Rule 424(b)(3)
Registration No. 333-2601
PROSPECTUS
CONTROL DATA SYSTEMS, INC.
300,000 Shares of Common Stock, $.01 par value
This Prospectus relates to up to 300,000 shares of Common Stock of Control
Data Systems, Inc. ("Control Data" or the "Company") which may be offered for
resale by persons (the "Selling Warrantholders") who acquire the shares (the
"Warrant Shares") upon exercise of outstanding Warrants issued in the Company's
acquisition of Evernet Systems, Inc. ("Evernet") in June 1993. A Selling
Warrantholder may offer their Warrant 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. 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 Warrant 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
May 7, 1996, as reported by the Nasdaq National Market, was $27.25 per share.
The Company will bear all expenses of the offering (estimated to be
$20,000), except that the Selling Warrantholders will pay any applicable
brokerage discounts or commissions, as well as fees and disbursements of counsel
to and experts for the Selling Warrantholders.
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FOR INFORMATION CONCERNING CERTAIN RISKS RELATING
TO AN INVESTMENT IN THE COMPANY'S COMMON STOCK
SEE "INVESTMENT CONSIDERATIONS."
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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 May 8, 1996.
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.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy 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 1995 fiscal year ended December 31, 1995.
2. The Company's Form 10-K/A No. 1 (Commission File No. 0-20252) for its 1995
fiscal year ended December 31, 1995.
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 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
Control Data is a global software and services company dedicated to helping
large organizations develop the enterprise-wide information systems required to
create, transmit, access, and control business information. The Company focuses
on the architecture, implementation, and lifetime support of electronic
commerce, product design, and product information solutions. The Company
provides productivity enhancing solutions for customers in government, financial
services, telecommunications, and manufacturing.
<PAGE>
The Company's software and services solutions include network design,
installation, and maintenance; application design and deployment, particularly
for electronic commerce projects; remote and on-site systems management and
outsourcing; electronic mail integration; and for the discrete manufacturing
industry, product data management ("PDM") systems, and computer-aided design
("CAD") products or systems. To provide its customers with leading-edge
solutions, the Company invests in four major areas:
Development of software products associated with electronic
commerce integration, PDM, and CAD.
Training and development of its technical workforce.
Sales and marketing of its products and services.
Capital and operational expenditures for the fulfillment of
managed services contracts (outsourcing contracts).
The Company also has a number of suppliers and partners providing a range
of hardware and software platforms, complementary products and services, and
sales and marketing activities.
The Company was established through Ceridian Corporation's ("Ceridian")
transfer of its Computer Products business to the Company and Ceridian's
subsequent distribution in July of 1992, of the Company's stock as a dividend to
Ceridian's stockholders.
The Company's principal offices are located at 4201 Lexington Avenue North,
Arden Hills, Minnesota 55126.
INVESTMENT CONSIDERATIONS
The following factors should be carefully considered in evaluating an
investment in any shares of Common Stock offered hereby.
Operating Results
In the early 1990's, the Company completed its transition away from the
manufacture of proprietary mainframe computers to that of an open systems
integration company dedicated to helping large organizations develop the
enterprise-wide information systems required to create, transmit, access, and
control business information. Revenues for 1995 of $454.8 million decreased
13.2% from 1994 revenues of $524.2 million. The revenue decline was due to a
25.9% decrease in hardware product sales and an 18.8% decrease in maintenance
and support, offset in part by a 12.8% increase in software and services
revenues. A portion of the revenue decline in 1995 can be attributed to the
divestiture of various foreign operations. As a result, the Company expects
total revenues to decrease in 1996 from 1995. Revenue levels in 1996 could be
impacted by the Company's business transition and narrowed focus as well as by
the acquisition of additional businesses or divestiture of existing operations.
Fluctuations in Operating Results
The Company participates in the systems integration segment of the
information systems and services market. Equipment manufacturers, large
consulting firms and traditional systems integrators also compete in this market
segment. There are many smaller firms also active in this market segment with no
one firm having a dominant position. Many of the companies in this market
segment offer outsourcing and other types of long term agreements with their
customer base. The result of these types of activities is to develop a backlog
of business that creates a certain predictable revenue base in future periods.
As the Company is just beginning to build a base of these types of arrangements
as part of its electronic commerce offerings, revenue predictability is
currently difficult, and continuing quarterly volatility of earnings can be
expected. See "Investment Considerations - Competition."
<PAGE>
Government Contracts
The Company estimates that contracts with the United States government
represented approximately 13.6%, 12.0%, and 13.7% of the Company's total revenue
in fiscal years 1995, 1994, and 1993, 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.
Restructuring
Over the past several years, the Company has focused its core business
through a series of initiatives as it transitioned from a manufacturer of
proprietary mainframe computer systems to a software and services provider
focused on electronic commerce, PDM, and CAD. During the fourth quarter of 1994,
the Company completed a thorough review of its worldwide business operations and
market opportunities. The results of this review indicated that certain actions
were needed to further reduce the geographic scope of operations, downsize
employment levels worldwide, and reduce selected assets in order to remain
competitive in the future. Based on this review, the Company adopted a formal
restructuring plan resulting in a pre-tax restructuring charge of $70.1 million.
The Company has $23.1 million of remaining restructure obligations as of
December 31, 1995. Future cash outlays under the restructuring plan are
anticipated to be $16.7 million in 1996, primarily for severance costs, lease
and other obligations related to excess facilities and litigation costs, and
$6.4 million in 1997 to satisfy various long-term real estate obligations and
severance issues.
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 $84.0 million at
December 31, 1995. In addition, as of December 31, 1995, the Company had
available up to $17.8 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 1996.
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 69.2%, 71.5%, and 65.2%,
of the Company's total revenues in 1995, 1994, and 1993, 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.
<PAGE>
Ability to Hire and Retain Technical Resources
As the Company continues to expand its software and service activities it
will need to be able to hire and retain, in sufficient numbers, personnel with
appropriate technical skills in such areas. There can be no assurance that the
Company will be able to acquire or retain these resources as 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
The market for the Company's products and services is highly competitive
and is characterized by rapid technological advances in both hardware and
software development. These advances result in shorter product life cycles and
enhanced product capabilities, typically at significantly better price and
performance levels. At the same time, these advances have also created increased
demand for the skills of knowledgeable systems integrators who can help
customers make the best use of the available technology.
Competition in the systems integration and services 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 distribution
capability, customer support, name recognition and financial strength. The
Company competes throughout the world with numerous local, regional, national,
and international system integrators including equipment manufacturers, large
consulting firms and traditional systems 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. See "Investment
Considerations - Fluctuations in Operating Results."
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 WARRANTHOLDERS
Selling Warrantholders
Each of the Selling Warrantholders was a holder of preferred stock of
Evernet Systems, Inc., which the Company acquired for cash, Common Stock, and
Company warrants (the "Warrants") in June, 1993. The shares covered by this
Prospectus are the shares of Common Stock that have been issued or are issuable
upon the exercise of the Warrants ("Warrant Shares"). The Warrant Shares are
being registered under the Securities Act of 1933 pursuant to registration
rights granted in that acquisition.
The Selling Warrantholders, the number of shares of Common Stock other than
Warrant Shares held by each of them as of the date of this Prospectus, and the
number of shares of Common Stock of the Company for which each Selling
Warrantholder holds Warrants (i.e., such person's potential Warrant Shares) are
as follows:
<PAGE>
<TABLE>
<CAPTION>
Shares owned other
Shareholder than Warrant Shares Warrant Shares1
<S> <C> <C>
First Century Partnership III -0- 25,605
David L. Anderson -0- 1,574
Anvest, L.P. -0- 129
Mihran A. Aroian 156 85
Aspen Venture Partners, L.P. -0- 50,859
Austin Ventures, L.P. -0- 50,429
G. Leonard Baker, Jr. -0- 1,574
Tench Coxe -0- 311
EMP & Co. -0- 1,663
Focus & Co. -0- 2,139
James C. Gaither 131 54
Genstar Investment Corporation -0- 763
Hank & Co. FBO Citiventure II -0- 35,087
Kleiner Perkins Caufield & Byers V -0- 60,172
Kleiner Perkins C & B Zaibatsu Fund I -0- 2,420
Mellon Bank, N.A. FBO Bell Atlantic
Master Pension Trust -0- 31,840
Leo L and Janet G. Nussbaum, Trustees 405 349
Omega Partners -0- 753
Ronald L. Perkins -0- 236
Pitt & Co. FBO GTE Service Corp. -0- 8,475
Saunders Holdings, L.P. -0- 129
Sutter Hill Ventures, L.P. -0- 21,955
TOW Partners, L.P. -0- 1,701
Paul M. & Marsha R. Wythes, Trustees -0- 743
William H. Younger, Jr. -0- 955
</TABLE>
1 Assumes full exercise of such holder's Warrants.
<PAGE>
Only the Warrant Shares are subject to sale pursuant to this Prospectus. As
of April 1, 1996, none of the Warrants had been exercised, and it is likely that
the majority of them will remain unexercised until after the registration of the
Warrant Shares becomes effective. The Warrants 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.
Each of the Selling Warrantholders has requested the registration of all of
his/its Warrant Shares; and each Selling Warrantholder has expressed an
intention to exercise up to all of his/its Warrants and to sell up to all of the
resulting Warrant Shares depending on market conditions.
None of the Selling Warrantholders is or has been an officer or director
of, or has had a similar position or other material relationship with, the
Company. Prior to the acquisition of Evernet by the Company in June, 1993, the
Selling Warrantholders collectively had the power to designate, and had
designated, certain members of the Evernet Board of Directors.
PLAN OF DISTRIBUTION
The Warrant Shares offered hereby may be sold by the Selling Warrantholders
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. Sales may also be made to dealers or
directly to purchasers. Sales through agents will be made subject to no more
than customary commissions. Sales may be made on a "net" basis. Agents or
dealers may assist Selling Warrantholders in exercising their Warrants and
selling the resulting Warrant Shares, including by acting as agent for
delivering the Warrants to the Company for exercise and/or financing the payment
of the exercise price. Austin Ventures, Sutter Hill Ventures, First Century
Partnership, David Anderson, Leonard Baker, TOW Partners, and several other
Warrantholders each of whom holds Warrants for fewer than 1,000 shares have
expressed their expectation of selling some or all of their Warrant Shares
through Cowen & Co., which is a market maker in the Common Stock; and the
"Advisor" referred to in the following paragraph has said that it may use
Cowen's services in exercising Warrants and/or selling the resulting Warrant
Shares on behalf of some or all of the four managed accounts referred to below.
The Leo and Jannet Nussbaum Trust has expressed it expectation of using Raymond
James, Inc. in the exercise of its Warrants and the sale of its Warrant Shares.
Four of the Selling Warrantholders, who collectively hold Warrants for a
total of 47,364 shares, hold their Warrants 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 identified
except as indicated above, 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 the these four
Selling Warrantholders would participate, either proportionately in accordance
with the number of Warrants held by each of them or on some other basis. These
four Selling Warrantholders are EMP & Co., Focus & Co., Hank & Co. FBO
Citiventure II, 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 four accounts referred to above, there
is no other affiliation between the Advisor and any of these four Selling
Warrantholders.
<PAGE>
Two of the Selling Warrantholders (First Century Partnership III and Omega
Partners), holding Warrants for a total of 26,358 shares, are related investment
limited partnerships. One of these partnerships has as its general partner a
partnership composed of a corporate managing partner and one individual partner;
and the other has one individual general partner, who is a partner 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 Warrant
Shares. The corporate managing partner of the general partner of the first
investment partnership is a subsidiary of Smith Barney Holding Inc. and, until
approximately four years ago, the individual partner was a full-time employee of
Smith Barney Inc. While this individual has separated from Smith Barney Inc., he
remains eligible for certain Smith Barney Inc. employee benefits, has made
arrangements for the sharing of certain fees and responsibilities, and is
otherwise subject to contractual arrangements relating to his separation,
pursuant to an agreement he entered into with Smith Barney Inc. at the time of
the separation. The two investment partnerships may use Smith Barney Inc. as
their selling broker for dispositions of their Warrant Shares, and it is
possible that Smith Barney Inc. might purchase some of their shares as principal
and/or assist the partnerships with the exercise of their Warrants. No
commitment has been made at this time as to the timing, amount, or terms of any
sales of their Warrant Shares by these partnerships to or through Smith Barney
Inc. or otherwise. Any sales these partnerships may make through Smith Barney
Inc. as agent will be handled as ordinary and customary brokerage transactions.
The offering of the Common Stock pursuant hereto will terminate upon the
earlier of (i) the sale of all of the Warrant Shares subject thereto and (ii)
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 each Selling Warantholder: (A) in the event that 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 averse 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.
