufficient numbers, personnel with
appropriate technical skills in systems integration. There can be no assurance
that the Company will be able to acquire these resources at the time they are
required or at competitive rates. If unsuccessful, Company's revenues may be
negatively impacted and/or its operating costs may increase to fund the training
costs to develop internally such technical skills in sufficient numbers.
COMPETITION
Competition in the systems integration market is intense and is based on a
variety of factors including customer satisfaction, reputation, price,
performance, product quality, software availability, connectivity, networking,
compatibility with industry standards, marketing and
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distribution capability, customer support, name recognition and financial
strength. Further, given the Company's reliance on its suppliers, their
relative competitive positions will have an impact on the Company's own position
in the marketplace. The Company competes throughout the world with numerous
local, regional, national, and international system integrators. Several of the
Company's competitors have significantly greater financial and operational
resources than the Company, and there can be no assurance that the Company's
results of operations will not be adversely affected by such competition.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock. The Company
currently intends to retain earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future to stockholders.
SELLING SHAREHOLDERS
The Selling Shareholders, the number of shares of Common Stock held by
each of them prior to any sales under this Prospectus, and the number of shares
of Common Stock of the Company for which each Selling Shareholder holds Company
warrants are as follows:
Shareholder Shares Owned Warrant Shares
----------- ------------ --------------
First Century Partnership III 65,572 25,605
David L. Anderson 4,031 1,574
Anvest, L.P. 331 129
Mihran A. Aroian 156 85
Aspen Venture Partners, L.P. 113,613 50,859
Austin Ventures, L.P. 117,710 50,429
G. Leonard Baker, Jr. 4,031 1,574
Tench Coxe 793 311
EMP & Co. 6,212 1,663
Focus & Co. 7,986 2,139
James C. Gaither 131 54
Genstar Investment Corporation 1,955 763
Hank & Co. FBO Citiventure II 131,045 35,087
Kleiner Perkins Caufield & Byers V 138,549 60,172
KPCB Zaibatsu Fund I 4,502 2,420
Mellon Bank, N.A. FBO Bell Atlantic 118,917 31,840
Master Pension Trust
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Leo L. and Janet G. Nussbaum, Trustees 1,305 349
Omega Partners 1,927 753
Ronald L. Perkins 604 236
Pitt & Co. FBO GTE Service Corp. 31,651 8,475
Saunders Holdings, L.P. 331 129
Sutter Hill Ventures, L.P. 56,228 21,955
TOW Partners, L.P. 4,355 1,701
Paul M. & Marsha R. Wythes, Trustees 1,903 743
William H. Younger, Jr. 2,445 955
None of the Selling Shareholders has been an officer or director of, or has
had a position or other material relationship with, the Company. Each of these
Selling Shareholders was a holder of preferred stock of Evernet Systems, Inc.,
which the Company acquired for cash, Common Stock, and Company warrants in
June 1993. The Shares covered by this Prospectus were issued by the Company
in that acquisition, and these Shares are registered under the Securities Act of
1933 pursuant to registration rights granted in that acquisition. The warrants
listed above were also issued in that acquisition. They have an exercise price
of $12.863 per share, subject to certain adjustments, and they are exercisable
at any time during the three years that commenced on June 4, 1993. Prior to the
acquisition of Evernet Systems, Inc. by the Company, the Selling Shareholders
collectively had the power to designate certain members of the Evernet Board of
Directors.
Each of the Selling Shareholders has requested the registration of all of
the Shares of the Company's Common Stock which such Selling Shareholder acquired
in the Evernet acquisition, and each Selling Shareholder has expressed an
intention to sell up to all of those Shares depending on market conditions. The
shares issuable upon exercise of the warrants are not now being registered under
the Securities Act of 1993.
PLAN OF DISTRIBUTION
The Shares of Common stock offered hereby may be sold by the Selling
Shareholders from time to time. Sales may be made at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, or at
negotiated prices. No commitments as to any sales have been made as of the date
of this Prospectus.
Offers and sales will be made through agents that, except as described
below, have not yet been determined and/or, as to certain of the Selling
Shareholders, pursuant to the Sales Agency Agreement discussed below. Sales may
also be made to dealers or directly to purchasers. Sales through agents will be
made subject to customary commissions. Sales may be made on a "net" basis.
Five of the Selling Shareholders, who collectively own a total of 295,811
shares of Common Stock, hold their shares in accounts managed by an investment
advisor (the "Advisor") which, in its discretion, may arrange for sales of
shares held by one, some, or all of those holders. Any such sales will be made
as the Advisor determines will be most advantageous to the holders, which is
expected to be to a market maker or through brokers, not presently
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identified, at the lowest available transaction costs, although sales may be
made to dealers or to ultimate purchasers. While the Advisor is not required to
do so, it may arrange for sales in which all of these five Selling Shareholders
would participate, either proportionately in accordance with the number of
shares of Common Stock owned by each of them or on some other basis. These five
Selling Shareholders are EMP & Co., Focus & Co., Hank & Co. FBO Citiventure II,
Melon Bank FBO Bell Atlantic Master Pension Trust, and Pitt & Co. FBO GTE
Service Corp. The Advisor is Chancellor Capital Management, Inc. or its wholly-
owned subsidiary. While the Advisor has discretionary authority over each of
the five accounts referred to above, there is no other affiliation between the
Advisor and any of these five Selling Shareholders.
Two of the Selling Shareholders (First Century Partnership III and Omega
Partners), holding a total of 67,499 shares of Common Stock, are related
investment limited partnerships. One of these partnerships has as its general
partner a partnership composed of a corporate managing partner and four
individual partners; and the other has two individual general partners, both of
whom are partners in the general partner of the first investment partnership.
These two investment partnerships typically make purchases and sales of
securities on a side-by-side, though not necessarily proportionate, basis, and
they expect to make generally similar, though not necessarily proportionate,
dispositions of their shares of Common Stock. The corporate managing partner
of the general partner of the first investment partnership is a subsidiary of
Smith Barney Holdings Inc. and, until approximately two years ago, the four
individual partners were full-time employees of Smith Barney Inc. While these
four individuals have all separated from Smith Barney Inc., they remain
eligible for certain Smith Barney Inc. employee benefits, have made
arrangements for the sharing of certain fees and responsibilities, and are
otherwise subject to contractual arrangements relating to their separation,
pursuant to an agreement they entered into with Smith Barney Inc. at the time
of the separation. The two investment partnerships expect to use Smith Barney
Inc. as their selling broker for dispositions of their shares of Common Stock,
and it is possible that Smith Barney Inc. might purchase some of their shares
as principal. No commitment has been made at this time as to the timing,
amount, or terms of any sales of their shares of Common Stock by these
partnerships to or through Smith Barney Inc. Any sales these partnerhsips may
make through Smith Barney Inc. as agent will be handled as ordinary and
customary brokerage transactions.
Sixteen of the Selling Shareholders, who collectively own a total of
339,204 shares of Common Stock (the "Participating Shareholders") and the
Company intend to enter into a Sales Agency Agreement (the "Sales Agency
Agreement") with Kidder, Peabody & Co. Incorporated ("Kidder, Peabody"). A copy
of the form Sales Agency Agreement is filed as an Exhibit to the Registration
Statement, of which this Prospectus constitutes a part, and is incorporated by
reference herein. Subject to the terms and conditions of the Sales Agency
Agreement, the Participating Shareholders may sell up to all of the Shares of
Common Stock from time to time through Kidder, Peabody as their sales agent.
Such sales, if any, will be made by means of ordinary brokers' transactions
utilizing the Nasdaq National Market. Sales made pursuant to the Sales Agency
Agreement will be effected during a series of one or more pricing periods
("Pricing Periods"), each consisting of five consecutive calendar days. During
any Pricing Period, no more than 20,000 shares ("Average Market Price Shares")
will be sold subject to the calculation of Net Proceeds as defined below. The
aggregate number of Average Market Price Shares sold in all Pricing Periods will
not exceed the number of shares of Common Stock beneficially owned by the
Participating Shareholders. For each Pricing Period, an Average Market Price
(as hereinafter defined) will be computed. With respect to any Pricing Period,
the "Average Market Price" will equal the average of the arithmetic mean of the
daily high and low sale prices of the Common Stock reported on the Nasdaq
National Market for each trading day of such Pricing Period. The sixteen
Selling Shareholders who will be parties to the Sales Agency Agreement are
David L. Anderson; Anvest, L.P.; G. Leonard Baker Jr.; Tench Coxe; James C.
Gaither; Ronald L. Perkins; Sutter Hill Ventures, L.P.; Saunder Holdings, L.P.;
TOW Partners, L.P.; The Wythes Living Trust; William H. Younger, Jr.; Austin
Ventures, L.P.; Genstar Investment Corporation; The Nussbaum Trust; Kleiner
Perkins Caufield & Buyers V; and KPCB Zaibatsu Fund I.
The net proceeds to the Participating Shareholders with respect to sales of
Average Market Price Shares will equal 95% of the Average Market Price
multiplied by the number of such shares of Common Stock sold during the Pricing
Period (subject to adjustment in certain circumstances), plus Excess Proceeds
(as defined below), if any. The compensation to Kidder, Peabody for such sales
in any Pricing Period will equal the difference between the actual sale prices
at which Average Market Price Shares are sold and the net proceeds to the
Participating Shareholders for such sales, but in no case will it exceed ten
percent of such actual sales prices. To the extent that such actual sales
prices are less than the Average Market Price, the compensation to Kidder,
Peabody will be correspondingly reduced; to the extent that such actual sales
prices are greater than the Average Market Price, the compensation to Kidder,
Peabody will be correspondingly increased (but in no event will it exceed ten
percent of the actual sales price). In the event that the average actual sales
price in any Pricing Period equals 95% of the Average Market Price (or less) for
such Pricing Period, all of the proceeds from such sales will be for the account
of the Participating Shareholders and no compensation will be payable to Kidder,
Peabody. To the extent that Kidder, Peabody's compensation under the foregoing
formula would otherwise exceed ten percent of the actual sales prices in any
Pricing Period, the excess over ten percent will constitute additional net
proceeds to the Participating Shareholders (the "Excess Proceeds").
Any shares of Common Stock other than Average Market Price Shares
("Additional Shares") sold by Kidder, Peabody during the Pricing Period on
behalf of the Participating
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Shareholders will be at a fixed commission rate of $0.10 per share. In no event
will the compensation to Kidder, Peabody be in excess of any applicable
requirements of the National Association of Securities Dealers, Inc. ("NASD").
All sales of Average Market Price Shares made during any Pricing Period
pursuant to the Sales Agency Agreement, and all calculations of net proceeds to
the Participating Shareholders with respect to such sales, will be made PRO RATA
(to the nearest 100 shares) in accordance with the number of shares of Common
Stock owned by the Participating Shareholders who elect in advance to
participate in sales of Common Stock during such Pricing Period. Sales of
Additional Shares made during any Pricing Period will be made PRO RATA (to the
nearest 100 shares) in accordance with the number of shares of Common Stock
owned by such Participating Shareholders, less the sum of (i) any Average
Market Price Shares sold for them during such Pricing Period and (ii) any
shares which such Participating Shareholder shall have instructed Kidder,
Peabody not to sell as Additional Shares during such Pricing Period.
Settlements of sales of Additional Shares will occur on the fifth business
date following the date on which such sales were made. Settlements for sales of
Average Market Price Shares will occur on a weekly basis on each Monday (or on
the next succeeding business day if such Monday is not a business day) following
the end of each Pricing Period. Purchases of Common stock from Kidder, Peabody
as sales agent for the Participating Shareholders will settle regular way in
accordance with the rules of the NASD. Compensation to Kidder, Peabody with
respect to sales of Average Market Price Shares will be paid out of the proceeds
of such settlements. There is no arrangement for funds to be received in an
escrow, trust or similar arrangement.
At the end of each Pricing Period, the Company will file a Prospectus
Supplement under Rule 424(b)(3) promulgated under the Securities Act of 1933,
which Prospectus Supplement will set forth the number of such shares of Common
Stock sold by each Participating Shareholder through Kidder, Peabody as sales
agent (identifying separately the number of Average Market Price Shares and any
Additional Shares), the high and low prices at which Average Market Price Shares
were sold during such Pricing Period, the net proceeds to each of the
Participating Shareholders, and the compensation payable by the Participating
Shareholders to Kidder, Peabody with respect to such sales pursuant to the
formula set forth above. Kidder, Peabody as sales agent will act on a best
efforts basis. Pursuant to the Sales Agency Agreement, the Company and the
Participating Shareholders will agree to provide indemnification and
contribution to Kidder, Peabody against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended. In connection with
the sale of the Common Stock of the Participating Shareholders, Kidder, Peabody
may be deemed an "underwriter," as that term is used in the Securities Act of
1933; and the compensation of Kidder, Peabody may be deemed to be underwriting
commissions or discounts.
The offering of the Common Stock pursuant to the Sales Agency Agreement
will terminate upon the earlier of (i) the sale of all Shares of Common Stock
subject thereto, (ii) termination of the Sales Agency Agreement, and (iii) the
five-month anniversary of the date of this Prospectus (the "Term"); provided,
however, that if any time during the Term, the Company determines that the
maintenance of the Registration Statement, including this Prospectus, as current
and accurate in accordance with the Securities Act of 1933, as amended, and the
rules and regulations thereunder of the Commission would require the disclosure
of nonpublic information, the disclosure of which could reasonably be expected
to have a material adverse effect upon a significant financing, negotiation,
contracting, acquisition, disposition, merger or other comparable transaction
(collectively, "Significant Transactions"), then, by written notice by the
Company to Kidder, Peabody and each Participating Shareholder: (A) in the event
that
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at such time thirty or more days remain in the Term, the Company may cause the
suspension of sales of the Common Stock pursuant to the Prospectus for such
reasonable period of time as may be necessary to avoid such adverse effect on
such Significant Transaction in which case the Term shall be extended for the
number of days that such suspension shall have been in effect, and (B) in the
event that at such time fewer than thirty days remain in the Term, the Company
may terminate the effectiveness of the Registration Statement. The Sales Agency
Agreement may be terminated at any time as to any Participating Shareholder(s)
by such Participating Shareholder(s) (except during the pendency of a Pricing
Period in which such Participating Shareholder(s) has (have) elected to
participate) or by Kidder, Peabody, but no such termination will affect the
obligations of the Participating Shareholder(s) as to sales that shall have been
executed prior to the date of such termination.
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