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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 Year ended June 30, 1995
COMMISSION FILE NUMBER 1-5677
WANG LABORATORIES, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 04-2192707
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Technology Park Drive, Billerica, Massachusetts 01821
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (508) 967-5000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Common Stock Purchase Warrants
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 twelve 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 is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
----- -----
On August 31, 1995, the aggregate market value of voting stock held by
non- affiliates of the Registrant was $628,003,482, based on the closing price
of Common Stock on the Nasdaq National Market on August 31, 1995 and assuming a
market value of $25 per share for the 11% Exchangeable Preferred Stock and
assuming a market value of $1,000 per share for the 4 1/2% Series A Cumulative
Convertible Preferred Stock.
The number of shares outstanding of Common Stock outstanding as of
August 31, 1995 was 34,028,235.
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<TABLE>
Documents Incorporated By Reference
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<CAPTION>
Document Form 10-K Part
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<S> <C>
Definitive Proxy Statement with respect to the Annual Part III
Meeting of Stockholders to be held on November 14, 1995
to be filed with the Securities and Exchange Commission
</TABLE>
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PART I
ITEM 1. BUSINESS
Wang Laboratories, Inc., a Delaware corporation ("Wang" or the "Company"),
develops, markets and supports software and offers services that define,
automate and manage critical office processes. Wang develops and markets
workflow, imaging, computer output to laser disk (COLD), document management
and related software applications for client/server open systems, and provides
integration and support services for office networks worldwide. The Company's
software and services enable its customers to realize improvement in
productivity, quality and responsiveness through the definition, automation and
management of critical business processes.
The Company is the successor to Wang Laboratories, Inc., a Massachusetts
corporation founded in 1955, which implemented a reorganization plan under
Chapter 11 of the U.S. Bankruptcy Code that was approved by the bankruptcy
court on September 20, 1993 (the "Reorganization Plan"). The predecessor
company had filed for reorganization in August 1992. The Reorganization Plan
was consummated on December 16, 1993, at which time the reorganized company was
reincorporated as a Delaware corporation.
The Company has three business units, the software business, the customer
services business and the solutions integration business, focused on particular
segments of the software and services industry in which the Company enjoys
substantial sales, research and development and marketing expertise and which,
in the Company's judgment, offer significant growth and market opportunities.
The Company intends, by internal development and acquisition to build on its
position in the integrated work management (workflow, imaging and document
management) software solutions market and to strengthen its position as a
worldwide provider of value-added network integration and support services for
office systems. The Company believes that this approach will build on its
existing technology strengths and customer base, while responding to evolving
changes in the worldwide market for information services. The Company will
continue to service the needs of its VS minicomputer customers by offering
upgrade products, service and open system coexistence and migration products.
On January 31, 1995, the Company completed a transaction with Compagnie
des Machines Bull and certain of its affiliates (collectively, "Bull") in which
the Company purchased Bull's U.S. customer services business, U.S. federal
systems subsidiary, and its sales and service subsidiaries in Canada, Mexico,
Australia and New Zealand, and its worldwide workflow and imaging business
("W/I Business"). The acquired businesses generated revenues of $447.0 million
for the year ended December 31, 1994. The Company is integrating the acquired
businesses with its existing businesses. Integration-related costs and other
charges of $64.2 million, primarily associated with the acquisition, were
recorded, effective March 31, 1995, after actions had been identified and
quantified and the formal plan approved by the Company's Board of Directors.
In connection with the Bull acquisition, the Company entered into a
revolving credit facility with BT Commercial Corporation ("BTCC") and certain
other financial institutions. See Note D, Financing Arrangements, of Notes to
Consolidated Financial Statements included in Item 8.
On April 12, 1995, Wang and Microsoft Corporation announced a worldwide
multi-year technical, service and marketing alliance pursuant to which
Wang was designated as Microsoft's preferred vendor of imaging and workflow
systems, and as an authorized provider of end-user support services for
Microsoft products. Under the alliance, Wang's desktop imaging and object
controls will be incorporated as standard features in future releases of
Windows 95 and Windows NT, and image controls will be included in the Visual
Basic development tool. Additionally, the two companies will work together to
accelerate the deployment of workflow automation software as a mainstream
application for client-server computing. As one of Microsoft's Authorized
Support Centers, Wang will provide end-user support for the full range of
Microsoft products. This support will include on-site network design and
installation, consulting, network integration, migration support, workflow and
imaging services and end-user help desk services. As part of this agreement,
Microsoft purchased $90.0 million face amount of 4
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1/2% Series A Cumulative Convertible Preferred Stock of Wang due in 2003 (the
"4 1/2% Preferred Stock") for $84.0 million.
On July 21, 1995, Wang acquired Sigma Imaging Systems, Inc. ("Sigma")
(subsequently named Wang Software N. Y. Inc.). Sigma designs and markets
state-of-the-art workflow and imaging software for paper-intensive businesses.
These products provide customers the scalable, enterprise-wide processing
power required for high-volume, image-based transaction processing applications
and are used in many of the largest multi-site imaging and workflow systems in
operation today. The Sigma products which run on Microsoft Windows clients and
Windows NT servers will allow Wang to benefit from revenue growth opportunities
made possible by its alliance with Microsoft.
INDUSTRY BACKGROUND
Open Systems Technology. The Company had built its success in the 1980s
largely on its line of VS minicomputers with a proprietary operating system
running office software applications. In recent years, however, the computer
and information technology industry has moved from primarily proprietary
hardware systems and software products to an emphasis on "open" systems, which
are based on industry-wide standards, particularly the UNIX and NT operating
systems. This transition is allowing customers to buy hardware and software
from a variety of vendors and to combine components into one integrated system
to a greater degree than had been possible with proprietary systems.
Until recent years, the personal computer was the primary open system in
the marketplace. Today, however, open system technology is available among
higher performance processors, which are being used as servers to support
networks of personal computers. The availability of open systems, which
provide customers with increased flexibility in addressing their productivity
requirements, has dramatically reduced the opportunity for sales of hardware
and software systems based on proprietary technologies, such as Wang's VS
computer systems.
Client/Server Systems. Concurrently with the adoption of open systems
solutions, an increasing number of computer users have moved to a client/server
architecture, which enables an organization to realize both the convenience of
desktop systems and the power of shared processing. As customers exploit the
benefits of open systems, many conclude that by linking multiple personal
computers (clients) and servers into client/server systems, they can achieve
the functionality of traditional minicomputers or mainframes at a lower initial
cost. Client/server applications combine the power and ease of use of the
client with the price/performance of the server. Users of client/server
systems often find that such systems are also easier to use and have added
functionality, such as decision-support capabilities, graphical applications
and imaging. Further, by making information more accessible to office workers,
the Company believes that the workers are able to perform tasks more
efficiently, provide improved customer service, and increase the quality of
their work product. The need for a new class of software applications designed
specifically for this model of computing has made client/server software one of
the fastest growing segments of the software industry and has also created a
demand for consulting and services to support the integration of such
applications with customers' overall computing solutions.
Office Productivity. The Company believes that increasing office
productivity remains a major challenge across all sectors of industry and
government. In the past, mainframes, minicomputers, personal computers and
networks have been used mainly to automate existing work processes. In
relatively few cases has the underlying work process been streamlined to take
maximum advantage of new technology. Those technologies exist today to
streamline tasks in the office. To achieve this improvement, however, the
Company believes that office computer systems must automate the significant
amount of information in offices that is stored on paper and outside the reach
of traditional office automation systems. Document imaging technology captures
this information and "integrated imaging technology" integrates this "automated
paper" with data, text, voice, video and other information processed by a
computer system.
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BUSINESS STRATEGY
Wang's business strategy is as follows:
-- to be a worldwide leader in workflow, integrated imaging, document
management, and related office software for client/server open
systems.
-- to be a major worldwide provider of integration and support services
for office software and networks.
-- to continue to provide support, expansion and interoperability
options for current VS customers and GCOS customers.
The Company intends to take advantage of the opportunities created by
recent developments in the information processing industry by focusing on
particular segments in which it has technological, professional and marketing
expertise to offer both software and services that will permit its customers
and clients to increase their productivity in the office and workplace, and by
supporting its significant base of existing VS customers in maintaining and
enhancing their systems or in transitioning to the open client/server model of
computing. The key elements of this business strategy are as follows:
-- Focus on Workflow, Integrated Imaging, COLD and Related Systems. Wang
believes that its OPEN/software family of work management products permits
users with a range of hardware technologies to enhance significantly their
office productivity. In addition, these products facilitate the production,
integration, management and processing of paper-based information, and automate
the flow of business processes within an organization. Finally, these software
products offer customers a high level openness and scalability, providing them
with a flexibility to take advantage of industry-standard hardware, networks,
databases and installed systems and applications.
-- Focus on Productivity-Enhancing Systems Integration. In addition to
the direct provision of key work management technologies, Wang offers
consulting and support services to its customers, to help them realize major
improvements in productivity, quality and responsiveness through the
definition, automation and management of critical business processes. Wang
offers a systems integration methodology that includes needs assessments and
auditing of existing technology and processes; systems design and transition
management; and system implementation, installation and testing. This
methodology, successfully implemented in Wang's work management installed base,
allows customers to realize the benefits of applying technology to business
problems.
-- Leverage Network Expertise. As an experienced, global integrator of
LANs (Local Area Networks), Wang can advise customers on LAN design,
implementation, installation and support. The Company believes that its
competence in the office systems market, its ability to support all phases of a
complex LAN integration project, and its worldwide presence differentiates it
from competitors in the market, and is emphasizing this capability as part of
its business strategy.
-- Leverage VS Customer Base. The Company believes that its existing
base of VS minicomputer customers is an available and important market for its
client/server and open systems products and services. The Company will
continue to offer to its VS customers support services, hardware and software
to expand and upgrade VS systems. Wang's strategy allows VS customers to
continue to gain value from their VS investments, and for Wang to help them to
transition to client/server computing when, or if, they desire to do so. For
these customers, Wang has developed a set of products and services that allow
them to incorporate client/server computing in a coexistence or
interoperability strategy, which allows new client/server systems and the VS to
work together. The Company plans to continue to invest in developing new
products and service options for its VS customer base.
-- Complement Internal Growth With Strategic Acquisitions and
Investments. The Company believes that opportunities exist to extend and
enhance its current line of business and distribution capabilities through
investments in or acquisitions of businesses in the information processing
industry such as the Bull acquisition and the Sigma acquisition. Such
acquisitions complement the Company's
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existing software product offerings, leverage its existing strengths such as
its customer services business and enhance cost efficiencies across the entire
corporate organization. The Company's management intends to analyze
additional acquisition opportunities and to pursue those opportunities that
further its overall business strategy. The Company evaluates such transactions
from time to time, and one or more such transactions could occur at any time.
-- Maintain Reduced Cost Structure and Improve Operating Leverage. The
Company has reoriented its operations to deliver its new software solutions and
services to its installed customer base and targeted customers. The total
number of Wang employees decreased from approximately 12,900 in June 1992 to
approximately 6,900 in June 1995, which takes into account decreases due to the
reduced hardware development and manufacturing, reconfiguration of Wang's sales
force, a reduction in administrative employees, and the refocusing of its
research and development efforts on software for open systems. These
reductions have been partially offset by the Bull acquisition. As a
result of these actions the Company is able to focus, on a cost-effective
basis, on its core competencies of open system applications, imaging systems
and integration and multi-vendor support services.
PRINCIPAL PRODUCTS AND SERVICES
The Company's business organization is divided into three integrated
business units: the Software Business, the Customer Services Business and the
Solutions Integration Business. Although the three business units often work
in concert, each business unit has its own strategic mission and its own
marketing, sales, support and development teams.
The Software Business
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The Software Business has worldwide responsibility for all aspects of the
Company's workflow, imaging, COLD and document management software and for
application builder software as well as related hardware and professional
services.
Workflow. The Company's OPEN/workflow applications are designed to
address efforts to increase office productivity in various sectors of industry
and government. The Company believes that the amount of data that can be
stored and processed through computer systems has increased the need to develop
new applications, which will permit that information to be processed in a
coherent, timely and effective manner. To achieve that goal, the Company
believes that office computer systems must take maximum advantage of new
software capabilities to streamline the underlying work process.
On July 21, 1995, Wang acquired Sigma to leverage its relationship with
Microsoft. Sigma's product family (workflow and imaging) is specifically
designed to complement Microsoft's BackOffice suite of Windows NT server
applications. Sigma systems are modular and can grow from a small departmental
system to a very large environment, processing over 500,000 pages per day.
These systems can also route and track electronic work packets among thousands
of workers throughout large organizations. Additionally, Sigma offers remote
workstation software that makes imaged documents available with minimal
response time at off-site locations such as branch offices or employees' homes.
Wang's workflow products enable customers to organize, automate, manage
and integrate their work processes with many existing PC, networking and other
office systems. The products feature a graphical user interface and
comprehensive business measurement tools to facilitate workflow development,
measurement and management.
Imaging. Wang believes that image processing is an essential component in
effectively automating the office to take full advantage of advances in open
computing and client/server architecture. Today's imaging technology offers
businesses and organizations that require large volumes of paper processing
(e.g., insurance companies, banks, hospitals and governments) the opportunity
to realize significant increases in productivity, quality and service in their
offices.
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The Company has a long history with imaging products. The Wang PIC
(Professional Image Computer), introduced more than ten years ago, enabled
users to capture and edit images as well as merge, store, retrieve and
transmit images electronically. The Company expanded this technology to its
WIIS (Wang Integrated Image Systems), VS minicomputer-based systems, which
integrate images with data and text and provide automation tools for many
customers with image-intensive work processes. WIIS allows paper-based
information to be captured, indexed, stored, retrieved and used throughout an
organization, and to become part of the mainstream of an information system.
Particular utilities now allow customers to run WIIS on a client/server
hardware system. With these utilities, customers can run the VS minicomputer
as an image or application server, and run the client applications on their
workstations to access the image data.
The Company has continued its momentum in the imaging market with its
OPEN/image products, introduced in mid-1992. These products build on the
functionality of WIIS, and expand imaging solutions to UNIX-based systems.
OPEN/image products allow customers to easily create new image processing
applications or add imaging capabilities to existing applications on a broad
range of hardware platforms.
COLD. COLD allows companies that generate and manage large quantities
of computer generated paper output (either on computer paper or on microfilm)
to store the information electronically on optical disk drives. This provides
better retrieval times and increased customer service. Companies such as
credit card processing firms and credit unions can manage many months of
customer information on-line in optical media instead of removing the data and
storing it on microfiche or in stacks of computer paper. Wang's OPEN/cold+
product introduced in 1994 allows these customers to store the information on
optical drives.
Other Software Solutions. Wang's other OPEN/software products for office
productivity currently include PACE for Open Systems, an application
development environment product, and OPEN/office, a standards-based,
enterprise-wide electronic mail product.
PACE for Open Systems provides a set of Microsoft Windows client/server
tools that enable users, without programming, to quickly develop work
management applications. PACE for Open Systems also provides a relational
database server based on industry-standard SQL, which runs on various open
platforms.
OPEN/office is an enterprise-wide electronic mail ("E-mail") product that
allows customers to communicate quickly and easily with virtually any other E-
mail user in the world. Based on international standards, the graphical user
interface and other features permit easy and adaptable use of OPEN/office.
The Company believes that the market for productivity enhancing systems
such as the systems based upon the Company's core technology will rapidly grow
in the next few years as a result of both the sale of new applications and from
the enhancement of existing applications and systems. The Software Business
remains subject, however, to risks associated with technology information
business, including rapidly evolving technological changes, market conditions
and intense competition. Future success will depend upon customer acceptance
of the recently introduced workflow and imaging products.
The Customer Services Business
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The Customer Services Business has worldwide responsibility for
multivendor maintenance services, the Company's VS business, the Bull GCOS
platform, the installation and support of office networks, and the sale and
support of popular third-party hardware and software applications.
The Company is continuing to offer its VS customers superior support
services, and hardware and software to expand and upgrade installed VS systems.
The introductions of two new processors, the VS 9000 and VS 12000 in early
1993, as well as enhanced peripherals, an improved operating system and
expanded support services is evidence of this commitment. Additionally, the
Company has enhanced certain VS applications to offer coexistence with and
migration to the Company's new OPEN/software products. Finally, its OPEN/COBOL
ReSource product allows for conversion of existing VS COBOL programs to the
UNIX operating system. The Company's plans for the VS not only allow customers
to continue to gain value from their VS investments, but to also facilitate
their transition to open systems when, or if, they desire. Wang recently
announced an electronic Mail gateway between Microsoft's
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Exchange communication server product and Wang's VS Office. This will allow
the large installed base of VS-Office users to coexist with Microsoft Mail and
Exchange users.
Currently, the Company's largest source of revenue remains the servicing
and enhancement of this installed base of its VS systems. While the Company
fully intends to continue supporting and servicing this important customer
group, this revenue has been declining at a fairly predictable rate over recent
years, in part due to the declining sales of new VS systems. Consequently, the
Company adopted its new business strategy with the long-term objective of
replacing those declining revenues with sales of its new products and services.
Wang has extensive LAN and office network design and implementation
expertise. The Company has installed thousands of LANs, and is a leading
reseller of Novell and Banyan networking products. Wang consultants design and
manage the installation, maintenance and administration of complex,
heterogeneous, multi-site interconnected office networks. Additionally, the
Company provides specialty services to its desktop customers, offering both
local or remote "Help Desk" support.
The addition of Bull's U.S. customer services business and five sales and
service subsidiaries has resulted in Wang providing service and support on an
exclusive basis to users of Bull GCOS platforms in North America including the
U.S. government and in Australia. Currently, Wang is one of the largest
hardware-independent worldwide multi-vendor field maintenance organizations.
The Company supports and maintains more than 3,500 third-party products from
more than 300 vendors through its worldwide network of high-quality, well-
trained customer engineers, telephone support centers and logistics operations.
The Company employs more than 2,000 technical support professionals worldwide,
and offers support from locations throughout the U.S., in a number of European
countries, the Far East, Australia and Latin America.
The Wang-Microsoft alliance announced in April, 1995 expands Wang's role
as an authorized provider of end-user support services for Microsoft products.
As one of Microsoft's Authorized Support Centers, Wang provides end-user
support for the full range of Microsoft products. This support includes on-
site network design and installation consulting, network integration, migration
support, workflow and imaging services and end-user help desk services. Wang
has also been selected by Microsoft to assist with the Windows 95 support calls
in Australia.
The Solutions Integration Business
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The Solutions Integration Business is divided into two parts, the
Specialty Solutions group and Wang Federal, Inc.
The Specialty Solutions group focuses on assisting customers in maximizing
the effectiveness of their organizations by using client/server technologies.
Wang has designed, integrated and installed more than 1,000 workflow/imaging
systems (since 1987), 5,000 LANs (since the mid-1980s) and 35,000 VS systems,
including 10,000 electronic mail systems (since the late 1970s), in 130
countries around the world. Other services provided by the Company include
Business Process Management services, a five-step continuous process
improvement methodology and set of tools that helps customers determine how
best to use client/server, imaging and other technologies to improve document-
intensive office processes. Wang also helps customers procure and integrate
client/server solution components. Through a number of relationships with
major technology providers, including IBM, Hewlett-Packard, Novell, Banyan and
Compaq, Wang offers customers leading hardware and software on a "one-stop"
basis.
Wang Federal, Inc., a wholly owned Wang subsidiary, is responsible for
providing products and services to Wang's U.S. federal government customers.
The U.S. government, together with its various agencies, is a significant
customer of the Company, and provided revenues to the Company of approximately
$150 million in fiscal 1995, $141 million in fiscal 1994 and $226 million in
fiscal 1993, which was approximately 16%, 16% and 18% of consolidated
revenues in those respective fiscal years. A significant portion of the
Company's U.S. federal government revenue comes from orders under government
contract or subcontract awards, which involves the risk that the failure to
obtain an award, or a delay on the part of the government agency in making the
award or of ordering products under an
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awarded contract, could have an impact on the financial performance of the
Company for the period in question. Other risks involved in government
sales are the larger discounts (and thus lower margins) often involved in
government sales, the unpredictability of funding for various government
programs, and the ability of the government agency to unilaterally terminate
the contract. Revenues from the U.S. government and government agencies are
received under a number of different contracts and from a number of different
government agencies and departments. Most sources of government revenues are
independent of each other, although occasionally orders under one contract or
from one government agency may be linked with orders under another contract or
from another agency (meaning that if one order or contract were cancelled, it
is likely that the other would be also).
MARKETING
The Company's customers include businesses, institutions and governments
of varying sizes around the world. The Company's sales, marketing,
professional services and software application development groups focus on
customers with office productivity needs in selected categories of markets.
The Company is approaching the markets for its software products with a
two-pronged sales strategy: the sale of integrated work management (workflow,
imaging, COLD and document management) systems through a direct sales force,
and the sale of software products through software vendors, distributors,
value-added resellers ("VARs"), application providers and system integrators.
Wang's direct sales force is focusing on selling work management systems to a
distinct set of customers in selected vertical markets, focusing on such
industries as federal, state and local government, banking, financial services,
insurance and health care, as well as customers who possess a large installed
base of Wang equipment. In these direct sales accounts, Wang will typically
partner with a systems integrator or vertically oriented VAR to provide a
turn-key solution for the customer.
The Company markets its products and services in the United States through
its nationwide sales and customer service offices. At June 30, 1995, U.S.
operations included approximately 495 sales, sales support and sales
administration personnel and approximately 2,220 people in its service and
support organization (compared to approximately 460 and 1,055, respectively, at
June 30, 1994).
The Company's products and services are marketed and serviced in Canada,
and areas of Europe, Latin America, Asia and the South Pacific regions through
subsidiaries that generally are wholly-owned. At June 30, 1995, these
subsidiaries employed approximately 345 sales, sales support and administrative
personnel and approximately 1,945 service personnel (compared to approximately
410 and 1,600, respectively, at June 30, 1994). In addition, the Company
reaches customers through independent distributors in approximately 100 other
countries.
To complement its worldwide direct sales and distributor organizations,
the Company has additional channels of distribution, including value-added
resellers and software partners that incorporate their proprietary application
software into Company products or integrate their software applications with
those of the Company.
A majority of the Company's revenues are derived from software, services
or products stocked for immediate delivery, meaning that a relatively small
number of product orders are unfulfilled at any time. In addition, customers
generally have the ability to change, reschedule or cancel orders prior to
shipment without penalty. Accordingly, the Company believes that backlog
information is neither necessarily indicative of future sales levels or
material to an understanding of the Company's business.
COMPETITION
Competition is vigorous in all parts of the worldwide market for
applications software and office-related products and services. The Company's
competitors are numerous and vary widely in size and resources. Some have
substantially greater resources, larger research and engineering staffs and
larger marketing organizations than the Company. Competitors differ
significantly depending upon the market, customer and geographic area involved.
In many of the Company's markets, traditional computer hardware companies
provide the most significant competition. The Company must also compete,
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particularly in the market for open systems application software and imaging
technology, with newer, smaller businesses with more limited resources, but
that have, in a number of cases, been able to develop and bring to market
significant products with highly competitive technological features. In
addition, firms not now in direct competition with the Company, including large
software development and sales companies, may, in the future, introduce
competing products.
Wang's work management software products currently compete primarily
against FileNet, ViewStar, Plexus and International Business Machines. Wang's
Customer Services Business competes in the maintenance business against small
regional companies with specific specialties, large independent maintenance
providers (such as Bell Atlantic Business Systems and Decision Servicom) and
captive maintenance providers (such as Hewlett Packard, International Business
Machines, Digital Equipment Corporation).
Wang's solutions integration offerings currently compete primarily against
offerings of EDS, Andersen Consulting and International Business Machines.
Network integration includes the design, project management, application
design, installation, ongoing support and administration of a network or
interconnected networks. The Company competes in this market with a variety of
international corporations, as well as local integrators. In the U.S. federal
marketplace, the Company also faces active competition from integrators and
similar government information technology consultants.
Competition is based largely on the relationship between price and
performance; the ability to offer a variety of products and specialized
application programs; the strength of service, support and sales organizations;
upgradeability, flexibility, and ease of use of products; and corporate
reputation. The Company believes that each of these first four competitive
factors is a strength of the Company and that the Company competes favorably on
the basis of these factors. With respect to corporate reputation, the
Company's emergence from Chapter 11 significantly strengthened the financial
credibility of the Company, although there was negative publicity associated
with the Company's Chapter 11 proceeding and related financial difficulty. In
addition, due to the Company's relatively recent decision to focus on
integrated work management software on industry-standard open systems, the
Company's reputation within this marketplace is not as strong as that of many
of its competitors. The market in which the Company competes is characterized
by rapid technological advances, and the Company would be adversely affected if
its competitors introduced technologically superior products.
RESEARCH AND DEVELOPMENT
The Company has a research and development program that supports the
Company's business strategy, open and standard computer architectures, and
customer needs. The Company's research and development expenses for fiscal
1995 were $31.1 million, of which $24.2 million related to the Company's
software products. In fiscal 1994, the Company spent approximately $40 million
on research and development in support of its continuing operations, of which
approximately $32 million was spent on development of its software products.
These figures include direct labor costs, some allowances for material and
overhead expenses, and deferred software productions costs. Approximately
$75 million was spent in fiscal 1993 in the same operations. The decrease was
due primarily to restructuring, the elimination of projects no longer relevant
to the Company's strategy, and the consolidation of certain projects.
Approximately 380 engineers, systems analysts, programmers and related
administrative support personnel were employed by the Company in research and
development operations at June 30, 1995, as compared with approximately 390 in
such positions at June 30, 1994.
PATENTS, TRADEMARKS AND LICENSES
The Company owns a number of patents and patent applications which,
although valuable and important to the Company, are not considered to be of
material importance to its current operations as a whole. The Company receives
license royalties from some of these properties, and takes measures to enforce
its rights when it deems such action appropriate. On April 12, 1995 the
Company resolved outstanding litigation with Microsoft Corporation by licensing
its portfolio of software and software-related patents and by entering into a
multi-year technical, service and marketing alliance with Microsoft.
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The Company is the plaintiff in several other actions in which the Company
alleges that the defendants are infringing on one or more patents held by the
Company including a suit against FileNet Corporation alleging infringment of
six of the Company's imaging and workflow patents. The results of such
enforcement measures and future awards or royalties, if any, related thereto
cannot be predicted with any certainty at this time, but, if successful, one or
more of these actions could result in a significant recovery for the Company.
The Company also owns certain copyrights, trademarks and proprietary
information, and licenses certain other intellectual property from others for
amounts that are not material to the Company's business as a whole. In the
event that products of the Company may be covered in whole or in part by
patents owned by others, the Company may find it necessary or desirable to
obtain one or more additional licenses.
Certain software licensed from third parties is important to certain
Company products. Such software is typically licensed to other parties on
terms similar to those obtained by the Company. The Company does not
anticipate any difficulty in maintaining its licenses on such terms. Other
licensed software programs, especially applications marketed by the Company,
could be replaced by similar applications from other vendors if the Company
were to lose its rights to the existing programs. The Company believes it will
continue to maintain adequate software license rights for the conduct of its
business.
MANUFACTURING
At June 30, 1995, the Company employed approximately 185 personnel in its
manufacturing and related distribution operations (compared to approximately
220 at June 30, 1994). The continuing decline in demand for the Company's
proprietary computer hardware products, the decision to discontinue the
manufacture of PCs, increased reliance on third-party manufacturing sources and
contract fabricators of subassemblies and components, and increasing reliance
on direct shipment by suppliers to the Company's customers have allowed the
Company to drastically scale back its own manufacturing operations. These
measures are consistent with the Company's orientation toward software and
services.
Over the past several years, the Company, in implementing its strategy,
downsized, sold or vacated a substantial portion of its manufacturing
facilities. Certain subsidiaries continue to have some limited
manufacturing operations, which are principally used for VS manufacturing and
software duplication.
The Company is experiencing no substantial difficulties in obtaining
necessary components, subassemblies and products, although delays have been
experienced from time to time due to temporary shortages of certain components.
The Company maintains multiple sources of supply for most items and believes
alternative sources could be developed for most existing single sources of
supply, if required.
ENVIRONMENTAL COMPLIANCE
The Company does not believe that compliance with federal, state and local
laws and regulations that have been enacted or adopted regarding the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, will have a material effect on the capital expenditures,
earnings or competitive position of the Company.
EMPLOYEES
At June 30, 1995, the Company employed approximately 6,900 people in
its worldwide operations, compared to approximately 5,300 at June 30, 1994.
The Company has not experienced any strikes or work stoppages and considers its
relations with its employees to be good.
ITEM 2. PROPERTIES
At June 30, 1995, the Company owned and leased a total of 3.3 million
square feet of building space around the world at an annual cost of $49.9
million on a cash basis. In the U.S. the Company utilizes 1.6 million
square feet of which approximately 0.5 million is used for administration,
9
<PAGE> 12
research and development, customer services and training, 0.8 million is used
for field sales and service offices including regional administration and
training operations and 0.3 million is used for distribution warehousing,
manufacturing and associated administrative operations. The Company has also
leased out approximately 0.3 million square feet. Internationally, the Company
owns and leases approximately 1.3 million square feet of which approximately
1.1 million is used for subsidiaries' administrative sales and service
operations and approximately 0.2 million is used for distribution warehousing,
manufacturing and associated administrative operations.
The Company still has excess space in certain operations. Such excess space
will continue to be vacated as a result of ongoing restructuring actions.
Amounts realized from similar dispositions of excess facilities and space
have been, in general, less than sufficient to retire the Company's obligations
with respect to such space. The Company anticipates that this experience will
continue in general for any facilities restructuring.
In its Chapter 11 reorganization, Wang eliminated approximately 3.0
million square feet of commercial space, with an annual expense of $45
million. The Company also renegotiated the terms of many of its unexpired
leases, which enabled it to maintain or decrease its space on more favorable
terms. This process has included the disposition of its headquarters facility
in Lowell, Massachusetts, which had been owned by the Company. As part of
that transaction, the Company secured from the new owner a short-term lease in
the same headquarters space, which expired on June 30, 1995. At that time, the
Company relocated its headquarters to space acquired in the Bull transaction in
Billerica, Massachusetts. Although the Company terminated many of its
short-term leases and consolidated its U.S. field operations into space
acquired in the Bull transaction the net result was an increase in commercial
space used in the Company's U.S. operations. Wang believes that the relocation
of U.S. employees in connection with these processes has been accomplished with
a minimum of disruption and that its employees have facilities appropriate for
their needs.
ITEM 3. LEGAL PROCEEDINGS
The Chapter 11 proceedings, initiated by the Company's predecessor
Massachusetts corporation in the United States Bankruptcy Court for the
District of Massachusetts on August 18, 1992, culminated in the approval of the
Company's Reorganization Plan (the "Plan"), effective September 21, 1993. The
Plan was consummated, effective December 16, 1993, and the corporation was
reincorporated as a Delaware corporation. The new corporation issued 30
million shares of the new Common Stock to a disbursing agent, which began
distribution of these shares to holders of allowed general unsecured claims in
the Chapter 11 case. To date 27,063,000 million shares have been issued. All
shares of capital stock (Class B and Class C Common Stock) of the predecessor
Massachusetts corporation were cancelled. Under the Plan, 7,500,000 warrants,
each to purchase one share of new Common Stock at $21.45 per share, are
available to be issued to the record stockholders of the former Massachusetts
corporation and the holders of certain securities claims. The warrant
distribution began in March 1995 and to date 6,860,227 warrants have been
issued. Holders of stock in the predecessor corporation have until December
16, 1998, to redeem such stock for warrants.
Disputed claims against the predecessor Massachusetts corporation in the
Chapter 11 case continue to be litigated and settled. As they are resolved,
holders of allowed claims are receiving shares of Common Stock of the Company
out of the reserve held by the disbursing agent.
The Company is a defendant in several so-called "repetitive stress injury"
("RSI") cases. Such cases, which have been filed against a large number of
computer manufacturers, allege that the various defendants' keyboards caused
the plaintiffs' RSI. The Company believes that all RSI claims arising before
the confirmation of the Reorganization Plan will be discharged. In addition,
the Company has maintained comprehensive general liability insurance policies
with several insurers. These policies indemnify the Company for bodily injury
damages arising out of its operations and products. Nevertheless, high
deductibles, retrospective premium adjustments, and other issues relating to
insurance coverage of RSI claims may significantly limit the amount of
insurance coverage available to the Company for such claims. Given the lack of
legal precedent with respect to RSI claims, the Company can predict neither the
number of cases nor the associated claims for damages that may be filed against
the Company. To date
10
<PAGE> 13
approximately 60 claims have been made against the Company alleging damages for
RSI injuries. Claims for all but three of these have been filed as part
of the Company's Chapter 11 proceeding. The Company believes that all of these
actions, including those commenced after the completion of the Chapter 11
proceeding, will be resolved under the Reorganization Plan. The Company
intends to defend itself vigorously against any liability asserted.
Prior to its filing for Chapter 11 protection, the Company was also a
defendant in a number of other routine lawsuits incidental to the conduct of
its business. Substantially all such suits were stayed while the Company
operated under Chapter 11, and claims in such suits relating to periods prior
to the Company's filing under Chapter 11 are being extinguished and, to the
extent allowed, have been provided for under and to some extent settled as part
of its Reorganization Plan. Although it is impossible to predict the results
of specific matters, the Company believes that its aggregate liability, if any,
for all litigation, in excess of insurance coverage and financial statement
provisions, will not be material to the Company's consolidated financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security-holders
during the fourth quarter of the fiscal year ended June 30, 1995.
11
<PAGE> 14
<TABLE>
The following table sets forth the names, ages as of August 31, 1995 and
positions of all executive officers of the Company:
<CAPTION>
OFFICER
-------
NAME POSITION(S) AGE SINCE
---- ----------- --- -------
<S> <C> <C> <C>
Joseph M. Tucci Chairman of the Board and 48 1990
Chief Executive Officer
Donald P. Casey President and Chief Technology Officer 49 1991
Richard L. Buckingham Vice President and Treasurer 49 1990
Franklyn A. Caine Executive Vice President 45 1994
and Chief Financial Officer
Ronald E. Cuneo Senior Vice President 52 1995
William P. Ferry Senior Vice President 43 1990
David I. Goulden Senior Vice President 36 1994
James J. Hogan Senior Vice President 53 1990
Stephen G. Jerritts Senior Vice President 69 1995
Albert A. Notini Senior Vice President, General Counsel 38 1994
and Secretary
Bruce A. Ryan Senior Vice President 53 1993
Gregory C. Thompson Vice President and 39 1994
Corporate Controller
Jeremiah J.J. van Vuuren Senior Vice President 52 1993
</TABLE>
Mr. Tucci joined the Company in August 1990 as Executive Vice President,
Operations, was elected President and Chief Executive Officer in January 1993,
and Chairman of the Board and Chief Executive Officer in October 1993.
Previously, he had served as an executive with Unisys Corporation, a computer
manufacturer, from 1983 to August 1990, most recently as President, U.S.
Information Systems.
Mr. Casey joined the Company as Executive Vice President and Chief Development
Officer in September 1991, and was elected President and Chief Technology
Officer in January 1993. Since July 1994 he has served as President of the
Software Business. He had served as Vice President, Networking and
Communications at Apple Computer Inc., a personal computer company, from 1988
to 1990, and as Vice President, Spreadsheet Division at Lotus Development
Corporation, a software company, from 1990 to 1991.
Mr. Buckingham joined the Company as Vice President and Treasurer in 1990. From
1988 to 1990, he served as Vice President-Treasurer of Prime Computer, Inc.,
a computer company.
Mr. Caine joined the Company as Executive Vice President and Chief Financial
Officer in August 1994. Prior to joining the Company, Mr. Caine was employed
by United Technologies Corporation, a diversified manufacturing company,
serving as Senior Vice President, Planning and Corporate Development, from
12
<PAGE> 15
1993 to July 1994, as Senior Vice President and Controller from 1991 to 1993,
as Senior Vice President, Human Resources, from 1989 to 1991 and as Vice
President and Treasurer from 1987 to 1989.
Mr. Cuneo joined the Company in February, 1995 as Senior Vice President and
President of the Company's subsidiary, Wang Federal, Inc., a provider of
technology services to the federal government. He had served as President and
Chief Executive Officer of HFS Inc. (now Wang Federal) from 1990 until January,
1995, when it was acquired by the Company. From 1969 through 1990, Mr. Cuneo
held various positions with Honeywell, Inc., a diversified manufacturing
company, most recently as Vice President and General Manager of Honeywell
Federal Systems.
Mr. Ferry joined the Company in August 1990 as Senior Vice President,
Applications and Professional Services. He served as Senior Vice President and
General Manager of OFFICE 2000 Systems from 1991 to January 1993. From January
1993 until June 1994 he served as Senior Vice President, North American
Operations and from July 1994 to the present as Senior Vice President of the
Company and as President of the Customer Services Business. He was an executive
at Digital Equipment Corporation, a computer, software and services company
from 1985 to 1990, most recently as Vice President, Enterprise Integration
Services.
Mr. Goulden joined the Company in 1990 as Director of Marketing Strategies. From
1991 to 1992 he served as Vice President, Marketing and Development and from
1992 to 1993 he served as Vice President, Marketing. Mr. Goulden served the
Company as Vice President, Marketing and Business Development from 1993 to June
1994, and has served since that time as Senior Vice President, Business
Development. He previously served as Director of Corporate Strategy and Business
Development from 1989 to 1990 at Unisys Corporation, a computer manufacturer.
Mr. Hogan joined the Company as Senior Vice President, Personal Computer Systems
in October 1990, and became Senior Vice President Human Resources and Operations
Support in June 1993. From July 1994 to March 1995 he served as President,
Federal Systems Division Business and since March 1995 as Senior Vice President
of the Company. He had served as Vice President-Audio and Communications
Division, Americas for Thomson Consumer Electronics when that company acquired
General Electric's consumer electronics business in 1988. Previously he served
as Product General Manger of Audio/Video Systems for General Electric's consumer
electronics business from 1985 through 1987.
Mr. Jerritts joined the Company as Senior Vice President in April 1995. He has
served on the Company's Board of Directors since October 1993. Prior to
joining the Company he managed the Company's Latin American operations as a
consultant since November 1993. Previously, he was President and Chief
Executive Officer of NBI, Inc., a computer company, from 1988 through 1992.
Mr. Notini joined the Company in February 1994 as Senior Vice President,
General Counsel and Secretary. Previously, he had served as a Junior Partner
from 1989 to 1992, and Senior Partner from 1992 to 1994 at the Boston law firm
of Hale and Dorr, in its Commercial Law Department, which he joined in 1984.
Mr. Ryan joined the Company in July 1993 as Senior Vice President, Federal
Systems Division and, in addition to Senior Vice President of the Company,
became General Manager of the Company's Workflow/Imaging Business group in
January 1994 and President of Specialty Solutions business unit in June 1994.
Previously, Mr. Ryan served as Vice President, Sales and Marketing, General
International Area, for Digital Equipment Corporation, a computer, software and
services company, from 1986 to 1991; and Vice President and General Manager,
U.S. Field Operations at Computervision Corporation, a software company, from
1991 to 1993.
Mr. Thompson joined the Company in 1990 as Assistant Controller and became
Assistant Corporate Controller in 1992. In December 1994 Mr. Thompson was
promoted to Vice President, Corporate Controller and Chief Accounting Officer.
Previously he spent six years at Price Waterhouse, concentrating on business
strategy and planning, acquisitions, public offerings and corporate accounting
and reporting.
Mr. van Vuuren joined the Company in September 1993 as Senior Vice President,
General Manager, Europe, Africa and the Middle East and in addition to Senior
Vice President of the Company has served as President of the Company's
International Business since July 1994. Previously, he served as Vice President
of marketing operations for Europe, Africa and the Middle East from 1986 to
1989 for Unisys Corporation, a computer manufacturer and was appointed Vice
President and Group Manager Europe in 1990.
13
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is quoted on the Nasdaq National Market under the symbol
"WANG."
<TABLE>
The following table sets forth, for the periods indicated, the high and
low sales prices per share of the Common Stock as reported on the Nasdaq National
Market since December 16, 1993, the date on which the Common Stock commenced
trading. From December 16, 1993 until February 21, 1994, the Common Stock
traded on a "when, as and if issued" basis. Since February 22, 1994, the Common
Stock has been trading on a "regular-way" basis:
<CAPTION>
Quarter Ended High Low
- ------------- ---- ---
<S> <C> <C>
December 31, 1993
(from December 16, 1993) $18 1/2 $15 1/8
March 31, 1994 $21 7/8 $14 3/8
June 30, 1994 $15 5/8 $10 3/8
September 30, 1994 $14 7/8 $10 3/8
December 31, 1994 $14 1/4 $ 9 1/8
March 31, 1995 $14 3/8 $ 9 7/8
June 30, 1995 $18 1/4 $12 3/8
</TABLE>
The number of stockholders of record on August 31, 1995 was approximately
9,800.
The Company has paid no cash dividends on the Common Stock since its
original issuance in December 1993. Its predecessor Massachusetts corporation
had not paid any dividends on its capital stock for several years. The company
currently intends to retain any earnings for future growth, and, therefore,
does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. Moreover, the Company's $125,000,000 credit facility with
BT Commercial Corporation and certain other financial institutions prohibits
the payment of cash dividends until September 1996, and the terms of each of
the Company's 11% Preferred Stock and 4 1/2% Preferred Stock prohibit cash
dividends on the Common Stock, unless the Company has first paid required
dividends on the 11% Preferred Stock, and 4 1/2% Preferred Stock, respectively.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from EXHIBIT A attached hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference from EXHIBIT B attached hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from EXHIBIT C attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
14
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption
"Executive Officers of the Company" in Part I of this Annual Report on Form 10-
K, and in part in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on November 14, 1995 (the "1995 Proxy Statement") in the
section "Election of Directors - Directors of the Company," which section is
incorporated herein by reference.
Other Directors:
Stephen G. Jerritts Director since October 1993; age 69 Mr. Jerritts joined
the Company as Senior Vice President in April 1995. Prior to joining the
Company he managed the Company's Latin American operations as a consultant
since November 1993. Previously, he was President and Chief Executive Officer
of NBI, Inc., a computer company, from 1988 through 1992.
Karl G. Wassmann III Director since October 1993; age 43 Mr. Wassmann is
currently a management consultant in the high technology industry. Mr.
Wassmann was employed by Kendall Square Research Corporation, a computer
manufacturer, from 1986 to December 1993, serving as Senior Vice President,
Chief Financial Officer and Secretary from September 1993 to December 1993, and
Treasurer since 1986.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the 1995 Proxy Statement in the
sections "Election of Directors - Compensation of Directors," "- Compensation
Committee Interlocks and Insider Participation," "- Executive Compensation,"
and "- Employment Contracts and Change-in-Control Arrangements," which
sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the 1995 Proxy Statement in the
section "Beneficial Ownership of Voting Stock," which section is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is contained in the 1995 Proxy Statement in the
section "Election of Directors - Certain Transactions," which section is
incorporated herein by reference.
15
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements.
1. The following documents are filed as Exhibit C hereto and
are included as part of this Annual Report on Form 10-K.
Financial Statements:
Consolidated Statement of Operations for the fiscal year
ended June 30, 1995, the nine months ended June 30, 1994, the
three months ended September 30, 1993 and the fiscal year ended
June 30, 1993.
Consolidated Balance Sheet as of June 30, 1995 and 1994.
Consolidated Statement of Cash Flows for the fiscal year ended
June 30, 1995, the nine months ended June 30, 1994, the three
months ended September 30, 1993, and the fiscal year ended June
30, 1993.
Consolidated Statement of Stockholders' Equity (Deficit) for the
fiscal year ended June 30, 1995, the nine months ended June
30, 1994, three months ended September 30, 1993, and the fiscal
year ended June 30, 1993.
Notes to Consolidated Financial Statements.
2. The following documents are filed as Exhibit D hereto and
are included as part of this Annual Report on Form 10-K.
Financial Statement Schedules:
Schedule II- Valuation and Qualifying Accounts
3. The list of Exhibits filed as a part of this Annual Report
on Form 10-K is set forth in the Exhibit Index immediately
preceding such Exhibits, and is incorporated herein by
reference.
(b) Reports on Form 8-K
During the last quarter of the Company's fiscal year ended June 30, 1995,
the Company filed reports on Form 8-K dated April 12, 1995 containing a
press release announcing an alliance with Microsoft Corporation and
dated May 2, 1995 containing a Press Release announcing earnings for the
Quarter Ending March 31, 1995.
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WANG LABORATORIES, INC.
BY: /s/ Franklyn A. Caine
-------------------------------------
Franklyn A. Caine
Executive Vice President and
Chief Financial Officer
September 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Joseph M. Tucci Chairman of the Board, Chief Executive 9/27/95
- ----------------------- Officer and Director
Joseph M. Tucci (Principal Executive Officer)
/s/ Franklyn A. Caine Executive Vice President and 9/28/95
- ----------------------- Chief Financial Officer and Director
Franklyn A. Caine (Principal Financial Officer)
/s/ Gregory C. Thompson Vice President and Corporate Controller 9/28/95
- ----------------------- (Principal Accounting Officer)
Gregory C. Thompson
/s/ David A. Boucher Director 9/27/95
- -----------------------
David A. Boucher
/s/ Stephen G. Jerritts Director 9/27/95
- -----------------------
Stephen G. Jerritts
/s/ Joseph J. Kroger Director 9/27/95
- -----------------------
Joseph J. Kroger
/s/ Raymond C. Kurzweil Director 9/27/95
- -----------------------
Raymond C. Kurzweil
</TABLE>
17
<PAGE> 20
<TABLE>
<S> <C>
________________________ Director
Axel J. Leblois
/s/ Paul E. Tsongas Director 9/27/95
- ------------------------
Paul E. Tsongas
/s/ Frederick A. Wang Director 9/27/95
- ------------------------
Frederick A. Wang
/s/ Karl G. Wassmann III Director 9/27/95
- ------------------------
Karl G. Wassmann III
</TABLE>
18
<PAGE> 21
<PAGE> 22
EXHIBIT B
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Business Acquisition and Integration-Related Costs and Other Charges
- --------------------------------------------------------------------
On January 31, 1995, the Company completed a transaction with Compagnie des
Machines Bull and certain of its affiliates (collectively, "Bull") in which the
Company purchased from Bull S.A. its worldwide workflow and imaging business
and from Bull HN Information Systems Inc. its U.S. federal systems subsidiary,
its U.S. customer services business, and its sales and service subsidiaries in
Canada, Mexico, Australia and New Zealand. The acquired businesses generated
revenues of $447.0 million for the year ended December 31, 1994. The Company
is integrating the acquired businesses with its existing businesses.
Integration-related costs and other charges of $64.2 million, primarily
associated with the acquisition, were recorded, effective March 31, 1995, after
actions had been identified and quantified and the formal plan approved by the
Company's Board of Directors (see Note B, Business Acquisition and
Integration-Related Costs and Other Charges).
In connection with the Bull acquisition, the Company entered into a revolving
credit facility with BT Commercial Corporation ("BTCC") and certain other
financial institutions (see Note D, Financing Arrangements).
Basis of Presentation
- ---------------------
On August 18, 1992, Wang Laboratories, Inc., the Company's predecessor
Massachusetts corporation, filed a petition for reorganization under Chapter 11
of the U.S. Bankruptcy Code. On September 30, 1993 (the "Confirmation Date"),
a formal confirmation order by the U.S. Bankruptcy Court for the District
of Massachusetts with respect to the Company's plan of reorganization became
effective. At that time, the Company effectively emerged from bankruptcy and
terminated its debtor-in-possession status, subject only to compliance with
the terms of the Reorganization Plan.
In connection with the emergence from Chapter 11, the Company was required to
adopt fresh-start reporting in accordance with the American Institute of
Certified Public Accountants Statement of Position No. 90-7 ("SOP 90-7"),
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code".
The Company's basis of accounting for financial reporting purposes changed as
of the Confirmation Date as a result of adopting SOP 90-7 (see Note J,
Fresh-Start Reporting, Reorganization and Restructuring Expenses).
Due to the changes in the Company's basis of accounting, which were effective
September 30, 1993, management's discussion and analysis will: (i) discuss the
results of operations for the year ended June 30, 1995; (ii) discuss the
results of operations for the nine months ended June 30, 1994; (iii) compare
the results of operations of the predecessor company for the three months
ended September 30, 1993, to the comparable period of the prior year; (iv)
discuss the results of operations for the year ended June 30, 1993, and (v)
explain the liquidity and sources of capital as of June 30, 1995.
Results of Operations
- ---------------------
Year ended June 30, 1995
- ------------------------
The results of operations for the year ended June 30, 1995 included five months
of results of the acquired Bull businesses.
<PAGE> 23
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company reported revenues of $946.3 million and an operating loss of $63.0
million for the year ended June 30, 1995. The operating loss included a $64.2
million charge for integration, consolidation and other initiatives principally
related to the Company's acquisition of certain businesses of Bull.
Additionally, the operating loss included $26.3 million for the amortization of
intangible assets established in connection with fresh-start reporting and $5.7
million for Bull acquisition-related intangibles. Net loss for the year was
$57.6 million.
The Company expects the decline in revenues from traditional sources (i.e.,
sales and service of proprietary VS products) to continue. The acquired Bull
proprietary product and service revenue streams are also expected to decrease,
but at a slower rate than the proprietary VS products and services. The
addition of the Bull service business adds a significant portion of multi-
vendor service ("MVS") contracts to the Company's existing MVS revenues. The
Company intends to direct resources to marketing initiatives with respect to
the MVS business with the goal of continuing to increase this revenue stream in
the future. In addition to increasing service revenue as a result of the Bull
acquisition, the Company's plan is to increase its revenue, over time, by
increasing sales of workflow and imaging software and related products and
services, along with other newer service offerings. The Company is now
focusing on providing software and services to the office productivity segment
of the information processing industry, a market where the Company has
name recognition and established technological, professional and marketing
expertise. The changes in business mix are expected to result in increased
volatility of quarterly revenues.
On April 12, 1995, the Company and Microsoft Corporation announced a worldwide
multi-year technical, service and marketing alliance. Wang was designated as
Microsoft's preferred vendor of imaging and workflow systems, and as an
authorized provider of end-user support services for Microsoft products. In
addition, Microsoft announced its intention to incorporate specific Wang
imaging technology in its Windows 95 and Windows NT client operating systems,
to consult with Wang on the development of standards related to work management
products, and to conduct certain joint marketing activities. The Company
believes that the announcement of this alliance strengthened the Company's
reputation as a leading supplier of imaging and workflow technology, which
will result in indirect benefits to the Company's software revenues. In
addition, the Company believes that the alliance and joint marketing activities
with Microsoft will have a direct impact on software revenue when Wang imaging
and workflow software is generally available for the Microsoft Windows NT
operating system in the fourth quarter of calendar 1995. In fiscal 1996, the
Company also expects, as a result of this alliance, to generate revenues as an
authorized provider of end-user support services for Microsoft products in the
form of on-site network design and installation consulting, network
integration, migration support, workflow and imaging services and end-user
help desk services.
2
<PAGE> 24
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On July 27, 1995, Wang completed the acquisition of Sigma Imaging Systems, Inc.
("Sigma"). Sigma designs and markets state-of-the-art workflow and imaging
software for paper-intensive businesses. These products provide customers the
scalable, enterprise-wide processing power required for high-volume,
image-based transaction processing applications. Sigma's products are used in
many of the largest multi-site imaging and workflow systems in operation today.
The Sigma products running on the Microsoft Windows 95 and Windows NT operating
systems will allow Wang to benefit from revenue growth opportunities made
possible by its alliance with Microsoft.
Wang will also continue to sell products and services to its significant base
of existing proprietary VS customers, either to maintain and enhance their
systems or to help them move to the open client/server model of computing. The
Company's business initiatives of client/server software, solutions
integration and network integration and support services all relate to the
definition, automation and management of critical office processes.
Earnings before interest, income taxes, depreciation and amortization
("EBITDA") amounted to $87.0 million for the year ended June 30, 1995. EBITDA
was determined by excluding from the net loss: integration-related costs and
other charges; income taxes; interest expense; interest income (interest income
of $7.2 million was reported in the caption Other income); depreciation and
amortization.
Product revenues for the year ended June 30, 1995 totaled $161.7 million in the
United States and $203.3 million outside of the U.S. Reductions in sales
of the Company's proprietary products continued as expected. Proprietary
product sales totaled $75.1 million for the year ended June 30, 1995. Certain
segments of the computer industry (particularly hardware sales) continued to
experience intense competitive and technological pressures resulting in
overcapacity and aggressive pricing. Network products and other product sales
totaled $269.3 million. Open software product sales totaled $20.6 million for
the year ended June 30, 1995.
Service and other revenues for the year ended June 30, 1995 totaled $291.0
million in the United States and $290.3 million outside the U.S. Proprietary,
network and open software services and other revenue totaled $344.8 million,
$235.9 million and $0.6 million, respectively, for the year ended June 30,
1995. Increases in service and other revenues from the Bull acquisition and new
service offerings exceeded the anticipated revenue declines in maintenance
revenues on proprietary products.
Product gross margin was 30.3% for the year ended June 30, 1995. Product
margins continued to be negatively affected by the higher volume of network
product revenues that generally have a lower margin than the proprietary
product revenues.
Gross margin for service and other revenues was 30.9% for the year ended June
30, 1995. The service gross margin continued to be adversely affected by the
competitive conditions previously noted; however, margin decreases have been
partially offset by personnel and facilities cost reductions. In addition,
margins were negatively affected by the Bull acquisition, due to historically
lower margins on Bull traditional maintenance than the Company's, and by
increased MVS revenues, which generally realize lower gross margins than those
obtained from proprietary maintenance services. The Company expects this
change in business mix to continue to exert pressure on gross margins.
3
<PAGE> 25
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Research and development costs totaled $31.1 million, or 3.3% of revenues, for
the year ended June 30, 1995. The Company has refocused and streamlined its
development program to support its business strategy aimed at workflow and
imaging software products for open system platforms, including Microsoft,
IBM, Hewlett-Packard, Sun Microsystems and Novell. In addition, the Company
incurred research and development costs to support its proprietary products in
the amount of $4.8 million.
Selling, general and administrative expenses totaled $225.9 million, or 23.9%
of revenues, for the year ended June 30, 1995. Selling, general and
administrative expenses increased as a result of the Bull acquisition. This
increase was partially offset by restructuring and integration-related
programs, including workforce reductions, facility-related actions and asset
write-downs.
Amortization of intangible assets of $32.0 million was comprised of two
components. Amortization of $26.3 million related to fresh-start reporting,
under which intangible assets of $193.6 million were recorded to adjust the
Company's balance sheet to fair market value. Additionally, amortization of
$5.7 million was recorded relating to intangible assets of $106.0 million,
established in connection with the acquisition of the Bull businesses.
Interest expense totaled $3.7 million for the year ended June 30, 1995.
Other income included interest income of $7.2 million which resulted primarily
from investments in time deposits.
The provision for income taxes of $3.6 million for the year ended June 30, 1995
included $3.4 million of non-cash expense, relating to the utilization of the
Company's net operating loss carryforwards. Under fresh-start reporting,
realization of these net operating loss carryforwards is recognized as a
reduction of Reorganization value in excess of amounts allocated to
identifiable intangible assets.
At June 30, 1995, the Company employed approximately 6,900 people in continuing
operations. The increase in employees as a result of the Bull acquisition was
partially offset by restructuring and integration activities.
Nine months ended June 30, 1994
- -------------------------------
The Company reported revenues of $644.4 million and operating income of $11.6
million for the nine months ended June 30, 1994. Operating income was
reduced by $20.7 million for the amortization of intangible assets established
in connection with fresh-start reporting. Net income for the period was $10.6
million.
EBITDA amounted to $69.1 million for the nine months ended June 30, 1994.
EBITDA was determined by excluding from net income: income taxes; interest
expense; interest income (interest income of $5.1 million was reported in
the caption Other income); depreciation and amortization.
Product revenues for the nine months ended June 30, 1994 totaled $128.8 million
in the U.S. and $110.3 million outside the U.S. Product revenues were
comprised of $73.6 million for proprietary product sales, $156.7 million for
network products and other product sales, and $8.8 million for open software
product sales. Product revenues continued to decline as expected due to
reductions in the sales of personal computer products. In addition, rapid
technological change significantly broadened the range of competing products
and resulted in the introduction and
4
<PAGE> 26
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
acceptance of lower-priced products (such as personal computers), and a
decrease in sales of traditionally higher-margin products based on
proprietary platforms. Sales of the Company's proprietary VS products remained
stable.
Service and other revenues for the nine months ended June 30, 1994 totaled
$180.9 million in the U.S. and $224.4 million outside the U.S. Service and
other revenues were comprised of $262.3 million of services for proprietary
products and $143.0 million of network services and other revenues. Reductions
in service and other revenues continued, primarily due to reduced maintenance
revenues on proprietary VS products, resulting from changes in product mix,
competition from third-party service providers, increased product reliability
and decreased renewals of maintenance contracts on older installed equipment.
The reduction in traditional service revenues was partially offset by new
service offerings, including multi-vendor product support, local area network
services, and cabling services.
Revenues for the period included $14.5 million from European sales and service
subsidiaries, which were previously designated as "businesses held for sale"
and excluded from operations. In connection with the Company's Reorganization
Plan, the Company initially determined that it would need to sell or otherwise
dispose of its subsidiaries in Ireland, Italy, Spain and Sweden. This
determination was based on their then-current financial condition and future
business projections, including their ability to generate cash to support their
operating activities. In addition, as a result of the parent company's filing
for Chapter 11, the Company was unable to fund these subsidiaries. For these
reasons, the subsidiaries were classified as businesses held for sale in the
Company's financial statements. However, the Company subsequently restructured
and refocused the business activities of these entities. As a result, these
entities became financially viable and were returned to continuing operations.
Product gross margin was 38.2% for the nine months ended June 30, 1994.
Product gross margin was favorably affected by reduced manufacturing costs,
resulting from restructuring actions taken to reduce manufacturing
capacity.
Gross margin for service and other revenues was 35.8% for period. Service gross
margin was adversely affected by the revenue decreases and competitive
conditions previously noted, but these margin decreases were partially offset
by personnel and facilities cost reductions.
Research and development costs totaled $29.7 million, or 4.6% of revenues, for
the period. The Company refocused and streamlined its development program to
support its business strategy of developing software for open systems
platforms, including IBM, Hewlett-Packard, Sun Microsystems, Microsoft, and
Novell, primarily for its workflow and imaging products. In addition, the
Company continued to support its proprietary VS products.
Selling, general and administrative expenses totaled $174.6 million, or 27.1%
of revenues, for the period. Selling, general and administrative expenses
continued to decline as a result of restructuring programs implemented in
connection with the Company's Reorganization Plan, including depreciable asset
write-downs, workforce reductions, and the disposal or abandonment of certain
sales and manufacturing facilities.
5
<PAGE> 27
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Interest expense totaled $3.5 million for the nine months ended June 30, 1994,
and was primarily due to short-term debt at non-U.S. locations and fees
incurred on the Company's financing arrangement with Congress Financial
Corporation ("Congress"). Other income included, primarily, interest
income, equity income of unconsolidated subsidiaries, and foreign currency
gains (losses). Interest income totaled $5.1 million for the nine months ended
June 30, 1994, and resulted primarily from investments in marketable securities
and time deposits. Equity income totaled $2.9 million for the nine months
ended June 30, 1994, and resulted from the Company's 49% investment in its
Taiwan sales and marketing subsidiary, and its 30% investment in its New
Zealand subsidiary. Foreign currency exchange resulted in a $0.2 million loss
and foreign currency translation resulted in a $0.1 million loss for the nine
months ended June 30, 1994.
The provision for income taxes of $9.8 million for the period included $7.2
million of non-cash expense relating to the utilization of the Company's net
operating loss carryforwards. Under fresh-start reporting, realization of these
net operating loss carryforwards is currently being recognized as a reduction
of Reorganization value in excess of amounts allocated to identifiable
intangible assets.
At June 30, 1994, the Company employed approximately 5,300 people in
continuing operations. Restructuring actions resulted in significant personnel
reductions.
Three months ended September 30, 1993 compared to three months ended September
- ------------------------------------------------------------------------------
30, 1992
- --------
The Company reported operating income of $12.4 million for the three months
ended September 30, 1993, compared to an operating loss of $23.2 million for
the same period of the prior year. After recognition of a $329.3 million gain
on debt discharge and a $193.6 million adjustment to increase historical cost
of the assets and liabilities of the Company to fair value, in connection with
the adoption of fresh-start reporting, the Company reported net income of
$499.9 million compared to a net loss of $66.6 million for the same period of
the prior year.
Total revenues for the three months ended September 30, 1993 were as expected.
These revenues reflected fundamental changes in the Company's business and
operational structure as contemplated by its new business plan. Revenues for
the three months ended September 30, 1993 decreased $149.1 million, or 41.4%
compared to the same period of the prior year. Net product sales decreased
53.1% while service and other revenues decreased by 34.3%, compared to the same
period of the prior year.
EBITDA amounted to $24.8 million for the three months ended September 30, 1993
(prior to reorganization expenses, including restructuring items of $34.9
million, a fresh-start reporting adjustment of $193.6 million, and a gain on
debt discharge of $329.3 million) and $7.5 million for the three months ended
September 30, 1992 (prior to reorganization expenses, including restructuring
items of $28.0 million). EBITDA was determined by excluding from net income:
interest expense; interest income (interest income of $0.9 million and $1.3
million was reported in the caption Other income for the three months ended
September 30, 1993 and 1992, respectively); income taxes; depreciation and
amortization.
6
<PAGE> 28
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Product revenues in the United States decreased by 33.7% to $109.0 million,
while non-U.S. revenues decreased by 47.9% to $101.9 million. Net product
sales in the United States decreased by 42.2%, while outside of the U.S. there
was a decline of 62.0%, compared to the same period of the prior year. Most of
the decrease in product sales was due to reductions in the sales of personal
computers, while the remainder was primarily due to lower VS revenues.
Revenues were negatively affected by intense competitive and technological
pressures in the computer industry (particularly hardware sales), resulting in
overcapacity and aggressive pricing. In addition, rapid technological change
significantly broadened the range of competing products and resulted in the
introduction and acceptance of lower priced products (such as personal
computers) and a decrease in sales of traditionally higher-margin products
based on proprietary technology. The decline in revenues was generally
consistent throughout all geographic segments in which the Company operates.
Service and other revenues in the United States declined 28.5%, while outside
of the U.S., there was a decline of 39.4%, compared to the same period of the
prior year. Reduced service and other revenues occurred primarily due to
reduced product sales, changes in product mix, competition from third-party
service providers, increased product reliability, and decreased renewals of
maintenance contracts on older installed equipment. Maintenance revenues
accounted for the majority of the decrease in service and other revenues. The
reduction in traditional service revenues was partially offset by new service
offerings, including multi-vendor product support, local area network services,
and cabling services.
Product gross margin increased to 37.4% from 27.4% in the comparable period of
the prior year. The increase was due primarily to reduced manufacturing
costs, resulting from actions taken to reduce manufacturing capacity.
Gross margin for service and other revenues was 40.8%, as compared to 46.6% for
the comparable period of the prior year. The Company reclassified, effective
with the quarter ended September 30, 1993, certain amounts to Cost of service
and other which were previously included in Selling, general and
administrative expenses. The result of this reclassification was to increase
Cost of service and other by $13.5 million, compared with amounts originally
reported for the three months ended September 30, 1993. Information was not
available to make this reclassification for any periods prior to the three
months ended September 30, 1993, and, accordingly, 1993 gross margin is not
comparable to 1994 gross margin. This reclassification accounted for the
majority of the decrease in gross margin from 1993 to 1994. Service gross
margins were also adversely affected by revenue decreases and competitive
conditions previously noted. Margin decreases were partially offset by
non-recurring income of approximately $5 million from settlements resulting
from license agreements for single in-line memory modules ("SIMMs") licensing
agreements and restructuring-related actions to reduce personnel and facilities
costs.
Research and development costs decreased by $13.9 million, or 58.2%,
representing 4.7% and 6.6% of revenues for the periods ending September 30,
1993, and 1992, respectively. The decrease was expected as the Company
focused development efforts primarily on software for open systems platforms
including IBM, Hewlett-Packard, Sun Microsystems, Microsoft, and Novell.
7
<PAGE> 29
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Selling, general, and administrative expenses decreased $79.3 million, or
56.3%, from the prior year comparable quarter. Due to the reclassification
noted above, selling, general and administrative expenses for the three months
ended September 30, 1993 are not comparable to the three months ended September
30, 1992. Selling, general and administrative expenses decreased due to
implementation of restructuring programs that eliminated unnecessary or
redundant programs, personnel, facilities costs, and other related expenses.
Interest expense decreased by $6.4 million to $1.2 million, an 84.2% decrease
compared to the same period of the prior year. This decrease was primarily due
to the elimination of interest on unsecured pre-Chapter 11 debt obligations.
Interest expense would have been $5.7 million higher for the three months ended
September 30, 1993, if the Company had continued to accrue interest on
unsecured pre-Chapter 11 debt obligations. Other income included, primarily,
interest and other income, foreign currency gains (losses), and income from
minority shareholder interests. Interest income totaled $0.9 million and $1.3
million for the three months ended September 30, 1993, and 1992, respectively.
Interest income resulted primarily from investments in marketable securities
and time deposits. Minority interest totaled $0.6 million for the three months
ended September 30, 1992. There was no income from interest in minority
shareholders for the three months ended September 30, 1993, as a result of the
sale of the Company's remaining 70% interest in its Taiwan manufacturing
subsidiary in March 1993. Foreign currency exchange resulted in a $0.3 million
gain and a $3.7 million loss for the three months ended September 30, 1993, and
1992, respectively. Foreign currency translation was minimal in both periods.
The provision for income taxes principally related to income from non-U.S.
operations. Taxes arose from earnings in certain foreign subsidiary countries
that could not be offset by tax benefits in the foreign subsidiaries with
losses, and certain other taxes that applied regardless of earnings levels.
Reorganization expenses of $34.9 million for the three months ended September
30, 1993, consisted primarily of $10.9 million of incurred professional fees, a
fresh-start adjustment of $18.8 million to accrue for amounts expected to be
paid through the completion of all Chapter 11-related matters and $8.2 million
of restructuring charges to increase accruals to the amounts necessary to
complete additional restructuring measures primarily at locations outside of
the U.S. Reorganization expenses totaling $28.0 million for the comparable
quarter of the prior year consisted primarily of professional fees and a $19.5
million foreign exchange loss relating to the exposed portion of the Company's
pre-petition Swiss franc-denominated bonds, which was due to the strengthening
of the Swiss franc against the U.S. dollar in the first quarter. Restructuring
initiatives in 1993 and 1994 resulted in annual savings of approximately $160
million for the twelve months ended June 30, 1994. The reduction in employees
from 11,285 at September 30, 1992 to 6,405 at September 30, 1993 was primarily
attributable to the restructuring initiatives.
The gain on debt discharge of $329.3 million and the fresh-start reporting
adjustment of $193.6 million for the three months ended September 30, 1993,
were the result of recording the effects of the Reorganization Plan (see Note
J, Fresh-Start Reporting, Reorganization and Restructuring Expenses).
8
<PAGE> 30
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Year ended June 30, 1993
- ------------------------
The Company reported revenues of $1,247 million and a net loss from continuing
operations, including restructuring and reorganization charges, of $197.2
million for the year ended June 30, 1993. Continuing operations included
restructuring and reorganization charges of $127.3 million, which included
$117.4 million of restructuring charges, reduced by a $25.2 million gain on the
sale of non-strategic assets sold in connection with restructuring initiatives.
EBITDA amounted to $28.9 million for the year ended June 30, 1993. EBITDA was
determined by excluding from net income: reorganization expenses; interest
expense; interest income (interest income of $5.5 million was reported in the
caption Other income); depreciation and amortization.
Product revenue, which totaled $439.6 million for the year ended June 30, 1993,
declined as expected due to lower VS proprietary product revenues and personal
computers. Revenues were negatively affected by intense competitive and
technological pressures in the computer industry (particularly hardware sales),
resulting in overcapacity and aggressive pricing. In addition, rapid
technological change significantly broadened the range of competing products and
resulted in the introduction and acceptance of lower-priced products (such as
personal computers)and a decrease in sales of traditionally higher-margin
products based on proprietary platforms.
Service and other revenues totaled $807.4 million for the year ended June 30,
1993. Reductions in service and other revenues continued, primarily due to
reduced product sales, changes in product mix, competition from third-party
service providers, increased product reliability, and decreased renewals of
maintenance contracts on older installed equipment. The reduction in
traditional service revenues was partially offset by new service offerings,
including local area network and cabling services.
Product gross margin was 22.8% for the year. Product gross margin was
significantly affected by lower volumes, resulting in unfavorable manufacturing
variances. To a lesser extent, product gross margin was affected by a less
favorable product mix and competitive pressures resulting in reduced selling
prices, partially offset by reductions in manufacturing spending and lower
material costs.
Gross margin for service and other revenues was 45.0% for the year. Service
gross margin was adversely affected by the revenue decreases and competitive
conditions previously noted, partially offset by personnel and facilities cost
reductions.
Research and development costs totaled $72.2 million, or 5.8%, of revenues for
the year. The Company's development efforts became more narrowly focused on
developing software for open systems platforms, including IBM, Hewlett-Packard,
Sun Microsystems, Microsoft, and Novell, along with continuing to support
its proprietary VS products.
Selling, general and administrative expenses totaled $452.3 million, or 36.3%,
of revenues for the year. Selling, general and administrative expenses
continued to decline, primarily due to the implementation of a series of
restructuring programs which began in 1989. These actions included workforce
9
<PAGE> 31
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
reductions, realignment of sales and service organizations, consolidation of
certain operating facilities, and the discontinuation of operations not
considered part of the Company's strategic direction.
Interest expense totaled $15.0 million for the year ended June 30, 1993, and
was primarily due to pre-Chapter 11 debt obligations. Interest expense would
have been $22.0 million higher if the Company had continued to accrue interest
on unsecured pre-Chapter 11 debt obligations. Other income included,
primarily, interest and other income, foreign currency gains (losses), and
income from minority shareholder interests. Interest income totaled $5.5
million, resulting primarily from investments in marketable securities and time
deposits. Income from minority shareholder interest totaled $0.9 million.
Foreign currency exchange resulted in a $2.1 million gain and foreign currency
translation resulted in a $2.3 million loss. Reorganization expenses of $127.3
million included $117.4 million of restructuring, reduced by $25.2 million of
gains on the sale of non-strategic assets, and $15.4 million of professional
fees. Restructuring charges related to the implementation of the Reorganization
Plan. The restructuring provision totaling $117.4 million included $80.0
million for asset write-downs, $20.9 million for workforce reductions, $8.3
million for the disposal of certain sales and manufacturing subsidiaries, $3.1
million for abandonment of facilities, and $5.1 million for various other
restructuring actions. These restructuring charges were required to further
reduce the worldwide sales, manufacturing, finance and administration, and
research and development workforce by approximately 6,000. These workforce
reductions resulted in significantly reduced requirements for real estate and
other facilities and in related write-downs in depreciable assets.
At June 30, 1993, the Company employed approximately 6,900 people in
continuing operations.
Liquidity and Sources of Capital
- --------------------------------
On April 12, 1995, the Company announced a broad multi-year technical, service
and marketing alliance with Microsoft Corporation, designed to bring improved
imaging and workflow management capabilities to all Microsoft Windows users.
As part of the agreement, Microsoft invested $84.0 million in the Company
through the purchase of $90.0 million face amount of 4 1/2% Series A Cumulative
Convertible Preferred Stock, redeemable in 2003 (see Note D, Financing
Arrangements).
Cash and cash equivalents decreased $8.1 million to $181.3 million from June
30, 1994 to June 30, 1995, primarily due to $107.3 million of cash used for the
Bull acquisition, which was partially offset by the $84.0 million generated
from the Microsoft agreement.
Cash provided by operations before reorganization items of $88.8 million for
the year ended June 30, 1995 was reduced by cash used for reorganization-
related items of $57.8 million, resulting in net cash provided by operations of
$31.0 million. Lower levels of receivables and inventories generated $61.4
million of cash. Lower accounts payable and other current liabilities resulted
in reductions of $40.1 million.
Net cash used in investing activities totaled $130.1 million for the year ended
June 30, 1995 and related primarily to $107.3 million of cash paid for the Bull
acquisition, consisting of $110.0 million purchase price and $5.2 million of
transaction costs, net of $7.9 million of cash acquired (see Note B, Business
Acquisition and Integration-Related Costs and Other Charges).
10
<PAGE> 32
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Investments in depreciable assets totaled $34.9 million. Proceeds from the
sale of assets included $13.4 million received from the sale of the Company's
remaining 49% interest in WICL, Inc., the Company's Taiwan sales and marketing
subsidiary and $8.2 million from the sale of the Company's facility in
Rydalmere, Australia.
Net cash provided by financing activities of $85.5 million for the year ended
June 30, 1995 was comprised principally of the proceeds of $84.0 million for
the issuance of the 4 1/2% Series A Cumulative Convertible Preferred Stock to
Microsoft. Through January 30, 1995, the Company had a financing facility with
Congress that provided for borrowings and letters of credit limited to $30.0
million in the aggregate, with letters of credit outstanding being limited to a
maximum of $25.0 million. As of January 30, 1995, the Congress facility was
replaced by the BT Commercial Corporation ("BTCC") facility, which the Company
entered into as a result of the Bull acquisition. The Company initially
borrowed $72.8 million under the facility as a result of the acquisition (see
Note B, Business Acquisition and Integration-Related Costs and Other Charges
and Note D, Financing Arrangements). As of June 30, 1995, letters of credit
aggregating $9.2 million were outstanding under the BTCC facility. No
borrowings were outstanding under the BTCC facility as of June 30, 1995.
Cash balances of the parent company decreased to $87.9 million from $97.2
million during fiscal 1995, primarily due to $107.3 million paid in connection
with the Bull acquisition; this was partially offset by the $84.0 million
proceeds from the Microsoft agreement. At June 30, 1995, in addition to the
cash balance on hand, the parent company had available to it the unused
portions of the BTCC financing arrangement, providing for borrowings and/or the
issuance of additional letters of credit of up to $125.0 million, depending
upon availability under the borrowing base. As of June 30, 1995, $76.8 million
was available to the Company. Subsidiaries of the Company had cash balances as
of June 30, 1995 totaling approximately $93.4 million. Excess funds in certain
subsidiaries could be available to the parent company, either in the form of
dividends or loans.
In addition to normal operating activities, expected cash requirements of the
parent company over the next twelve months include approximately $13 million
for integration-related costs and other charges (see Note B, Business
Acquisition and Integration-Related Costs and Other Charges) and previously
recorded restructuring and reorganization-related items, and up to
approximately $4 million of additional costs for acquisition-related
relocation, personnel, systems integration, and other related charges.
Non-parent requirements over the next twelve months for integration-related
costs and other charges and previously recorded restructuring and
reorganization-related items are expected to total approximately $39 million.
Non-parent requirements over the next twelve months for acquisition-related
relocations, personnel, systems integration and other related charges are
expected to total approximately $1 million. Non-parent requirements for
repayment of mortgages and borrowings are expected to approximate $3 million.
Dividend requirements of the Company's outstanding 11% Exchangeable Preferred
Stock can be satisfied in either cash or payment-in-kind, at the option of the
Company through September 30, 1996. Payment of cash dividends on the 4 1/2%
Series A Cumulative Convertible Preferred Stock is currently prohibited by the
terms of the 11% Exchangeable Preferred Stock and the BTCC financing agreement.
The Company believes that existing cash balances, cash generated from
operations, and borrowing availability under the BTCC facility will be
11
<PAGE> 33
WANG LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
sufficient to meet the parent company's and its subsidiaries' cash requirements
from operations for the next twelve months and to complete the planned
integration-related and restructuring efforts. As part of furthering its
business strategy, the Company continues to explore the acquisition of or the
opportunity for strategic relationships with other businesses. One or more of
these opportunities could have an impact on the Company's liquidity through the
use of cash or the issuance of debt.
12
<PAGE> 34
EXHIBIT C
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wang Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of Wang
Laboratories, Inc. and subsidiaries ("the Company") as of June 30, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the year ended June 30, 1995, the nine
months ended June 30, 1994, the three months ended September 30, 1993, and the
year ended June 30, 1993. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note J to the consolidated financial statements, the
Company's reorganization plan was confirmed by the United States Bankruptcy
Court on September 21, 1993 and became effective on September 30, 1993. In
accordance with the American Institute of Certified Public Accountants
Statement of Position No. 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," the Company was required to
account for the reorganization using "Fresh-Start Reporting." Accordingly,
all consolidated financial statements prior to September 30, 1993, are not
comparable to the consolidated financial statements for periods after the
implementation of fresh-start reporting.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Wang Laboratories, Inc. and subsidiaries at June 30, 1995 and 1994, and
the consolidated results of their operations and their cash flows for the
year ended June 30, 1995, the nine months ended June 30, 1994, the three
months ended September 30, 1993, and the year ended June 30, 1993, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
Ernst & Young LLP
Boston, Massachusetts
July 26, 1995
<PAGE> 35
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Statement of Operations
(Dollars in millions except per share data)
<CAPTION>
Reorganized Company Predecessor Company
------------------------------ ---------------------------------
Year Nine Months Three Months Year
Ended Ended Ended Ended
June 30, 1995 June 30, 1994 September 30, 1993 June 30, 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues |
Product sales $ 365.0 $ 239.1 | $ 64.1 $ 439.6
Service and other 581.3 405.3 | 146.8 807.4
-------- -------- | -------- --------
Total revenues 946.3 644.4 | 210.9 1,247.0
|
Costs and expenses |
Cost of product sales 254.3 147.7 | 40.1 339.2
Cost of service and other 401.8 260.1 | 86.9 440.4
Research and development 31.1 29.7 | 10.0 72.2
Selling, general and administrative 225.9 174.6 | 61.5 452.3
Amortization of intangibles - |
fresh-start and Bull 32.0 20.7 | -- --
Integration-related costs and |
other charges 64.2 -- | -- --
-------- -------- | -------- --------
Total costs and expenses 1,009.3 632.8 | 198.5 1,304.1
------- -------- | -------- --------
Operating income (loss) (63.0) 11.6 | 12.4 (57.1)
|
Other (income) expense |
Interest expense 3.7 3.5 | 1.2 15.0
Other income - net (12.7) (12.3) | (1.1) (2.2)
-------- -------- | -------- --------
Total other (income) expense (9.0) (8.8) | 0.1 12.8
-------- -------- | -------- --------
|
INCOME (LOSS) FROM CONTINUING |
OPERATIONS BEFORE REORGANIZATION |
EXPENSES, INCOME TAXES, FRESH- |
START REPORTING ADJUSTMENT, |
AND EXTRAORDINARY ITEM (54.0) 20.4 | 12.3 (69.9)
Reorganization expenses, including |
restructuring items -- -- | 34.9 127.3
-------- -------- | -------- --------
|
INCOME (LOSS) FROM CONTINUING |
OPERATIONS BEFORE INCOME TAXES, |
FRESH-START REPORTING ADJUSTMENT, |
AND EXTRAORDINARY ITEM (54.0) 20.4 | (22.6) (197.2)
Provision for income taxes 3.6 9.8 | 0.4 --
-------- -------- | -------- --------
|
INCOME (LOSS) FROM CONTINUING |
|
OPERATIONS BEFORE FRESH-START |
REPORTING ADJUSTMENT AND |
EXTRAORDINARY ITEM (57.6) 10.6 | (23.0) (197.2)
</TABLE>
(CONTINUED ON NEXT PAGE)
1
<PAGE> 36
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Statement of Operations - (Continued)
(Dollars in millions except per share data)
<CAPTION>
Reorganized Company Predecessor Company
------------------------------ ---------------------------------
Year Nine Months Three Months Year
Ended Ended Ended Ended
June 30, 1995 June 30, 1994 September 30, 1993 June 30, 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fresh-start reporting adjustment -- -- | 193.6 --
Gain on debt discharge -- -- | 329.3 --
------ ----- | ------ -------
|
NET INCOME (LOSS) (57.6) 10.6 | 499.9 (197.2)
Dividends and accretion on |
preferred stock (8.7) (4.2) | -- --
------ ----- | ------ -------
|
NET INCOME (LOSS) APPLICABLE TO |
COMMON STOCKHOLDERS $(66.3) $ 6.4 | $499.9 $(197.2)
------ ----- | ------ -------
|
NET INCOME (LOSS) PER SHARE $(2.02) $0.20 | * *
====== ===== | ====== =======
<FN>
* Per share data are not presented for periods prior to September 30,
1993, the Confirmation Date of the Company's Reorganization Plan, due to
the general lack of comparability as a result of the revised capital
structure of the Company.
See notes to the consolidated financial statements.
</TABLE>
2
<PAGE> 37
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Balance Sheet
<CAPTION>
(Dollars in millions) June 30, 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents $181.3 $189.4
Accounts receivable, net 182.4 128.5
Inventories 24.4 27.6
Other current assets 37.2 37.3
------ ------
Total current assets 425.3 382.8
Depreciable assets, net 134.0 79.6
Intangible assets, net 274.0 197.6
Other 25.7 26.0
------ ------
Total assets $859.0 $686.0
====== ======
Liabilities and stockholders' equity
Current liabilities
Borrowings due within one year $ 3.0 $ 3.6
Accounts payable, accrued expenses and other 275.0 213.6
Income taxes 10.1 12.7
Deferred service revenue 93.1 58.2
------ ------
Total current liabilities 381.2 288.1
Long-term liabilities
Debt 22.8 2.0
Restructuring 9.0 19.6
Other liabilities 80.5 58.9
------ ------
Total long-term liabilities 112.3 80.5
Preferred stock 145.9 53.2
Stockholders' equity
Common stock, 100,000,000 shares
authorized; outstanding shares:
33,907,759 at June 30, 1995 and
31,979,766 at June 30, 1994 0.3 0.3
Capital in excess of par value 280.8 255.6
Cumulative translation adjustment (0.5) 3.0
Retained earnings (deficit) (61.0) 5.3
------ ------
Total stockholders' equity 219.6 264.2
------ ------
Total liabilities and stockholders'
equity $859.0 $686.0
====== ======
</TABLE>
See notes to the consolidated financial statements.
3
<PAGE> 38
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in millions)
<CAPTION>
Reorganized Company Predecessor Company
------------------------------ ---------------------------------
Year Nine Months Three Months Year
Ended Ended Ended Ended
June 30, 1995 June 30, 1994 September 30, 1993 June 30, 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES |
Net income (loss) $ (57.6) $ 10.6 | $ 499.9 $(197.2)
Depreciation 42.8 27.7 | 11.6 83.3
Amortization 37.5 22.4 | 0.8 6.0
Gain on asset sales (1.6) -- | -- (25.2)
Non-cash provision for income taxes 3.4 7.2 | -- --
Provision for integration-related |
costs and other charges 64.2 -- | -- --
Payments of integration-related |
and other charges (20.3) -- | -- --
|
Fresh-start reporting adjustment -- -- | (193.6) --
Extraordinary gain on debt discharge -- -- | (329.3) --
Reorganization provisions -- -- | 30.1 117.4
Foreign exchange adjustment -- -- | (7.4) --
Write-off of other assets -- -- | -- 4.0
|
Changes in other accounts affecting |
operations |
Accounts receivable 49.5 15.8 | 13.5 144.1
Inventories 11.9 8.5 | 8.3 42.9
Other current assets (0.5) 15.1 | 4.8 10.5
Accounts payable and other current |
liabilities (40.1) 0.6 | (4.4) (30.8)
Other (0.4) 9.2 | 0.5 6.3
------- ------ | ------- -------
Net changes in other accounts effecting |
operations 20.4 49.2 | 22.7 173.0
------- ------ | ------- -------
Net cash provided by operations |
before reorganization items 88.8 117.1 | 34.8 161.3
Restructuring payments and reorganization- |
related claims and fees (57.8) (83.4) | (25.7) (130.3)
------- ------ | ------- -------
Net cash provided by operations 31.0 33.7 | 9.1 31.0
------- ------ | ------- -------
INVESTING ACTIVITIES |
Investment in depreciable assets (34.9) (15.1) | (4.6) (22.6)
Investment in capitalized software (5.9) (2.6) | (1.3) (2.6)
Proceeds from asset sales 26.4 11.2 | 4.7 --
Business acquisition, net of cash |
acquired - Bull (107.3) -- | -- --
Other business acquisitions (2.3) (3.4) | -- --
Other (6.1) (5.4) | 0.3 (1.1)
------- ------ | ------- -------
Net cash used in investing activities (130.1) (15.3) | (0.9) (26.3)
------- ------ | ------- -------
</TABLE>
(CONTINUED ON NEXT PAGE)
4
<PAGE> 39
<TABLE>
Wang Laboratories, Inc. and Subsidiaries Consolidated Statement of Cash Flows -
(Continued)
(Dollars in millions)
<CAPTION>
Reorganized Company Predecessor Company
------------------------------ ---------------------------------
Year Nine Months Three Months Year
Ended Ended Ended Ended
June 30, 1995 June 30, 1994 September 30, 1993 June 30, 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES |
Proceeds from long-term debt $ 1.1 $ -- | $ 2.0 $ --
Payments of long-term debt (1.8) (2.8) | (1.6) (7.3)
Net increase (decrease) in short-term |
borrowings (0.1) 1.7 | (30.7) (41.1)
Proceeds from sale of preferred stock 84.0 49.0 | -- --
Proceeds from sale of 1.5 million shares |
of common stock -- 11.0 | -- --
Other 2.3 -- | -- (0.1)
------- ------ | ------- -------
Net cash provided by (used in) |
financing activities 85.5 58.9 | (30.3) (48.5)
------- ------ | ------- -------
Effect of changes in foreign exchange rates 5.5 2.8 | (3.7) (5.4)
------- ------ | ------- -------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (8.1) 80.1 | (25.8) (49.2)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 189.4 109.3 | 135.1 184.3
------- ------ | ------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $ 181.3 $189.4 | $ 109.3 $ 135.1
======= ====== | ======= =======
</TABLE>
See notes to the consolidated financial statements.
5
<PAGE> 40
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
<CAPTION>
Retained
New Class B Class C Capital in Cumulative Earnings
Common Common Common Excess of Translation (Accumulated
(Dollars in millions) Stock Stock Stock Par Value Adjustment Deficit) Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1992 $ -- $ 81.5 $ 2.9 $ 977.5 $(67.6) $(1,280.7) $(286.4)
Net loss (197.2) (197.2)
Repurchase of common stock
(210,552 Class B shares) (0.5) (0.5)
Currency translation (16.8) (16.8)
Other (0.5) (0.5)
----- ------ ----- ------- ------ --------- -------
Balance June 30, 1993 -- 81.0 2.9 977.5 (84.4) (1,478.4) (501.4)
Net income 499.9 499.9
Stock plans 0.2 0.2
Repurchase of common stock
(40,626 Class B shares) (0.2) (0.2)
Currency translation 1.4 1.4
Fresh-start reporting
adjustments (80.8) (2.9) (977.7) 83.0 978.4 --
Issuance of new common stock
(30,316,500 shares) 0.3 243.6 243.9
Other 0.1 0.1
----- ------ ----- ------- ------ --------- -------
Balance September 30, 1993 -
Reorganized Company 0.3 -- -- 243.6 -- -- 243.9
Net income 10.6 10.6
Stock issued in private
financing (1,500,000 shares) 10.8 10.8
Stock grants (163,266 shares) 1.2 1.2
Accretion and preferred stock
dividends (4.2) (4.2)
Currency translation 3.0 3.0
Other (1.1) (1.1)
----- ------ ----- ------- ------ --------- -------
Balance June 30, 1994 0.3 -- -- 255.6 3.0 5.3 264.2
Net loss (57.6) (57.6)
Stock issued in business
acquisition (1,650,000
shares) 22.9 22.9
Stock plans 2.3 2.3
Accretion and preferred stock
dividends (8.7) (8.7)
Currency translation (3.5) (3.5)
----- ------ ----- ------- ------ --------- -------
Balance June 30, 1995 $ 0.3 $ -- $ -- $ 280.8 $ (0.5) $ (61.0) $ 219.6
===== ====== ===== ======= ====== ========= =======
</TABLE>
See notes to the consolidated financial statements.
6
<PAGE> 41
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: On August 18, 1992, Wang Laboratories, Inc. the Company's
predecessor Massachusetts corporation (the "Predecessor Company"), filed a
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On
September 30, 1993 (the "Confirmation Date"), a formal confirmation order
by the U.S. Bankruptcy Court for the District of Massachusetts with respect to
the Company's plan of reorganization (the "Reorganization Plan") became
effective. At that time, the Company effectively emerged from bankruptcy and
its debtor-in-possession status, subject only to compliance with the terms of
the Reorganization Plan (see Note J, Fresh-Start Reporting, Reorganization and
Restructuring Expenses).
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and all subsidiaries. All significant intercompany
accounts and transactions are eliminated. Investments in affiliated
companies, owned more than 20% but not in excess of 50%, are recorded on the
equity method.
CASH AND EQUIVALENTS: Cash and equivalents include time deposits, certificates
of deposit, and repurchase agreements with original maturities of three months
or less. Also included is restricted cash, totaling $14.4 million and $20.0
million at June 30, 1995 and 1994, respectively. Restrictions relate primarily
to financing arrangements and statutory reserves for the Company's insurance
subsidiaries. All of the Company's investments are classified as
available-for-sale and are carried at fair value with realized gains and losses
included in the determination of income. Management determines the approximate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date.
CURRENCY TRANSLATION: For most non-U.S. subsidiaries, which operate in a local
currency environment, assets and liabilities are translated at year-end exchange
rates, and income statement items are translated at the average exchange rates
for the year. Translation adjustments are reported in a separate component of
stockholders' equity, which also includes exchange gains and losses on loans
designated as hedges of non-U.S. net investments and on certain intercompany
balances of a long-term investment nature.
For those non-U.S. subsidiaries operating in U.S. dollars or in a highly
inflationary economy, net nonmonetary assets are translated at historical
exchange rates, and net monetary assets are translated at current exchange
rates. Translation adjustments are included in the determination of income.
CONCENTRATION OF CREDIT RISK: Financial instruments that potentially subject the
Company to concentration of credit risk consist primarily of temporary cash
investments and trade receivables. The Company restricts investment of
temporary cash investments to financial institutions with high credit ratings.
Credit risk on trade receivables is minimized as a result of the large and
diverse nature of the Company's worldwide customer base. In addition, trade
receivables included $53.5 million and $23.5 million at June 30, 1995, and 1994,
respectively, due from the U.S. government.
FORWARD EXCHANGE CONTRACTS: The Company enters into forward exchange contracts
as a hedge against certain intercompany balances denominated in foreign
currency. These financial instruments are designed to minimize exposure and
reduce risk from exchange rate fluctuations in the regular course of business.
Market value gains and losses are included in income as incurred
7
<PAGE> 42
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A (Continued)
and offset gains and losses on foreign currency assets or liabilities that are
hedged.
INVENTORIES: Inventories are stated at the lower of first-in, first-out cost
or market.
CAPITALIZED SOFTWARE COSTS: Certain costs of internally developed software to be
sold, leased, or otherwise marketed are capitalized upon reaching technological
feasibility and amortized over the economic useful life of the software
product, which is generally three to seven years. Unamortized capitalized
software costs were $31.1 million and $33.2 million at June 30, 1995 and 1994,
respectively. The June 30, 1995 and 1994 amounts include $24.7 and $29.5
million, respectively, of capitalized software recorded as part of fresh-start
reporting. Amortization of capitalized software totaled $2.2 million and $1.6
million for the year ended June 30, 1995 and the nine months ended June 30,
1994, respectively.
<TABLE>
INTANGIBLE ASSETS: Intangible assets, including those identified as a result of
fresh-start reporting and purchase accounting, and the related depreciable
lives are as follows:
<S> <C>
Trademarks and patents 15 years
Computer software 3-7 years
Installed base - service 5-8 years
License agreements 3-5 years
Assembled workforce 10 years
Goodwill 15 years
Reorganization value in excess of
amounts allocated to identifiable
intangible assets 15 years
</TABLE>
Trademarks and patents include legal costs related to successfully defending
certain patents, and expenditures to maintain licenses and register new
patents. The capitalized costs of patent defense are charged to expense in the
period in which the patent defense is determined to be unsuccessful or the
capitalized amount has no future value.
The Company evaluates the carrying value of intangible assets to determine if
impairment exists based upon estimated undiscounted future cash flows. The
impairment, if any, is measured by the difference between carrying value and
estimated fair value and is charged to expense in the period identified.
DEPRECIABLE ASSETS: Property, plant, and equipment, and spare parts and rental
equipment are stated at cost less accumulated depreciation. Depreciation is
computed principally by use of the straight-line method.
As a result of the confirmation of its Reorganization Plan, the Company adopted
fresh-start reporting and, consequently, all depreciable assets were restated
to fair value. Accordingly, as of September 30, 1993, all accumulated
depreciation balances were eliminated.
8
<PAGE> 43
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A (Continued)
<TABLE>
Depreciable lives are summarized as follows:
<S> <C>
Buildings and improvements 5 - 40 years
Machinery and equipment 3 - 10 years
Spare parts and rental equipment 3 - 5 years
</TABLE>
REVENUE RECOGNITION: Hardware revenues are recognized at time of shipment,
provided collection is probable and there are no significant post-contract
support obligations. Software revenues are generally recognized upon delivery,
provided that collection is probable and no significant post-contract support
obligations exist. If significant post-contract support obligations exist,
then revenue is recognized over the period of such support arrangements.
Revenues from services are recognized ratably over the contract period or as
services are performed. Revenues from royalty agreements are recognized as
earned over the contract term. Deferred revenue is recorded to the extent that
billings exceed revenue recognized under service contracts and contracts
recorded under the percentage-of-completion method.
INCOME TAXES: The Predecessor Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109") during the
three months ended September 30, 1993. SFAS No. 109 requires a change to the
liability method of computing deferred taxes. Under this method, deferred taxes
are computed based on the differences between the bases of assets and
liabilities for tax purposes, and their corresponding bases for financial
reporting purposes. Deferred tax assets, net of appropriate valuation reserves,
may be recorded. The Predecessor Company elected to adopt SFAS No. 109
prospectively in 1994, and, as a result, prior periods have not been restated.
The cumulative effect of this change in accounting was not material to the
reported results of operations.
Under fresh-start reporting and SFAS No. 109, the tax benefits of net operating
loss carryforwards, net deductible temporary differences, and tax credit
carryforwards that survive the reorganization will be recognized when realized
in future years as a reduction of intangible assets until eliminated.
Thereafter, these benefits will be recorded as a direct credit to capital in
excess of par value.
The Company does not provide for U.S. federal income taxes on the undistributed
earnings of its foreign subsidiaries since it intends to permanently reinvest
these earnings in the growth of the business outside of the United States.
EARNINGS PER SHARE: Earnings per share is based on the weighted average number
of common shares, including those yet to be distributed by the Disbursing
Agent appointed under the Company's Reorganization Plan, and the effect, when
dilutive, of stock options and warrants. Weighted average shares and common
share equivalents totaled 32,765,919 and 32,680,250 for the year ended June 30,
1995, and nine months ended June 30, 1994, respectively. Net income for
purposes of calculating earnings per share has been reduced by cumulative
dividends and accretion totaling $8.7 million and $4.2 million for the year
ended June 30, 1995, and the nine months ended June 30, 1994, respectively,
related to the Company's Preferred Stock.
9
<PAGE> 44
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A (Continued)
POSTRETIREMENT BENEFITS: The Wang Retirement Savings Plan provides that the
Company will make a basic annual contribution equal to 2%, 3%, or 4% of an
employee's pay, based on length of service, with an additional transition
contribution of 1% or 2% for employees who were 55 or older as of June 30,
1992. In addition, the Company will match employees' voluntary contributions
to the plan in an amount equal to 50% of the first 4% of an employee's pay
contributed to the plan. The Company may make an additional contribution based
on its operating income as a percentage of revenue each year. This additional
contribution is a percentage of the basic contribution that the Company makes,
and ranges from 15% of the basic contribution for operating income that is 4%
of revenue, to 100% of the basic contribution for operating income that is 9%
or more of revenue. No additional contribution was made by the Company for the
year ended June 30, 1995.
Non-U.S. employees are covered by defined contribution and/or defined benefit
pension plans in several countries, in accordance with applicable government
regulations and local practices.
Certain postretirement health care and life insurance benefits are provided for
current U.S. and non-U.S. retirees and employees (see Note G, Postretirement
Benefits).
10
<PAGE> 45
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B--BUSINESS ACQUISITION AND INTEGRATION-RELATED COSTS AND
OTHER CHARGES
BUSINESS ACQUISITION: On January 31, 1995, the Company completed a transaction
with Compagnie des Machines Bull and certain of its affiliates (collectively
"Bull") in which the Company purchased from Bull S.A. its worldwide workflow and
imaging business and from Bull HN Information Systems Inc. its U.S. federal
systems subsidiary, its U.S. customer services business, and its sales and
service subsidiaries in Canada, Mexico, Australia and New Zealand. In
consideration for these businesses, the Company paid Bull $110.0 million in
cash, delivered a promissory note in the principal amount of $27.2 million,
subject to post-closing adjustments, and issued to Bull 1,650,000 shares of Wang
Common Stock with a fair market value at the time of issuance of $22.9 million.
The promissory note matures on January 31, 1997, and bears interest at 8.75%
through January 31, 1996, and at Banker's Trust Company prime rate plus 1%
thereafter. For financial statement purposes, the promissory note has been
reduced by $5.6 million to reflect a reduced net asset value based upon the
financial statements submitted by Bull management and an agreed-upon
adjustment.
The acquisition was accounted for using the purchase method of accounting in
accordance with Accounting Principles Board No. 16, "Business Combinations"
("APB 16"). Under APB 16, purchase price allocations are made to the assets
acquired and the liabilities assumed based on their respective fair values.
The excess of the purchase price over the fair value of the net assets acquired
of $106.0 million has been recorded based on these preliminary purchase price
allocations.
<TABLE>
A summary of the acquisition follows (in millions):
<S> <C>
Cash $110.0
Note to Bull HN 21.6
Company common stock (1,650,000 shares) 22.9
------
Total consideration 154.5
Estimated fair value of net tangible assets acquired 48.5
------
Excess of purchase price over net tangible
assets acquired $106.0
======
</TABLE>
<TABLE>
The excess of purchase price over net assets acquired of $106.0 million has
been allocated to specific intangible asset categories as follows (in
millions):
<S> <C>
Software licenses $ 24.9
Installed base - service 56.5
Assembled workforce 11.7
Goodwill 12.9
------
$106.0
======
</TABLE>
The value attributable to the acquired assets was allocated in conformity with
the procedures specified by APB 16. Current assets and liabilities have been
recorded at book value, which approximates fair value.
11
<PAGE> 46
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
All long-term liabilities, including liabilities established for over-market and
excess space leases totaling approximately $28 million, are stated at the
present value of amounts to be paid, determined at appropriate current interest
rates. Discount rates of approximately 8.0% to 12.0% were used to determine
present value. Software licenses and the installed base were valued using an
income approach. This approach discounts an estimate of the total monetary
benefits expected to accrue, to its present worth, adjusted for the Company's
effective tax rate. The discount rate of 20.0% used in this determination
considers the degree of risk associated with the realization of the projected
monetary benefits. The value of the assembled workforce was established based
on replacement cost. The excess of purchase price over the fair value of the
assets acquired not attributable to specific tangible or identifiable intangible
assets of the Company has been reported as Goodwill. Total consideration is
based upon financial statements submitted to the Company by Bull management.
The amount of the total consideration is subject to a contractually agreed-upon
objection procedure through which the Company may challenge the net asset value
of the acquired assets. The Company has challenged the net asset value of the
acquired assets and intends to employ the contractually agreed-upon objection
procedure.
<TABLE>
The following pro forma results of operations have been prepared as though the
Bull acquisition had occurred as of the beginning of the periods presented. The
pro forma information does not purport to be indicative of the results of
operations that would have been attained had the combination been in effect on
the dates indicated, nor of future results of operations of the Company (in
millions, except per share data).
<CAPTION>
Twelve Months Nine Months
Ended Ended
June 30, June 30,
1995 1994
------------- -----------
<S> <C> <C>
Revenues $1,209.7 $ 975.8
Net loss $ (49.1) $ (0.3)
Net loss applicable
to common shareholders $ (57.8) $ (4.5)
Per share amounts:
Net loss $ (1.52) $ (.01)
Net loss applicable
to common shareholders $ (1.70) $ (.13)
</TABLE>
Pro forma results of operations are not presented for the three months ended
September 30, 1993, the Confirmation Date of the Company's Reorganization Plan,
due to the general lack of comparability as a result of the implementation of
fresh-start reporting and the revised capital structure of the Company.
12
<PAGE> 47
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
<TABLE>
INTEGRATION-RELATED COSTS AND OTHER CHARGES: On March 29, 1995, the
Company's Board of Directors approved a plan to proceed with integration and
consolidation initiatives principally related to the Bull acquisition.
Integration-related costs and other charges were recorded as of March 31, 1995,
and consisted of the following (in millions):
<S> <C>
Facilities $ 3.1
Depreciable assets 12.4
Workforce-related 43.4
Other 5.3
-----
Total $64.2
=====
</TABLE>
The formal plan was recorded as of March 31, 1995, based upon the best
information available at the time. The facilities-related reserves for the
Company's excess sales and service and other support facilities were established
to recognize the lower of the amount of the remaining lease obligations, net of
any sublease rentals, or the expected lease settlement costs. These reserves
will be utilized only when the excess space has been vacated and there are no
plans to utilize the facility in the future. Depreciable assets-related reserves
were established to recognize, at net realizable value, the write-down and
disposal value of existing assets including information systems, leasehold
improvements and other productive assets no longer required. As a result of the
acquisition, certain technical support, customer service, distribution, research
and development, and administrative functions are being combined and reduced.
During fiscal 1995, the Company released approximately 1,000 employees. During
the first quarter of fiscal 1996, the Company plans to release approximately 300
employees. Workforce-related reserves, consisting principally of severance
costs, were established based on specific identification of employees to be
terminated, along with their job classifications or functions and their
locations.
<TABLE>
The activity related to these charges during 1995 is summarized in the following
table (in millions):
<CAPTION>
Purchase
Charged to Accounting and Charges Balance
Operations Other Utilized June 30,
in 1995 Adjustments in 1995 1995
-------------------------------------------------
<S> <C> <C> <C> <C>
Facilities $ 3.1 $ 5.5 $ (3.4) $ 5.2
Depreciable assets 12.4 7.5 (11.1) 8.8
Workforce-related 43.4 3.6 (9.6) 37.4
Other 5.3 4.0 (5.5) 3.8
----- ----- ------ -----
$64.2 $20.6 $(29.6) $55.2
===== ===== ====== =====
</TABLE>
<TABLE>
The June 30, 1995 balance of integration reserves is classified as
follows (in millions):
<S> <C>
Depreciable assets $ 8.8
Accounts payable, accrued
expenses and other 41.8
Non-current liabilities 4.6
-----
$55.2
=====
</TABLE>
13
<PAGE> 48
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B (Continued)
Cash outlays to complete the Company's integration initiatives are estimated to
approximate $37 million in fiscal 1996 and $5 million thereafter.
Workforce-related actions will be complete by March 31, 1996, although under
certain circumstances, the actual payment of termination costs may extend beyond
that date.
In fiscal year 1996 the Company estimates it will incur up to approximately $5
million of additional costs for acquisition-related relocation, personnel,
systems integration, and other related charges.
<TABLE>
NOTE C--OTHER BALANCE SHEET INFORMATION
Components of other selected captions in the Consolidated Balance Sheet follow
(in millions):
<CAPTION>
June 30, 1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Accounts receivable $193.1 $ 132.9
Less allowances 10.7 4.4
------ -------
$182.4 $ 128.5
====== =======
Inventories
Finished products $ 14.5 $ 17.5
Raw materials and work-in-process 8.7 6.5
Service parts and supplies 1.2 3.6
------ -------
$ 24.4 $ 27.6
====== =======
Other current assets
Prepaid expenses $ 18.7 $ 17.6
Receivables related to called
letters of credit -- 1.2
Advances to suppliers 1.0 1.0
Lease receivables -- 2.2
Other receivables 9.5 6.2
Other 8.0 9.1
------ -------
$ 37.2 $ 37.3
====== =======
Depreciable assets
Land $ 7.1 $ 10.2
Buildings and improvements 22.5 18.9
Machinery and equipment 52.0 36.3
Spare parts and rental equipment 113.3 39.9
------ -------
194.9 105.3
Less accumulated depreciation 60.9 25.7
------ -------
$134.0 $ 79.6
====== =======
</TABLE>
14
<PAGE> 49
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
NOTE C (Continued)
<CAPTION>
June 30, 1995 1994
- ------------------------------------------------------------
<S> <C> <C>
Intangible assets
Trademarks and patents $ 21.3 $ 18.9
Computer software 42.2 37.8
Installed base - service 123.5 67.0
License agreements 29.9 5.0
Assembled workforce 11.7 --
Goodwill 12.8 2.9
Reorganization value in excess of
amounts allocated to identifiable
intangible assets 86.6 83.9
Other 6.1 4.5
------- -------
334.1 220.0
Less accumulated amortization 60.1 22.4
------- -------
$ 274.0 $ 197.6
======= =======
Accounts payable, accrued expenses
and other
Accounts payable $ 62.2 $ 48.9
Accrued expenses 91.8 57.4
Compensation and benefits 50.1 36.1
Accrued restructuring and integration-
related charges 56.6 50.4
Accrued reorganization expenses 3.2 5.7
Chapter 11 claims to be settled
in cash 1.6 4.7
Other 9.5 10.4
------- -------
$ 275.0 $ 213.6
======= =======
Other long-term liabilities
Postretirement benefit accrual $ 18.5 $ 11.0
Pension liability 8.2 5.3
Bull facilities accrual 16.5 --
Reorganization-related accruals 8.4 11.5
Insurance accruals 6.5 4.5
Other 22.4 26.6
------- -------
$ 80.5 $ 58.9
======= =======
</TABLE>
15
<PAGE> 50
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D--FINANCING ARRANGEMENTS
<TABLE>
BORROWING ARRANGEMENTS:
Borrowings due within one year consisted of (in millions):
<CAPTION>
June 30, 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Notes payable to banks $ 2.6 $ 2.6
Current portion of long-term debt 0.4 1.0
----- -----
$ 3.0 $ 3.6
===== =====
</TABLE>
Notes payable to banks with weighted average interest rates of 12.1% and 12.5%
were outstanding at June 30, 1995 and 1994, respectively.
<TABLE>
Long-term debt consisted of (in millions):
<CAPTION>
June 30, 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Mortgage notes and other -- 7.4% at June 30,
1995 and from 4% to 9.8% at June 30, 1994
payable through 1999 $ 1.6 $ 3.0
Note payable to Bull -- 8.75% at June 30,
1995 payable in 1997 21.6 --
----- -----
23.2 3.0
Current portion of long-term debt 0.4 1.0
----- -----
$22.8 $ 2.0
===== =====
</TABLE>
Maturities of long-term debt are as follows (in millions): 1997-- $22.0;
1998--$0.4 and 1999--$0.4. Interest paid amounted to $3.7 million for the year
ended June 30, 1995, $3.8 million for the nine months ended June 30, 1994,
$2.3 million for the three months ended September 30, 1993, and $9.3 million for
the year ended June 30, 1993. Mortgage notes are collateralized by land and
buildings having a net book value of $5.2 million at June 30, 1995.
On January 31, 1995, the Company entered into a revolving credit facility with
BT Commercial Corporation ("BTCC") and certain other financial institutions.
The three-year reducing facility provided for borrowings of up to $125.0
million, reduced to $115.0 million for the period from January 30, 1996 to March
31, 1996, and to $100.0 million thereafter. This facility also provides for up
to $40.0 million of letters of credit, limited to the lesser of the facility
maximum or a formula based on the Company's accounts receivable and inventories
and a supplemental amount. Interest on any borrowings is based on the BTCC's
prime rate plus 1.25% to 2.50%, depending on the amount of borrowings
outstanding. The BTCC agreement contains various financial covenants, including
covenants relating to the Company's operating results, working capital, net
worth and indebtedness as well as restrictions on the payment of cash dividends.
The Company was in compliance with these covenants as of June 30, 1995. Besides
providing financing for the acquisition, the BTCC facility replaced the
Company's financing facility with Congress Financial Corporation and will be
used for general corporate purposes, including payments to be made pursuant to
integration-related initiatives implemented as a result of the Bull acquisition.
In connection with the acquisition, the Company initially borrowed $72.8 million
on the BTCC facility, and as of March 31, 1995, had repaid all of this
borrowing. As of June 30, 1995, letters of credit aggregating $9.2 million were
outstanding under the agreement, and there was $76.8 million available for use
by the Company for either additional letters of credit and/or borrowing.
16
<PAGE> 51
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D (Continued)
<TABLE>
PREFERRED STOCK:
Preferred Stock consisted of (in millions):
<CAPTION>
June 30, 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
4 1/2% preferred stock, $.01 par value,
90,000 shares authorized;
90,000 shares issued at June 30, 1995;
redemption and liquidation preference
of $90.4 million $ 84.4 $ --
11% preferred stock, $.01 par value,
3,660,000 shares authorized; 2,836,326
shares issued at June 30, 1995 and 2,544,656
at June 30, 1994; redemption and liquidation
preference of $70.9 million, including
paid-in-kind dividends 61.5 53.2
------ -----
$145.9 $53.2
====== =====
</TABLE>
4 1/2% PREFERRED STOCK: On May 30, 1995, the Company issued Microsoft
Corporation 90,000 shares ($90.0 million face amount) of 4 1/2% Series A
Cumulative Convertible Preferred Stock ("4 1/2% Preferred Stock"), redeemable
on or before October 1, 2003, at a purchase price of $84.0 million, the
estimated fair value of the stock at the date of issuance. The excess of the
redemption value over the carrying value is being accreted by periodic charges
to retained earnings over the life of the issue. Accretion of a minimal amount
was recorded for 1995.
The 4 1/2% Preferred Stock is convertible into Common Stock of the Company at
$23.00 per share and represents approximately 10% of the outstanding shares of
Common Stock on a fully diluted basis. The holder of shares of 4 1/2% Preferred
Stock is entitled to one vote per share. Dividends are being accrued until
such time as cash dividends are allowed to be paid under the terms of the 11%
Preferred Stock and the BTCC credit facility agreement. The Company may
redeem the 4 1/2% Preferred Stock with cash or in Commmon Stock.
11% PREFERRED STOCK: On December 17, 1993, the Company received $60.0 million
from a private placement issuance of 600,000 shares of 11% Exchangeable
Preferred Stock ("11% Preferred Stock") and 1.5 million shares of Common Stock
of the Company. The 11% Preferred Stock was recorded at $49.0 million, the
estimated fair value at the date of issuance. The excess of the redemption
value over the carrying value is being accreted by periodic charges to retained
earnings over the life of the issue. Accretion of $1.0 million and $0.5 million
was recorded for the year ended June 30, 1995, and the nine months ended June
30, 1994, respectively.
On March 29, 1995, the Board of Directors declared a split effected in the form
of a dividend of three (3) shares of 11% Preferred Stock for each share thereof
held on March 31, 1995. The shares were distributed in April 1995. Each share
of 11% Preferred Stock now has a liquidation preference of $25.00 per share
and the holder is entitled to one-half vote per share on matters addressed at
shareholder meetings. Until September 30, 1996, dividends are payable, at the
option of the Company, in cash, in additional shares of 11% Preferred Stock
valued at the liquidation preference of $25.00 per share, or in any combination
thereof. After September 30, 1996, dividends will be
17
<PAGE> 52
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D (Continued)
payable only in cash. The Company issued 291,670 and 144,652 shares of 11%
Preferred Stock to satisfy the cumulative dividend requirements for the year
ended June 30, 1995 and the nine months ended June 30, 1994, respectively.
At the Company's option, the 11% Preferred Stock may be redeemed at any time on
or after September 30, 1996, in whole or in part, at 102% of the liquidation
preference in 1996, reducing by 0.5% annually through September 30, 2000, at
which time the redemption price will equal the liquidation preference. The 11%
Preferred Stock must be redeemed on September 30, 2003, at a redemption price
equal to the liquidation preference, together with any accrued and unpaid
dividends. The 11% Preferred Stock is exchangeable, at the Company's option,
into exchangeable debentures with a principal amount equal to the liquidation
preference of the 11% Preferred Stock. The private placement agreement includes
restrictions on the payment of dividends, issuance of additional debt and
repurchase of the Common Stock of the Company, as well as restrictions on the
ability to issue equity securities which are equivalent or senior to the 11%
Preferred Stock.
18
<PAGE> 53
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
NOTE E--INCOME TAXES
The provision for income taxes consisted of (in millions):
<CAPTION>
Reorganized Company Predecessor Company
--------------------- ----------------------------
Year Nine Months Three Months Year
Ended Ended Ended Ended
June 30, June 30, September 30, June 30,
1995 1994 1993 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current: |
Federal $ -- $ -- | $ -- $ 2.0
Non-U.S. 0.7 2.3 | 0.3 (2.0)
State -- 0.3 | 0.1 --
Tax benefit applied |
to reduce |
reorganization |
value in excess of |
amounts allocated |
to identifiable |
intangible assets 2.9 7.2 | -- --
----- ----- | ----- -----
$ 3.6 $ 9.8 | $ 0.4 $ --
===== ===== | ===== =====
</TABLE>
<TABLE>
The provision for income taxes differed from the amount computed by
applying the U.S. federal statutory rate as follows (in millions):
<CAPTION>
Reorganized Company Predecessor Company
--------------------- ----------------------------
Year Nine Months Three Months Year
Ended Ended Ended Ended
June 30, June 30, September 30, June 30,
1995 1994 1993 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Taxes at statutory |
rate (35% in 1995 and |
1994 and 34% in 1993) $(18.9) $ 7.1 | $(7.9) $(67.0)
Amortization of excess |
reorganization value 1.9 0.9 | -- --
Non-deductible |
expenses 1.3 1.4 | 3.4 --
Effect of earnings |
of Ireland |
operation subject |
to a lower tax |
rate (0.5) (1.6) | (0.2) --
Repatriation of non- |
U.S. earnings, |
net -- 0.8 | -- 1.3
Unused tax loss |
carryforwards 22.7 1.9 | 6.9 68.1
Unused tax credit |
carryforwards -- -- | -- 0.3
Other, net (2.9) (0.7) | (1.8) (2.7)
------ ----- | ----- ------
$ 3.6 $ 9.8 | $ 0.4 $ --
====== ===== | ===== ======
</TABLE>
19
<PAGE> 54
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E (Continued)
<TABLE>
The net deferred tax balance consists of temporary differences and
carryforwards, which gave rise to significant deferred tax assets and
liabilities as follows (in millions):
<CAPTION>
June 30, 1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Net operating loss and credit
carryforwards $ 564.4 $ 465.2
Accrued restructuring expenses 26.3 73.7
Other 36.5 45.2
------- -------
Gross deferred tax assets 627.2 584.1
------- -------
Fresh-start intangibles (31.4) (44.0)
Goodwill (20.8) --
Other (26.0) (23.2)
------- -------
Gross deferred tax liabilities (78.2) (67.2)
------- -------
Valuation allowance (549.0) (516.9)
------- -------
$ -- $ --
======= =======
</TABLE>
As a result of the reorganization of the Company, discussed in Note J, the
Company recorded a gain from debt forgiveness of $329.3 million during the three
months ended September 30, 1993. Because the forgiveness was pursuant to a
Chapter 11 reorganization, the Company did not record any income tax expense
on the gain from the forgiveness in the period ended September 30, 1993. The
consummation of the Reorganization Plan resulted in a change in ownership for
federal income tax purposes. As a result of the change in ownership, the
Company is required, under federal tax law, to reduce its accumulated U.S.
operating loss carryovers for one-half of the non-taxable gain related to the
debt forgiveness and certain prior years' interest expense related to the
forgiven interest-bearing debt.
If the Company experiences another change in ownership (if one or more 5%
shareholders increase their interests in the aggregate by more than 50% of the
Company's total outstanding Common and Preferred Stock) within a two-year
period immediately following December 16, 1993 (the "Consummation Date"), the
Company will lose all of its U.S. operating loss carryforwards. In an attempt
to prevent an ownership change from occurring, there are significant
restrictions for a two-year period on the trading of the Company's Common Stock
by either a 5% or more shareholder or a shareholder who would become a 5%
shareholder on or before December 16, 1995. A change in ownership after
December 16, 1995 would create an annual limitation on the Company's ability to
realize the benefit of its U.S. net operating loss carryforwards.
Due to the uncertainty surrounding the realization of the operating loss
carryforwards and other net deferred tax assets, the Company has provided a full
valuation reserve against the net deferred tax asset position at June 30,
1995 and June 30, 1994. As a consequence of fresh-start reporting and SFAS No.
109, any tax benefits realized for tax purposes after September 30, 1993,
20
<PAGE> 55
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E (Continued)
for cumulative temporary differences and tax basis net operating loss
carryforwards existing at September 30, 1993, will not be credited to the
provision for income taxes, but instead, may reduce reorganization value in
excess of amounts allocated to identifiable intangible assets.
Retained earnings of non-U.S. subsidiaries for which income taxes have not
been provided approximated $113.4 million at June 30, 1995.
At June 30, 1995, and subject to the ability of the Company to prevent a change
in ownership on or before December 16, 1995, with respect to its U.S. losses,
the Company and its subsidiaries had tax basis net operating loss
carryforwards of approximately $1,415.1 million and tax credit carryforwards of
approximately $97.5 million that are available to offset future taxable income.
<TABLE>
Tax basis loss carryforwards and tax credit carryforwards expire as follows
(in millions):
<CAPTION>
2001 &
1996 1997 1998 1999 2000 Beyond
----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. tax loss carryforwards $ -- $ -- $ -- $ -- $ -- $754.6
Non-U.S. tax basis loss
carryforwards $17.7 $24.4 $23.0 $27.0 $20.5 $547.9
Investment tax credit, research and
development tax credit, and
foreign tax credit
carryforwards $ 1.0 $ 7.8 $17.5 $26.2 $20.7 $ 24.3
</TABLE>
Net taxes paid (refunded) amounted to $0.7 million in 1995, $(1.6) million in
1994, and $2.9 million in 1993.
NOTE F--STOCKHOLDERS' EQUITY
COMMON STOCK: The Company's authorized Common Stock consists of 100 million
shares, $.01 par value per share. Holders of the Common Stock are entitled to
one vote for each share held on all matters submitted to a vote of stockholders
and do not have cumulative voting rights. The common stockholders are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors. No dividends have been paid to date. The rights, preferences
and privileges of holders of the Common Stock are subject to, and may be
adversely affected by, the rights of holders of shares of both the outstanding
11% and 4.5% Preferred Stock as well as any other series of Preferred Stock that
the Company may designate and issue in the future (see Note J, Fresh-Start
Reporting, Reorganization and Restructuring Expenses).
1993 EMPLOYEES' STOCK GRANT PLAN: Effective on the Consummation Date, the
Company made a one-time grant to each eligible employee of 50 shares of Common
Stock of the Company. Of the 350,000 shares available for this plan, 318,300
shares have been distributed to employees. The remaining shares authorized for
use in this plan were allocated to the Stock Incentive Plan, described below,
after all grants had been made under this plan.
STOCK WARRANTS: In satisfaction of the interests of the Class B and C common
stockholders of the Predecessor Company, 7.5 million warrants, less an amount
allocated for certain disputed claims, were issued to stockholders of the
21
<PAGE> 56
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F (Continued)
Predecessor Company as of the September 29, 1993 record date. The Company began
issuance of these warrants on March 17, 1995. Each warrant entitles its holder
to purchase one share of Common Stock for an exercise price of $21.45 per share,
and expires on June 30, 2001. The exercise price was set in such a manner as to
allow the creditors who are issued Common Stock in the reorganization to
recover an estimated 95 percent of the value of their allowed claims before the
exercise price of the warrants equals the trading price of the Common Stock.
Holders of the Class B and C common stock received one warrant for each 23
shares of stock of the Predecessor Company.
STOCK OPTIONS:
STOCK INCENTIVE PLAN: At the Confirmation Date, the Company granted certain
employees options to purchase Common Stock of the Company at $7.35 per share
under the Stock Incentive Plan. The maximum number of shares issuable under
this plan was 2,283,650. The options granted at the Confirmation Date vest over
a three-year period, with approximately one-third vesting on October 1, 1994,
1995, and 1996, and are exercisable over a ten-year period from the date of
grant.
1993 DIRECTORS' STOCK OPTION PLAN: The Company provided for the issuance of up
to 80,000 shares of Common Stock under the 1993 Directors' Stock Option Plan.
Under this plan, each initial director of the Company (other than Mr. Tucci,
Chairman of the Board and Chief Executive Officer), received a one-time grant
of a non-qualified option to purchase 10,000 shares of the Common Stock of the
Company at an exercise price of $7.35 per share. The options vest over a
three-year period, with one-third vesting on December 16, 1994, 1995, and 1996,
and are exercisable over a ten-year period from the date of grant.
EMPLOYEES' STOCK INCENTIVE PLAN: On January 25, 1995 the Company's stockholders
approved the Employees' Stock Incentive Plan ("Stock Incentive Plan"). The
Stock Incentive Plan provides for the issuance of up to 1,787,153 shares of
Common Stock of the Company as either Incentive Stock Options, Non-Qualified
Stock Options or Restricted Stock awards, on terms and vesting schedules as may
be set from time to time by the Organization, Compensation and Nominating
Committee of the Board of Directors. Both the Incentive Stock Options and
Non-Qualified Stock Options granted under the plan to date become exercisable
(or vest) as to 34%, 33% and 33% of the shares covered thereby on the first,
second and third anniversaries of the date of grant, provided the employee
continues to be employed by the Company, and expire ten years after the date of
the grant.
1995 DIRECTORS' STOCK OPTION PLAN: On January 25, 1995 the Company's
stockholders approved the 1995 Director Stock Option Plan ("1995 Director
Plan"). A total of up to 180,000 shares of Common Stock of the Company may be
issued upon the exercise of options granted under the 1995 Director Plan. All
options granted under the 1995 Director Plan will be non-statutory stock
options.
The 1995 Director Plan provides for the automatic grant of an option for 6,500
shares of Common Stock under the following circumstances: (i) an option was
granted to each outside Director on January 25, 1995, the date the 1995
Director Plan was approved by the stockholders of the Company; (ii) an option
will automatically be granted to each outside Director who is initially
elected to the Board of Directors after the approval of the 1995 Director Plan
by the stockholders of the Company, upon his or her initial election to the
Board of Directors; and (iii) on September 30 of each year (beginning September
30, 1995), an option will automatically be granted to each outside Director who
attended in the fiscal year ending the preceding June 30 at least 75% of the
aggregate of the number of Board of Directors meetings held and the number of
meetings held by committees of the Board on which he or she then served. The
exercise price of each option granted under the 1995 Director Plan will be equal
to the fair market value of the Common Stock on the date of grant (which,
assuming the Common Stock continues to be listed on the Nasdaq National Market,
will be determined based upon the average closing price of the Common Stock over
the 30-business-day period beginning 45 business days before the grant of the
option) and will become exercisable (or vest), as to 34%, 33% and 33% of the
shares covered thereby on the first, second and third anniversaries of the date
of grant, respectively, provided the optionee continues to serve as a Director
on such dates.
22
<PAGE> 57
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F (Continued)
<TABLE>
A summary of option activity from the Confirmation Date through June 30, 1995,
is as follows:
<CAPTION>
Options Option Price
Outstanding Per Share
----------- ------------
<S> <C> <C>
Granted 2,151,150 $7.35 - $19.375
Exercised -- --
Cancelled 92,273 $7.35
---------
June 30, 1994 2,058,877 $7.35 - $19.375
Granted 1,826,600 $9.875- $13.880
Exercised 218,364 $7.35 - $12.063
Cancelled 214,112 $7.35 - $17.875
---------
June 30, 1995 3,453,001 $7.35 - $19.375
</TABLE>
EMPLOYEES' STOCK PURCHASE PLAN: Following consummation of its Reorganization
Plan, the Company established an Employees' Stock Purchase Plan ("Stock
Purchase Plan") permitting purchases by eligible employees of up to 685,715
shares of Common Stock of the Company. Employees of the U.S. parent company and
designated international subsidiaries, but excluding any officers with the rank
of vice president or above, were eligible to participate in the Stock Purchase
Plan. The six-month payment periods of the Stock Purchase Plan ran
consecutively, with the first payment period ending October 31, 1994.
Participation was voluntary. The purchase price was 85% of the market price of
the Common Stock on the first business day or the last business day of that
payment period, whichever was lower. Purchases were deemed to be made on the
last day of each payment period and could only be made by participants who were
employees on that day. The purchase price was paid with payroll deductions in
an amount specified by each employee (which could not exceed a specified
percentage of his or her salary), accumulated during the payment period.
On January 25, 1995 the Company's stockholders approved the 1995 Employees'
Stock Purchase Plan ("1995 Stock Purchase Plan") permitting purchases by
eligible employees of up to 609,607 shares of Common Stock of the Company.
Employees of the U.S. parent company and designated subsidiaries, but excluding
any officers with the rank of vice president or above, are eligible to
participate in the 1995 Stock Purchase Plan. The six-month payment periods of
the 1995 Stock Purchase Plan will run consecutively, and renew each November 1
and May 1. Participation is voluntary. Purchases are deemed to be made on
the last day of each payment period and can only be made by payroll deductions
in an amount specified by each employee (which may not exceed a specified
percentage of an employee's salary), accumulated during the payment period.
The purchase price is 85% of the market price of the Common Stock on the first
business day or the last business day of that payment period, whichever is
lower.
23
<PAGE> 58
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G--POSTRETIREMENT BENEFITS
In connection with the Bull acquisition, the Company assumed the plan assets
and obligations for plans covering employees at certain of the acquired
businesses. The following information reflects the impact of this
acquisition.
<TABLE>
DEFINED BENEFIT PLANS: U.S. net pension cost consisted of (in millions):
<CAPTION>
Reorganized Company Predecessor Company
--------------------- ----------------------------
Year Nine Months Three Months Year
Ended Ended Ended Ended
June 30, June 30, September 30, June 30,
1995 1994 1993 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $ 0.5 $ -- | $ -- $ --
Interest cost 4.1 1.7 | 0.6 2.1
Return on assets (4.8) (0.8) | (0.3) (2.5)
Other 0.7 (1.0) | (0.3) 0.4
------ ------ | ------ ------
$ 0.5 $ (0.1) | $ -- $ --
====== ====== | ====== ======
</TABLE>
<TABLE>
The funded status of the U.S. plans was (in millions):
<CAPTION>
June 30, 1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets $ 88.6 $ 29.2
Projected benefit obligation (84.9) (30.1)
------ ------
Plan assets greater(less) than
projected benefit obligation 3.7 (0.9)
Unrecognized net (gain) loss (3.7) 2.9
Unrecognized net transition asset -- (0.7)
Additional minimum liability 0.6 (2.2)
------ ------
Prepaid (accrued) pension costs $ 0.6 $ (0.9)
====== ======
Accumulated benefits $(84.8) $(30.1)
====== ======
Vested benefits $(79.0) $(30.0)
====== ======
</TABLE>
Settlement and curtailment gains of $1.6 million were recognized for the nine
months ended June 30, 1994 for non-U.S. plans, resulting primarily from the
conversion of defined benefit plans to defined contribution plans. In fiscal
1993, there were curtailment gains of $0.7 million, resulting primarily from
reductions in workforce and the sale or closing of subsidiaries. In connection
with the Chapter 11 case, the Company agreed with the Pension Benefit Guaranty
Corporation to pay approximately $0.7 million to the U.S. pension plan.
24
<PAGE> 59
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G (Continued)
<TABLE>
Non-U.S. net pension cost consisted of (in millions):
<CAPTION>
Reorganized Company Predecessor Company
--------------------- ----------------------------
Year Nine Months Three Months Year
Ended Ended Ended Ended
June 30, June 30, September 30, June 30,
1995 1994 1993 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $ 1.3 $ 0.7 | $ 0.3 $ 1.7
Interest cost 1.9 1.8 | 0.7 3.2
Return on assets (2.6) (2.4) | (0.9) (3.9)
Other 0.3 0.6 | 0.1 0.4
------ ----- | ------ ------
$ 0.9 $ 0.7 | $ 0.2 $ 1.4
====== ===== | ====== ======
</TABLE>
<TABLE>
The funded status of non-U.S. plans was (in millions):
<CAPTION>
June 30, 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets $ 59.6 $ 32.5
Projected benefit obligation (50.7) (31.4)
------ ------
Plan assets in excess of projected
benefit obligation 8.9 1.1
Unrecognized net gain (0.9) (0.2)
------ ------
Prepaid pension costs $ 8.0 $ 0.9
====== ======
Accumulated benefits $(40.5) $(29.8)
====== ======
Vested benefits $(44.2) $(26.1)
====== ======
</TABLE>
<TABLE>
The following assumptions were used to measure net periodic pension cost for
the defined benefit pension plans:
<CAPTION>
1995 1994
--------------------- ----------------
U.S. Non-U.S. U.S. Non-U.S.
Plans Plans Plans Plans
----- -------- ----- --------
<S> <C> <C> <C> <C>
Discount rate 8.0% 7.0%-12.0% 8.0% 7.5%-9.5%
Average increase in
compensation levels 0.0%-4.0% 3.5%- 9.0% 0.0% 4.0%-7.0%
</TABLE>
The expected long-term rate of return for plan assets was 8.0% for U.S. plans
and 7.5%-12.0% for non-U.S. plans for fiscal years 1995, 1994 and 1993.
As a result of freezing all future benefits under one of the U.S. plans, no
increase in compensation is assumed for this plan beginning in 1993. Plan
assets consist principally of marketable securities and guaranteed investment
contracts. Annual cost is determined using the projected unit credit actuarial
method.
DEFINED CONTRIBUTION PLANS: Contributions are generally based on fixed amounts
of eligible compensation. The Company's expense for U.S. and non-U.S. plans
totaled (in millions): $9.6 for the year ended June 30, 1995, $6.3 for the
nine months ended June 30, 1994, $2.8 for the three months ended September 30,
1993, and $14.0 for the year ended June 30, 1993.
25
<PAGE> 60
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G (Continued)
OTHER POSTRETIREMENT BENEFITS: The Company provides postretirement benefits
under certain U.S. and an international plan. One U.S. plan covers two groups
of current or previous employees. Class A retirees represent a closed group of
employees who were age 59 with at least 9 years of service as of December
31, 1984. Coverage includes lifetime medical and dental benefits. Benefits are
integrated with Medicare using a traditional coordination approach.
Contributions by retirees are fixed. Class B retirees represent all other
employees who have retired or will have retired with at least 10 years of
service and 75 age and service points by June 30, 1995. These current and
future retirees can choose among the various medical options extended to active
employees. Employee contributions vary based upon the level of coverage
selected. The Company's contribution for Class B current and future retirees
will be adjusted annually to reflect increases in medical trends until the
contribution to the Plan equals twice the 1992 level. At that time, subsequent
cost increases will be paid fully by increases in employee contributions.
The second U.S. plan and the international plan cover employees of the
businesses acquired as part of the Bull acquisition. Postretirement healthcare
coverage was generally provided to employees retiring on or after attaining
age 55, who have rendered at least 10 years of service, until the age of 65.
<TABLE>
U.S. net periodic postretirement benefit cost consisted of (in millions):
<CAPTION>
Reorganized Company Predecessor Company
--------------------- ----------------------------
Year Nine Months Three Months Year
Ended Ended Ended Ended
June 30, June 30, September 30, June 30,
1995 1994 1993 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $ 0.1 $ 0.1 | $ -- $ 0.1
Interest cost 0.8 0.6 | 0.2 0.9
------ ------ | ------ ------
$ 0.9 $ 0.7 | $ 0.2 $ 1.0
====== ====== | ====== ======
</TABLE>
<TABLE>
The funded status of the U.S. plans was (in millions):
<CAPTION>
June 30, 1995 1994
- ----------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets $ -- $ --
Accumulated postretirement benefit obligation:
Retirees 12.6 9.2
Other fully eligible plan participants 1.7 1.1
Other active plan participants 1.5 0.4
Unrecognized net gain 2.5 1.0
------ ------
Accrued postretirement benefit liability $ 18.3 $ 11.7
====== ======
</TABLE>
Non-U.S. net periodic postretirement benefit cost approximated $0.1 million for
the year ended June 30, 1995.
26
<PAGE> 61
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G (Continued)
<TABLE>
The funded status of the non-U.S. plan was (in millions):
<CAPTION>
June 30, 1995
- --------------------------------------------------------------
<S> <C>
Fair value of plan assets $ --
Accumulated postretirement benefit obligation:
Retirees 0.6
Other fully eligible plan participants 0.3
Other active plan participants 0.5
------
Accrued postretirement benefit liability $ 1.4
======
</TABLE>
<TABLE>
The following assumptions were used to measure net periodic postretirement
benefit costs:
<CAPTION>
1995 1994
------------------ ----
U.S. Non-U.S. U.S.
Plans Plan Plan
----- -------- ----
<S> <C> <C> <C>
Increase in healthcare costs
during the period 11-12% 11% 11%
Ultimate trend rates 5-7% 5% 7%
Years to ultimate trend rates 5-11 yrs 6 yrs 3 yrs
Discount rates 8% 8% 8%
</TABLE>
If the health care cost trend rate was increased 1%, the accumulated
postretirement benefit obligation as of June 30, 1995 would have increased by
5.4% and 20% for the U.S. and non-U.S. plans, respectively. The effect of this
change on the aggregate of service and interest cost for 1995 would be an
increase of 5.4% and 18%, respectively.
27
<PAGE> 62
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H--INDUSTRY, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION
INDUSTRY SEGMENT INFORMATION: The Company operates primarily in one industry
segment, which includes serving customers in approximately 130 countries with
workflow, imaging, document management and related software applications for
client/server open systems, and integration and support services for office
networks, along with continuing to provide to its proprietary minicomputer
customers upgrade products, service, and open systems coexistence and migration
products.
GEOGRAPHIC INFORMATION: Transfer prices to non-U.S. sales subsidiaries,
combined with supplemental commission and expense reimbursement arrangements,
are intended to produce profit margins commensurate with the sales and service
effort associated with the products sold, and are comparable to prices charged
to unaffiliated distributors. Sales and transfers between manufacturing
subsidiaries are made with reference to prevailing market prices.
SIGNIFICANT CUSTOMER: The Company had revenues from the U.S. government and its
agencies of approximately $150 million for the year ended June 30, 1995, $101
million for the nine months ended June 30, 1994, $40 million for the three
months ended September 30, 1993, and $226 million in fiscal 1993, or
approximately 16% of total revenues for the year ended June 30, 1995, 16% of
total revenues for the nine months ended June 30, 1994, 19% of total revenues
for the three months ended September 30, 1993, and 18% of total revenues in
fiscal 1993. The majority of these revenues were in the United States
geographic area.
<TABLE>
Certain information on a geographic basis follows (in millions):
<CAPTION>
Reorganized Company Predecessor Company
------------------------------ ---------------------------------
Year Nine Months Three Months Year
Ended Ended Ended Ended
June 30, 1995 June 30, 1994 September 30, 1993 June 30, 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from |
unaffiliated |
customers: |
United States, |
including direct |
export sales $452.8 $309.7 | $109.0 $ 602.3
Europe 307.4 226.6 | 62.9 411.5
Asia/Pacific 134.3 78.6 | 29.5 182.1
Americas 51.8 29.5 | 9.5 51.1
------ ------ | ------ --------
$946.3 $644.4 | $210.9 $1,247.0
====== ====== | ====== ========
|
Interarea transfers: |
United States $ 20.9 $ 21.6 | $ 5.8 $ 69.0
Europe 0.3 1.1 | 0.5 22.5
Asia/Pacific -- 0.2 | -- 32.9
Americas 0.2 -- | -- 0.6
------ ------ | ------ --------
$ 21.4 $ 22.9 | $ 6.3 $ 125.0
====== ====== | ====== ========
</TABLE>
The decline in interarea transfers is due to the downsizing and sale of certain
manufacturing operations due to lower product revenues.
28
<PAGE> 63
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H (Continued)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------------------ ---------------------------------
Year Nine Months Three Months Year
Ended Ended Ended Ended
June 30, 1995 June 30, 1994 September 30, 1993 June 30, 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income (loss) from |
continuing |
operations before |
income taxes and |
reorganization |
items: |
United States $(37.1) $ 26.4 | $ 1.6 $(64.7)
Europe 10.5 8.2 | (2.3) (19.1)
Asia/Pacific (17.4) (16.8) | 9.9 4.8
Americas (12.7) 0.5 | 1.6 (0.2)
Eliminations 2.7 2.1 | 1.5 9.3
------ ------ | ------ ------
$(54.0) $ 20.4 | $ 12.3 $(69.9)
====== ====== | ====== ======
</TABLE>
The loss from continuing operations before income taxes and reorganization items
for the year ended June 30, 1995 includes a $64.2 million provision for
integration-related costs and other charges.
<TABLE>
<CAPTION>
Predecessor
Reorganized Company Company
-------------------- ------------
June 30, 1995 1994 1993
- ------------------------------------------------------------------
<S> <C> <C> <C>
Identifiable assets |
(excluding |
intercompany): |
United States $515.4 $372.1 | $268.9
Europe 181.7 203.5 | 176.8
Asia/Pacific 106.5 75.3 | 82.4
Americas 57.1 35.8 | 31.8
Eliminations and |
other (1.7) (0.7) | 28.9
------ ------ | ------
$859.0 $686.0 | $588.8
====== ====== | ======
</TABLE>
The increase in identifiable assets from June 30, 1994 to June 30, 1995 is
primarily the result of the Bull acquisition, which occurred in January
1995. The increase in identifiable assets from June 30, 1993 to June 30, 1994 is
due principally to the implementation of fresh-start reporting, which resulted
in the establishment of intangible assets.
NOTE I--COMMITMENTS AND CONTINGENCIES
LEASES: Rental expense amounted to $17.6 million for the year ended June 30,
1995, $16.7 million for the nine months ended June 30, 1994, $8.0 million for
the three months ended September 30, 1993, and $29.0 million in fiscal 1993. As
part of the Chapter 11 proceeding, the Company rejected or renegotiated leases
and, in some circumstances, replaced leases with smaller, shorter-term leases
to conform to the Company's reduced space needs. Future minimum lease
commitments on noncancelable leases are (in millions): $33.8 in fiscal 1996,
$30.1 in fiscal 1997, $26.5 in fiscal 1998, $21.9 in fiscal 1999, $21.5 in
fiscal 2000, and $53.1 thereafter. These minimum lease commitments include
29
<PAGE> 64
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I (Continued)
approximately $63.4 million related to facilities the Company has elected
to abandon in connection with the restructuring and integration plans.
LETTERS OF CREDIT: At June 30, 1995, the Company had $9.2 million in letters of
credit outstanding under a financing facility with BTCC (see Note D,
Financing Arrangements).
FOREIGN CURRENCY GAINS(LOSSES): Foreign currency exchange and translation gains
or losses included in operations amounted to a $0.2 million gain for the year
ended June 30, 1995, a $0.3 million loss for the nine months ended June 30,
1994, a $0.3 million gain for the three months ended September 30, 1993, and a
$0.2 million loss in fiscal 1993.
FORWARD EXCHANGE CONTRACTS: At June 30, 1995 and 1994, the Company had forward
exchange contracts with maturities less than one year, to exchange predominately
European currencies for U.S. dollars in the amount of $12.9 million and $9.5
million, respectively, in foreign currency. Market risk arises from
fluctuation of currency rates during the period that contracts are outstanding.
LITIGATION: A lawsuit filed by a shareholder in December 1992 alleging certain
violations of federal securities laws and other laws has been settled within the
limits of the Company's insurance coverage.
On October 27, 1994, Wang filed suit against FileNet Corporation alleging the
infringement of five Wang patents covering a wide range of imaging and workflow
technologies. A sixth workflow patent was subsequently added. Wang is seeking
damages and injunction relief. The parties are currently engaged in the
discovery process. The trial on this matter is currently scheduled for
calendar 1996.
The Company is a defendant in several "repetitive stress injury" ("RSI") cases.
Such cases, which have been filed against a large number of computer
manufacturers, allege that the various defendants' keyboards caused the
plaintiffs' injuries. The Company believes that all RSI claims brought against
the Company arising before the confirmation of the Reorganization Plan will
be discharged. In addition, the Company has maintained comprehensive general
liability insurance policies with several insurers. These policies indemnify
the Company for bodily injury damages arising out of its operations and
products. Nevertheless, high deductibles, retrospective premium adjustments,
and other issues relating to insurance coverage of RSI claims may significantly
limit the amount of insurance coverage available to the Company for such
claims. Given the lack of legal precedent with respect to RSI claims, the
Company can predict neither the number of cases nor the associated claims for
damages that may be filed against the Company. To date approximately 60 claims
have been made against the Company alleging damages for RSI injuries. Claims
for all but three of these have been filed as part of the Company's Chapter 11
proceeding. The Company believes that all of these actions, including those
commenced after the completion of the Chapter 11 proceeding, will be resolved
under the Company's Reorganization Plan. The Company intends to defend itself
vigorously against any liability asserted.
30
<PAGE> 65
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I (Continued)
Prior to its filing for Chapter 11 protection, the Company was also a defendant
in a number of other lawsuits arising from the conduct of its business.
Substantially all such suits were stayed while the Company operated under
Chapter 11, and claims in such suits relating to periods prior to the Company's
filing under Chapter 11 are being extinguished and, to the extent allowed, have
been provided for under the Reorganization Plan. Although it is impossible to
predict the results of specific matters, the Company has no reason to believe at
the current time that its liability, if any, for all litigation will be material
to the Company's consolidated financial position or its results of operations.
NOTE J--FRESH-START REPORTING, REORGANIZATION AND RESTRUCTURING EXPENSES
FRESH-START REPORTING: At a hearing on September 20, 1993, the Company's
Reorganization Plan under Chapter 11 was confirmed by the United States
Bankruptcy Court for the District of Massachusetts (the "Court"). The formal
confirmation order was entered on September 21, 1993, and became effective on
September 30, 1993 (the "Confirmation Date"). The Reorganization Plan was
consummated on December 16, 1993 (the "Consummation Date").
As a result of the confirmation of the Reorganization Plan of Wang Laboratories,
Inc., the Company's predecessor Massachusetts corporation (the "Predecessor
Company"), the Company implemented fresh-start reporting as of September 30,
1993. Under the provisions of AICPA Statement of Position 90-7 ("SOP
90-7"), "Financial Reporting by Entities in Reorganization under the Bankruptcy
Code," the Company was required to adopt fresh-start reporting upon emergence
from Chapter 11 since the reorganization value (approximate fair value) of the
assets of the Company immediately before confirmation of the Plan was less than
the total of all post-petition liabilities and allowed pre-petition claims, and
holders of the existing voting shares immediately before the confirmation of the
Plan would receive less than 50% of the voting shares of the emerging Company.
The Company's Consolidated Balance Sheet as of June 30, 1994 was prepared as if
the Company were a new reporting entity at September 30, 1993, and reflects
certain reorganization adjustments that include the restatement of assets and
liabilities to approximate fair value and the discharge of outstanding
liabilities relating to creditors' claims against the Company, which have been
satisfied primarily by new common stock. The Statement of Operations and the
Statement of Cash Flows for the year ended June 30, 1995 and nine months ended
June 30, 1994 incorporate the effects of fresh-start reporting. However, the
Statement of Operations and the Statement of Cash Flows for the three months
ended September 30, 1993 and the year ended June 30, 1993 are based on
historical costs. Accordingly, the Company has presented the Statement of
Operations and Statement of Cash Flows for the nine months ended June 30, 1994
and the three months ended September 30, 1993, but has not presented a
Statement of Operations and Statement of Cash Flows for the twelve months ended
June 30, 1994. A vertical line has been drawn on the accompanying financial
statements to distinguish between the Reorganized Company and the Predecessor
Company.
Under the Reorganization Plan, 30 million shares of the Company's new Common
Stock are being distributed to holders of unsecured claims against the
Predecessor Company, including debenture holders. Of the total shares to
be distributed, approximately 20 million shares were distributed as part of the
initial distribution and 7 million shares were distributed in March 1995 as a
31
<PAGE> 66
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
second distribution. The balance of the shares remains in a disputed claims
reserve and is held by a Disbursing Agent appointed under the Reorganization
Plan. The Common Stock held in the disputed claims reserve may not be voted
until it has been distributed by the Disbursing Agent. The initial and
second distributions were based on the then-current amount of allowed unsecured
claims and estimated disputed unsecured claims, which were approximately $938
million at the time of the initial distribution and $724 million at the second
distribution. Additional distributions are being made to holders of allowed
unsecured claims as either their claims are allowed, or as disputed claims are
disallowed. At the present time, the Company estimates that the final allowed
amount of unsecured claims will be in the $700 million to $725 million range.
In addition to the issuance and distribution of Common Stock, the Company made
cash payments totaling $10.9 million through June 30, 1995, to holders of
administrative claims, priority tax and wage claims, and certain debts and
executory contracts assumed as part of the Reorganization Plan. Certain
administrative priority cash claims received deferred cash payments plus
interest.
<TABLE>
The balance sheet of the Reorganized Company, upon adoption of fresh-start
reporting, contains the following (in millions):
<S> <C>
Reorganization value of assets $675.5
Less present value of liabilities
to be paid 431.6
------
Reorganization value of stockholders'
equity $243.9
======
</TABLE>
The Statement of Operations for the three months ended September 30, 1993
contains a $329.3 million gain on debt discharge resulting from confirmation of
the Reorganization Plan and a $193.6 million fresh-start reporting adjustment
reflecting the restatement of assets and liabilities consistent with the
reorganization value of the Reorganized Company.
The reorganization value of the Company's assets and stockholders' equity was
established based upon the Company's "enterprise value," as determined by the
analysis of the Company's financial advisor, Donaldson, Lufkin and Jenrette
("DLJ"). In preparing its analysis, DLJ, among other things: (a) reviewed
recent publicly available financial statements of the Company, as well as
financial projections prepared by the Company; (b) prepared discounted cash flow
analysis using a discount rate range of 21.5%-23.5% on the projections for
fiscal years 1994-1996; (c) considered the market values and historical
acquisitions of publicly traded companies comparable to the operating
characteristics of the Reorganized Company; and (d) considered economic and
industry information relevant to the operating business of the Company.
Financial projections prepared by the Company analyzed all aspects of the
Company's operations, including its customer base, technology, management and
infrastructure, to identify core competencies on which a new business could be
built. The business plan was based on success in developing and marketing
imaging and related open systems office productivity software, and in providing
value-added network integration and support services, initially to the Company's
installed VS base.
32
<PAGE> 67
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
<TABLE>
"Enterprise value" represents an estimated value of the Company based upon its
reorganized capital structure at the Confirmation Date, estimated by DLJ
to be in a range from $325 to $425 million. For purposes of fresh-start
reporting, the mid-point of this range, or $375 million, was used. The
"enterprise value" of the Company consists of the following elements (in
millions):
<S> <C>
Reorganized value of stockholders' equity $243.9
Long-term debt 4.4
Long-term restructuring 15.8
Other long-term liabilities 50.9
Exchangeable preferred stock and
common stock to be issued 60.0
------
$375.0
======
</TABLE>
Unaudited Pro Forma financial data for the year ended June 30, 1994 assuming
the Plan was confirmed on July 1, 1993, indicates revenues of $855.3 million,
net income from continuing operations of $15.6 million, net income attributable
to common shareholders of $8.0 million and earnings per share of $0.25. The
unaudited Pro Forma net income includes the effect of amortization of the
fresh-start intangible assets of $6.9 million for the quarter ended September
30, 1993, and eliminates historical reorganization expenses, including
restructuring items, of $34.9 million associated with the Company's emergence
from Chapter 11. The earnings per share calculation assumes that the
30,479,766 shares, issued in connection with the Plan, and the 1.5 million
shares, issued in the private placement financing, have been outstanding since
the beginning of the year and that net income has been reduced by cumulative
dividends and accretion of $7.6 million related to the Company's Preferred
Stock.
The unaudited Pro Forma financial data does not include the non-recurring
$329.3 million gain on debt discharge and fresh-start reporting adjustment of
$193.6 million, recorded in connection with the implementation of fresh-start
reporting. The assumptions do not purport to reflect all the changes that
would have occurred had the reorganization occurred on July 1, 1993.
<TABLE>
REORGANIZATION EXPENSES: Reorganization expenses relate to the reorganization
and restructuring of the Company in connection with implementing the
Reorganization Plan and consist of the following (in millions):
<CAPTION>
Three Months Year
Ended Ended
September 30, 1993 June 30, 1993
------------------ -------------
<S> <C> <C>
Restructuring, net $ 8.2 $ 92.2
Professional fees 16.1 15.4
Foreign exchange (gain) loss (3.9) 5.8
Write-off of pre-petition debt
issuance costs -- 4.0
Administrative and other incremental
Chapter 11 costs 14.5 9.9
------ ------
$ 34.9 $127.3
====== ======
</TABLE>
33
<PAGE> 68
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
The net restructuring provisions recorded by the Predecessor Company of $8.2
million during the three-month period ended September 30, 1993 and $92.2 million
in fiscal 1993 have been classified as reorganization items in the
statement of operations. The restructuring initiatives undertaken during this
period were in direct response to a preliminary Joint Plan of Reorganization
prepared by the Company and the Official Creditors' Committee and filed with the
Bankruptcy Court on March 21, 1993. Acceptance of the Joint Plan was predicated
on additional downsizing and restructuring, consistent with the Company's
business plan as outlined in that document. Specific actions to be taken were
identified, quantified and recorded during the periods prior to finalization of
the preconfirmation financial statements.
Professional fees and administrative and other incremental Chapter 11 costs for
the three months ended September 30, 1993, include $18.8 million of expenses
recorded in fresh-start reporting for amounts expected to be incurred through
the completion of all Chapter 11-related matters.
Foreign exchange gain (loss) relates primarily to the exposed portion of the
Company's pre-petition Swiss franc-denominated bonds and is due to exchange rate
fluctuations between the Swiss franc and the U.S. dollar.
In accordance with SOP 90-7, interest income earned post-petition of
approximately $0.9 million for the three months ended September 30, 1993, and
$1.0 million for the year ended June 30, 1993, is included in the
"Administrative and other incremental Chapter 11 costs" category listed above.
RESTRUCTURING EXPENSES: The Company had taken a series of restructuring
initiatives from 1989 through 1994. These actions were taken in response
to the dramatic changes taking place in the computer and information technology
industry beginning in the mid-1980s. Rapid developments in microprocessor
technology have resulted in smaller, more powerful computers and systems that
were replacing mainframe and mini-computer systems. As customers became less
dependent on proprietary computer systems and software, they began to migrate to
open systems hardware and software. The Company had already initiated a
strategy to transition from its emphasis on proprietary systems and software to
its new focus as a provider of office productivity solutions. However, these
industry changes resulted, during 1989, in a first-time decline in the
Company's total product and service revenues. The Company undertook
restructuring initiatives in direct response to these conditions. These actions
included workforce reductions, realignment of the sales and service
organization, consolidation of certain operating facilities, and the
discontinuation of operations not considered part of the Company's strategic
direction. The need for continued change and downsizing, which eventually
outpaced available sources of cash during 1992, resulted in the need for the
Company to seek the relief of Chapter 11. The initiatives in 1993 and 1994 were
taken to further restructure the Company prior to its emergence from Chapter 11.
34
<PAGE> 69
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
<TABLE>
The activity related to these restructuring actions during the three years ended
June 30, 1995, is summarized in the following table (in millions):
<CAPTION>
Liabilities
Charges Discharged at
to September 30,
Operations 1993 and Charges
Balance in 1993 Effects of utilized Adjustments Charges Balance
June 30, and Fresh-Start in 1993 to Accrual utilized June 30,
1992 1994 Reporting and 1994 in 1995 in 1995 1995
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Facilities $132.0 $ 2.8 $(30.4) $ (70.7) $ 1.2 $ (24.7) $ 10.2
Depreciable assets 78.3 67.8 (9.5) (121.7) (2.0) (9.2) 3.7
Workforce-related 80.2 35.3 9.6 (99.7) (0.6) (21.2) 3.6
Other 111.3 19.7 (9.4) (108.2) (0.8) (6.2) 6.4
------ ------ ------- ------- ------ ------- ------
Total $401.8 125.6 $ (39.7) $(400.3) $ (2.2) $ (61.3) $ 23.9
====== ======= ======= ====== ======= ======
Realized gains on
related asset
sales (25.2)
------
Net provision $100.4
======
</TABLE>
<TABLE>
The June 30, 1995, balance of restructuring reserves is classified as follows
(in millions):
<S> <C>
Depreciable assets $ 3.7
Accounts payable, accrued expenses and other 14.8
Liabilities of businesses held for sale 1.0
Non-current liabilities 4.4
-----
$23.9
=====
</TABLE>
Cash outlays to complete the balance of the Company's restructuring initiatives
are estimated to approximate $15 million in fiscal 1996 and $4 million in fiscal
1997. The cash outlays related to the facilities reserve are not expected to
extend beyond June 30, 1997, although they may be required earlier in the event
of any lease termination settlements. Workforce-related actions were completed
by September 30, 1994, although under certain circumstances the actual payment
of termination costs extended beyond that date.
The Company, after it had finalized a formal plan to restructure its operations,
recorded its restructuring charges and related reserves based upon the best
information available at the time. The facilities-related reserves for the
Company's excess manufacturing, sales and service, and other support facilities
were established to recognize the lower of the amount of the remaining lease
obligations, net of any sublease rentals, or the expected lease settlement
costs. These reserves are utilized only when the excess space has been vacated
and there are no plans to utilize the facility in the future. Depreciable
assets-related reserves were established to recognize, at net realizable value,
the disposal value of real estate, leasehold improvements, spares and other
productive assets no longer required. Workforce-related reserves, consisting
principally of severance costs, were established based on specific
identification of the number of employees to be terminated, their job
classifications or functions and their locations. Other asset-related reserves
were established principally to recognize a write-down in the value of certain
inventory, capitalized software and other assets directly related to the actions
taken by the Company to significantly curtail manufacturing and development
activities related to its proprietary hardware and software products.
35
<PAGE> 70
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J (Continued)
The 1993 and 1994 restructuring provisions were offset by $25.2 million in gains
on the sale of non-strategic assets sold in connection with the Company's
Reorganization Plan. The restructuring provisions included $67.8 million
for depreciable asset write-downs, $35.3 million for employee termination costs,
$10.3 million for the disposal of certain sales and manufacturing subsidiaries,
$2.8 million for abandonment of facilities, and $9.4 million for various other
restructuring actions, including the write-down of other assets, such as
inventories and capitalized software. These restructuring charges were required
to further reduce the worldwide sales, manufacturing, finance and
administration, and research and development personnel to approximately 5,000
people. These personnel reductions resulted in significantly reduced
requirements for real estate and other facilities and in related write-downs in
depreciable assets. Included in asset write-downs were provisions for inventory
write-downs as a result of the reduced manufacturing requirements.
In December 1993, the Company sold a 70% interest in its New Zealand subsidiary
for net proceeds of $7.0 million. The loss on the sale was recorded as part of
the 1994 restructuring initiative. The Company recorded $0.8 million in equity
income for the twelve months ended June 30, 1995, relating to this
subsidiary. At June 30, 1995, the equity investment in New Zealand was $4.8
million and is included in other non-current assets on the accompanying
consolidated balance sheet.
On March 31, 1993, the Company sold the remaining approximately 70% interest in
its Taiwan manufacturing subsidiary, Wang Laboratories Taiwan Ltd., and a
51% interest in Wang Industrial Company Ltd. ("WICL"), its Taiwan sales and
marketing subsidiary. In return for the ownership interests in the two
subsidiaries, the Company and other Company subsidiaries were relieved of
approximately $184 million in obligations to the Taiwan manufacturing and sales
subsidiaries. During fiscal 1995, the Company sold its remaining 49% interest
in WICL. Proceeds from the sale amounted to $13.4 million.
NOTE K--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board requires disclosure of the fair value
of financial instruments under Statement of Financial Accounting Standard No.
107, "Disclosure About Fair Value of Financial Instruments."
The Company's financial instruments as of June 30, 1995 and 1994 were cash and
cash equivalents, forward exchange contracts, long- and short-term debt and
preferred stock. The carrying amounts reported in the balance sheets for cash
and cash equivalents, forward exchange contracts and long and short-term debt
approximate their fair value. The fair values of the Company's preferred stock
are estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rate for similar borrowing arrangements. The
Company's 4.5% Preferred Stock approximates fair value while the fair value of
the 11% Preferred Stock was estimated at $69.1 million.
36
<PAGE> 71
WANG LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L--SUBSEQUENT EVENT
On July 21, 1995, the Company acquired Sigma Imaging Systems, Inc., a privately
held company that designs and markets state-of-the-art workflow and imaging
software for paper-intensive businesses, including insurance, banking, finance,
utilities, and government. The Company paid approximately $20 million for
Sigma, consisting of $15 million in cash and approximately $5 million in common
stock. Approximately $9 million in cash was paid at the end of July 1995, and
an additional $6 million will be paid during fiscal 1996. In connection with
the acquisition, the Company anticipates a provision of approximately $20
million, that will be recorded in the first quarter of fiscal year 1996, related
to purchased research and development and the Company's overlapping development
efforts.
37
<PAGE> 72
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Quarterly Results of Operations (Unaudited)
(Dollars in millions except per share data)
<CAPTION>
September December March June
Three months ended 30, 31, 31, 30,
- -------------------------------------------------------------------------------------------------------
Year ended June 30, 1995
Reorganized Company
-------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $192.2 $216.1 $253.1 $284.9
Costs 126.2 146.5 185.1 198.3
Expenses 57.0 55.3 72.0 72.7
Amortization of intangibles - fresh-start
and Bull 6.6 6.6 8.9 9.9
Integration-related costs and other charges -- -- 64.2 --
------ ------ ------ ------
Operating income (loss) 2.4 7.7 (77.1) 4.0
Interest and other (income) expense - net (3.1) (1.9) (1.3) (2.7)
Provision for income taxes 2.7 4.5 (3.6) --
------ ------ ------ ------
Net income (loss) $ 2.8 $ 5.1 $(72.2) $ 6.7
Dividends and accretion on 4 1/2% and
11% preferred stock 2.0 2.1 2.1 2.5
------ ------ ------ ------
Net income (loss) applicable to
common stockholders $ 0.8 $ 3.0 $(74.3) $ 4.2
====== ====== ====== ======
Net income per share $ .02 $ .09 $(2.24) $ .12
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30, 1994 Predecessor
Company Reorganized Company
----------- --------------------------------------
<S> <C> <C> <C> <C>
Revenues $210.9 | $231.8 $205.0 $207.6
Costs 127.0 | 145.4 131.4 131.0
Expenses 71.5 | 71.8 65.1 67.4
Amortization of intangibles - fresh-start -- | 6.9 6.9 6.9
------ | ------ ------ ------
|
Operating income (loss) 12.4 | 7.7 1.6 2.3
Interest and other (income) expense - net 0.1 | (2.7) (3.8) (2.3)
Provision for income taxes 0.4 | 5.5 2.3 2.0
------ | ------ ------ ------
|
Income from continuing operations before |
reorganization-related items 11.9 | 4.9 3.1 2.6
Reorganization-related items 488.0(a) | -- -- --
------ | ------ ------ ------
|
Net income 499.9 | 4.9 3.1 2.6
|
Dividends and accretion on 11% |
preferred stock -- | 0.3 1.9 2.0
------ | ------ ------ ------
|
Net income applicable to common stockholders $499.9 | $ 4.6 $ 1.2 $ 0.6
====== | ====== ====== ======
|
Net income per share $ * | $ .14 $ .04 $ .02
====== | ====== ====== ======
<FN>
(a) Includes $329.3 million extraordinary gain on debt discharge and $193.6
million to adjust the Company's balance sheet to fair market value
recorded as a result of the confirmation of the Reorganization Plan and
the adoption of fresh-start reporting. These gains are reduced by
$34.9 million of professional fees, restructuring initiatives, and
other expenses related to the Company's reorganization under Chapter 11.
* Per share data are not presented for periods prior to September 30, 1993,
the Confirmation Date of the Company's Reorganization Plan, due to the
general lack of comparability as a result of the revised capital structure
of the Company.
See notes to the consolidated financial statements.
</TABLE>
38
<PAGE> 73
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
Five-Year Comparison of Selected Financial Data
(Dollars in millions except per share data)
<CAPTION>
Reorganized Company Predecessor Company
-------------------------------- ----------------------------------------------
Year Nine Months Three Months Year Ended June 30,
Ended Ended Ended ----------------------------
June 30, 1995 June 30, 1994 Sept 30, 1993 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $946.3 $644.4 | $210.9 $1,247.0 $1,896.2 $2,092.9
|
Income (loss) from continuing operations |
before reorganization expenses, |
discontinued operations, fresh-start |
reporting adjustment and |
extraordinary item $(57.6) $ 10.6 | $ 11.9 $ (69.9) $(358.2) $(377.9)
|
Reorganization expenses -- -- | (34.9) (127.3) -- --
|
Income (loss) from discontinued |
operations -- -- | -- -- 1.6 (7.6)
Fresh-start reporting adjustment -- -- | 193.6 -- -- --
Gain on debt discharge -- -- | 329.3 -- -- --
------ ------ | ------ -------- -------- --------
|
Net income (loss) (57.6) 10.6 | 499.9 (197.2) (356.6) (385.5)
Dividends and accretion on |
preferred stock (8.7) (4.2) | -- -- -- --
------ ------ | ------ -------- -------- --------
|
Net income (loss) applicable to common |
stockholders $(66.3) $ 6.4 | $499.9 $ (197.2) $(356.6) $ (385.5)
====== ====== | ====== ======== ======== ========
|
Net income per share $(2.02) $ .20 | * * * *
====== ====== | ====== ======== ======== ========
|
Average number of employees 5,900 5,900 | 6,700 9,500 13,900 18,100
|
At June 30, |
Total assets $859.0 $686.0 | $ 588.8 $1,065.9 $1,417.9
|
Depreciable assets, net $134.0 $ 79.6 | $ 137.4 $ 316.1 $ 495.2
|
Working capital $ 44.1 $ 94.7 | $ 26.3 $ (13.7) $ 199.2
|
Long-term debt, excluding |
Liabilities subject to compromise $ 22.8 $ 2.0 | $ 13.8 $ 452.6 $ 499.5
|
Preferred stock $145.9 $ 53.2 | $ -- $ -- $ --
|
Stockholders' equity (deficit) $219.6 $264.2 | $ (501.4) $ (286.4) $ 52.7
|
Number of employees 6,900 5,300 | 6,900 12,900 16,800
<FN>
Certain prior years' amounts have been reclassified to conform to the presentation for fiscal 1995. Employee data
excludes discontinued operations and businesses held for sale.
* Per share data are not presented for periods prior to September 30, 1993, the Confirmation Date of the Company's
Reorganization Plan, due to the general lack of comparability as a result of the revised capital structure of the
Company.
See notes to the consolidated financial statements.
</TABLE>
39
<PAGE> 74
EXHIBIT D
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
SCHEDULE II - Valuation and Qualifying Accounts (in millions):
<CAPTION>
COL A. COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------------
Additions
---------------
Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts Deductions- at End
DESCRIPTION of Period Expenses Describe Describe of Period
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995:
Allowances for doubtful
accounts and sales credits...... $ 4.4 $6.3 $ -- $ --(2) $10.7
Nine months ended
June 30, 1994:
Allowances for doubtful
accounts and sales credits...... $ -- $4.1 $0.4 $ 0.1(2) $ 4.4
Three months ended
September 30, 1993:
Allowances for doubtful
accounts and sales credits..... $30.3 $0.1 $ -- $30.4(1)(2) $ --
Year ended June 30, 1993:
Allowances for doubtful
accounts and sales credits..... $28.4 $9.2 $3.3(3) $10.6(2)(4) $30.3
<FN>
(1) Includes $27.4 million adjustment as a result of the implementation of fresh-start reporting.
(2) Accounts charges off, net of recoveries.
(3) Amounts directly related to Chapter 11 case that were charged to reorganization expenses.
(4) Includes adjustment to eliminate balances of businesses held for sale.
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C>
2.1(1) The Amended and Restated Reorganization
Plan of Wang Laboratories, Inc. and
Official Committee of Unsecured
Creditors dated September 30, 1993
3.1(2) Certificate of Incorporation
3.2(12) Amended and Restated Certificate of
Stock Designation with respect to the
11% Preferred Stock
3.3(1) By-laws of the Registrant
3.4(9) Certificate of Incorporation, as
amended
3.5 Certificate of Stock Designation with
respect to the 4 1/2% Series A Cumulative
Convertible Preferred Stock
10.1(3) Stock Incentive Plan
10.2(3) 1993 Directors' Stock Option Plan
10.3(4) Form of Contingent Severance
Compensation Agreements with Donald P.
Casey, J.J. Van Vuuren, Albert A.
Notini, William P. Ferry, David I.
Goulden, Bruce A. Ryan, James J. Hogan
and Franklyn A. Caine, each an
executive officer of the Company
10.4(5) Contingent Severance Compensation
Agreement with Joseph M. Tucci
10.5(7) Employment Agreement with Joseph M.
Tucci, as amended
10.6(6) Employment Agreement with Donald P.
Casey
10.7(7) Employment Agreement with William P.
Ferry
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C>
10.8(7) Employment Agreement with James
J. Hogan
10.9(3) Loan and Security Agreement
with Congress Financial
Corporation, dated December 15,
1993
10.10(5) Termination Agreement between
the Registrant and Michael Mee
10.11(5) Form of Stock and Warrant
Subscription Agreement, dated
September 20, 1993
10.12(3) Form of Registration Rights
Agreement for Securities, dated
December 17, 1993
10.13(5) Consulting Employment Agreement
of Stephen G. Jerritts
10.14(3) Consulting Agreement of Raymond
C. Kurzweil
10.15(5) Employee Retention Agreement
with William P. Ferry
10.16(5) Employee Retention Agreement
with James J. Hogan
10.17(5) Employment Agreement with Bruce
A. Ryan
10.18(7) Form of Non-Negotiable Security
Promissory Note from Joseph M.
Tucci to the Registrant
10.19(7) Form of Pledge Agreement with
Joseph M. Tucci
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C>
10.20(7) Form of Non-Negotiable Secured
Promissory Note from Donald P.
Casey to the Registrant
10.21(7) Form of Pledge Agreement with
Donald P. Casey
10.22(8) Stock Incentive Plan, as
Amended
10.23(9) Contingent Severance
Compensation, as Amended with
Franklyn A. Caine
10.24(9) Employees' Stock Incentive Plan
10.25(9) 1995 Director Stock Option Plan
10.26(10) The Asset and Stock Purchase
Agreement among Wang
Laboratories, Inc., Bull HN
Information Systems, Inc., Bull
S.A. and, for certain purposes,
Compagnie de Machines Bull
dated as of December 30, 1994
and a Credit Agreement among
Wang Laboratories, Inc., HFS,
Inc. and certain lenders and
agents named therein and
Banker's Trust Company dated
January 30, 1995
10.27(11) Employment Agreement with
Ronald A. Cuneo
10.28 Employment Agreement with
Joseph M. Tucci, as Amended
10.29 Employment Agreement with
Donald P. Casey, as Amended
10.30 Employment Agreement with
Stephen G. Jerritts
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
11.1 Statement of commputation of
earnings per share
23.1 Consent of Ernst & Young LLP,
Independent Auditors
<FN>
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form 8-A
(File No. 0-22470), filed on September 27, 1993.
(2) Filed as an Exhibit to the Registrant's Registration Statement on Form S-8
(File No. 33-73210), filed on December 21, 1993.
(3) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q
for the quarter ended December 31, 1993.
(4) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q
for the quarter ended March 31, 1994.
(5) Filed as an Exhibit to the Registrant's Registration Statement on Form S-1,
as amended (File No. 33-81526) filed September 13, 1994.
(6) Filed as an Exhibit to the Registrant's annual report on Form 10-K for
the fiscal year ended June 30, 1993.
(7) Filed as an Exhibit to the Registrant's annual report on Form 10-K for
the fiscal year ended June 30, 1994.
(8) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q
for the quarter ended September 30, 1994.
(9) Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q
for the quarter ended December 31, 1994.
(10) Filed as an Exhibit to the Registrant's Current Report of Form 8-K dated
January 31, 1995.
(11) Filed as an Exhibit to the Registrant's quarter report on Form 10-Q for
the quarter ended March 31, 1995.
(12) Filed as an Exhibit to the Registration Statement on Form S-3 (File No.
33-58717), filed April 19, 1995.
</TABLE>
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF DESIGNATIONS
of
WANG LABORATORIES, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
______________________________
Wang Laboratories, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on March 29, 1995:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, $.01 par value (the "Preferred Stock"), of the Corporation and hereby
states the designation and number of shares, and fixes the relative rights,
preferences and limitations thereof as follows:
4-1/2% Series A Cumulative Convertible Preferred Stock:
Section 1. Designation and Amount.
-----------------------
The shares of such series shall be designated as "4 1/2% Series A
Cumulative Convertible Preferred Stock" (the "Series A Preferred Stock") and
the number of shares constituting the Series A Preferred Stock shall be 90,000.
Section 2. Dividends.
----------
Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
A Preferred Stock with respect to dividends (including without limitation the
11% Exchangeable Preferred Stock), the holders of shares of Series A Preferred
Stock, in preference to the holders of Common Stock, par value $.01 per share
(the "Common Stock"), of the Corporation, and of any other junior stock, shall
be entitled to receive, out of funds legally available therefor, cash dividends
of $45.00 per share per annum
<PAGE> 2
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
when, as and if declared by the Board of Directors of the Corporation.
Such dividends shall accrue (without interest) and shall be cumulative from the
date of issuance of each share of Series A Preferred Stock, whether or not
declared. Accrued but unpaid dividends shall bear interest at the rate of 4.5%
per annum, compounded quarterly. Subject to the immediately following sentence,
such dividends shall be payable in arrears on March 31, June 30, September 30
and December 31 in each year, commencing June 30, 1995 (except that if such
date is a Saturday, Sunday or legal holiday, then each dividend shall be
payable on the next day that is not a Saturday, Sunday or legal holiday) (each
such date being referred to herein as a "Quarterly Dividend Payment Date") to
holders of record as they appear on the stock transfer books of the Corporation
on such record dates, not more than 60 nor less than 10 days preceding the
Quarterly Dividend Payment Date, as are fixed by the Board of Directors.
Notwithstanding the foregoing, no dividends shall be paid or payable prior to
the first Quarterly Dividend Payment Date (the "Initial Payment Date")
following the later of (i) the date on which no shares of the 11% Exchangeable
Preferred Stock are outstanding or (ii) the date on which such dividends may be
paid pursuant to the (A) terms of the 11% Exchangeable Preferred Stock (if any
of such shares remain outstanding) and (B) the terms of that certain Credit
Agreement between the Corporation, BT Commercial Corporation as Agent and
Bankers Trust Company as Issuing Bank dated as of January 30, 1995 or any
successor agreement. Subject to the immediately preceding sentence, dividends
on account of arrears for any past dividend period may be declared and paid at
any time, without reference to any Quarterly Dividend Payment Date. The amount
of dividends payable for the initial dividend period and any period shorter
than a full quarterly dividend period shall be computed on the basis of a 360-
day year. For purposes hereof, the term "legal holiday" shall mean any day on
which banking institutions are obligated or authorized to close in New York,
New York or in Boston, Massachusetts.
Dividends paid on shares of Series A Preferred Stock in an amount less
than the total amount of such dividends at the time accumulated and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
- 2 -
<PAGE> 3
(a) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to one (1) vote on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare of pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the number of votes per share to which holders of shares
of Series A Preferred Stock were entitled immediately prior to such event shall
be adjusted by multiplying such number by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the Corporation
shall at any time declare or pay any dividend on the Series A Preferred Stock
payable in shares of Series A Preferred Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Series A Preferred
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Series A Preferred Stock) into a greater or lesser number of shares of
Series A Preferred Stock, then in each such case the number of votes per share
to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such amount by
a fraction, the numerator of which is the number of shares of Series A
Preferred Stock that were outstanding immediately prior to such event and the
denominator of which is the number of shares of Series A Preferred Stock
outstanding immediately after such event.
(b) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, the holders of shares of Series A Preferred Stock and
the holders of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as one class on
all matters submitted to a vote of stockholders of the Corporation.
(c)(i) If at any time dividends on any Series A Preferred Stock shall
be in arrears in an amount equal to or greater than six quarterly dividends
thereon, the holders of the Series A Preferred Stock, voting as a separate
series from all other series of Preferred Stock and classes of capital stock,
shall be entitled to elect two members of the Board of Directors in addition to
any Directors elected by any other series, class or classes of securities and
the authorized number of Directors will automatically be increased by two.
Promptly thereafter, the Board of Directors of this Corporation shall, as soon
as may be practicable, call a special meeting of holders of Series A
- 3 -
<PAGE> 4
Preferred Stock for the purpose of electing such members of the Board of
Directors or alternatively, the holders of Series A Preferred Stock may
effect the election of two such directors by unanimous written consent without
a meeting. Any special meeting hereunder shall in any event be held within 45
days of the occurrence of such arrearage.
ii. During any period when the holders of Series A Preferred Stock,
voting as a separate series, shall be entitled and shall have exercised their
right to elect two Directors, then and during such time as such right continues
(A) the then authorized number of Directors shall be increased by two, and the
holders of Series A Preferred Stock, voting as a separate series, shall be
entitled to elect the additional Directors so provided for, and (B) each such
additional Director shall not be a member of any existing class of the Board of
Directors, but shall serve until the next annual meeting of stockholders for
the election of Directors, or until his successor shall be elected and shall
qualify, or until his right to hold such office terminates pursuant to the
provisions of this Section 3(c).
(iii) A Director elected pursuant to the terms hereof may be removed
with or without cause by the holders of Series A Preferred Stock entitled to
vote in an election of such Director.
(iv) If, during any interval between annual meetings of stockholders
for the election of Directors and while the holders of Series A Preferred Stock
shall be entitled to elect two Directors, there is no such Director in office
by reason of resignation, death or removal, then, promptly thereafter, the
Board of Directors shall call a special meeting of the holders of Series A
Preferred Stock for the purpose of filling such vacancy and such vacancy shall
be filled at such special meeting or alternatively, the holders of Series A
Preferred Stock may effect the election of any director hereunder by
unanimously written consent without a meeting. Any meeting hereunder shall in
any event be held within 45 days of the occurrence of such vacancy.
(v) At such time as the arrearage is fully cured, and all dividends
accumulated and unpaid on any shares of Series A Preferred Stock outstanding
are paid, the term of office of any Director elected pursuant to this Section
3(c), or his successor, shall automatically terminate, and the authorized
number of Directors shall automatically decrease by two, the rights of the
holders of the shares of the Series A Preferred Stock to vote as provided in
this Section 3(c) shall cease, subject to renewal from time to time upon the
same terms and conditions, and the holders of shares of the Series A Preferred
Stock shall have only the limited voting rights elsewhere herein set forth.
- 4 -
<PAGE> 5
(vi) Notwithstanding any other provision of this Section 3(a),
dividends not paid prior to the Initial Payment Date shall not be considered to
be in arrears until 90 days after the Initial Payment Date.
(d) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series A Preferred Stock so as to affect
adversely the Series A Preferred Stock, without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares of
Series A Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority over the Series A Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series A Preferred Stock, and the authorization of any
shares of capital stock on a parity with Series A Preferred Stock as to the
right to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall not be deemed to affect
adversely the Series A Preferred Stock. The number of authorized shares of
Series A Preferred Stock may be increased or decreased (but not below the
number of shares then outstanding) by the directors of the Corporation pursuant
to Section 151 of the General Corporation Law of Delaware or by the affirmative
vote of the holders of a majority of the then outstanding shares of the Common
Stock, Series A Preferred Stock and all other classes or series of stock of the
Corporation entitled to vote thereon, voting as a single class, irrespective of
the provisions of Section 242(b)(2) of the General Corporation Law of Delaware.
(e) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Optional Conversion.
--------------------
The holders of the Series A Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Each share of Series A Preferred Stock shall be convertible, at
the option of the holder thereof, at any time and from time to time following
at least 61 days' prior written notice from the holder of record thereof to the
Corporation ("Written Notice"), and without the payment of additional
consideration by the holder thereof, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing
- 5 -
<PAGE> 6
$1,000 by the Conversion Price (as hereinafter defined) in effect at the
time of conversion. The "Conversion Price" shall initially be $23.00. Such
initial Conversion Price, and the rate at which shares of Series A Preferred
Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below.
In the event of a notice of redemption of any shares of Series A
Preferred Stock pursuant to Section 8 hereof, the Conversion Rights of the
shares designated for redemption shall terminate at the close of business on
the fifth full day preceding the date fixed for redemption, unless the
redemption price is not paid when due, in which case the Conversion Rights for
such shares shall continue until such price is paid in full. In the event of a
liquidation of the Corporation, the Conversion Rights shall terminate at the
close of business on the first full day preceding the date fixed for the
payment of any amounts distributable on liquidation to the holders of Series A
Preferred Stock.
(b) No fractional shares of Common Stock shall be issued upon
conversion of the Series A Preferred Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the then effective Conversion Price.
(c)(i) In order for a holder of Series A Preferred Stock to convert
shares of Series A Preferred Stock into shares of Common Stock, such holder
shall surrender the certificate or certificates for such shares of Series A
Preferred Stock, at the office of the transfer agent for the Series A Preferred
Stock (or at the principal office of the Corporation if the Corporation serves
as its own transfer agent), following the delivery of the Written Notice. Such
Written Notice shall state the number of shares elected to be converted and
such holder's name or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The later of (i) date of
receipt of such certificates or (ii) 61 days after receipt of the Written
Notice by the transfer agent (or by the Corporation if the Corporation serves
as its own transfer agent) (or if later, a date specified in the Written
Notice) shall be the conversion date ("Conversion Date"). The Corporation
shall, as soon as practicable after the Conversion Date, issue and deliver at
such office to such holder of Series A Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled, together with cash in lieu of any
fraction of a share.
- 6 -
<PAGE> 7
(ii) The Corporation shall at all times when the Series A Preferred
Stock shall be outstanding, reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the conversion of the Series A
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. Before taking any action which would
cause an adjustment reducing the Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any declared but unpaid dividends on the Series A
Preferred Stock surrendered for conversion or on the Common Stock delivered upon
conversion.
(iv) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall not be deemed to be
outstanding after the Conversion Date and all rights with respect to such
shares, including the rights, if any, to receive notices and to vote, shall
immediately cease and terminate on the Conversion Date, except only the right
of the holders thereof to receive shares of Common Stock in exchange therefor
and payment of any dividends declared but unpaid thereon. Any shares of Series
A Preferred Stock so converted shall be retired and cancelled and shall not be
reissued, and the Corporation (without the need for stockholder action) may
from time to time take such appropriate action as may be necessary to reduce
the authorized Series A Preferred Stock accordingly.
(v) The holders of the Series A Preferred Stock shall pay any and
all issue and other taxes that may be payable in respect of any issuance or
delivery of shares of Common Stock upon conversion of shares of Series A
Preferred Stock pursuant to this Section 4.
(d) If the Corporation shall at any time or from time to time after
the date on which a share of Series A Preferred Stock was first issued (the
"Original Issue Date") effect a subdivision of the outstanding Common Stock,
the Conversion Price then in effect immediately before that subdivision shall
be proportionately decreased. If the Corporation shall at any time or from
time to time after the Original Issue Date combine the outstanding shares of
Common Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
paragraph shall become
- 7 -
<PAGE> 8
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) In the event the Corporation at any time, or from time to time
after the Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in
each such event the Conversion Price for the Series A Preferred Stock then in
effect shall be decreased as of the time of such issuance or, in the event such
a record date shall have been fixed, as of the close of business on such record
date, by multiplying the Conversion Price for the Series A Preferred Stock then
in effect by a fraction:
(1) the numerator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the
close of business on such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the
close of business on such record date plus the number of
shares of Common Stock issuable in payment of such
dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series A Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event.
(f) In the event the Corporation at any time or from time to time
after the Original Issue Date for the Series A Preferred Stock shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of the Series A Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable
- 8 -
<PAGE> 9
thereupon, the amount of securities of the Corporation that they would have
received had the Series A Preferred Stock been converted into Common Stock on
the date of such event and had they thereafter, during the period from the
date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
paragraph with respect to the rights of the holders of the Series A Preferred
Stock; and provided further, however, that no such adjustment shall be made if
the holders of Series A Preferred Stock simultaneously receive a dividend or
other distribution of such securities in an amount equal to the amount of such
securities as they would have received if all outstanding shares of Series A
Preferred Stock had been converted into Common Stock on the date of such event.
(g) If the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed into the same or a different number of shares
of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of each such share of Series A Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of Common
Stock into which such shares of Series A Preferred Stock might have been
converted immediately prior to such reorganization, reclassification, or
change, all subject to further adjustment as provided herein.
(h) Subject to Section 5 hereof, in case of any consolidation or
merger of the Corporation with or into another corporation or the sale of all
or substantially all of the assets of the Corporation to another corporation,
each share of Series A Preferred Stock shall thereafter be convertible (or
shall be converted into a security which shall be convertible) into the kind
and amount of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Series A Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions in this Section 4 set forth with respect to the
rights and interest thereafter of the holders of the Series A Preferred Stock,
to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall
- 9 -
<PAGE> 10
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion
of the Series A Preferred Stock.
(i) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 4
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series A Preferred
Stock against impairment.
(j) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series A Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series A Preferred
Stock, furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
then in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which then would be received upon the conversion of
Series A Preferred Stock.
(k) In the event:
(i) that the Corporation declares a dividend (or
any other distribution) on its Common Stock
payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation subdivides or combines
its outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of
the Corporation (other than a subdivision or
combination of its outstanding shares of
Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation
or merger of the Corporation into or with
another corporation, or of the sale of all or
substantially all of the assets of the
Corporation; or
- 10 -
<PAGE> 11
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall
cause to be mailed to the holders of the Series A Preferred Stock at their last
addresses as shown on the records of the Corporation or such transfer agent, at
least ten days prior to the date specified in (A) below or twenty days before
the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not
to be taken, the date as of which the holders of
Common Stock of record to be entitled to such
dividend, distribution, subdivision or combination
are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution,
liquidation or winding up is expected to become
effective, and the date as of which it is expected
that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock
for securities or other property deliverable upon
such reclassification, consolidation, merger, sale,
dissolution or winding up.
(l) In the event that the Corporation shall have accrued, but unpaid,
dividends on the Series A Preferred Stock outstanding immediately prior to, and
in the event of, a conversion of any shares of Series A Preferred Stock as
provided in this Section 4 or Section 5 below, the Corporation shall cause such
dividends to be converted into Common Stock in accordance with, and pursuant to
the terms specified in, Section 4 or Section 5 below, as the case may be,
hereof, except that the Conversion Price (as that term is defined in Section
4(a)) for such purpose shall be the then Value of the Common Stock as
calculated pursuant to Section 8(e) below.
Section 5. Mandatory Conversion.
---------------------
(a) Immediately prior to the consummation of any Sale of the
Corporation (as hereinafter defined), (i) all outstanding shares of Series A
Preferred Stock shall automatically be converted into shares of Common Stock,
at the then effective conversion rate. "Sale of the Corporation" means (i) any
consolidation or merger of the Corporation with or into any other corporation,
other entity or person in which the holders of the Corporation's outstanding
Common Stock immediately prior to the effective date of such transaction do not
hold at least fifty
- 11 -
<PAGE> 12
(50%) of the outstanding voting securities of the surviving entity or (ii) a
sale of all or substantially all of the assets of the Corporation to any
corporation, other entity or person, in each case where the value per share
of the Corporation's Common Stock equals or exceeds the then applicable
Conversion Price, as determined in good faith by the Board of Directors by
dividing (x) the value of the Corporation immediately prior to the closing or
effective date of such transaction (taking into account the consideration paid
in connection with such transaction) by (y) the total number of shares of
Common Stock then outstanding, including shares of Common Stock then issuable
upon the conversion of the Series A Preferred Stock and exercise or conversion
of any outstanding options, warrants or convertible securities that will be
exercised or converted in connection with the transaction. The date that any
Sale of the Corporation is consummated is hereby referred to as the "Mandatory
Conversion Date."
(b) All holders of record of shares of Series A Preferred Stock shall
be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series A Preferred
Stock pursuant to this Section 5. Such notice need not be given in advance of
the occurrence of the Mandatory Conversion Date. Such notice shall be sent by
first class or registered mail, postage prepaid, to each record holder of
Series A Preferred Stock at such holder's address last shown on the records of
the transfer agent for the Series A Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of Series A Preferred Stock shall surrender his
or its certificate or certificates for all such shares to the Corporation at
the place designated in such notice, and shall thereafter receive certificates
for the number of shares of Common Stock (or other securities or property into
which the Common Stock has been converted) to which such holder is entitled
pursuant to this Section 5. On the Mandatory Conversion Date, all rights with
respect to the Series A Preferred Stock so converted, including the rights, if
any, to receive notices and vote (other than as a holder of Common Stock) will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock has
been converted (or other securities or property into which the Common Stock has
been converted). If so required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or by his or its attorney duly authorized in writing.
As soon as practicable after the Mandatory Conversion Date and the surrender of
the certificate or certificates for Series A Preferred Stock, the Corporation
shall cause to be issued
- 12 -
<PAGE> 13
and delivered to such holder, or on his or its written order, a certificate or
certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof (or other securities or
property into which the Common Stock has been converted) and cash as provided
in Section 4(b) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be
deemed to have been retired and cancelled and the shares of Series A Preferred
Stock represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take
such appropriate action (without the need for stockholder action) as may be
necessary to reduce the authorized Series A Preferred Stock accordingly.
Section 6. Reacquired Shares.
------------------
Any shares of Series A Preferred Stock purchased or otherwise acquired
by the Corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may
be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Certificate of
Incorporation, or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
Section 7. Liquidation, Dissolution or Winding Up.
---------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series A Preferred Stock (including
without limitation the 11% Exchangeable Preferred Stock") (collectively
referred to as "Senior Preferred Stock"), but before any payment shall be made
to the holders of Common Stock or any other class or series of stock ranking on
liquidation junior to the Series A Preferred Stock (such Common Stock and other
stock being collectively referred to as "Junior Stock") by reason of their
ownership thereof, an amount
- 13 -
<PAGE> 14
equal to the $1,000 per share (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), plus any dividends accrued or declared
but unpaid thereon.
(b) After the payment of all preferential amounts required to be paid
to the holders of Senior Preferred Stock, Series A Preferred Stock and any
other class or series of stock of the Corporation ranking on liquidation on a
parity with the Series A Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(c) A consolidation or merger of the Corporation with or into another
corporation or entity, or a sale of all or substantially all of the assets of
the Corporation, shall not be regarded as a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 7.
Section 8. Mandatory Redemption.
---------------------
(a) The Corporation will on October 1, 2003 redeem all shares of
Series A Preferred Stock, or within 180 days of any written request of the
holders thereof received by the Corporation at any time on or after the later
of (i) the seventh anniversary of the Original Issue Date or (ii) the date on
which no shares of 11% Exchangeable Preferred Stock are outstanding (each such
date being referred to hereinafter as a "Mandatory Redemption Date"), redeem
all shares of Series A Preferred Stock held by any such requesting holder, in
each case at a price equal to $1,000 per share, subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or
other similar recapitalization affecting such shares, together with accrued and
unpaid dividends thereon (the "Mandatory Redemption Price"). At its election,
the Corporation may pay all or any portion of the Mandatory Redemption Price in
cash or in Common Stock of the Corporation valued at its Market Value (as
defined below).
(b) If the funds of the Corporation legally available for redemption
of Series A Preferred Stock on any Mandatory Redemption Date are insufficient
to redeem the number of shares of Series A Preferred Stock required under this
Section 8 to be redeemed on such date, and the Corporation has not otherwise
elected to pay some or all of the Mandatory Redemption Price in shares of its
Common Stock, those funds which are legally available will be used to pay the
Mandatory Redemption Price on the maximum possible number of such shares of
Series A Preferred Stock ratably on the basis of the number of shares of Series
A
- 14 -
<PAGE> 15
Preferred Stock then outstanding prior to such redemption and the Mandatory
Redemption Price for the balance of such shares shall be paid with shares of the
Corporation's Common Stock.
(c) The Corporation shall provide notice of any redemption of Series A
Preferred Stock pursuant to this Section 8 specifying the time and place of
redemption and the Mandatory Redemption Price, by first class or registered
mail, postage prepaid, to each holder of record of Series A Preferred Stock at
the address for such holder last shown on the records of the transfer agent
therefor (or the records of the Corporation, if it serves as its own transfer
agent), not more than 60 nor less than 30 days prior to the date on which such
redemption is to be made. Upon mailing any such notice of redemption, the
Corporation will become obligated to redeem at the time of redemption specified
therein all Series A Preferred Stock specified therein (other than such shares
of Series A Preferred Stock as are duly converted pursuant to Section 4 prior to
the close of business on the fifth full day preceding the Mandatory Redemption
Date).
(d) No share of Series A Preferred Stock shall be entitled to any
dividends declared after its Mandatory Redemption Date, and on such Mandatory
Redemption Date all rights of the holder of such share as a stockholder of the
Corporation by reason of the ownership of such share will cease, except the
right to receive the Mandatory Redemption Price of such share, without interest,
upon presentation and surrender of the certificate representing such share, and
such share will not from and after such Mandatory Redemption Date be deemed to
be outstanding.
(e) "Market Value" per share of Common Stock on any date means the
average of the daily closing prices per share of Common Stock for the 30
consecutive Trading Days immediately prior to such date. The closing price for
each day shall be the last sale price, regular way or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the last quoted sale price or, if
not so quoted, the average of the high bid and low asked prices in the over-the-
counter market, as reported by the National Association of Securities Dealers,
Inc. Automatic Quotations System or such other system then in use or, if on any
such date the Common Stock is not
- 15 -
<PAGE> 16
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors. If the Common Stock is not publicly held or
so listed or publicly traded, "Market Value" shall mean the fair market value
per share as determined in good faith by the Board of Directors of the
Corporation.
(f) "Trading Day" means a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, any day other than a
Saturday, Sunday or a day on which banking institutions in New York, New York
and Boston, Massachusetts are authorized or obligated by law or executive order
to close.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its Executive Vice President and Chief Financial
Officer and attested by its Secretary this 26th day of May, 1995.
WANG LABORATORIES, INC.
/s/ Franklyn A. Caine
--------------------------------
Franklyn A. Caine
Executive Vice President, Chief
Fiancial Officer
Attest:
/s/ Albert A. Notini
- --------------------------------
Albert A. Notini
Senior Vice President and
General Counsel, Secretary
- 16 -
<PAGE> 1
EXHIBIT 10.28
April 26, 1995
Mr. Joseph M. Tucci
10 Mountain Laurel Drive
Unit No. 604
Nashua, NH 03060
RE: Second Amendment to March 9, 1993 Agreement
Dear Joe:
This letter constitutes a second amendment to the March 9, 1993 letter
between Wang Laboratories, Inc. ("WLI") and you relative to your employment by
WLI as its Chief Executive Officer (the "Employment Letter"), as amended on
June 22, 1994. WLI has agreed with you that the Employment Letter is amended as
follows:
The provisions of paragraph 6 of the Employment Letter shall be
replaced and superseded in total by the following:
6. SEVERANCE
---------
For the purpose of this Paragraph 6, your Anticipated Annual
Compensation shall be $816,000. If your employment is terminated by WLI
prior to the Termination Date, or if you cease to be the Chief
Executive Officer and Chairman of the Board of the Company, or there
is an adverse change in your compensation (other than a change in
benefits generally applicable to all officers under paragraphs 4, 5 and
7 herein), or there is a significant relocation of your employment
without your consent, and you choose to resign, WLI shall pay to you:
(a) immediately upon termination or resignation, a lump sum payment
equal to 12 months of your Anticipated Annual Compensation
($816,000), plus
(b) commencing one month after termination or resignation and
ending 12 months thereafter, 12 equal monthly payments of $136,000,
each consisting of one-twelfth (1/12) of twice your Anticipated
Annual Compensation.
<PAGE> 2
Mr. Joseph M. Tucci
April 26, 1995
Page 2
A "significant relocation" shall mean a relocation to such place of
business as makes your commutation from your then residence either
impractical or unduly burdensome.
The Employment Letter is hereby ratified and confirmed except as expressly
modified herein.
WANG LABORATORIES, INC.
By: /s/ Frederick A. Wang
---------------------------
Frederick A. Wang
Member, Organization,
Compensation & Nominating
Committee
Agreed to:
/s/ Joseph M. Tucci
- ------------------------
Joseph M. Tucci
<PAGE> 1
EXHIBIT 10.29
April 26, 1995
Donald P. Casey
61 Jordan Road
Brookline, MA 02146
Dear Don:
Reference is made to your Letter Agreement ("the Employment Letter")
dated March 9, 1993 between you and Wang Laboratories, Inc. ("WLI") relative to
your employment by WLI as its President and Chief Development Officer.
WLI has agreed with you that the Employment Letter is hereby amended as
follows:
(1) The first sentence of the Employment Letter is amended to provide
that you shall be employed as the President and Chief Technology
Officer of WLI.
(2) The provisions of Paragraph 2 shall be modified to provide that
the Term as therein defined shall end on June 30, 1997, which
shall be the Termination Date.
The Employment Letter is hereby ratified and confirmed except as
expressly modified herein.
WANG LABORATORIES, INC.
By: /s/ Joseph M. Tucci
---------------------------
Joseph M. Tucci
Agreed to:
/s/ Donald P. Casey
- -------------------------
Donald P. Casey
<PAGE> 1
EXHIBIT 10.30
May 3, 1995
Mr. Stephen G. Jerritts
650 College Avenue
Boulder, Colorado 80302
Dear Steve:
In light of your continuing contribution to Wang Laboratories, Inc. and
the importance of that contribution, I am pleased to offer you this employment
agreement on behalf of the Company. This letter sets forth the terms of your
employment with Wang Laboratories, Inc. ("Wang" or the "Company") and
supercedes and cancels any prior employment agreements and/or arrangements you
may have entered into with Wang. The Company agrees to employ you, and you
agree to remain in the employ of the Company, upon the following terms and
conditions.
1. POSITION
--------
You are to be employed as a Senior Vice President of Wang, and
President, Wang Latin America. You will report directly to the Chief Executive
Officer of the Corporation, who will also determine your specific
responsibilities from time to time.
2. TERM
----
The terms and conditions of this offer letter will cover a three (3)-
year period beginning as of the date of this letter, unless otherwise
terminated as provided in paragraph 4, below, and will provide you with one (1)
year of severance benefits if your employment with the Company is terminated at
any time during such three (3)-year period as described in paragraph 4, below.
3. COMPENSATION AND BENEFITS; EMPLOYMENT STATUS
--------------------------------------------
(a) YEARLY PAYMENTS
---------------
Your initial yearly base salary will be $240,000 (U.S.) (payable semi-
monthly) and you will be eligible to participate in a yearly bonus plan
targeted at [50%] of your base salary, depending on your performance measured
against the goals specified in the plan. Your salary and bonus will be reviewed
yearly for possible upward adjustments at the discretion of the Company.
<PAGE> 2
(b) STOCK INCENTIVES
----------------
You will be eligible to participate in the new Company Stock Incentive
Program, initially with a grant of 50,000 options for Wang Common Stock
exercisable at the rate of $12.125 per share, and on an ongoing basis you will
participate at a level consistent with your position, the program's terms and
conditions and your performance, subject to the concurrence of the
Organization, Compensation and Nominating Committee of the Board of Directors.
(c) OTHER PROVISIONS
----------------
(i) The Company will provide health and dental coverage to you in
accordance with existing Company plans available to all employees generally.
The Company will also provide term life insurance to you based on your
insurability in the amount of five times your base salary. You will also
receive four weeks of vacation per year and the Company's standard sick time
and personal holiday benefits.
(ii) Your eligibility for on-going salary increases and bonuses, and
initial and future stock incentives and benefits shall be pursuant to the same
terms and conditions as those applicable to other similarly situated officers
of the Company. You will also be eligible for all other prerequisites that are
or may be made available to other similarly situated officers of the Company
from time to time.
(iii) During your employment, the Company will pay you a monthly
automobile allowance of $585 per month. Additionally, the Company will pay the
automobile insurance premium expense for one leased automobile. During your
employment, the Company will also reimburse you, at regular intervals and in
accordance with Company policy, for all business travel, telephone and
out-of-pocket expenses incurred by you in the performance of your duties as an
officer of the Company.
(iv) The Company acknowledges that while carrying out the job
responsibilities contemplated by this offer letter, you will be a resident of
Colorado.
(v) The Company agrees that if you become subject to Mexican tax laws
for work performed on behalf of Wang during the term described in Provision 2
of this offer letter, the Company will reimburse you for any Mexican tax
obligations exclusive of interest and penalties, if any, you may incur in
connection with your Wang-source income and, furthermore, the Company will
remit any social security contributions required by Mexican law to the
applicable government agency.
2
<PAGE> 3
(vi) The Company agrees that all airline travel necessary for you to
conduct Company business will be flown first class. You agree to use the
Company's travel resources to minimize the cost of such travel.
(vii) The Company will reimburse you for the cost of one round-trip
weekend first class airfare per month to enable your spouse to travel between
the United States and Mexico. Ticket purchases are to be made in advance (in
order to obtain the most advantageous price).
(viii) The Company will provide housing for you or will reimburse you
for housing costs (including furniture rental) incurred by you in connection
with your living arrangements in Mexico City, at a level substantially
equivalent to that you are currently being provided, subject to review by the
Company from time to time.
(ix) At the end of the three (3)-year period described in this offer
letter, your employment status will be at-will, meaning that your employment at
Wang will be for an indefinite period of time and will be terminable at any
time, with or without cause being shown, by either you or the Company.
Therefore, the terms and conditions contained in paragraph 4 of this offer
letter will expire at the end of this three (3)-year period and the original,
unmodified terms of paragraph 6 of the enclosed, presently modified standard
Wang Employment Agreement, will be in full force and effect. All other terms
and conditions of this offer letter will remain in effect after the three
(3)-year period, subject to Wang's right to review them and make adjustments as
appropriate.
4. TERMINATION/SEVERANCE COMPENSATION AND BENEFITS
-----------------------------------------------
In the event that your employment with the Company is involuntarily
terminated other than "for cause" or because of your death or substantial
inability to work; or if the Company requires you to move your residence from
Colorado to another location, and you do not consent, which consent will not be
unreasonably withheld, Wang will pay you, semi-monthly, a twelve (12)-month
salary continuance equal to your then base salary plus the target contained in
your bonus plan. During this salary continuance period, Wang will also continue
to make available health and dental (but no other) benefits to you at no cost.
In the event you become employed at any time during the twelve (12)-
month salary continuance period, all remaining salary continuance payments (and
health and dental insurance coverage premium payments) shall terminate as of
your date of hire by your new employer, except to the extent that the total
annual compensation for your new employment is less than the total of your
remaining salary continuance payments and, in such event, the Company shall
only pay that amount equal to the difference.
3
<PAGE> 4
5. NO CONFLICTS OF INTEREST
------------------------
By signing this offer letter, you represent that you are not subject to
any restrictions, particularly, but without limitation, in connection with any
previous employment, which prevent you from entering into and performing your
obligations under this offer letter or which materially and adversely affect
(or may in the future, so far as you can reasonably foresee, materially and
adversely affect), your right to participate in the affairs of the Company.
6. PROOF OF CITIZENSHIP AND ABILITY TO WORK
----------------------------------------
This offer is contingent on your providing Wang with proof of U.S.
citizenship or alien work permission, as required by federal law, within three
days of the date of this letter. This offer is also contingent on your signing
and returning to Wang the enclosed Department of Defense forms.
7. STANDARDS OF ETHICS AND BUSINESS CONDUCT AND
STANDARD EMPLOYMENT AGREEMENT
--------------------------------------------
You will be required to comply with Wang's Standards of Ethics and
Business Conduct and sign Wang's Standard Employment Agreement as presently
modified (copy enclosed).
8. CONFIDENTIALITY
---------------
By our signatures below, we agree to treat the details of this offer
letter with utmost confidentiality and that we will not disclose them to any
third parties except your immediate family, our respective financial and/or
legal advisors, and such Wang personnel and/or agents as have a need to know
this information for business purposes.
Sincerely,
/s/ Joseph M. Tucci
Joseph M. Tucci
Enclosures: Standard Employment Agreement
(as presently modified)
Department of Defense Forms
Accepted and Agreed to:
/s/ Stephen G. Jerritts May 6, 1995
- ------------------------------ -----------------------------
Stephen G. Jerritts Date
4
<PAGE> 1
<TABLE>
Wang Laboratories, Inc. and Subsidiaries
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Twelve Months Ended Nine Months Ended
June 30, 1995 June 30, 1994
-------------------------- --------------------------
Primary Fully Diluted Primary Fully Diluted
------- ------------- ------- -------------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Average shares of Common
Stock outstanding (1) 32,766 32,766 31,561 31,561
Common equivalent shares for
stock options -- -- 1,119 1,119
-------- -------- -------- --------
32,766 32,766 32,680 32,680
======== ======== ======== ========
Net income (loss) $(57,562) $(57,562) $ 10,600 $ 10,600
Accretion and dividends on
Preferred Stock (8,710) (8,710) (4,164) (4,164)
-------- -------- -------- --------
$(66,272) $(66,272) $ 6,436 $ 6,436
======== ======== ======== ========
Net income (loss) per share $ (2.02) $ (2.02) $ .20 $ .20
======== ======== ======== ========
<FN>
NOTE: Historical per share data for periods prior to the Confirmation Date of the Company's Reorganization Plan
are not presented as such data relates to the Company before its recapitalization and adoption of fresh-start
reporting and, therefore, is not meaningful or relative to the Company's operations after the Confirmation Date.
(1) Includes shares distributed as well as those held in a disputed claim reserve to be distributed when claims are
resolved (see Note J, Fresh-Start Reporting, Reorganization and Restructuring Expenses).
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-73210), pertaining to the Company's Stock Incentive Plan, 1993
Employees' Stock Grant Plan, Employees' Stock Purchase Plan and Senior
Management Stock Distribution Plan, the Registration Statement (Form S-8 No.
33-75350), pertaining to the Company's 1993 Directors' Stock Option Plan, the
Registration Statement (Form S-8 No. 33-89910), pertaining to the Company's
1995 Director Stock Option Plan, the Registration Statement (Form S-8 No.
33-89912), pertaining to the Company's Employees' Stock Incentive Plan, the
Registration Statement (Form S-8 No. 33-89914), pertaining to the Company's
1995 Employees' Stock Purchase Plan, and the Registration Statement (Form S-3
No. 33-58717) of Wang Laboratories, Inc. and in the related prospectus of our
report dated July 26, 1995, with respect to the consolidated financial
statements and schedule of Wang Laboratories, Inc. included in the Annual
Report (Form 10-K) for the year ended June 30, 1995.
ERNST & YOUNG LLP
Boston, Massachusetts
September 25, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET; THE CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS; NOTE C - OTHER BALANCE SHEET INFORMATION; NOTE D - FINANCING
ARRANGEMENTS; SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND EXHIBIT 11.1
- - COMPUTATION OF EARNINGS PER SHARE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED JUNE 30, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 181,300
<SECURITIES> 0
<RECEIVABLES> 193,100
<ALLOWANCES> 10,700
<INVENTORY> 24,400
<CURRENT-ASSETS> 425,300
<PP&E> 194,900
<DEPRECIATION> 60,900
<TOTAL-ASSETS> 859,000
<CURRENT-LIABILITIES> 381,200
<BONDS> 25,800
<COMMON> 300
61,500
84,400
<OTHER-SE> 219,300
<TOTAL-LIABILITY-AND-EQUITY> 859,000
<SALES> 365,000
<TOTAL-REVENUES> 946,300
<CGS> 254,300
<TOTAL-COSTS> 656,100
<OTHER-EXPENSES> 353,200
<LOSS-PROVISION> 6,300
<INTEREST-EXPENSE> 3,700
<INCOME-PRETAX> (54,000)
<INCOME-TAX> 3,600
<INCOME-CONTINUING> (57,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57,600)
<EPS-PRIMARY> (2.02)
<EPS-DILUTED> (2.02)
<FN>
FOOTNOTES: PP&E COST AND ACCUMULATED DEPRECIATION INCLUDE CAPITALIZED
NON-CONSUMABLE SPARES INVENTORY. BONDS, MORTGAGES AND SIMILAR DEBT IS COMPRISED
OF BORROWINGS DUE WITHIN ONE YEAR AND LONG-TERM DEBT.
</TABLE>
