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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-09964
Corcap, Inc.
(Exact name of registrant as specified in its charter)
Nevada 06-1237135
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
120 Union Street, Willimantic, Connecticut 06226
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 456-4187
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock $.01 par value Over-the-Counter
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-
K. [X]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant was $29 thousand as of March 27, 1996 (based upon the
average of the bid and asked prices on the over-the-counter market for
Corcap Common Stock on March 27, 1996, which was $.01 per share as quoted
by NASDAQ Bulletin Board (See Item 5).
As of March 27, 1996, a total of 2,925,726 shares of Common Stock, $.01
par value, were outstanding.
Documents Incorporated by Reference: (Portions of the Proxy Statement
relating to the 1996 Annual Meeting of Shareholders are incorporated in
Part III.)
PART I
Item 1. Business
General
On July 1, 1988, Lydall, Inc., a Delaware corporation ("Lydall"),
distributed to all its stockholders of record at the close of business on
June 10, 1988, all of the issued and outstanding Common Stock of Corcap,
Inc. ("Corcap" or the "Company"), a newly formed holding company
incorporated in Nevada in June 1988, on the basis of one share of Corcap
Common Stock for each share of Lydall Common Stock held on the record
date (the "Distribution"). Upon its effectiveness, the Distribution
separated Lydall and Corcap into two independent companies.
Corcap succeeded to the elastomer products business previously operated
by Lydall. The business was operated by Corcap through its wholly-owned
subsidiary, Acadia Polymers, Inc. ("Acadia"), which Corcap sold on July
1, 1991. Corcap also succeeded to an equity interest in CompuDyne
Corporation, a Pennsylvania corporation ("CompuDyne"), previously owned
by Lydall.
As a result of the dispositions of assets by Corcap in 1990 and 1991,
Corcap is no longer engaged in the rubber and elastomer products
business.
Pursuant to a Post Distribution Agreement, dated as of July 1, 1988,
which Corcap and Lydall entered into as part of the spin-off of Corcap's
predecessor, Acadia Polymers, from Lydall in 1988, certain obligations
and liabilities between Lydall and Corcap were allocated. Lydall and
Corcap had been in dispute over certain of their obligations and
liabilities under the Post-Distribution Agreement. Lydall claimed that
Corcap owed it $881 thousand under the Post-Distribution Agreement as a
result of settlements Lydall had reached with the Internal Revenue
Service for each of the tax years from 1983-1989. Separately, Lydall
acknowledged owing Corcap $60 thousand under the Post-Distribution
Agreement as a result of certain retrospective insurance adjustments made
through 1995.
On March 25, 1996 Lydall and Corcap entered into a Settlement Agreement
(the "Settlement Agreement") dated as of March 25, 1996 pursuant to which
Corcap transferred 120,000 shares of CompuDyne Common Stock, par value
$.75 per share ("CompuDyne Common Stock") to Lydall in settlement of
certain claims.
Under the Settlement Agreement, each of Lydall and Corcap released all
obligations arising out of such claims by the transfer from Corcap to
Lydall of 120,000 shares of CompuDyne Common Stock. In addition, Corcap
agreed to indemnify Lydall for all liabilities Lydall may incur in
connection with its former ownership of property in Dayville, Connecticut
which Corcap sold in July 1995 and which had previously been used in
connection with Acadia's operations. The Post-Distribution Agreement had
obligated Corcap to indemnify Lydall for certain environmental claims.
In all other respects, the Post-Distribution Agreement continues in
effect.
As part of the Settlement Agreement, Lydall required as a condition to
signing, that CompuDyne enter into a registration rights agreement with
Lydall obligating CompuDyne to register the Transferred Shares upon
demand of Lydall two years following the date of the Agreement or in a
"piggyback registration" at any time upon the proposed registration by
CompuDyne of its stock. In order to induce CompuDyne to enter into such
agreement, Corcap agreed to issue an option (the "Option") to CompuDyne
to purchase 16,666 shares of CompuDyne Common Stock at an exercise price
of $.01 per share exercisable immediately for a period of two years under
a Stock Transfer Agreement, dated as of March 25, 1996 between Corcap and
CompuDyne (the "Option Agreement").
Concurrent with the execution of the Settlement Agreement, Corcap and
certain directors and former officers of Corcap, Messrs. Millard H.
Pryor, Jr. and David W. Clark, Jr. entered into an agreement whereby
Messrs. Pryor and Clark forgave an accrued obligation for compensation in
the amount of $314 thousand.
On September 15, 1995 Corcap contributed 224,000 shares of CompuDyne
Common Stock to satisfy Corcap's minimum funding obligations for the
1992, 1993 and 1994 Plan Years of its employee pension plans: Plan 1A and
Plan 6B under Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Constituent Plans comprise, and are
administered through a single trust: the Corcap, Inc. Pooled Pension
Investment Trust (the "Trust"). Corcap contributed 143,600 shares of
CompuDyne Common Stock to Plan 1A and 80,400 shares of CompuDyne Common
Stock to Plan 6B. The making of such contributions in property may
constitute a "prohibited transaction" within the meaning of Section 4975
of the Code and Section 406 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Corcap filed an application with the
Department of Labor ("DoL") seeking Prohibited Transaction Exemptions
with respect to the transfer of the Shares of Common Stock to each of the
respective Plans conditional upon the DoL granting the relief sought
under the Prohibited Transaction Exemption application. On January 25,
1996 the DoL informed the Company that the application was denied. A
further conversation with the DoL reopened the application and with the
submission of additional supporting information, it is now expected to be
approved. In the event that DoL does not grant relief sought under the
application for the Prohibited Transaction Exemption, the Trustee of the
Constituent Plans will promptly return the shares to Corcap. The
agreement of the PBGC to settle the pension plans' underfunding liability
will include the additional 224,000 CompuDyne shares if the DoL does not
approve the application.
In March, 1996, in anticipation of termination of the Corcap Pension Plan
1A and the Corcap Pension Plan 6B (collectively the "Plans"), the PBGC
and Corcap reached a preliminary agreement whereby the PBGC agreed to
accept an additional 188,660 shares of CompuDyne Common Stock in
satisfaction of the Plans' underfunding liabilities to the PBGC. The
agreement is subject to final documentation and signature, which is
expected to be completed during April 1996.
In January 1996 the Internal Revenue Service ("IRS") sent the Company a
penalty for its failure to make timely payments to the Constituent Plans
in the amount of $52 thousand. The Company is attempting to negotiate a
waiver of the penalty with the IRS as part of the assumption of the
Constituent Plans by the PBGC.
On August 21, 1995 CompuDyne, an affiliate of Corcap, entered into and
consummated a Stock Purchase Agreement by and among CompuDyne, Martin A.
Roenigk and Alan Markowitz (Messrs. Roenigk and Markowitz are,
collectively, the "Sellers") and MicroAssembly Systems, Inc.
("MicroAssembly"), pursuant to which CompuDyne issued to the Sellers
1,260,460 shares of its Convertible Preference Stock, Series D
("Preference Stock") in exchange for all of the Sellers' shares of
capital stock of MicroAssembly, which shares represented all of
MicroAssembly's issued and outstanding capital stock. The issuance by
CompuDyne of the Preference Stock, together with the issuance of certain
Notes, as defined below, and certain options to purchase common stock,
all as described below and in accordance with the terms of the Stock
Purchase Agreement, are referred to as the "Transaction". Of the
1,260,460 Shares of Preference Stock issued to the Sellers, 945,345
shares were issued to Mr. Roenigk, and 315,115 shares were issued to Mr.
Markowitz. The Preference Stock has rights to vote on a share for share
basis with the Company's common stock on all corporate issues other than
the election of directors; it is also convertible to common stock on a
share for share basis at any time prior to redemption by CompuDyne. On
March 29, 1996, the holders of the Preference Stock waived their rights
to mandatory redemption by CompuDyne. For the election of directors,
each share of Preference Stock is entitled to 1/3.08 of a vote as
compared to the Company's common stock, which is entitled to one vote per
share. Pursuant to the terms of the Preference Stock, each share of
Preference Stock will be entitled to one vote per share with respect to
the election of directors, effective as of August 1, 1996, unless the
Board of Directors of the Company, in its sole and absolute discretion,
approves a resolution prior to such date prohibiting such change in
voting rights, in which case each share of Preference Stock will continue
to have 1/3.08 vote per share. In the event the Board of Directors of
the Company continue to approve such a resolution, on May 1, of each
subsequent year, each share of preference stock will continue to have
1/3.08 vote for directors.
As part of the Transaction, in return for $400 thousand paid to CompuDyne
at the closing, CompuDyne issued to the Sellers Senior Convertible
Promissory Notes (the "Notes") in the aggregate principal amount of $400
thousand, which Notes are convertible, prior to redemption by CompuDyne,
into CompuDyne Common Stock at a conversion rate of $1.50 per share of
common stock, or 266,667 shares of common stock if the entire principal
amount of the Notes is converted. Of the $400 thousand principal amount
of Notes issued, $300 thousand principal amount of the Notes was issued
to Mr. Roenigk, and $100 thousand principal amount of the Notes was
issued to Mr. Markowitz. As described in a report filed by the Sellers
with the Securities and Exchange Commission and with the Company pursuant
to Section 13(d) of the Securities Exchange Act of 1934, the source of
the Sellers' $400 thousand investment in the Company was personal funds.
On August 21, 1995, Quanta Systems Corporation ("Quanta"), a wholly-owned
subsidiary of CompuDyne, transferred all of the assets and liabilities of
Quanta's Suntec division to Suntec Service Corporation, a newly-formed
corporation ("Suntec"), in return for (i) all of Suntec's issued and
outstanding common stock and (ii) Suntec's agreement to pay to Quanta a
royalty of 2% of Suntec's net sales and other revenues for thirty (30)
years from the date of the closing. Quanta then sold all of Suntec's
Common Stock to Norman Silberdick, who resigned on that date as
CompuDyne's Chairman, President, CEO and Director.
As a further part of the Transaction, Norman Silberdick, Corcap's
Chairman, President and Chief Executive Officer, resigned as such and as
a director of the Company on August 21, 1995. Corcap's Board of
Directors elected Mr. Roenigk to fill Mr. Silberdick's seat on the Board
of Directors. In recognition of Mr. Roenigk's agreement to serve on the
Board of Directors and in order to facilitate the consummation of the
Transaction, Corcap issued to him options to purchase up to 450,000
shares of the Company's Common Stock for $.15 per share. The options are
divided into two tranches, one of 300,000 shares and the other of 150,000
shares. The option for the 300,000 shares shall expire on August 20, 1996
("Option I"). Exercise of the options for the entire 300,000 shares
available under and in accordance with the terms of Option I is a
precondition to the availability of the options for the remaining 150,000
shares, which remaining options expire on August 20, 2005. Upon
consummation of the Transaction, Corcap's executive officers are,
respectively, John E. Sundman, Chairman, Diane W. Burns, President, and
Elaine Chen, Treasurer and Chief Financial Officer. On March 25, 1996,
the Board of Directors approved a resolution to reduce the option price
per share to $.01.
Prior to the Transaction, Mr. Roenigk held 70,000 shares of Corcap Common
Stock, which is approximately 2.4% of Corcap's voting shares. Upon the
exercise of his options to purchase the 450,000 additional shares of
Corcap's Common Stock, Mr. Roenigk would hold approximately 15.4% of its
Common Stock.
On August 21, 1995, Corcap purchased 150,000 shares of CompuDyne Common
Stock for $.40 per share in accordance with the terms of a Warrant issued
by CompuDyne to Corcap on March 10, 1993 and amended as of April 1, 1993
and August 15, 1995.
In payment of the purchase price for the Warrant Shares, Corcap executed
a promissory note for $60 thousand payable to CompuDyne (the "Corcap
Promissory Note"). The Corcap Promissory Note bears interest on the
unpaid principal at the annual rate of eight percent (8%). Payment of the
unpaid principal of the Corcap Promissory Note and on all accrued and
unpaid interest thereon is due on August 21, 2000. The Note is secured
by the 150,000 shares of CompuDyne Common Stock.
Corcap exercised the right to acquire the Warrant Shares in connection
with and as a result of CompuDyne's issuance of (i) 1,260,460 shares of
Series D Preference Stock to Messrs. Roenigk and Markowitz which shares
are convertible by the holders into 1,260,460 of CompuDyne Common Stock,
(ii) $400 thousand principal amount of Senior Convertible Promissory
Notes to Messrs. Roenigk and Markowitz, which promissory notes are
convertible by the holders into 266,667 shares of CompuDyne Common Stock,
and (iii) option to purchase 200,000 shares of CompuDyne Common Stock to
Mr. Roenigk at an exercise price of $1.50 per share, all pursuant to a
certain Stock purchase agreement by and among Messrs. Roenigk and
Markowitz and MicroAssembly Systems, Inc. (the "Stock Purchase
Agreement").
On June 3, 1993, the Corcap Board of Directors authorized the sale over
time of shares of its holdings of CompuDyne Common Stock under Rule 144.
In 1993 Corcap sold 27,000 shares of CompuDyne Common Stock, 40,500
shares in 1994 and 40,500 shares in 1995.
On July 14, 1995, Corcap entered into a purchase and sale agreement with
Fabrilock Inc., a newly formed corporation, whereby Fabrilock purchased
the Dayville Property in exchange for 20% of Fabrilock's issued and
outstanding shares and the assumption by Fabrilock of the cost of the
environmental remediation of the property estimated to be between $58
thousand and $248 thousand. Fabrilock manufactures specialty non-woven
textiles. Corcap recorded an environmental reserve for $248 thousand in
the third quarter of 1994. According to the purchase and sale agreement,
five years after the sale of the Dayville Property, Fabrilock would have
the right to repurchase 50% of Corcap's holding of Fabrilock shares for
$675 thousand and Corcap would then have the right to require Fabrilock
to purchase the remaining 50% of the Fabrilock shares for $675 thousand.
The purchase price for the shares would be reduced by the amount of
environmental remediation costs incurred by Fabrilock in excess of $100
thousand. In the third quarter of 1995 Corcap reduced its reserve for
environmental remediation.
In connection with the sale of the Dayville property, Corcap entered into
an agreement entitled 300 Lake Road Environmental Remediation Escrow Fund
Agreement ("Remediation Agreement") whereby Corcap deposited 27,000
shares of CompuDyne Common Stock to be used in part with contributions
from Fabrilock to fund the environmental remediation and clean-up of the
Dayville Property. Corcap retains all attendant rights of ownership of
such shares other than the right to transfer them during the pendency of
the clean-up process. Beginning with the calendar quarter ending
September 30, 1995 the Escrow Agent will, ten days prior to the end of
each calendar quarter, return to Corcap 4,000 shares of CompuDyne Common
Stock for the purpose of Corcap selling such shares pursuant to the
provisions of Rule 144, and Corcap is required to deposit into the escrow
fund the proceeds of such sale. Corcap is obligated to contribute
additional shares of CompuDyne Common Stock to the escrow fund, if
necessary, so that the fair market of the CompuDyne Common Stock in the
fund, based upon the average bid and asked price of such stock for the
six months prior to the determination, is not less than 75% of:(i) $70
thousand, less (ii) the cash proceeds deposited into the escrow fund by
Corcap in return for shares released by the Escrow Agent for sale by
Corcap as described above (the result of such calculation referred to as
the "Stock Adjustment Value"). If the aggregate fair market value of the
CompuDyne Common Stock in the escrow fund, determined as set forth,
should, at any six month valuation exceed 125% of the Stock Adjustment
Value, the Escrow Agent shall return sufficient shares to Corcap such
that the fair market value of the CompuDyne Common Stock in the escrow
fund shall equal the Stock Adjustment Value. Upon certification that the
environmental remediation and clean-up have been completed, the Escrow
Agent shall return to Corcap, among other things, the shares of CompuDyne
Common Stock in the escrow fund at that time.
Certain retirees of the Dayville plant had received voluntary medical and
life insurance payments from Corcap which ceased in 1991 when Corcap was
unable to continue to make these payments. The retirees retained counsel
and made a claim against the Company asserting that the Company was
liable for the medical insurance payments as well as certain life
insurance claims. The Company denied the claim that it was liable since
it made voluntary payments. In February 1996, the Company reached an
agreement with counsel and the Union for certain retirees of the Dayville
plant to transfer 22,500 shares of CompuDyne Common Stock to the retirees
upon the signing of the settlement agreement.
A certain commercial real estate broker who was contracted by the Company
to assist in the sale of the Dayville property agreed to a negotiated fee
as a result of the Fabrilock transaction. Thereafter the Company and the
broker have agreed to payment of the fee by accepting 6% of the shares
(120) of Fabrilock held by Corcap.
Corcap's remaining assets are CompuDyne Common Stock and Fabrilock Common
Stock. In the third quarter of 1988, Corcap began to include the accounts
of CompuDyne in its consolidated financial statements as a result of the
significant control which Corcap exercised over the operations of
CompuDyne. As a result of the above described transactions Corcap's
ownership of CompuDyne decreased from 35% of the issued and outstanding
shares of CompuDyne Common Stock at December 31, 1994 to 24.7% as of
December 31, 1995. After assuming (i) the conversion of 1,260,460 shares
of Series D Preference Stock to Messrs. Martin A. Roenigk and Alan
Markowitz, which shares are convertible by the holders into 1,260,460
shares of CompuDyne Common Stock, (ii) the conversion of $400 thousand
principal amount of Senior Convertible Promissory Notes to Messrs.
Roenigk and Markowitz which promissory notes are convertible by the
holders into 266,667 shares of CompuDyne common stock and, (iii) the
exercise of an option to purchase 200,000 shares of CompuDyne Common
Stock issued by the Company to Mr. Roenigk at an exercise price of $1.50
per share, as part of the Transaction and (iv) the purchase of an
additional 56,250 shares of CompuDyne Common Stock on August 1, 1996 by
certain members of CompuDyne management pursuant to a Stock Purchase
Agreement, dated August 1, 1993, between CompuDyne and such members of
management, assuming certain conditions are met and (v) the exercise of
stock options for 25,000 shares of CompuDyne Common Stock issued to an
officer of CompuDyne and (vi) the issuance of an option to CompuDyne to
purchase 16,666 shares of CompuDyne Common Stock, Corcap's ownership will
be decreased to 12% on a fully diluted basis.
Therefore, as a result, Corcap is deemed to no longer "control" CompuDyne
and no longer consolidates its financial statements with CompuDyne. The
investment will be carried at its book value and will be accounted for by
the equity method of accounting. Also as a result, Corcap is deemed to be
a "transient investment company" as provided in Rule 3a-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"). Since
Corcap's only holdings are investment securities of entities it does not
control, it would be deemed to be an investment company subject to the
reporting, filing and operating requirements of the 1940 Act but for Rule
3a-2. Such rule provides that a company is deemed not to be an investment
company during a period of time not to exceed one year provided that the
company has a bona fide intent to be engaged primarily, as soon as is
reasonably possibly (in any event by the termination of such period of
time), in a business other than that of an investment company. The Board
of Directors is exploring the following in order to comply with Rule 3a-2
by the one-year deadline, or August 21, 1996:
1. Liquidation of the Fabrilock and/or CompuDyne investments, with the
proceeds to be reinvested in new operations.
2. The merger of Corcap with another company in a stock exchange.
3. Liquidation of Corcap, either voluntarily or through a bankruptcy
filing. If this option is adopted, it is unlikely that Corcap could
afford the cost of a voluntary liquidation, including a special
shareholder vote.
CompuDyne is currently not paying dividends. Consequently, Corcap does
not have any source of revenue or cash flow (see "Management's Discussion
and Analysis-Liquidity"). Despite the efforts of Corcap to resolve its
unfunded pension liabilities with the PBGC, the successful settlement of
its liability with Lydall with the former officers of the Company, and
the pending settlement of the Dayville retirees suit, Corcap's Board of
Directors continues to consider various options that may enable the
Company to meet its obligations and to serve the best interests of its
shareholders. However, the status of being a transient investment company
as described above may force liquidation of the Company.
On July 27, 1994 Clipper, Corcap Eastern, Inc. ("CE") a wholly owned
subsidiary of Corcap, and Quanta entered into an agreement. Under this
agreement, CE as lessor under a lease to Clipper for the Dayville
Property, terminated the lease in consideration for which Clipper
cancelled a promissory note from CE to Clipper in the amount of $1.774
million and released a mortgage securing such note. As further
consideration for the termination of the lease, Clipper forgave a further
$250 thousand of debt owing from Quanta to Clipper under the Clipper
Loan.
As part of the foregoing transaction and as consideration for Corcap
causing CE to terminate the lease, CompuDyne entered into an agreement
with Corcap to provide to Corcap certain management services and use
of office facilities and to absorb the cost of certain legal services for
a period of four years without charge to Corcap. As part of the
settlement with Lydall, Corcap agreed to limit this support to $1
thousand per month for 24 months.
As a result of the sale of MicroAssembly Systems, Inc to CompuDyne on
December 15, 1995 the corporate offices of CompuDyne and Corcap were
moved to MicroAssembly Systems, Inc., 120 Union Street, Willimantic CT.
Corcap currently has no employees, however, there are three employees of
CompuDyne who are from time to time engaged in handling the various
administrative responsibilities for Corcap but are compensated by
CompuDyne.
Corcap formerly operated an elastomer products business which was sold in
1991. The results of Corcap are accounted for as discontinued operations
in the Balance Sheet and the consolidated Statements of Operation in the
financial statements due to the divestment of the Acadia segment on July
1, 1991. Financial results for periods prior to that date have been
restated.
CompuDyne Investment
....................
In the third quarter of 1988, Corcap began including the accounts of
CompuDyne in its consolidated financial statements as a result of the
significant control which Corcap exercised over the operations of
CompuDyne. Beginning with the September 30, 1995 quarter Corcap's
investment in CompuDyne is no longer being consolidated in the financial
statements of Corcap. The investment will be carried at its book value
and will be accounted for by the equity method of accounting.
Information related to CompuDyne's business, products, customer and
distribution systems, competition, backlog, research and development and
employees is set forth under the caption "Business" in CompuDyne's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
Historical information on CompuDyne has been consolidated in Corcap's
financial statements for the years 1993, 1994 and for the six months
ended June 30, 1995.
Item 2. Properties
The principal property of Corcap and its subsidiaries, excluding
CompuDyne, are situated at the following locations and have the following
characteristics:
Approximate
Primary Owned or Square Feet
Location Purpose Leased of Space
........................ .............. ......... ..........
Willimantic, Connecticut Administrative Leased (1) 200
(1) In December 1995 Corcap moved to offices of MicroAssembly Systems.
The Willimantic office is used for administrative functions.
Item 3. Legal Proceedings
On March 10, 1986, the United States Environmental Protection Agency
("EPA") notified a subsidiary of Corcap (then a subsidiary of Lydall) and
34 other entities that they may be potentially responsible for response
costs under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") in connection with the release of hazardous
substances at a landfill located in Michigan City, Indiana ("Landfill").
On November 10, 1987, the EPA notified the subsidiary of Corcap that it
and other entities identified in the above atter also may be potentially
responsible for the EPA's response costs in connection with a property
located adjacent to the Landfill, known as the Lin-See Property. The EPA
has indicated that it intends to expand the Landfill matter to encompass
the Lin-See Property. No specific money claim has been made to the
subsidiary of Corcap by the EPA with regard to the Landfill matter or the
Lin-See Property, and the total cost of the remediation is not yet known.
The preliminary indications are that the subsidiary's contribution to the
waste volume at the Landfill, if any, was approximately 0.286% of the
total volume. Under the terms of the Post-Distribution Agreement, Corcap
and Lydall will share any loss which may be sustained in these matters
based on the ratio of the total market value of the outstanding capital
stock of each company at the time the actual liability is determined.
As of December 31, 1995, Corcap's proportionate share of any liability
would have been less than 1%.
A wholly-owned subsidiary of Corcap received a preliminary report in May,
1989 from an environmental consulting firm that certain substances are
present in the soil at the Dayville Property as a consequence of past
operations. Corcap's tenant had been exploring the nature and
distribution of those substances to determine what remediation action was
to be required. On July 1, 1991, Corcap's subsidiary leased the property
to Clipper and, in connection therewith, Clipper agreed to assume
responsibility for up to $500 thousand of remediation costs. Continued
site work and remediation analysis had been conducted by environmental
engineers contracted by Corcap, on behalf of Clipper. On July 27, 1994
Clipper's responsibility for environmental costs ended upon the
termination of the lease in consideration of their cancellation of a
mortgage to Corcap. A final study plan was prepared for review by the
Connecticut Department of Environmental Protection to ascertain the costs
of remediation which concluded with a range of $58 thousand to $250
thousand. Thereafter Corcap established a reserve of $248 thousand in
the third quarter of 1994. On July 14, 1995, Corcap entered into a
purchase and sale agreement with Fabrilock Inc., a newly formed
corporation, whereby Fabrilock purchased the Dayville property in
exchange for 20% of Fabrilock's issued and outstanding shares and the
assumption by Fabrilock of the cost of the environmental remediation of
the property estimated to be between $58 thousand and $248 thousand.
Under the terms of the purchase and sale agreement any environmental
costs in excess of $100 thousand would reduce the repurchase price of the
shares which are $1.35 million. Corcap reduced its reserve for the
environmental liability in the third quarter ended September 30, 1995.
Also in connection with the property Corcap deposited 27,000 shares of
CompuDyne Common Stock in an Environmental Escrow Fund to be used to fund
the projected clean-up costs.
During the third quarter of 1991, a wholly-owned subsidiary of Corcap,
Corcap Virginia Inc. (formerly Acadia Virginia, Inc.), received
notification that it may be a potential responsible party under the North
Carolina General Statutes in connection with the closure and abatement of
the Seaboard Chemical Corporation site located in Jamestown, North
Carolina. Preliminary information supplied by the North Carolina
Department of Environment, Health and Natural Resources indicates that,
during the fall of 1986 and early 1987, a subsidiary of Lydall, which was
part of its Elastomer Products Group, may have shipped approximately
.0001016% of the aggregate waste material located at the site. In
connection with the spinoff of Corcap from Lydall on July 1, 1988, Corcap
succeeded to the businesses and operations that were formerly conducted
by the Elastomer Products Group of Lydall, and Corcap agreed to indemnify
Lydall with respect to liabilities arising out of the conduct of the
elastomer products business prior to the spinoff. During the third
quarter of 1994 Corcap received a pro-rata invoice from the consulting
engineer for the site for approximately $500. In March 1996, Corcap
received a final settlement proposal from the engineers for $5 thousand.
On July 1, 1988, as noted previously, Corcap was spun off from Lydall as
a separate public company and succeeded to the ownership and operations
of the elastomer products businesses previously carried on by Lydall. As
part of the spin-off transaction, Corcap and Lydall entered into a five-
year Post-Distribution Agreement (the "Post-Distribution Agreement")
which subsequently has been amended from time to time. As amended, the
Post-Distribution Agreement obligates Corcap to indemnify Lydall with
respect to liabilities (if any) incurred by Lydall after the spin-off
which arise out of the conduct of the elastomer products businesses by
Lydall prior to the spin-off or by Corcap after the spin-off or out of
the prior ownership or operation by Lydall of any asset transferred to
Corcap in the spin-off as well as for certain insurance claims and other
liabilities, and requires Lydall to indemnify Corcap with respect to
liabilities (if any) sustained by Corcap after the spin-off as a result
of the conduct of Lydall of any asset which was a component of its fiber
materials businesses as well as for certain other liabilities. Liability
for claims from previously discontinued operations not related to the
continuing operations of either company which may arise in the future are
shared by the companies on a formula basis. During 1991, Corcap
management was advised that the IRS was auditing Lydall's tax returns for
certain years in which Corcap's former Acadia subsidiaries were part of
Lydall. On March 25, 1996 Lydall and Corcap entered into a Settlement
Agreement (the "Settlement Agreement") dated as of March 25, 1996
pursuant to which Corcap transferred 120,000 shares of CompuDyne Common
Stock, par value $.75 per share ("CompuDyne Common Stock") to Lydall in
settlement of certain claims.
Pursuant to the Post Distribution Agreement the claim that Corcap owed it
$881 thousand under the Post-Distribution Agreement as a result of
settlements Lydall had reached with the Internal Revenue Service for each
of the tax years from 1983-1989 was settled. Separately, Lydall
acknowledged owing Corcap $60 thousand under the Post-Distribution
Agreement as a result of certain retrospective insurance adjustments made
through 1995. Under the Settlement Agreement, each of Lydall and Corcap
released all obligations arising out of such claims by the transfer from
Corcap to Lydall of 120,000 shares of CompuDyne Common Stock. In
addition, Corcap agreed to indemnify Lydall for all liabilities Lydall
may incur in connection with its former ownership of property in
Dayville, Connecticut which Corcap sold in July 1995 and which had
previously been used in connection with Acadia's operations. The Post-
Distribution Agreement had obligated Corcap to indemnify Lydall for
certain environmental claims. In all other respects, the Post-
Distribution Agreement continues in effect.
Certain retirees of the Dayville plant had received voluntary medical and
life insurance payments from Corcap which ceased in 1991 when Corcap was
unable to continue to make these payments. The retirees retained counsel
and made a claim against the Company asserting that the Company was
liable for the medical insurance payments as well as certain life
insurance claims. The Company denied the claim that it was liable since
it made voluntary payments. In February 1996, the Company reached an
agreement with the Union and counsel for certain retirees of the Dayville
plant to transfer 22,500 shares of CompuDyne Common Stock to the
Retirees upon the signing of the settlement agreement.
Item 4. Submission of Matters to a
Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common
Equity And Related Stockholder Matters
Corcap Common Stock is traded in the over-the-counter market and is
quoted on the OTC Bulletin Board, an inter-dealer quotation medium
maintained by the National Association of Securities Dealers, Inc., under
the symbol "CCPN". There were 2,946 common shareholders of record as of
January 30, 1996.
The following table sets forth the high and low sales prices of Corcap
Common Stock from March 31, 1994 to the present on the over-the counter
market. Over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
reflect actual transactions. Corcap management is aware of only two
companies making a market in Corcap Common Stock, Bishop Rosen and
Company and Carr Securities. On March 12, 1996 the high and low bids per
share for Corcap Common Stock as quoted on the OTC Bulletin Board were
$.01 and $.01.
Quarter Ended High Low
March 31, 1995 $ .14 $ .14
June 30, 1995 .14 .0625
September 30, 1995 .125 .125
December 31, 1995 .125 .01
March 31, 1994 $ .1875 $ .0625
June 30, 1994 .0625 .0625
September 30, 1994 .0625 .03125
December 31, 1994 .14 .03125
Corcap has never paid cash dividends to its shareholders and its Board of
Directors does not anticipate doing
so in the foreseeable future.
Item 6. Selected Financial Data
The following is a consolidated summary of operations of Corcap, its
subsidiaries and CompuDyne for the years ended December 31, 1995, 1994,
1993, 1992 and 1991. The information in the table below is based upon
the audited consolidated financial statements of Corcap and its
subsidiaries for the years indicated appearing elsewhere in this annual
report and in prior annual reports on Form 10-K filed by Corcap with the
SEC, and should be read in conjunction therewith and the notes thereto.
For the years ended December 31, 1991-1994 CompuDyne Corporation was
consolidated in the financial results of Corcap. In 1995 CompuDyne
Corporation was consolidated through June 30, 1995, thereafter the
results are for the activities of Corcap only.
(In thousands except per share data):
For the years ended December 31,
1995 1994 1993 1992 1991
Net sales from continuing
operations $ 4,615 $ 9,699 $ 9,571 $ 9,330 $10,762
Gross margin from
continuing operations $ 622 $ 1,586 $ 1,884 $ 1,746 $ 2,255
Income (loss) from
continuing operations
before extraordinary
items $ 104 $ 2,034 $ 253 $ 122 $ 862
Income (loss) from
discontinued operations,
net (924) 712 (114) (655) (771)
Loss on divestitures, net - - - - (6,081)
Extraordinary item - 523 298 79 -
Net income (loss) $ (820)$ 3,269 $ 437 $ (454) $(5,990)
Weighted average common stock
and equivalents outstanding 2,926 2,926 2,926 2,926 2,963
Income (loss) per common share:
Continuing operations $ .04 $ .70 $ .09 $ .04 $ .29
Discontinued operations (.31) .24 (.04) (.22) (.26)
Divestitures - - - - (2.05)
Extraordinary items - .18 .10 .03 -
Net income (loss) $ (.27)$ 1.12 $ .15 $ (.15) $ (2.02)
Cash dividends declared
per common share $ - $ - $ - $ - $ -
Total assets $ - $ 2,369 $ 2,364 $ 2,652 $ 3,518
Long-term debt, net $ 60 $ - $ 1,050$ 1,201 $ 1,306
The information required by this item for CompuDyne is set forth under
the caption "Selected Financial Information" in CompuDyne's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995 filed as Exhibit
28.1 hereto. Such information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
In the third quarter of 1988, Corcap began including the accounts of
CompuDyne in its consolidated financial statements as a result of the
significant control which Corcap exercised over the operations of
CompuDyne. Beginning with the September 30, 1995 quarter Corcap's
investment in CompuDyne is no longer being consolidated in the financial
statements of Corcap. The investment will be carried at its book value
and will be accounted for by the equity method of accounting.
Financial Condition at December 31, 1995
........................................
On July 1, 1991, pursuant to an Asset Purchase Agreement dated that date,
Acadia and other related companies that were all subsidiaries of Corcap,
sold certain of their assets and their elastomer and rubber products
business to Clipper. As a result of a series of transactions in July and
August 1995 Corcap's ownership of CompuDyne has been reduced to 12% on a
fully diluted basis and further its ownership of the Dayville plant was
sold for a 20% interest in Fabrilock, Inc. Therefore all of Corcap's
transactions are accounted for as discontinued operations. See Note 10 to
the consolidated financial statements.
Corcap's consolidated working capital deficiency, which includes $ 1.681
million and $881 thousand of net current liabilities of discontinued
operations at December 31, 1995 and 1994, respectively, was increased to
$1.681 million at December 31, 1995 from $491 thousand at December 31,
1994. The increase in the working capital deficiency of $1.2 million was
primarily due to the effect of not consolidating CompuDyne $410 thousand,
the recording of the additional tax liability from Corcap of $382
thousand and losses from the sale of the Dayville property of $937
thousand offset by gains of $448 thousand on the transfer of CompuDyne
Common Stock to the Constituent Pension Plans.
Corcap's continued existence is dependent upon the value of its share
ownership in CompuDyne Common Stock and Fabrilock and the decisions that
the Board of Directors make with regard to Corcap's being a transient
investment company and certain decisions to be made by the Board of
Directors as described below.
At December 31, 1994, debt levels were increased by $60 thousand to $60
thousand representing a Note to CompuDyne for the exercise of a warrant
to purchase 150,000 shares of CompuDyne Common Stock. See Note 4 to the
Consolidated Financial Statements.
As discussed under "Results of Operations", Corcap had income from
continuing operations entirely from CompuDyne's operations through June
30, 1995 of $104 thousand. CompuDyne's discontinued operations had a
loss of $246 thousand through June 30, 1995 and Corcap's discontinued
operations produced a loss of $727 thousand which was attributable to the
effect of selling the Dayville Property for a 20% interest in the shares
of Fabrilock, Inc. of $937 thousand which was offset by a reversal of a
reserve for environmental remediation costs of $232 thousand and gains on
the sale of CompuDyne shares which were transferred to the Constituent
Pension Plans of $448 thousand. Corcap also recorded an additional tax
liability from Lydall of $382 thousand for additional assessments in
connection with an Internal Revenue Service audit.
Corcap's Continued Existence
Due to the disposition of assets in 1990, 1991 and 1995, Corcap's
remaining assets are CompuDyne Common Stock and Fabrilock, Inc Common
Stock. As a result, Corcap is deemed to be a "transient investment
company" as provided in Rule 3a-2 under the Investment Company Act of
1940, as amended (the "1940 Act"). Since Corcap's only holdings are
investment securities of entities it does not control, it would be deemed
to be an investment company subject to the reporting, filing and
operating requirements of the 1940 Act but for Rule 3a-2. Such rule
provides that a company is deemed not to be an investment company during
a period of time not to exceed one year provided that the company has a
bona fide intent to be engaged primarily, as soon as is reasonably
possible (in any event by the termination of such period of time), in a
business other than that of an investment company. The Board of
Directors is exploring the following in order to comply with Rule 3a-2 by
the one-year deadline, or August 21, 1996:
1. Liquidation of the Fabrilock and/or CompuDyne investments, with the
proceeds to be reinvested in new operations.
2. The merger of Corcap with another company in a stock exchange.
3. Liquidation of Corcap, either voluntarily or through a bankruptcy
filing. If this option is adopted, it is unlikely that Corcap could
afford the cost of a voluntary liquidation, including a special
shareholder vote.
CompuDyne is currently not paying dividends. Consequently, Corcap does
not have any source of revenue or cash flow other than the sale of assets
(see "Management's Discussion and Analysis-Liquidity"). Despite the
efforts of Corcap to resolve its unfunded pension liabilities with the
PBGC, the successful settlement of its liability with Lydall and with the
former officers of the Company, pending settlement of the Dayville
retirees suit, the Board of Directors of Corcap continues to consider
various options that may enable Corcap to meet its obligations and to
serve the best interests of its shareholders. However, the status of
being a transient investment company as described above may force
liquidation of the Company.
Results of Operations - 1995 compared with 1994
...............................................
Due to the change in the consolidation of CompuDyne into Corcap's results
for the third and fourth quarters of 1995 the only operations that are
comparable are discontinued operations. For the year the effect of
CompuDyne was to reflect earnings from continuing operations of $104
thousand through June 30, 1995 compared with $2.065 million for the year
ended December 31, 1994. Discontinued operations produced income of $712
thousand for the year ended December 31, 1994 compared with a loss from
discontinued operations of $924 thousand in 1995. The principal reasons
for the change of $1.7 million was the effect of the restatement of the
Suntec division of CompuDyne as a discontinued operation $613 thousand,
the forgiveness of debt by Clipper for the Dayville property of $1.8
million, an increase in the environmental reserve of $250 thousand and
other operating costs of the Dayville property and administrative
expenses of $350 thousand.
Results of Operations - 1994 compared with 1993
...............................................
Income from continuing operations before extraordinary items of $2.065
million in 1994 compares with income from continuing operations before
extraordinary items of $253 thousand in 1993. The increase in income from
continuing operations of $1.812 million was due to the net insurance
proceeds of $1.389 million from the death of Frank Kelley, a larger
profit than normal at Quanta Systems $176 thousand and adjustments of
certain accruals $263 thousand.
CompuDyne's net sales, which increased from $9.6 million in 1993 to $9.7
million in 1994, a 1% increase, were comprised of service revenue,
telemetry and data acquisition product sales at Quanta. Quanta's service
revenue in 1994 was $8.7 million, $600 thousand more than 1993. The
increase in service revenue was attributable to increases in task
spending on other government contracts. Service revenue represented 90%
of 1994 revenues compared to 84% of 1993 revenues. DCS sales decreased
$400 thousand between 1994 and 1993.
Quanta's product sales at its Data Control Systems division of $1.0
million was $400 thousand lower than 1993 as a result of a decline in
bookings resulting from defense spending reductions and delays DCS
incurred bringing new products into the market. The Company reduced the
costs of its product operations in reaction to the decline in business
and has spent considerable time and effort in developing new commercial
products. During 1994 DCS continued the development of its automatic
power controller ("APC") and sold several units. DCS also continued the
development of its high speed satellite test modem QPSK Model 7500 and
sold two units. DCS finished the year with a strong backlog of $600
thousand.
Gross margins decreased $298 thousand from $1.9 million, 20% of sales, in
1993 to $1.6 million, 16% of sales, in 1994. The primary reason was DCS
which had a margin decline of $376 thousand due to lower volume and
higher costs which was offset by higher gross profit at Quanta of $77
thousand. The increase at Quanta was due to higher volume but at lower
margins.
Total 1994 selling, general and administrative expenses decreased $397
thousand from 1993 levels. The Company decreased its expenses at Quanta
Systems, DCS and Corporate.
The Company undertook research and development activities to develop new
products for the telecommunications industry. Research and development
expenditures were $66 thousand during the fiscal year ended December 31,
1994 compared with $113 thousand in 1993.
Total interest expense for 1994 was $21 thousand or $104 thousand lower
than 1993 levels of $125 thousand. The decline was due to the repayment
of all outstanding debt.
Interest income for 1994 was $28 thousand, or an increase of $14 thousand
from 1993's interest income of $14 thousand. The increase was due to a
larger amount of invested funds.
Other income increased $1.560 million from $102 thousand in 1993 to
$1.662 million in 1994. The Kelley life insurance proceeds amounted to
$1.389 million. CompuDyne also reduced certain accruals totaling $115
thousand and reversed its workmen's compensation accrual after receiving
a final refund from the insurance carrier, $148 thousand.
Extraordinary income of $523 thousand resulted from debt forgiveness from
Clipper of $413 thousand and from deferred compensation beneficiaries
$110 thousand compared with debt forgiveness in 1993 of $161 thousand
primarily due to a settlement of its lease obligation at 90 State House
Square in Hartford.
Liquidity
.........
Due to depressed economic conditions within the automotive industry, poor
operating results and tight liquidity, Corcap sold the operating assets
of its wholly-owned subsidiaries, the Acadia Companies, on July 1, 1991.
As a result of this transaction, Corcap is no longer engaged in the
rubber and elastomer products business which was its only significant
line of business prior to the sale. Corcap's remaining assets are its
ownership of CompuDyne Common Stock and Fabrilock, Inc. common stock.
Corcap's Liquidity
..................
Corcap's continued existence is totally dependent on its investment in
CompuDyne. On June 3, 1993, the Corcap Board of Directors authorized the
sale of shares of its holdings of CompuDyne Common Stock under Rule 144.
In 1993 Corcap sold 27,000 shares of CompuDyne Common Stock, 40,500
shares in 1994 and 40,500 shares in 1995. This has been the only means by
which Corcap is able to generate any cash to meet its obligations.
Corcap's investment in Fabrilock is illiquid.
Recently Issued Accounting Standard
...................................
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." The new standard defines a fair value method
of accounting for stock-based employee compensation plans. Under this
method, compensation costs is measured based on the fair value of the
stock award when granted and is recognized as an expense over the service
period, which is usually the vesting period. This standard will be
effective for the Company beginning in 1996 and requires measurement of
awards made beginning in 1995.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net
income and earnings per share as if the company had applied the new
method of accounting. The Company intends to implement these disclosure
requirements beginning 1996. Adoption of the new standard will not
impact reported net income or cash flows.
Item 8. Financial Statements and Supplementary Data
....................................................
The consolidated financial statements of Corcap, Inc. and its
subsidiaries are listed in Item 14(a).
Additional information for CompuDyne is set forth under the caption
"Financial Statements and Supplementary Data", in CompuDyne's Annual
Report on Form 10-K for its fiscal year ended December 31, 1995 filed as
Exhibit 28.1 hereto and such information is incorporated herein by
reference.
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure
See report on Form 8-K - Notice of change of Auditors filed on January 3,
1996.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
.........
Pursuant to the Bylaws of the Company, the Board of Directors has fixed
the number of directorships at four. The following sets forth certain
information concerning each Director.
David W. Clark, Jr. 57. Mr. Clark is Chairman of the Audit Committee.
He is a Managing Director of Pryor & Clark Company, an investment holding
company. Until his resignation in June 1992, he served as President,
Chief Operating Officer and Treasurer of Corcap. He has served as a
Director of Corcap since June 1988. From October 1985 until his
resignation in June 1992, he was the President and Chief executive
Officer of CompuDyne. He has served as a Director of CompuDyne since
1985. Prior to becoming President of Corcap, Mr. Clark had been employed
by Lydall, Inc. for more than five years, most recently as President. He
also serves as a Director of Acme United Corporation (manufacturing), and
Checkpoint Systems, Inc. (manufacturing).
Millard H. Pryor, Jr. 62. Mr. Pryor is a member of the Executive and
Pension Committees. He is a Managing Director of Pryor & Clark Company,
an investment holding company. He presently serves as a member of the
Pension Committee of the Corcap Board. From June 1988 until his
resignation in June 1993, Mr. Pryor held the position of Chairman of the
Board of Corcap. He also held the position of Chief Executive Officer of
Corcap from June 1988 until his resignation in June 1992. He has served
as a Director of Corcap since June 1988. From October 1985 until his
resignation in June 1993, he served as Vice-Chairman of the board of
Directors of CompuDyne, and from June 1991 until his resignation in June
1992, Treasurer of CompuDyne. He has served as a Director of CompuDyne
since October 1985. Until October 1991, Mr. Pryor was the Chairman and,
until July 1988, the Chief Executive Officer of Lydall, Inc.
(manufacturing) for more than five years. He is a director of The
Hartford Funds (financial services), Pacific Scientific Company
(manufacturing), and Infodata Systems, Inc. (computer software).
Martin A. Roenigk, 53. Mr. Roenigk is a member of the Executive and
Pension Committees. He was elected to the Board of Directors in August
1995 to fill the vacancy created by the resignation of Director, Norman
Silberdick. He has served as the Chairman, Chief Executive Officer and
President of CompuDyne since August 1995. Since March, 1991, he has
served as President of MicroAssembly Systems, Inc., ("MicroAssembly"),
(manufacturing). He has also served as Vice President of Travelers
Corporation (insurance) until December, 1993.
John E. Sundman, 69. Mr. Sundman is a member of the Executive and Audit
Committees. He was appointed Chairman by the Board of Directors in
August 1995 filling the vacancy caused by the resignation of Norman
Silberdick. He has served as a Director of Corcap since June 1988.
Prior to his retirement, which became effective May 1, 1991, Mr. Sundman
served as a Vice President of Corcap, a position which he assumed as of
November 30, 1989. Prior to that time Mr. Sundman served as Vice
President-Finance, Treasurer and Chief Financial Officer of Corcap from
June 1988 until November 30, 1989. Mr. Sundman served as Vice President-
Finance, Treasurer and Chief Financial Officer of Lydall, Inc. from 1978
to 1988 and also served as a Lydall director from 1979 to 1989. He also
served as Senior Vice President of CompuDyne from June 1988 to November
1989. He is a Director of Allis-Chalmers Corporation (manufacturing).
Executive Officers.
..................
Diane W. Burns, 54. Ms. Burns was appointed President by the Board of
Directors in August 1995,filling the vacancy caused by the resignation of
Norman Silberdick. From June 1988 to her resignation in August 1995, Ms.
Burns served as Secretary of the Company. She has also served as
Secretary of CompuDyne, since 1991. Prior to June 1988 Ms. Burns served
as Assistant Treasurer of Lydall, Inc., (manufacturing) since 1985.
I. Elaine Chen, 43 Ms. Chen was appointed Chief Financial Officer in
August 1995, filing the vacancy caused by the resignation of Norman
Silberdick. Since March 1995 she has served as Chief Financial Officer
of CompuDyne. Prior to that time she was the Controller of CompuDyne
since February 1995.
Item 11. Executive Compensation
................................
Corcap currently has no employees. However, there are three employees
of CompuDyne who are engaged in handling the various administrative
responsibilities for Corcap, but are compensated by CompuDyne.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table lists, to the Company's knowledge, the ownership of
Common Stock of the Company, if any, on March 27, 1996, and the nature of
such ownership, for each of the Company's current Directors and for all
officers and Directors of Corcap as a group and for each person who owns
in excess of 5 percent of Corcap's common stock. Unless otherwise noted,
each holder has sole voting and dispositive power with respect to the
shares listed.
Amount and
Nature of
Beneficial Percentage
Name Ownership of Class
David W. Clark, Jr. 4,533
8,752 (IRA)
......
13,285
10,546 (1) *
Millard H. Pryor, Jr. 22,200 (2)
51,030 (IRA)
......
83,230
10,546 (1) 2.8%
Martin A. Roenigk 70,000
450,000 (3)
.......
520,000 15.4%
John E. Sundman 5,444 (IRA)
51,834
......
57,278 2%
Diane W. Burns 13,199
571 (IRA)
2,500 (4)
......
16,270 *
I. Elaine Chen None
All directors and officers
as a group (6 persons) 700,609 20.7%
* Less than one percent
(1)Mr. Pryor has neither voting nor dispositive power with respect to
these 10,546 shares. These shares are held under an Irrevocable Trust
Agreement of which Mr. Clark is a Co-Trustee and under which Mr. Clark
has voting and dispositive power respecting these shares.
(2)Includes 9,700 shares held by Mr. Pryor's wife, as to which Mr. Pryor
disclaims any beneficial interest.
(3)On August 21, 1995 Corcap issued Mr. Roenigk options to purchase up
to 450,000 shares of the Company's Common Stock for $.15 per share. The
options are divided into two tranches, one of 300,000 shares and the
other of 150,000 shares. The option for the 300,000 shares shall expire
on August 20, 1996 ("Option I"). Exercise of the options for the entire
300,000 shares available under and in accordance with the terms of Option
I is a precondition to the availability of the options for the remaining
150,000 shares, which remaining options expire on August 20, 2005. On
March 25, 1996, the Board of Directors approved a resolution to reduce
the option price per share to $.01.
(4)Corcap's Compensation and Employee Stock Option Committee
("Committee") issued Ms. Burns options to purchase an aggregate of 2,500
of the Company's Common Stock on February 10, 1988, August 17, 1988 and
September 12, 1989 at a price of $4.93, $4.75 and $2.75 per share,
respectively, under Corcap's 1988 Stock Incentive Compensation Plan ( the
"Plan"). On May 16, 1990, the Committee reduced the exercise price on
all options to $1.875 per share. Such Plan was terminated by the Board
of Directors on June 3, 1993. Under the terms of the termination, any
awards or grants of options under the Plan shall continue in force in
accordanc with their terms. On March 25, 1996 the Board of Directors
approved a resolution to reduce the option price per share to $.01
Item 13. RELATED PARTY TRANSACTION
Investment in CompuDyne Corporation and Related Matters. As of March 31,
1996, Corcap owned 308,881 shares of CompuDyne Common Stock, or 17.1%
of the outstanding shares of CompuDyne Common Stock. In addition, a
majority of the members of the Corcap and CompuDyne Board of Directors
are the same. David W. Clark, Jr., Millard H. Pryor, Jr. and Martin A.
Roenigk are each directors of Corcap and CompuDyne. Mr. Pryor was
Chairman of Corcap and Vice Chairman of CompuDyne and Mr. Clark was
Chairman of CompuDyne until their respective resignations on June 3,
1993. Mr. Roenigk became Chairman, Chief Executive Officer and President
of CompuDyne in August 1995, succeeding Norman Silberdick. Corcap, its
wholly-owned subsidiaries, and its investment in CompuDyne reported
consolidated financial statements for the years 1993, 1994 and through
June 30, 1995 when it was deemed that Corcap no longer had significant
control of CompuDyne.
PART IV
Item 14(a). Exhibits, Financial Statements, and Reports on Form 8-K
a)1)The following consolidated financial statements of Corcap, Inc. and
its subsidiaries are filed as part of this Form 10-K.
10-K Page
Report of Independent Accountants 20-21
Consolidated Balance Sheets--
December 31, 1995 and 1994 22
Consolidated Statements of Operations--
Years ended December 31, 1995, 1994 and 1993 23
Consolidated Statements of Cash Flows--
Years ended December 31, 1995, 1994 and 1993 24
Consolidated Statements of Changes in Stockholders'
Deficit--Years ended December 31, 1995, 1994 and 1993 25
Notes to Consolidated Financial Statements 26-37
Financial statement schedules have been omitted as they are not
applicable or are contained in the notes to the consolidated financial
statements.
a)2)List of Exhibits
Exhibit
Number Description of Document
3.1 Certificate of Incorporation, as amended, of the registrant
(filed as Annex A to the Lydall, Inc. Information Statement dated June
17, 1988, filed as Exhibit 28.1 to the registrant's Registration
Statement on Form 10 dated June 21, 1988, and incorporated herein by this
reference).
3.2 Bylaws of the registrant (filed as Annex B to the Lydall, Inc.
Information Statement dated June 17, 1988, filed as Exhibit 28.1 to the
registrant's Registration Statement on Form 10 dated June 21, 1988, and
incorporated herein by this reference).
4.1 Certain long-term debt instruments, each representing indebtedness
in an amount equal to less than 10% of the registrant's total
consolidated assets, have not been filed as exhibits to this Annual
Report on Form 10-K. The registrant hereby undertakes to file these
instruments with the Commission upon request.
10.1 Post-Distribution Agreement dated as of July 1, 1988, between the
registrant and Lydall, Inc. (filed as Exhibit 10.1 to the registrant's
Form 8 Amendment to Application or Report dated July 12, 1988, and
incorporated herein by this reference).
10.2 Amendment No. 1 dated August 15, 1988 to Post-Distribution Agreement
(filed as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for
calendar year 1988, dated March 30, 1989, and incorporated herein by this
reference).
10.3 Amendment No. 2 dated February 23, 1989 to Post-Distribution
Agreement (filed as Exhibit 10.3 to the Registrant's Annual Report on
Form 10-K for calendar year 1989, and incorporated herein by this
reference).
10.4 Amendment No.3 dated as of July 12, 1990 to the Post-Distribution
Agreement (filed as Exhibit 10.24 to the Registrant's Form 10-Q for the
quarter ended September 30, 1990, incorporated herein by this
reference).
10.5 Warrant, dated March 10, 1993, issued to Corcap (the "Corcap
Warrant"), is incorporated herein by reference to Exhibit 10.26 to
Registrant's Form 10-K filed December 31, 1992.
10.6 Amendment No. One, dated April 1, 1993, to the Corcap Warrant is
incorporated herein by this reference.
10.7 Promissory Note between Corcap and CompuDyne dated August 21, 1995,
for the purchase of 150,000 shares under the Corcap Warrant, is
incorporated herein by reference to Exhibit 2 to Registrant's Form 13D
filed August 21, 1995.
10.8 300 Lake Road Environmental Remediation Agreement between Fabrilock,
Inc. and Corcap Eastern, Inc. is incorporated by reference to Exhibit 3
of Registrant's Form 13D filed August 21, 1995.
10.9 Agreement dated September 6, 1995 between Corcap and Corcap Pension
Plan 1A and Corcap Pension Plan 6B for the transfer of 224,000 shares of
CompuDyne Common Stock is incorporated by reference to Exhibit 1 of
Registrant's Form 13D filed September 25, 1995.
10.10 CompuDyne Corporation Certificate of Designations of the
Convertible Preference Stock, Series D, is incorporated by reference to
Exhibit (4.1) of Registrant's Form 8-K filed September 5, 1995.
10.11 CompuDyne Senior Convertible Promissory Note is incorporated by
reference to (Exhibit 4.2) of Registrant's Form 8-K filed September 5,
1995.
10.12 Stock Purchase Agreement dated August 21, 1995 by and among
CompuDyne Corporation, MicroAssembly Systems, Inc. Martin Roenigk and
Alan Markowitz is incorporated by reference to Exhibit 99.1 of the
Registrant's Form 8-K filed September 5, 1995.
10.13 Asset Purchase and Sale Agreement dated August 21, 1995 by and
among Quanta Systems Corporation, Suntec Service Corporation and Norman
Silberdick is incorporated by reference to Exhibit 99.3 of Registrant's
Form 8-K filed September 5, 1995.
10.14 Stock Option Agreement dated August 21, 1995 by and between Martin
A. Roenigk and Corcap, Inc. is incorporated by reference to Exhibit 99.3
of Registrant's Form 8-k filed September 5, 1995.
22.1 List of subsidiaries of the registrant and states of incorporation
is filed herewith.
28.1 Annual Report on Form 10-K of CompuDyne Corporation for the fiscal
year ended December 31, 1995 is filed herewith.
b) Report on Form 8-K - Notice of Change of Auditors filed on January 3,
1996.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of Corcap, Inc.
We have audited the accompanying consolidated balance sheet of Corcap,
Inc. and subsidiaries, as of December 31, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended. These financial statements as of and for
the year ended December 31, 1995 are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated financial
statements as of December 31, 1994 and for the two years in the period
then ended, before the adjustments described in Note 2 to the
consolidated financial statements, were audited by other auditors whose
report, dated March 29, 1995, on those statements included an explanatory
paragraph regarding the Company's ability to continue as a going concern.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Corcap, Inc. and
subsidiaries at December 31, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As described
in Note 1, the Company's only remaining assets are investments in
CompuDyne Corporation common stock and Fabrilock, Inc. common stock. As
a result, the Company is deemed to be a "transient investment company" as
provided in Rule 3a-2 under The Investment Company Act of 1940. In
addition, the Company is currently negotiating to resolve certain
outstanding liabilities and contingencies. These factors raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note
1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
We also audited the adjustments described in Note 2 that were applied to
restate the 1994 and 1993 consolidated financial statements for the
discontinued operations of the Suntec Division of CompuDyne Corporation.
In our opinion, such adjustments are appropriate and have been properly
applied.
\s\Deloitte & Touche LLP
Washington, D.C.
April 11, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of Corcap, Inc.
We have audited the consolidated financial statements of Corcap, Inc. and
Subsidiaries ("the Company") as of December 31, 1994 and for the years
ended December 31, 1994 and 1993, prior to the restatement for the
divestiture of the Suntec Division of CompuDyne Corporation, as listed in
Item 14(a) of this Form 10-K. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Corcap, Inc. and Subsidiaries as of December 31, 1994 and the
consolidated results of their operations and their cash flows for the
years ended December 31, 1994 and 1993, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
has negative working capital and is insolvent, which raises substantial
doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The company was unable to make certain required quarterly payments to its
qualified retirement plans causing the plans to have an unwaived funding
deficiency and subjecting the Company to possible excise tax liability.
In addition, the Pension Benefit Guaranty Corporation could determine
that the plans should be terminated, accelerating the Company's
obligation to fully fund the plans, which amount approximated $1.2
million at December 31, 1994. No provision has been made in the
consolidated financial statements for this uncertainty, the ultimate
outcome of which cannot be reasonably determined at this time.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 25, 1995
Corcap, Inc. and Subsidiaries
Consolidated Balance Sheets
($ Thousands)
December 31, 1995 1994
ASSETS
Current assets:
Cash and cash equivalents $ - $ 176
Accounts receivable (less allowance for
doubtful accounts of $39 and $52) - 1,468
Inventories:
Work in process - 194
Raw materials and supplies - 254
Total inventories - 448
Net current assets of discontinued operations - 132
Other - 36
Total current assets - 2,260
...................................................................
Property, plant and equipment, at cost:
Buildings and leasehold improvements - 27
Machinery and equipment - 480
Furniture and fixtures - 163
- 670
Less accumulated depreciation
and amortization - (663)
- 7
Other assets - 102
Total assets $ - $ 2,369
................................................................
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable and current portion
of long-term debt $ - $ -
Accounts payable - 991
Accrued pension costs - 25
Other accrued liabilities - 763
Net current liabilities of discontinued
operations 1,681 881
Current portion of deferred compensation - 71
Total current liabilities 1,681 2,731
Net non-current liabilities of
discontinued operations 265 -
Long term pension liability - 304
Deferred compensation, net of
current portion - 128
Total liabilities 1,946 3,163
Commitments and Contingencies
Stockholders' deficit:
Common stock, $.01 par value per
share--authorized 15,000,000,issued
and outstanding 2,925,849 and 2,925,849 29 29
Capital in excess of par 269 269
Minimum pension liability (888) (555)
Accumulated deficit (26,389) (25,570)
(26,979) (25,827)
Contributed capital 25,033 25,033
Total stockholders' deficit (1,946) (794)
Total liabilities and stockholders' deficit $ - $ 2,369
See Notes to Consolidated Financial Statements.
Corcap, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, except per share data)
For the years ended December 31, 1995 1994 1993
Net sales $ 4,615 $ 9,699 $ 9,571
Cost of sales 3,993 8,113 7,687
Gross margin 622 1,586 1,884
Selling, general and administrative
expenses 457 1,126 1,492
Research and development 39 66 113
Operating income (loss) 126 394 279
Interest (expense) income, net (10) 7 111
Other income, related parties - - (57)
Other income (expense) (12) 1,662 (45)
(22) 1,669 9
Income from continuing operations before
income taxes and extraordinary item 104 2,063 270
Income tax provision benefit - (29) (17)
Income from continuing operations before
extraordinary item 104 2,034 253
Discontinued operations:
Income (loss) from discontinued operations (924) 712 (114)
Gain (loss) before extraordinary item (820) 2,746 139
Extraordinary item, debt forgiveness - 523 298
Net income (loss) $ (820) $ 3,269 $ 437
Income (loss) per common share
Continuing operations $ .04 $ .01 $ .04
Discontinued operations (.31) .04 (.22)
Extraordinary item - .10 .03
Net income (loss) per common share$ (.27) $ .15 $ (.15)
Weighted average common shares outstanding 2,926 2,926 2,926
..................................................................
See Notes to Consolidated Financial Statements.
Corcap, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($ Thousands)
For the years ended December 31, 1995 1994 1993
Cash flows from operating activities:
Income from continuing operations $ 104 $ 2,034 $ 253
Adjustments to reconcile income to net cash
from continuing operations:
Depreciation - 10 26
Reduction in allowance for doubtful
accounts - (13) -
Reduction in reserve for contract
disallowance - (214) -
Reduction in litigation reserve - (115) -
Debt forgiveness - 523 298
Minimum pension liability (332) 71 (117)
Increase (decrease) in cash
resulting fromchanges in assets
and liabilities:
Accounts receivable 1,468 (422) 735
Inventories 448 (16) 44
Other current assets 36 (12) 39
Accrued liabilities, related parties - - (107)
Accounts payable and
accrued liabilities (1,850) 85 (227)
Other long-term liabilities (432) (156) (123)
Other assets 152 (47) (48)
Total adjustments (510) (306) 520
Net cash provided by (used in)
continuing operations (406) 1,728 773
Income (loss) from discontinued operations (924) 712 (114)
Adjustments to reconcile loss to
net cash from discontinued operations:
Increase (decrease) in net non-current
liabilities 265 (846) (283)
Increase (decrease) in net current assets 132 147 (279)
Increase (decrease) in net
current liabilities 750 (705) 885
Increase (decrease) in net current
liabilities, related parties - - (816)
Net cash flows provided by (used in)
discontinued operations 223 (692) (607)
Net cash flows provided by (used in)
operating activities (183) 1,036 166
Cash flows from investing activities:
Additions (deletions)to property,
plant and equipment 7 (1) -
Net cash provided by (used in)
investing activities 7 (1) -
Cash flows from financing activities:
Repayment of long-term debt - (1,203) (105)
Net cash used in financing activities $ - $(1,203) $ (105)
Net increase (decrease) in cash and
cash equivalents (176) (168) 61
Cash and cash equivalents beginning of period 176 344 283
Cash and cash equivalents end of period $ - $ 176 $ 344
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ - $ 127 $ 342
Taxes $ - $ 5 $ 17
See Notes to Consolidated Financial Statements.
Corcap, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Deficit
For the years ended December 31, 1995, 1994 and 1993
($ Thousands)
Total
Contri- Capital Minimum Accumu- Stock-
Common buted in excess Pension lated holders'
stock capital of par Liability deficit deficit)
Balance at
December 31, 1992 29 25,033 269 (509) (29,275)(4,453)
Net income - - - - 437 437
Minimum pension
liability - - - (117) - (117)
Balance at
December 31, 1993 29 25,033 269 (626) (28,838)(4,133)
Net income - - - - 3,269 3,269
Minimum pension
liability - - - 70 - 70
Balance at
December 31, 1994 29 25,033 269 (556) (25,569) (794)
Net income - - - - (820) (820)
Minimum pension
liability - - - (332) - (332)
Balance at
December 31, 1995 $ 29 $25,033 $ 269 $ (888) $(26,389)$(1,946)
See Notes to Consolidated Financial Statements.
Corcap, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization
Effective July 1, 1988, all of the issued and outstanding common shares
of Corcap, Inc. ("Corcap" or the "Company") were distributed to the
stockholders of Lydall, Inc. ("Lydall"), a publicly-owned corporation
(the "Distribution"), pursuant to a special dividend previously declared
by Lydall's Board of Directors. Approximately $24 million of net assets
were transferred from Lydall to Corcap. Prior to that, Corcap's
operations and investments were managed through Lydall. As part of the
spin-off transaction, Corcap and Lydall entered into a five-year Post-
Distribution Agreement (the "Post-Distribution Agreement") which
subsequently has been amended from time to time. As amended, the Post-
Distribution Agreement obligates Corcap to indemnify Lydall with respect
to liabilities (if any) incurred by Lydall after the spin-off which arise
out of the conduct of the elastomer products businesses by Lydall prior
to the spin-off or by Corcap after the spin-off or out of the prior
ownership or operation by Lydall of any asset transferred to Corcap in
the spin-off as well as for certain insurance claims and other
liabilities, and requires Lydall to indemnify Corcap with respect to
liabilities (if any) sustained by Corcap after the spin-off as a result
of the conduct of Lydall of any asset which was a component of its fiber
materials businesses as well as for certain other liabilities. Liability
for claims from previously discontinued operations not related to the
continuing operations of either company which may arise in the future are
shared by the companies on a formula basis.
Corcap was incorporated on June 6, 1988. Contributed capital represents
the net assets and the net results of operations through June 6, 1988
from the businesses transferred from Lydall to Corcap as well as capital
transactions since that date. The accumulated deficit represents losses
attributable to operations since the date of incorporation.
Nature of Business
Through June 30, 1995, the Company operated in two business segments:
engineering and security services and the manufacture of telemetry and
telecommunications equipment. During the six months ended June 30, 1995
and the years ended December 31, 1994, and 1993, sales to the U.S.
Federal Government amounted to 86%, 90% and 84%, respectively, of the
Company's total net sales. No other single customer accounted for
greater than 10% of the Company's net sales.
Corcap's Continued Existence Due to the disposition of assets in 1990,
1991 and 1995, Corcap's remaining assets are CompuDyne Common Stock and
Fabrilock, Inc Common Stock. As a result, Corcap is deemed to be a
"transient investment company" as provided in Rule 3a-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"). Since
Corcap's only holdings are investment securities of entities it does not
control, it would be deemed to be an investment company subject to the
reporting, filing and operating requirements of the 1940 Act but for Rule
3a-2. Such rule provides that a company is deemed not to be an investment
company during a period of time not to exceed one year provided that the
company has a bona fide intent to be engaged primarily, as soon as is
reasonably possibly (in any event by the termination of such period of
time), in a business other than that of an investment company. The Board
of Directors is exploring the following in order to comply with Rule 3a-2
by the one-year deadline, or August 21, 1996:
1. Liquidation of the Fabrilock and/or CompuDyne investments, with the
proceeds to be reinvested in new operations.
2. The merger with Corcap with another company in a stock exchange.
3. Liquidation of Corcap, either voluntarily or through a bankruptcy
filing. If this option is adopted, it is unlikely that Corcap could
afford the cost of a voluntary liquidation, including a special
shareholder vote.
CompuDyne is currently prohibited under state law from paying any
dividends because its assets do not exceed its liabilities. Consequently,
Corcap does not have any source of revenue or cash flow
2. Significant Accounting Policies
Principles of consolidation.
...........................
The accompanying consolidated financial statements include the accounts
of Corcap, its wholly-owned subsidiaries, and its investment in CompuDyne
Corporation ("CompuDyne") for the years 1993, 1994 and from January 1,
1995 through June 30, 1995 at which time it was deemed that Corcap no
longer had significant control of CompuDyne. As of July 1, 1995, Corcap
accounts for its investment in CompuDyne by the equity method of
accounting. Significant intercompany transactions have been eliminated
in the consolidated financial statements for the aforementioned periods.
Consolidation of CompuDyne Corporation.
......................................
Three directors of Corcap are also directors of CompuDyne. Corcap has
included the accounts of CompuDyne in Corcap's consolidated financial
statements in light of the control exerted by interlocking managements
for the six months ended June 30, 1995, and the years ended December 31,
1994 and 1993 . As a result, through June 30, 1995 Corcap has recognized
100% of CompuDyne's losses since the second quarter of 1989. At December
31, 1995, 1994 and 1993 Corcap held 24.7%, 35% and 40.7%, respectively,
of CompuDyne's Common Stock outstanding. Effective July 1, 1995 Corcap's
investment in CompuDyne is no longer being consolidated in the financial
statements of Corcap. The investment is carried at carried at zero due to
its past losses and is accounted for by the equity method of accounting.
On August 21 1995, Quanta Systems Corporation ("Quanta"), a wholly-owned
subsidiary of CompuDyne, transferred all of the assets and liabilities of
Quanta's Suntec division to Suntec Service Corporation, a newly-formed
corporation ("Suntec") in return for (i) all of Suntec's issued and
outstanding Common Stock and (ii) Suntec's agreement to pay to Quanta a
royalty of 2% of Suntec's net sales and other revenues for thirty (30)
years from the date of the closing. Quanta then sold all of Suntec's
Common Stock to Norman Silberdick, who resigned on that date as
CompuDyne's Chairman, President, CEO and Director. Suntec is engaged in
the business of telemarketing home improvements in the middle Atlantic
states. As a result of the sale of Suntec, the balance sheet and
statement of operations for Corcap have been restated to reflect the
treatment of Suntec as a discontinued operation for the years ended
December 31, 1993 and 1994 and for the six months ended June 30, 1995.
Use of Estimates.
................
Certain estimates used by management are susceptible to significant
changes in the economic environment. These include estimates of
percentage-of-completion on long term contracts and valuation allowances
for contracts accounts receivable. Each of these estimates, as well as
the related amounts reported in the financial statements, are sensitive
to near-term changes in the factors used to determine them. A
significant change in any one of those factors could result in the
determination of amounts different than those reported in the financial
statements. Management believes that as of December 31, 1995, the
estimates used in the financial statements are adequate based on the
information currently available.
Inventories.
...........
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Depreciation and amortization.
.............................
Plant, property and equipment are depreciated over their estimated useful
lives on the straight-line method for financial statement purposes.
Leasehold improvements are amortized on a straight-line basis over the
term of the lease or the life of the asset, whichever is shorter.
Maintenance and repair costs are charged to operations as incurred; major
renewals and betterments are capitalized.
Income taxes.
............
Effective January 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes".
Under SFAS 109 deferred income taxes are recognized for the future tax
consequences of differences between tax bases of assets and liabilities
and financial reporting amounts, based upon enacted tax laws and
statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to amounts
expected to be realized. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets and
liabilities. The adoption of SFAS 109 had no impact on operations for any
of the periods presented.
Corcap and its wholly-owned subsidiaries file a consolidated federal
income tax return. CompuDyne and its domestic subsidiaries file a
consolidated federal income tax return.
Revenue recognition.
...................
Revenue under cost reimbursement contracts is recognized to the extent of
costs incurred to date plus a proportionate amount of the fee earned.
Revenue under time and materials contracts are recognized to the extent
of billable rates times hours delivered plus materials expense incurred.
Revenues from fixed price contracts are recognized under the percentage
of completion method. Revenues from the sale of manufactured products
are recognized based on shipment date. Provisions for estimated losses
on uncompleted contracts are recognized in the period such losses are
determined.
Net income (loss) per common share.
..................................
Net income (loss) per common share is based on the weighted average
number of common shares outstanding during the period, including the
effect of common stock equivalents and stock awards where such effect
would be dilutive.
Cash and cash equivalents.
.........................
Cash and cash equivalents include amounts invested in accounts which are
readily convertible to known amounts of cash with a maturity of three
months or less at the time of purchase. The Company invests any available
cash balance in overnight funds which are concentrated in one commercial
bank. The Company has not experienced any losses on its cash and cash
equivalents.
Reclassifications.
.................
Certain reclassifications have been made in the 1994 and 1993 financial
statements to conform to the 1995 presentation.
3. Long-term Debt
In May 1994, CompuDyne negotiated a modification to the Loan Agreement
("Clipper Agreement") Quanta had with JM Clipper Polymers Corporation
("Clipper") whereby the Company agreed to pay $1 million in full
satisfaction of its debt of $1.163 million. On May 17, 1994 CompuDyne
made a payment of $700 thousand, established six quarterly payments of
$50 thousand for the balance due and terminated its working capital line
of credit of $150 thousand with Clipper. Clipper further agreed to
surrender its warrant to purchase 100,000 shares of CompuDyne Corporation
Common Stock upon final payment of the outstanding debt which occurred in
November 1994.
In July 1994 Clipper, Corcap Eastern, Inc. ("CE") a wholly owned
subsidiary of Corcap, and Quanta entered into an agreement. Under this
agreement, CE as lessor under a lease to Clipper for property located in
Dayville, Connecticut (the "Dayville Property"), terminated the lease in
consideration for which Clipper cancelled a promissory note from CE to
Clipper in the amount of $1.774 million and released a mortgage securing
such note. The $1.774 million of debt forgiveness is included in income
from discontinued operations for 1994. As further consideration for the
termination of the lease, Clipper forgave an additional $250 thousand of
debt owing from Quanta to Clipper under the Clipper Agreement. Quanta's
indebtedness to Clipper under the Clipper Agreement had thereby been
reduced to $50 thousand, payable in five quarterly installments of $10
thousand commencing on September 30, 1994 and ending on September 30,
1995. In July 1991, the Dayville real estate and buildings were leased
to Clipper under a "triple net" lease at an annual rental of $250
thousand, with an option to renew for one additional ten-year term and an
additional option to purchase the facility for an amount equal to the
principal amount of the mortgage plus $100 thousand.
As part of the foregoing transaction and as consideration for Corcap
causing CE to terminate the lease, CompuDyne entered into an agreement
with Corcap to provide to Corcap management services and use of office
facilities and to absorb the cost of certain legal services for a period
of four years without charge to Corcap. In connection with the Lydall
settlement, Corcap agreed to limit this obligation to $1 thousand per
month for 24 months.
On October 4, 1994, Clipper, CompuDyne and Corcap entered into a letter
agreement that provided for $20 thousand of obligations by Clipper for
environmental costs associated with the Dayville property be offset
against indebtedness due Clipper from Quanta. CompuDyne in turn reduced
the amount of moneys due it from Corcap for $20 thousand and Corcap then
established a liability for the environmental costs.
On November 18, 1994, CompuDyne obtained a $350 thousand secured working
capital line of credit agreement with the Asian American Bank and Trust
Company of Boston, Massachusetts. As part of the agreement the Company paid
off the Clipper loan in full and the Clipper Warrant was
surrendered. At December 31, 1994 CompuDyne had no outstanding debt.
Corcap required, as a condition to its conversion of the Preferred Stock
to CompuDyne Common Stock and the relinquishment and waiver of accrued
dividends on the Preferred Stock, that CompuDyne issue a warrant (the
"Corcap Warrant") for 150,000 shares of CompuDyne Common Stock to Corcap.
The Exercise price of the Corcap Warrant is $.40 per share. On August
21, 1995, Corcap purchased the 150,000 shares of CompuDyne common stock
for $.40 per share in accordance with the terms of a Warrant issued by
CompuDyne to Corcap on March 10, 1993 and amended as of April 1, 1993 and
August 15, 1995. In payment of the purchase price of the Warrant Shares,
Corcap executed a promissory note for $60 thousand payable to CompuDyne
(the "Corcap Promissory Note") which is included in net non-current
liabilities of discontinued operations at December 31, 1995 in the
consolidated balance sheet. The Corcap Promissory Note bears interest on
the unpaid principal at the annual rate of eight percent (8%). Payment
of the unpaid principal of the Corcap promissory note and on all accrued
and unpaid interest thereon is due on August 21, 2000.
4. Lydall Settlement
On December 12, 1992, Lydall presented an invoice to Corcap, under the
Post-Distribution Agreement (described in Note 1), for $499 thousand
representing final taxes and interest due to the IRS as a result of an
audit of Corcap entities for the years 1983 through 1988. The $499
thousand was recorded as a liability and was included in net current
liabilities of discontinued operations in the balance sheet at December
31, 1994. In July 1994, Lydall informed Corcap that as a result of an
audit of Corcap entities for the years 1987-1989 Lydall had calculated
that Corcap's share of the current assessment was an additional $382
thousand. Lydall presented Corcap with an invoice for that amount in July
1995. As a result, Corcap recorded an additional $382 thousand liability
in 1995.
On March 25, 1996 Lydall and Corcap entered into a Settlement Agreement
(the "Settlement Agreement") pursuant to which Corcap transferred 120,000
shares of CompuDyne Common Stock, par value $.75 per share ("CompuDyne
Common Stock") to Lydall in settlement of certain claims.
Under the Settlement Agreement, each of Lydall and Corcap released all
obligations arising out of such claims by the transfer from Corcap to
Lydall of 120,000 shares of CompuDyne Common Stock. In addition, Corcap
agreed to indemnify Lydall for all liabilities Lydall may incur in
connection with its former ownership of property in Dayville, Connecticut
which Corcap sold in July 1995 and which had previously been used in
connection with Acadia's (a former subsidiary of Corcap) operations. The
Post-Distribution Agreement had obligated Corcap to indemnify Lydall for
certain environmental claims. In all other respects, the Post-
Distribution Agreement continues in effect.
As a result of this settlement, in which Corcap's carrying value of its
CompuDyne Common Stock was zero, Corcap will recognize a gain on this
settlement of debt of $881 thousand in 1996.
5. Accounts Receivable
December 31,
$ Thousands 1994
U.S. Government Contracts:
Billed $ 390
Unbilled 644
.......
Total Contracts $ 1,034
Substantially all of the U.S. Government billed and unbilled receivables
are derived from cost reimbursable or time-and-material contracts.
Unbilled receivables include retainages of approximately $125 thousand at
December 31, 1994.
Direct sales to the U.S. Federal Government for the years ended December
31, 1994 and 1993 were $9.0 million and $8.3 million, respectively, or
90% and 84% of the Company's total net sales from continuing operations
for the same years. No other single customer accounted for greater than
10% of the Company's net sales.
Contract costs for services provided to the U.S. Government, including
indirect expenses, are subject to audit by the Defense Contract Audit
Agency. All contract revenues are recorded in amounts expected to be
realized upon final settlement. In the opinion of management, adequate
provisions have been made for adjustments, if any, that may result from
the government audits.
Substantially all of CompuDyne's government related business is with the
U.S. Department of Defense, primarily one major contract, the NISE East
contract that was awarded to Quanta in March 1992 as a one-year contract
with four one-year renewal options. The contract has been renewed
through September 30, 1996. Net sales under the NISE East contract
totaled $6.9 million in 1994. Although most of Quanta's contracts are
subject to audit, it does not believe such audits will result in any
material adjustments to the financial statements. There are no balances
for 1995 as CompuDyne is no longer consolidated in the results of Corcap.
6. CompuDyne Investment
On November 12, 1992 the CompuDyne Board authorized the issuance of
300,000 shares of Common Stock to key employees of CompuDyne and Quanta
at a price of $.40 per share, the fair market value at such time. In
January 1993, the Board subsequently authorized the issuance of an
additional 200,000 shares of Common Stock to a key employee at the same
price and on the same terms as those authorized on November 12, 1992.
These authorizations were formalized in Stock Purchase Agreements, dated
August 1, 1993, under which the employees may purchase an aggregate of
125,000 shares on August 1, 1993, 1994, 1995 and 1996, provided certain
conditions are met including continued employment by CompuDyne, by paying
cash for such shares or by giving the Company a five-year non-recourse
promissory note, collateralized by the stock and bearing interest at 2%
per annum over the rate designated by the First National Bank of Maryland
as its prime commercial rate. The Stock Purchase Agreements further
provide that within 90 days of any Change of Control of CompuDyne, as
defined, the employees will be entitled to purchase all of the shares of
CompuDyne Common Stock not yet purchased under such Agreements by
delivering a written notice to CompuDyne. On August 1, 1993, August 1,
1994 and August 1, 1995 an aggregate of 306,250 shares of CompuDyne
Common Stock were issued to management, (the "Management Shares") in
exchange for promissory notes pursuant to the Stock Purchase Agreements.
In August 1995 as part of the agreement to acquire Suntec, Norman
Silberdick, former Chairman and President of CompuDyne, returned 60,000
shares to CompuDyne in exchange for the cancellation of the promissory
notes securing those shares thereby reducing the amount of shares issued
to 246,250. Mr. Silberdick also cancelled his right to receive 50,000
shares on August 1, 1995. The number of shares to be issued to
management was also reduced by 37,500 shares representing the amount of
shares allocable to one officer who resigned during 1994.
The remaining 56,250 shares issuable to management will be offered to
such employees over the next year in equal amounts at $.40 per share so
long as such persons are employed by the Company.
During 1993 and 1994 and 1995, Corcap sold 27,000, 40,500 and 40,500
shares respectively, of its holdings of CompuDyne Common Stock under Rule
144 of the Securities Act of 1933.
On August 31, 1993, the officers of Corcap and certain members of the
Corcap Board agreed to sell an aggregate of 66,666 shares of CompuDyne
Common Stock to Messrs. Antoine Dominic, who was then Executive Vice-
President, Chief Financial Officer and a director of Corcap and
CompuDyne, Millard Pryor, a director of Corcap and CompuDyne, and David
Clark, a director of Corcap and CompuDyne. Mr. Dominic made an informal
loan of $25 thousand to Corcap and Messrs. Pryor and Clark each made
informal loans of $12.5 thousand to Corcap with the understanding that,
subject to the approval by the Board of Directors of Corcap, such loans
would be repaid in full by the transfer by Corcap of 33,333 shares of
CompuDyne Common Stock to Mr. Dominic, 16,667 shares to Mr. Pryor and
16,666 shares to Mr. Clark. The Corcap Board subsequently approved these
actions on October 6, 1993. The shares were transferred in October 1993.
The primary reason for the sale of the shares was the necessity of
obtaining $50 thousand cash on August 31, 1993 to settle a $348 thousand
obligation owing to one of Corcap's creditors. Corcap owed $348 thousand
of accrued rent under an office lease for space it occupied at 90 State
House Square, Hartford, Connecticut when its lease ended September 30,
1993. Management of Corcap was able to negotiate a settlement of its
$348 thousand past due rent to the landlord, for $50 thousand. The terms
of the settlement required full payment of the $50 thousand by August 31,
1993. As of September 30, 1993, the expiration date of the lease,
CompuDyne's share of the unpaid rent liability on its records was $186
thousand. CompuDyne agreed to pay half of the settlement ($25 thousand)
by reducing the receivable that Corcap owes CompuDyne for expenses
unrelated to rent by $25 thousand. Since August 1992, CompuDyne had been
occupying all the space at 90 State House Square, Hartford Connecticut
and had been absorbing all the rent. Prior to August 1992, it occupied
and paid for half the space. Corcap currently leases the office space on
a month-to-month tenancy and sublets such space to CompuDyne which is
obligated to pay the entire monthly rental of $2.250 thousand.
On September 1, 1993 the Compensation and Stock Option Committee of the
Board of Directors of CompuDyne granted Antoine Dominic options (the
"Dominic Options") to purchase 91,667 shares of CompuDyne Common Stock at
a price of $.75 per share under its 1986 Stock Incentive Compensation
Plan. On December 14, 1994 Mr. Dominic resigned and subsequently did not
exercise his options which expired January 31, 1995 in accordance with
the provisions of the plan.
On August 21, 1995 CompuDyne entered into and consummated a Stock
Purchase Agreement by and among CompuDyne, Martin A. Roenigk and Alan
Markowitz (Messrs. Roenigk and Markowitz are, collectively, the
"Sellers") and MicroAssembly Systems, Inc. ("MicroAssembly"), pursuant to
which CompuDyne issued to the Sellers 1,260,460 shares of its Convertible
Preference Stock, Series D ("Preference Stock") in exchange for all of
the Sellers' shares of capital stock of MicroAssembly, which shares
represented all of MicroAssembly's issued and outstanding capital stock.
The issuance by CompuDyne of the Preference Stock, together with the
issuance of certain Notes, as defined below, and certain options to
purchase common stock, all as described below and in accordance with the
terms of the Stock Purchase Agreement, are referred to as the
"Transaction". Of the 1,260,460 Shares of Preference Stock issued to the
Sellers, 945,345 shares were issued to Mr. Roenigk, and 315,115 shares
were issued to Mr. Markowitz. The Preference Stock has rights to vote on
a share for share basis with the Company's Common Stock on all corporate
issues other than the election of directors; it is also convertible to
common stock on a share for share basis at any time prior to redemption
by CompuDyne. On March 29, 1996, the holders of the Preference Stock
waived their rights to mandatory redemption by CompuDyne. For the
election of directors, each share of Preference Stock is entitled to
1/3.08 of a vote as compared to the Company's Common Stock, which is
entitled to one vote per share.
As part of the Transaction, in return for $400 thousand paid to CompuDyne
at the closing, CompuDyne issued to the Sellers Senior Convertible
Promissory Notes (the "Notes") in the aggregate principal amount of $400
thousand, which Notes are convertible, prior to redemption by CompuDyne,
into CompuDyne Common Stock at a conversion rate of $1.50 per share of
Common Stock, or 266,667 shares of common stock if the entire principal
amount of the Notes is converted. Of the $400 thousand principal amount
of Notes issued, $300 thousand principal amount of the Notes was issued
to Mr. Roenigk, and $100 thousand principal amount of the Notes was
issued to Mr. Markowitz. As described in a report filed by the Sellers
with the Securities and Exchange Commission and with the Company pursuant
to Section 13(d) of the Securities Exchange Act of 1934, the source of
the Sellers' $400 thousand investment in the Company was personal funds.
As a result of the above described transactions Corcap's ownership of
CompuDyne decreased from 35% of the issued and outstanding shares of
CompuDyne Common Stock at December 31, 1994 to 24.7% as of December 31,
1995. After assuming (i) the conversion of 1,260,460 shares of Series D
Preference Stock to Messrs. Martin A. Roenigk and Alan Markowitz, which
shares are convertible by the holders into 1,260,460 shares of CompuDyne
Common Stock, (ii) the conversion of $400 thousand principal amount of
Senior Convertible Promissory Notes to Messrs. Roenigk and Markowitz
which promissory notes are convertible by the holders into 266,667 shares
of CompuDyne Common Stock and, (iii) the exercise of an option to
purchase 200,000 shares of CompuDyne Common Stock issued by the Company
to Mr. Roenigk at an exercise price of $1.50 per share, all pursuant to
certain Stock Purchase Agreements by and among CompuDyne, Messrs. Roenigk
and Markowitz and MicroAssembly Systems, Inc. (the "Stock Purchase
Agreement") and (iv) a Stock Purchase Agreement, dated August 1, 1993,
between CompuDyne and three members of management whereby such persons
may purchase up to an additional 56,250 shares of CompuDyne Common Stock
on August 1, 1996 assuming certain conditions are met and (v) the
exercise of stock options for 25,000 shares of CompuDyne Common Stock
issued to an officer of CompuDyne, and (vi) the issuance of an option to
CompuDyne to purchase 16,666 shares of CompuDyne Common Stock, Corcap's
ownership will be decreased to 12% on a fully diluted basis.
The following represents summarized financial information for CompuDyne
as of and for the year ended December 31, 1995. The financial activity
of CompuDyne for the six months ended June 30, 1995 has been consolidated
in Corcap's Financial Statements as of December 31, 1995.
($ thousands)
As of December 31, 1995
.......................
Current assets $ 3,241
Long-term assets 1,792
Total Assets $ 5,033
Current liabilities $ 2,536
Long-term liabilities 1,130
Total liabilities $ 3,666
Shareholders equity $ 1,367
Year Ended December 31, 1995
............................
Net sales $ 10,308
Expenses (10,573)
Income tax benefit 55
Loss on discontinued operations ( 453)
Net Loss $( 663)
7. Investment in Fabrilock, Inc.
On July 14, 1995, Corcap entered into a purchase and sale agreement with
Fabrilock Inc., a newly formed corporation, whereby Fabrilock purchased
the Dayville Property in exchange for 20% of Fabrilock's issued and
outstanding shares and the assumption by Fabrilock the costs of the
environmental remediation of the property not to exceed $100 thousand.
Fabrilock manufactures specialty non-woven textiles. Corcap had recorded
an environmental reserve for $248 thousand in the third quarter of 1994.
According to the purchase and sale agreement, five years after the sale
of the Dayville Property, Fabrilock would have the right to repurchase
50% of Corcap's holding of Fabrilock shares for $675 thousand and Corcap
would then have the right to require Fabrilock to purchase the remaining
50% of the Fabrilock shares for $675 thousand. The purchase price for the
shares would be reduced by the amount of environmental remediation costs
incurred by Fabrilock in excess of $100 thousand. In the third quarter
of 1995 Corcap reduced its reserve for environmental remediation as the
estimated liability was expected to be below $100 thousand based upon the
environmental consultant's results.
In connection with the sale of the Dayville property, Corcap entered into
an agreement entitled 300 Lake Road Environmental Remediation Escrow Fund
Agreement ("Remediation Agreement") whereby Corcap deposited 27,000
shares of CompuDyne Common Stock to be used in part with contributions
from Fabrilock to fund the environmental remediation and clean-up of the
Dayville Property. Corcap retains all attendant rights of ownership of
such shares other than the right to transfer them during the pendency of
the clean-up process. Beginning with the calendar quarter ending
September 30, 1995 the Escrow Agent will, ten days prior to the end of
each calendar quarter, return to Corcap 4,000 shares of CompuDyne Common
Stock for the purpose of Corcap selling such shares pursuant to the
provisions of Rule 144, and Corcap is required to deposit into the escrow
fund the proceeds of such sale. Corcap is obligated to contribute
additional shares of CompuDyne Common Stock to the escrow fund, if
necessary, so that the fair market of the CompuDyne Common Stock in the
fund, based upon the average bid and asked price of such stock for the
six months prior to the determination, is not less than 75% of:(i) $70
thousand, less (ii) the cash proceeds deposited into the escrow fund by
Corcap in return for shares released by the Escrow Agent for sale by
Corcap as described above (the result of such calculation referred to as
the "Stock Adjustment Value"). If the aggregate fair market value of the
CompuDyne Common Stock in the escrow fund, determined as set forth,
should, at any six month valuation exceed 125% of the Stock Adjustment
Value, the Escrow Agent shall return sufficient shares to Corcap such
that the fair market value of the CompuDyne Common Stock in the escrow
fund shall equal the Stock Adjustment Value. Upon certification that the
environmental remediation and clean-up have been completed, the Escrow
Agent shall return to Corcap, among other things, the shares of CompuDyne
Common Stock in the escrow fund at that time.
Certain retirees of the Dayville plant had received voluntary medical and
life insurance payments from Corcap which ceased in 1991 when Corcap was
unable to continue to make these payments. The retirees retained counsel
and made a claim against the Company asserting that the Company was
liable for the medical insurance payments as well as certain life
insurance claims. The Company denied the claim that it was liable since
it made voluntary payments. In February 1996, the Company reached an
agreement with counsel and the Union for certain retirees of the Dayville
plant to transfer 22,500 shares of CompuDyne Common Stock to the Retirees
upon the signing of the settlement agreement.
A certain commercial real estate broker who was contracted by the Company
to assist in the sale of the Dayville property agreed to a negotiated fee
as a result of the Fabrilock transaction. The Company and the broker have
agreed to payment of the fee by accepting 6% of the shares (120) of
Fabrilock held by Corcap.
8. Other Contingencies
Corcap has no long term operating leases. Rent expense under operating
leases for CompuDyne for the six months ended June 30, 1995 and the years
ended December 31, 1994 and 1993 were $200 thousand, $466 thousand and
$409 thousand, respectively.
On March 10, 1986, the United States Environmental Protection Agency
("EPA") notified a subsidiary of Corcap, (then a subsidiary of Lydall)
and 34 other entities that they may be potentially responsible for
response costs under the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA") in connection with the release
of hazardous substances at a landfill located in Michigan City, Indiana
("Landfill"). On November 10, 1987, the EPA notified the subsidiary of
Corcap that it and other entities identified in the above matter also may
be potentially responsible for the EPA's response costs in connection
with a property located adjacent to the Landfill, known as the Lin-See
Property. The EPA has indicated that it intends to expand the Landfill
matter to encompass the Lin-See Property. No specific money claim has
been made to the subsidiary of Corcap by the EPA with regard to the
Landfill matter or the Lin-See Property, and the total cost of the
remediation is not yet known. The preliminary indications are that the
subsidiary's contribution to the waste volume at the Landfill, if any,
was approximately 0.286% of the total volume. Under the terms of the
Post-Distribution Agreement, Corcap and Lydall will share any loss which
may be sustained in these matters based on the ratio of the total market
value of the outstanding capital stock of each company at the time the
actual liability is determined. As of December 31, 1994, Corcap's
proportionate share of any liability would have been less than 1%.
During the third quarter of 1991, a wholly-owned subsidiary of Corcap,
Corcap Virginia Inc. (formerly Acadia Virginia, Inc.), received
notification that it may be a potential responsible party under the North
Carolina General Statutes in connection with the closure and abatement of
the Seaboard Chemical Corporation site located in Jamestown, North
Carolina. Preliminary information supplied by the North Carolina
Department of Environment, Health and Natural Resources indicates that,
during the fall of 1986 and early 1987, a subsidiary of Lydall, which was
part of its Elastomer Products Group, may have shipped approximately
.0001016% of the aggregate waste material located at the site. In
connection with the spinoff of Corcap from Lydall on July 1, 1988, Corcap
succeeded to the businesses and operations that were formerly conducted
by the Elastomer Products Group of Lydall, and Corcap agreed to indemnify
Lydall with respect to liabilities arising out of the conduct of the
elastomer products business prior to the spinoff. During the third
quarter of 1994 Corcap received a pro-rata invoice from the consulting
engineer for the site for approximately $500. In March 1996, Corcap
received a final settlement from the engineers for $5 thousand.
Corcap and its subsidiaries are party to certain legal actions and
inquiries for environmental and other matters resulting from the normal
course of business. Although the total amount of liability with respect
to these matters cannot be ascertained, management of the Company
believes that any resulting liability will not have a material effect on
its financial position.
9. Net Liabilities of Discontinued Operations
Remaining assets and liabilities of discontinued operations consisted of
the following items at December 31, 1995 and 1994:
$ Thousands 1995 1994
Fixed Assets, primarily land $ - $ 1,044
Investments 139 -
Net current liabilities (1,681) (1,823)
Notes payable due after one year (60) -
Deferred pension liability (344) (102)
(1,946) (881)
Less current portion (1,681 (881)
Net non-current liabilities of
discontinued operations $ 265 $ -
10. Pension Plans
Corcap contributed to two defined benefit pension plans for certain
Corcap employees. Prior to June 30, 1991, benefits for salaried
employees were based on eligible compensation and for hourly employees
were based on hours of service. Plan benefits were frozen under both
defined benefit plans effective July 1, 1991. The pension cost shown for
the year ended December 31, 1992 reflects the elimination of additional
benefit accruals after this date. As a result of the benefit freeze, the
plans experienced a "curtailment gain" as defined under Financial
Accounting Standards Statement No. 88 which resulted in a direct
reduction in pension cost for 1991.
The following items are the components of net pension cost:
For the years ended December 31,
$ Thousands 1995 1994 1993
Service cost--benefits earned
during the year $ - $ - $ -
Interest cost on projected
benefit obligation 315 308 309
Actual return on plan assets (400) (71) (411)
Net amortization and deferral 88 (245) 82
Net pension cost $ 3 $ (8) $ (20)
Plan assets include investments in bank accounts, bonds and guaranteed
insurance contracts. The actuarial computations, which use the
"projected unit credit" method and the "unit credit" method assumed a
discount rate on benefit obligations of 7.3% and an expected long-term
rate of return on plan assets of 9.0% for 1995 and a discount rate on
benefit obligations of 8.3% and an expected long-term rate of return on
plan assets of 9% for 1994. No annual compensation increase is used in
1995 as the plan is frozen.
During 1992, Corcap was unable to make the last required quarterly
payment to the Plans nor any quarterly payments during 1993 and 1994. The
required payment was not made within 8 1/2 months after the close of the
Plan year, or September 15, 1993, which caused the Plans to have an
unwaived funding deficiency with respect to the unpaid quarterly amounts,
subjecting Corcap to excise tax liability under the Internal Revenue Code
of 1986, as amended, of at least 10% of the funding deficiency. On March
21, 1995 Corcap filed an application with the Internal Revenue Service
requesting a waiver of the minimum funding standard.
On September 15, 1995 Corcap contributed 224,000 shares of CompuDyne
Common Stock to satisfy Corcap's minimum funding obligations for the
1992, 1993 and 1994 Plan Years of its employee pension plans: Plan 1A
and Plan 6B under Section 412 of the Internal Revenue Code of 1996, as
amended (the "Code"). The Constituent Plans comprise, and are
administered through, a single trust: the Corcap, Inc. Pooled Pension
Investment Trust (the "Trust"). Corcap contributed 143,600 shares of
CompuDyne Common Stock to Plan 1A and 80,400 shares of CompuDyne Common
Stock to Plan 6B. The making of such contributions in property may
constitute a "prohibited transaction" within the meaning of section 4975
of the Code and Section 406 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Corcap filed an application with the
Department of Labor ("DoL") seeking Prohibited Transaction Exemptions
with respect to the transfer of the Shares of Common Stock to each of the
respective Constituent Plans. The contribution of the shares was made
contingent upon said exemption being granted. On January 25, 1996 the
DoL informed the Company that the application was denied. A further
conversation with the DoL reopened the application and with the
submission of additional supporting information, it is now expected to be
approved. In the event that DoL does not grant relief sought under the
application for the Prohibited Transaction Exemption, the Trustee of the
Constituent Plans will promptly return the shares to Corcap. The
agreement of the PBGC to settle the pension plans' underfunding liability
will include the additional 224,000 CompuDyne shares if the DoL does not
approve the application.
In March 1996, in anticipation of termination of the Corcap Pension Plan
1A and the Corcap Pension Plan 6B (collectively the "Plans"), the PBGC
and Corcap reached a preliminary agreement whereby the PBGC agreed to
accept an additional 188,660 shares of CompuDyne Common Stock in
satisfaction of the Plans' underfunding liabilities to the PBGC. The
agreement is subject to final documentation and signature, which is
expected to be completed during April, 1996.
In January 1996 the Internal Revenue Service ("IRS") sent the Company a
penalty for its failure to make timely payments to the Constituent Plans
in the amount of $52 thousand. The Company is attempting to negotiate a
waiver of the penalty with the IRS as part of the assumption of the
Constituent Plans by the PBGC.
The following table presents a reconciliation of the funded status of the
plans:
December 31,
$ Thousands 1995 1994
Actuarial present value of benefit obligations:
Vested $4,368 $3,954
Non-vested - -
Accumulated benefit obligation 4,368 3,954
Additional benefits related to assumed
future compensation levels - -
Projected benefit obligations 4,368 3,954
Plan assets at fair market value 3,836 3,311
Projected benefit obligations in
excess of plan assets (532) (643)
Unrecognized net assets (312) (365)
Unrecognized net losses 1,200 919
Additional minimum liability (888) (554)
Accrued pension cost included in net
discontinued operations liability $ (532) $ (643)
Kolux Pension Plan
..................
In March 1987, CompuDyne ceased its Kolux plant operations resulting in a
curtailment of the defined benefit pension plan covering certain plant
employees. As of December 31, 1994, the actuarial present value of
accumulated plan benefits was estimated to be $761 thousand, based upon a
8% interest rate assumption; the 1984 Unisex Mortality table with a five
year age setback for females; and the February 28, 1994 (latest actuarial
valuation) employee database projected forward to December 31, 1994. All
benefits under the plan are fully vested. The projected market value of
plan assets as of December 31, 1994 was $432 thousand. Accordingly, the
plan's unfunded accrued liability as of December 31, 1994 of $329
thousand has been reflected in the balance sheet as accrued pension costs
in net current liabilities of discontinued operations.
11. Restricted Stock Awards and Stock Options
Awards under Corcap's Stock Incentive Compensation Plan may be made in
the form of restricted stock awards, stock options, or stock bonus
awards. Restricted stock awards are grants of a specific number of shares
of Corcap Common Stock to key employees if they continue to work for the
Company for a certain number of years. Stock options enable key
employees to purchase a specified number of shares of Common Stock at
some future date at the market value on the date of grant. Stock bonus
awards are grants of a specific number of shares of Corcap Common Stock
having no restrictions. These awards are made to employees in
recognition of extraordinary accomplishments. In June 1993, the Board of
Directors terminated the 1988 Stock Incentive Compensation Plan. The
termination of the Plan did not affect any awards or grants of options
under the Plan all of which shall continue in force in accordance with
their terms.
At December 31, 1995, all of the outstanding options for 2,500 shares of
Corcap stock were exercisable under the terms of the Plan.
On August 21, 1995 in connection with Mr. Roenigk's sale of MicroAssembly
to CompuDyne, Corcap issued to him options to purchase up to 450,000
shares of the Company's Common Stock for $.15 per share. The options are
divided into two tranches, one of 300,000 shares and the other of 150,000
shares. The option for the 300,000 shares shall expire on August 20, 1996
("Option I"). Exercise of the options for the entire 300,000 shares
available under and in accordance with the terms of Option I is a
precondition to the availability of the options for the remaining 150,000
shares, which remaining options expire on August 20, 2005. On March 25,
1996, the Board of Directors approved a resolution to reduce the option
price per share to $.01.
12. Deferred Compensation
In connection with various acquisitions, Corcap assumed obligations to
pay deferred compensation to certain former employees. Estimates of the
net present value of such future benefits are recorded as current
liabilities of discontinued operations in the amount of $314 thousand.
Concurrent with the execution of the Settlement Agreement with Lydall
dated March 25, 1996 (See Note 4), Corcap and certain directors and
former officers of Corcap, Messrs. Millard H. Pryor, Jr. and David W.
Clark, Jr. entered into an agreement whereby Messrs. Pryor and Clark
agreed to forgive an accrued obligation for compensation in the amount of
$314 thousand. The forgiveness of this obligation will be reflected as
additional capital contributions in the first quarter of 1996.
CompuDyne maintains a 401(k) Retirement Savings Plan in which all
employees are eligible to participate after completing one year of
service. Participants may make before tax contributions of up to 15% of
their annual compensation subject to Internal Revenue Service
limitations. CompuDyne matches employee contributions up to the first 2%
contributed. CompuDyne's contribution amounted to $45 thousand and $49
thousand for the years ended December 31, 1994, and 1993, respectively.
13. Income Taxes
Due to significant pretax and tax losses since the formation of Corcap,
Corcap is not subject to federal taxation. State taxes of approximately
$0 thousand, $5 thousand and $5 thousand were incurred during 1995, 1994
and 1993, respectively.
The tax effects of the primary temporary differences giving rise to the
Company's deferred tax asset at December 31, 1995 and December 31, 1994
are summarized as follows:
December 31, December 31
1995 1994
Tax depreciation in excess of book $ 0 $ (242)
Accrued expenses and deferred
compensation 0 260
Tax operating loss carryforward 3,113 2,818
3,113 2,836
Valuation allowance (3,113) (2,836)
$ - $ -
Corcap's net operating loss carryforwards as of December 31, 1995 are
$9.7 million. If not utilized, these losses will expire between during
the years 2004 to 2009. Due to the significant change in the ownership
of the Company, the utilization of the aforementioned loss carryforwards
could be substantially limited. The Company also has carryforwards
available for alternative minimum tax purposes which do not differ
significantly from regular net operating loss carryforwards.
14. Industry Segment Information
Through June 30, 1995, the Company operated in two business segments:
engineering and security services and the manufacture of telemetry and
telecommunications equipment. During the six months ended June 30, 1995
and the years ended December 31, 1994, and 1993, sales to the U.S.
Federal Government amounted to 86%, 90% and 84%, respectively, of the
Company's total net sales. No other single customer accounted for
greater than 10% of the Company's net sales.
Revenues and related costs from government services during the three
years ended December 31, 1994 and 1993 and the six months ended June 30,
1995 are detailed below:
($ Thousands) December 31, 1995 December 31, 1994 December 31, 1993
Revenues $ 4,293 $ 8,691 $ 8,128
Cost of Services 3,729 7,326 6,840
Gross Profit 564 1,365 1,288
Operating Profit 268 794 617
Total Assets 1,458 702 596
Depreciation - 10 26
Capital Expenditures - - -
Revenues and related costs from telemetry and telecommunications products
during the three years ended December 31, 1995, 1994 and 1993 are
detailed below:
($ Thousands) December 31, 1995 December 31, 1994 December 31, 1993
Revenues $ 322 $ 1,008 $ 1,443
Cost of Services 264 787 847
Gross Profit 58 221 596
Operating Profit (73) (15) 75
Total Assets 789 688 534
Depreciation - 887 10
Capital Expenditures - - -
There were no revenues from Corporate activities. Costs related to
corporate activities for the three years ended December 31, 1995, 1994
and 1993 are detailed below:
($ Thousands) December 31, 1995 December 31, 1994 December 31, 1993
Operating loss $ (69) $ (385) $ (413)
Total Assets - 392 584
Depreciation - - -
Capital Expenditures - - -
15. Recently Issued Accounting Standard
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." The new standard defines a fair value method
of accounting for stock-based employee compensation plans. Under this
method, compensation costs is measured based on the fair value of the
stock award when granted and is recognized as an expense over the service
period, which is usually the vesting period. This standard will be
effective for the Company beginning in 1996 and requires measurement of
awards made beginning in 1995.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net
income and earnings per share as if the company had applied the new
method of accounting. The Company intends to implement these disclosure
requirements beginning 1996. Adoption of the new standard will not
impact reported net income or cash flows.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Corcap, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Corcap, Inc.
By /s/ I. Elaine Chen, April 15, 1996
Chief Financial 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
Corcap, Inc. and in the capacities and on the dates indicated.
/s/David W. Clark, Jr. April 15, 1996 s/sJohn E. Sundman April 15, 1996
David W. Clark, Jr. Date John E. Sundman Date
Director Director
/s/ Martin A. Roenigk April 15, 1996 s/sMillard H. Pryor, Jr. April 15,1996
Martin A. Roenigk Date Millard H. Pryor, Jr. Date
Director Director
CORCAP, INC.
INDEX TO EXHIBITS
22.1 List of subsidiaries of the registrant and states of incorporation
is filed herewith.
28.1 Annual Report on Form 10-K of CompuDyne Corporation for the fiscal
year ended December 31, 1995.
28.2 Settlement Agreement with Lydall, Inc. and Corcap, Inc.
28.3 Settlement Agreement with the Pension Benefit Guaranty Corporation.
28.4 Option Agreement between Corcap and CompuDyne dated March 25, 1996
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
Percentage
of voting
securities
Incorporated owned by
under the immediate
Name laws of Parent parent
Corcap, Inc. Nevada Registrant
Corcap Polymers, Inc. Nevada Corcap, Inc. 100% Corcap
Corcap Eastern, Inc. Nevada Corcap, Inc. 100% Corcap Polymers
Corcap Central, Inc. Indiana Corcap, Inc. 100% Corcap Polymers
Corcap Virginia, Inc. Delaware Corcap, Inc. 100% Corcap Polymers
Corcap Irongate, Inc. Delaware Corcap, Inc. 100% Corcap Virginia
Nacol, Inc. Connecticut Corcap, Inc. 100% Corcap
Corcap Midwest, Inc. Indiana Nacol, Inc. 100% Nacol
Note: All subsidiaries of the Registrant as of December 31, 1992, are
included in the consolidated financial statements of the Registrant.
Effective July 31, 1991 the names of the subsidiaries of the Registrant
were changed to comply with the purchase agreement dated July 1, 1991
between JM Clipper and the Registrant.