UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 3, 2003
Commission File No. 0-12588
Salient 3 Communications, Inc.
(Exact name of registrant as specified in its charter)
Delaware 23-2280922
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
P.O. Box 1498, Reading, Pennsylvania 19603
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 856-5500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $1.00 per share
(Title of Class)
Class B Common Stock, par value $1.00 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
--------- ---------
The aggregate market value of the registrant's Class A (non-voting) and Class
B (voting) common stock held by non-affiliates at June 28, 2002, computed by
reference to the closing sale price for the registrant's Class A (non-voting)
common stock, as reported by the OTC Bulletin Board, was $7,458,000.
Class A Class B
------- -------
Number of shares of each class
of common stock outstanding as
of February 28, 2003 (excluding
2,770,476 treasury shares): 5,953,011 261,813
PART I
ITEM 1. BUSINESS
Throughout Item 1 through Item 9 of the Form 10-K, dollar amounts are reported
in thousands, except for per share amounts.
In October 1999, Salient 3 Communications, Inc. (the Company) announced that
its Board of Directors had retained Robert W. Baird & Co. (Baird) to assist in
evaluating and pursuing various strategic alternatives intended to enhance
stockholder value. After extensive exploration and evaluation of various
strategic alternatives, the board concluded that the dissolution and
liquidation of the Company would enhance stockholder value and was in the best
interests of the stockholders.
Prior to this decision, the Company was a leading telecommunications equipment
and services company with subsidiaries that supported public, private and
wireless network operators. The Company manufactured and provided
telecommunications equipment and services to the industrial, access products
and wireless communications markets. The Company's primary subsidiaries
consisted of GAI-Tronics Corporation (GTC) - Industrial Segment, XEL
Communications, Inc. (XEL) - Access Products Segment, and SAFCO Technologies,
Inc. (SAFCO) - Wireless Segment.
The Company was organized as a holding company in 1984. Prior to forming the
holding company, the Company was an operating company and owner of several
subsidiaries. The Company was originally organized in 1942 under its prior
name, Gilbert Associates, Inc. The holding company structure separated the
administrative and financing activities of the Company from the activities of
its operating subsidiaries.
CORPORATE DEVELOPMENTS
On April 17, 2000, the Board of Directors of the Company adopted a Plan of
Dissolution and Liquidation (the Plan). Under the Plan, the Company will be
liquidated by (1) the sale of its non-cash assets, (2) the payment of or
providing for all of its claims, obligations and expenses, (3) the pro rata
distribution of assets, primarily cash, to the stockholders, and (4) if
required, the distribution of assets to one or more liquidating trusts
established for the benefit of the stockholders. The Plan was approved by
stockholders on July 21, 2000.
Prior to June 30, 2000, seven stockholders, who together controlled more than
51% of the issued and outstanding Class B common stock, had agreed to vote
their shares in favor of the Plan and in favor of the sales of SAFCO and GTC.
As a result, the Company adopted the liquidation basis of accounting for the
second quarter of 2000. Under the liquidation basis of accounting, assets are
stated at their estimated net realizable values and liabilities are stated at
their anticipated settlement amounts.
In July 2000, the Company closed the sales of SAFCO and GTC. In December
2000, the Company closed the sale of XEL. Details of these sale transactions
are included in the discussions of the industry segments below.
On August 11, 2000, the Company filed a Certificate of Dissolution with the
State of Delaware. Under Delaware law, the Company will continue to exist for
a period of three years for the purpose of winding up its affairs. The Board
of Directors and officers of the Company will continue to oversee the
liquidation and dissolution.
On September 8, 2000, the Company paid an initial liquidating distribution of
$12 per share to holders of Class A (non-voting) and Class B (voting) common
stock. Additional liquidating distributions of $2 per share and $.50 per
share were paid on December 14, 2001 and December 30, 2002, respectively. The
Board of Directors will determine the timing and amount of all future
distributions made to stockholders.
In April 2000, the Board of Directors authorized immediate vesting of all
outstanding restricted stock, and, effective with the first subsidiary sale,
vesting of stock options granted under the 1989 Stock Option Plan and the 1996
Long Term Incentive Plan and extension of the exercise period to August 25,
2000, the record date of the initial liquidating distribution. The Board also
added a provision to convert all unexercised options at the record date of the
initial liquidating distribution into Limited Stock Appreciation Rights
(LSAR's). In addition, all warrant holders were given the opportunity to
convert their warrants into LSAR's. These rights entitle the holder to
receive cash payments for each share equal to the difference between the
aggregate per share liquidating distributions payable to stockholders upon
liquidation and the per share exercise price applicable to each converted
option or warrant. In August, 2000, 1,097,200 options and 705,555 warrants
were converted into LSAR's. Holders of LSAR's were paid $1,866, $1,639 and
$519 in connection with the liquidating distributions on September 8, 2000,
December 14, 2001 and December 30, 2002, respectively.
INDUSTRIAL SEGMENT
GTC, based in Reading, Pennsylvania, was principally engaged in the
development, assembly and marketing of communications systems for industrial
operations. In serving such customers, GTC provided custom services by
adapting communication systems to operate under extraordinary plant conditions
such as excessive dust and explosive atmospheres. GTC also designed emergency
notification systems and land mobile communications systems. GAI-Tronics
Limited, a wholly-owned subsidiary based in Burton Upon Trent, England, was a
designer, manufacturer and marketer of ruggedized communications systems for
the mining, energy and transportation industries, and specialized
communications and integrated entertainment systems. Irmel, a wholly-owned
subsidiary based in Milan, Italy, designed and assembled public address and
closed circuit television systems.
On July 26, 2000, the Company completed the sale of GTC to Hubbell
Incorporated for cash of $36,246, after consideration of certain closing
balance sheet adjustments and employee-related expenses. This sale terminated
all operations of the Company in the Industrial Segment.
ACCESS PRODUCTS SEGMENT
XEL, based in Aurora, Colorado, designed and sold transmission products to the
access products market. XEL's products were used by its customers in
telecommunications networks to provide customer access for voice and data
services. XEL had entered into new technology partnerships to broaden its
product offerings to include technology to provide high speed transmission.
XEL completed development of its own new product for the access market in the
second quarter of 2000.
On December 29, 2000, the Company completed the sale of XEL to a company
controlled by XEL's president for $4,900 in the form of a promissory note
bearing interest payable monthly at 8%, with the principal due after 24
months. Effective April 1, 2002, the Company and the buyer of XEL entered
into an agreement to modify the note and a related working capital loan. The
modified note and loan have reduced principal amounts aggregating $1,900 at
inception. The amendment agreement provides for 15 monthly payments of $102,
including interest of 8%, with a balloon payment for the balance outstanding
of $500 at July 31, 2003. If XEL is resold to another party prior to December
28, 2003, the Company would receive full payment on the note and 50% of all
proceeds in excess of $1,900. If there is a default in payment of principal
or interest on the promissory note, the Company has the right to retake
control of XEL. This sale terminated all operations of the Company in the
Access Products Segment.
The sale of XEL excluded the building it occupies in Aurora, Colorado. On
December 26, 2002, the Company completed the sale of this building to an
unrelated third party for $1,425,000, including $200,000 in cash and a
promissory note for $1,225,000, due June 30, 2003 and bearing interest at 5%.
WIRELESS SEGMENT
SAFCO, based in Chicago, Illinois, provided products and services which focus
on measurement, analysis and predictive tools and engineering and technical
services used by the wireless communications industry. The TEC Cellular
division, based in Melbourne, Florida, provided radio frequency engineering
consulting services and software applications to the wireless industry.
On July 25, 2000, the Company completed the sale of SAFCO to Agilent
Technologies, Inc. for $121,426 in cash, after consideration of certain
closing balance sheet adjustments. The purchase price included $11,000 which
had been placed into escrow for certain expenses and possible indemnification
claims. The Company is entitled to receive distribution of the balance
remaining in the escrow account, after reduction for any indemnification
claims made by the buyer before August 29, 2001. During the fourth quarter of
2001, $443 was disbursed from the escrow account to cover expenses owed by the
Company, $334 was disbursed to pay indemnification claims and $9,388 was
distributed to the Company. Each of these disbursements included a share of
interest earned by the account. A balance of $1,500 remained in the account
to cover an obligation of the Company that was not finalized at January 3,
2003. This sale terminated all operations of the Company in the Wireless
Segment.
DISSOLUTION AND LIQUIDATION PROCESS
After approval of the Plan and filing of the Certificate of Dissolution, the
Company ceased to exist for the purpose of continuing business operations, but
will continue for a period of three years, under Delaware law, for the purpose
of winding up its affairs. The Board of Directors and officers of the Company
will continue to oversee the liquidation and dissolution. During this period
the Company will: (1) convert to cash as much of its non-cash assets as
possible, (2) pay or make provision for the payment of all of its expenses and
liabilities, (3) distribute its remaining assets, which should be primarily
cash, to its stockholders, and (4) transfer any remaining assets and
obligations to a liquidating trust established for the benefit of
stockholders.
As discussed in each industry segment, all of the operating businesses were
sold during 2000. The remaining non-cash assets consist primarily of notes
receivable from sales of the operating businesses, and sale proceeds held in
escrow.
Claims, liabilities and expenses, including operating costs, salaries, income
taxes, payroll and local taxes and miscellaneous office expenses will continue
to be incurred during the liquidation period. These liabilities and expenses
will reduce the assets available for ultimate distribution to the
stockholders.
Before making distributions to stockholders, the Board of Directors is
required by Delaware law to first make adequate provision for the payment,
satisfaction and discharge of all the Company's obligations. Such obligations
include (1) all claims and obligations, including all contingent, conditional
or unmatured contractual claims known to the Company, (2) any claim against
the Company which is the subject of a pending action, suit or proceeding to
which the Company is a party, and (3) claims that have not been made known to
the Company or that have not arisen, but that are likely to arise or become
known based on facts known to the Company. The Company will reserve assets in
a contingency reserve deemed by management and the Board of Directors to be
adequate to provide for such liabilities and obligations when due. After
considering these factors, the Board of Directors will determine the timing
and amount of all future distributions made to stockholders.
The valuation of assets and liabilities in liquidation necessarily requires
many estimates and assumptions and there are substantial risks and
uncertainties in carrying out the provisions of the Plan. The actual value of
any liquidating distributions will depend upon a variety of factors including,
but not limited to, (1) the actual cash proceeds from the sale of the
Company's subsidiaries and other assets, (2) the ultimate settlement amounts
of its liabilities and obligations, including indemnifications provided in
connection with subsidiary sale transactions, (3) actual costs incurred in
connection with carrying out the Plan, including administrative costs during
the liquidation period, and (4) the actual timing of distributions.
Accordingly, it is not possible to predict with certainty the aggregate net
values ultimately distributable to stockholders and no assurance can be given
that the amount to be received in liquidation will equal or exceed the price
or prices at which the Class A common stock has generally traded or is
expected to trade in the future.
If all of the Company's assets are not distributed within three years after
filing the certificate of dissolution, the remaining assets, subject to the
claims of creditors, will be transferred to a liquidating trust established
for the benefit of stockholders. The Board of Directors is authorized to
appoint trustees of the liquidating trust. Property transferred into a
liquidating trust will thereafter be sold, used to pay creditors' claims or
distributed to stockholders, as determined by the trustees.
AVAILABLE INFORMATION
The Company closed its Internet website after it entered the dissolution and
liquidation process. Acccordingly, its annual report on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K, as required by
regulations under the Securities Exchange Act of 1934, are not made available
electronically by the Company. Currently such reports can be accessed through
the website of the Securities and Exchange Commission (http://www.sec.gov).
ITEM 2. PROPERTIES
The Company owns office furniture and equipment which it uses to carry out the
Plan. The Company also leases office space and certain office equipment, for
terms of three years or less.
On December 26, 2002, the Company completed the sale of the office and
manufacturing facility used by XEL and located in Aurora, Colorado. On April
3, 2002, the Company completed the sale of approximately 104 acres of
undeveloped land near Reading, Pennsylvania. These were the final two
properties owned by the Company that were not used to carry out the Plan.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various disputes arising in the ordinary course of
business which have resulted in pending litigation. In the opinion of
management of the Company, none of these matters will materially affect the
Company's net assets in liquidation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter required to be reported pursuant to this item was submitted to
security holders in the fourth quarter of 2002.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT
The names, ages, positions and previous experience to the extent required to
be presented herein of all current executive officers of the Company are as
follows:
Name Position and Previous Experience Age
Timothy S. Cobb Mr. Cobb has been Chairman of the Board of Directors 61
since July 1995. He has been Chief Executive Officer
since March 1994 and President and Chief Operating
Officer since October 1993. Mr. Cobb served as President
of Gilbert/Commonwealth, Inc. (former subsidiary of
Company) from January 1991 to September 1993. He served
as President of GTC (former subsidiary of Company) from
June 1988 to December 1990. Upon joining the Company,
Mr. Cobb had 21 years experience in the telecommunications
industry, culminating with his being President of the major
systems subsidiary of Ameritech in Chicago, Illinois. He
is a director of Central Vermont Public Service Corporation.
Paul H. Snyder Mr. Snyder has been Senior Vice President and 55
Chief Financial Officer since February 1997 and Vice
President and Chief Financial Officer from August 1995
to January 1997. From August 1994 to July 1995,
Mr. Snyder was Vice President and Chief Financial Officer
of The Dreyfus Corporation, a subsidiary of Mellon Bank
Corporation. From 1988 through 1994, he was Senior Vice
President and Chief Financial Officer of Mellon PSFS,
Mellon Bank Corporation's affiliate in Philadelphia,
Pennsylvania. Mr. Snyder became Executive Vice President
and Chief Financial Officer of DecisionOne Corporation,
a provider of multivendor computer maintenance services,
in September 2002. He had been Senior Vice President and
Chief Financial Officer since February 2001.
Thomas F. Hafer Mr. Hafer has been Senior Vice President since February 54
1997 and Vice President from September 1995 to January
1997. He has served as General Counsel and Corporate
Secretary since February 1994. Mr. Hafer was President
of Green Hills Management Co. (former division of Company)
from September 1993 to July 1997.
None of the above officers has a family relationship with another such
officer. None of the officers was selected as a result of any arrangement or
understanding with any other person other than directors of the Company acting
solely in their capacities as such.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS
The Company's Class A common stock has been traded on the OTC Bulletin Board
(OTCBB) under the symbol STCIA since June 7, 2001. Prior to that date it was
traded on The Nasdaq Stock Market (Nasdaq). The following tabulation sets
forth the high and low closing sale prices as reported by OTCBB and Nasdaq.
2002 2001
---- ----
High Low High Low
---- --- ---- ---
First Quarter $1.15 $0.97 $2.41 $1.53
Second Quarter 1.34 1.10 2.40 1.81
Third Quarter 1.35 1.10 2.35 2.25
Fourth Quarter 1.30 0.60 3.01 0.97
On December 30, 2002 and December 14, 2001, the Company paid liquidating
distributions of $0.50 per share and $2.00 per share, respectively. There
were no other cash dividends declared during 2002 or 2001.
At January 3, 2003, the approximate numbers of record holders of Class A and
Class B common stock were 3,000 and 9, respectively.
The Company has no equity securities authorized for issuance under
compensation plans or individual compensation arrangements.
ITEM 6. SELECTED FINANCIAL DATA.
FINANCIAL REVIEW
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Five Year Summary / Selected Financial Data
(000's except for share and per share information and number of employees)
Liquidation Basis (1) Going-Concern Basis (1)
-------------------------------------------- -------------------------------------
Three Months
Ended
Summary of Operations: Jan. 3, 2003 Dec. 28, 2001 Dec. 29, 2000 Mar. 31, 2000 1999 1998
------------ ------------- ------------- ------------- ---- ----
Telecommunications Sales N/A N/A N/A $ 25,015 $ 115,630 $ 119,282
Net Income (Loss) from
Continuing Operations N/A N/A N/A (1,348) 1,200 (17,459) (2)
Per Share of Common Stock (Basic):
Net Income (Loss) from
Continuing Operations N/A N/A N/A (0.23) 0.20 (2.83) (2)
Dividends to Stockholders - - - - - 0.10
Basic Weighted Average
Shares Outstanding N/A N/A N/A 5,989,073 5,973,328 6,158,587
Summary of Financial Position:
Total Assets $ 16,421 $ 23,935 $ 41,441 N/A $ 124,547 $ 118,455
Long-Term Debt - - - N/A 13,647 10,616
Net Assets in Liquidation 6,288 8,984 20,780 N/A N/A N/A
Net Assets in Liquidation
Per Share (3) $ 1.01 $ 1.45 $ 3.34 N/A N/A N/A
Stockholders' Equity N/A N/A N/A N/A 79,318 77,989
Stockholders' Equity Per Share N/A N/A N/A N/A $ 12.90 $ 12.74
Number of Employees 5 5 5 743 797 760
(1)On April 17, 2000, the Board of Directors of Salient 3 Communications, Inc. (the Company) adopted a Plan of
Dissolution and Liquidation (the Plan). Under the Plan, the Company will be liquidated by (i) the sale of its non-cash
assets,(ii) the payment of or providing for all of its claims, obligations and expenses, (iii) the pro rata distribution
of assets, primarily cash, to the stockholders, and (iv) if required, the distribution of assets to one or more liquidating
trusts established for the benefit of the stockholders. As a result, the Company adopted the liquidation basis of accounting
effective April 1, 2000. All information presented prior to April 1, 2000 is reported on a going-concern basis. (See Note 1
to the Consolidated Financial Statements appearing elsewhere herein).
(2)Amount includes $18,684 (net of tax benefit of $4,138), or $2.99 per share, of non-recurring adjustments primarily for
restructuring and asset impairment.
(3)During 2000, 2001 and 2002, the Company paid liquidating dividends of $12.00 per share, $2.00 per share and $.50 per share,
respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(000's except for share and per share information)
LIQUIDATION BASIS
Introduction
On April 17, 2000, the Company's Board of Directors adopted a Plan of
Dissolution and Liquidation ("the Plan"). Under the Plan, the Company will be
liquidated by (i) the sale of its non-cash assets, (ii) the payment of or
providing for all of its claims, obligations and expenses, (iii) the pro rata
distribution of assets, primarily cash, to the stockholders, and (iv) if
required, the distribution of assets to one or more liquidating trusts
established for the benefit of the stockholders. The Plan was approved by
stockholders on July 21, 2000.
On August 11, 2000, the Company filed a Certificate of Dissolution with the
State of Delaware. Under Delaware law, the Company will continue to exist for
a period of three years for the purpose of winding up its affairs. The Board
of Directors and officers of the Company will continue to oversee the
liquidation and dissolution.
Prior to June 30, 2000, seven stockholders, who together controlled more than
51% of the issued and outstanding Class B common stock, had agreed to vote
their shares in favor of the Plan and in favor of the sales of SAFCO
Technologies, Inc. (SAFCO) and GAI-Tronics Corporation (GTC). As a result,
the Company adopted the liquidation basis of accounting for the second quarter
of 2000. Under the liquidation basis of accounting, assets are stated at
their estimated net realizable values and liabilities are stated at their
anticipated settlement amounts.
The valuation of assets and liabilities at their estimated net realizable
values and anticipated settlement amounts necessarily requires many estimates
and assumptions and there are substantial uncertainties in carrying out the
provisions of the Plan. The actual value of any liquidating distributions
will depend upon a variety of factors including, but not limited to, (i) the
actual proceeds from the sale of the Company's subsidiaries and other assets,
(ii) the ultimate settlement amounts of its liabilities and obligations,
including indemnifications provided in connection with subsidiary sale
transactions, (iii) actual costs incurred in connection with carrying out the
Plan, including administrative costs during the liquidation period, and (iv)
the actual timing of distributions. An initial liquidating distribution of
$12.00 per share was paid on September 8, 2000 to holders of Class A (non-
voting) and Class B (voting) common stock. Additional liquidating
distributions of $2.00 per share and $.50 per share were paid on December 14,
2001 and December 30, 2002, respectively.
Sale of Assets
On July 25, 2000, the Company completed the sale of SAFCO to Agilent
Technologies, Inc. (Agilent) for $121,426 in cash, after consideration of
certain closing balance sheet adjustments. The purchase price included
$11,000 which was placed into escrow for certain expenses and possible
indemnification claims under the representations and warranties sections of
the purchase agreement. The Company was entitled to receive distribution of
the balance remaining in the escrow account, after reduction for any
indemnification claims made by the buyer before August 29, 2001. During the
third quarter of 2001, Agilent submitted notification of an indemnification
claim to the Company. During the fourth quarter of 2001, $443 was disbursed
from the escrow account to cover expenses owed by the Company, $334 was
disbursed to pay indemnification claims and $9,388 was distributed to the
Company. Each of these disbursements included a share of interest earned by
the account. A balance of $1,500 remained in the escrow account to cover an
obligation of the Company that was not finalized at January 3, 2003.
Management estimates that the obligation, including settlement costs, will be
settled for approximately $300. This obligation is not subject to the
representations and warranties sections of the purchase agreement.
On July 26, 2000, the Company completed the sale of GTC to Hubbell
Incorporated (Hubbell) for cash of $36,246, after consideration of certain
closing balance sheet adjustments. The Company provided certain
indemnifications through July 2001 under the representations and warranties
sections of the purchase agreement. During the third quarter of 2001, Hubbell
submitted notification of a possible indemnification claim to the Company.
There has been no activity since the notification of the potential claim was
submitted, and the Company believes that if the claim is pursued, it will not
have a material effect on the net assets in liquidation. The Company has
purchased certain insurance to minimize its exposure on some, but not all, of
the areas for which they are indemnifying Hubbell.
On December 29, 2000, the Company completed the sale of XEL Communications,
Inc. (XEL) to a company controlled by XEL's president for $4,900, in the form
of a promissory note bearing interest payable monthly at 8%, with the
principal due after 24 months. In connection with the sale, the Company
loaned XEL $359 under a working capital line of credit that expired on March
31, 2001. The working capital loan, plus interest at 5% was due December 29,
2002. If XEL was resold to another party prior to December 30, 2002, the
Company would receive full payment on the note and working capital loan and
70% of all proceeds in excess of $5,000. If XEL was resold after December 29,
2002 but prior to December 30, 2003, the Company would receive 50% of all
proceeds over $5,000. If there is a default in payment of principal or
interest on the promissory note, the Company has the right to retake control
of XEL. The note and working capital loan were together valued at $1,900 in
the Statements of Net Assets in Liquidation at December 28, 2001, based on the
estimated realization values of XEL's assets.
Effective April 1, 2002, the Company entered into an amendment agreement with
the buyer of XEL to modify the promissory note and working capital loan held
in connection with the sale of XEL. The modified note and loan have reduced
principal amounts aggregating $1,900 at inception. The amendment agreement
provides for 15 monthly payments of $102, including interest of 8%, with a
balloon payment for the balance outstanding of $500 at July 31, 2003. If XEL
is resold prior to December 28, 2003, the Company would receive 50% of all
proceeds in excess of $1,900. The amendment agreement allowed the Company to
begin receiving monthly payments on the principal balance and to obtain a tax
benefit in 2002 for the reduction in face value of the note. At January 3,
2003, the aggregate unpaid balance of the note and loan is $1,171. The
reported value of the amended note in the Statements of Net Assets in
Liquidation at January 3, 2003 is net of a valuation reserve of $350 based on
the estimated realization values of XEL's net assets.
The sale of XEL excluded the building it occupies in Aurora, Colorado. On
December 26, 2002, the Company sold this building to an unrelated third party
for $200 in cash and a six-month note for $1,225. The note bears interest,
payable quarterly, at 5% per annum and is secured by the building. The value
of the building, net of sale and related costs, had been reported at $3,363 in
the Statements of Net Assets in Liquidation at December 28, 2001. Due to the
unfavorable real estate market, the estimated realizable value of the building
was reduced by $1,992 in the third quarter of 2002. This change resulted in an
estimated additional tax benefit of $641, reduced the estimated liability for
settlement of LSAR's by $203 and reduced the net assets in liquidation by
$1,148, or $.18 per share.
On April 3, 2002, the Company completed the sale of its undeveloped land near
Reading, Pennsylvania for $651 in cash. The estimated value of the land was
included in other assets in the Statements of Net Assets in Liquidation at
December 28, 2001.
Financial Condition
Pursuant to the Plan, after payment or provision for payment of the Company's
indebtedness and other obligations, the cash proceeds of any asset sales,
together with other available cash, will be distributed from time to time pro
rata to the holders of the common stock. The record dates with respect to
each distribution will be selected by the Board of Directors. An initial
liquidating distribution of $74,582 or $12.00 per share was paid on September
8, 2000. Additional liquidating distributions of $12,430 or $2.00 per share
and $3,107 or $.50 per share were paid on December 14, 2001 and December 30,
2002, respectively.
Before distributing assets to its stockholders, the Company is required by
Delaware law to make provision for all known claims and obligations and any
unasserted claims that are reasonably likely to arise after the certificate of
dissolution became effective. The accrual for asserted claims and other
obligations represents management's judgment as to the estimated amounts
required to settle such claims, should they arise and should they have merit.
Ultimate settlement amounts for such claims are expected to differ from
estimates recorded as of January 3, 2003. Accordingly, it is not possible to
predict with certainty the amount required for such claims.
The reported value of net assets in liquidation is subject to adjustment as
estimated values of assets and liabilities are reevaluated each period and as
assets are sold or liabilities are settled for amounts different from
estimates reported in previous periods. The estimated liquidation value of
investments in liquidation was reduced by $2,107 in 2002 and $1,557 in 2001.
The 2002 change was due to the reduction in estimated value of the XEL
building of $2,257, an increase of $350 in a reserve for the XEL note, less a
decrease of $500 in a reserve for indemnification claims in connection with
the sale of GTC. The 2001 change included $579 resulting from indemnification
claims and reserves for unresolved claims related to the sales of SAFCO and
GTC, and $978 relating to revisions of estimated obligations in connection
with the sale of XEL and estimated net proceeds from the sale of XEL's
building.
The estimated liquidation value of other assets increased by $937 in 2002 and
$567 in 2001. The increase in 2002 was due to a $525 reduction in a valuation
reserve for the RCI note receivable, $353 of interest earned on notes and
short-term investments and a $59 increase in the value of other assets. The
increase in 2001 was due to $880 of interest earned on short-term investments
and notes receivable, less reductions in values of other assets of $313.
The estimated liquidation value of accrued and other liabilities decreased by
$1,200 in 2002 and increased by $900 in 2001. The decrease in 2002 was due to
reduced estimates of costs required to complete the liquidation and
dissolution process, including salaries and other compensation, insurance,
franchise taxes, directors fees and other costs. The increase in 2001 was
primarily due to an extension of the estimated time period required to
complete the liquidation process.
Estimated income tax refunds increased by $381 in 2002 and $2,524 in 2001.
The increase in 2002 was due to changes in estimates of various factors
affecting the estimated tax refunds. The increase in 2001 was due to
revisions to estimates of the tax gains or losses on sales of the subsidiaries
and changes in estimates of deductible expenses to be incurred during the
liquidation period.
Liquidity and Capital Resources
On January 3, 2003, the Company had cash and cash equivalents of $10,280. The
future cash needs of the Company will be dependent on the continuing
implementation of the Plan. The Company believes that its cash and cash
equivalents, its collection of deferred payments on sales of subsidiaries and
its conversion of other assets to cash will be sufficient to fund its working
capital requirements through the completion of the Plan.
The Company estimates that its total capital expenditures during the
liquidation period will be insignificant.
In August 2003, the Company will reach the end of the three-year statutory
dissolution period prescribed by Delaware law. At that time, the Company
anticipates that it will own certain assets that will not have been converted
to cash and it will have certain actual and contingent liabilities that will
not have been settled. A portion of these assets, in amounts sufficient to
pay the estimated liabilities, will be transferred into a liquidating trust
for the benefit of stockholders. Prior to the transfer, the Company expects
to pay a liquidating distribution equal to the amount of cash that is not
required to fund its estimated liabilities. The Board of Directors will
determine the amount and timing of such distribution.
Other
In April 2000, the Board of Directors authorized immediate vesting of all
outstanding restricted stock, and, effective with the first subsidiary sale,
vesting of stock options granted under the 1989 Stock Option Plan and the 1996
Long Term Incentive Plan and extension of the exercise period to the record
date of the initial liquidating dividend. The Board also added a provision to
convert all unexercised options at the record date of the initial liquidating
dividend into Limited Stock Appreciation Rights. These rights entitle the
holder to receive cash payments for each share equal to the difference between
the aggregate per share liquidating distribution payable to stockholders upon
liquidation and the per share exercise price applicable to each converted
option. In August, 2000, 1,097,200 options and 705,555 warrants were
converted into LSAR's. Holders of LSAR's were paid $1,866 in connection with
the initial liquidating distribution on September 8, 2000 and $1,639 and $519
in connection with the additional liquidating distributions on December 14,
2001 and December 30, 2002, respectively. The estimated remaining liability
for settlement of the LSAR's at January 3, 2003 is $1,089 and is included in
accrued and other liabilities in the Statements of Net Assets in Liquidation.
GOING-CONCERN BASIS
Results of Operations - First Quarter of 2000
The Company reported a net loss for the first quarter of 2000 of $1,348, or
$.23 per share.
The following is a breakdown of sales by segment for the first quarter of
2000:
Access Products $ 3,392
Industrial 13,614
Wireless 8,009
----------
Total $25,015
==========
Access Products sales were negatively affected by a continuing reduction in
customer demand for analog channel units and a slowdown of orders for
partnership products. Contributing to the decreases were customer reuse
programs and customer evaluation of their inventory stocking programs. This
segment also suffered from delays in completing development of its new
integrated access product, which became available for production in the second
quarter of 2000. The Industrial segment experienced lower sales by the
Reading, Pennsylvania location due to sluggish capital spending by domestic
crude oil related industries. Sales declines in the European operations were
offset by sales by Irmel, acquired in December 1999. Wireless sales were
affected by improved hardware sales, increased demand for engineering services
and the ComOpt acquisition in February, 1999.
The consolidated gross profit percentage was 41.4% for the quarter. The
Wireless Segment traditionally has higher gross profit percentages from its
software-based products.
Selling, general and administration was 38% of sales for the first quarter of
2000. Operating results for the quarter included charges of $266 for
retention bonuses and $100 for severance costs and credits of $326 for
elimination of reserves due to collection of a note receivable and a credit
from an insurance company in connection with its conversion to a stock
company.
Research and development costs of $1,040, net of amortization, were
capitalized during the first quarter of 2000. Costs are capitalized for the
development of software for external use in accordance with Statement of
Financial Accounting Standards No. 86 "Accounting for Cost of Computer
Software to be Sold, Leased, or Otherwise Marketed." The Wireless and Access
Products Segments are responsible for most of the capitalized costs.
Interest expense related primarily to debt incurred for acquisitions.
The effective tax rate was 38% for the quarter.
Other
In order to ensure continuing value in the Company and its operating
subsidiaries, various members of management and key employees of the
subsidiaries were offered incentives to continue employment through the
completion of the subsidiary sale process. Portions of these incentives were
guaranteed to the employees, subject to their continued employment through
December 15, 2000, and were being recognized over the related service period,
including $266 charged to selling, general and administration during the first
quarter of 2000. Other incentives, including sale bonuses and severance, were
dependent on completion of sale transactions and were recognized in connection
with the subsidiary sales.
Forward-Looking Statements
This Form 10-K contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company,
including statements regarding the timing and outcome of the sale of the
Company's assets, its dissolution and liquidation and the expected
distributions therefrom. Such statements are only predictions and involve
risks and uncertainties, and actual events or performance may differ
materially from that expressed in any such forward-looking statements.
Potential risks and uncertainties include, without limitation: ultimate values
realizable for unsold assets, adjustments to subsidiary sale prices,
collection of deferred payments on sales of assets, post-closing
indemnification obligations relating to subsidiary sales, costs and expenses
relating to the dissolution, including income taxes, and the nature and amount
of any unknown contingent liabilities. Further information on factors that
could affect the Company's future financial performance can be found in the
Company's other filings with the Securities and Exchange Commission. Words
such as "estimates", "positioned", "yields", "should generate", "appears",
"viewed", "could", "would position", "expected", "does not expect" and "should
allow" indicate the presence of forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's only financial instruments with market risk exposure are short-
term cash investments which total $10,385 at January 3, 2003. Based on this
balance, a change of one percent in the interest rate would cause a change in
interest income for the period of approximately $104. This interest amount,
less a related tax effect, would have no effect on the net assets in
liquidation per outstanding share since interest income on cash investments is
not accrued in the statement of net assets in liquidation.
These financial instruments are non-trading (not entered into for trading
purposes) and carry interest at a market rate. The Company's objective in
maintaining these variable rate investments is the flexibility obtained in
having cash available for payment of accrued liabilities and distributions to
stockholders without penalties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements and notes thereto are
the responsibility of, and have been prepared by, management of the Company in
accordance with generally accepted accounting principles. Management believes
the consolidated financial statements for the quarter ended March 31, 2000,
presented on a going-concern basis, reflect fairly the results of operations
and financial position of the Company in all material respects. The
consolidated financial statements include certain amounts that are based upon
management's best estimates and judgment regarding the ultimate outcome of
transactions which are not yet complete.
As a result of adoption and approval of the plan of liquidation,
financial statements for the periods subsequent to March 31, 2000 are
presented on a liquidation basis. Accordingly, the carrying values of assets
are presented at estimated realizable values and all liabilities are presented
at estimated settlement amounts. Management believes these statements present
fairly the estimated net assets in liquidation based on facts and
circumstances available when the statements were prepared. It is not
presently determinable whether the amounts realizable from the remaining
assets or the amounts required to settle outstanding obligations will differ
materially from the amounts shown in the liquidation basis financial
statements.
Management believes that the accounting systems and related systems of
internal control are sufficient to provide reasonable assurance that assets
are safeguarded, transactions are properly authorized and included in the
accounting records, and that those records provide a reliable basis for
preparation of the Company's consolidated financial statements. Reasonable
assurance is based upon the concept that the cost of a system of internal
control must be related to the benefits derived.
The Company's financial statements for the year 2002 have been audited by
KPMG LLP, independent public accountants, as stated in their report below.
They have been appointed to perform this function by the Board of Directors of
the Company. Management has made available to KPMG LLP all of the Company's
financial records and related data, as well as the minutes of stockholders'
and directors' meetings. The Company's financial statements for the years
2001 and 2000 were audited by Arthur Andersen LLP, independent public
accountants. They had been elected to perform this function by the
stockholders of the Company.
T. S. Cobb
Chairman, President
and Chief Executive Officer
P. H. Snyder
Senior Vice President and Chief
Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Salient 3 Communications, Inc.:
We have audited the statement of net assets in liquidation of Salient 3
Communications, Inc. as of January 3, 2003, and the related statement of
changes in net assets in liquidation for the fiscal year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The 2001 and 2000 consolidated financial statements and financial
statement schedule of Salient 3 Communications, Inc. and Subsidiaries were
audited by other auditors who have ceased operations. Those auditors' report,
dated March 15, 2002, on those financial statements and financial statement
schedule was unqualified and included an explanatory paragraph that described
the change in the Company's method of accounting from the going-concern basis
to the liquidation basis of accounting, as discussed in Notes 1 and 2 to the
financial statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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
audit provides a reasonable basis for our opinion.
As described in Notes 1 and 2 to the financial statements, the Board of
Directors of Salient 3 Communications, Inc. approved a plan of liquidation on
April 17, 2000, and the Company commenced liquidation shortly thereafter. As
a result, the Company has changed its basis of accounting for periods ending
subsequent to April 17, 2000, from the going-concern basis to the liquidation
basis.
In our opinion, the 2002 financial statements referred to above present
fairly, in all material respects, the net assets in liquidation of Salient 3
Communications, Inc. as of January 3, 2003, and the changes in its net assets
in liquidation for the fiscal year ended January 3, 2003, in conformity with
accounting principles generally accepted in the United States of America
applied on the bases described in the preceding paragraph.
KPMG LLP
Philadelphia, Pennsylvania
February 26, 2003
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Salient 3 Communications, Inc.:
We have audited the accompanying consolidated statements of operations,
cash flows, and stockholders' equity for the fiscal year ended December 31,
1999 and for the three months ended March 31, 2000 of Salient 3
Communications, Inc. and Subsidiaries. In addition, we have audited the
statements of net assets in liquidation as of December 28, 2001 and December
29, 2000, and the related statements of changes in net assets in liquidation
for the fiscal year ended December 28, 2001 and the nine months ended December
29, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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.
As described in Notes 1 and 2 to the consolidated financial statements,
the stockholders of Salient 3 Communications, Inc. approved a plan of
liquidation and the Company commenced liquidation shortly thereafter. As a
result, the Company has changed its basis of accounting for the periods
subsequent to March 31, 2000, from the going-concern basis to the liquidation
basis. Accordingly, the carrying value of the remaining assets as of December
28, 2001 and December 29, 2000, are presented at estimated realizable values
and all liabilities are presented at estimated settlement amounts. It is not
presently determinable whether the amounts realizable from the remaining
assets or the amounts due in the settlement of obligations will differ
materially from the amounts shown in the accompanying financial statements.
The accompanying financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Salient 3 Communications, Inc. and Subsidiaries for the fiscal year
ended December 31, 1999 and for the three months ended March 31, 2000, their
net assets in liquidation as of December 28, 2001 and December 29, 2000, and
the changes in their net assets in liquidation for the fiscal year ended
December 28, 2001 and for the nine months ended December 29, 2000, in
conformity with accounting principles generally accepted in the United States
applied on the bases described in the preceding paragraph.
Arthur Andersen LLP
Philadelphia, Pennsylvania
March 15, 2002
This report is a copy of the prior year Report of Independent Public
Accountants and has not been reissued.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Statements of Net Assets in Liquidation (Liquidation Basis)
January 3, 2003 and December 28, 2001
(000's except for share and per share information)
January 3, December 28,
2003 2001
---------- ------------
ASSETS
Cash and cash equivalents $ 10,280 $ 12,800
Investments in liquidation 3,183 5,862
Income tax refunds receivable 890 2,489
Other assets 2,068 2,784
------ ------
Total Assets 16,421 23,935
------ ------
LIABILITIES
Accrued and other liabilities 10,133 14,951
------ ------
Net assets in liquidation $ 6,288 $ 8,984
===== =====
Number of common shares outstanding 6,214,824 6,214,824
========= =========
Net assets in liquidation per
outstanding share $ 1.01 $ 1.45
==== ====
The accompanying notes are an integral part of these financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Statements of Changes In Net Assets In Liquidation (Liquidation Basis)
For the Years 2002 and 2001 and the Nine Months Ended December 29, 2000
(000's)
Nine Months
Ended
2002 2001 December 29, 2000
---- ---- -----------------
Net assets in liquidation, beginning of period $ 8,984 $ 20,780 $ 93,985
----- ------ ------
Changes in estimated liquidation values
of assets and liabilities:
Investments in liquidation (2,107) (1,557) (11,527)
Other assets 937 567 3,174
Accrued and other liabilities 1,200 (900) 811
Income taxes 381 2,524 8,919
----- ----- ------
Net changes in estimated liquidation values 411 634 1,377
----- ------ ------
Liquidating distributions to stockholders (3,107) (12,430) (74,582)
----- ------ ------
Net assets in liquidation, end of period $ 6,288 $ 8,984 $ 20,780
===== ===== ======
Supplemental Cash Information:
Changes in cash and cash equivalents
Exercise of stock options $ - $ - $ 588
Net proceeds from sales of subsidiaries 572 7,418 137,230
Cash receipts for other assets 1,653 1,981 5,852
Payment of outstanding debt,
including accrued interest - - (18,861)
Payment of accrued liabilities (3,618) (8,959) (14,876)
Refunds (payment) of income taxes 1,980 6,364 (17,061)
Liquidating distributions to stockholders (3,107) (12,430) (74,582)
----- ------ ------
Net changes in cash and cash equivalents $ (2,520) $ (5,626) $ 18,290
===== ====== ======
The accompanying notes are an integral part of these financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations (Going-Concern Basis)
For the Three Months Ended March 31, 2000
(000's except for share and per share information)
For the Three
Months Ended
March 31, 2000
--------------
Telecommunications sales $ 25,015
Cost of goods sold 14,668
------
Gross profit 10,347
Selling, general and administration 9,616
Research and development 2,161
Goodwill amortization 507
------
Operating income (loss) (1,937)
------
Interest and other income 91
Interest expense 329
------
Pre-tax income (loss) (2,175)
------
Provision (benefit) for taxes on income (loss) (827)
------
Net income (loss) $ (1,348)
======
Net income (loss) per share of common stock (basic and diluted)$ (0.23)
======
Basic weighted average shares outstanding 5,989,073
The accompanying notes are an integral part of these financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Going-Concern Basis)
For the Three Months Ended March 31, 2000
(000's)
For the Three
Months Ended
March 31, 2000
--------------
Cash flows from operating activities:
Net income (loss) $ (1,348)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 2,026
Reserve provisions 711
Changes in current assets and current liabilities:
Accounts receivable and unbilled revenue 3,696
Inventories (1,196)
Other current assets (843)
Accounts payable and accrued salaries and wages (2,142)
Other accrued liabilities (572)
Income taxes, currently payable (89)
Other, net 47
-----
Net cash provided by operating activities 290
-----
Cash flows from investing activities:
Software development costs (1,475)
Payments for acquisitions (351)
Payments for property, plant and equipment (601)
-----
Net cash used for investing activities (2,427)
-----
Cash flows from financing activities:
Payments of long-term debt (183)
Borrowings under note payable 2,995
Issuance of treasury stock in connection
with stock purchase plan 32
Payments to acquire treasury stock (103)
Other, net (260)
-----
Net cash provided by financing activities 2,481
-----
Net increase in cash and cash equivalents 344
Cash and cash equivalents at beginning of period 1,687
-----
Cash and cash equivalents at end of period $ 2,031
=====
Supplemental cash flow disclosures:
Interest paid $ 321
=====
Income taxes paid, net of refunds received $ 150
=====
The accompanying notes are an integral part of these financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Going-Concern Basis)
For the Three Months Ended March 31, 2000
(000's except for share information)
Common Stock
-------------------------------------------------
Class A Class B
------------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Balances at December 31, 1999 8,478,729 $ 8,479 506,571 $ 506
Conversion from Class B to
Class A, net 12,441 12 (12,441) (12)
--------- ----- ------- ---
Balances at March 31, 2000 8,491,170 $ 8,491 494,130 $ 494
========= ===== ======= ===
The accompanying notes are an integral part of these financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Going-Concern Basis)
For the Three Months Ended March 31, 2000
(000's except for share information)
Foreign Deferred Class A
Capital in Currency Compensation - Treasury Stock
Excess of Warrants Retained Translation Restricted --------------------
Par Value Outstanding Earnings Adjustment Stock Shares Amount
----------- ----------- -------- ----------- -------------- ------ ------
Balances at December 31, 1999 $ 36,974 $ 1,755 $ 74,178 $ (14) $ (1,420) 2,837,709 $ (41,140)
Net loss (1,348)
Translation adjustment (63)
Restricted stock amortization 47
Purchase of treasury stock 8,263 (103)
Issuance of treasury stock in
connection with stock
purchase plan (5) (1,783) 37
------ ----- ------ -- ----- --------- ------
Balances at March 31, 2000 $ 36,969 $ 1,755 $ 72,830 $ (77) $ (1,373) 2,844,189 $ (41,206)
====== ===== ====== == ===== ========= ======
The accompanying notes are an integral part of these financial statements.
SALIENT 3 COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(000's except for share and per share information)
LIQUIDATION BASIS STATEMENTS
1. PLAN OF DISSOLUTION AND LIQUIDATION:
On April 17, 2000, the Board of Directors of Salient 3 Communications, Inc.
(the Company) adopted a Plan of Dissolution and Liquidation (the Plan). Under
the Plan, the Company will be liquidated by (i) the sale of its non-cash
assets, (ii) the payment of or providing for all of its claims, obligations
and expenses, (iii) the pro rata distribution of assets, primarily cash, to
the stockholders, and (iv) if required, the distribution of assets to one or
more liquidating trusts established for the benefit of the stockholders. The
Plan was approved by stockholders on July 21, 2000.
On August 11, 2000, the Company filed a Certificate of Dissolution with the
State of Delaware. Under Delaware law, the Company will continue to exist for
a period of three years for the purpose of winding up its affairs. The Board
of Directors and officers of the Company will continue to oversee the
liquidation and dissolution.
2. BASIS OF ACCOUNTING:
Prior to June 30, 2000, seven stockholders, who together controlled more than
51% of the issued and outstanding Class B common stock, had agreed to vote
their shares in favor of the Plan and in favor of the sales of SAFCO
Technologies, Inc. (SAFCO) and GAI-Tronics Corporation (GTC). As a result,
the Company adopted the liquidation basis of accounting for the second quarter
of 2000. Under the liquidation basis of accounting, assets are stated at
their estimated net realizable values and liabilities are stated at their
anticipated settlement amounts.
The valuation of assets and liabilities at their estimated net realizable
values and anticipated settlement amounts necessarily requires many estimates
and assumptions and there are substantial uncertainties in carrying out the
provisions of the Plan. The actual value of any liquidating distributions
will depend upon a variety of factors including, but not limited to, (i) the
actual proceeds from the sale of the Company's subsidiaries and other assets,
(ii) the ultimate settlement amounts of its liabilities and obligations,
including indemnifications provided in connection with subsidiary sale
transactions, (iii) actual costs incurred in connection with carrying out the
Plan, including administrative costs during the liquidation period, and (iv)
the actual timing of distributions. An initial liquidating distribution of
$12.00 per share was paid on September 8, 2000 to holders of Class A (non-
voting) and Class B (voting) common stock. Additional liquidating
distributions of $2.00 per share and $.50 per share were paid on December 14,
2001 and December 30, 2002, respectively, to the holders of Class A (non-
voting) and Class B (voting) common stock.
The valuations presented in the Statements of Net Assets in Liquidation
represent estimates, based on present facts and circumstances, of the net
realizable values of assets and the anticipated settlement amounts for
liabilities, including the costs associated with carrying out the provisions
of the Plan, based on the assumptions set forth in the accompanying notes.
The actual values and costs are expected to differ from the amounts shown
herein and could be higher or lower than the amounts recorded. Such
differences may be material. Accordingly, it is not possible to predict with
certainty the aggregate net values ultimately distributable to stockholders
and no assurance can be given that the amount to be received in liquidation
will equal or exceed the price or prices at which the Class A common stock has
generally traded or is expected to trade in the future.
In the Statements of Changes in Net Assets in Liquidation, the amounts
reported for changes in estimated liquidation values of assets and liabilities
represent (i) differences between actual and estimated proceeds on the sales
of assets, (ii) differences between actual and estimated settlements made on
outstanding obligations, and (iii) changes in management estimates of values
for unsold assets and outstanding liabilities.
The 2001 Statement of Net Assets in Liquidation has been reclassified to
conform with the current year presentation.
3. CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of amounts on deposit in banks and cash
invested temporarily in instruments with maturities of three months or less at
time of purchase. The Company is subject to concentration of credit risk;
however, it invests its excess cash with large banks where preservation of
principal is the main concern.
Estimated interest income on the Company's cash and short-term investments
through the final liquidation date has not been reflected in the Statements of
Net Assets in Liquidation.
4. INVESTMENTS IN LIQUIDATION:
Investments in liquidation include the estimated net realizable values of
subsidiary sale proceeds collectible after January 3, 2003 and December 28,
2001, less related unpaid costs of the sales, and, at December 28, 2001, the
estimated realizable value of the building occupied by XEL Communications,
Inc. (XEL). The building was sold in December, 2002.
On July 25, 2000, the Company completed the sale of SAFCO to Agilent
Technologies, Inc. (Agilent) for $121,426 in cash, after consideration of
certain closing balance sheet adjustments. The purchase price included
$11,000 which was placed into escrow for certain expenses and possible
indemnification claims under the representations and warranties sections of
the purchase agreement. The Company was entitled to receive distribution of
the balance remaining in the escrow account, after reduction for any
indemnification claims made by the buyer before August 29, 2001. During the
third quarter of 2001, Agilent submitted notification of an indemnification
claim to the Company. During the fourth quarter of 2001, $443 was disbursed
from the escrow account to cover expenses owed by the Company, $334 was
disbursed to pay indemnification claims and $9,388 was distributed to the
Company. Each of these disbursements included a share of interest earned by
the account. A balance of $1,500 remained in the escrow account to cover an
obligation of the Company that was not finalized at January 3, 2003.
Management estimates that this obligation, including settlement costs, will be
settled for approximately $300. This obligation is not subject to the
representations and warranties sections of the purchase agreement.
On July 26, 2000, the Company completed the sale of GTC to Hubbell
Incorporated (Hubbell) for cash of $36,246, after consideration of certain
closing balance sheet adjustments. The Company provided certain
indemnifications through July 2001 under the representations and warranties
sections of the purchase agreement. During the third quarter of 2001, Hubbell
submitted notification of a possible indemnification claim to the Company.
There has been no activity since the notification of the potential claim was
submitted, and the Company believes that if the claim is pursued, it will not
have a material effect on the net assets in liquidation. The Company has
purchased certain insurance to minimize its exposure on some, but not all, of
the areas for which they are indemnifying Hubbell.
The gross proceeds noted above are before transaction-related expenses of
approximately $10,600.
On December 29, 2000, the Company completed the sale of XEL to a company
controlled by XEL's president for $4,900, in the form of a promissory note
bearing interest payable monthly at 8%, with the principal due after 24
months. In connection with the sale, the Company loaned XEL $359 under a
working capital line of credit that expired on March 31, 2001. The working
capital loan, plus interest at 5% per annum, was due December 29, 2002. If
XEL was resold to another party prior to December 30, 2002, the Company would
receive full payment on the promissory note and working capital loan and 70%
of all proceeds in excess of $5,000. If XEL was resold after December 29,
2002 but prior to December 30, 2003, the Company would receive 50% of all
proceeds over $5,000. If there is a default in payment of the principal or
interest on the promissory note, the Company has the right to retake control
of XEL. The note and working capital loan were together valued at $1,900 in
the Statements of Net Assets in Liquidation at December 28, 2001, based on the
estimated realization values of XEL's assets.
Effective April 1, 2002, the Company entered into an amendment agreement with
the buyer of XEL to modify the promissory note and working capital loan held
in connection with the sale of XEL. The modified note and loan have reduced
principal amounts aggregating $1,900 at inception. The amendment agreement
provides for 15 monthly payments of $102, including interest of 8%, with a
balloon payment for the balance outstanding of $500 at July 31, 2003. If XEL
is resold prior to December 28, 2003, the Company would receive 50% of all
proceeds in excess of $1,900. The amendment agreement allowed the Company to
begin receiving monthly payments on the principal balance and to obtain a tax
benefit in 2002 for the reduction in face value of the note. At January 3,
2003, the aggregate unpaid balance of the note and loan is $1,171. The
reported value of the amended note in the Statements of Net Assets in
Liquidation at January 3, 2003 is net of a valuation reserve of $350 based on
the estimated realization values of XEL's net assets.
The sale of XEL excluded the building it occupies in Aurora, Colorado. On
December 26, 2002, the Company sold this building to an unrelated third party
for $200 in cash and a six-month note for $1,225. The note bears interest,
payable quarterly, at 5% per annum and is secured by the building. The value
of the building, net of sale and related costs, had been reported at $3,363 in
the Statement of Net Assets in Liquidation at December 28, 2001. Due to the
unfavorable real estate market, the estimated realizable value of the building
was reduced by $1,992 in the third quarter of 2002. This change resulted in an
estimated additional tax benefit of $641, reduced the estimated liability for
settlement of LSAR's (see note 9) by $203 and reduced the net assets in
liquidation by $1,148, or $.18 per share.
5. INCOME TAXES:
All income tax accounts have been restated to reflect the liquidation basis of
accounting. The estimated amount of income tax refunds receivable reflect
federal and state income taxes, at statutory rates, which would become
refundable if the assets are realized and liabilities settled at the amounts
shown, net of amounts accrued for potential liabilities for adjustments of
transactions reported on prior year tax returns. The estimated tax refunds at
January 3, 2003 and December 28, 2001 primarily result from anticipated
carrybacks of tax losses that arise from tax deductible costs of carrying out
the plan of liquidation and settling other accrued liabilities. The estimates
are subject to significant variation if, among other things, the actual values
of assets sold vary from current estimates, the amounts or timing of
settlement of liabilities differ from current estimates, or there are
potential adjustments related to the sales and other transactions.
6. OTHER ASSETS:
Other assets include a note receivable relating to the 1998 sale of a former
subsidiary to management of the subsidiary and an investor group. The note
has an unpaid principal balance of $2,109 at January 3, 2003 and $2,475 at
December 28, 2001 and bears interest at 8%. Principal payments of $456 and
$1,653 are due in July 2003 and 2004, respectively. The note is subordinate
to the buyer's obligations under a credit agreement with a commercial bank.
At January 3, 2003, the note plus accrued interest is valued at $1,936 in the
Statements of Net Assets in Liquidation. Other assets also include other
interest receivables.
At December 28, 2001, other assets included undeveloped land near Reading,
Pennsylvania valued at $660. On April 3, 2002, the Company completed the sale
of the undeveloped land for $651 in cash.
7. ACCRUED AND OTHER LIABILITIES:
Accrued and other liabilities include estimates of costs to be incurred in
carrying out the Plan, provisions for known liabilities and provisions for
certain asserted claims and other obligations at January 3, 2003 and December
28, 2001. The balances consist of the following:
Jan. 3, Dec. 28,
2003 2001
----------- ----------
Compensation and benefits $ 1,119 $ 3,512
Liquidation period expenses 2,760 4,527
Unfunded retirement obligations for
former employees 17 53
Accrued distributions to LSAR holders (Note 9) 1,089 1,527
Accrual for asserted claims and other
obligations (Note 11) 5,148 5,332
-------- --------
$10,133 $14,951
======== ========
Compensation and benefits include salaries of officers and employees assigned
to effect the sales and carry out the Plan, and payments under the Special
Incentive Plan approved by the stockholders to provide incentives to
executives who contributed materially to the successful sale of the operating
businesses. Liquidation period expenses include office costs, insurance, and
costs of legal, accounting and other services expected to be incurred during
the liquidation period.
The actual costs incurred could vary significantly from the related accrued
expenses due to uncertainty related to the length of time required to complete
the Plan and the outcome of certain contingencies (Note 11).
8. ADJUSTMENTS FROM GOING-CONCERN TO LIQUIDATION BASIS OF ACCOUNTING:
Stockholders' equity, March 31, 2000 (Going-Concern Basis) $ 77,883
--------
To increase investments to estimated net realizable values 79,080
To increase estimated income taxes (34,424)
To increase liabilities to anticipated settlement amounts (28,452)
To adjust other assets (102)
-------
Total adjustments 16,102
--------
Net assets in liquidation, March 31, 2000 (Liquidation Basis) $ 93,985
========
The increase in liabilities includes estimates of costs to be incurred in
carrying out the Plan and provisions for known liabilities, including Limited
Stock Appreciation Rights (Note 9). The estimated costs include legal and
accounting fees and salaries and related expenses of officers and employees
who will be assigned to complete the liquidation and dissolution.
The actual costs incurred could vary significantly from the related provisions
due to uncertainty related to the length of time required to complete the
Plan, the timing of sales of subsidiaries, and complexities which may arise in
disposing of the remaining assets and settling certain contingencies.
Interest income on the Company's cash and short-term investments through the
final liquidation date has not been reflected.
9. OPTIONS AND WARRANTS:
In April 2000, the Board of Directors authorized immediate vesting of all
outstanding restricted stock, and, effective with the first subsidiary sale,
vesting of stock options granted under the 1989 Stock Option Plan and the 1996
Long Term Incentive Plan and extension of the exercise period to the record
date of the initial liquidating distribution. The Board also added a
provision to convert all unexercised options at the record date of the initial
liquidating distribution into Limited Stock Appreciation Rights (LSAR's). In
addition, all warrant holders were given the opportunity to convert their
warrants into LSAR's. These rights entitle the holder to receive cash
payments for each share equal to the difference between the aggregate per
share liquidating distribution payable to stockholders upon liquidation and
the per share exercise price applicable to each converted option or warrant.
At March 31, 2000, there were options and warrants outstanding for the
purchase of 1,905,495 shares of the Company's common stock. Options to
purchase 5,750 shares were granted after that date and 32,300 options expired
or were forfeited. Options to purchase 76,190 shares were exercised in
August, 2000. In August, 2000, 1,097,200 options and 705,555 warrants were
converted into LSAR's. Holders of LSAR's were paid $1,866 in connection with
the initial liquidating distribution on September 8, 2000 and $1,639 and $519
in connection with the additional liquidating distributions on December 14,
2001 and December 30, 2002, respectively. The estimated remaining liability
for settlement of the LSAR's is included in accrued and other liabilities in
the Statements of Net Assets in Liquidation (Note 7).
10. LINES OF CREDIT AND OTHER LONG TERM BORROWINGS:
As a result of the completion of the sales of SAFCO and GTC (see note 4),
borrowings outstanding under working capital and acquisition lines of credit
were repaid in full on July 27, 2000 and the lines of credit were subsequently
cancelled. In addition, a note payable of $10,000, which related to the 1996
purchase of SAFCO, was repaid with the proceeds of these sales.
11. CONTINGENCIES:
Before distributing assets to its stockholders, the Company is required by
Delaware law to make provision for all known claims and obligations and any
unasserted claims that are reasonably likely to arise after the certificate of
dissolution became effective. The accrual for asserted claims and other
obligations represents management's judgment as to the estimated amounts
required to settle such claims and obligations. Ultimate settlement amounts
for such claims are expected to differ from estimates recorded as of January
3, 2003. Accordingly, it is not possible to predict with certainty the amount
required for such claims. However, management believes that the outcome will
not have a material adverse effect on the Company's net assets in liquidation.
GOING-CONCERN BASIS STATEMENTS
12. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS DESCRIPTION: The Company was a leading telecommunications equipment
and services company with subsidiaries that operated in the industrial, access
products, and wireless markets. The Industrial Segment developed, assembled,
and marketed communications systems for industrial operations. The Access
Products Segment designed and marketed voice and data transmission system
products. The Wireless Segment's products and services focused on the
measurement, analysis and predictive tools used by the wireless communication
industry.
FISCAL YEAR: The Company uses a 52-53 week fiscal year ending on the Friday
nearest December 31. The three months ended March 31, 2000 consisted of 13
weeks.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its subsidiaries. All material intercompany
transactions have been eliminated.
RECOGNITION OF REVENUE: The Company recognized revenue upon shipment of goods
and accrued costs associated with the training and installation for its
products upon shipment. The Company recognized revenue on contracts entered
into for radio frequency engineering as the work was performed. Costs and
expenses were charged to operations as incurred. Losses, estimated to be
sustained upon completion of contracts, were charged to income in the year
such estimates were determinable. The Company recognized software license
fees for perpetual licenses upon delivery of the product. If any portion of
the fees related to maintenance or support services, it was deferred and
recognized over the contract term, generally one to three years. Software
license fees for fixed-term licenses were recognized ratably over the term of
the license.
INSURANCE PROGRAMS: Through 1997, the Company's overall workers compensation
and general liability insurance coverages have contained, and in some cases do
contain, provisions for significant deductibles and funding on a claims paid
basis. Subsequent to 1997, the Company's insurance coverages do not contain
provisions for significant deductibles and funding on a claims paid basis.
INVENTORIES: Inventories, which consist of material, labor and overhead, were
determined on the first-in, first-out (FIFO) method and were stated at the
lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT: For financial reporting purposes, the Company
provided for depreciation and amortization of property, plant and equipment,
including assets under capital leases, on the straight-line method over the
estimated useful lives of the various classes of assets. For income tax
purposes, the Company used accelerated depreciation where permitted. Useful
lives of depreciable assets, by class, are as follows:
Buildings 40 years
Furniture and equipment 3 to 10 years
Costs of maintenance and repairs were charged to expense as incurred.
Renewals and improvements were capitalized. Upon retirement or other
disposition of plant and equipment, the cost of the item and related
accumulated depreciation were removed from the accounts and any gain or loss
was included in income.
SOFTWARE DEVELOPMENT COSTS: In accordance with Statement of Financial
Accounting Standards No. 86 "Accounting for Cost of Computer Software to be
Sold, Leased, or Otherwise Marketed," the Company capitalized software
development costs incurred after the establishment of technological
feasibility until the product was available for general release. Costs
incurred prior to the establishment of technological feasibility were charged
to research and development expense as incurred. In the three months ended
March 31, 2000, the Company capitalized $1,475 of software development costs.
Costs were amortized over the greater of the ratio of current revenues to
total anticipated revenues or on a straight-line basis over the estimated
useful lives of the products (2 to 3 years) beginning with the initial release
to customers. Such amortization amounted to $435 in the first quarter of
2000.
GOODWILL: Goodwill was being amortized by charges to operations on a
straight-line basis over periods of 10 to 20 years for acquisitions since 1996
and over 40 years for earlier acquisitions, and such amortization amounted to
$507 in the first quarter of 2000. Goodwill related to a pre-1970 acquisition
in the amount of $540 was not being amortized and, in the opinion of
management, there had been no decrease in value.
The Company periodically reviewed goodwill to assess recoverability, and
impairments were recognized in operating results if a permanent diminution in
value had occurred. The Company's primary financial indicator for assessing
recoverability of goodwill was whether a subsidiary was projected to generate
sufficient income and cash flow on an undiscounted basis.
INCOME TAXES: The Company utilized the liability method of accounting for
income taxes. Under this method, deferred income taxes were determined based
on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates.
RESEARCH AND DEVELOPMENT: Expenditures relating to the development of new
products and processes, including significant improvements, refinements and
engineering support to existing products, were expensed as incurred.
STATEMENTS OF CASH FLOWS: For purposes of the consolidated statements of cash
flows, the Company considered all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. The ultimate results could differ from those estimates.
EARNINGS PER SHARE: Dilutive shares outstanding were determined on the
assumption that all outstanding options, warrants and shares of restricted
stock with a strike price below the average stock price for the period, would
be exercised and the related shares issued. Dilutive shares outstanding for
the first quarter of 2000 were 6,083,780. These additional shares had an
insignificant effect on the net income per share for the three months ended
March 31, 2000.
Options and warrants to purchase 1,303,655 shares as of March 31, 2000, at
prices ranging from $10.38 to $18.00, were outstanding, but were not included
in the computation of diluted earnings per share because the exercise price
was greater than the average market price for the period.
13. INCOME TAXES:
Income tax benefits for the three months ended March 31, 2000 consisted of the
following:
Current:
Federal $ (740)
State and foreign (87)
-----
$ (827)
=====
A reconciliation of the statutory income tax rate to the effective tax rate
for the three months ended March 31, 2000 follows:
Federal statutory tax rate (34.0)%
State and foreign taxes (2.6)
Amortization of goodwill 1.7
Application of annualized effective tax rate (2.8)
Other, net (0.3)
----
Effective tax rate (38.0)%
====
14. POSTRETIREMENT BENEFITS:
Substantially all regular, full-time employees of the Company and its
subsidiaries were participants in various defined contribution retirement
plans. Employer contributions under these plans were generally at the
discretion of the Company, based upon profits and employees' voluntary
contributions to the plans. Company contributions charged to operations in
the first quarter of 2000 totaled $401.
15. CAPITAL STOCK:
Except for voting privileges, shares of Class A and Class B common stock are
identical. Class B stockholders must be either directors of the Company, or
active employees of the Company or its subsidiaries. They may not sell or
transfer such stock without having first extended an offer of sale to the
Company.
As of March 31, 2000, there were 11,000,000 authorized shares, 10,000,000
shares of which are common stock and 1,000,000 shares of which are preferred
stock. No shares of preferred stock were outstanding as of March 31, 2000.
A Stock Purchase Assistance Plan authorized the Company to extend loans to
officers and other key employees for the purpose of acquiring Company stock.
The loans bore market rate interest, due quarterly, with principal payments
generally due in 10 equal annual installments. All loans were fully repaid
during the year 2000.
16. STOCK OPTION, AWARD AND PURCHASE PLANS:
The 1996 Long Term Incentive Plan provided for the granting of 1,100,000 stock
options, stock appreciation rights and shares of restricted stock. At
December 31, 1999, an aggregate of 1,950 options, rights, and restricted
shares were available for future grants.
The Long Term Incentive Plan also provided for grants of restricted stock.
These shares vested over a three to ten year period, depending upon certain
financial achievements. The value of the shares at the time of issuance was
recorded in stockholders' equity and amortized over the vesting period.
Through 1999, $475 had been expensed. As of December 31, 1999, 156,250
restricted shares were outstanding.
The Directors' Stock Option Plan provided for the granting of 125,000 stock
options at an exercise price of 75% of market value at the date of grant.
Participating directors pre-paid the additional 25% of the exercise price from
a portion of their annual retainers allocated for that purpose, as an
alternative to cash payments of such amounts. At December 31, 1999, options
to purchase 48,810 shares were available for issue.
The 1989 Stock Option Plan provided for issuance of stock options to purchase
an aggregate of 250,000 shares of Class B common stock at a price not less
than 75% of the fair market value at the date of grant, and with terms not
exceeding ten years. Authority to issue additional options expired in 1999.
A summary of stock option activity related to the plans mentioned above is as
follows:
Weighted Number of
Number of Option Price Average Price Shares
Shares Per Share Per Share Exercisable
--------- ------------ ----------- -----------
Outstanding at
Dec. 31, 1999 1,231,190 $ 5.50-$16.00 $11.01 440,545
Granted 3,500 $ 7.00-$12.50 $ 9.49
Exercised - - -
Expired (34,750) $ 6.50-$12.75 $ 9.60
---------
Outstanding at
Mar. 31, 2000 1,199,940 $ 5.50-$16.00 $11.05 502,619
=========
The weighted average price per share of exercisable options at March 31, 2000
was $12.91. The weighted average option life remaining at March 31, 2000 was
approximately 8 years.
The Company had elected to continue to follow the Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations to account for its stock options. The following pro forma
amounts, in accordance with the disclosure requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), were determined as if the Company had accounted for
its stock options using the fair value method as described in that statement:
Three Months Ended
March 31, 2000
--------------------
Net income (loss) $(1,457)
Net income (loss) per share of
common stock $(0.24)
The fair value was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for 2000:
risk free interest rate of 6.5%; dividend yield of 0.0%; volatility factor of
31.3%; and average stock option expected life of 5.
The weighted average fair value of stock options granted was $3.79 per share
in 2000.
Under the Stock Bonus Purchase Plan, certain employees and directors may use
up to 50% of their annual incentive compensation and directors fees,
respectively, to purchase shares of common stock at fair market value.
Employees purchasing shares received a stock bonus as determined by the Board
of Directors each year. The Company may grant an aggregate of 200,000 shares
under this plan. During 2000, no shares were issued under this plan. As of
December 31, 1999, 68,866 shares had been issued, and 131,134 shares remain
available for future grants.
17. SPECIAL CHARGES:
In connection with the Company's actions to sell its subsidiaries, various
members of management and key employees were offered incentives to continue
employment through the completion of the sale process. Portions of these
incentives are guaranteed to the employees subject to continued employment
through December 15, 2000, and the cost will be recognized over the related
service period. Other incentives, including sale bonuses and severance, are
dependent on completion of sale transactions and will be recognized if and
when there is a triggering event.
In the first quarter of 2000, the Company accrued for retention bonuses of
$266 and severance costs of $100. The Company also eliminated reserves of
$326 due to collection of a note receivable and credits from an insurance
company in connection with its conversion to a stock company. The net effect
of these adjustments was a $40 increase in selling, general and administration
expense.
18. OPERATING LEASES:
The Company leased, as lessee, facilities, data processing equipment, office
equipment and automobiles. Total rental expense under operating lease
agreements amounted to $679 in the first quarter of 2000.
In December 1999, the Company entered into a contract for the sale and
leaseback of the Industrial Segment's headquarters and manufacturing facility.
The property had a net book value of $3,534 at the sale date. A gain on the
sale of $1,784 was deferred and was being amortized into income over the lease
term as a reduction of rent expense. The initial lease term is 14 years with
a 2-year renewal option. The minimum annual rental cost approximates $677.
19. FINANCIAL INSTRUMENTS:
Financial instruments which potentially subject the Company to the
concentration of credit risk, as defined by SFAS No. 105, consisted
principally of accounts receivable. Concentration of credit risk with respect
to receivables was limited, as the majority of the balance represents billings
for work performed or products sold to various financially secure companies.
20. COMMITMENTS AND CONTINGENCIES:
In July 1998, the Company sold its Resource Consultants, Inc. (RCI) subsidiary
to the management of RCI and an investor group. Pursuant to the Stock
Purchase Agreement, the Company agreed to indemnify, defend and hold harmless,
the buyers of RCI against certain litigation, claims or judgments brought or
continued against the Company arising out of the actions or operations of its
former RCI subsidiary.
Various other lawsuits, claims and contingent liabilities arise in the
ordinary course of the Company's business. While the ultimate disposition of
any of these contingencies is not determinable at this time, management
believes that there are no current outstanding liabilities that will
materially affect the Company's financial position or results of operations.
21. SEGMENT INFORMATION:
The Company had three reportable segments: Industrial, Access Products and
Wireless. The Industrial Segment developed, assembled and marketed
communication systems for industrial operations. Industrial communication
products were designed to operate under extraordinary plant conditions and
provide emergency notification. In addition, the segment included land mobile
radio communications devices. The Access Products Segment designed and
marketed voice and data transmission system products. The access products
provided access to telecommunications services and automated monitoring and
maintenance of telecommunications network performance. The Wireless Segment's
products and services focused on the measurement and analysis of signal
strength, data communications and radio frequency transmitted between the
wireless phone and cellsites. The Wireless Segment also provided radio
frequency engineering design services.
Each reportable segment operated as a separate, standalone business unit with
its own management.
The Company evaluated segment performance based on profit or loss from
continuing operations before income tax, goodwill amortization and corporate
overhead allocation. Profit or loss from continuing operations was determined
in accordance with generally accepted accounting principles described in the
summary of significant accounting policies. Intersegment sales were not
significant. Identifiable assets were those assets used in the operations of
a reportable segment and excluded goodwill and deferred taxes. Corporate
assets included land, deferred income taxes and other corporate assets.
Information about the Company's operations by segment for the three months
ended March 31, 2000 is as follows:
Industrial Access Products Wireless Consolidated
- --------------------------------------------------------------------------------------
Three months ended March 31, 2000:
Telecommunications sales $13,614 $3,392 $8,009 $25,015
====== ====== ====== ======
Segment profit (loss) $ (24) $ (612) $ 214 $ (422)
====== ====== ======
General interest expense (294)
General corporate expenses (1,043)
Goodwill amortization (507)
Interest and other income 91
------
Pre-tax loss $(2,175)
====================================================================================
Identifiable assets $28,719 $13,894 $24,080 $ 66,693
====== ====== ======
Corporate assets 21,625
Goodwill 34,606
------
Total assets, March 31, 2000 $122,924
===================================================================================
Depreciation $ 436 $ 150 $ 488
==== ==== ====
Capital expenditures $ 302 $ 162 $ 228
===== ==== ====
Reconciliation of Other Significant Items:
Geographic Information Sales Long Lived Assets
- ----------------------------- ------ ----------------------
United States $ 17,742 $ 23,382
United Kingdom 2,610 904
Japan 1,027 64
Israel 644 -
Italy 639 295
Brazil 562 70
Other foreign countries 1,791 564
------- -------
$ 25,015 $ 25,279
====== ======
Sales to Major Customers:
Sales to a customer of the Company's Access Products Segment represented
approximately $2,224, or 9% of the Company's consolidated sales. Sales to a
customer of the Company's Industrial and Wireless Segments represented
approximately $2,458, or 10% of the Company's consolidated sales.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company filed Form 8-K, dated June 14, 2002, and Form 8-K/A, dated July 1,
2002, to report a change in accountants, as described below.
On June 10, 2002, the Company dismissed Arthur Andersen LLP (Andersen) as the
Company's independent public accountants and engaged KPMG LLP to serve as the
Company's independent public accountants for fiscal 2002. The decision to
change independent public accountants was recommended by the Audit Committee
and approved by the Board of Directors of the Company.
Andersen's reports on the Company's consolidated financial statements for the
fiscal years 2001 and 2000 did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles.
The Company's financial statements for the fiscal year ended December 28, 2001
and the nine months ended December 29, 2000 were prepared on the liquidation
basis of accounting. Accordingly, the carrying values of assets are presented
at estimated realizable values and all liabilities are presented at estimated
settlement amounts. Andersen's reports on the financial statements stated
that it is not presently determinable whether the amounts realizable from the
remaining assets or the amounts due in settlement of obligations will differ
materially from the amounts shown in the audited financial statements.
During the Company's fiscal years 2001 and 2000 and through the date of the
Form 8-K/A filing, there were no disagreements with Andersen on any matter of
accounting principle or practice, financial statement disclosure or auditing
scope or procedure which, if not resolved to Andersen's satisfaction, would
have caused them to make reference to the subject matter in connection with
their report on the Company's financial statements for such years. There were
no reportable events as defined in Item 304 (a)(1)(v) of Regulation S-K.
The Company provided Andersen with a copy of the foregoing disclosures.
Attached to the Form 8-K and Form 8-K/A as Exhibit 16 is a copy of Andersen's
letter, dated June 12, 2002, stating its agreement with such statements.
During the fiscal years 2001 and 2000 and through June 10, 2002, the Company
did not consult with KPMG LLP with respect to the application of accounting
principles to a specified transaction either completed or proposed, or the
type of audit opinion that might be rendered on the Company's financial
statements, or any other matters or reportable events as set forth in Items
304 (a)(2)(i) and (ii) of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and present positions of the directors and executive
officers of Salient 3 Communications, Inc. as well as other relevant
information are set forth below:
Year In Which
First Became
Name Age Position With Company Director
---- --- --------------------- -------------
John W. Boyer, Jr. . . . . 74 Director 1984
Timothy S. Cobb . . . . . . 61 Chairman of the Board, President 1993
and Chief Executive Officer
Thomas F. Hafer . . . . . . 54 Senior Vice President, General Counsel ----
and Secretary
Paul H. Snyder . . . . . . 55 Senior Vice President, Chief 1995
Financial Officer and Director
Donald K. Wilson, Jr. . . 67 Director 1990
Mr. Boyer retired in May 1993 as Chairman of Philadelphia Suburban
Corporation whose principal subsidiary, Philadelphia Suburban Water
Company, is a regulated water utility. Mr. Boyer served in various senior
executive positions with that company since 1981. He is a director of The
Rittenhouse Trust Company.
Mr. Cobb has been Chairman of the Board since July 1995, Chief
Executive Officer of the Company since March 1994 and President and Chief
Operating Officer of the Company since October 1993. He served as
President of Gilbert/Commonwealth, Inc., then a subsidiary of the Company,
from January 1991 to September 1993 and as President of GAI-Tronics, a
subsidiary of the Company, from June 1988 to December 1990. He is a
director of Central Vermont Public Service Corporation.
Mr. Hafer was appointed Vice President of the Company in September 1995
and Senior Vice President in February 1997. He has served as General
Counsel and Corporate Secretary of the Company since February 1994. Mr.
Hafer served as President of Green Hills Management Company, a division of
the Company, from September 1993 until July 1997. He served as Vice
President of Green Hills Management Company from February 1991 through
September 1993.
Mr. Snyder was appointed Vice President of the Company in August 1995
and Senior Vice President in February 1997. He has been Chief Financial
Officer of the Company since August 1995. He served as Vice President and
Chief Financial Officer of The Dreyfus Corporation from August 1994 until
joining the Company. For more than five years prior to joining Dreyfus,
Mr. Snyder served as Senior Vice President and Chief Financial Officer of
Mellon PSFS. Mr. Snyder became Executive Vice President and Chief
Financial Officer of DecisionOne Corporation, a provider of multivendor
computer maintenance services, in September 2002. He had been Senior Vice
President and Chief Financial Officer since February 2001.
Mr. Wilson is currently a partner of DKWilson Associates LLC,
management consultants, in Hartford, Connecticut. From 1994 until the end
of 1998, Mr. Wilson was a consultant with American Phoenix Corporation of
Connecticut, an insurance brokerage company. In 1994, he retired as
Executive Vice President of The Hartford Steam Boiler Inspection and
Insurance Company, which he had served in various capacities since 1962 and
which is engaged in insurance underwriting, investments and engineering.
He is also a director of Spencer Turbine Company in Windsor, Connecticut.
The terms of office for all directors will expire at the completion of
the Company's dissolution and liquidation.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors,
officers and persons who own more than 10% of a registered class of the
Company's equity securities to file with the SEC initial reports of ownership
and reports of changes in ownership of the Company's common shares. These
persons are also required to furnish the Company with copies of Section 16(a)
forms they file.
To our knowledge, based solely on the review of such reports furnished to
us and written representations from these individuals that no other reports
were required, during fiscal 2002 such individuals complied with all Section
16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
Dollar amounts in Item 11 are in actual dollars and are not rounded.
Summary of Cash and Certain Other Compensation
The following table shows, for fiscal 2002, 2001 and 2000, the cash
compensation paid by the Company, as well as other compensation paid, accrued
or awarded for those years, to the Company's Chief Executive Officer and to
each of the remaining most highly compensated Executive Officers whose total
annual salary and bonus exceeded $100,000 in fiscal 2002 (collectively, the
"Executive Officers").
Summary Compensation Table
Long-Term Compensation
----------------------------------
Awards Payouts
--------------------- ----------
Annual Restricted Securities
Name and Compensation Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Awards(2) Options(3) Payouts(4) Compensation
------------------ ---- ------ ----- ---------- ---------- ---------- ------------
T. S. Cobb. . . . . . . . . . . 2002 $ 0 $ 0 $ 0 0 $113,500 $413,817 (5)
President & Chief 2001 0 918,000(1) 0 0 295,500 $737,688 (6)
Executive Officer 2000 300,000 50,000(1) 0 0 1,419,221 882,887 (7)
T. F. Hafer. . . . . . . . . . 2002 $215,000 $ 0 $ 0 0 $ 35,100 $251,850 (5)
Sr. Vice President, General 2001 163,077 573,750(1) 0 0 92,400 317,924 (6)
Counsel & Secretary 2000 206,725 62,708(1) 0 0 731,041 67,700 (7)
P. H. Snyder. . . . . . . . . . 2002 $215,000 $ 0 $ 0 0 $ 37,000 $257,432 (5)
Sr. Vice President & 2001 163,077 573,750(1) 0 0 107,000 324,804 (6)
Chief Financial Officer 2000 214,926 64,167(1) 0 0 739,291 68,739 (7)
____________
(1)The payments in 2001 represent amounts the Executive Officers are
entitled to receive under the Company's Special Incentive Plan as a
result of the completion of the sales of the Company's subsidiaries.
As of January 3, 2003, the Company has accrued $30,000 as the estimated
remaining amount payable for sale bonus awards. The Executive Officers
are eligible to receive an aggregate of 90% of the award pool. The
amounts indicated for 2000 were paid under the Company's Annual
Incentive Plan.
(2)In connection with the adoption of the Plan in April 2000, the Board of
Directors authorized full vesting of all restricted stock. At January
3, 2003, Mr. Cobb held 80,500 shares, which had been awarded as
restricted stock, with an aggregate value (after the $14.50 per share
of liquidating distributions) of $48,300; Mr. Snyder held 30,300 shares
valued at $18,180 and Mr. Hafer held 30,300 shares valued at $18,180.
(3)In July 2000, all outstanding stock options were fully vested. In August
2000, all options were converted to Limited Stock Appreciation Rights
(LSAR) entitling the holder to receive cash payments equal to the
difference between the aggregate per share liquidating distribution
payable to stockholders upon liquidation and the per share exercise price
applicable to each converted option. At January 3, 2003, Mr. Cobb, Mr.
Hafer and Mr. Snyder held 252,000, 78,700 and 84,000 LSARs respectively.
(4)Payouts under the Long-Term Incentive Plans (LTIP) during 2002 and 2001
consisted of liquidating distributions on LSARs. Payouts under the LTIP
during 2000 include the following:
Mr. Cobb Mr. Hafer Mr. Snyder
-------- --------- ----------
Restricted stock vesting $777,328 $292,584 $292,584
Deferred dividends on
restricted stock 24,950 8,750 8,750
Benefit equalization plan 479,443 382,957 382,957
Liquidating distribution
on LSARs 137,500 46,750 55,000
--------- ------- -------
$1,419,221 $731,041 $739,291
========= ======= =======
(5)Includes: (a) for Mr. Cobb, Mr. Snyder and Mr. Hafer, non-compete
payments of $413,817, $245,532 and $239,950, respectively; (b) for Mr.
Snyder and Mr. Hafer, Company contributions of $11,900 to each of their
accounts under the Company's Retirement Savings Plan.
(6)Includes: (a) for Mr. Cobb, Mr. Snyder and Mr. Hafer, non-compete
payments of $560,338, $312,904 and $306,024, respectively; (b) for Mr.
Cobb, severance of $177,350; (c) for Mr. Snyder and Mr. Hafer, Company
contributions of $11,900 to each of their accounts under the Company's
Retirement Savings Plan.
(7)Includes: (a) for Mr. Cobb, Mr. Snyder and Mr. Hafer, non-compete
payments of $858,462, $47,231 and $46,192, respectively; (b) for Mr.
Cobb, Mr. Snyder and Mr. Hafer, Company contributions of $11,900 to each
of their accounts under the Company's Retirement Savings Plan and $1,275
to each of their accounts in the Company's Stock Purchase Program; (c)
for Mr. Cobb, Mr. Snyder and Mr. Hafer, taxable expense reimbursements of
$11,250, $8,333 and $8,333, respectively.
Stock Options
No stock options were granted to Executive Officers during 2002
Aggregate Option Exercises and Year-End Values
No stock options were exercised by Executive Officers during 2002. In
August 2000, all outstanding stock options were converted to LSARs (see
Note 3 to Summary Compensation Table).
Compensation Committee Interlocks
There were no Executive Development Committee interlocks in 2002.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Effective January 1, 2000, the Executive Officers entered into
individual employment agreements with the Company. Mr. Cobb serves as
president and chief executive at an initial base salary of $390,000 per
year. Mr. Hafer serves as senior vice president, general counsel and
secretary at an initial base salary of $215,000 per year. Mr. Snyder
serves as senior vice president and chief financial officer at an initial
base salary of $220,000 per year.
In addition, each of Messrs. Hafer, Snyder and Cobb are eligible to
receive target annual incentive compensation equal to 35%, 35% and 75%,
respectively, of his base salary, with the maximum annual incentive
compensation to be equal to 70%, 70% and 150%, respectively, of his base
salary.
The initial term of each Executive Officer's employment agreement is
two years and is automatically extended for successive one-year periods,
beginning on January 1, 2002, and each January 1 thereafter, unless the
Company terminates the agreement by written notice to the executive at
least 90 days beforehand, or there is a change of control of the Company,
in which case the term is automatically extended for two years beginning on
the date of the change in control.
A change in control is defined in the employment agreements to include
a sale of substantially all of the Company's assets, which occurred by
virtue of the sale of the Company's subsidiaries, or approval of the
dissolution and the plan of liquidation, which occurred in July 2000.
Within two years after a change in control, if the Company terminates
any of the three executives without cause, other than due to death or
disability, or the executive terminates his employment for good reason, the
Company will provide him with:
.. a cash lump sum payment of:
- any unpaid base salary through his termination date;
- for Mr. Cobb only, as severance payment, an amount equal to the sum of his
base salary plus his target annual bonus for the year of termination;
.. as a non-compete payment, an amount equal to two times his base
salary plus his target annual bonus, each for the year of
termination, payable in twenty-four equal monthly installments
starting as soon as practicable after his termination date;
.. continuing benefits under the Company's welfare benefit plans and
programs for two years following termination, plus an additional
year for Mr. Cobb;
.. outplacement services for twelve months, not to exceed 15% of his base
salary; and
.. any other compensation or benefits owed under his employee
agreement or any of the Company's plans or programs, including for
Mr. Hafer, a benefit equalization plan equal to the benefit that
would be payable to Mr. Snyder if his employment were terminated
at such time.
The employment agreements also provide that, if any payment(s) the
Company makes to an executive, whether under his employment agreement or
otherwise, cause that executive to incur an excise tax under Section 4999
of the Internal Revenue Code (relating to parachute payments made in
connection with a change in control), the Company will make an additional
tax "gross-up" payment to him such that, after the payment of all taxes due
with respect to both the initial payments(s) and the tax "gross-up" payment
(including any related penalties or interest), the executive receives a net
payment equal to the amount he would have received had the excise tax under
Section 4999 of the Internal Revenue Code not applied.
Each executive originally agreed in his employment agreement not to
compete with the Company for one year after his termination date in any
geographic area where the Company's businesses are operated. Additionally,
each executive has agreed not to solicit the Company's employees for one
year after his termination date and to maintain the confidentiality of the
Company's information. Effective as of June 1, 2000, the employment
agreements were amended, with the consent of each of the three executives.
The amendments extend the promises not to compete and not to solicit
employees to two years following termination of the executive's employment
and expand them to prohibit competition with, and solicitation of employees
of, the Company and the businesses of the Company's subsidiaries, whether
or not such subsidiaries continue to be subsidiaries of the Company.
Mr. Cobb's employment was terminated September 30, 2000 and Mr. Hafer's
and Mr. Snyder's employment was terminated October 31, 2000. Mr. Hafer and
Mr. Snyder have been re-engaged in their former positions at revised
compensation levels to oversee the liquidation and dissolution.
In 1989, the Board of Directors adopted a Benefit Equalization Plan
which provides supplemental retirement income to several retired officers
of the Company and its subsidiaries. In 1997, the Board added Messrs.
Cobb, Snyder and Hafer to the Plan. Payments under the Plan will be made
to those three Executive Officers only to the extent that income from
Social Security, the Company-paid portions of Company retirement plans, and
the value of any restricted stock which has vested by the passage of time
do not equal 50% of an individual's average annual salary for the three
highest paid years. The plan is unfunded and terminates for a participant
upon termination of employment for any reason other than retirement, death
or disability. However, if a participant is terminated for any reason
within three years following a change in control, (as defined in the plan)
then he will be entitled to receive a lump sum payment, in lieu of any
other benefits under the plan, equal to the actuarial present value of the
payment to which he would have otherwise become entitled had he retired
upon the date of such termination. That lump sum payment will not be
reduced to reflect its commencement prior to the participant's normal
retirement date under the plan (age 65). Pursuant to Mr. Hafer's
employment agreement with the Company, upon termination of his employment
with the Company for any reason following a change in control, Mr. Hafer
will be entitled to a benefit under the plan equal to the benefit that
would be payable to Mr. Snyder under the plan if he were terminated at the
time of Mr. Hafer's termination. Following the change in control and
termination of these executives, Mr. Cobb, Mr. Hafer and Mr. Snyder were
paid $479,443, $382,957 and $382,957, respectively, under this plan in
2000.
In December 1999, the Board of Directors adopted the Special Incentive
Plan in order to provide incentives for the Company's executives who are in
positions to contribute materially to the successful sale of the Company's
business. The plan was amended on May 16, 2000 in order to qualify for an
exemption from the limitations of Section 162(m) of the Internal Revenue
Code and was approved by the stockholders on July 21, 2000. The Executive
Officers are eligible to receive sale bonus awards based on the aggregate
net proceeds the Company receives from sales of its subsidiaries, less
certain indebtedness and other liabilities. The final amount of the sale
bonus awards is uncertain, pending receipt of amounts held in escrow and
collectible under promissory notes and the determination of the cost of all
obligations during the period of dissolution. During 2001, Mr. Cobb, Mr.
Snyder and Mr. Hafer received payments of $918,000, $573,750 and $573,750,
respectively, under the Plan. As of January 3, 2003, the Company has
accrued $30,000 as the estimated remaining amount payable for sale bonus
awards. The Executive Officers are eligible to receive an aggregate of 90%
of the award pool.
Director Compensation
Each Board member, other than officers of the Company, receives an
annual retainer of $18,000; committee chairmen receive an additional
$5,000. Each such director also receives $1,000 for each committee or
Board meeting attended.
In 1996 the Board adopted, and the stockholders approved, the
Directors' Stock Option Plan. Under the terms of that plan, each non-
employee Board member may elect to receive stock options in lieu of all or
a specified portion of his annual retainer to be earned during that year.
In July 2000, all outstanding options were fully vested and the options
were exercised prior to the Company filing its certificate of dissolution.
ITEM 12. BENEFICIAL OWNERSHIP OF EQUITY SECURITIES BY CERTAIN PERSONS AND
RELATED STOCKHOLDER MATTERS
As of February 14, 2003, the number and percentage of equity securities
of the Company beneficially owned by (i) each of the directors, (ii) each
Executive Officer named in the Summary Compensation Table, (iii) all
Executive Officers and directors of the Company as a group and (iv) all
holders of more than five percent (5%) of the Class B common stock are set
forth in the following table:
Class B Percentage Class A Percentage
Individuals Common Stock of Class (1) Common Stock Of Class(1)
----------- ------------ ------------ ------------ ------------
J. W. Boyer, Jr. . . . 810 * % 14,400 *
T. S. Cobb . . . . . . 128,001 48.9 4,455 *
T. F. Hafer . . . . . 40,400 15.4 --- ---
P. H. Snyder . . . . . 57,239 21.9 --- ---
- -
D. K. Wilson, Jr. . . . 2,585 * 17,975 *
All Executive Officers,
directors as a group
(five persons) 229,035 87.5 36,830 *
M.D. James (2). . . . . 17,070 6.5
(1) Asterisks indicate beneficial ownership of less than 1% of the
outstanding shares of the class.
(2) Mr. James was Vice President and Treasurer of the Company.
As of January 3, 2003, there are no compensation plans under which equity
securities are authorized for issuance upon exercise of outstanding
options, warrants or rights. Because the Company is undergoing
liquidation and dissolution, it cannot issue any equity securities. In
August, 2000, all previously outstanding options and warrants were
converted to Limited Stock Appreciation Rights, as described elsewhere in
this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions with management or other related parties during
2002.
ITEM 14. CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures that is
designed to ensure that information required to be disclosed by the Company in
this Form 10-K, and in other reports required to be filed under the Securities
Exchange Act of 1934, is recorded, processed, summarized and reported within
the time periods specified in the rules and forms for such filings.
Management of the Company, under the direction of the Company's Chief
Executive Officer and Chief Financial Officer, have reviewed and evaluated the
effectiveness of the Company's disclosure controls and procedures within 90
days prior to the date of this report. Based on that review and evaluation,
the Chief Executive Officer and Chief Financial Officer have concluded that
the disclosure controls and procedures are effective in providing them with
material information relating to the Company as required to be disclosed in
the Company's periodic filings under the Exchange Act.
There were no significant changes in the Company's internal controls, or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The financial statements filed herewith under Part II, Item 8,
include the statements of net assets in liquidation
(liquidation basis) as of January 3, 2003 and December 28,
2001, the statements of changes in net assets in liquidation
(liquidation basis) for the years 2002 and 2001 and the nine
months ended December 29, 2000, and the consolidated statements
of operations, stockholders' equity and cash flows (going-
concern basis) for the three months ended March 31, 2000 of
Salient 3 Communications, Inc. and its subsidiaries.
(b) The Company did not file any Form 8-K during the fourth quarter of 2002.
(c) Exhibits.
2 Plan of Dissolution and Liquidation approved by the
stockholders on July 21, 2000. Incorporated by
reference to Annex F to the Proxy Statement for the
Annual Meeting of Stockholders held July 21, 2000.
3.1 Amended Certificate of Incorporation of Salient 3
Communications, Inc. as currently in effect.
Incorporated by reference to Exhibit 3(i) to the
Quarterly Report of the Company on Form 10-Q for the
period ended July 4, 1997 (File No. 0-12588).
3.2 Amended By-laws of Salient 3 Communications, Inc. as
currently in effect. Incorporated by reference to
Exhibit 3(ii) to the Quarterly Report of the Company on
Form 10-Q for the period ended July 4, 1997 (File No. 0-
12588).
10.1 Stock Purchase Agreement dated as of June 6, 2000
between Salient 3 Communications, Inc. and Hubbell
Incorporated. Incorporated by reference to Annex A to
the Proxy Statement for the Annual Meeting of
Stockholders held July 21, 2000.
10.2 Stock Purchase Agreement dated as of May 11, 2000
between Agilent Technologies, Inc. and Salient 3
Communications, Inc. Incorporated by reference to Annex
C to the Proxy Statement for the Annual Meeting of
Stockholders held July 21, 2000.
10.3 Escrow Agreement dated as of July 25, 2000 between Chase
Manhattan Bank and Trust Company, NA, Agilent
Technologies, Inc. and Salient 3 Communications, Inc.
Incorporated by reference to Annex D to the Proxy
Statement for the Annual Meeting of Stockholders held
July 21, 2000.
10.4 Purchase Agreement between Salient 3 Communications,
Inc., a Delaware corporation, as Seller, and Sidford
Capital LLC, a Colorado Limited Liability Company, as
Purchaser, dated as of November 22, 2002, for 17101 E.
Ohio Place, Aurora, Colorado, as amended by the First
Amendment to Purchase Agreement, dated on or about
December 20, 2002, by and between Salient 3
Communications, Inc., as Seller, and Sidford Capital, LLC,
as Buyer.
The following Exhibits 10.5 through 10.8 are
compensatory plans or arrangements required to be filed
as exhibits to this Annual Report on Form 10-K pursuant
to Item 14(c):
10.5 Salient 3 Communications, Inc. Employment Agreement with
Timothy S. Cobb, effective January 1, 2000.
Incorporated by reference to Exhibit 10.1 of the
Quarterly Report of the Company on Form 10-Q for the
fiscal period ended June 30, 2000 (File No. 0-12588).
10.6 Salient 3 Communications, Inc. Employment Agreement with
Paul H. Snyder, effective January 1, 2000. Incorporated
by reference to Exhibit 10.2 of the Quarterly Report of
the Company on Form 10-Q for the fiscal period ended
June 30, 2000 (File No. 0-12588).
10.7 Salient 3 Communications, Inc. Employment Agreement with
Thomas F. Hafer, effective January 1, 2000.
Incorporated by reference to Exhibit 10.3 of the
Quarterly Report of the Company on Form 10-Q for the
fiscal period ended June 30, 2000 (File No. 0-12588).
10.8 Salient 3 Communications, Inc. Special Incentive Plan,
effective December 7, 1999. Incorporated by reference
to Annex I to the Proxy Statement for the Annual Meeting
of Stockholders held July 21, 2000.
16 Letter from Arthur Andersen LLP to the Securities and
Exchange Commission, dated June 12, 2002. Incorporated
by reference to Exhibit 16 of Form 8-K/A dated July 1,
2002.
21 The Company had no subsidiaries at the close of business
on January 3, 2003. All previously owned subsidiaries
were sold on or before that date.
99.1 Annual Report on Form 11-K, pursuant to Section 15(d) of
the Securities Exchange Act of 1934, of the Stock
Purchase Program for Employees of Salient 3
Communications, Inc. and its subsidiaries for the year
ended December 31, 2002. (To be filed by amendment.)
99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.3 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(d) Financial Statement Schedule II, Valuation and Qualifying Accounts
and Reserves is set forth below.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Salient 3 Communications, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in this Form 10-K, and have
issued our report thereon dated March 15, 2002. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule referred to in Item 14(d) in this Form 10-K is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Philadelphia, Pennsylvania
March 15, 2002
This report is a copy of the prior year Report of Independent Public
Accountants on Schedule and has not been reissued.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the three months ended March 31, 2000
Column A Column B Column C Column D Column E Column F
Balance at Additions Balance at
Beginning Charged to Other End of
Description of Period Costs and Expenses Deductions Changes Period
----------- --------- ------------------ ---------- ------- ------
Three months ended March 31, 2000:
Allowance for doubtful accounts $1,556 $ 462 $ 57 (A) $ 3 (B) $1,964
===== ===== ===== ===== =====
Estimated liability for
contract losses $1,756 $ - $ - $ - $1,756
===== ===== ===== ===== =====
Inventory reserves $1,760 $ 249 $ 64 $ (11)(B) $1,934
===== ===== ===== ===== =====
Restructuring reserves $ 116 $ - $ 116 $ - $ -
===== ===== ===== ===== =====
(A) Uncollectible accounts written off.
(B) Reclassification of reserves.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 7th day of March,
2003.
SALIENT 3 COMMUNICATIONS, INC.
By /s/T. S. Cobb
--------------------
T. S. Cobb
Chairman, President and Chief
Executive Officer
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 Company
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Chairman, President and Chief
Executive Officer
(Principal Executive
/s/T. S. Cobb Officer) and Director March 7, 2003
--------------
T. S. Cobb
Senior Vice President and Chief
Financial Officer
(Principal Financial
and Accounting Officer)
/s/P. H. Snyder and Director March 7, 2003
-----------------
P. H. Snyder
/s/J. W. Boyer, Jr. Director March 7, 2003
--------------------
J. W. Boyer, Jr.
/s/D. K. Wilson, Jr. Director March 7, 2003
- ---------------------
D. K. Wilson, Jr.
CERTIFICATIONS
I, Timothy S. Cobb, certify that:
1. I have reviewed this annual report on Form 10-K of Salient 3
Communications, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report; *
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The Company's other certifying officers and I have indicated in this annual
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: March 7, 2003
/s/ Timothy S. Cobb
-------------------
Timothy S. Cobb
Chairman, President and
Chief Executive Officer
* In lieu of income statements and balance sheets, the Company's Form 10-K
includes statements of net assets in liquidation and statements of changes in
net assets in liquidation. The certifications made herein should be construed
accordingly.
____________________________________________
I, Paul H. Snyder, certify that:
1. I have reviewed this annual report on Form 10-K of Salient 3
Communications, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report; *
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b. evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The Company's other certifying officers and I have indicated in this annual
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: March 7, 2003
/s/ Paul H. Snyder
-------------------
Paul H. Snyder
Senior Vice President and
Chief Financial Officer
* In lieu of income statements and balance sheets, the Company's Form 10-K
includes statements of net assets in liquidation and statements of changes in
net assets in liquidation. The certifications made herein should be construed
accordingly.