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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act
Of 1934
For the fiscal year ended July 27, 1996
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) Of The Securities Exchange
Act Of 1934
For the transition period from _________ to _________
Commission file number 1-7636
DATAPOINT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1605174
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4 rue d'Aguesseau 75008, Paris, France
8410 Datapoint Drive, San Antonio, Texas 78229-8500
(Address of principal executive offices and zip code)
(33-1) 40 07 37 37
(210) 593-7000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
Common Stock, $.25 par value New York Stock Exchange
$1.00 Exchangeable Preferred Stock,
$1.00 par value New York Stock Exchange
8-7/8% Convertible Subordinated
Debentures Due 2006 New York Stock Exchange
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 a 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. Yes No X .
As of October 18, 1996, 13,931,640 shares of Datapoint Corporation Common
Stock were outstanding (excluding 7,059,577 shares held in Treasury), and the
aggregate market value (based upon the last reported sale price of the Common
Stock on the New York Stock Exchange -- Composite Tape on October 18, 1996) of
the shares of Common Stock held by non-affiliates was approximately $14.9
million. (For purposes of calculating the preceding amount only, all directors
and executive officers of the registrant are assumed to be affiliates.)
PART I
ITEM 1. Business.
General
Datapoint Corporation, including its subsidiaries (hereinafter "Datapoint" or
"the Company"), is principally engaged in the development, acquisition,
marketing, servicing, and to a lesser degree, manufacture of computer and
communication products -- both hardware and software -- for integrated
computer, telecommunication and video conferencing network systems. The Company
is also actively engaged in the business of licensing its video conferencing
technology and its dual protocol local area network ("LAN) technology.
Datapoint was reincorporated in Delaware in 1976 as the successor corporation to
a Texas corporation originally incorporated in 1968 as Computer Terminal
Corporation and which changed its name to Datapoint Corporation in 1972. Its
principal executive offices are located at 4 rue d'Aguesseau 75008, Paris,
France (telephone number - (33-1) 40 07 37 37 and at 8410 Datapoint Drive, San
Antonio, Texas 78229-8500 (telephone number - (210)-593-7000).
Throughout the 1970's, the Company developed, distributed and serviced
minicomputers, and later computer networks and telecommunications products.
During that period sales and service revenue was predominately derived from the
U.S. market, supplemented by international sales through a network of
independent distributors.
In 1981, the Company purchased most of its major international distributors,
which have been subsequently operated as subsidiaries. In 1985, the Company
separately incorporated its U.S. hardware service business as an independent
company and distributed its shares to shareholders.
Throughout the 1980's and the early 1990's, the Company's business was
characterized by a significant decline in total revenue, recurring significant
losses, and a reduction of the domestic workforce. This was primarily due to
(1) a mass entry of competitors in the networking marketplace compounded by
(2) a marketplace demand for "Open Systems" products and standard interfaces,
both of which had a negative impact on the traditional networking and data
processing components of the Datapoint business. The marketplace was forced
into a sameness of design that lead to highly competitive pricing being the only
significant product differentiator. These adverse effects were, in turn,
worsened by the increasing availability of low-cost, off-the-shelf software
applications packages written in a number of industry-standard programming
languages. Since 1994, the Company has been able to maintain a consistent and
slightly increasing revenue level while at the same time restructuring its
operations (mostly through significant workforce reductions worldwide) to reduce
its cost base to support such revenue levels.
During fiscal year 1996, the Company pursued and is continuing to pursue actions
to provide cash infusions, including the sale of selected assets and operations
of the Company, and to improve its financial position. In this regard, on
May 28, 1996, the Company entered into an agreement with Kalamazoo Computer
Group, plc, a public limited company organized under the laws of England
("Kalamazoo"), providing for the sale by Datapoint to Kalamazoo of Datapoint's
European based Automotive Dealer Management Systems business ("EADS") for a
purchase price of $33.0 million. From the sales proceeds, the Company realized
approximately $29.4 million net of transaction related expenses and adjustments
(see note 17 to the Consolidated Financial Statements for a more detailed
description of this transaction). The Company has retained Patricof & Co.
Capital Corp. in connection with the potential disposition of its Telephony
business, as well as other asset and equity sale transactions and proposals.
During the first quarter of 1996, the Company signed a letter of intent to
become a joint venture partner in spinning off the Company's Multimedia
Information Network Exchange ("MINX") video conferencing patents and operations
into separate entities. While such discussions were terminated in the second
quarter of 1996, the Company is continuing its efforts to enter into discussions
with a suitable partner to exploit the development and marketing of its MINX
video networking technology.
In addition, on July 24, 1996, the Company announced that its Board of Directors
has determined to offer for exchange ("the Exchange Offer") for each share of
its $1.00 Exchangeable Preferred Stock ($1.00 par value) 3.25 shares of its
Common Stock ($.25 par value) and to submit a proposal to stockholders under
which each share of its $1.00 Exchangeable Preferred Stock would be converted
into 3.25 shares of Common Stock. The Company had previously announced on April
16, 1996, that it intended to submit to its stockholders a proposal to effect
the conversion of the $1.00 Exchangeable Preferred Stock into 2.75 shares of its
Common Stock. The affirmative vote of two-thirds of the outstanding shares of
the $1.00 Exchangeable Preferred Stock and a majority vote of the outstanding
shares of the Common Stock will be required to adopt the proposal which the
Company expects to submit at its Annual Meeting of Stockholders expected to be
held on December 10, 1996. On January 16, 1996, the Company announced that it
was in arrears on its $1.00 preferred stock in an aggregate amount equal to six
full quarterly dividends. As a result, each holder of $1.00 preferred stock
currently has the right to exchange each such share (inclusive of all accrued
and unpaid dividends) into two shares of the Company's common stock.
The Company has recently been successful in asserting its United States video
conferencing patents resulting in payments for licenses. On June 6, 1996, the
Company entered into an agreement with NEC America, Inc. for the licensing of
Datapoint's video conferencing patents. On April 10, 1996, the Company
announced that it had commenced suit in the U.S. District Court for the Eastern
District of New York to recover damages against two companies for infringement
of Datapoint's patent covering multi-speed network processing (U.S. Patent No.
5,008,879). This patent covers certain ARCNET and Fast Ethernet products
recently introduced by various suppliers to the local area network industry and
dominates certain types of dual-speed LAN Adaptor Products recently introduced
by various industry leaders. Currently, the Company is pursuing litigation in
this respect against six defendants (Datapoint Corporation v. Compression Labs,
Inc., No. 3:93-CV-2522-D (N.D. Tex.); Datapoint Corporation v. PictureTel
Corporation, No. 3:93-CV-2381-D (N.D. Tex.) (for which a trial has been set in
February 1997); Datapoint Corporation v. VideoLan Corp., No. 96-2861-AET
(D.N.J.); Datapoint v. Teleos Communications, Inc., No. 95-4455-AET (D.N.J.);
Datapoint Corporation v. Standard Micro-Systems, Inc. and Intel Corporation,
No. CV-96-1685 JBW (E.D.N.Y.)(the "-1685 action")) and has negotiated three
settlements, two for an aggregate of $1.0 million and one for an undisclosed
amount. On August 1, 1996, the Company commenced an additional suit against
Intel and Standard Micro-Systems for infringement of a closely-related patent,
U.S. No. 5,077,732. (Datapoint Corp. v. Standard Micro-Systems Corp. and Intel
Corp., individually, and as representatives of the class of all manufacturers,
vendors and users of Fast Ethernet-compliant, dual protocol local area network
products, Civil Action No. CV-96-3819 (JBW) (E.D.N.Y.)(the "-3819 action")).
The Company has moved to certify the -1685 action as a defendant class action
with respect to all manufacturers, vendors, and users of dual protocol, Fast
Ethernet-compliant local area network products. On June 28, 1996, the Court
denied that motion, without prejudice to renew at a later date. The Company
intends, in the future, to renew its motion to certify the -1685 action, and to
seek similar "defendant class action" status for the -3819 action. If
successful in its certification efforts, the defendant classes in the -1685 and
- -3819 actions would include approximately one-hundred potential infringers of
the multi-speed network processing and related patents.
In John Frassanito and David A. Monroe v. Datapoint Corp., Civil Action
No. H-95-812 (S.D. Tex.) plaintiffs alleged that the Company usurped various
patentable inventions and trade secrets in connection with the development of
its MINX systems. They also asserted a cause of action for patent
infringement, and a cause of action requiring Datapoint to assign certain
MINX-related patents and other intellectual property. On August 16, 1996, the
Court dismissed with prejudice plaintiffs' claims of patent infringement against
Datapoint and dismissed without prejudice plaintiff's pendent state law claims
and Datapoint's state law counter-claims for lack of subject matter
jurisdiction.
These actions represent the first step in the Company's industry-wide program
to license and enforce its multi-speed networking patents and video
conferencing patents through negotiations and/or litigation. The Company
believes that these patents provide broad coverage in video conferencing and
multi-speed networking technology and present the opportunity for further
royalty bearing licenses. Such royalty bearing licenses and enforcement of its
patents will be a primary strategy of the Company's business going forward to
create long-term value for its stockholders.
Products
The Company provides a complete line of products that meet data processing,
video communications, and telecommunications requirements. The network-based
products include video communications, data sharing applications,
platform-independent local area networking, wide area networking, relational
database systems, and telecommunications integration.
In 1994, the Company announced its third generation of MINX video
communications products which provide the capacity for large video networks,
data conferencing features, and aggressive pricing. A complete range of
products is available from a fully interactive, broadcast-quality, full-motion
video network which can accommodate over 700 local workstations to a single
video station for a remote office. All of the video products are interoperable
and provide functionality and picture quality that is unparalleled in the
industry. Concurrently, the Company strengthened its direct Sales, Support, and
Engineering efforts to respond to the growing desktop video communications
market. On May 14, 1996, the Company, working with a Florida-based systems
integrator for the corrections industry, announced the completion of the
installation of the first large scale video visitation system in the U.S. at the
Brevard County Detention Center in Florida resulting in $204,520 in revenue for
the Company.
In 1994, consistent with the Company's patent licensing business, the Company
began patent infringement suits against several defendants related to the
Company's video conferencing patents and dual protocol local area network
patents. The Company's patent enforcement policy includes the identification
of video conferencing patents and dual protocol local area network products and
applications which infringe the related patents and the execution of licensing
agreements through a) normal commercial negotiations or b) pursuant to
settlements of litigation brought against the patent infringers. The Company
has been successful in asserting its U.S. video conferencing patents resulting
in payments for licenses. On June 16, 1996, the Company entered into an
agreement with NEC America, Inc. for the licensing of Datapoint's video
conferencing patents. The Company is also taking steps through an industry-
wide program to license and enforce its multi-speed networking patents through
negotiations and/or litigation. Currently, three patent infringement suits are
pending with respect to Datapoint's patents on its dual protocal local area
networking technology. These patents cover certain ARCNET and Fast Ethernet
products recently introduced by various suppliers to the local area network
industry and dominates certain types of dual-speed LAN Adaptor Products
recently introduced by various industry leaders. Such royalty bearing licenses
and enforcement of its patents will be a primary strategy of the Company's
business going forward to create long-term value for its stockholders.
The Company's Open Systems Networking products are industry-standard. The file
servers are based upon a scalable architecture using the Intel microprocessor
because of its cost and performance. The multi-processor functionality is
provided for both the Company's highly sophisticated RMS network operating
system. The same systems can be used for Windows N.T. and UNIX operating
systems. The Company offers high-performance, Pentium-based file servers. All
systems support redundant disk, RAID and popular network protocols such as
TCP/IP and Net BIOS.
The Company's networking products focus on linking file servers, workstations,
terminals, printers, and other peripherals (such as modems) to the network.
High-performance networking software and hardware components comprise the
product offering and provide the ability to implement high-capacity, highly
efficient networks composed of client/server and data communications devices.
The networking solutions provide the capability of running MS-DOS, WINDOWS,
UNIX, and RMS simultaneously along with both ARCNET, ARCNETPLUS, and Ethernet
adapters. These capabilities provide customers the flexibility to design
network architecture to meet their specific requirements.
Realizing that personal computers are the desktop workstation of choice, the
Company offers PC-based hardware and software. The software component is a full
featured, Microsoft Windows compliant terminal emulation package for the RMS
environment which can be run on existing PCs. An industry-standard UNIX
terminal is offered for customers who desire a low-cost data station rather
than a networked PC.
The Company offers a complete set of telecommunications products and services
to meet the requirements of large call centers, customer service organizations,
and telemarketing firms. Power dialers to increase call efficiency for outbound
communications applications, interactive voice response systems which allow
customers to interrogate an organization's database with a simple telephone, and
automatic call distribution systems that manage large volumes of incoming calls
comprise the portfolio of telecommunications products. The Company has an
agreement with AT&T to market their Definity line of automatic call
distributors through several of the Company's European subsidiaries.
Telecommunications solutions are provided with the combined expertise in
networking, data processing, and telecommunications products.
The supplier and value-added reseller relationships that the Company continues
to develop, allow its customers worldwide to enhance their productivity with
sensible, cost-effective computer-based networking, telephony and video
communication solutions.
Markets
Customers
Datapoint sells generally to business and government customers, including the
U.S. government, financial institutions, insurance companies, educational
institutions, and manufacturers. During fiscal 1996, no one customer accounted
for 10 percent or more of consolidated revenues.
Domestic
Datapoint markets its products in the United States through independent sales
representatives who, on a commission basis, solicit orders for Datapoint's
products; through value-added resellers, who purchase Datapoint's products for
resale; original equipment manufacturers, who integrate Datapoint's products
into their overall offerings; and through Datapoint's own end-user sales force.
Independent sales representatives, value-added resellers, and original
equipment manufacturers generally market Datapoint's products in conjunction
with application software and other products developed and marketed by such
firms.
International
Datapoint's products are marketed to end-users in over forty countries through
a network of wholly-owned subsidiaries and independent distributors. Datapoint
distributes its products internationally through wholly-owned sales and service
operations in Belgium, France, Germany, Holland, Italy, New Zealand, Spain,
Sweden, Switzerland and the United Kingdom and through authorized distributors
worldwide. During fiscal year 1996, approximately 97 percent of Datapoint's
international revenue was derived from customers in Western Europe.
Customer Service
During 1995, Datapoint entered into an agreement with Decision Servcom, Inc.
("DSI"), whereby DSI would serve as the non-exclusive authorized service agent
for Datapoint's proprietary data processing products in the United States.
Maintenance of equipment outside the United States is provided by Datapoint's
international subsidiaries and distributors. The maintenance operations of the
Company's international subsidiaries produced 44 percent of total company
revenues and 52 percent of total company gross profit for the fiscal year ended
July 27, 1996.
In connection with the sale of EADS to Kalamazoo, Datapoint entered into a
subcontract with Kalamazoo to provide computer hardware and hardware
maintenance service to such EADS network.
Manufacturing, Raw Materials, and Supplies
A significant portion of Datapoint's products are purchased from third parties,
who manufacture products meeting Datapoint's specifications. The products are
then resold badged/unbadged within Datapoint configurations upon the completion
of testing and packaging procedures performed at the Company's facilities in
San Antonio, Texas.
Datapoint seeks, and maintains where practical, multiple sources of supply for
the products, components, and raw materials which it uses. However, certain
products and components are purchased only from single sources, and Datapoint
could experience manufacturing delays if such suppliers should fail to meet
Datapoint's requirements. The interruption of any components, whether for
supply or quality reasons, can become critical to production flows. The
Company's general experience has been good in terms of minimizing exposure;
however, guarantees regarding possible future situations and rectifying actions
that could arise cannot be made.
Research and Product Development
The technology involved in the design and operation of Datapoint's products is
complex and subject to constant change. Accordingly, Datapoint is committed to
a program of research and development which is oriented toward the development
of new hardware and software products and the improvement and expansion of its
existing products and services.
Datapoint incurred expense of $2.7 million, $4.3 million, and $5.3 million in
the fiscal years ended July 27, 1996, July 29, 1995, and July 30, 1994,
respectively, on research and development activity. Datapoint maintains its
principal research and development facility in San Antonio, Texas.
Competition
Datapoint operates in the intensely competitive computer data processing, video
conferencing and telephony industries that are characterized by the frequent
introduction of new products based upon technological advances. Datapoint
competes, domestically and abroad, with a substantial number of companies, many
of which are larger and have greater resources than Datapoint. Such companies,
considered in the aggregate, compete in the entire line of products
manufactured and marketed by Datapoint. These competitors differ somewhat
depending on the market segment, customer and geographic area involved.
Competition in this market is based primarily on the relationship between price
and performance; the ability to offer a variety of products and unique
functional capabilities; the strength of sales, service and support
organizations; and upgradability, flexibility, and ease of use of products.
The Company could be adversely affected if its competitors introduced
technologically superior products or substantial price reductions.
Backlog
The backlog of firm orders for the sale or lease of the Company's products
(using then existing end-user purchase prices for products to be leased and
giving effect to appropriate discounts for products to be sold) as of
July 27, 1996 and July 29, 1995 was $8.1 million and $14.2 million,
respectively. The backlog amounts are not necessarily indicative of the
Company's future results, since an increasing amount of the Company's revenues
are derived from orders obtained in the period of shipment. Furthermore, a
portion of the Company's backlog may be cancelable at the customer's option,
under certain conditions, without financial penalty. All orders included in the
backlog at July 27, 1996 are currently scheduled for delivery during the
subsequent 12 months. All orders are subject to the Company's ability to meet
delivery commitments. The Company records only firm orders as backlog, and
generally such orders are cancelable only by the Company. In the event that a
new product is released, a customer is allowed to upgrade (i.e., cancel) an
existing order and place a new order for the new product. This is done at the
Company's discretion with no financial penalty to the customer.
Backlog is also not a reliable indicator of future results, as changes in
product mix (depending on whether the product content contained in backlog has
a low or high sales margin) and costs may significantly impact reported
results. Therefore, the Company believes that the backlog data is not
meaningful to an understanding of the Company's business or future reported
results.
Patents and Trademarks
Datapoint owns certain patents, copyrights, trademarks and trade secrets in
both network and video conferencing technologies, which it considers valuable
proprietary assets. The Company does not primarily rely on these rights to
establish or protect its market position, but does view them as providing the
Company a technological advantage in certain cases and does intend to fully
exploit their value. The Company believes that its video conferencing patents
and multi-speed network procesing patents are of material importance to its
business as a whole.
In 1994, the Company began patent infringement suits against several defendants
related to the Company's video conferencing patents. In 1995, the Company
received $1.0 million from two defendants and patent infringement suits against
other defendants are currently pending. Currently, the Company is pursuing
litigation in this respect against six defendants (Datapoint Corporation v.
Compression Labs, Inc., No. 3:93-CV-2522-D (N.D. Tex.); Datapoint Corporation
v. PictureTel Corporation, No. 3:93-CV-2381-D (N.D. Tex.) (for which a trial
has been set in February 1997); Datapoint Corporation v. VideoLan Corp., No.
96-2861-AET (D.N.J.); Datapoint Corporation v. Teleos Communications, Inc. No.
95-4455-AET (D.N.J.)). On June 6, 1996, the Company entered into an agreement
with NEC America, Inc. for the licensing of Datapoint's video conferencing
patents. On April 10, 1996, the Company announced that it had commenced suit
in the U.S. District Court for the Eastern District of New York to recover
damages against two companies for infringement of Datapoint's patent covering
multi-speed network processing (U.S. Patent No. 5,008,879) (Datapoint
Corporation v. Standard Micro-Systems, Inc. and Intel Corporation, No.
C.V.-96-1685 JBW (E.D.N.Y.)). This patent covers certain ARCNET and Fast
Ethernet products recently introduced by various suppliers to the local area
network industry and dominates certain types of dual-speed LAN Adaptor Products
recently introduced by various industry leaders. On August 1, 1996, the
Company commenced an additional suit against Intel and Standard Micro-Systems
for infringement of a closely-related patent, U.S. No. 5,077,732. (Datapoint
Corp. v. Standard Micro-Systems Corp. and Intel Corp., individually, and as
representatives of the class of all manufacturers, vendors and users of Fast
Ethernet-compliant, dual protocol local area network products, Civil Action
No. CV-96-3819 (JBW) (E.D.N.Y.)). The Company has moved to certify the -1685
action as a defendant class action with respect to all manufacturers, vendors,
and users of dual protocol, Fast Ethernet-compliant local area network
products. On June 28, 1996, the Court denied that motion, without prejudice to
renew at a later date. The Company intends, in the future, to renew its motion
to certify the -1685 action, and to seek similar "defendant class action" status
for the -3819 action. If successful in its certification efforts, the defendant
classes in the -1685 and -3819 actions would include approximately one-hundred
potential infringers of the multi-speed network processing and related patents.
In John Frassanito and David A. Monroe v. Datapoint Corp., Civil Action
No. H-95-812 (S.D. Tex.) plaintiffs alleged that the Company usurped various
patentable inventions and trade secrets in connection with the development of
its MINX systems. They also asserted a cause of action for patent infringement,
and a cause of action requiring Datapoint to assign certain MINX-related
patents and other intellectual property. On August 16, 1996, the Court
dismissed with prejudice plaintiffs' claims of patent infringement against
Datapoint and dismissed without prejudice plaintiff's pendent state law claims
and Datapoint's state law counter-claims for lack of subject matter
jurisdiction.
These actions represent the first step in the Company's industry-wide program
to license and enforce its multi-speed networking patents and video
conferencing patents through negotiations and/or litigation. Currently the
Company is pursuing litigation in this respect against six defendants and has
negotiated three settlements, two for an aggregate of $1.0 million and one for
an undisclosed amount. The Company believes that these patents provide broad
coverage in video conferencing and multi-speed networking technology and
present the opportunity for further royalty bearing licenses. Such royalty
bearing licenses and enforcement of its patents will be a primary strategy of
the Company's business going forward to create long-term value for its
stockholders.
The Company utilizes a number of trademarks, most importantly "DATAPOINT",
"ARCNET" and "MINX". The Company registers or otherwise protects those
trademarks it deems valuable to its business and anticipates no significant
impairment of its ability to continue to use and protect its important
trademarks. Datapoint, the "D" logo, ARC, ARCNET, RMS, MINX, and Resource
Management System are trademarks of Datapoint Corporation registered in the
U.S. Patent and Trademark office. Attached Resource Computer, ARCNETPLUS, and
DATALAN are trademarks of the Company. (AT&T is a registered trademark of
American Telephone and Telegraph. Ethernet is a registered trademark of Xerox
Corporation. Intel is a registered trademark of Intel Corporation. Microsoft
and MS-DOS are registered trademarks of Microsoft Corporation. UNIX is a
registered trademark of UNIX System Laboratories, Inc.)
Employees
At July 27, 1996, the Company had 705 employees. The Company considers its
relations with employees to be satisfactory.
Environmental Matters
Compliance with current federal, state, and local regulations relating to the
protection of the environment has not had, and is not expected to have, a
material effect upon the capital expenditures, earnings, or competitive
position of Datapoint.
ITEM 2. Properties.
Datapoint's principal executive offices are located in Paris, France and the
Company maintains executive offices in San Antonio, Texas. Datapoint believes
that its plants and offices are generally well maintained, in good operating
condition and are adequately equipped for their present use. Information
regarding the principal plants and properties, excluding leases assigned or
subleased, as of July 27, 1996 is as follows:
Approximate
Facility
Location Use Sq. Footage Owned or Leased Land Area
San Antonio, Texas Office 144,000 Owned; 12 acres (Subject to mortgage)
Gouda, Netherlands Office 52,000 Owned; 1 acre (Subject to mortgage)
Paris, France Office 7,000 Leased; expires June 30, 1999
Additionally, at July 27, 1996, excluding leases assigned or subleased, the
Company leased sales and service offices having an aggregate of 256,000 square
feet in metropolitan areas throughout the world, pursuant to lease agreements
which expire between 1996 and 2009. The aggregate annual rental of all of
these sales and service offices is approximately $3.3 million and most of these
leases are subject to rental increases under certain escalation provisions and
renewals on similar terms.
ITEM 3. Legal Proceedings.
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
During the fourth quarter of 1996, a settlement was reached among the
litigants. As such, the District Court entered a Judgment Non Obstante
Veredicto (Judgment Notwithstanding the Verdict) that set aside the jury's
findings against the Company and its two executive officers and set aside all
damages. The $3.3 million settlement, which was reached to avoid the
considerable expense, including the business disruption of a protracted appeal
and legal process, had no material impact on the Company's then current cash
position as it included payment of funds from a non-working capital trust fund
which were otherwise not available to the Company, issuance of a short term
note, and shares of the Company's common stock.
The Company is a defendant in various lawsuits generally incidental to its
business. The amounts sought by the plaintiffs in such cases are substantial
and, if all such cases were decided adversely to the Company, the Company's
aggregate liability might be material. However, the Company does not expect
such an aggregate result based upon the limited number of such actions and an
assessment that most such actions will be successfully defended. No provision
has been made in the accompanying financial statements for any possible
liability with respect to such lawsuits.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Datapoint Corporation common stock is traded on the New York Stock Exchange
under the symbol "DPT". As of October 18, 1996, there were approximately 3,128
holders and 13,931,640 outstanding shares of Common Stock. The prices below
represent the high and low prices for composite transactions for stock traded
during the applicable period. The Company has not paid cash dividends to date
on its common stock and has no present intention to pay cash dividends on its
common stock in the near future.
Fiscal
year High Low
1996 Q4 1.88 1.00
Q3 1.88 1.00
Q2 1.50 1.00
Q1 2.38 1.38
High Low
1995 Q4 1.88 1.00
Q3 2.00 1.25
Q2 2.34 1.50
Q1 3.88 1.25
ITEM 6. Selected Financial Data.
Selected Financial Data
Five-Year Comparison
(Dollars in thousands, except per share data)
1996 1995 1994 1993 1992
Operating Results for the Fiscal Year
Total revenue $179,541 $174,901 $172,936 $208,344 $255,243
Operating income (loss) 1,017 (18,232) (81,021) (1,258) 6,655
Income (loss) before extraordinary credit,
(utilization of tax loss carryforward) and
effect of change in accounting principle 19,015 (28,343) (94,765) (11,859) (10,409)
Net income (loss) 19,342 (28,343) (93,425) (11,260) (8,756)
Net income (loss) per common share:
Before extraordinary credit and effect of change
in accounting principle 1.27 (2.29) (6.69) (.97) (1.62)
After extraordinary credit and effect of change
in accounting principle 1.30 (2.29) (6.60) (.93) (1.47)
Net income per common share assuming full dilution:
Before extraordinary credit and effect of change
in accounting principle 1.11 n/a n/a n/a n/a
After extraordinary credit 1.13 n/a n/a n/a n/a
Financial Position at End of Fiscal Year
Current assets $69,995 $67,506 $79,915 $94,169 $121,991
Fixed assets, net 14,625 18,877 29,088 27,950 34,533
Total assets 93,818 101,751 127,434 202,275 248,813
Current liabilities 76,965 100,256 98,202 74,759 90,581
Long-term debt 63,945 64,923 70,561 71,551 66,101
Stockholders' equity (deficit) (55,202) (74,116) (50,761) 47,021 74,835
Other Information
Average common shares outstanding 13,455,878 13,194,667 14,430,574 14,081,964 11,093,431
Number of common stockholders of record 3,142 3,274 3,378 3,710 3,877
Preferred shares outstanding 1,868,071 1,846,456 1,784,456 1,784,456 1,784,456
Dividends paid or accumulated on preferred stock $1,885 $1,815 $1,784 $1,784 $7,601
Number of employees 705 991 1,444 1,528 1,777
No cash dividends on common stock have been declared during the five-year period.
Net income for 1996 includes a gain of $32.2 million resulting from a divestiture.
See notes to Consolidated Financial Statements and Management Discussion and Analysis of Financial Condition
and Results of Operations.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
Throughout 1996, the Company's main objectives to preserve and improve the
Company's cash liquidity and financial position and to allow the Company to meet
its future operating cash flow requirements were as follows:
1. Product marketing to maintain stabilized revenue levels
2. Continued review and reduction of operating costs; and
3. One-time cash infusions to meet operating requirements.
During 1996, the Company had total revenue of $179.5 million, an increase of
$4.6 million from the previous year. The increase was primarily attributable to
higher sales in certain of the Company's European subsidiaries offset by a
declining maintenance revenue base in the European subsidiaries and a favorable
impact of $2.2 million related to the weakening U.S. dollar when compared with
the same period a year ago. In addition, as a result of the full year
realization of the several cost cutting actions undertaken in the prior year,
operating expenses decreased $12.3 million. The combination of these two
factors resulted in the Company's achieving operating income during 1996 of
$1.0 million.
During 1996, the Company pursued and is continuing to pursue actions to provide
cash infusions, including the sale of selected assets and operations of the
Company, to meet certain of its obligations and to improve its financial
position. In this regard, on May 28, 1996, the Company entered into an
agreement with Kalamazoo Computer Group, plc, a public limited company organized
under the laws of England, providing for the sale by Datapoint to Kalamazoo of
EADS, other than its United Kingdom operations, for a purchase price of $33.0
million. After net liabilities transferred to Kalamazoo and other expenses
related to the sale, the Company's net cash proceeds were approximately $29.4
million. As part ofthe agreement, the Company will continue to provide computer
hardware and hardware services to the EADS network, at various discounts,
through a subcontract agreement with Kalamazoo.
Of the approximate $29.4 million net proceeds received from the above sale, the
Company paid $850,000 to satisfy and discharge in full the outstanding senior
secured indebtedness owing to the CIT Group/Credit Finance ("CIT") and paid
Northern Telecom Inc. ("NTI"), one of its two generally secured creditors, $2.2
million representing the two deferred principal payments on secured debt which
were due in December 1994 and December 1995, as well as accrued and unpaid
interest. In addition, the proceeds from the Kalamazoo transaction enabled the
Company to pay by June 30, 1996 (within the 30-day grace period measured from
June 1, 1996) the $2.9 million interest payment on the 8-7/8% convertible
subordinated Debentures. On July 1, 1996, Datapoint entered into an agreement
with NTI pursuant to which Datapoint paid $5.05 million to NTI in full
satisfaction of all amounts due and to be due under the note. Datapoint had
entered into with NTI to resolve a patent dispute. The prepayment agreement
relieves the Company of its obligation to make annual $1.0 million payments to
NTI that commenced in December 1993 and of which seven payments remained to be
made, as well as certain contingent payment obligations. The balance of the
proceeds from the sale of EADS will be utilized by Datapoint for working
capital purposes and to pay other obligations of the Company. This may include,
from time to time, repurchasing in the public market or in privately negotiated
transactions the Debentures or otherwise reducing existing debt owed by the
Company to its creditor groups.
In addition, on July 24, 1996, the Company announced that its Board of
Directors determined to offer for exchange for each share of its $1.00
Exchangeable Preferred Stock ($1.00 par value) 3.25 shares of its Common Stock
($.25 par value) and to submit a proposal to stockholders under which each share
of its $1.00 Exchangeable Preferred Stock would be converted into 3.25 shares
of Common Stock. The Company had previously announced on April 16, 1996, that
it intended to submit to its stockholders a proposal to effect the conversion
of the $1.00 Exchangeable Preferred Stock into 2.75 shares of its Common Stock.
The affirmative vote of two-thirds of the outstanding shares of the $1.00
Exchangeable Preferred Stock and a majority vote of the outstanding shares of
the Common Stock will be required to adopt the proposal which the Company
expects to submit at its Annual Meeting of Stockholders expected to be held on
December 10, 1996. On January 16, 1996, the Company announced that it was in
arrears on its $1.00 preferred stock in an aggregate amount equal to six full
quarterly dividends. As a result, each holder of $1.00 preferred stock
currently has the right to exchange each such share into two shares of the
Company's common stock.
Financial Condition and Liquidity
During 1996, the Company's net cash provided from operations was $1.3 million.
Primarily, this was attributable to reduced inventory and accounts receivable,
offset by the $3.8 million in payments of restructuring costs.
During 1996, net cash provided from investing activities increased $25.8
million. This increase was largely due to the approximate $29.4 million net
proceeds received from the sale of EADS to Kalamazoo, offset by fixed asset
purchases, net of dispositions, of $3.4 million.
Net cash used in financing activities was $11.9 million in 1996, primarily
related to the net paydown of the Company's borrowings including the debt
repayments to CIT and NTI.
As of July 27, 1996, the Company had restricted cash of $0.9 million as
compared to $2.5 million in the prior year. The 1996 and 1995 balances were
restricted primarily to cover various lines of credits, reflected as payables
to banks.
Cash used for investment in fixed assets (primarily test equipment, spares and
internally-used equipment) was $3.7 million in 1996, compared to $4.7 million
in 1995 and $10.8 million in 1994. There are no material commitments for
capital expenditures at the present time.
Accounts payable decreased to $20.3 million in 1996 from $23.3 million in 1995.
Throughout the year, the Company continued to work with its accounts payable
creditors to extend additional credit and credit terms, thus maintaining
functional relationships with such creditors during 1996. The Company has no
significant purchase commitments outstanding as of July 27, 1996.
The Company's cash and cash equivalents increased $14.7 million to $23.2
million. This was primarily due to the cash infusion in 1996 of approximately
$29.4 million resulting from the sale of the Company's EADS business to
Kalamazoo, as described earlier, offset by the payments of a large portion of
the Company's debt.
As of July 27, 1996, the Company has included in payables to banks an amount of
$5.0 million payable to International Factors "De Factorij" B.V., a subsidiary
of ABN-AMRO Bank of the Netherlands. The loan is secured by the receivables of
the Company's U.K., Dutch and German subsidiaries.
The Company had a secured credit facility with The CIT Group/Credit Finance
("CIT"), which consisted of a term loan and a revolving loan. From the
proceeds of the sale of EADS, the Company paid $850,000 to satisfy and
discharge in full the indebtedness owed to CIT.
The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The unused lines of credit at July 27, 1996 totaled $2.7 million
after borrowings of $9.8 million.
The Company believes its available cash, cash equivalents and funds generated
by operations will be sufficient to provide its working capital and cash
requirements for fiscal 1997. In addition, management believes the Company will
be able to discharge its obligations in the long term with cash generated from
operations and other sources such as sale of selected assets or operations, and
capital transactions.
During 1993, the Company settled a long standing patent-related legal action
brought against it by NTI. Pursuant to this settlement, during 1994 and 1993,
the Company paid NTI $1.0 million and $7.5 million, respectively. The Company
also agreed to a ten-year note payable to NTI which required annual $1.0
million payments each December. As of June 24, 1996, the December 1994 and
December 1995 installments were in arrears. From the proceeds of the sale of
EADS, the Company paid NTI $2.2 million representing payment of these deferred
payments plus accrued and unpaid interest. On July 1, 1996, the Company entered
into an agreement with NTI pursuant to which Datapoint paid $5.05 million to NTI
in full satisfaction of all amounts due and to be due. The prepayment
agreement relieved the Company of its obligation to make the annual $1.0
million payments as well as certain contingent payment obligations.
As a result of the Company's capital deficiency which existed at the end of
1994 and throughout 1995 and 1996, the Company determined not to pay the
October 15, 1994, January 15, 1995, April 15, 1995, July 15, 1995, October 15,
1995, January 15, 1996, April 15, 1996, July 15, 1996, and the October 15, 1996
preferred dividend payments to stockholders. Since dividends are at least six
quarters in arrears, the preferred stockholders have the right to vote as a
separate class and elect two board members at the next annual meeting of
shareholders and each preferred share (inclusive of all accrued and unpaid
dividends) is exchangeable into two shares of common stock at the option of the
holder.
The Company adopted, effective August 1, 1993, SFAS No. 109, "Accounting for
Income Taxes", which superseded SFAS No. 96 and APB Opinion No. 11. The
Company recorded a favorable cumulative accounting change effect of
approximately $1.3 million in the first quarter of fiscal 1994 (see note 4 to
Consolidated Financial Statements).
At July 27, 1996, the Company had available federal tax net operating losses
aggregating approximately $165.0 million, expiring in various amounts beginning
in 2001. In the event that the Company's ability to utilize its net operating
losses to reduce its federal tax liability with respect to current and future
income becomes subject to limitation, the Company may be required to pay,
sooner than it otherwise might have to, any amounts owing with respect to such
federal tax liability, which would reduce the amount of cash otherwise
available to the Company (see note 4 to Consolidated Financial Statements).
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
During the fourth quarter of 1996, a settlement was reached among the
litigants. As such, the District Court entered a Judgment Non Obstante
Veredicto (Judgment Notwithstanding the Verdict) that set aside the jury's
findings against the Company and its two executive officers and set aside all
damages. The $3.3 million settlement, which was reached to avoid the
considerable expense, including the business disruption of a protracted appeal
and legal process, had no material impact on the Company's then current cash
position as it included payment of funds from a non-working capital trust fund
which were otherwise not available to the Company, issuance of a short term
note, and shares of the Company's common stock.
Reorganization/Restructuring Costs
(In thousands)
A rollforward of the restructuring accrual from July 31, 1993 through
July 27, 1996 is as follows:
TOTAL
Restructuring accrual as of July 31, 1993 $2,565
Fiscal 1994 additions 14,853
Fiscal 1994 payments (3,430)
Restructuring accrual as of July 30, 1994 13,988
Fiscal 1995 additions 9,213
Fiscal 1995 asset write-offs (1,895)
Fiscal 1995 payments (17,138)
Restructuring accrual as of July 29, 1995 $4,168
Fiscal 1996 additions 263
Fiscal 1996 payments (3,776)
Restructuring accrual as of July 27, 1996 $ 655
The projected payout of the restructuring accrual balance as of July 27, 1996,
which related almost entirely to unpaid employee termination costs, is as
follows:
First quarter 1997 $ 491
Second quarter 1997 74
Third quarter 1997 43
Fourth quarter 1997 22
Beyond 25
Restructuring accrual as of July 27, 1996 $ 655
Restructuring charges are not recorded until specific employees are determined
(and notified of termination) by management in accordance with its overall
restructuring plan. As such, employee termination payments are generally paid
out over a period of time rather than as one lump sum. Although a reasonable
estimate of the amount of future termination costs cannot be made at this time,
management expects to incur additional charges for terminations.
Results of Operations
The following is a summary of the Company's sources of revenue for each of
fiscal 1996, 1995 and 1994:
(In thousands)
1996 1995 1994
Sales:
U.S. $3,185 $5,728 $6,453
Foreign 95,691 78,459 78,300
98,876 84,187 84,753
Service and other:
U.S. 906 1,393 1,164
Foreign 79,759 89,321 87,019
80,665 90,714 88,183
Total revenue $179,541 $174,901 $172,936
1996 Compared to 1995
Total revenue increased by 2.7% to $179.5 million in 1996 from $174.9 million
in 1995. The increase was primarily attributable to higher sales volume in
certain of the Company's European subsidiaries offset by a declining
maintenance revenue base in the European subsidiaries and a favorable impact of
$2.2 million related to the weakening U.S. dollar when compared with the same
period a year ago.
Included in the operating income for 1996 of $1.0 million is a $0.4 million
inventory provision and $2.7 million bonus accrual of which $2.1 million is
related to contractual arrangements with three of the Company's executive
officers and based upon the pre-tax profitability of the Company.
Gross profit margins during 1996 were 30.9% compared with 32.9% for 1995.
Excluding the additional inventory provisions recorded in 1996, the gross
profit margins were 31.2%. The decrease was primarily due to the impact of a
high sales volume of a low margin commodity product in a Northern European
subsidiary, a changing product mix toward lower margin, non-company sourced
product and competitive pricing pressures worldwide.
Operating expenses (research and development plus selling, general &
administrative) during 1996 declined 18.4% or $12.3 million from 1995 to $54.3
million. The decline was a result of the continued cost-cutting actions taken
over 1996 and 1995 which reduced costs of internal operations offset by an
unfavorable impact of $0.5 million related to the weakening U.S. dollar when
compared with the same period a year ago. Research and development expenses
decreased from $4.3 million in 1995 to $2.7 million in 1996. Management
expects research and development expenditures to remain relatively flat in
1997.
Non-operating results for 1996 include a gain of $32.2 million from the sale of
the Company's European Automotive Dealer Management Systems business to
Kalamazoo Computer Group, plc. and a $0.7 million in foreign currency exchange
rate gains on certain of the Company's intercompany payables and receivables
offset by a $3.3 million legal settlement. Non-operating results for 1995
include the $1.7 million gain on the sale of vacant land in San Antonio, Texas,
$1.0 million from the favorable settlement of two patent infringement lawsuits,
and $1.5 million in foreign exchange rate losses on the Company's intercompany
payables and receivables.
1995 Compared to 1994
Total revenue increased by 1% to $174.9 million in 1995 from $172.9 million in
1994. The increase was due to a weaker U.S. dollar, on average, in 1995 as
compared to the average U.S. dollar strength in 1994 as the Company incurred a
$14.6 million increase in total revenue attributable solely to currency changes
($6.4 million for sales and $8.1 million for service and other).
Included in the operating loss for 1995 of $18.2 million were additional
inventory provisions of $5.0 million and $1.0 million of additional receivable
provisions. Operating income during 1994 included a fire insurance settlement
gain of $0.9 million related to a fire in the second quarter in a leased
warehouse facility in the Company's Belgian subsidiary.
Gross profit margins during 1995 were 32.9% compared with 37.9% for 1994.
Excluding the additional inventory provisions recorded in 1995, the gross
profit margins were 35.7%. Gross profit margins during 1994 were 37.9%
compared with 41.6% for 1993. Excluding the impact upon cost of sales of the
fires noted above, gross profit margins during 1994 were 37.4%.
Operating expenses (research and development plus selling, general &
administrative) during 1995 declined 10% or $7.6 million from 1994 to $66.5
million. The decline was a result of cost-cutting actions taken over 1995
which reduced costs of internal operations. Excluding the impact of the weaker
U.S. dollar in 1995 as compared with 1994, operating expenses declined $10.3
million year over year.
Interest expense decreased $0.2 million in 1995 from 1994 as the Company
benefited from both lower rates on borrowings in Europe and decreased borrowing
amounts in the U.S.
Non-operating results for 1995 include a gain of $1.7 million from the sale of
the vacant land in San Antonio, Texas, $1.0 million from the favorable
settlement of two patent infringement lawsuits, and $1.5 million in foreign
exchange rate losses on the Company's intercompany payables and receivables.
Non-operating results for 1994 include the $3.2 million write-off of an
investment in a partially owned company, $0.7 million in foreign currency
exchange rate losses on certain of the Company's intercompany payables and
receivables and a $0.5 million fire settlement gain on fixed assets.
Prior to 1994, the Company's foreign subsidiaries reported their results to the
parent on a one-month lag which allowed more time to compile results but
produced comparability problems in management accounting. Due to improved
internal applications, the one-month lag became unnecessary and therefore was
eliminated subsequent to 1993 and prior to 1994. As a result, the July 1993
results of operations for the Company's foreign subsidiaries was recorded to
the retained deficit. This action resulted in a charge of $5.5 million being
recorded against the retained deficit. The loss incurred in July 1993 resulted
primarily from a low revenue level, which is usual for the first month
following the end of a fiscal year.
Cautionary Statement Regarding Risks And Uncertainties That May Affect Future
Results
This Annual Report on Form 10-K contains forward-looking statements about the
business, financial condition and prospects of the Company. The actual results
of the Company could differ materially from those indicated by the forward-
looking statements because of various risks and uncertainties including without
limitation changes in product demand, the availability of products, changes in
competition, economic conditions, new product development, various inventory
risks due to changed in market conditions, changes in tax and other
governmental rules and regulations applicable to the Company, and other risks
indicated in the Company's filings with the Securities and Exchange Commission.
These risks and uncertainties are beyond the ability of the Company to control,
and in many cases, the Company cannot predict the risks and uncertainties that
could cause its actual results to differ materially from those indicated by the
forward-looking statements. When used in this Annual Report on Form 10-K, the
words "believes," "estimates," "plans," "expects," and "anticipates" and
similar expressions as they relate to the Company or its management are
intended to identify forward-looking statements.
ITEM 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Ernst & Young LLP Independent Auditors 16
Consolidated Financial Statements
Consolidated Statements of Operations for the fiscal years 1996, 1995
and 1994 17
Consolidated Balance Sheets as of July 27, 1996 and July 29, 1995 18
Consolidated Statements of Cash Flows for the fiscal years 1996, 1995
and 1994 19
Consolidated Statements of Stockholders' Deficit for the fiscal years
1996, 1995 and 1994 20
Notes to Consolidated Financial Statements 21
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors
Datapoint Corporation
We have audited the accompanying consolidated balance sheets of Datapoint
Corporation and subsidiaries (the Company) as of July 27, 1996 and July 29,
1995 and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three fiscal years in the period ended
July 27, 1996. Our audits also included the financial statement schedule
listed in the index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at July 27, 1996 and July 29, 1995 and the consolidated results of its
operations and its cash flows for each of the three fiscal years in the period
ended July 27, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994.
Ernst & Young LLP
Dallas, Texas
October 21, 1996
CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries Fiscal Years 1996, 1995 and 1994
(In thousands, except share and per share data)
1996 1995 1994
Revenue:
Sales $98,876 $84,187 $84,753
Service and other 80,665 90,714 88,183
Total revenue 179,541 174,901 172,936
Operating costs and expenses:
Cost of sales 72,483 65,234 49,912
Cost of service and other 51,524 52,163 57,459
Research and development 2,661 4,303 5,268
Selling, general and administrative 51,593 62,220 68,808
Write-off of investment in foreign operations - - 57,657
Reorganization/restructuring costs 263 9,213 14,853
Total operating costs and expenses 178,524 193,133 253,957
Operating income (loss) 1,017 (18,232) (81,021)
Non-operating income (expense):
Interest expense (8,619) (9,332) (9,097)
Realized gain on sale of European based Auto Dealer Systems 32,200 - -
Other, net (1,891) (580) (4,293)
Income (loss) before income taxes, extraordinary credit
and effect of change in accounting principle 22,707 (28,144) (94,411)
Income taxes 3,692 199 354
Income (loss) before extraordinary credit and effect
of change in accounting principle 19,015 (28,343) (94,765)
Extraordinary credit-debt extinguishment 327 - -
Income (loss) before effect of change in
accounting principle 19,342 (28,343) (94,765)
Effect of change in accounting principle - - 1,340
Net income (loss) $19,342 $(28,343) $(93,425)
Net income (loss), less preferred stock dividends
paid or accumulated $17,457 $(30,158) $(95,209)
Net income (loss) per common share:
Before extraordinary credit and effect of change in accounting
principle $1.27 $(2.29) $(6.69)
Extraordinary credit-debt extinguishment .03 - -
Effect of change in accounting principle - - .09
Net income (loss) $1.30 $(2.29) $(6.60)
Net income per common share assuming full dilution:
Before extraordinary credit and effect of change in accounting
principle $1.11 - -
Extraordinary credit-debt extinguishment .02 - -
Net income $1.13 - -
Average common shares outstanding:
Primary 13,455,878 13,194,667 14,430,574
Assuming full dilution 17,192,020 n/a n/a
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries July 27, 1996 and July 29, 1995
(In thousands, except share data)
1996 1995
Assets
Current assets:
Cash and cash equivalents $23,184 $8,493
Restricted cash and cash equivalents 864 2,549
Accounts receivable, net of allowance for doubtful
accounts of $2,791 and $3,012, respectively 38,735 43,072
Inventories 3,726 9,754
Prepaid expenses and other current assets 3,486 3,638
Total current assets 69,995 67,506
Fixed assets, net 14,625 18,877
Other assets, net 9,198 15,368
$93,818 $101,751
Liabilities and Stockholders' Deficit
Current liabilities:
Payables to banks $9,831 $16,757
Current maturities of long-term debt and
long-term debt subject to accelerated maturity 3,114 9,217
Accounts payable 20,280 23,286
Accrued expenses 29,256 34,857
Deferred revenue 11,642 15,291
Income taxes payable 2,842 848
Total current liabilities 76,965 100,256
Long-term debt, exclusive of current maturities 63,945 64,923
Other liabilities 8,110 10,688
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $1.00 par value. Shares authorized 10,000,000; shares
issued and outstanding 1,868,071 in 1996 and 1,846,456 in 1995
(aggregate liquidation preference, including dividends in arrears,
$41,061 in 1996 and $38,744 in 1995). 1,868 1,846
Common stock of $0.25 par value. Shares authorized 40,000,000; shares
issued 20,991,217, including treasury shares of
7,043,593 in 1996 and 7,866,832 in 1995. 5,248 5,248
Other capital 212,655 212,630
Foreign currency translation adjustment 11,567 13,004
Retained deficit (248,226) (261,742)
Treasury stock, at cost (38,314) (45,102)
Total stockholders' deficit (55,202) (74,116)
$ 93,818 $101,751
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries Fiscal Years 1996, 1995 and 1994
(In thousands)
1996 1995 1994
Cash flows from operating activities:
Net income (loss) $19,342 $(28,343) $(93,425)
Adjustments to reconcile net loss to net cash
used in operating activities:
Losses incurred in lag month eliminated - - (5,470)
Effect of change in accounting principle - - (1,340)
Depreciation and amortization 6,969 9,830 10,729
Write-off of investment in foreign operations - - 57,657
Write-off of investment in partially-owned company - - 3,210
Proceeds from settlement of litigation - 5,540 -
Realized gain on fixed assets fire settlement - - (534)
Provision for losses on accounts receivable 170 2,147 803
Provision for fixed asset write-off - 1,895 -
Realized gain on sale of property - (1,709) -
Realized gain on sale of EADS (32,200) - -
Gain on debt extinguishment (327) - -
Changes in assets and liabilities:
Decrease in receivables 1,467 4,111 801
Decrease in inventory 5,436 8,885 1,007
Increase (decrease) in accounts payable and accrued expenses (6,503) (9,700) 19,747
Increase in other liabilities and deferred credits 2,482 614 388
Decrease in deferred taxes - EADS sale 1,673 - -
Use of restricted funds held in trust 3,018 - -
Other, net (232) 1,138 139
Net cash provided from (used in) operating activities 1,295 (5,592) (6,288)
Cash flows from investing activities:
Payments for fixed assets (3,725) (4,660) (10,828)
Proceeds from the sale of EADS 29,450 - -
Proceeds from disposition of fixed assets 278 7,948 2,426
Other, net (217) 699 (648)
Net cash provided from (used in) investing activities 25,786 3,987 (9,050)
Cash flows from financing activities:
Payments on borrowings (44,963) (33,149) (32,606)
Proceeds from borrowings 31,383 31,840 33,126
Payments of dividends on preferred stock - - (1,784)
Restricted cash for letters of credit 1,685 1,763 147
Proceeds on sale of common stock - 2,536 52
Net cash provided from (used in) financing activities (11,895) 2,990 (1,065)
Effect of foreign currency translation on cash (495) 867 192
Net increase (decrease) in cash and cash equivalents 14,691 2,252 (16,211)
Cash and cash equivalents at beginning of year 8,493 6,241 22,452
Cash and cash equivalents at end of year $23,184 $8,493 $6,241
Cash payments for:
Interest $8,625 $8,112 $8,781
Income taxes (refunds), net 514 (152) 362
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Datapoint Corporation and Subsidiaries Fiscal Years 1996, 1995, and 1994
(In thousands)
Foreign
$1.00 Currency
Common Preferred Other Translation Retained Treasury
Stock Stock Capital Adjustment Deficit Stock
Balance at July 31, 1993 $5,248 $1,784 $212,599 $ 7,707 $(125,581) $(54,736)
Losses incurred in lag month eliminated - - - - (5,470) -
Net loss - - - - (93,425) -
Common stock options exercised - - - - (717) 935
Dividends paid on preferred stock - - - - (1,784) -
Foreign currency translation adjustment - - - 2,845 - -
Common stock issued to 401(k) Plan - - - - - 6
Common stock purchased from 401(k) Plan - - - - - (172)
Balance at July 30, 1994 $5,248 $1,784 $212,599 $10,552 $(226,977) $(53,967)
Net loss - - - - (28,343) -
Common stock options exercised - - - - (1,036) 1,292
Foreign currency translation adjustment - - - 2,452 - -
Regulation S public filing - - - - (4,029) 5,776
Consulting Compensation - - - (445) 594
Employment separation - - - - (814) 1,064
Executive Retirement Plan contribution - 62 31 - - -
Common stock issued to 401(k) Plan - - - - (98) 139
Balance at July 29, 1995 $5,248 $1,846 $212,630 $13,004 $(261,742) $(45,102)
Net income - - - - 19,342 -
Foreign currency translation adjustment - - - (1,437) - -
Lawsuit settlement - - - - (133) 165
Executive Compensation - - - - (132) 165
Lawsuit settlement - - - - (700) 825
Employment separation - - - - (2,082) 2,413
Consulting Compensation - - - - (128) 149
Executive retirement - - - - (1,031) 1,238
Preferred stock conversion - (28) - - (439) 467
Executive retirement plan contribution - 50 25 - - -
Common issued to 401(k) plan - - - - (1,181) 1,366
Balance at July 27, 1996 $5,248 $1,868 $212,655 $11,567 $(248,226) $(38,314)
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Datapoint Corporation and Subsidiaries July 27, 1996, July 29, 1995 and
July 30, 1994
(Dollars in thousands, except share data)
1. Summary of Significant Accounting Policies
Liquidity
The Company believes its available cash, cash equivalents and funds generated
by operations will be sufficient to provide its working capital and cash
requirements for fiscal 1997. In addition, management believes the Company
will be able to discharge its obligations in the long term with cash generated
from operations and other sources such as sale of selected assets or
operations, and capital transactions.
Fiscal Year
The Company utilizes a 52-53 week fiscal year ending on the Saturday following
the last Friday in July. References to 1996, 1995 and 1994 are for the fiscal
years ended July 27, 1996, July 29, 1995 and July 30, 1994.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Intercompany accounts and transactions have
been eliminated upon consolidation.
Prior to 1994, the Company's foreign subsidiaries reported their results to the
parent on a one-month lag which allowed more time to compile results but
produced comparability problems in management accounting. Due to improved
internal applications, the one-month lag became unnecessary and therefore was
eliminated subsequent to 1993 and prior to 1994.
Cash and Cash Equivalents
Cash equivalents include short-term, highly-liquid investments with maturities
of three months or less from date of acquisition and as a result the carrying
value approximates fair value because of the short maturity of those
instruments. At July 27, 1996, the Company had $864 in restricted cash. The
amount collateralizes various lines of credit payable to banks which are
recorded as current liabilities.
Inventories
Inventories are stated at the lower of standard cost (approximates first-in,
first-out) or market (replacement cost as to raw materials and net realizable
value as to work in process and finished products).
The Company reviews inventory obsolescence on a quarterly basis. This review
consists of a detailed inventory requirements analysis based upon actual
shipments of each product for the prior twelve months. A computation is then
made of future inventory requirements by product based on the historical
analysis adjusted for future projections including the impact of new product
introductions.
Fixed Assets
Fixed assets are carried at cost and depreciated for financial purposes using
straight-line and accelerated methods at rates based on the economic lives of
the assets, which are generally as follows:
Buildings and land improvements 5-30 years
Machinery, equipment, furniture and fixtures 3-10 years
Equipment leased to customers 4 years
Field support spares 3 years
Major improvements that add to the productive capacity or extend the life of an
asset are capitalized while repairs and maintenance are charged to expense as
incurred.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", which requires impairment losses to be
recognized for long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows are not sufficient to
recover the assets' carrying amount. The impairment loss is measured by
comparing the fair value of the asset to its carrying amount. The Company will
adopt Statement No. 121 in the first quarter of 1997. However, based on
presently available estimates, adoption of the new impairment rules is not
expected to have a material impact on the Company's financial statements.
Debt
The carrying amounts and the fair values of the Company's debt at
July 27, 1996 are:
Carrying Fair
Amount Value
8-7/8% convertible subordinated debentures $63,652 $35,725
The fair value of the Company's 8-7/8% convertible subordinated debentures is
based on a quoted market price at July 26, 1996.
Translation of Foreign Currencies
Management has determined that all of the Company's foreign subsidiaries
operate primarily in local currencies. All assets and liabilities of foreign
subsidiaries are translated into U.S. dollars using the exchange rate
prevailing at the balance sheet date, while income and expense accounts are
translated at average exchange rates during the year.
Reclassifications
Certain reclassifications to the financial statements for prior years have been
made to conform to the 1996 presentation.
Revenue Recognition
Revenue is recognized in accordance with the following criteria:
* Sales revenue is generally recognized at the time of shipment provided that
there are no significant vendor and post-contract support obligations and
that collections of the resulting receivable are probable. If such
obligations are present in the contract, revenue is not recognized until
such time as the contractual obligations are met.
* Software revenue is recognized when the program is shipped, or as the
monthly license fees accrue, or over the terms of the support agreement.
* Service revenue is recognized ratably over a contractual period or as
services are provided.
* Lease revenue is recognized on the operating method ratably over the term of
the lease.
Income Taxes
The provision for income taxes is reduced by investment tax credits, which are
recognized in the year the assets giving rise to the credits are placed in
service (flow-through method) or when realized for income tax purposes, if
later.
No tax provision has been made for the undistributed earnings of foreign
subsidiaries as management expects these earnings to be reinvested indefinitely
or received substantially free of additional tax.
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income Taxes",
which superseded SFAS No. 96 and APB Opinion No. 11. The adoption of this new
standard had a favorable cumulative accounting change effect of $1,340 recorded
in the first quarter of fiscal 1994 (see note 4).
Net Income (Loss) per Common Share
Net income (loss) per common share is based on the weighted average number of
common shares outstanding during each year presented. The Company's common
stock equivalents, which include convertible debt, were antidilutive in each
year presented and therefore, were excluded from the computations. The 1996,
1995 and 1994 computations include the effect of dividends paid or accumulated
on preferred stock of $1,885, $1,815, and $1,784, respectively. For 1996,
convertible preferred stock has been included in the fully diluted calculation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
2. Reorganization/Restructuring Costs
1996 1995 1994
Employee termination costs $251 $6,842 $14,853
Lease termination costs - 296 -
Asset write-offs 12 2,075 -
$263 $9,213 $14,853
The Company's 1996 and 1995 restructuring charges primarily have been driven by
management's efforts to implement cost cutting measures in light of its overall
plan to return to profitability. In addition, continued competitive pressures
in the Company's industry and a slowdown of customer orders have influenced the
level of restructuring charges.
The 1994 restructuring charges included $13,360 as a result of the
implementation of a statutory plan of reorganization for one of its European
subsidiaries. Management developed the plan, which was subject to
administrative approval, as a result of a continued decline in revenues
resulting from the loss of several significant accounts. These charges related
principally to severance costs associated with the termination of approximately
140 employees spread throughout sales, service, and administrative positions
involved in this European subsidiary. The reorganization plan was approved in
September 1995. Of the total restructuring amount, $5,570 was paid by the
foreign government and is repayable by the Company over two years beginning in
1996.
Restructuring charges are not recorded until specific employees are determined
(and notified of termination) by management in accordance with its overall
restructuring plan. As such, employee termination payments are generally paid
out over a period of time rather than as one lump sum. Although a reasonable
estimate of the amount of future termination costs cannot be made at this time,
management expects to incur additional charges for terminations.
3. Non-operating Income (Expense)
1996 1995 1994
Interest earned $421 $959 $313
Realized gain on fixed assets fire settlement - - 534
Write-off of investment in partially owned company - - (3,210)
Foreign currency gains (losses) 728 (1,480) (718)
Realized gain on sale of property - 1,709 -
Litigation settlements (2,945) 1,000 -
Other (95) (2,768) (1,212)
$(1,891) $(580) $(4,293)
4. Income Taxes
Effective August 1, 1993, the Company adopted SFAS No. 109 "Accounting for
Income Taxes" prospectively. SFAS No. 109 requires a change from the deferred
method of accounting for income taxes to the asset and liability method of
accounting for income taxes.
As a result of adoption of SFAS No. 109, the Company recorded additional
deferred income tax assets of $2,075, after a valuation allowance of $66,720,
and increased deferred income tax liabilities by $735 which, in total resulted
in a $1,340 credit ($.09 per share) for the cumulative effect of the accounting
change.
1996 1995 1994
Income (loss) before income taxes,
extraordinary credit and effect of
change in accounting principle:
U.S. $ (771) $(22,305) $(11,430)
Outside the U.S. 23,478 (5,839) (82,981)
$22,707 $(28,144) $(94,411)
Provision for income taxes:
U.S. federal:
Current $6 $53 $73
Outside the U.S.:
Current 2,266 229 (61)
Deferred 1,420 (83) 342
3,686 146 281
Total provision $3,692 $199 $354
The differences between the tax provision in the financial statements and the
tax benefit computed at the U.S. federal statutory rates are:
1996 1995 1994
Income taxes (tax benefits) at statutory rate $7,947 $(9,850) $(33,043)
Increase in taxes resulting from:
Benefit of U.S. tax loss not recognized 262 7,791 3,298
Foreign losses and other transactions on which
a tax benefit could not be recognized 573 1,952 9,288
Nondeductible amortization and write-off of
intangible assets - - 20,875
Effect of foreign tax refunds and U.S. tax
associated with dividends paid 6 53 73
Effect of federal tax rate less than (greater than)
foreign tax rates (539) 364 142
Benefit of operating loss carryforwards (4,566) (127) (286)
Other, net 9 16 7
Provision for income taxes $3,692 $199 $354
The undistributed earnings, indefinitely reinvested in international business,
of the Company's foreign subsidiaries aggregated approximately $27,500 at
July 27, 1996. Determination of the amount of unrecognized deferred tax
liability on these unremitted earnings is not practicable.
The primary components of deferred income tax assets and liabilities are as
follows:
1996 1995
Deferred income tax assets:
Property, plant and equipment $7,794 $4,475
Loss and credit carryforwards 71,519 76,898
Accrued restructuring costs 335 1,417
Other 8,956 7,138
88,604 89,928
Less: valuation allowance 86,411 86,008
2,193 3,920
Deferred income tax liabilities:
Accrued retirement costs (1,930) (2,457)
Other (1,144) (925)
(3,074) (3,382)
Net deferred income tax asset (liability) $(881) $538
At July 27, 1996, the net deferred income tax liability of $(881) was presented
in the balance sheet, based on tax jurisdiction, as deferred income tax assets
of $1,642 and deferred income tax liabilities of $2,523. Realization of the
Company's deferred tax assets is dependent on generating sufficient taxable
income in certain taxing jurisdiction prior to the expiration of loss and
credit carryforwards. Management believes that more likely than not the
deferred tax assets will not be realized and has therefore provided a valuation
allowance to reserve for those deferred tax assets not considered realizable.
At July 27, 1996, the Company had tax operating loss carryforwards
approximating $165,000 and $28,000 for federal and foreign tax purposes,
respectively, expiring in various amounts beginning in 2001 and 1997,
respectively. Federal long-term capital loss carryforwards of $1,500 expire in
various amounts beginning in 1997. Utilization of the ordinary and capital tax
loss carryforwards is subject to limitation in the event of a more than 50%
change in ownership of the Company.
The Company had unused investment, research, and alternative minimum tax
credits for income tax purposes at July 27, 1996 of approximately $3,300
expiring at various dates through 2001 which may be used to offset future tax
liabilities of the Company. Utilization of these credits is subject to
limitation in the event of a more than 50% change in ownership of the Company.
5. Inventories
1996 1995
Finished products $731 $6,105
Work in process 389 2,613
Raw materials 2,606 1,036
$3,726 $9,754
6. Fixed Assets
Accumulated
Cost Depreciation Net
July 27, 1996
Property, plant and equipment:
Buildings and land improvements $17,093 $12,598 $4,495
Machinery, equipment, furniture and fixtures 91,553 84,946 6,607
Land 1,414 - 1,414
110,060 97,544 12,516
Field support spares 14,161 12,238 1,923
Equipment leased to customers 5,125 4,939 186
$129,346 $114,721 $14,625
July 29, 1995
Property, plant and equipment:
Buildings and land improvements $26,008 $18,390 $7,618
Machinery, equipment, furniture and fixtures 88,744 81,967 6,777
Land 1,479 - 1,479
116,231 100,357 15,874
Field support spares 14,926 12,147 2,779
Equipment leased to customers 5,630 5,406 224
$136,787 $117,910 $18,877
7. Lease Commitments
The Company leases certain facilities and equipment under various leases.
Substantially all of the leases are classified as operating leases. Rental
expense for operating leases for 1996, 1995 and 1994 was $7,386, $10,922, and
$9,137, respectively. Most of the leases contain renewal options for various
periods and require the Company to maintain the property. Certain leases
contain provisions for periodic rate adjustments to reflect Consumer Price
Index changes.
At July 27, 1996, future minimum lease payments for noncancelable leases
totaled $20,610 and are payable as follows: 1997-$4,869; 1998-$4,302;
1999-$3,277; 2000-$2,552, 2001-$2,505 and $3,105 thereafter.
8. Payables to Bank
As of July 27, 1996, the Company had included in payables to banks an amount of
$4,979 payable to International Factors "De Factorij" B.V., a subsidiary of
ABN-AMRO Bank of the Netherlands. The loan is secured by the receivables of
the Company's U.K., Dutch and German subsidiaries.
The Company had a secured credit facility ("Credit Facility") with The CIT
Group, with a maximum borrowing level of $2,000 (given sufficient collateral
was available). The Credit Facility consisted of a term loan and a revolving
loan. The term loan and the revolving loan were paid off in 1995 and 1996,
respectively and the entire Credit Facility was terminated upon payment.
The weighted average interest rate for short term borrowings as of the fiscal
year end was 9.0% , 10.1%, 10.5% for 1996, 1995, and 1994, respectively.
The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The unused lines of credit at July 27, 1996 totaled $2.7 million
after borrowings of $9.8 million.
9. Accrued Expenses
1996 1995
Salaries, commissions, bonuses and other benefits $9,247 $9,661
Taxes other than income taxes 11,161 8,687
Reorganization/restructuring costs 655 4,168
Payable to foreign government - 5,570
Other 8,193 6,771
$29,256 $34,857
10. Long-Term Debt
1996 1995
8-7/8% convertible subordinated debentures $63,652 $64,394
6.5% to 9.0% real estate notes 530 762
Non interest bearing note-NTI (net of discount
of $2,354 in 1995) - 6,646
Other obligations 2,877 2,338
67,059 74,140
Less: current maturities of long-term debt and
long-term debt subject to accelerated maturity 3,114 9,217
$63,945 $64,923
Interest on the 8-7/8% convertible subordinated debentures is payable
semiannually on June 1 and December 1. The debentures are subordinated in right
of payments to all senior indebtedness, as defined, and are convertible into
common stock of the Company at any time prior to the close of business on
June 1, 2006, unless previously redeemed. Each one thousand dollar principal
amount debenture is convertible into 55.231 shares of common stock and, as of
July 27, 1996, there were 3,515,564 shares reserved for possible issuance.
The debentures are entitled to a mandatory sinking fund, which commenced
June 1, 1991, of $5,000 annually. The Company, at its option, may increase the
sinking fund payment to $10,000 and may also receive credit against mandatory
sinking fund payments for debentures acquired through means other than the
sinking fund. The Company has applied $30,000 in previous debenture
retirements against the sinking fund requirements for 1991 through 1996. The
Company also intends to apply previous debenture retirements of $5,606 through
July 27, 1996 against the sinking fund requirements for 1997 through 1998. The
debentures are also redeemable at the option of the Company, in whole or in
part, at any time at 100% of the principal amount together with accrued
interest to the date of redemption. During fiscal 1996 from the proceeds
received from the sale of EADS, the Company repurchased debentures with a total
face value of $742, resulting in an extraordinary gain of $327, with no related
income taxes. Subsequent to July 27, 1996, the Company repurchased debentures
with a face value of $2,048 resulting in extraordinary gains of $822.
During fiscal 1993, the Company settled two long-standing legal patent actions
brought against it by NTI. The Company agreed to a ten-year note payable to
NTI which required annual $1,000 payments beginning in December 1993. The note
was recorded at a discount reflecting an annual rate of interest of 10%. The
Company was also contingently obligated to make payments to NTI dependent upon
the Company's future profitability. The contingent payments, up to a
cumulative maximum of $12.5 million, were to have been paid in annual
installments calculated at 33-1/3% of the Company's pre-tax annual profits,
excluding extraordinary items, in excess of $10.0 million in each of the 10
fiscal years beginning with fiscal 1993. During 1995 and 1994, the Company
incurred no liability to make such contingent payments as a result of the net
losses incurred. On June 25, 1996, the Company paid NTI $2.2 million
representing the two deferred principal payments on the secured debt which were
due December 1994 and December 1995 and accrued and unpaid interest.
Additionally, on July 1, 1996, the Company entered into a prepayment agreement
with NTI pursuant to which the Company paid $5.05 million to NTI in full
satisfaction of all amounts due and to be due under the note. The prepayment
agreement fully relieves the Company of its obligation to make annual $1.0
million payments to NTI that commenced in December 1993 and of which seven
payments remained to be made, as well as certain contingent payment
obligations.
Aggregate scheduled maturities of long-term debt are as follows: 1997--$3,114;
1998--$3,853; 1999--$5,092; 2000--$5,000; 2001--$5,000 and $45,000 thereafter.
11. Stockholders' Deficit
During 1996 fiscal year, the Company issued 442,488 shares of common stock held
in treasury as a result of employee separations.
Throughout 1996, the Company issued 166,151 shares from common stock held in
treasury to participants in the U.S. 401(k) retirement and savings plan.
The Company settled two different lawsuits during fiscal 1996 by issuing 20,000
shares and 100,000 shares of common stock held in treasury.
During 1996 fiscal year, the Board of Directors elected to make a corporate
contribution to the Datapoint Corporation Supplemental Executive Retirement
Plan of 50,000 shares of the Company's $1.00 preferred stock with a $20.00 per
share liquidation preference. The contribution was made on behalf of certain
participants only.
The $1.00 preferred stock has a liquidation preference of $20.00 per share and
cumulative dividends of $1.00 annually. On January 16, 1996, the Company
announced that it was in arrears on its $1.00 preferred stock in an aggregate
amount equal to six full quarterly dividends. As a result, each holder of
$1.00 preferred stock has the right to exchange each such share (inclusive of
all accrued and unpaid dividends) into two shares of the Company's common
stock. Under this right of exchange, 28,300 shares of $1.00 preferred stock
were converted to 56,600 shares of common stock during 1996. In addition, as a
result of the dividend arrearages the number of directors constituting the
Board of Directors of the Company will be increased by two and holders of the
$1.00 preferred stock (not including those who have exchanged $1.00 preferred
stock for the Company's common stock), voting as a single class, will have the
opportunity to elect two directors of the Company to fill such newly created
directorships at the next annual meeting of stockholders. These rights
continue until such time as the arrearages have been paid in full. Dividends of
$3,700 and $1,815 were accumulated and unpaid at July 27, 1996 and July 29,
1995, respectively.
In addition, on July 24, 1996, the Company announced that its Board of
Directors determined to offer for exchange for each share of its $1.00
Exchangeable Preferred Stock ($1.00 par value) 3.25 shares of its Common Stock
($.25 par value) and to submit a proposal to stockholders under which each
share of its $1.00 Exchangeable Preferred Stock would be converted into 3.25
shares of Common Stock. The Company had previously announced on April 16, 1996,
that it intended to submit to its stockholders a proposal to effect the
conversion of the $1.00 Exchangeable Preferred Stock into 2.75 shares of its
Common Stock. The affirmative vote of two-thirds of the outstanding shares of
the holders of the $1.00 Exchangeable Preferred Stock and a majority vote of
the outstanding shares of the Common Stock will be required to adopt the
proposal which the Company expects to submit at its Annual Meeting of
Stockholders expected to be held on December 10, 1996. On January 16, 1996,
the Company announced that it was in arrears on its $1.00 preferred stock in
an aggregate amount to six full quarterly dividends. As a result, each holder
of $1.00 preferred stock currently has the right to exchange each such share
into two shares of the Company's common stock.
12. Stock Option Plans
At July 27, 1996, 2,248,404 shares were reserved for issuance in connection
with the Company's stock option plans. Total options outstanding for all plans
total 1,378,171 and are exercisable at an average price of $3.14.
Under the Company's employee stock option plans, officers and other key
employees may be granted options to purchase common stock and related stock
appreciation rights. Under the terms of these plans, options may be granted at
no less than 75% of fair market value and expire no later than ten years from
the date of grant. The Board may grant options exercisable in full or in
installments, and has generally granted options at fair market value
exercisable in two to four installments beginning one year from the date of
grant. As of July 27, 1996 and July 29, 1995, options for 593,387 and 499,285
shares, respectively, under all employee plans were exercisable and no stock
appreciation rights had been granted. Options outstanding as of July 27, 1996
have an average exercise price of $3.70 and expire during the period September
1997 through March 2006.
Employee Stock Option Plans
Price Range Number of Shares
of Shares Under Available
Under Option Option for Option
Outstanding at July 31, 1993 $1.38-8.00 1,195,658 951,653
Granted 2.50-7.25 276,989 (276,989)
Exercised 1.38-5.62 (103,274) -
Canceled 1.38-7.13 (84,500) 84,500
Expired - - (1,500)
Outstanding at July 30, 1994 $1.38-8.00 1,284,873 757,664
Granted 2.69-3.94 557,000 (557,000)
Exercised 1.38-1.63 (156,666) -
Canceled 1.63-7.38 (243,215) 243,215
Expired - - (18,049)
Outstanding at July 29, 1995 $1.38-8.00 1,441,992 425,830
Granted 1.06-1.94 413,500 (413,500)
Canceled 1.38-6.75 (667,321) 667,321
Expired - - (109,418)
Outstanding at July 27, 1996 $1.06-8.00 1,188,171 570,233
During 1992, the 1985 Director Stock Option Plan was terminated. As of
July 27, 1996, there were continuing options for 25,000 shares outstanding from
this plan which expire five years from the date of grant. The 1985 Plan was
replaced by the 1991 Director Stock Option Plan. This plan greatly resembles
the terminated 1985 Plan and provides for a one-time grant of an option to
purchase, at fair market value as of the date of the grant, 25,000 shares of
common stock to each director, and an additional 50,000 shares to the present
and any newly elected Chairman of the Board. The 1991 Plan does not grant any
options to individuals holding options under the 1985 Plan. The Plan includes
both employee and non-employee directors and options expire five years from the
date of grant. Total director options outstanding as of July 27, 1996 have an
average exercise price of $3.12 and expire during the period November 1996
through December 1998.
Director Stock Option Plans
Price Range Number of Shares
of Shares Under Available
Under Option Option for Option
Outstanding at July 31, 1993 $1.88-3.06 250,000 275,000
Granted 6.31 25,000 (25,000)
Exercised 2.50 (10,000) -
Outstanding at July 30, 1994 $1.88-6.31 265,000 250,000
Canceled 2.50 (50,000) 50,000
Outstanding at July 29, 1995 $1.88-6.31 215,000 300,000
Expired 1.88 (25,000) -
Outstanding at July 27, 1996 $2.50-6.31 190,000 300,000
The FASB has issued Statement No. 123, "Accounting for Stock-Based
Compensation", which requires either recognition or disclosure of a charge for
the value of stock options granted. The Company will adopt this statement in
1997 at which time it will elect to continue to apply the provisions of
Accounting Principles Board Opinion No. 25 and will make the footnote
disclosures required by Statement No. 123.
13. Information Relating to Business Segments and International Operations
Business Segment Information
The Company operates in one industry and is an international computer and
communications systems marketer, manufacturer and developer. Additionally, the
Company provides maintenance services on its products in the United States
through a non-exclusive agreement with DSI and services its products outside the
United States through its international distributors and subsidiaries.
International Operations
The Company conducts the majority of its international marketing and service
operations through its subsidiaries and, to a lesser extent, through various
distributorship arrangements. For products manufactured domestically, the
Company's policy is to transfer such products to and between affiliates at
prices which reflect market conditions. Financial information on a geographic
basis follows:
1996 1995 1994
Revenue - unaffiliated customers:
United States - domestic $4,090 $7,122 $7,617
- export sales 3,529 3,899 6,174
Europe 170,806 162,146 156,403
Other international 1,116 1,734 2,742
Total revenue from unaffiliated customers 179,541 174,901 172,936
Revenue - intercompany:
United States 4,572 6,390 20,868
Europe 105 427 518
Other international - - 7
Eliminations (4,677) (6,817) (21,393)
Total consolidated revenue $179,541 $174,901 $172,936
Operating income (loss):
United States $(11,671) $(25,201) $ (8,728)
Europe 11,832 7,661 (72,517)
Other international 444 (979) (904)
Eliminations 412 287 1,128
Total operating income (loss) $ 1,017 $(18,232) $(81,021)
Identifiable assets:
United States $ 16,471 $ 21,469 $ 43,595
Europe 82,497 83,894 87,159
Other international 239 1,116 1,250
Eliminations (5,389) (4,728) (4,570)
Total identifiable assets $ 93,818 $101,751 $127,434
14. Retirement Income Plans
Retirement expenses incurred by the Company were as follows:
1996 1995 1994
U.S.:
Matching contributions $ 55 $ 119 $143
Outside the U.S.:
Defined benefit plans 1,279 510 119
Other plans 970 675 600
2,249 1,185 719
$2,304 $1,304 $862
U.S. Plans
The Company adopted a 401(k) retirement and savings plan effective January
1988. The plan covers all full-time employees who have been employed for at
least 12 months. The Company's retirement and savings plan contribution has
been a 25% matching contribution for employee contributions up to 5% of each
employee's compensation. At the Board's discretion, the Company may also
contribute a profit sharing amount to the plan that is contingent upon the
performance level of the Company at the net income line.
In addition, the Company maintains a Supplemental Executive Retirement Plan for
certain executive employee selected by the Board of Directors. The plan
provides for employee contributions of up to 10% of applicable compensation.
In addition, at the Boards' discretion, the Company may also make contributions
on an annual, individual basis, allocated on a pro-rata basis according to
participant's applicable compensation up to a maximum contribution of 15% of
applicable compensation per employee. During the fiscal years ended July 29,
1995 and July 27, 1996, the Company contributed 62,000 and 50,000 shares of its
Preferred Stock, respectively, to the plan for credit to the accounts of
various executive officers. Under the terms of the plan benefits accrue to the
various executive officer upon satisfaction of the plan's vesting criteria
which is based upon length of employment with the Company.
Plans Outside the U.S.
Most of the Company's foreign subsidiaries provide retirement income plans
which conform to the practice of the country in which they do business. The
types of company-sponsored plans in use are defined benefit and defined
contribution.
Five of the Company's subsidiaries, including the United Kingdom, utilize
defined benefit plans with employee benefits generally being based on years of
service and wages near retirement. The plans cover all full-time employees who
have been employed for at least 12 months. Obligations under these plans are
funded primarily through fixed rate of return investments, primarily insurance
policies, except for Germany where reserves are established for the
obligations.
The Company's United Kingdom and New Zealand subsidiaries have defined
contribution plans. The plans cover all full-time salaried employees who have
been employed for at least 12 months and contributions are based upon a
percentage of compensation. Obligations under this plan are funded primarily
through deposits in pooled investments or insurance policies.
1996 1995 1994
Defined benefit plans:
Service cost $ 659 $ 998 $ 773
Interest cost 2,219 1,931 1,770
Actual return on assets (2,508) (887) (926)
Net amortization and deferral 909 (1,532) (1,498)
Net pension cost $1,279 $ 510 $ 119
The funded plan status at July 27, 1996 and July 29, 1995 was:
1996 1995
Over- Under- Over- Under-
funded funded funded funded
Actuarial present value of:
Vested benefits $22,533 $4,083 $17,141 $6,454
Accumulated benefit
obligations $22,912 $4,202 $17,520 $6,503
Projected benefit
obligations $23,861 $4,909 $18,197 $7,466
Plan assets at fair value $24,476 $1,181 $20,303 $2,632
Plan assets in excess of
(less than) projected
benefit obligation 615 (3,729) 2,106 (4,834)
Unrecognized net (gain) loss 4,676 (1,635) 3,611 (2,755)
Unrecognized transition
net loss 783 28 797 124
Prepaid (accrued) pension
cost $6,074 $(5,336) $6,514 $(7,465)
Unrecognized gains and losses are amortized on a straight-line basis over five
years.
Actuarial assumptions used to determine funded status for 1996 and 1995 varied
between subsidiaries. Discount rates used to determine projected benefit
obligations range from 5.0% to 9.0% in both 1996 and 1995. Rates of increase
in future compensation levels range from 3.0% to 3.5% in both 1996 and 1995.
The long-term rates of return on plan investments range from 5.0% to 10.0% in
both 1996 and 1995.
15. Certain Relationships and Related Transactions
Director Agranoff had provided various tax, legal and real estate consulting
services prior to serving as Vice President, General Counsel and Corporate
Secretary for the Company. During 1994, the Company paid Mr. Agranoff $126 for
those services. During the fiscal years 1996, 1995 and 1994, Datapoint paid
legal fees of $485, $51 and $5, respectively, to the law firm of Pryor,
Cashman, Sherman, & Flynn, to which firm Mr. Agranoff is of counsel, for legal
services provided by attorneys other than Mr. Agranoff.
Director Thomas worked from August 1994 until May 1, 1995 as a special
consultant for which he received compensation of $0.5 per day payable in shares
of common stock. Subsequently, on May 5, 1995, in consideration of the
additional work and responsibilities he had taken on for the Company as a
special consultant, the Board of Directors approved a special compensation
package for Director Thomas. From May 1, 1995, through July 31, 1995, he was
paid at the rate of $0.5 per day for his services, plus travel and housing
expenses, plus additional compensation of a flat $2 per week for expenses. On
July 31, 1995, Director Thomas's consulting contract was extended until
December 31, 1995 and then was to continue on a month-to-month basis to
July 31, 1996. Upon the resignation of Doris Bencsik as President and Chief
Operating Officer, Director Thomas was appointed on December 5, 1995 to the
position of Executive Vice President and Chief Operating Officer. Director
Thomas was also entitled under the extended contract to participate in the
Standard Health Benefit program until he was appointed Executive Vice President
and Chief Operating Officer. At such time, he converted to the Executive
Health Benefit program. During fiscal 1995, the Board also approved a one time
special issuance of 45,000 shares of common stock of the Company to Director
Thomas in recognition of his service to the Company. During the term Director
Thomas acted as a special consultant he did not accrue or receive any regular
Board or committee fees.
Director Ruffat had a consulting agreement from January 1994 through June 1995
under which he received a monthly compensation of $10. For 1996 and 1995
Director Ruffat was paid $50 and $80, respectively, for consulting services.
During fiscal 1996, the Company paid office rent and secretarial expenses of
$39 to Canal Capital Corporation. Chief Executive Officer Edelman and Director
Agranoff are Canal Capital Corporation board members, with Chief Executive
Officer Edelman serving as Chairman of the Board.
16. Commitments and Contingencies
The Company is a defendant in various lawsuits generally incidental to its
business. The amounts sought by the plaintiffs in such cases are substantial
and, if all such cases were decided adversely to the Company, the Company's
aggregate liability might be material. However, the Company does not expect
such an aggregate result based upon the limited number of such actions and an
assessment that most such actions will be successfully defended. No provision
has been made in the accompanying financial statements for any possible
liability with respect to such lawsuits.
In addition, in 1994, the Company began patent infringement lawsuits against
several defendants related to the Company's video conferencing patents and dual
protocol local area networking patents. In 1995, the Company negotiated two
settlements for an aggregate of $1.0 million and negotiated one settlement in
1996 for an undisclosed amount. Patent infringement suits against other
defendants are pending. The aggregate amounts sought in these suits are
substantial. However, no provision has been made in the accompanying financial
statements for any possible gains or cash infusions resulting from favorable
judgments in these suits.
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
During the fourth quarter of 1996, a settlement was reached among the
litigants. As such, the District Court entered a Judgment Non Obstante
Veredicto (Judgment Notwithstanding the Verdict) that set aside the jury's
findings against the Company and its two executive officers and set aside all
damages. The $3.3 million settlement, which was reached to avoid the
considerable expense, including the business disruption of a protracted appeal
and legal process, had no material impact on the Company's then current cash
position as it included payment of funds from a non-working capital trust fund
which were otherwise not available to the Company, issuance of a short term
note, and issuance of shares of the Company's common stock.
17. Divestitures
On May 28, 1996, the Company entered into an agreement with Kalamazoo providing
for the sale by Datapoint to Kalamazoo of Datapoint's EADS business, other than
its United Kingdom operations, for a purchase price of $33.0 million.
As part of the agreement in connection with the sale of the EADS business, the
Company agreed to continue to sell hardware to Kalamazoo at various discounts
from its normal hardware prices and to continue to provide hardware service
maintenance to Kalamazoo at a 15% discount from the Company's normal hardware
service maintenance prices. While there can be no assurances that the future
volume levels will remain the same, revenues related to the EADS continuing
business were $12.6 million and $14.7 million for the years ended July 27, 1996
and July 29, 1995, respectively. The Company transferred to Kalamazoo all of
its employees who were dedicated to the EADS business. The amounts below
represent the operations of EADS sold to Kalamazoo plus the effect of discounts
on the continuing EADS's business which are included in the accompanying
statements of operations. Because the Company's accounting records do not
completely segregate the EADS business' historical performance, certain
allocations were required based upon employee effort analyses of EADS and other
appropriate measures.
1996 1995
Revenues $17,028 $18,459
Costs and expenses 13,914 15,411
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 names, ages, positions and offices with Company of the current directors
and executive officers of the Company are set forth below.
Director/
Age as of Officer
Name July 15, 1996 Position Since
A. B. Edelman 56 Director-Chairman of the Board 1985
and Chief Executive Officer
B. D. Thomas 45 Executive Vice President and 1992
Chief Operating Officer
P. P. Krumb 54 Vice President and Chief Financial 1994
Officer
G. N. Agranoff 49 Vice President, General Counsel, 1994
Corporate Secretary and Director
D. Berger 47 Vice President, Sales and Distribution 1993
J. Berger 53 Vice President, Sales and Marketing 1991
I. J. Garfinkel 59 Director 1991
D. R. Kail 61 Director 1985
D. M. M. Ruffat 60 Director 1993
R. Edmonds 51 Vice President, Technical Services 1996
W. Gevers 59 Vice President, OSN 1996
J. Perkins 48 Vice President, Development 1996
The principal occupations and business experience of each the current directors
and executive officers of the Company who are not also directors are described
below.
ASHER B. EDELMAN, age 56, joined Datapoint's Board of Directors as its Chairman
in March 1985, and has served in that capacity and as Chairman of its Executive
Committee to the present date, and as Chief Executive Officer since February
1993. Mr. Edelman has served as General Partner of Asco Partners, a general
partner of Edelman Securities Company L.P. (formerly Arbitrage Securities
Company) since June 1984. Mr. Edelman is a director, Chairman of the Board and
Chairman of the Executive Committee of Canal Capital Corporation. The
principal business address of Mr. Edelman is 85 Av. General Guisan, CH-1009
Pully, Switzerland.
BLAKE D. THOMAS, age 45, is currently the Executive Vice President and Chief
Operating Officer of the Company. In addition, he has been engaged in the
business of investing in listed securities for more than five years. He is
President of Blake D. Thomas, Inc., a corporation that until 1991 published The
Thomas Report, an investment newspaper that specialized in evaluating stocks
traded on the New York Stock Exchange, was General Partner of Mainsail Limited
Partnership from 1990 until its dissolution in December 1992, has been since
1990 General Partner of Foresail Limited Partnership, which is engaged in the
business of investing in listed securities; and has been since November 1991
President of Symba, Inc., which until April 1996 was the General Partner of
Windward Limited Partnership. Windward was engaged in the business of
investing in listed securities and was dissolved in April 1996. He has served
as a director of Datapoint since 1992. He has also served since August 1994
as a special consultant for the Board on Datapoint general management and
business affairs. The principal business address of Mr. Thomas is 4 rue
d'Aguesseau 75008, Paris, France.
PHILLIP P. KRUMB, age 54, joined the Company as Vice President and Chief
Financial Officer in September 1994. Prior to joining the Company he was
employed by IOMEGA Corporation for 7 years as Senior Vice President Finance and
Chief Financial Officer. The principal business address of Mr. Krumb is 8410
Datapoint Drive, San Antonio, Texas 78229-8500.
GERALD N. AGRANOFF, age 49, is currently Vice President, General Counsel and
Corporate Secretary of Datapoint. Mr. Agranoff has been a General Partner of
Edelman Securities Company L.P. (formerly Arbitrage Securities Company) for
more than five years. Mr. Agranoff has also been a General Partner of Plaza
Securities Company since January, 1987, and a Trustee of Management Assistance
Inc. Liquidating Trust since February 1986. Mr. Agranoff is a director of Bull
Run Corporation, Atlantic Gulf Communities, The American Energy Group, Ltd.,
and Canal Capital Corporation. Mr. Agranoff also has been the General Counsel
to Edelman Securities Company L.P. and Plaza Securities Company for more than
five years. The principal business address of Mr. Agranoff is 8410 Datapoint
Drive, San Antonio, Texas, 78229-8500.
DAVID BERGER, age 47, was promoted to Vice President, Sales and Distribution in
July 1993. Mr. Berger joined the Company in 1991 as Managing Director of the
Company's United Kingdom subsidiary. Prior to joining the Company, Mr. Berger
was employed from 1988 to 1991 by RS2, a U.K. marketing communications company,
as Group Managing Director. The principal business address of Mr. Berger is 4
rue d'Aguesseau 75008, Paris, France.
JAN BERGER, age 53, joined the Company as Vice President, Sales and Marketing
in June 1991. Prior to joining the Company, Mr. Berger was employed by
SCANVEST of Norway, Datapoint's largest independent foreign distributor, for 21
years, most recently as Managing Director, and previously as Director of
Marketing. The principal business address of Mr. Berger is 4 rue d'Aguesseau
75008, Paris, France.
IRVING J. GARFINKEL, age 59, has been a General Partner of Asco Partners, a
general partner of Edelman Securities Company L.P. (formerly Arbitrage
Securities Company) for more than five years. Mr. Garfinkel also has been a
General Partner and controller of Plaza Securities Company for more than the
past five years. He has served as a director of Datapoint since 1991, and is
Chairman of the Audit Committee and serves on the Compensation Committee.
The principal business address of Mr. Garfinkel is 717 Fifth Avenue, 4th Floor,
Suite 407, New York, New York 10022.
DANIEL R. KAIL, age 61, has been Managing Trustee of Management Assistance Inc.
Liquidating Trust since January 1986, and prior thereto had been a director,
Executive Vice President and Chief Operating Officer since October 1984 of
Management Assistance Inc., a computer manufacturing and servicing company. He
also was a director and Executive Vice President of Canal Capital Corporation
from 1987 until 1991. He has served as a director of Datapoint since 1985 and
is Chairman of the of the Independent Committee and the Compensation Committee
and a member of the Audit Committee. The principal business address of Mr.
Kail is 980 Post Road East, Suite 3, Westport, Connecticut 06880-5300.
DIDIER M. M. RUFFAT, age 60, is currently the Vice President of Digital
Equipment Europe and the Managing Director of Digital Equipment France. He has
served for 25 years in various capacities with France's BULL computer group,
most recently as President and Chief Executive Officer of BULL Europe, and
previously in senior executive positions in sales, marketing and finance. He
has served as a director of Datapoint since December 1993 and is a member of
the Compensation Committee. The principal business address of Mr. Ruffat is 8
rue de la Renaissance 92187, Antony Cedex, France.
ROGER EDMONDS, age 51, was promoted to Vice President, Technical Services in
February 1996. Mr. Edmonds joined the Company's United Kingdom subsidiary in
1972 as Project Leader, and has held various management positions within the
Company. Mr. Edmonds is also currently Technical Director of the U.K.
subsidiary. The principal business address of Mr. Edmonds is Datapoint House,
400 North Circular Road, London NW10 OJG.
WALTER GEVERS, age 59, was promoted to Vice President, OSN in March 1996. Mr.
Gevers joined the Company as Managing Director, Datapoint Belgium in January
1983. Prior to joining the Company, Mr. Gevers was employed by SAIT
Electronics, Datapoint's distributor in Belgium, for nineteen years as Sales
Manager. The principal business address of Mr. Gevers is rue de la Fusee 100,
1130 Bruxelles, Belgium.
JOHN PERKINS, age 48, was promoted to Vice President, Development in May 1996.
Mr. Perkins joined the Company as Director, Engineering in 1981. Prior to
joining the Company, Mr. Perkins was employed by General Electric Information
Services Company as Market Planner. The principal business address of Mr.
Perkins is 8410 Datapoint Drive, San Antonio, Texas 78229-8500.
There are no family relationships between any of the executive officers of the
Company.
Datapoint, Mr. Edelman, Mr. Thomas and Mainsail Limited Partnership entered
into an agreement in settlement of litigation involving an exchange offer for
Datapoint's now-extinguished $4.94 Exchangeable Preferred Stock whereby, among
other things, Datapoint agreed to propose (and Mr. Edelman agreed to support)
Mr. Thomas for election to the Board of Directors of Datapoint at the 1991 and
1992 annual meetings of stockholders.
Audit, Compensation and Executive Committees
The Company has Audit, Compensation and Executive Committees of the Board of
Directors. The Company does not have a Nominating Committee. The current
members of the Audit Committee are Irving J. Garfinkel (Chairman) and Daniel R.
Kail. The current members of the Compensation Committee are Daniel R. Kail
(Chairman), Didier M. M. Ruffat and Irving J. Garfinkel. The members of the
Executive Committee are Asher B. Edelman (Chairman) and Blake D. Thomas.
The Audit Committee annually recommends to the Board of Directors independent
auditors for the Company and its subsidiaries; meets with the independent
auditors concerning the audit; evaluates non-audit services and the financial
statements and accounting developments that may affect the Company; meets with
management concerning matters similar to those discussed with the outside
auditors; and makes reports and recommendations to the Board of Directors and
the Company's management and independent auditors from time to time as it deems
appropriate. The Committee met 4 times during the fiscal year ended
July 27, 1996.
The Compensation Committee makes salary recommendations regarding senior
management to the Board of Directors and administers the Company's Bonus and
Stock Option Plan as described below. The Committee met 2 times during the
fiscal year ended July 27, 1996.
Independent Committee
In connection with the Exchange Offer, the Board created the Independent
Committee, consisting of Director Daniel R. Kail, to consider the terms of the
consideration to be offered in the Exchange Offer to the Holders of Preferred
Stock. The terms of the Exchange Offer were approved by the Board of Directors
upon the recommendation of the Independent Committee.
Meetings of the Board of Directors and Committees
The Board of Directors met 7 times during the fiscal year ended July 27, 1996,
and during such fiscal year, each director, except Mr. Ruffat, attended at
least 75% of the aggregate of (a) the total number of meetings of the Board of
Directors (held during the period of his/her service) and (b) the total number
of meetings held by all committees of the Board on which he/she served (during
the period that he/she served). Mr. Ruffat, based in Paris, attended two Board
meetings and one Compensation Committee meeting.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Datapoint believes that, during the fiscal year ended July 27, 1996, its
officers and directors complied with all filing requirements under Section
16(a) of the Securities and Exchange Act of 1934; except that executive
officers Messrs. Edmonds, Gevers, and Perkins failed to file Form 3 required by
such Section.
ITEM 11 EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors who are employees of Datapoint receive no additional compensation for
serving on the Board of Directors or its committees. Each director who is not
an employee of Datapoint receives fees as follows: Each non-employee director
receives an annual fee of $15,000, payable in quarterly installments.
Executive Committee members receive an additional $5,000 annual fee. Committee
Chairmen receive an additional $2,000 annual fee. Board members serving on
more than one committee receive an additional $1,000 annual fee. Each
non-employee director also receives a fee of $750 for each Board meeting
attended, $500 for each committee meeting attended and $500 for attendance at
each meeting on Datapoint's business other than a Board of Directors or
committee meeting. Each non-employee director is, at Datapoint's expense,
provided with $50,000 of group term life insurance and $250,000 accidental
death insurance. Each non-employee director has the option to purchase, at his
own expense, coverage for himself and his dependents under Datapoint's group
medical and dental insurance plan.
Datapoint maintains a retirement plan and a retirement medical care plan to
cover non-employee Board members. Both plans presently are purely contractual
rather than funded, and are self-insured except that retirees are required to
participate in Medicare parts A and B. The retirement plan provides for a
maximum annual benefit equal to a director's annual retainer in effect on the
date of retirement. A partial benefit will be paid to directors with less than
five years' service, and a full benefit will be paid to directors with five or
more years of service. The benefit will be payable for the greater of ten
years or life, and in the event a retiree should die within ten years of
retirement, the remaining benefit will be paid to his estate. The retirement
medical care plan affords non-employee directors, upon retirement, benefits and
premiums equivalent to COBRA coverage available to certain former employees
and/or dependents under Datapoint's group medical plan. Only directors elected
to the Board prior to March 25, 1996 are eligible to participate in the
retirement plan.
Director Thomas worked from August 1994 until May 1, 1995 as a special
consultant for which he received compensation of $500 per day payable in shares
of common stock. Subsequently, on May 5, 1995, in consideration of the
additional work and responsibilities he had taken on for the Company as a
special consultant, the Board of Directors approved a special compensation
package for Director Thomas. From May 1, 1995, through July 31, 1995, he was
paid at the rate of $500 per day for his services, plus travel and housing
expenses, plus additional compensation of a flat $2,000 per week for expenses.
On July 31, 1995, Director Thomas's consulting contract was extended until
December 31, 1995 and then was to continue on a month-to-month basis to
July 31, 1996. Upon the resignation of Doris Bencsik as President and Chief
Operating Officer, Director Thomas was appointed on December 5, 1995 to the
position of Executive Vice President and Chief Operating Officer. Director
Thomas was also entitled under the extended contract to participate in the
Standard Health Benefit program until he was appointed Executive Vice President
and Chief Operating Officer. At such time, he converted to the Executive Health
Benefit program. During fiscal 1995, the Board also approved a one time
special issuance of 45,000 shares of common stock of the Company to Director
Thomas in recognition of his service to the Company. During the term Director
Thomas acted as a special consultant he did not accrue or receive any regular
Board or committee fees.
Director Ruffat had a consulting agreement from January 1994 through June 1995
under which he received a monthly compensation of $10,000. For 1996 and 1995
Director Ruffat was paid $50,000 and $80,000, respectively, for consulting
services.
EXECUTIVE COMPENSATION
Compensation Committee Report
Datapoint's executive compensation program is based on three fundamental
principles.
Datapoint must offer compensation opportunities sufficient to attract, retain
and reward talented executives who are sufficiently capable of addressing the
challenges of a worldwide business in a difficult industry.
Compensation should include a substantial component of pay-for-performance
sufficiently related to the financial results of the Company and/or the
executive's performance to financially motivate the executive's efforts to
increase stockholder value. This may cause individual compensation amounts to
change significantly from year to year.
Compensation should provide a direct link between the long-term interests of
executives and stockholders. Through the use of stock-based incentives, the
Compensation Committee focuses the attention of executives on managing the
Company from the perspective of an owner with an equity stake.
For executive officers, compensation now consists primarily of base salary, a
short-term performance incentive opportunity in the form of a variable cash
bonus based on either the financial performance of the Company or of their area
of responsibility, and a long-term incentive opportunity provided by stock
options.
The committee also obtains ratification by the non-employee members of the
Board on most aspects of compensation and long-term incentives for executive
officers.
The remainder of this Report reviews the annual and long-term components of
Datapoint's executive compensation program, along with the decisions made by
the committee regarding fiscal year 1996 compensation for both the CEO and the
other named executive officers.
Total Annual Compensation
Annual cash compensation consists of two components; a fixed base salary and a
variable annual bonus opportunity. As an executive's level of responsibility
increases, a larger portion of total annual pay is based on bonus and less on
salary. Mr. Agranoff was the only named executive who received a salary
increase during the past year, and Mr. Edelman's salary was last increased in
December 1990. The Committee sets the base salary of executive officers based
upon a subjective analysis of competitive salaries of equally qualified
executives, occasionally confirmed by reference to general salary surveys;
prior compensation of the individual or of previous holders of the position is
also considered. Contractual minimum base salaries are customarily negotiated
with the executives.
The short-term performance incentive bonus opportunity is established either as
a percentage, unique for each individual, of a numerical corporate performance
indicia, or as a target percentage of pay which is the amount that can be
earned based upon assigned objectives being met. Performance is measured as a
percent of attainment against these objectives. When performance exceeds
objectives, an executive's incentive pay can exceed the target rate, and when
it falls below, as was the case in fiscal years 1995 and 1994, individual
incentive pay is reduced accordingly.
Messrs. Edelman's, Krumb's and Thomas's bonuses are based on a contractually
specified percentage of Datapoint's pre-tax profits, which are defined as net
pre-tax earnings, excluding the excess over $10 million of the net of any
extraordinary gains, due to debt repurchase or exchange, against all
extraordinary losses. During fiscal year 1995, the Company incurred net losses
and therefore no bonuses were paid in 1995 under these contractual
arrangements. For the fiscal year 1996, an aggregate of approximately $2.1
million is expected to paid under these contractual arrangements.
The remainder of the named executives have been assigned bonus targets as a
percentage of their base salary upon 100% achievement of individualized goals
and objectives; a substantial portion of which are related to the financial
performance of corporate functions relevant to their respective
responsibilities.
Long Term Incentives
The committee believes that stock options appropriately link executive
interests to the enhancement of stockholder value and utilizes them as its
long-term incentive program; no additional long-term incentive programs are
utilized. Stock options generally are granted at fair market value as of the
date of grant, become exercisable over three years, and have a term of ten
years. The stock options provide value to the recipients only when the price
of Datapoint stock increases above the option grant price.
In 1996, the committee granted stock options to executive officers, as well as
to other executives and selected key employees. In determining the size of the
grant for Mr. Edelman and other named executive officers, the committee
assessed the following factors: their potential by position and ability (i) to
contribute to the creation of long-term stockholder value; (ii) to contribute
to the successful execution of Datapoint's product line broadening strategy;
and (iii) to implement Datapoint's cost reduction objectives; (iv) their
relative levels of responsibility; and (v) the number of options they already
held.
This report has been provided by the Compensation Committee.
Daniel R. Kail, Chairman
Irving J. Garfinkel
Didier M.M. Ruffat
Supplemental Executive Retirement Plan
In addition, the Company maintains a Supplemental Executive Retirement Plan for
certain executive employees selected by the Board of Directors. The plan
provides for employee contributions of up to 10% of applicable compensation.
In addition, at the Board's discretion, the Company may also make contributions
on an annual, individual basis, allocated on a pro-rata basis according to
participant's applicable compensation up to a maximum contribution of 15% of
applicable compensation per employee. During the fiscal years ended July 29,
1995 and July 27, 1996, the Company contributed 62,000 and 50,000 shares of its
Preferred Stock, respectively, to the plan for credit to the accounts of
various executive officers. Under the terms of the plan, benefits accrue to
the various executive officers upon satisfaction of the plan's vesting criteria
related which is based upon to length of employment with the Company.
Summary Compensation Table
The following table sets forth certain information regarding all cash compensation paid or accrued
for services rendered by the Company's Chief Executive Officer, four most highly compensated
executive officers for the last three fiscal years, and one individual for whom disclosure
would have been applicable but for the fact that the individual was not serving as an executive
officer at the end of the last completed fiscal year.
Annual Compensation Long-Term
Name and Other Compensation All
Principal Fiscal Annual Stock Options Other
Position Year Salary Bonus Compensation Granted (#) Compensation
Asher B. Edelman (1) 1996 $299,956 $1,152,918 (2) $148,752 (3) 40,000 $17,952 (18)
Chairman of the Board and 1995 275,104 (4) 0 180,781 (3) 0 30,000 (18)
Chief Executive Officer 1994 300,534 0 190,012 (3) 0 0
Blake D. Thomas (5) 1996 $145,166 (8) $691,751 (2) $0 100,000 0
Executive Vice President 1995 n/a n/a n/a n/a n/a
and Chief Operating Officer 1994 n/a n/a n/a n/a n/a
Phillip P. Krumb (6) 1996 $175,000 $230,584 (2) $9,373 (7) 0 0
Vice President and 1995 141,346 (8) 50,000 (9) 57,094 (10) 50,000 0
Chief Financial Officer 1994 n/a n/a n/a n/a n/a
Gerald N. Agranoff (11) 1996 $172,481 $400,000 (12) $7,200 (13) 0 0
Vice President, General 1995 125,192 (8) 0 6,000 (13) 50,000 0
Counsel and Corp. Secretary 1994 n/a n/a n/a n/a n/a
Jan Berger (14) 1996 $180,000 $75,000 (12) $38,662 (3) 20,000 $10,050 (18)
Vice President, Marketing 1995 180,000 0 38,662 (3) 15,000 7,200 (18)
1994 180,000 0 30,190 (3) 0 0
Doris D. Bencsik (15) 1996 $121,731 0 $3,000 (13) 0 $241,694 (17)
President and Chief 1995 281,166 (4) 0 0 0 61,798 (19)
Operating Officer 1994 259,615 0 0 75,000 31,798 (16)
Table Footnotes
(1) Asher B. Edelman was named Chief Executive Officer in February 1993.
(2) Represents bonus based on the Company's net pre-tax earnings.
(3) Represents payments incident to foreign assignment.
(4) Effective in 1995, Mr. Edelman and Mrs. Bencsik agreed to a 10% salary
reduction as part of the Company's cost reduction plan.
(5) Blake D. Thomas commenced employment with the Company in December of fiscal
1996 as Executive Vice President and Chief Operating Officer.
(6) Phillip P. Krumb commenced employment with the Company in September of
fiscal 1995 as Vice President and Chief Financial Officer.
(7) Represents auto allowance and company match of employee profit sharing plan.
(8) Amount reflects partial year of employment.
(9) Represents a one-time guaranteed bonus per terms of employment agreement.
(10) Represents relocation, housing and auto allowance.
(11) Gerald N. Agranoff commenced employment with the Company in October of
fiscal 1995 as Vice President, General Counsel and Corporate Secretary.
(12) Represents a performance bonus.
(13) Represents auto allowance.
(14) Since July 1996, Mr. Berger has been working as a consultant for Kalamazoo
Computer Group, plc.
(15) Doris D. Bencsik commenced emoloyment with the Company on a half-time
basis as Executive Vice President and Chief Operating Officer in February
of fiscal 1993 and converted to a full time status and was promoted to
President on November 1, 1993, at a minimum annual salary of $300,000. On
December 5, 1995, Mrs. Bencsik resigned from her position of the Company
and on May 20, 1996, Mrs. Bencsik resigned from her position as a director
of the Company.
(16) Represents contractually fixed supplemental early retirement benefit
attributable to prior service as an officer from 1982-1987.
(17) Includes $35,444 of contractually fixed supplemental early retirement
benefit attributable to prior service as an officer from 1982-1987. Also,
includes $206,500 related to a grant of 150,000 shares of common stock by
the Company's Board of Directors upon Mrs. Bencsik's resignation.
(18) Represents vested portion of the Company's preferred stock contributions
to the Supplemental Executive Retirement Plan on behalf of named employee.
(19) Includes $31,798 of contractually fixed supplemental early retirement
benefit attributable to prior service as an officer from 1982-1987. Also
includes the vested portion of the Company's preferred stock contributions
to the Supplemental Executive Retirement Plan on behalf of named employee
($30,000).
The following table sets forth certain information regarding all stock option grants
made to the Company's Chief Executive Officer, four most highly compensated executive
officers for the last fiscal year and one individual for whom disclosure would have been
applicable but for the fact that the individual was not serving as an executive officer
at the end of the last completed fiscal year.
Stock Option Grants in Last Fiscal Year (1)
Options Granted in Fiscal 1996
% of Total
Options Potential Gain at Assumed
Number of Granted to Exercise Annual Rates of Stock Price
Options Employees in Price Expiration Appreciation for Option Term (3)
Name Granted (2) Fiscal Year Per Share Date 5% 10%
Asher B. Edelman 40,000 9.67% $1.50 08/05/05 $37,734 $ 95,625
Blake D. Thomas 100,000 24.18% 1.06 03/20/06 66,820 169,335
Phillip P. Krumb 0 0.00% n/a n/a n/a n/a
Gerald N. Agranoff 0 0.00% n/a n/a n/a n/a
Jan Berger 20,000 4.84% 1.50 08/05/05 18,867 47,812
Doris D. Bencsik 0 0.00% n/a n/a n/a n/a
Gain for all stockholders at assumed annual rates of stock price appreciation (4): $9,868,040 $25,007,528
(1) No Stock Appreciation Rights (SARs) have ever been granted by Datapoint.
(2) Each grant becomes exercisable in three equal annual installments commencing
on the first anniversary date, with the exception of Blake Thomas's options.
His options are an ISO and do not become exercisable until two years from
the anniversary date.
(3) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates required by the SEC and, therefore, are not intended to
forecast possible future appreciation, if any, of the stock price.
(4) These amounts represent the increase in the market value of Datapoint's
outstanding shares (13.9 million) as of July 27, 1996, that would result
from the same stock price assumptions used to show the potential realizable
value for the named executives.
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year End Option Values
The following table sets forth certain information regarding stock options exercised
by the Company's Chief Executive Officer, four most highly compensated executive officers
for the last fiscal year and one individual for whom disclosure would have been applicable
but for the fact that the individual was not serving as an executive officer at the end
of the last completed fiscal year.
Number of Value of Unexercised
Shares Number of Unexercised In-the-Money Options
Acquired on Value Options at July 27, 1996 at July 27, 1996
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Asher B. Edelman 0 $0 175,000 40,000 $0 $ 0
Blake D. Thomas 0 0 25,000 100,000 0 6,250
Phillip P. Krumb 0 0 16,667 33,333 0 0
Gerald N.Agranoff 0 0 16,667 33,333 0 0
Jan Berger 0 0 55,000 30,000 0 0
Doris D. Bencsik 0 0 15,000 0 0 0
Performance Graph
Set forth below is a line graph comparing the five-year cumulative total return
for Datapoint common stock with the Dow Jones 65-Composite Average, a broad
equity market index, and the Dow Jones computer systems index, excluding IBM.
Comparison of Five-Year Cumulative Total Return
Year Datapoint Common Stock Dow Jones Computer Dow Jones 65-Computer
Systems Index (w/o IBM) Composite Average
Actual YE Base YE Actual YE Base YE Actual YE Base YE
FY 1996 1.13 81.82 477.75 223.75 1,746.32 141.08
FY 1995 1.50 109.09 460.48 215.66 1,577.65 127.45
FY 1994 3.75 272.73 181.90 85.19 1,635.12 132.10
FY 1993 7.00 509.09 148.27 69.44 1,609.55 130.03
FY 1992 2.38 172.73 214.45 100.44 1,414.24 114.25
FY 1991 1.38 100.00 213.52 100.00 1,237.82 100.00
The graph assumes $100 invested on July 28, 1991, in Datapoint common stock and
each of the Dow Jones indexes, and that all dividends were reinvested. During
the five-year period Datapoint did not pay any dividends on its common stock.
EMPLOYMENT AGREEMENTS
Effective April 25, 1990, Datapoint entered into a written employment agreement
memorializing an existing understanding concerning the employment of Mr.
Edelman as Chairman of the Board of Directors and the Executive Committee of
Datapoint. The agreement, as amended, now provides for a base salary of
$300,000, an annual bonus opportunity of 5% of the Company's net pre-tax
earnings (excluding the excess over $10 million of the net of any extraordinary
gains due to debt repurchase or exchange against all extraordinary losses) and
payment of certain of his expenses, subject to limitations, including expenses
relating to his presence at Datapoint's European offices. The amended
agreement further provides for a lump-sum payment of two years salary and
benefits plus one year of bonus at plan should Mr. Edelman's employment
involuntarily terminate other than by death or disability, or for "cause" as
strictly defined therein.
Effective June 1, 1991, Datapoint entered into an agreement with Mr. Jan Berger
providing for his employment as Vice President, Marketing, at a minimum annual
base salary of $180,000. The agreement provides for an annual bonus
opportunity, certain executive benefits, and lump-sum payment of one year of
base salary as well as a continuation of benefits for one year should Datapoint
terminate his employment other than for "cause" as strictly defined therein.
The agreement also provides for expatriate accommodations incident to foreign
assignment.
Effective October 1, 1994, Datapoint entered into an agreement with Mr.
Agranoff providing for his employment as Vice President, General Counsel and
Corporate Secretary. This agreement, as amended, now provides for a minimum
annual base salary of $200,000, annual bonus opportunity, certain executive
benefits, and continuation of base salary payments of up to $100,000, plus any
performance bonus he may be entitled to, as well as a continuation of benefits
for six months should Datapoint terminate his employment other than for cause.
Effective December 5, 1995, Datapoint entered into an agreement with Mr. Thomas
providing for his employment as Executive Vice President and Chief Operating
Officer at a minimum annual base salary of $250,000. The agreement provides
for an annual bonus opportunity of 3% of the Company's net pre-tax earnings
(excluding the excess over $10 million of the net of any extraordinary gains
due to debt repurchase or exchange against all extraordinary losses), certain
executive benefits, and continuation of base salary payments of up to $100,000,
plus any performance bonus he may be entitled to, as well as a continuation of
benefits for six months should Datapoint terminate his employment other than
for cause. The agreement also provides for expatriate accommodations
incident to foreign assignment.
Effective September 19, 1994, Datapoint entered into an agreement with Mr.
Krumb providing for his employment as Vice President and Chief Financial
Officer at a minimum annual base salary of $175,000. The agreement provides
for an annual bonus opportunity of 1% of the Company's net pre-tax earnings
(excluding the excess over $10 million of the net of any extraordinary gains
due to debt repurchase or exchange against all extraordinary losses), certain
executive benefits, and continuation of base salary payments of up to $100,000,
plus any performance bonus he may be entitled to, as well as a continuation of
benefits for six months should Datapoint terminate his employment other than
for cause. The agreement also provided for certain relocation accommodations
which were terminated at the end of 1995.
Effective February 4, 1993, Datapoint entered into an agreement with Mrs.
Bencsik providing for her employment as Executive Vice President and Chief
Operating Officer with a minimum annual base salary of $150,000 for half-time
service until November 1, 1993, and for her employment as President and Chief
Operating Officer with a minimum annual base salary of $300,000 for full-time
service thereafter. The agreement provides for an annual bonus opportunity,
certain executive benefits, and base salary continuation for two (2) years
should Datapoint terminated her employment prior to September, 1996 other than
for "cause" as strictly defined therein. On December 5, 1995, Mrs. Bencsik
resigned from her position as an officer of the Company and on May 20, 1996,
Mrs. Bencsik resigned from her position as a director of the Company.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of
the Common Stock and Preferred Stock by each director, by each executive
officers named in the table, and by the directors and executive officers as a
group as of October 18, 1996.
Common Stock Preferred Stock
Beneficially Percent Beneficially Percent
Name of Director Owned (1) of Class Owned of Class
Gerald N. Agranoff (O&D) 245,651(2)(5) 1.8% 182,471(3)(5) 9.8%
Asher B. Edelman (O&D) 1,634,953(2)(4) 11.7% 466,027(3)(4) 24.9%
Irving J. Garfinkel (D) 237,318(2)(5) 1.7% 70,471(5) 3.8%
Daniel R. Kail (D) 25,000(2) o -0- o
Didier Ruffat (D) 25,000(2) o -0- o
Blake D. Thomas (O&D) 51,999(2) o 28,430 1.5%
David Berger (O) 63,333(2) o 112,000(3) 6.0%
Jan Berger (O) 66,667(2) o -0- o
Phillip P. Krumb (O) 33,333(2) o -0- o
Roger Edmonds (O) 12,500(2) o -0- o
Walter Gevers (O) 46,667(2) o -0- o
John Perkins (O) 3,333(2) o -0- o
Executive Officers and
Directors of Datapoint as
a group (12 persons) 2,021,118 14.5% 494,457 26.5%
o Indicates less than 1% ownership.
(1) Information relating to beneficial ownership is based upon ownership
information furnished by each person using "beneficial ownership" definitions
set forth in Section 13 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under those rules, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power," which
includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose or to direct the
disposition of such security. The person is also deemed to be a beneficial
owner of any security of which that person has a right to acquire beneficial
ownership (such as by exercise of options) within 60 days. Under such rules,
more than one person may be deemed to be a beneficial owner of the same
securities, and a person may be deemed to be a beneficial owner of securities
as to which he or she may disclaim any beneficial interest. Except as
otherwise indicated in other table footnotes, the indicated directors and
executive officers possessed sole voting and investment power with respect to
all shares of Common Stock and Preferred Stock attributed.
(2) The tabulation includes shares of Common Stock which may be deemed to be
beneficially owned by such persons by reason of stock options currently
exercisable or which may become exercisable within sixty (60) days after that
date. The number of shares deemed to be beneficially owned by reason of such
options is: Mr. Edelman, 188,333; Mr. Agranoff, 33,333; all other directors,
25,000 each (total 100,000); Mr. David Berger, 63,333; Mr. Jan Berger, 66,667;
Mr. Krumb, 33,333; Mr. Edmonds, 12,500; Mr. Gevers, 46,667; Mr. Perkins, 3,333;
all officers and directors as a group, 547,499.
(3) Gerald N. Agranoff, Asher B. Edelman, and David Berger are Trustees of the
Datapoint Corporation Supplemental Executive Retirement Plan (the "Datapoint
Plan") and may each be deemed to be beneficial owners of the 112,000 Preferred
Share owned by the Datapoint Plan by virtue of their shared voting and
investment powers as Trustees. In the above tabulation, such shares have been
included within each party's Preferred Shares listing as well as the listing
for the directors and executive officers as a group. Messrs. Agranoff, Edelman,
and Berger each disclaim beneficial ownership of these shares except to the
extent of pecuniary interests in such shares which each party currently be
vested; being, Mr. Agranoff, 0 shares, Mr. Edelman, 31,968 shares and Mr.
Berger, 9,584 shares.
(4) Mr. Edelman's listed beneficial ownership of 1,634,953 shares of Common
Stock is explained in detail in this paragraph. As the controlling general
partner of each of Plaza Securities Company, A.B. Edelman Limited Partnership
and Citas Partners (which is the sole general partner of Felicitas Partners,
L.P.). Mr. Edelman may be deemed to own beneficially the 212,318, 783,890, and
4,402 shares held, respectively, by each of such entities for purposes of Rule
13d-3 under the Exchange Act, and these shares are included in the listed
ownership. Also included are the 333,779 shares owned by Canal Capital
Corporation ("Canal"), in which companies Mr. Edelman and various persons and
entities with which he is affiliated own interests. By virtue of investment
management agreements between A.B. Edelman Management Company Inc. and Canal,
A.B. Edelman Management Company Inc. has the authority to purchase, sell and
trade in securities on behalf of Canal. A.B. Edelman Management Company Inc.
therefore may be deemed to be the beneficial owner of the 333,779 shares owned
by Canal. Asher B. Edelman is the sole stockholder of A.B. Edelman Management
Company Inc. and these shares are included. A. B. Edelman Management Company,
Inc. is also the sole general partner of Edelman Value Partners, L.P. which
currently owns no common stock. Also included are Mr. Edelman's presently
exercisable options to purchase 188,333 shares. Also included are the 86,204
owned by Mr. Edelman's spouse, Maria Regina M. Edelman, 5,000 shares held by
Mr. Edelman in a Keough account and the 21,000 shares beneficially owned by Mr.
Edelman's daughters in accounts for which he is the custodian. As a trustee of
the Canal Capital Corporation Retirement Plan ("Canal Plan"), Mr. Edelman may
be deemed to own beneficially, and share voting and investment power over the
27 shares owned by such plan, which are included. Excluded are 15,835 shares
beneficially owned by Mr. Edelman's daughters in accounts for which their
mother, Penelope C. Edelman, is the custodian and the 10,500 shares owned
directly by Penelope C. Edelman. Mr. Edelman disclaims beneficial ownership of
these shares.
In addition, Mr. Edelman's listed beneficial ownership of 466,027 shares of
Preferred Stock is explained in detail in this paragraph. As the controlling
general partner of each of Plaza Securities Company, A.B. Edelman Limited
Partnership and Citas Partners, which is the sole general partner of Felicitas
Partners, L.P., Mr. Edelman may be deemed to hold beneficially the 70,471,
51,229 and 581 shares held, respectively, by each of such entities for purposes
of Rule 13d-3 under the Exchange Act, and these shares are included in the
amount stated in the first sentence of this paragraph. Mr. Edelman is also the
sole stockholder of A.B. Edelman Management Company, Inc., which is the general
partner of Edelman Value Partners, L.P., owner of 50,300 shares. Also,
included are the 8,458 shares owned by Canal, and the 29,002 shares owned
directly by Mr. Edelman's spouse, Maria Regina M. Edelman. Also included are
the 104,400 shares owned by Edelman Value Fund, Ltd., a corporation in which
Maria Regina M. Edelman is an investor and for which Mr. Edelman serves as
investment manager. Mr. Edelman expressly disclaims both the Maria Regina M.
Edelman and Edelman Value Fund, Ltd. shares. As a trustee of the Canal Plan
and the Datapoint Plan, Mr. Edelman may be deemed to own beneficially, and
share voting and investment power over the 39,586 shares and 112,00 shares,
respectively, owned by such plans, which are included. Mr. Edelman disclaims
ownership except as to shares with which he is vested under each plan.
Excluded are the 38,330 shares owned by Mr. Edelman's daughters in accounts for
which their mother, Penelope C. Edelman, is the custodian and 20,009 shares
owned directly by Penelope C. Edelman. Mr. Edelman disclaims beneficial
ownership of these excluded shares.
(5) Messrs. Agranoff and Garfinkel are general partners of Plaza Securities
Company, which owns 212,318 shares of Common Stock and 70,471 shares of
Preferred Stock. Each disclaims beneficial ownership of these shares, which
are included in the beneficial ownership table above.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Edelman (the Company's current Chairman of the Board and Chief Executive
Officer), and Messrs. Agranoff and Kail (currently directors), and former
Company director Dwight D. Sutherland were also directors of Intelogic Trace,
Inc., ("Intelogic"), a wholly-owned subsidiary of Datapoint and its computer
hardware maintenance division in the U.S., comprising four of Intelogic's six
directors, when Intelogic filed a voluntary petition for relief under Chapter
11 of the Bankruptcy Code in the U.S. Bankruptcy Court, Western District of
Texas, San Antonio Division, Case No. 94-52172-C-11 on August 5, 1994.
Intelogic emerged from bankruptcy pursuant to approval of a modified first
amended plan of reorganization on November 28, 1994. The above named directors
resigned from Intelogic on December 8, 1994. On March 16, 1995, Intelogic
again filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code
in the U.S. Bankruptcy Court, Western District of Texas, San Antonio Division,
Case No. 95-50753-LMC-11. During that proceeding, substantially all of
Intelogic's operating assets were sold to a third party on April 5, 1995.
Intelogic is effectively no longer in business.
The above named directors received compensation and/or benefits from Intelogic
prior to their resignations. Also, these directors and former director may be
deemed to have beneficially owned approximately 15% of Intelogic's common stock
as of July 30, 1994. In addition, they had options to purchase shares of
Intelogic common stock equal in the aggregate to approximately 1% of the amount
then outstanding. The overlap of directors does not give rise to a reportable
compensation committee interlock.
Since the 1985 spin-off of Intelogic from being Datapoint's U.S. computer
hardware maintenance division up until April 5, 1995, when substantially all of
its operating assets were sold to a third party, Datapoint engaged in and
continued to engage in various transactions with Intelogic as an independent
computer maintenance company. All such transactions were billed to Intelogic
by Datapoint at its cost. All other transactions between Datapoint and
Intelogic were pursuant to a Master Maintenance Agreement entered into at the
time of the spin-off and related to the ordinary business operations of both
Datapoint and Intelogic. For fiscal year 1994, Intelogic paid Datapoint
approximately $196,000 for equipment and field support spares, royalties, and
expenses and Datapoint paid Intelogic approximately $3,000 and $28,000 in 1995
and 1994, respectively for services and sales. Included in accounts receivable
were amounts due from Intelogic of $298,000.
During fiscal year 1991, Datapoint sold its outstanding stock in Datapoint
Canada, a wholly-owned subsidiary, to Intelogic. The proceeds consisted of
$350,000 in cash and 25,000 shares of Intelogic preferred stock, redeemable at
the option of Intelogic, in escalating amounts, beginning at $62.50 per share
on or before November 9, 1992, and increasing to $100.00 per share on or before
November 10, 1994, until a mandatory redemption date of November 9, 1995. The
preferred stock was to also accrue dividends at an annual rate of $10.00 per
share, if paid in cash, or at an annual rate of $18.00 per share if paid in
additional shares of preferred stock. As an element of the transaction, the
parties caused Datapoint Canada to repay approximately $1,300,000 in an
operating capital loans provided to Datapoint Canada as a subsidiary of
Datapoint. No gain or loss was recorded on the sale. As an aspect of
consideration for the sale, Datapoint received a five-year option to purchase
substantially all of Intelogic's holdings of Datapoint's common and preferred
stock. The option allowed Datapoint to purchase from Intelogic up to 2,700,000
shares of Common Stock for $0.75 a share and up to 85,000 shares of the
Company's $4.94 Exchangeable Preferred Stock for $1.375 a share. The $4.94
Exchangeable Preferred Stock owned by Intelogic was exchanged for 85,000 shares
of $1.00 Preferred Stock and 170,000 shares of Common Stock in the exchange
offer consummated April, 1992. Datapoint exercised its option and
repurchased and retired 85,000 shares of Preferred Stock and 170,000 shares of
Common Stock.
In September 1994, the Company reached an agreement with Intelogic, in
conjunction with Intelogic's court approved reorganization, to cancel its
option to purchase at $0.75 per share its common stock held by Intelogic in
exchange for all of the Company's holdings of Intelogic preferred stock which
had no carrying value. As a result of the exchange, the Company received from
Intelogic 2,400,000 shares of Datapoint common stock.
Director Agranoff had provided various tax, legal and real estate consulting
services prior to serving as Vice President, General Counsel and Corporate
Secretary for the Company. During 1994, the Company paid Mr. Agranoff $126,000
for those services. During the fiscal years 1996, 1995 and 1994, Datapoint
paid legal fees of $485,000, $51,000 and $5,000 respectively, to the law firm
of Pryor, Cashman, Sherman, & Flynn, to which firm Mr. Agranoff is of counsel,
for legal services provided by attorneys other than Mr. Agranoff.
Director Thomas worked from August 1994 until May 1, 1995 as a special
consultant for which he received compensation of $500 per day payable in shares
of common stock. Subsequently, on May 5, 1995, in consideration of the
additional work and responsibilities he had taken on for the Company as a
special consultant, the Board of Directors approved a special compensation
package for Director Thomas. From May 1, 1995, through July 31, 1995, he was
paid at the rate of $500 per day for his services, plus travel and housing
expenses, plus additional compensation of a flat $2,000 per week for expenses.
On July 31, 1995, Director Thomas's consulting contract was extended until
December 31, 1995 and then was to continue on a month-to-month basis to July
31, 1996. Upon the resignation of Doris Bencsik as President and Chief
Operating Officer, Director Thomas was appointed on December 5, 1995 to the
position of Executive Vice President and Chief Operating Officer. Director
Thomas was also entitled under the extended contract to participate in the
Standard Health Benefit program until he was appointed Executive Vice President
and Chief Operating Officer. At such time, he converted to the Executive
Health Benefit program. During fiscal 1995, the Board also approved a one time
special issuance of 45,000 shares of common stock of the Company to Director
Thomas in recognition of his service to the Company. During the term Director
Thomas acted as a special consultant, he did not accrue or receive any regular
Board or committee fees.
Director Ruffat had a consulting agreement from January 1994 through June 1995
under which he received a monthly compensation of $10,000. For 1996 and 1995,
Director Ruffat was paid $50,000 and $80,000, respectively, for consulting
services.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)1 Financial Statements
The consolidated financial statements listed in the accompanying index to
the financial statements are filed as part of this report.
(a)2 Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted since they are either not applicable or
the required information is shown in the Company's financial statements
or notes thereto. Individual financial statements of the Company are
omitted because the Company is primarily an operating company and all
subsidiaries included in the Consolidated Financial Statements being
filed, in the aggregate, do not have minority equity interest and/or
indebtedness to any person other than the Company or its consolidated
subsidiaries in amounts which together exceed 5% of the total
consolidated assets as shown by the most recent year-end Consolidated
Balance Sheet.
(a)3 Exhibits
The exhibits listed on the accompanying index to exhibits are filed as
part of this report.
(b) The Company filed a Form 8-K on July 10, 1996 and a Form 8-KA on August
15, 1996 with regards to its divestiture of EADS.
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
(3)(a) Certificate of Incorporation of Datapoint Corporation,
as amended (filed as Exhibit (3)(a) to the Company's Annual
Report on Form 10K for the year ended July 31, 1993, and
incorporated herein by reference).
(3)(b) Bylaws of Datapoint Corporation, as amended (filed as
Exhibit (3)(b) to the Company's Annual Report on Form 10-K
for the year ended August 1, 1992, and incorporated herein
by reference).
(4)(a) Debenture holder Notice of Adjustment to Conversion Rate,
dated July 11, 1985, under Indenture dated as of June 1, 1981,
between Datapoint Corporation and Continental Illinois
National Bank and Trust Company of Chicago, as Trustee,
providing for 8-7/8% Convertible Subordinated Debentures
Due 2006 (filed as Exhibit (4)(a) to the Company's Annual
Report on Form 10-K for the year ended July 27, 1985
and said Indenture filed as Exhibit 4 to the Company's
Registration Statement on Form S-16 (No. 2-72395), each
incorporated herein by reference).
(4)(b Certificate of Designation, Preferences, Rights and
Limitations of Series of $1.00 Preferred Stock (filed as
Exhibit (4)(e) to the Company's Registration Statement on
Form S-4 dated April 30, 1992 and incorporated herein
by reference).
(10)(a) 1983 Employee Stock Option Plan (filed as Exhibit (4)(a)(4)
to the Company's Registration Statement on Form S-8 dated
November 9, 1983 and incorporated herein by reference).
(10)(b) 1985 Director Stock Option Plan (filed as Exhibit (10)(i)
to the Company's Annual Report on Form 10-K for the year
ended August 1, 1987 and incorporated herein by reference).
(10)(c) 1986 Employee Stock Option Plan (filed as Exhibit (10)(h)
to the Company's Annual Report on Form 10-K for the year
ended August 1, 1987 and incorporated herein by
reference).
(10)(d) 1991 Director Stock Option Plan (filed as Exhibit (10)(b)(2)
to Amendment No. 1 dated February 6, 1992 to the Company's
Registration Statement on Form S-4 (Registration
No. 33-44097) and incorporated herein by reference).
(10)(e) 1992 Employee Stock Option Plan (filed as Exhibit (4)(a)(4)
to the Company's Registration Statement on Form S-8 dated
January 19, 1993 and incorporated herein by reference).
(10)(f) Agreement for Transfer of Assets and Liabilities in Exchange
for Stock, dated as of June 28, 1985, between the Company
and Intelogic Trace, Inc. (filed as Exhibit (10)(a) to the
Company's Current Report on Form 8-K dated July 28, 1985
and incorporated herein by reference).
(10)(g) Master Maintenance Agreement, dated as of June 28, 1985,
between the Company and Intelogic Trace, Inc. (filed as
Exhibit (10)(b) to the Company's Current Report on Form
8-K dated July 28, 1985 and incorporated herein by reference).
(10)(h) Maintenance Agreement regarding open systems products
between the Company and Intelogic Trace, Inc., (filed as
Exhibit (10)(g) to the Company's Annual Report on Form
10-K for the year ended August 1, 1992, and incorporated
herein by reference).
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
(10)(i) Agreement between the Company and Arbitrage Securities
Company, as amended (filed as Exhibit (10)(f) to the
Company's Annual Report on Form 10-K for the year ended July
29, 1989 and incorporated herein by reference).
(10)(j) Indemnity Agreements with Officers and Directors (filed
as Exhibit (10)(f) to the Company's Annual Report on Form
10-K for the year ended August 1, 1987 and incorporated
herein by reference).
(10)(k) First Amendment to Indemnification Agreement with certain
Officers and Directors. (filed as Exhibit (10)(h) to the
Company's Annual Report on Form 10-K for the year ended
July 28, 1990 and incorporated herein by reference).
(10)(l) Second Amendment to Employment Agreement with A. B. Edelman
(said amendment filed as Exhibit (10)(h)(3) to the Company's
Registration Statement on Form S-4 dated April 30, 1992),
amending Employment Agreement dated January 9, 1991 (said
agreement filed as Exhibit (10)(j) to the Company's Annual
Report on Form 10-K for the year ended July 28, 1990), as
amended by Amendment No. 1 dated December 1, 1990 (said
amendment filed as Exhibit (10)(i) to the Company's Annual
Report on Form 10-K for the year ended July 27, 1991), each
of which are incorporated herein by reference.
(10)(m) Employment Agreement with D. Berger (filed as Exhibit (10)(m)
to the Company's Annual report on Form 10-K for the Year
ended July 31, 1993 and incorporated herein by reference).
(10)(n) Employment Agreement with J. Berger (filed as Exhibit (10)(l)
to the company's Annual Report on Form 10-K for the year
ended August 1, 1992 and incorporated herein by reference).
(10)(o) Employment Agreement with K. L. Thrower (filed as Exhibit
(10)(o) to the company's Annual Report on Form 10-K for the
year ended August 1, 1992 and incorporated herein by reference).
(10)(p) First Amendment to the Grantor Trust Agreement dated June 18, 1991.
(filed as exhibit (10)(n) to the Company's Annual Report on Form
10-K for the year ended July 27, 1991 and incorporated herein
by reference).
(10)(q) Manufacturing facilities Agreement of Lease between the Company
and Willis and Cox Associates dated June 21, 1991 (filed as
Exhibit (10)(q) to the Company's Annual Report on Form 10-K for
the year ended August 1, 1992 and incorporated herein by reference).
(10)(r) Employment Agreement with D. Bencsik (filed as exhibit (10)(r) to
the Company's Annual Report on the Form 10-K for the year ended
July 30, 1994 and incorporated herein by reference).
(10)(s) Employment Agreement with G. Agranoff and Amendment No. 1 to
Employment Agreement (filed as Exhibit (10) (s) to Amendment No. 2
to the Company's Registration Statement on Form S-4 filed on
September 27, 1996 and incorporated herein by reference).
(10)(t) Employment Agreement with B. Thomas (filed as Exhibit (10) (t) to
Amendment No. 2 to the Company's Registration Statement on Form S-4
filed on September 27, 1996 and incorporated herein by reference).
(10)(u) Employment Agreement with P. Krumb (filed as Exhibit (10) (u) to
Amendment No. 2 to the Company's Registration Statement on Form S-4
filed on September 27, 1996 and incorporated herein by reference).
(10)(v) Settlement Agreement with NTI (filed as Exhibit (10) (v) to
Amendment No. 2 to the Company's Registration Statement on Form S-4
filed on September 27, 1996 and incorporated herein by reference).
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
(10)(w) Umbrella Acquisition Agreement between Kalamazoo and Datapoint
(filed as Exhibit 2 to the Company's Current Report on Form
8-K dated June 25, 1996 and incorporated herein by reference).
(10)(x) Form of Agreement for sale of assets of Datapoint Group Vendor
and Kalamazoo (filed as Exhibit 3 to the Company's Current
Report on Form 8-K dated June 25, 1996 and incorporated herein
by reference).
(10)(y) Agreement for sale of DARTS Software (filed as Exhibit 4 to the
Company's Current Report on Form 8-K dated June 25, 1996 and
incorporated herein by reference).
(23) Consent of Independent Auditors.
(27) Article 5, 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.
DATAPOINT CORPORATION
(Registrant)
BY:
Asher B. Edelman
Chief Executive Officer and
Chairman of The Board
By Phillip P. Krumb, Attorney In Fact
DATED: October 25, 1996
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.
Signature Title Date
Vice President and Chief Financial Officer October 25, 1996
Phillip P. Krumb (Principal Accounting Officer)
Phillip P. Krumb, pursuant to powers of attorney which are being filed with this
report, has signed below as attorney-in-fact for the following directors of the
Registrant:
Gerald N. Agranoff Didier M.M. Ruffat
Irving Garfinkel Blake D. Thomas
Daniel Kail
October 25, 1996
Phillip P. Krumb
Schedule II
DATAPOINT CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(In thousands)
(a) (b)
Balance Charged Charged
at to (to) from Other Balance
Beginning Costs and Other Additions at End
Classification of Year Expenses Accounts (Deductions) of Year
Allowance for doubtful accounts:
Year ended July 27, 1996 $3,012 $ 170 $(102) $ (289) $2,791
Year ended July 29, 1995 $2,568 $2,147 $ (21) $(1,682) $3,012
Year ended July 30, 1994 $2,466 $ 807 $(472) $ (233) $2,568
(a) Transfers to and from other balance sheet reserve accounts.
(b) Accounts written-off net of recoveries, other expense accounts and
translation adjustments.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements and related prospectuses of our report dated October 21, 1996, with
respect to the consolidated financial statements and schedules of the Company
included in this Annual Report on Form 10-K for the year ended July 27, 1996:
Registration Statement No. 2-60374 on Form S-8, Registration Statement No.
2-87765 on Form S-8, Registration Statement No. 33-19328 on Form S-8,
Registration Statement No. 33-19427 on Form S-8, and Registration Statement No.
33-57102 on Form S-8.
Ernst & Young LLP
Dallas, Texas
October 21, 1996