<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996.
REGISTRATION NO. 333-9627
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DATAPOINT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3571 74-1605174
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
4 RUE D'AGUESSEAU
75008 PARIS, FRANCE
8410 DATAPOINT DRIVE
SAN ANTONIO, TEXAS 78229-8500
(Address of principal executive offices and zip code)
(33-1) 4007 3737
(210) 593-7000
(Registrant's telephone number, including area code)
GERALD N. AGRANOFF
Vice President and General Counsel
Datapoint Corporation
8410 Datapoint Drive
San Antonio, Texas 78229-4500
(210) 593-7000
(Name, address, including ZIP Code, and telephone number, including
area code, of agent for service)
--------------------------
WITH A COPY TO:
SELIG D. SACKS, ESQ.
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
(212) 421-4100
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
UPON CONSUMMATION OF THE TRANSACTIONS DESCRIBED IN THE ENCLOSED PROXY
STATEMENT/PROSPECTUS.
--------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.25 per
share............................ 6,071,182 $2,455.85(1)(2)
</TABLE>
(1) Pursuant to Rule 457(f)(1), the registration fee has been calculated on the
basis of the market value of the $1.00 Exchangeable Preferred Stock, $20
liquidation preference per share, to be received by the Registrant in the
Exchange Offer (as defined herein), assuming that all outstanding 1,868,056
shares of the $1.00 Preferred Stock are tendered in the Exchange Offer.
Pursuant to Rule 457(c), the market value of the $1.00 Exchangeable
Preferred Stock was based upon the average of the high and low prices
($3.875 and $3.750, respectively) reported in the consolidated reporting
system as of July 31, 1996.
(2) Previously paid by the Registrant on August 6, 1996 in connection with the
initial filing of this Registration Statement on Form S-4.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DATAPOINT CORPORATION
FORM S-4
REGISTRATION STATEMENT
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
PROXY STATEMENT/PROSPECTUS
FORM S-4 ITEM NUMBER AND CAPTION CAPTION OR LOCATION
- ----------------------------------------------------------------------- -------------------------------------------------
<C> <S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
(i) Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Outside Front Cover Page
(ii) Inside Front and Outside Back Cover Pages of
Prospectus...................................... Available Information; Table of Contents
(iii) Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information........................... Summary; Risk Factors; Selected Consolidated
Financial Data
(iv) Terms of the Transactions........................ Background; Purposes and Effects of the Exchange
Offer; The Exchange Offer and Stock
Solicitation; Description of Common Stock; The
Preferred Stock Amendment; Certain Federal
Income Tax Considerations; Annex A --
Description of Preferred Stock
(v) Pro Forma Financial Information.................. Historical and Pro Forma Unaudited
Capitalization; Pro Forma Unaudited Financial
Information
(vi) Material Contracts with Company Being Acquired... *
(vii) Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters... *
(viii) Interests of Named Experts and Counsel........... *
(ix) Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... *
B. INFORMATION ABOUT THE REGISTRANT
(x) Information with Respect to S-3
Registrants..................................... *
(xi) Incorporation of Certain Information by
Reference....................................... *
(xii) Information with respect to S-2 or S-3
Registrants..................................... *
(xiii) Incorporation of Certain Information by
Reference....................................... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROXY STATEMENT/PROSPECTUS
FORM S-4 ITEM NUMBER AND CAPTION CAPTION OR LOCATION
- ----------------------------------------------------------------------- -------------------------------------------------
(xiv) Information with Respect to Registrants Other
Than S-2 or S-3 Registrants..................... Summary; Consolidated Financial Statements and
Other Financial Data; Management's Discussion
and Analysis of Financial Condition and Results
of Operations; Business of the Company; Election
of Directors; Compensation of Directors;
Compensation of Executive Officers; Security
Ownership of Certain Beneficial Owners and
Management
<C> <S> <C> <C>
C. INFORMATION ABOUT COMPANY BEING ACQUIRED
(xv) Information with Respect to S-3
Companies....................................... *
(xvi) Information with Respect to S-2 or S-3
Companies....................................... *
(xvii) Information with Respect to Companies Other Than
S-2 or S-3 Companies............................ *
D. VOTING AND MANAGEMENT INFORMATION
(xviii) Information if Proxies, Consents or
Authorizations are to be Solicited.............. Available Information; Summary; Security
Ownership of Certain Beneficial Owners and
Management; Compensation of Directors;
Compensation of Executive Officers; The Exchange
Offer and Stock Solicitation; Election of
Directors; The Preferred Stock Amendment
(xix) Information if Proxies, Consents or
Authorizations are not to be Solicited in an
Exchange Offer.................................. *
</TABLE>
- ------------------------
*Omitted since the answer is negative or the Item is not applicable.
<PAGE>
DATAPOINT CORPORATION
8410 Datapoint Drive 4 rue d'Aguesseau
San Antonio, Texas, 78229 75008 Paris, France
(210) 593-7000 (33 1) 4007-3737
Dear Stockholder:
You are cordially invited to the Annual Meeting of Stockholders of Datapoint
Corporation to be held on , 1996, at The University Club, One West 54th
Street, New York, New York, at 10:00 a.m., (local time).
The enclosed Notice of Meeting and Proxy Statement/Prospectus cover the
formal business of the meeting, which includes proposals to elect eight
directors, including two directors to be elected by holders of the Company's
Preferred Stock, and to ratify the appointment of Ernst & Young LLP, certified
public accountants, as Datapoint's independent auditors for the fiscal year
ending July 27, 1996. Stockholders will also consider and vote upon the adoption
of the 1996 Director Stock Option Plan and the 1996 Employee Stock Option Plan.
In addition, stockholders will consider and vote upon an amendment to
Datapoint's certificate of incorporation providing for the reclassification and
conversion of each outstanding share of the Company's Preferred Stock into 3.25
shares of Common Stock. AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF
DATAPOINT HAS APPROVED THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION AND RECOMMENDS THAT ALL STOCKHOLDERS VOTE FOR THE APPROVAL
THEREOF.
In addition, Datapoint is offering to exchange, upon the terms and subject
to the conditions set forth in the enclosed Proxy Statement/Prospectus, for each
share of its $1.00 Exchangeable Preferred Stock, $20 liquidation preference per
share, 3.25 shares of Common Stock of the Company.
You are cordially invited to attend the Annual Meeting. In any event, in
order that we may be assured of a quorum, we request that you complete, sign,
date and return the enclosed proxy as soon as possible. Your vote is important
regardless of the number of shares you own.
Sincerely,
ASHER B. EDELMAN
CHAIRMAN OF THE BOARD
, 1996
<PAGE>
DATAPOINT CORPORATION
8410 Datapoint Drive 4 rue d'Aguesseau
San Antonio, Texas 78229 75008 Paris, France
(210) 593-7000 (33 1) 4007-3737
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 1996
------------------------
TO THE STOCKHOLDERS
NOTICE IS HEREBY GIVEN, that the Annual Meeting of Stockholders of Datapoint
Corporation, a Delaware corporation ("Datapoint" or "Company"), will be held on
, 1996, at The University Club, One West 54th Street, New York, New
York, at 10:00 a.m., (local time) for the following purposes.
(1) Election of six directors by holders of Datapoint's Common Stock, to
serve until the next Annual Meeting of Stockholders and until their
successors are elected and qualified.
(2) Election of two directors by holders of Datapoint's Preferred Stock, to
serve until the next Annual Meeting of Stockholders and until their
successors are elected and qualified.
(3) Consideration and approval of an amendment to Datapoint's certificate of
incorporation providing for the reclassification and conversion of all
outstanding shares of Datapoint's Preferred Stock into shares of Common
Stock.
(4) Ratification of the appointment of Ernst & Young LLP, certified public
accountants, as Datapoint's independent auditors for the fiscal year
ending July 27, 1996.
(5) Consideration and approval of the 1996 Director Stock Option Plan and
the 1996 Employee Stock Option Plan.
(6) Transaction of such other business as properly may come before the
Annual Meeting or any adjournment thereof.
In addition, Datapoint is offering to exchange, upon the terms and subject
to the conditions set forth in the enclosed Proxy Statement/Prospectus, for each
share of its $1.00 Exchangeable Preferred Stock, $20 liquidation preference per
share, 3.25 shares of Common Stock of the Company.
The Company's Amended and Restated By-laws (the "Bylaws") generally provide
that no matters may be brought before any stockholders meeting by a stockholder
unless the Company has receive notice of the proposed matter from the
stockholder no later than sixty (60) days before the date of the meeting or, in
certain cases, ten (10) days following public announcement thereof, at its
principal executive offices. The Company has not received notice of any such
proposal.
Pursuant to the Bylaws of Datapoint and action taken by the Board of
Directors of Datapoint, , 1996, has been fixed as the record date for
the determination of the stockholders entitled to notice and to vote at the
Annual Meeting and any adjournment thereof.
Whether or not you plan to attend the Annual Meeting, please complete, date
and sign the enclosed proxy and return it promptly to Datapoint in the return
envelope enclosed for your use, which requires no postage if mailed in the
United States. You may revoke your proxy at any time before it is voted by
filing with the Secretary of Datapoint a written revocation of a proxy bearing a
later date, or by attending and voting at the Annual Meeting in person.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD IN ORDER THAT A QUORUM MAY BE ASSURED. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE, SIGN, DATE AND
MAIL THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED PRE-PAID ENVELOPE AS
SOON AS POSSIBLE.
By order of the Board of Directors,
GERALD N. AGRANOFF
CORPORATE SECRETARY
San Antonio, Texas
, 1996
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE>
DATAPOINT CORPORATION
PROXY STATEMENT/PROSPECTUS
---------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 1996
------------------------
This combined Notice of Annual Meeting, Proxy Statement/Prospectus is being
furnished to holders (each a "Holder") of shares of the common stock and
preferred stock (collectively, the "Stock") of Datapoint Corporation, a Delaware
corporation ("Datapoint" or "Company"), in connection with the solicitation of
proxies by the Board of Directors of Datapoint for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on , 1996, at The
University Club, One West 54th Street, New York, New York at 10:00 a.m., local
time, and at any adjournment thereof. This document also serves as a prospectus
of the Company in connection with the offer to exchange for each share of its
$1.00 Exchangeable Preferred Stock, $20 liquidation preference per share (the
"Preferred Stock"), 3.25 shares of the common stock, par value $.25 per share,
of the Company (the "Common Stock"). This combined Notice of Annual Meeting,
Proxy Statement/Prospectus and the enclosed form of proxy are first being mailed
to stockholders of Datapoint on or about , 1996.
On July 15, 1996, the issued and outstanding voting capital stock of
Datapoint consisted of 13,929,173 shares of Common Stock (excluding 7,062,044
shares held in the treasury of Datapoint), held by approximately 3,150 holders
of record and 1,868,056 shares of Preferred Stock held by approximately 432
holders of record.
The accompanying proxy is solicited on behalf of the Board of Directors of
Datapoint.
VOTING RIGHTS AND PROXY INFORMATION
The Board of Directors has fixed the close of business on , 1996,
as the record date ("Record Date") for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting. Each holder of Stock on
the Record Date is entitled to cast one vote per share. The affirmative vote of
a majority of the shares of Common Stock represented at the Annual Meeting and
entitled to vote is required to ratify the appointment of auditors and to
approve the stock option plans. A plurality vote of the shares of Common Stock
represented at the Annual Meeting and entitled to vote is required to elect the
persons nominated as directors to be elected by the holders of Common Stock. The
affirmative vote of two-thirds of the outstanding shares of Preferred Stock and
a majority of the outstanding shares of the Common Stock is required to approve
the adoption of the amendment to the Company's certificate of incorporation. A
plurality vote of the shares of Preferred Stock represented at the Annual
Meeting and entitled to vote is required to elect the persons nominated as
directors to be elected by the holders of Preferred Stock.
All shares of Stock represented at the Annual Meeting by properly executed
proxies received prior to or at the Annual Meeting, and not revoked, will be
voted at the Annual Meeting in accordance with the instructions thereon. If no
instructions are indicated, proxies will be voted for the election of the
nominees as set forth in the Proxy Statement/Prospectus and in favor of the
other proposals referred to above. Abstentions will have the effect of a vote
against all proposals other than the election of directors. Under the rules of
the New York Stock Exchange (the "NYSE"), the proposal to adopt the amendment to
the certificate of incorporation and the proposal to adopt the stock option
plans are considered "non-discretionary items" whereby brokerage firms may not
vote in their discretion on behalf of their clients if such clients have not
furnished voting instructions. Such broker "non-votes" will have the same effect
as a vote against the certificate of amendment, but will have no effect on the
proposals to adopt the stock option plans. Withheld votes and broker non-votes
will not affect the votes required for election of directors.
(COVER CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE
CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION
NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE FAIRNESS OR
MERITS OF THIS TRANSACTION OR UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1996.
<PAGE>
(CONTINUED FROM COVER PAGE)
Datapoint does not know of any matters, other than as described in the
Notice of Annual Meeting, which are to come before the Annual Meeting. If any
other matters are properly presented at the Annual Meeting for action, the
persons named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment.
A proxy given pursuant to this solicitation may be revoked at any time
before it is voted. Proxies may be revoked (i) by filing with the Corporate
Secretary of Datapoint at or before the Annual Meeting a written notice of
revocation bearing a later date than the proxy, (ii) by duly executing a
subsequent proxy relating to the same shares and delivering it to the Corporate
Secretary of Datapoint at or before the Annual Meeting or (iii) by attending the
Annual Meeting and voting in person (although attendance at the Annual Meeting
will not in and of itself constitute revocation of a proxy). Any written notice
revoking a proxy should be delivered to Mr. Gerald N. Agranoff, Corporate
Secretary, Datapoint Corporation, 8410 Datapoint Drive, San Antonio, Texas
78229-8539.
THE EXCHANGE OFFER AND STOCK SOLICITATION
Datapoint Corporation hereby offers (the "Exchange Offer"), upon the terms
and subject to the conditions set forth in this Proxy Statement/Prospectus (the
"Proxy Statement/Prospectus") and in the accompanying Proxy and Letter of
Transmittal, to exchange for each share of its Preferred Stock, 3.25 shares of
the Common Stock of the Company (such shares of Common Stock being issued in
exchange for the Preferred Stock being referred to herein as the "Exchange
Consideration").
Concurrently with the Exchange Offer, the Company is soliciting (the "Stock
Solicitation"), in person or by proxy (the "Stock Proxies"), from holders of
outstanding shares of Preferred Stock and Common Stock votes with respect to an
amendment to the certificate of incorporation of the Company (the "Charter").
Such amendment would immediately upon the filing of the amendment with the
Secretary of State of the State of Delaware, reclassify and change each share of
Preferred Stock (inclusive of accumulated dividends) into 3.25 shares of Common
Stock (the "Preferred Stock Amendment"). The votes of holders of at least two-
thirds of the outstanding shares of Preferred Stock, voting separately as a
class, and a majority of the outstanding shares of Common Stock, voting
separately as a class (the "Requisite Votes"), is required to approve the
Preferred Stock Amendment. If the Preferred Stock Amendment becomes effective,
all shares of Preferred Stock will be subject to the Preferred Stock Amendment
and will be automatically reclassified and changed into shares of Common Stock,
regardless of whether the holder thereof voted therefor. Assuming the Preferred
Stock Amendment is approved and filed with the Secretary of State of Delaware,
the Company promptly thereafter will commence exchange of certificates
representing shares of Preferred Stock in accordance with the terms of the
Preferred Stock Amendment (the "Preferred Stock Reclassification").
No fractional shares of Common Stock will be issued in the exchange offer.
Each person otherwise entitled to a fractional share of Common Stock will
receive a payment in cash in lieu of such fractional share based upon the
average of the high and low prices of the Common Stock on the NYSE on the
Expiration Date.
THE EXCHANGE OFFER WILL EXPIRE AT 10:00 A.M., NEW YORK CITY TIME, ON
, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERED SHARES OF
PREFERRED STOCK MAY BE WITHDRAWN AT ANY TIME UNTIL THE EXPIRATION DATE AND STOCK
PROXIES MAY BE REVOKED AT ANY TIME UNTIL THE PREFERRED STOCK AMENDMENT HAS BEEN
APPROVED AT THE ANNUAL MEETING.
From and including October 15, 1994, the Company has not paid the
regularly-scheduled quarterly dividends payable on the Preferred Stock. Under
the terms of the certificate of designation of preferences, rights and
limitations establishing the Preferred Stock (the "Preferred Stock
Designation"), whenever quarterly dividends payable on the Preferred Stock are
in arrears in an aggregate amount at least equal to six full quarterly
dividends, the number of directors constituting the Board of Directors of the
Company shall be increased by two, and the holders of the Preferred Stock shall
have the right to elect two directors of the Company at the next succeeding
annual meeting of stockholders. As a result, as of January 16, 1996, the Holders
of Preferred Stock have the right to elect two directors (the "Preferred
Directors") to the Board of Directors of the Company (the "Election Right") at
the Annual Meeting. If the Preferred Stock Amendment is adopted and the
Preferred Stock Reclassification is consummated, the Preferred Directors will
remain in their capacities as directors until the completion of their term or
until their earlier resignation or removal. If the Preferred Stock Amendment is
not adopted, at the next annual meeting of stockholders and at each successive
annual meeting thereafter until all dividend arrearages on the Preferred Stock
have been eliminated, the Holders of Preferred Stock will continue to have the
right to elect two directors to the Board of Directors.
(COVER CONTINUED ON NEXT PAGE)
2
<PAGE>
(CONTINUED FROM COVER PAGE)
Holders of Preferred Stock whose shares are tendered and exchanged in the
Exchange Offer will relinquish their right to (i) receive any accumulated
dividends with respect to such shares of Preferred Stock; (ii) elect two
directors to the Board of Directors of the Company at any future annual meetings
of stockholders and (iii) receive the liquidation preference of $20 per share in
the event of the liquidation, dissolution or winding up of the Company. See
"Risk Factors -- Risk Associated with Investment in the Exchange Consideration"
and "Annex A -- Description of Preferred Stock."
Upon consummation of the Exchange Offer, the equity interest of the current
Holders of Common Stock would be diluted to (i) approximately 70% of the total
of issued and outstanding shares of Common Stock, assuming the Preferred Stock
Reclassification is consummated and all of the Preferred Stock is reclassified
as Common Stock or (ii) approximately 82% of the total of issued and outstanding
shares of Common Stock, assuming the 50% Tender Assumption (as defined herein).
See "Background; Purposes and Effects of the Exchange Offer -- Dilution".
At the Annual Meeting of Stockholders, the Holders of Preferred Stock have
the right to elect two directors to the Board of Directors in connection with
the Election Right. See "Election of Directors." In the event that the Preferred
Stock Reclassification is consummated, the Preferred Directors will remain in
their capacities as directors until the completion of their term or until their
earlier resignation or removal. If the Preferred Stock Reclassification is not
consummated, Holders of Preferred Stock will continue to have the right, voting
separately as a class, to elect two directors at the next annual meeting of
stockholders and at each successive annual meeting thereafter until all dividend
arrearages on the Preferred Stock have been eliminated. See "Background;
Purposes and Effects of the Exchange Offer -- Certain Consequences to Holders of
Preferred Stock That Is Not Exchanged" and "Annex A -- Description of Preferred
Stock."
If the Preferred Stock Reclassification is not consummated (i) quarterly
dividends payable on the Preferred Stock shall continue to accrue on the shares
of Preferred Stock that remain outstanding following the Exchange Offer; (ii)
Holders of Preferred Stock will continue to have a liquidation preference of $20
per share in the event of the liquidation, dissolution or winding up of the
Company; and (iii) until all dividend arrearages on the Preferred Stock have
been eliminated (a) Holders of such Preferred Stock shall continue to have the
right to elect two directors of the Company at the next annual meeting of
stockholders and at each successive annual meeting of stockholders thereafter
and (b) each of the outstanding shares of Preferred Stock shall, at the option
of the holder thereof, continue to be exchangeable into two shares of Common
Stock in accordance with the terms of the Preferred Stock Designation. See
"Annex A -- Description of Preferred Stock."
Consummation of the Exchange Offer with the issuance of the Exchange
Consideration is conditioned on, among other things, there not having occurred
certain material changes in the business or financial affairs of the Company.
Notwithstanding the approval of the Preferred Stock Amendment at the Annual
Meeting, the Board of Directors reserves the right to abandon filing the
Preferred Stock Amendment and consummation of the Preferred Stock
Reclassification. See "The Exchange Offer -- Conditions." All references herein
to the Exchange Offer shall be deemed to include the Stock Solicitation, unless
otherwise required by context or specified herein.
Shareholder Communications Corporation (the "Solicitation Agent") is acting
as solicitation agent for the Company in connection with the Exchange Offer and
will be compensated therefor. For information regarding the relationship of
Shareholder Communications Corporation to the Company, the fees to be paid to,
and the indemnification of Shareholder Communications Corporation, see the "The
Exchange Offer -- Solicitation Agent."
Corporate Capital Consultants, Inc. ("Corporate Capital") has delivered to
the Independent Committee (as defined herein) its written opinion concluding
that the Exchange Consideration to be received by exchanging Holders of
Preferred Stock is fair, from a financial point of view, to such holders (other
than Asher B. Edelman, Chairman of the Board, Chief Executive Officer and a
significant holder of Preferred Stock and Common Stock, with respect to whom no
opinion was requested). Patricof & Co. Capital Corp. ("Patricof") has delivered
to the Board of Directors its written opinion concluding that the Exchange
Consideration to be paid to exchanging Holders of Preferred Stock is fair, from
a financial point of view, to the Holders of Common Stock (other than Mr.
Edelman, with respect to whom no opinion was requested). Neither Corporate
Capital's opinion nor Patricof's opinion addresses the Company's underlying
business decision to proceed with the Exchange Offer. See "Background; Purposes
and Effect of the Exchange Offer -- Fairness Opinions" and Annexes B and C
hereto.
THE SOLICITATION AGENT FOR THE EXCHANGE OFFER IS:
SHAREHOLDER COMMUNICATIONS CORPORATION
THIS PROXY STATEMENT/PROSPECTUS IS FIRST BEING MAILED TO HOLDERS ON ,
1996.
3
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities offered hereby. The Company has also filed
a Schedule 13E-4 (the "Schedule 13E-4") with the Commission with respect to the
Exchange Offer. As permitted by the rules and regulations of the Commission,
this Proxy Statement/Prospectus omits certain information, exhibits and
undertakings contained (or to be contained) in the Registration Statement and
the Schedule 13E-4. Such additional information, exhibits and undertakings can
be inspected at and obtained from the Commission in the manner set forth below.
For further information with respect to the securities offered hereby and the
Company, reference is made to the Registration Statement, the financial
schedules and exhibits filed as a part thereof, and to the Schedule 13E-4 and
the exhibits thereto. Statements contained in this Proxy Statement/Prospectus as
to the terms of any contract or other document are not necessarily complete,
and, in each case, reference is made to the copy of each such contract or other
document that has been filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports and other information with the Commission.
Such reports and other information filed with the Commission, as well as the
Registration Statement and the Schedule 13E-4, can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and should also be available at the
Commission's regional offices located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and 14th Floor, 75
Park Place, New York, New York 10007. Copies of such material can also be
obtained by mail from the Public Reference Section of the Commission at Room
1024, 450 Fifth Street, N.W. Washington, D.C. 20549 at prescribed rates. Copies
of the Preferred Stock Designation and the Preferred Stock Amendment may also be
obtained from the Company upon request to the Company at its offices located at
8410 Datapoint Drive, San Antonio, Texas 78229-8500. The Preferred Stock and the
Common Stock are each listed on the NYSE. Reports and other information
concerning Datapoint and its subsidiaries can also be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005.
No person has been authorized to give any information or to make any
representations, other than those contained in this Proxy Statement/Prospectus.
If given or made, such information or representation may not be relied upon as
having been authorized by Datapoint. Datapoint is not aware of any jurisdiction
in which the making of the Stock Solicitation is not in compliance with
applicable law. If Datapoint becomes aware of any jurisdiction in which the
making of the Stock Solicitation would not be in compliance with applicable law,
Datapoint will make a good faith effort to comply with such law. If, after such
good faith effort, Datapoint cannot comply with any such law, the Stock
Solicitation will not be solicited from Holders residing in such jurisdictions.
In any jurisdiction where the securities, blue sky or other laws require the
Stock Solicitation to be made by a licensed broker or dealer, the Stock
Solicitation will be deemed to be made on behalf of Datapoint by the
Solicitation Agent or one or more registered brokers or dealers licensed under
the laws of such jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of securities hereunder shall under
any circumstances create any implication that the information contained herein
is correct as of any time subsequent to the date hereof or that there has been
no change in the information set forth herein or in the affairs of Datapoint or
its subsidiaries since the date hereof.
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS.
THE COMPANY
Datapoint Corporation is principally engaged in the development,
manufacture, acquisition, marketing and servicing of computer and communication
products -- both hardware and software -- for integrated computer,
telecommunication and video conferencing network systems. Datapoint provides a
full spectrum of network-based solutions that both support and incorporate
industry standards: local and wide area networking, UNIX networking, video
networking, image distribution, telephony, relational database management,
distributed data processing, multi-vendor connectivity, and large-scale network
data systems.
Datapoint sells generally to businesses and governments and markets its
products in the United States and through a network of wholly-owned subsidiaries
and independent distributors in over forty countries.
The Company was organized under the laws of the State of Delaware on
September 20, 1976, as the successor corporation to a Texas corporation
originally incorporated in 1968 as Computer Terminal Corporation and which
changed its name to Datapoint Corporation in 1972. Its principal executive
offices are located at 4 rue d'Aguesseau, 75008 Paris, France (telephone number
- -- 011-331-4007-3737) and at 8410 Datapoint Drive, San Antonio, Texas 78229-8500
(telephone number -- (210) 593-7000).
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The Company is currently seeking to improve its financial position through a
variety of strategies designed to restructure its balance sheet. The Exchange
Offer is designed to reduce or eliminate the accumulated but unpaid dividends on
the Preferred Stock (aggregating approximately $3.7 million through and
including July 15, 1996) and eliminate the future expenditure for dividend
payments on the Preferred Stock. Holders of Preferred Stock who tender in the
Exchange Offer will receive for each share tendered 3.25 shares of Common Stock
upon the consummation of the Exchange Offer and the issuance of the Exchange
Consideration. If the Requisite Votes are not received at the Annual Meeting,
the Company shall accept for exchange such Preferred Stock tendered in the
Exchange Offer and not withdrawn as of the Expiration Date, provided that at
least 66 2/3% of the outstanding shares of Preferred Stock has been tendered and
not withdrawn as of the Expiration Date. If less than 66 2/3% of the outstanding
shares of Preferred Stock has been tendered and not withdrawn as of the
Expiration Date, the Company may elect to accept for exchange such shares of
Preferred Stock in whole, or in the alternative, to not accept any such shares
for exchange. In the event that the Requisite Votes are received at the Annual
Meeting, then, immediately upon the filing of the Preferred Stock Amendment with
the Secretary of State of the State of Delaware and as a result of the Preferred
Stock Reclassification, each outstanding share of Preferred Stock (inclusive of
accrued and unpaid dividends) will be automatically reclassified and changed
into 3.25 shares of Common Stock. If the Preferred Stock Amendment is not
adopted, shares of Preferred Stock that are not exchanged in the Exchange Offer
will remain outstanding, and (i) quarterly dividends payable on the Preferred
Stock shall continue to accrue on such shares of Preferred Stock; (ii) Holders
of Preferred Stock will continue to have a liquidation preference of $20 per
share in the event of the liquidation, dissolution or winding up of the Company;
and (iii) until all dividend arrearages on the Preferred Stock have been
eliminated (a) the Holders of such shares will have the right, voting separately
as a class, to elect two directors to the Company's Board of Directors at the
next annual meeting of stockholders (and at each successive annual meeting
thereafter) and (b) each of the outstanding shares of Preferred Stock shall, at
the option of the holder thereof, continue to be exchangeable into two shares of
Common Stock in accordance with the terms of the Preferred Stock Designation.
See "Election of Directors"; "The Preferred Stock Amendment" and "Annex A --
Description of Preferred Stock." Holders of Common Stock of the Company will be
diluted upon consummation of the Exchange Offer. See "Background; Purposes and
Effects of the Exchange Offer -- Dilution". However, the Company believes that
the value of the Common Stock issued in
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the Exchange Offer or the Preferred Stock Reclassification, as the case may be,
should reflect the reduction or elimination of accumulated dividends on the
Preferred Stock, the extinguishment of future dividend payments and the
reduction or elimination of the Preferred Stock liquidation preference, as the
case may be.
The Company previously proposed an exchange offer for its 8 7/8% Convertible
Subordinated Debentures due 2006 (the "Debentures") in 1991, which was later
withdrawn, and an exchange offer for its $4.94 Exchangeable Preferred Stock, $38
liquidation preference per share (the "Old Preferred Stock"), which was
consummated in April, 1992 (the "1992 Preferred Stock Exchange") with the
issuance of shares of the Preferred Stock and Common Stock. The Company is
currently seeking to restructure its balance sheet through a variety of
strategies, including the Exchange Offer and Stock Solicitation. See
"Background; Purposes and Effects of the Exchange Offer -- Background" and "--
Recent Developments."
The terms of the Exchange Offer were developed by management of the Company
in consultation with the Company's financial advisor, Patricof, and have been
approved by the Board of Directors upon recommendation by an independent
committee of the Board of Directors (the "Independent Committee"). The Board of
Directors, members of the Company's management and representatives of Corporate
Capital held discussions with the Independent Committee and its counsel in
developing the terms of the Exchange Offer. See "Background; Purposes and
Effects of the Exchange Offer -- Background"; "-- Determinations of the Board of
Directors" and "-- Fairness Opinions."
In order for the Company to meet certain of its obligations and to improve
its financial position, the Company is pursuing actions to provide additional
cash infusions, including the sale of selected assets and operations of the
Company ("Dispositions"). On May 28, 1996, the Company entered into an agreement
with Kalamazoo Computer Group, plc, a public limited company organized under the
laws of England ("Kalamazoo"), providing for the sale by Datapoint to Kalamazoo
of Datapoint's European based Automotive Dealer Management Systems division
("EADS") for a purchase price of approximately $33 million.
Of the approximately $29.6 million net proceeds received from the above
sale, the Company paid $850,000 to satisfy and discharge in full the outstanding
senior secured indebtedness owing to the CIT Group/Credit Finance ("CIT") and
paid Northern Telecom Inc. ("NTI"), one of its two generally secured creditors,
$2.2 million representing the two deferred principal payments on secured debt
which were due in December 1994 and December 1995, as well as accrued and unpaid
interest. In addition, the proceeds from the Kalamazoo transaction enabled the
Company to pay by June 30, 1996 (within the 30-day grace period measured from
June 1, 1996) the $2.857 million interest payment on the Debentures. On July 1,
1996, Datapoint entered into an agreement with NTI pursuant to which Datapoint
paid $5.05 million to NTI in full satisfaction of all amounts due and to be due
under a 1992 agreement Datapoint had entered into with NTI to resolve a patent
dispute. The prepayment agreement relieves the Company of its obligation to make
annual $1 million payments to NTI that commenced in 1992 and of which seven
payments remained to be made, as well as certain contingent payment obligations.
The balance of the proceeds from the sale of EADS will be utilized by Datapoint
for working capital purposes and to pay other obligations of the Company. This
may include, from time to time, repurchasing in the public market or in
privately negotiated transactions the Debentures or otherwise reducing existing
debt owed by the Company to its creditor groups. See "Background; Purposes and
Effects of the Exchange Offer -- Recent Developments."
For a summary description of certain pro forma financial effects of the
Exchange Offer, including after giving effect to certain of the Dispositions,
see "Pro Forma Unaudited Financial Information." For a description of the
consequences to the Holders of Preferred Stock whose shares of Preferred Stock
are not tendered and exchanged in the Exchange Offer in the event the Preferred
Stock Amendment is not adopted, see "Risk Factors -- Risks Associated With
Retention of the Preferred Stock -- Certain Consequences to Non-Tendering
Holders" and "Background; Purposes and Effects of the Exchange Offer -- Certain
Consequences to Holders of Preferred Stock That Is Not Exchanged."
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COMPARISON OF THE PREFERRED STOCK AND COMMON STOCK
The terms of the Common Stock differ from the terms of the Preferred Stock
in certain respects, including dividend rights and rights on liquidation of the
Company. For a discussion of the terms of the Common Stock, see "Description of
Common Stock." The terms of the Preferred Stock are described in Annex A to this
Proxy Statement/Prospectus.
RISK FACTORS
Retention of the Preferred Stock or investment in the Common Stock, as the
case may be, is subject to a number of material risks. Prior to deciding whether
to accept the offer of Common Stock in the Exchange Offer and/or to vote for the
Preferred Stock Amendment, each Holder should carefully consider all of the
information contained in this Proxy Statement/Prospectus, especially the factors
mentioned in "Risk Factors." For a further discussion of considerations relating
solely to the retention of the Preferred Stock in the event the Preferred Stock
Amendment is not adopted, see "Background; Purposes and Effects of the Exchange
Offer -- Certain Consequences to Holders of Preferred Stock That Is Not
Exchanged."
THE EXCHANGE OFFER
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The Exchange Offer..................... For each share of Preferred Stock, $20 liquidation
preference per share: 3.25 shares of Common Stock.
If the Requisite Votes are received at the Annual
Meeting then, as a result of the adoption of the
Preferred Stock Amendment and immediately upon
filing of the Preferred Stock Amendment with the
Secretary of State of the State of Delaware, all
shares of Preferred Stock will be subject to the
Preferred Stock Amendment and each share (inclusive
of accrued and unpaid dividends) will be
automatically reclassified as and changed into 3.25
shares of Common Stock, regardless of whether the
holder thereof voted therefor.
Dividends.............................. The Company has not paid the eight regularly
scheduled quarterly dividends payable on the
Preferred Stock accumulated from and including
October 15, 1994 through and including July 15,
1996, aggregating approximately $3.7 million ($2.00
per share of Preferred Stock). Quarterly dividends
on the Preferred Stock currently accrue at a rate
of approximately $472,000 per quarter ($.25 per
share). Holders of Preferred Stock whose shares are
tendered and exchanged in the Exchange Offer will
relinquish their right to (i) receive any accrued
and unpaid dividends on the Preferred Stock; (ii)
elect two directors to the Board of Directors of
the Company at the next annual meeting of
stockholders and each successive annual meeting
thereafter until such dividend arrearage is
eliminated; and (iii) receive the liquidation
preference of $20 per share in the event of the
liquidation, dissolution or winding up of the
Company. See "The Exchange Offer -- Dividends on
Preferred Stock"; "Election of Directors" and "Risk
Factors -- Risks Associated With Investment in the
Exchange Consideration."
Election of Directors.................. At the Annual Meeting, the Holders of Preferred
Stock have the right to elect two directors to the
Board of
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Directors in connection with Election Right. In the
event that the Preferred Stock Reclassification is
consummated, the Preferred Directors will remain in
their capacities as directors until the completion
of their term or until their earlier resignation or
removal. In the event that the Preferred Stock
Reclassification is not consummated, Holders of
Preferred Stock whose shares are not exchanged in
the Exchange Offer shall have the right, voting
separately as a class, to elect two directors to
the Board of Directors at the next annual meeting
of stockholders (and at each successive annual
meeting thereafter until all the dividend
arrearages on the Preferred Stock have been
eliminated). See "Election of Directors."
Liquidation Preference Outstanding..... As of July 15, 1996, there were 432 record holders
of Preferred Stock, and there was outstanding
approximately $41.1 million aggregate liquidation
preference (1,868,056 shares) (which includes
accumulated but unpaid dividends of approximately
$3.7 million through and including July 15, 1996)
of Preferred Stock. Holders of Preferred Stock
whose shares are tendered and exchanged in the
Exchange Offer will relinquish their right to
receive any liquidation preference with respect to
such shares in the event of the liquidation,
dissolution or winding up of the Company.
Conditions to Exchange Offer........... The consummation of the Exchange Offer is
conditioned on, among other things, there not
having occurred certain material changes in the
business or financial affairs of the Company. See
"The Exchange Offer -- Conditions."
Certain Consequences to Holders of
Preferred Stock That Is Not
Exchanged............................. If the Requisite Votes are not received at the
Annual Meeting and the Company accepts for tender
those shares of Preferred Stock that were tendered
and not withdrawn in the Exchange Offer, certain
adverse consequences may occur to Holders of
Preferred Stock whose shares are not tendered and
exchanged in the Exchange Offer, including the
following: (i) the trading market for untendered
and unexchanged shares of Preferred Stock may
become more limited, which may affect the liquidity
and market price of the Preferred Stock and (ii)
the Company may determine not to pay dividends on
the Preferred Stock as a result of its financial
position, and as such, the dividend arrearages on
the Preferred Stock will continue to accumulate and
remain unpaid and negatively impact the Company's
ability to improve its financial position. However,
Holders of shares of Preferred Stock not exchanged
in the Exchange Offer will (i) until all dividend
arrearages on the Preferred Stock are eliminated,
have the right to (a) elect two directors of the
Company at the next annual meeting of stockholders
and at all successive annual meetings thereafter,
voting separately as a class, and (b) exchange each
share of Preferred Stock (inclusive of accrued and
unpaid dividends) for two shares of Common Stock;
(ii) continue to be entitled to a $20 liquidation
preference, plus an amount
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equal to accrued and unpaid dividends, in the event
of the liquidation, dissolution or winding up of
the Company; and (iii) continue to be senior to any
claims of the Holders of Common Stock, including
Common Stock issued in the Exchange Offer, in the
event of the bankruptcy, liquidation or
reorganization of the Company. See "Risk Factors --
Risks Associated With Retention of the Preferred
Stock" and "Background; Purposes and Effects of the
Exchange Offer -- Certain Consequences to Holders
of Preferred Stock That Is Not Exchanged."
THE ANNUAL MEETING
Date, Time and Place of Annual
Meeting............................... The Annual Meeting of Stockholders of the Company
will be held on , 1996, at 10:00 a.m.,
local time, at The University Club, One West 54th
Street, New York, New York. The holders of a
majority of the outstanding shares of Common Stock
entitled to vote must be present at the meeting in
person or by proxy to constitute a quorum for the
transaction of business by the Holders of Common
Stock. The holders of a majority of the outstanding
shares of Preferred Stock must be present in person
or by proxy to constitute a quorum for the
transaction of business by the Holders of Preferred
Stock.
Record Date............................ Only Holders of shares of Preferred Stock and
Common Stock at the close of business on
, 1996 (the "Record Date") are entitled
to notice of the Annual Meeting and only Holders of
record of shares of Preferred Stock and Common
Stock on the Record Date or any persons who have
obtained a properly completed proxy from such
record holders are entitled to vote at the Annual
Meeting.
Purposes of the Annual Meeting......... (1) Election of eight directors, six directors by
holders of Common Stock, voting separately as a
class, and two directors by holders of Preferred
Stock, voting separately as a class, (2) To
consider and vote upon the approval and adoption of
the Preferred Stock Amendment; (3) Ratification of
the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year
ending July 27, 1996; (4) To consider and vote upon
the Company's 1996 Director Stock Option Plan and
the 1996 Employee Stock Option Plan; and (5)
Transaction of such other business as may properly
come before the Annual Meeting or any adjournment
thereof. See "Election of Directors"; "The
Preferred Stock Amendment"; "Ratification and
Appointment of Auditors"; "1996 Director Stock
Option Plan" and "1996 Employee Stock Option Plan."
Vote Required.......................... A plurality vote of the shares of Preferred Stock
represented at the Annual Meeting and entitled to
vote is required to elect the persons nominated as
Preferred Directors. A plurality vote of the shares
of Common Stock
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represented at the Annual Meeting and entitled to
vote is required to elect the persons nominated as
directors to be elected by the Holders of Common
Stock. The affirmative vote of the Holders of at
least (i) two-thirds in number of the outstanding
shares of Preferred Stock, voting separately as a
class, and (ii) a majority in number of the
outstanding shares of Common Stock, voting
separately as a class, is required to approve the
Preferred Stock Amendment. The affirmative vote of
the Holders of at least a majority in number of the
shares of Common Stock represented at the Annual
Meeting and entitled to vote is required to ratify
the appointment of auditors, to approve the
adoption of the stock option plans, and to approve
all other business that may come before the
meeting.
On July 15, 1996, there were approximately
1,868,056 shares of Preferred Stock and
approximately 13,929,173 shares of Common Stock
outstanding and entitled to vote at the Annual
Meeting, which shares were held of record by
approximately 432 Holders and 3,150 Holders,
respectively. Holders of Preferred Stock are
entitled to cast one vote per share of Preferred
Stock, either in person or by properly executed
proxy. Holders of Common Stock are entitled to cast
one vote per share of Common Stock, either in
person or by properly executed proxy. As of July
15, 1996, Asher B. Edelman, Chairman of the Board
of the Company, and corporations and partnership
with which he is affiliated are the beneficial
owners of an aggregate of approximately 11.8% of
the outstanding shares of Preferred Stock and
approximately 12.1% of the outstanding shares of
Common Stock, and all of the other executive
officers and directors of the Company as a group
are the beneficial owners of an aggregate of
approximately an additional 1.5% of the outstanding
shares of Preferred Stock and approximately an
additional 2.0% of the outstanding shares of Common
Stock (in each case excluding shares also
beneficially owned by Mr. Edelman). Mr. Edelman and
the corporations and partnerships with which he is
affiliated and the other officers and directors of
the Company have indicated their present intention
to tender their shares of Preferred Stock in the
Exchange Offer and to vote in favor of the
Preferred Stock Amendment. See "Security Ownership
of Certain Beneficial Owners and Management."
THE PREFERRED STOCK AMENDMENT
Votes Required to Adopt the Proposed
Amendment............................. Approval of the Preferred Stock Amendment requires
the affirmative vote of the Holders of at least (i)
two-thirds in number of the outstanding shares of
Preferred Stock, voting separately as a class, and
(ii) a majority in number of the outstanding shares
of Common Stock, voting separately as a class.
Abstentions and broker "non-votes" will be
considered in determining the presence of a quorum
but
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will not be counted as a vote cast for the proposed
amendment, and as such will have the same effect as
a vote against the Preferred Stock Amendment.
The Preferred Stock Amendment.......... The Preferred Stock Amendment would add a provision
to the Charter that would, upon the filing of the
Preferred Stock Amendment with the Secretary of
State of the State of Delaware, automatically
reclassify and change each share of Preferred Stock
(inclusive of accrued and unpaid dividends) into
3.25 shares of Common Stock. The Company will
commence exchange of certificates representing
shares of Preferred Stock in accordance with the
terms of the Preferred Stock Amendment immediately
upon the filing of the Preferred Stock Amendment
with the Secretary of State of the State of
Delaware, assuming the Preferred Stock Amendment is
adopted and the Preferred Stock Reclassification is
consummated.
The Preferred Stock Amendment will eliminate all
outstanding Preferred Stock. Such elimination of
the Preferred Stock will eliminate accumulated
dividends, future dividend payment requirements,
the liquidation preference and the future right of
holders of Preferred Stock to elect two directors
to the Company's Board of Directors.
Notwithstanding the approval of the Preferred Stock
Amendment at the Annual Meeting, the Board of
Directors reserves the right to abandon filing the
Preferred Stock Amendment and consummation of the
Preferred Stock Reclassification.
GENERAL
Expiration Date........................ The Expiration Date for the Exchange Offer will be
10:00 a.m., New York City time, on ,
1996, unless extended, in which case the term
"Expiration Date" shall mean the last date to which
the Exchange Offer is extended. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
Holders................................ The term "Holder" means any person in whose name
shares of Preferred Stock or Common Stock are
registered on the books of the Company on the
Record Date or any person who has obtained a
properly completed stock power and/or a proxy from
the registered holder thereof.
How to Tender Preferred Stock in the
Exchange Offer........................ A Holder electing to tender Preferred Stock in the
Exchange Offer should either (i) complete and sign
the Letter of Transmittal, have the signatures
thereon guaranteed if required by Instruction 4
thereof and mail or deliver such Letter of
Transmittal with the Preferred Stock and any other
required documents to the Depositary at one of the
addresses set forth on the back cover page of this
Proxy Statement/Prospectus, or effect a tender of
Preferred Stock pursuant to the procedures for
book-entry transfer as set forth under "The
Exchange Offer -- How to Tender
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Preferred Stock in the Exchange Offer", or (ii)
request its broker, dealer, commercial bank, trust
company or other nominee to effect the transaction
for it. Holders will not be obligated to pay any
brokerage commissions or solicitation fees in
connection with the Exchange Offer. Holders of
Preferred Stock may submit a proxy for vote at the
Annual Meeting or vote in person at the Annual
Meeting regardless of whether such Holder tendered
its shares of Preferred Stock in the Exchange
Offer. See "The Exchange Offer -- How to Tender
Preferred Stock in the Exchange Offer."
How to Vote Preferred Stock in the
Stock Solicitation.................... A Holder of Preferred Stock desiring to vote in the
Stock Solicitation should complete and sign the
YELLOW proxy card and mail or deliver such proxy to
the Depositary at one of the addresses set forth on
the back cover page of this Proxy
Statement/Prospectus. Holders of Preferred Stock
may also vote their shares of Preferred Stock in
person at the Annual Meeting. Holders of Preferred
Stock whose purchase has been registered after the
Record Date and who wish to vote at the Annual
Meeting must arrange with their seller to receive a
proxy from the holder of record on the Record Date
of such Preferred Stock. Holders of Preferred Stock
may submit a proxy for vote at the Annual Meeting
or vote in person at the Annual Meeting regardless
of whether such Holder tendered its shares of
Preferred Stock in the Exchange Offer. See "The
Exchange Offer -- How to Vote Preferred Stock in
the Stock Solicitation."
How to Vote Common Stock in the Stock
Solicitation.......................... A Holder of Common Stock desiring to vote in the
Stock Solicitation should complete and sign the
WHITE proxy card and mail or deliver such proxy to
the Depositary at one of the addresses set forth on
the back cover page of this Proxy
Statement/Prospectus. Holders of Common Stock may
also vote their shares of Common Stock in person at
the Annual Meeting. Holders of Common Stock whose
purchase has been registered after the Record Date
and who wish to vote at the Annual Meeting must
arrange with their seller to receive a proxy from
the holder of record on the Record Date of such
Common Stock. See "The Exchange Offer -- How to
Vote Common Stock in the Stock Solicitation."
Withdrawal Rights and Revocation....... Tenders of shares of Preferred Stock may be
withdrawn at any time until the Expiration Date.
Notwithstanding the foregoing, tenders of shares of
Preferred Stock may also be withdrawn after the
expiration of forty business days from the date
hereof, if such Shares have not yet been accepted
for payment. Stock Proxies with respect to the
Preferred Stock Amendment may be revoked at any
time until the Preferred Stock Amendment has been
approved at the Annual Meeting. See "The Exchange
Offer -- Withdrawal of Tenders and Revocation of
Proxies."
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Acceptance of Preferred Stock and
Delivery of Common Stock.............. Subject to the satisfaction or waiver of all
conditions of the Exchange Offer, if the Preferred
Stock Amendment is not adopted, the Company will
accept for exchange such Preferred Stock validly
tendered and not withdrawn as of the Expiration
Date, provided that at least 66 2/3% of the
outstanding shares of Preferred Stock has been
tendered and not withdrawn as of the Expiration
Date. If less than 66 2/3% of the outstanding
shares of Preferred Stock has been tendered and not
withdrawn as of the Expiration Date, the Company
may elect to accept for exchange such shares of
Preferred Stock in whole, or in the alternative, to
not accept any such shares for exchange. The Common
Stock will be delivered in exchange for the
tendered Preferred Stock accepted in the Exchange
Offer promptly after acceptance on the Expiration
Date. If the Preferred Stock Amendment is adopted
and the Preferred Stock Reclassification is
consummated, the Common Stock will be delivered in
exchange for certificates representing the
Preferred Stock promptly after the filing of the
Preferred Stock Amendment with the Secretary of
State of the State of Delaware in accordance with
the terms of the Preferred Stock Amendment. See
"The Exchange Offer -- General."
Fractional Shares of Common Stock...... No fractional shares of Common Stock will be issued
in the Exchange Offer. Each person otherwise
entitled to a fractional share of Common Stock will
receive a payment in cash in lieu of such
fractional share based upon the average of the high
and low prices of the Common Stock on the NYSE on
the Expiration Date. See "The Exchange Offer --
General."
Dilution............................... Assuming the Preferred Stock Amendment is adopted
and all outstanding shares of Preferred Stock are
reclassified as and converted into shares of Common
Stock, the equity interest of the current holders
of Common Stock will be diluted to approximately
70% of the total of issued and outstanding shares
of Common Stock. Assuming the 50% Tender
Assumption, the equity interest of the current
Holders of Common Stock will be diluted to
approximately 82% of the total of issued and
outstanding shares of Common Stock. See
"Background; Purposes and Effects of the Exchange
Offer -- Dilution".
Dissenters' Rights..................... Holders of Preferred Stock and Holders of Common
Stock who do not vote for the Preferred Stock
Amendment will not have dissenters' rights under
applicable state law or under the Company's
Certificate of Incorporation, nor will dissenters'
rights be voluntarily accorded to Holders of
Preferred Stock or Holders of Common Stock in
connection with the Exchange Offer.
Federal Income Tax Consequences........ For a discussion of certain federal income tax
consequences of (i) the Exchange Offer and the
Preferred Stock Reclassification to Holders of
Preferred Stock, and (ii) the
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Exchange Offer and the Preferred Stock
Reclassification to the Company, see "Certain
Federal Income Tax Considerations."
Market and Trading Information for
Preferred Stock and Common Stock...... The Preferred Stock and Common Stock are each
currently listed on the NYSE. As of July 15, 1996,
there were approximately 3,150 record holders and
13,929,173 outstanding shares of Common Stock and
approximately 432 record holders and 1,868,056
outstanding shares of Preferred Stock. There can be
no assurance that an active market for the
Preferred Stock will continue following
consummation of the Exchange Offer if the Preferred
Stock Amendment is not adopted and no assurance can
be given as to the prices at which the Preferred
Stock and Common Stock might be traded or that the
Preferred Stock will continue to be listed on the
NYSE or any other national securities exchange.
With respect to the Common Stock, see "Risk Factors
-- Risks Associated with Investment in the Exchange
Consideration -- Leverage and Liquidity"; "--
Potential Impact on the Market Price of Common
Stock as a Result of Consummation of the Exchange
Offer"; and "-- Value of Common Stock Received".
With respect to the Preferred Stock, See "Risk
Factors -- Risks Associated with Retention of the
Preferred Stock -- NYSE Listing" and "-- Certain
Consequences to Non-Tendering Holders." See also
"Market Prices for Preferred Stock and Common
Stock."
Solicitation Agent..................... Shareholder Communications Corporation is serving
as Solicitation Agent in connection with the
Exchange Offer. Its telephone number is (800)
733-8481 Ext. 402. Requests for additional copies
of this Proxy Statement/Prospectus, the Preferred
Stock Proxy and Letter of Transmittal and the
Common Stock Proxy should be directed to the
Solicitation Agent at its address and telephone
number set forth on the back of this Proxy
Statement/Prospectus.
Depositary............................. Continental Stock Transfer & Trust Company has been
appointed as Depositary for the Exchange Offer.
Questions and requests for assistance may be
directed to the Depositary at (212) 509-4000 Ext.
227.
Further Information.................... For further information, contact Gerald N.
Agranoff, Vice President and General Counsel of the
Company, at (210) 593-7000.
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<PAGE>
HISTORICAL AND PRO FORMA UNAUDITED CAPITALIZATION
The following table sets forth the capitalization of the Company as of April
27, 1996 and as adjusted to give effect to the Exchange Offer as though it had
been consummated on April 27, 1996. The adjustments give effect to the Exchange
Offer under the 50% Tender Assumption and the 100% Conversion Assumption. The
information below should be read in conjunction with the Consolidated Financial
Statements and the Pro Forma Unaudited Financial Information and related notes
appearing elsewhere herein.
PRO FORMA CAPITALIZATION
DATAPOINT CORPORATION
APRIL 27, 1996
(Unaudited)
<TABLE>
<CAPTION>
50% 100%
TENDER ASSUMPTION CONVERSION ASSUMPTION
----------------------- -----------------------
(IN THOUSANDS) HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Short term debt:
Domestic revolving loan................................... $ 978 $ 978 $ 978
Foreign banks............................................. 16,156 16,156 16,156
---------- --------- ---------
17,134 17,134 17,134
---------- --------- ---------
Long term debt (including current maturities):
8 7/8% Convertible Subordinated Debentures................ 64,394 64,394 64,394
New Debt Securities, net of issue discount Real estate
notes...................................................... 622 622 622
Other obligations......................................... 7,030 7,030 7,030
Foreign loan.............................................. 1,153 1,153 1,153
---------- --------- ---------
73,199 73,199 73,199
---------- --------- ---------
Stockholders' deficit:
$1.00 Preferred Stock, $1.00 par value.................... 1,868 (934)A 934 (1,868)A 0
Common Stock, $.25 par value.............................. 5,248 759A 6,007 1,518A 6,766
Other equity (deficit).................................... (88,077) 29,041B (58,861) 29,041B (58,686)
175A 350A
---------- ----------- --------- ----------- ---------
Total stockholders' deficit............................. (80,961) 29,041 (51,920) 29,041 (51,920)
---------- ----------- --------- ----------- ---------
Total capitalization........................................ $ 9,372 $ 29,041 $38,413 $ 29,041 $ 38,413
---------- ----------- --------- ----------- ---------
---------- ----------- --------- ----------- ---------
</TABLE>
15
<PAGE>
DATAPOINT CORPORATION
NOTES TO PRO FORMA CAPITALIZATION
APRIL 27, 1996
(Unaudited)
A. This adjustment represents the issuance of shares of Common Stock held
in the treasury pursuant to the 50% Tender Assumption and the 100% Conversion
Assumption. Under both assumptions, each share of Preferred Stock was converted
into 3.25 shares of Common Stock.
B. This adjustment represents the gain on the sale of the EADS business
less the estimated income taxes due in certain of the Company's subsidiaries as
a result of the gain. In addition, included in this adjustment is the impact on
treasury stock related to the issuance of common stock referenced in Note A.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXPECT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL
------------------------ YEARS
APRIL 27, APRIL 29, -----------
1996 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING RESULTS FOR THE NINE MONTHS/ FISCAL YEAR
Total revenue...................................................................... $ 135,674 $ 125,840 $ 174,901
Operating income (loss)............................................................ 4,786 (18,491) (18,232)
Income (loss) before extraordinary credits......................................... (5,135) (24,686) (28,343)
Net income (loss).................................................................. (5,135) (24,686) (28,343)
Loss per common share before extraordinary credits................................. (.49) (1.96) (2.29)
Net income (loss) per common share................................................. (.49) (1.96) (2.29)
FINANCIAL POSITION AT END OF NINE MONTHS/FISCAL YEAR
Current assets..................................................................... $ 60,855 $ 67,819 $ 67,506
Fixed asset, net................................................................... 14,933 19,153 18,877
Total assets....................................................................... 90,218 105,282 101,751
Current liabilities................................................................ 92,288 96,084 100,256
Long-term debt..................................................................... 69,103 69,290 64,923
Stockholders' equity (deficit)..................................................... (80,961) (70,731) (74,116)
FINANCIAL CONDITION
Working capital.................................................................... $ (31,433) $ (28,265) $ (32,750)
Current ratio...................................................................... .7 to 1 .7 to 1 .7 to 1
Long-term debt-to-equity ratio..................................................... (1) (1) (1)
Long-term debt as % of total invested capital...................................... (1) (1) (1)
Other information
Average common shares outstanding.................................................. 13,359,265 13,245,119 13,194,667
Number of common stockholders...................................................... 3,159 3,281 3,274
Preferred shares outstanding....................................................... 1,868,071 1,784,456 1,846,456
Dividends paid or accumulated on preferred stock................................... $ 1,418 $ 1,338 $ 1,815
Number of employees................................................................ 867 1,073 991
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C>
OPERATING RESULTS FOR THE NINE MONTHS/ FISCAL YEAR
Total revenue...................................................................... $ 172,936 $ 208,344 $ 255,243
Operating income (loss)............................................................ (81,021) (1,258) 6,655
Income (loss) before extraordinary credits......................................... (94,765) (11,859) (10,409)
Net income (loss).................................................................. (93,425) (11,260) (8,756)
Loss per common share before extraordinary credits................................. (6.69) (.97) (1.62)
Net income (loss) per common share................................................. (6.60) (.93) (1.47)
FINANCIAL POSITION AT END OF NINE MONTHS/FISCAL YEAR
Current assets..................................................................... $ 79,915 $ 94,169 $ 121,991
Fixed asset, net................................................................... 29,088 27,950 34,533
Total assets....................................................................... 127,434 202,275 248,813
Current liabilities................................................................ 98,202 74,759 90,581
Long-term debt..................................................................... 70,561 71,551 66,101
Stockholders' equity (deficit)..................................................... (50,761) 47,021 74,835
FINANCIAL CONDITION
Working capital.................................................................... $ (18,287) $ 19,410 $ 31,410
Current ratio...................................................................... .8 to 1 1.3 to 1 1.3 to 1
Long-term debt-to-equity ratio..................................................... (1) 1.5 to 1 .88 to 1
Long-term debt as % of total invested capital...................................... (1) 60% 47%
Other information
Average common shares outstanding.................................................. 14,430,574 14,081,964 11,093,431
Number of common stockholders...................................................... 3,378 3,710 3,877
Preferred shares outstanding....................................................... 1,784,456 1,784,456 1,784,456
Dividends paid or accumulated on preferred stock................................... $ 1,784 $ 1,784 $ 7,601
Number of employees................................................................ 1,444 1,528 1,777
<CAPTION>
1991
----------
OPERATING RESULTS FOR THE NINE MONTHS/ FISCAL YEAR
Total revenue...................................................................... $ 265,479
Operating income (loss)............................................................ 13,934
Income (loss) before extraordinary credits......................................... 5,335
Net income (loss).................................................................. 12,531
Loss per common share before extraordinary credits................................. (.42)
Net income (loss) per common share................................................. .29
FINANCIAL POSITION AT END OF NINE MONTHS/FISCAL YEAR
Current assets..................................................................... $ 122,025
Fixed asset, net................................................................... 29,572
Total assets....................................................................... 235,490
Current liabilities................................................................ 87,591
Long-term debt..................................................................... 66,327
Stockholders' equity (deficit)..................................................... 71,426
FINANCIAL CONDITION
Working capital.................................................................... $ 34,434
Current ratio...................................................................... 1.4 to 1
Long-term debt-to-equity ratio..................................................... .93 to 1
Long-term debt as % of total invested capital...................................... 48%
Other information
Average common shares outstanding.................................................. 10,119,491
Number of common stockholders...................................................... 3,503
Preferred shares outstanding....................................................... 1,931,218
Dividends paid or accumulated on preferred stock................................... $ 9,540
Number of employees................................................................ 1,741
</TABLE>
No cash dividends on common stock have been declared during the five-year
period.
- ------------------------
(1) The Company was in a deficit equity position for these periods.
17
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On June 25, 1996, the Company sold its European based Auto Dealer Systems
business ("EADS") to Kalamazoo Computer Group, plc ("Kalamazoo") for $33 million
less certain adjustments and escrow deposits. The accompanying unaudited Pro
Forma Condensed Consolidated Balance Sheet as of April 27, 1996 has been
prepared to give effect to the Exchange Offer and the sale referred to above as
though each was consummated on April 27, 1996. The accompanying unaudited Pro
Forma Condensed Consolidated Statement of Operations for the year ended July 29,
1995 and the nine months ended April 27, 1996 have been prepared to give effect
to the Exchange Offer and the sale referred to above as though each had been
consummated on July 31, 1994. The adjustments give effect to the Exchange Offer
under the 50% Tender Assumption and the 100% Conversion Assumption. The pro
forma financial information does not purport to be indicative of the results
which would actually have been obtained had the Exchange Offer and the sale of
EADS to Kalamazoo been completed as of the assumed dates and for the periods
presented or which may be obtained in the future and should be read in
conjunction with the Consolidated Financial Statements of the Company and the
related notes appearing elsewhere herein.
18
<PAGE>
DATAPOINT CORPORATION
SUMMARY PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JULY 29, 1995
(Unaudited)
<TABLE>
<CAPTION>
100%
CONVERSION
50% TENDER ASSUMPTION ASSUMPTION
---------------------------- ------------
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS
----------- ------------ ------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Sales............................................................... $ 84,187 $ (3,675)A $ 80,512 $ (3,675)A
Service............................................................. 90,714 (14,784)A 75,930 (14,784)A
----------- ------------ ------------- ------------
Total Revenue..................................................... 174,901 (18,459) 156,442 (18,459)
Operating Cost and Expenses:
Cost of Sales....................................................... 65,234 65,234
Cost of Service and Other........................................... 52,163 (6,371)A 45,792 (6,371)A
Research and Development............................................ 4,303 (278)A 4,025 (278)A
Selling, General and Administrative................................. 62,220 (8,762)A 53,458 (8,762)A
Reorganization/Restructuring Costs.................................. 9,213 9,213
----------- ------------ ------------- ------------
Total Operating Costs and Expenses................................ 193,133 (15,411) 177,722 (15,411)
Operating Income (Loss):.............................................. (18,232) (3,048) (21,280) (3,048)
----------- ------------ ------------- ------------
Non-Operating Income (Expense):
Interest Expense.................................................... (9,332) (9,332)
Other, Net.......................................................... (580) (580)
----------- ------------ ------------- ------------
Income (Loss) Before Income Taxes................................. (28,144) (3,048) (31,192) (3,048)
Income Taxes.......................................................... 199 161B 38 161B
----------- ------------ ------------- ------------
Net Loss.......................................................... $(28,343) $ (2,887) $(31,230) $ (2,887)
----------- ------------ ------------- ------------
----------- ------------ ------------- ------------
Net Loss Less
Preferred Stock Dividend............................................. $(30,158) $ (1,980) C $(32,138) $ (1,072)C
----------- ------------ ------------- ------------
----------- ------------ ------------- ------------
Net Income (Loss) Per Common Share:................................... $(2.29) $(2.00)
Average Common Shares:................................................ 13,194,667 2,899,741C 16,094,408 5,799,482C
<CAPTION>
PRO FORMA
--------------
<S> <C>
Revenue:
Sales............................................................... $ 80,512
Service............................................................. 75,930
--------------
Total Revenue..................................................... 156,442
Operating Cost and Expenses:
Cost of Sales....................................................... 65,234
Cost of Service and Other........................................... 45,792
Research and Development............................................ 4,025
Selling, General and Administrative................................. 53,458
Reorganization/Restructuring Costs.................................. 9,213
--------------
Total Operating Costs and Expenses................................ 177,722
Operating Income (Loss):.............................................. (21,280)
--------------
Non-Operating Income (Expense):
Interest Expense.................................................... (9,332)
Other, Net.......................................................... (580)
--------------
Income (Loss) Before Income Taxes................................. (31,192)
Income Taxes.......................................................... 38
--------------
Net Loss.......................................................... $(31,230)
--------------
--------------
Net Loss Less
Preferred Stock Dividend............................................. $(31,230)
--------------
--------------
Net Income (Loss) Per Common Share:................................... $(1.64)
Average Common Shares:................................................ 18,994,149
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Statements of
Operations
19
<PAGE>
DATAPOINT CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED APRIL 27, 1996
(Unaudited)
<TABLE>
<CAPTION>
100%
CONVERSION
50% TENDER ASSUMPTION ASSUMPTION
-------------------------- ------------
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS
----------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Sales............................................................... $ 73,322 $ (3,108)A $ 70,214 $ (3,108)A
Service............................................................. 62,352 (11,025)A 51,327 (11,025)A
----------- ------------ ----------- ------------
Total Revenue..................................................... 135,674 (14,133) 121,541 (14,133)
Operating Cost and Expenses:
Cost of Sales....................................................... 54,276 54,276
Cost of Service and Other........................................... 38,910 (5,291)A 33,619 (5,291)A
Research and Development............................................ 2,043 (203)A 1,840 (203)A
Selling, General and Administrative................................. 35,465 (5,859)A 29,606 (5,859)A
Reorganization/Restructuring Costs.................................. 194 194
----------- ------------ ----------- ------------
Total Operating Costs and Expenses................................ 130,888 (11,353) 119,535 (11,353)
Operating Income (Loss):.............................................. $ 4,786 $ (2,780) $ 2,006 $ (2,780)
----------- ------------ ----------- ------------
Non-Operating Income (Expense):
Interest Expense.................................................... (6,488) (6,488)
Other, Net.......................................................... (2,252) (2,252)
----------- ------------ ----------- ------------
Income (Loss) Before Income Taxes................................. (3,954) (2,780) (6,734) (2,780)
Income Taxes.......................................................... 1,181 (243)B 938 (243)B
----------- ------------ ----------- ------------
Net Income (Loss)................................................... $ (5,135) $ (2,537) $ (7,672) $ (2,537)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
Net Income (Loss) Less
Preferred Stock Dividend........................................... $ (6,553) $ (1,828)C $ (8,381) $ (1,119)C
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
Net Income (Loss) Per Common Share:................................... $(0.49) $(0.52)
Average Common Shares:................................................ 13,359,265 2,899,741C 16,259,006 5,799,482C
<CAPTION>
PRO FORMA
-------------
<S> <C>
Revenue:
Sales............................................................... $ 70,214
Service............................................................. 51,327
-------------
Total Revenue..................................................... 121,541
Operating Cost and Expenses:
Cost of Sales....................................................... 54,276
Cost of Service and Other........................................... 33,619
Research and Development............................................ 1,840
Selling, General and Administrative................................. 29,606
Reorganization/Restructuring Costs.................................. 194
-------------
Total Operating Costs and Expenses................................ 119,535
Operating Income (Loss):.............................................. $ 2,006
-------------
Non-Operating Income (Expense):
Interest Expense.................................................... (6,488)
Other, Net.......................................................... (2,252)
-------------
Income (Loss) Before Income Taxes................................. (6,734)
Income Taxes.......................................................... 938
-------------
Net Income (Loss)................................................... $ (7,672)
-------------
-------------
Net Income (Loss) Less
Preferred Stock Dividend........................................... $ (7,672)
-------------
-------------
Net Income (Loss) Per Common Share:................................... $(0.40)
Average Common Shares:................................................ 19,158,747
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Statements of
Operations
20
<PAGE>
DATAPOINT CORPORATION
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
A. This adjustment eliminates the operations of the EADS business. In
connection with the sale of the EADS business, the Company agreed to continue to
sell hardware to Kalamazoo at various discounts from its normal hardware prices
and to continue to provide hardware service maintenance to Kalamazoo at a 15%
discount from the Company's normal hardware service maintenance prices. The pro
forma adjustments reduce historical revenues by the agreed upon discount.
However, there can be no assurances that the future volume levels will remain
the same. Revenues relating to the EADS business remaining in the pro forma
amounts are $14.7 million and $9.6 million for the year ended July 29, 1995 and
the nine months ended April 27, 1996, respectively. The Company transferred to
Kalamazoo all of its employees who were dedicated to the EADS business. Because
the Company's accounting records do not segregate the EADS business' historical
performance, certain allocations were required based upon employee effort
analyses of EADS and other appropriate measures.
B. This adjustment represents the estimated tax effects of the pro forma
adjustments.
C. This adjustment represents the issuance of shares of Common Stock held
in treasury pursuant to the 50% Tender Assumption and 100% Conversion Assumption
(including the related reduction in Preferred Stock dividends). Under both
assumptions, each share of Preferred Stock was converted into 3.25 shares of
Common Stock.
21
<PAGE>
DATAPOINT CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
APRIL 27, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
100% CONVERSION ASSUMP-
50% TENDER ASSUMPTION TION
----------------------- -----------------------
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ----------- --------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 4,964 $29,637A $ 34,601 $29,637A $ 34,601
Restricted Cash and Cash Equivalents...................... 1,056 1,056 1,056
Accounts Receivable, net.................................. 41,788 41,788 41,788
Inventories............................................... 8,583 (798)A 7,785 (798)A 7,785
Prepaid Expenses and Other Current Assets................. 4,464 (1,159)A 3,305 (1,159)A 3,305
---------- ----------- --------- ----------- ---------
Total Current Assets.................................... 60,855 27,680 88,535 27,680 88,535
Fixed Assets, Net........................................... 14,933 (490)A 14,443 (490)A 14,443
Other Assets, Net........................................... 14,430 14,430 14,430
---------- ----------- --------- ----------- ---------
$ 90,218 $27,190 $117,408 $27,190 $117,408
---------- ----------- --------- ----------- ---------
---------- ----------- --------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Payable to Banks.......................................... $ 17,134 $ 17,134 $ 17,134
Current Maturities of Long-Term Debt...................... 4,096 4,096 4,096
Accounts Payable.......................................... 21,581 21,581 21,581
Accrued Expenses.......................................... 34,697 $ (678)A 34,019 $ (678)A 34,019
Deferred Revenue.......................................... 13,299 (3,065)A 10,234 (3,065)A 10,234
Income Taxes Payable...................................... 1,481 3,156B 4,637 3,156B 4,637
---------- ----------- --------- ----------- ---------
Total Current Liabilities................................... 92,288 (587) 91,701 (587) 91,701
Long-Term Debt, Exclusive of Current Maturities............. 69,103 69,103 69,103
Other Liabilities........................................... 9,788 (1,264)A 8,524 (1,264)B 8,524
Stockholders' Deficit:
$1.00 Preferred Stock, $1.00 Par Value.................... 1,868 (934)C 934 (1,868)C
Common Stock, $.25 Par Value................................ 5,248 759C 6,007 1,518C 6,766
Other equity (deficit)...................................... (88,077) 29,041D (58,861) 29,041D (58,686)
175C 350C
---------- ----------- --------- ----------- ---------
Total Stockholders' Deficit................................. (80,961) 29,041 (51,920) 29,041 (51,920)
$ 90,218 $27,190 $117,408 $27,190 $117,408
---------- ----------- --------- ----------- ---------
---------- ----------- --------- ----------- ---------
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Balance Sheet
22
<PAGE>
DATAPOINT CORPORATION
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
A. This adjustment reflects the net cash proceeds received from the sale and
elimination of those assets and liabilities which were transferred to Kalamazoo
as a result of the sale of the EADS business.
B. This adjustment represents the estimated income taxes due in certain of
the Company's European subsidiaries as a result of the gain realized on the sale
of the EADS business.
C. This adjustment represents the issuance of shares of Common Stock held
in treasury pursuant to the 50% Tender Assumption and 100% Conversion
Assumption. Under both assumptions, each share of Preferred Stock was converted
into 3.25 shares of Common Stock.
D. This adjustment represents the gain on the sale of the EADS business less
the estimated income taxes due in certain of the Company's subsidiaries as a
result of the gain.
23
<PAGE>
RISK FACTORS
Retention of the Preferred Stock or investment in the Common Stock is
subject to a number of material risks, including those enumerated below. Prior
to deciding whether to accept the offer of Common Stock in the Exchange Offer
and/or to vote for the Preferred Stock Amendment, each Holder should carefully
consider all of the information contained in this Proxy Statement/Prospectus,
especially the factors described or cross-referenced in the following
paragraphs.
RISKS ASSOCIATED WITH THE COMPANY IN GENERAL
FINANCIAL CONDITION OF THE COMPANY
For the fiscal years ended July 29, 1995, July 30, 1994 and July 31, 1993,
the Company incurred a net loss after giving effect to preferred stock dividends
paid or accumulated of approximately $30.2 million ($2.29 per share of Common
Stock), $95.2 million ($6.60 per share of Common Stock) and $13.0 million ($.93
per share of Common Stock), respectively. The net loss after giving effect to
preferred stock dividends paid or accumulated in such years included the amounts
of dividends on the Preferred Stock of approximately $1.815 million, $1.784
million and $1.784 million, respectively. With respect to fiscal year 1995,
approximately $1.815 million of such dividends were undeclared and unpaid,
resulting in cumulative dividends in arrears.
The Company incurred a net loss after giving effect to preferred stock
dividends paid or accumulated for the nine months ended April 27, 1996 of
approximately $6.6 million ($.49 per share of Common Stock on revenue of $135.7
million), as compared to net loss after giving effect to preferred stock
dividends paid or accumulated of approximately $26.0 million ($1.96 per share of
Common Stock) on revenue of $125.8 million during the same period a year ago.
Included in the results for the nine months ended April 29, 1995 are $12.0
million in charges related to personnel reductions and write downs of fixed
assets and inventory, as well as a gain of $1.7 million related to the sale of
vacant land in San Antonio, Texas. Also included in the results for such periods
are dividends accumulated on the Preferred Stock of $1.418 million and $1.338
million, respectively.
At April 27, 1996, the Company had outstanding long-term debt (including the
current portion thereof) on a consolidated basis of approximately $73.2 million,
having a debt service requirement of approximately $6.059 million over the
succeeding four quarters, all of which is payable in cash. The Company has not
paid the eight quarterly dividends on the Preferred Stock due from October 15,
1994 through and including July 15, 1996, aggregating approximately $3.7 million
with respect to the Preferred Stock outstanding as of July 15, 1996.
At July 29, 1995, the Company had available federal tax net operating losses
aggregating approximately $157 million, expiring in various amounts beginning in
2001. In the event that the Company's ability to utilize its net operating
losses to reduce its federal tax liability with respect to current and future
income becomes subject to limitation, the Company may be required to pay, sooner
than it otherwise might have to, any amounts owing with respect to such federal
tax liability, which would reduce the amount of cash otherwise available to the
Company (see note 4 to Consolidated Financial Statements).
In order for the Company to meet certain of its obligations and to improve
its financial position, the Company is pursuing actions to provide additional
cash infusions, including the sale of selected assets and operations of the
Company. On May 28, 1996, the Company entered into an agreement with Kalamazoo
Computer Group, plc, a public limited company organized under the laws of
England, providing for the sale by Datapoint to Kalamazoo of Datapoint's
European Automotive Dealer Management Systems division for a purchase price of
approximately $33 million. As part of the arrangements, Datapoint will continue
to provide computer hardware and hardware services through a subcontract
arrangement with Kalamazoo.
Of the approximately $29.6 million proceeds (net of transaction related
expenses and adjustments) received from the above sale, the Company paid
$850,000 to satisfy and discharge in full the outstanding senior secured
indebtedness owing to the CIT Group/Credit Finance ("CIT") and paid Northern
Telecom Inc. ("NTI"), one of its two generally secured creditors, $2.2 million
representing the two deferred principal
24
<PAGE>
payments on secured debt which were due in December 1994 and December 1995, as
well as accrued and unpaid interest. In addition, the proceeds from the
Kalamazoo transaction enabled the Company to pay by June 30, 1996 (within the
30-day grace period measured from June 1, 1996) the $2.857 million interest
payment on the Debentures. On July 1, 1996, Datapoint entered into an agreement
with NTI pursuant to which Datapoint paid $5.05 million to NTI in full
satisfaction of all amounts due and to be due under a 1992 agreement Datapoint
had entered into with NTI to resolve a patent dispute. The prepayment agreement
relieves the Company of its obligation to make annual $1 million payments to NTI
that commenced in 1992 and of which seven payments remained to be made, as well
as certain contingent payment obligations. The balance of the proceeds will be
utilized by Datapoint for working capital purposes and to pay other obligations
of the Company. This may include, from time to time, repurchasing in the public
market or in privately negotiated transactions the Debentures or otherwise
reducing existing debt owed by the Company to its creditor groups. See
"Background; Purposes and Effects of the Exchange Offer -- Recent Developments."
The Company has retained Patricof in connection with the potential
disposition of its Telephony division, as well as other asset and equity sale
transactions and proposals. Consummation of any or all of the contemplated
Dispositions will result in a reduction of assets of the Company, and therefore
the assets of the Company available to pay obligations in respect of its
creditors and debt and equity holders in the event of bankruptcy, liquidation or
reorganization of the Company may be limited. See "Background; Purposes and
Effects of the Exchange Offer -- Recent Developments." Consummation of such
Dispositions will also result in the divestiture of historically significant
business operations of the Company, with the future focus of the Company
emphasizing the development and enforcement of its patent licenses and related
research and development. See "Business of the Company -- Patents and
Trademarks."
COMPETITION
The Company operates in the intensely competitive computer data processing,
video conferencing and telephony industries that are characterized by the
frequent introduction of new products based upon technology advances. The
Company competes, domestically and abroad, with a substantial number of
companies, many of which are larger and have greater financial, research,
marketing and production resources than the Company. Such companies, considered
in the aggregate, compete in the entire line of products manufactured and
marketed by the Company. These competitors differ somewhat depending on the
market segment, customer and geographic area involved. Competition in this
market is based primarily on the relationship between price and performance; the
ability to offer a variety of products and unique functional capabilities; the
strength of sales, service and support organizations; and upgradability,
flexibility, and ease of use of products. The Company could be adversely
affected if its competitors introduced technologically superior products or
substantial price reductions.
LEGAL PROCEEDINGS
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April, 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
Subsequent to the end of the third quarter of 1996, a settlement was reached
among the litigants. As such, the District Court entered a Judgment Non Obstante
Veredicto (Judgment Notwithstanding the Verdict) that set aside the jury's
findings against the Company and its two executive officers and set aside all
damages. The settlement, which was reached to avoid the considerable expense and
business disruption of a protracted appeal and legal process, had no material
impact on the Company's current cash position as it included payment of funds
from a non-working capital trust fund that were otherwise not available to the
Company, issuance of a short term note, and shares of the Company's common
stock. See "Background; Purposes and Effects of the Exchange Offer -- Recent
Developments."
The Company is a defendant in various lawsuits generally incidental to its
business. The amounts sought by the plaintiffs in such cases are substantial
and, if all such cases were decided adversely to the Company, the Company's
aggregate liability might be material. However, the Company does not expect such
an
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aggregate result based upon the limited number of such actions and an assessment
that most such actions will be successfully defended. No provision has been made
in the accompanying financial statements for any possible liability with respect
to such lawsuits.
RISKS ASSOCIATED WITH INVESTMENT IN THE EXCHANGE CONSIDERATION
COMPANY STRUCTURE
Substantially all of the Company's operations are conducted through its
consolidated subsidiaries. Funds are provided to the Company by its subsidiaries
through dividend payments and other intercompany payments. The Company will be
dependent on the earnings and cash flow from these and other subsidiaries to pay
dividends on the Common Stock. The Company has not paid cash dividends to date
on its Common Stock and has no present intention to pay cash dividends on its
Common Stock in the near future. Because a substantial part of the assets of the
Company are and will continue to be held by its subsidiaries, any claims of the
holders of Preferred Stock or Common Stock on the assets of the Company will be
subject to the payment of all liabilities (whether or not for borrowed money) of
such subsidiaries.
SUBORDINATION
The Common Stock will continue to be subordinate to the Preferred Stock and
to claims of all creditors of the Company, including holders of the Debentures,
and has no liquidation preference. Therefore, in the event of the bankruptcy,
liquidation or reorganization of the Company, the assets of the Company will be
available to pay obligations in respect of the Common Stock only after claims of
all creditors of the Company have been paid in full and the liquidation
preference, plus an amount equal to accrued and unpaid dividends, has been paid
to all holders of Preferred Stock. Accordingly, in such event sufficient assets
may not exist to pay any claims of holders of Common Stock. Unless the Preferred
Stock Amendment is adopted and the Preferred Stock Reclassification is
consummated, the Preferred Stock not tendered and exchanged in the Exchange
Offer will continue to be senior to any claims of the Holders of Common Stock,
including Common Stock issued in the Exchange Offer, in the event of the
bankruptcy, liquidation or reorganization of the Company.
LEVERAGE AND LIQUIDITY
Consummation of the Preferred Stock Reclassification will increase common
stockholders' equity of the Company while concurrently eliminating its
obligations to pay dividends on the Preferred Stock; however, the Company,
together with its subsidiaries, will continue to have consolidated indebtedness
that is substantial in relation to its stockholders' equity. The Company's
leverage may have the effect generally of impairing the Company's ability to
obtain financing in the future and reducing the Company's flexibility in
responding to changing business and economic conditions.
The Company is a holding company with no significant operations or assets
other than the stock of its subsidiaries. As a result, the Company's ability to
pay cash interest on its debt and cash dividends on its Preferred Stock and
Common Stock is dependent upon the ability of its subsidiaries to pay cash
dividends or make other distributions, which may be significantly limited by,
among other things, provisions contained in agreements governing indebtedness of
the Company's subsidiaries. In addition, the Company anticipates entering into a
senior secured credit facility to provide working capital, and such credit
facility may contain limitations on the Company's ability to pay cash dividends
on its capital stock.
REPRESENTATION
No representative has been retained to act on behalf of the Holders of the
Common Stock in connection with the Exchange Offer or the preparation of this
Proxy Statement/Prospectus. Patricof has been retained by the Company to express
its opinion to the Board of Directors regarding the fairness, from a financial
point of view, to the Holders of Common Stock (other than Mr. Edelman, with
respect to whom no opinion was requested), of the Exchange Consideration
proposed to be issued to exchanging Holders of Preferred Stock. Patricof has
rendered its written opinion, dated July 24, 1996, that the Exchange
Consideration to be received by exchanging Holders of Preferred Stock (other
than Mr. Edelman, with respect to whom no opinion was requested), is fair from a
financial point of view to the Holders of Common Stock. Patricof has made no
recommendation as to whether a Holder of Preferred Stock should tender his
shares in the
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Exchange Offer. Holders are urged to consult their own advisors in making such
decision as to whether to participate in the Exchange Offer and/or to vote for
the Preferred Stock Amendment. See "Background; Purposes and Effects of the
Exchange Offer -- Fairness Opinions" and "Annex C -- Fairness Opinion of
Patricof."
POTENTIAL IMPACT ON THE MARKET PRICE OF COMMON STOCK AS A
RESULT OF CONSUMMATION OF THE EXCHANGE OFFER OR THE PREFERRED STOCK
RECLASSIFICATION
The Company intends to issue up to a maximum of 6,071,182 shares of Common
Stock in connection with the Exchange Offer. The issuance of such shares will
result in dilution of the Common Stock which may cause a decline in the market
price of the Common Stock. If 6,071,182 shares of Common Stock are issued in
connection with the Preferred Stock Reclassification, shares of Common Stock
outstanding immediately prior to the Expiration Date will represent
approximately 70% of the total outstanding shares of Common Stock immediately
following consummation of the Preferred Stock Reclassification. If 3,035,591
shares of Common Stock are issued under the 50% Tender Assumption, shares of
Common Stock outstanding immediately prior to the Expiration Date will represent
approximately 82% of the total outstanding shares of Common Stock immediately
following consummation of the Exchange Offer. See "Background; Purposes and
Effects of the Exchange Offer -- Dilution."
VALUE OF COMMON STOCK RECEIVED
The market for the Common Stock is subject to fluctuation as a result of
dilution or other factors. Accordingly, the market value of Common Stock that
holders receive on the date of receipt may be more or less than the market value
of such Common Stock on the date of this Proxy Statement/Prospectus.
TAX CONSEQUENCES
If the Preferred Stock is exchanged for the Exchange Consideration and the
fair market value of the Common Stock received for one share of Preferred Stock
exceeds the issue price of the Preferred Stock, the lesser of such excess and
the amount of dividend arrearages on the Preferred Stock will be taxable as a
dividend to the recipient to the extent of the Company's current and accumulated
earnings and profits. See "Certain Federal Income Tax Consequences -- Exchange
of Preferred Stock for Common Stock."
RISKS ASSOCIATED WITH RETENTION OF THE PREFERRED STOCK
COMPANY STRUCTURE
Substantially all of the Company's operations are conducted through its
consolidated subsidiaries. Funds are provided to the Company by its subsidiaries
through dividend payments and other intercompany payments. The Company will be
dependent on the earnings and cash flow from these and other subsidiaries to pay
dividends on the Preferred Stock. Because a substantial part of the assets of
the Company are and will continue to be held by its subsidiaries, any claims of
the holders of the Preferred Stock or Common Stock on the assets of the Company
will be subject to the payment of all liabilities (whether or not for borrowed
money) of such subsidiaries.
Upon consummation of certain contemplated transactions with respect to the
sale of selected assets and operations of the Company, the Company may improve
its financial position sufficiently to enable it to resume dividend payments on
the Preferred Stock in the future. There can be no assurances, however, that the
proceeds from any such transactions will be sufficient for the Company to
maintain its debt service requirements and meet its outstanding obligations,
including interest payments on the Debentures and the currently existing $3.7
million dividend arrearages on the Preferred Stock. The Board of Directors of
the Company has concluded that it is unlikely that the Company will be able to
pay such dividend arrearages in the near future. See "Background; Purposes and
Effects of the Exchange Offer -- Determinations of the Board of Directors."
SUBORDINATION
The Preferred Stock will be subordinate to claims of all creditors of the
Company, including holders of the Debentures. Therefore, in the event of the
bankruptcy, liquidation or reorganization of the Company,
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the assets of the Company will be available to pay obligations in respect of the
Preferred Stock only after claims of all creditors of the Company have been paid
in full. Accordingly, in such event sufficient assets may not exist to pay the
liquidation preference on the Preferred Stock. However, if the Preferred Stock
Amendment is not adopted, the Preferred Stock not tendered and exchanged in the
Exchange Offer will continue to be senior to any claims of the Holders of Common
Stock, including Common Stock issued in the Exchange Offer, in the event of the
bankruptcy, liquidation or reorganization of the Company. The Preferred Stock
Designation does not contain any limitation on the incurrence of additional
indebtedness by the Company or its subsidiaries. See "Annex A -- Description of
Preferred Stock."
LEVERAGE AND LIQUIDITY
Consummation of the Exchange Offer will increase common stockholders' equity
of the Company while concurrently reducing its obligations to pay dividends on
the Preferred Stock; however, the Company, together with its subsidiaries, will
continue to have consolidated indebtedness that is substantial in relation to
its stockholders' equity. The Company's leverage may have the effect generally
of impairing the Company's ability to obtain financing in the future and
reducing the Company's flexibility in responding to changing business and
economic conditions.
The Company is a holding company with no significant operations or assets
other than the stock of its subsidiaries. As a result, the Company's ability to
pay cash interest on its debt and cash dividends on its Preferred Stock and
Common Stock is dependent upon the ability of its subsidiaries to pay cash
dividends or make other distributions, which may be significantly limited by,
among other things, provisions contained in agreements governing indebtedness of
the Company's subsidiaries. In addition, the Company anticipates entering into a
senior secured credit facility to provide working capital and such credit
facility may contain limitations on the Company's ability to pay cash dividends
on its capital stock.
NYSE LISTING
The Preferred Stock is listed on the NYSE. In the event that the Preferred
Stock Amendment is not approved (and therefore the Preferred Stock
Reclassification does not occur) but the Exchange Offer is consummated with the
issuance of the Exchange Consideration, the trading market for the shares of
Preferred Stock not exchanged in the Exchange Offer will become more limited,
and such Preferred Stock may no longer be eligible for continued listing on the
NYSE or any other national securities exchange. The NYSE will consider delisting
a class of preferred stock such as the Preferred Stock if the aggregate market
value of shares of such class of preferred stock that is publicly held is less
than $2 million (although failure to comply with this criteria will not
automatically result in the delisting of such security). As of July 15, 1996,
the aggregate market value of the Preferred Stock was approximately $7.1
million. Assuming the 50% Tender Assumption, the aggregate market value of the
Preferred Stock will be approximately $3.6 million. If the Preferred Stock is
delisted from the NYSE, the extent of the public market for such Preferred Stock
and availability of quotations thereof would depend upon the number of holders
of such Preferred Stock remaining at such time, the interest in maintaining a
market in such Preferred Stock on the part of securities firms and other
factors. An issue of preferred stock with a small outstanding number of shares
available for trading (a small "float") may command a lower price than would a
comparable issue of preferred stock with a greater float. Therefore, the market
price for Preferred Stock not exchanged in the Exchange Offer may be reduced to
the extent that the amount of Preferred Stock exchanged pursuant to the Exchange
Offer reduces the float. The reduced float may also tend to make trading prices
more volatile. See "Market Prices for Preferred Stock and Common Stock." In the
event the NYSE delists the Preferred Stock, the Company will attempt to have the
Preferred Stock listed on another national securities exchange. However, the
Company can make no assurances that the Preferred Stock will continue to be
listed on the NYSE or any other national securities exchange or the prices at
which the Preferred Stock might be traded.
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REPRESENTATION
No representative other than the Independent Committee has been retained to
act on behalf of the Holders of Preferred Stock in connection with the Exchange
Offer or the preparation of this Proxy Statement/Prospectus. Corporate Capital
has been retained by the Independent Committee to express its opinion, from a
financial point of view, of the Exchange Consideration to be received by
exchanging Holders of Preferred Stock (other than Mr. Edelman, with respect to
whom no opinion was requested). Corporate Capital has rendered its written
opinion, dated July 24, 1996 that the Exchange Consideration to be received by
exchanging Holders of Preferred Stock (other than Mr. Edelman, with respect to
whom no opinion was requested) is fair from a financial point of view to such
Holders. Corporate Capital has made no recommendation as to whether a Holder of
Preferred Stock should tender his shares in the Exchange Offer. Holders are
urged to consult their own advisors in making a decision as to whether to
participate in the Exchange Offer and/or to vote for the Preferred Stock
Amendment. See "Background; Purposes and Effects of the Exchange Offer --
Fairness Opinions" and "Annex C -- Fairness Opinion of Corporate Capital."
CERTAIN CONSEQUENCES TO NON-TENDERING HOLDERS
If the Requisite Votes are received and the Preferred Stock Amendment
becomes effective, each share of Preferred Stock will be subject to the
Preferred Stock Amendment and will be automatically reclassified as and changed
into 3.25 shares of Common Stock, regardless of whether such Holder thereof
voted for the Preferred Stock Amendment. Holders of Preferred Stock that is
reclassified in the Preferred Stock Reclassification will not be entitled to
receive dividends accumulated thereon, will no longer be entitled to elect two
directors of the Company at future annual meetings as a result of dividend
arrearages and will not be entitled to receive the $20 liquidation preference,
plus an amount equal to accrued and unpaid dividends, in the event of the
liquidation, dissolution or winding up of the Company.
BACKGROUND; PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
BACKGROUND
The Company's net loss, after giving effect to preferred stock dividends
paid or accumulated for fiscal 1995 was $30.158 million. The Company's net loss,
adjusted for preferred stock dividends paid or accumulated for fiscal 1993, 1994
and 1995 and the first nine months of fiscal 1996 was approximately $13.044
million, $95.209 million, $30.158 million and $6.6 million, respectively. The
Company implemented several actions in 1995 to reduce its costs. The effect of
continuing competitive pressures resulted in an operating loss of $18.2 million,
a working capital deficiency of $32.8 million and cash used in operations of
$5.6 million. During 1995, the Company had as one of its major objectives to
continue to review and reduce operating costs. In this regard, throughout 1995,
the Company recorded $9.2 million of restructuring charges (mostly related to
severance costs stemming from reduction of personnel) which was the result of an
extensive review of all of the Company's worldwide operations.
The Company had several one time cash infusions in fiscal 1995. Among these
were the sale of vacant land in San Antonio, Texas ($7.2 million), the sale of
700,000 shares of common stock ($1.7 million), settlement proceeds received from
defendants in patent infringement litigation ($1 million), the final insurance
payment related to the fire in the Belgian subsidiary ($1.5 million), and the
settlement of two stockholder derivative suits ($4.2 million, after legal
expenses).
During the third quarter of 1996, the Company continued to achieve its
objectives of maintaining a consistent revenue level and tight cost control.
While the effect of the two factors resulted in revenue generation of $46.8
million and operating income of $1.6 million after considering the effect of the
Company's investing, financing activities and other non-operating items, the
Company had a net loss of $4.0 million.
Despite the consistent revenue trend and the positive operating performance
during the third quarter of 1996, the Company's cash and cash equivalents
decreased $1.5 million. In order for the Company to meet certain of its
obligations, including future interest payments due on the Debentures, the
Company is pursuing actions to provide additional cash infusions and/or reduce
its cost base. See "-- Recent Developments."
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As a result of the Company's capital deficiency which existed at the end of
1994, 1995 and throughout the third quarter of 1996, the Company determined not
to pay the October 15, 1994, January 15, 1995, April 15, 1995, July 15, 1995,
October 15, 1995, January 15, 1996, April 15, 1996 and July 15, 1996 preferred
dividend payments to stockholders. On January 16, 1996, the Company announced
that the preferred dividend payments were six full quarters in arrears, and
that, as such, each holder of Preferred Stock has the right to exchange each
such share (inclusive of all accrued and unpaid dividends) into two shares of
Common Stock and the holders of Preferred Stock, voting separately as a class,
have the right to elect two directors to the Company's Board of Directors at the
next annual meeting of stockholders. These rights continue until such time as
the dividend arrearages have been paid in full. The number of directors
constituting the Board of Directors of the Company has been increased by two and
Holders of the Preferred Stock (not including those who had exchanged Preferred
Stock for the Common Stock), voting as a single class, have the right to elect
two directors to the Board of Directors of the Company to fill such newly
created directorships at the Annual Meeting of Stockholders. See "Annual
Meeting" and "Election of Directors". The Company had 1,868,056 shares of its
Preferred Stock outstanding at July 15, 1996.
In order to reduce its debt service requirements and outstanding
indebtedness, the Company has repurchased a portion of the Debentures. As of
July 23, 1996, $36.231 million aggregate principal amount of Debentures has been
repurchased, an amount sufficient to satisfy mandatory sinking fund requirements
through May 31, 1998. The Company has, from time to time, repurchased Debentures
in the open market and may continue to do so from time to time, and, although it
has no present intentions to propose an exchange offer for the Debentures, the
Company may in the future make such a proposal.
The Company will continue to proceed with the above actions, including the
Dispositions, and any other actions which will result in additional cost
reductions and cash infusions. These additional cash infusions are necessary to
meet certain of the Company's obligations, including interest payments on the
Debentures. The Company has retained Patricof in connection with the potential
disposition of its Telephony division, as well as other asset and equity sale
transactions and proposals.
The terms of the Exchange Offer were developed by management of the Company
in consultation with the Company's financial advisor, Patricof, and have been
approved by the Board of Directors upon recommendation by an independent
committee of the Board of Directors (the "Independent Committee"). The Board of
Directors, members of the Company's management and representatives of Corporate
Capital held discussions with the Independent Committee and its counsel in
developing the terms of the Exchange Offer. See "Background; Purposes and
Effects of the Exchange Offer -- Background"; "-- Determinations of the Board of
Directors" and "-- Fairness Opinions."
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER AND THE PREFERRED STOCK
RECLASSIFICATION
The Exchange Offer and the Preferred Stock Reclassification are designed to
reduce or eliminate the accumulated but unpaid dividends on the Preferred Stock
(aggregating $3.7 million through and including July 15, 1996), reduce or
eliminate the future dividend payment requirements on the Preferred Stock and
reduce or eliminate the Preferred Stock liquidation preference, as the case may
be. The issuance of the Exchange Consideration to exchanging Holders of
Preferred Stock will give such Holders a common equity interest which should
more directly reflect any continuing improvement in the Company's performance.
The existing Holders of Common Stock will be diluted upon consummation of the
Exchange Offer or the Preferred Stock Reclassification, but the Company believes
that the value of the Common Stock should reflect the reduction or elimination
of the accumulated dividends, liquidation preference and future dividend
payments relating to the Preferred Stock. However, the Company is unable to
quantify the extent to which the value of the Common Stock will reflect such
matters, if at all.
The equity interest of the current Holders of Common Stock would be diluted
to approximately 70% of the total issued and outstanding shares of Common Stock,
assuming the 100% Conversion Assumption, or approximately 82% of the total
issued and outstanding shares of Common Stock, assuming the 50% Tender
Assumption. See "-- Dilution."
Assuming the 100% Conversion Assumption, on a pro forma basis after giving
effect to the Exchange Offer for the first nine months of fiscal 1996, the
aggregate preferred stock liquidation preference (including
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accumulated dividends) would be eliminated (as compared to approximately $40.954
million, as of April 27, 1996, of which approximately $3.233 million constituted
accumulated but unpaid dividends). Assuming the 50% Tender Assumption, on a pro
forma basis after giving effect to the Exchange Offer for the first nine months
of fiscal 1996, the aggregate preferred stock liquidation preference (including
accumulated dividends) would decrease to approximately $20.298 and the total
preferred stock dividends would decrease to approximately $1.617 million.
The Company has not paid the eight regularly scheduled quarterly dividends
on the Preferred Stock due from October 15, 1994 through and including July 15,
1996, aggregating approximately $3.7 million with respect to the Preferred Stock
outstanding as of July 15, 1996. As a result, each Holder of Preferred Stock has
the right to exchange each such share (inclusive of all accrued and unpaid
dividends) for two shares of Common Stock and the Holders of Preferred Stock,
voting separately as a class, have the right to elect two directors to the
Company's Board of Directors at the Annual Meeting. These rights continue until
such time as all dividends in arrears on the Preferred Stock have been paid and
the then current quarterly dividend thereon has been paid or declared and set
apart for payment. In the event that the Requisite Votes are received at the
Annual Meeting, and the Preferred Stock Reclassification is consummated, such
continuing rights, including the right to elect two directors at future annual
meetings, will be eliminated. However, if the Preferred Stock Amendment is not
adopted, then the Holders of Preferred Stock remaining after consummation of the
Exchange Offer shall continue to have such rights, including the right to elect
two directors at the next annual meeting of stockholders and at each successive
annual meeting thereafter (until such time as all dividends in arrears on the
Preferred Stock have been paid and the then current quarterly dividend has been
paid or declared and set apart for payment).
Upon consummation of certain contemplated Dispositions, the Company may
improve its financial position sufficiently to enable it to resume dividend
payments on the Preferred Stock in the future. There can be no assurances,
however, that the proceeds from any such transactions will be sufficient for the
Company to maintain its debt service requirements and meet its outstanding
obligations, including the currently existing $3.7 million dividend arrearages
on the Preferred Stock. The Board of Directors of the Company has concluded that
it is unlikely that the Company will be able to pay such dividend arrearages in
the near future. See "-- Determinations of the Board of Directors."
For a summary description of certain pro forma financial effects of the
Exchange Offer and Preferred Stock Reclassification, see "Pro Forma Unaudited
Financial Information." For a description of the consequences to the Holders of
Preferred Stock who do not tender their Preferred Stock in the Exchange Offer,
see "-- Certain Consequences to Non-Tendering Holders of Preferred Stock."
DETERMINATIONS OF THE BOARD OF DIRECTORS
Based on preliminary analysis, the Company announced on April 16, 1996 that
it intended to submit a proposal to stockholders under which each share of the
Preferred Stock would be converted into 2.75 shares of Common Stock in an effort
to improve its financial position. In this respect the Company formed the
Independent Committee, consisting of Director Daniel R. Kail, which retained
Corporate Capital to evaluate the terms of such proposal.
In light of the desirability of reducing and potentially eliminating the
Company's accumulated dividends on the Preferred Stock and the future
expenditure for dividends on the Preferred Stock and the factors discussed
below, the Board of Directors of the Company (with Mr. Edelman abstaining), upon
the recommendation by the Independent Committee, determined at a meeting held on
July 18 and 24, 1996, that the Exchange Offer is fair to and in the best
interests of the Company, and is fair to the Holders of Preferred Stock and the
Holders of the Common Stock. The Board of Directors makes no recommendation as
to whether a Holder of Preferred Stock should tender his shares and accept the
Exchange Consideration because, although the directors believe that the
transaction is fair to Holders of Preferred Stock, the directors also believe
that such Holders of Preferred Stock should make an independent judgment as to
whether such action is in their own best interest. The directors and officers of
the Company, however, have
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indicated their present intention to tender their shares of Preferred Stock in
the Exchange Offer and to vote for the Preferred Stock Amendment. See "Security
Ownership of Certain Beneficial Owners and Management."
In reaching its conclusion as to fairness, the Board of Directors
considered, among other things, the recommendation of the Independent Committee,
the written fairness opinions delivered by Patricof and Corporate Capital and
the oral presentations and analyses delivered by each of Patricof and Corporate
Capital and financial information, including book value, liquidation analysis,
discounted cash flow analysis and comparable company data, as described under
"Fairness Opinions" below, supporting the fairness opinions.
The Independent Committee met with Corporate Capital on June 12, 1996, at
which time Corporate Capital reported its initial analysis and additional
information gathering steps to be taken in its analysis. On July 18, 1996,
Corporate Capital delivered to the Independent Committee a preliminary oral
opinion that an exchange ratio of at least 3.00 shares of Common Stock for each
share of Preferred Stock would be necessary for the proposed exchange offer to
be fair, from a financial point of view, to the Holders of Preferred Stock and
that further analysis would be required to finalize its conclusion. Immediately
following the July 18th meeting of Corporate Capital with the Independent
Committee, a meeting of the full Board of Directors was convened. At such
meeting, Patricof delivered a preliminary opinion with respect to the fairness,
from a financial point of view, to the Holders of Common Stock of the proposed
exchange offer at an exchange ratio of 2.75 shares of Common Stock for each
share of Preferred Stock (inclusive of accrued and unpaid dividends). Thereafter
at such meeting, Corporate Capital reported its initial conclusion that an
exchange ratio of at least 3.00 shares of Common Stock for each share of
Preferred Stock would be necessary to make the transaction fair to the Holders
of Preferred Stock, and the Independent Committee reported that it would not be
able to recommend an exchange ratio of anything less than 3.00 shares of Common
Stock for each share of Preferred Stock. At such time the Board took no further
action and adjourned the meeting for further consideration and analysis. On July
24, 1996, the Independent Committee met with Corporate Capital, which gave a
presentation supporting an exchange ratio of 3.00 to 3.25 shares of Common Stock
per share of Preferred Stock. Based on the presentation and upon further
discussion, the Independent Committee determined to recommend an exchange ratio
of 3.25 shares of Common Stock per share of Preferred Stock. Immediately
following the meeting of Corporate Capital with the Independent Committee, the
Board of Directors meeting was reconvened. At that meeting, Corporate Capital
delivered its oral report that a ratio of 3.25 shares of Common Stock per share
of Preferred Stock was fair, from a financial point of view, to the Holders of
Preferred Stock, and the Independent Committee recommended to the Board of
Directors that the exchange ratio be set at 3.25 shares of Common Stock per
share of Preferred Stock. Patricof then delivered it oral opinion that such an
exchange ratio would be fair to the Holders of Common Stock. The Board of
Directors, with Mr. Edelman abstaining, then unanimously approved the Exchange
Offer. On July 24, 1996, Corporate Capital delivered to the Independent
Committee a written fairness opinion, which concluded that the Exchange
Consideration proposed to be issued to the Holders of Preferred Stock in the
Exchange Offer is fair from a financial point of view to the exchanging Holders
of Preferred Stock (other than Mr. Edelman, with respect to whom no opinion was
requested). Also on July 24, 1996, Patricof delivered to the Board a written
fairness opinion concluding that the Exchange Offer is fair, from a financial
point of view, to the Holders of Common Stock (other than Mr. Edelman, with
respect to whom no opinion was requested). See "-- Fairness Opinions" and
Annexes B and C for a description of the types of analyses performed and the
factors considered by Patricof and Corporate Capital and for a description of
the scope and limitations on their fairness opinions.
The Independent Committee and the Board of Directors considered the
financial position of the Company, the various disclosures contained in this
Proxy Statement/Prospectus and other factors, including the following:
(i) the current and historical market prices for the Preferred Stock and
Common Stock. See "Market Prices for Preferred Stock and Common Stock." The
Independent Committee and the Board considered the fact that the historical
prices for the Preferred Stock had historically traded significantly
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under its liquidation preference. The Board also considered that the prices
for these securities in recent months were likely to have been impacted by
the pendency of an exchange offer and investor attitudes as to the
likelihood of its consummation and impact on the Company.
(ii) the fact that the Company has not paid the last eight
regularly-scheduled quarterly dividends payable on the Preferred Stock from
and including October 15, 1994, and that, pursuant to the terms of the
Preferred Stock Designation, the Holders of Preferred Stock, as of January
16, 1996, became entitled to elect two directors to the Board of Directors
at the Annual Meeting and to exchange each share of Preferred Stock for two
shares of Common Stock. The Independent Committee and the Board also
considered that exchanging Holders of Preferred Stock would receive the full
voting equity interests in the Company attendant to ownership of the Common
Stock to be issued in the Exchange Offer;
(iii) the possible conflicts of interest based on the ownership of Common
Stock and Preferred Stock by certain members of the Board and entities with
which they are affiliated and, in particular, that Mr. Edelman and certain
of his affiliates have a significant investment in the Preferred Stock and
Common Stock. See "Security Ownership of Certain Beneficial Owners and
Management"; and
(iv) the fact that, if the Requisite Votes are received, non-tendering
Holders will receive the same consideration in the Preferred Stock
Reclassification compared with the Exchange Consideration to be issued in
the Exchange Offer.
In determining whether the Exchange Offer is in the best interests of the
Company, the Independent Committee and the Board also considered whether the
Company should, over time, simply attempt to pay the dividend arrearages on the
Preferred Stock. The Independent Committee and the Board concluded that it was
unlikely that the Company would be able to pay such arrearages in the near
future, and that the Exchange Offer would reduce or eliminate such arrearages,
while providing Holders of Preferred Stock with a mechanism by which they could
share in any appreciation in the value of the Company through the receipt of
Common Stock.
In view of the wide variety of factors considered by the Independent
Committee and the Board of Directors in connection with the Exchange Offer, the
Independent Committee and the Board of Directors did not find it practicable to,
and did not, quantify or otherwise assign relative weight to the factors
considered in reaching its determination set forth above.
The Independent Committee engaged the law firm of Morris, Nichols, Arsht &
Tunnell ("Morris Nichols") to advise it in connection with the Exchange Offer
and retained Corporate Capital to provide a written opinion as to the fairness,
from a financial point of view, to the holders of the Company's Preferred Stock,
of the Exchange Offer.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF DIRECTORS (WITH MR. EDELMAN
ABSTAINING) UNANIMOUSLY APPROVED THE EXCHANGE OFFER AND RECOMMENDS THAT ALL
STOCKHOLDERS OF THE COMPANY VOTE "FOR" THE APPROVAL AND ADOPTION OF THE
PREFERRED STOCK AMENDMENT.
FAIRNESS OPINIONS
FAIRNESS OPINION OF CORPORATE CAPITAL
The Independent Committee retained Corporate Capital to provide a written
opinion as to the fairness, from a financial point of view, to the Holders of
the Company's Preferred Stock (other than Mr. Edelman, with respect to whom no
opinion was requested) of a proposed plan by the Company to offer to exchange
shares of Common Stock for the Preferred Stock. On July 18, 1996, Corporate
Capital delivered to the Independent Committee a preliminary oral opinion with
respect to the fairness, from a financial point of view, to the Holders of
Preferred Stock of the proposed exchange offer at an exchange ratio of at least
3.0 shares of Common Stock for each share of Preferred Stock. On July 24, 1996,
Corporate Capital delivered to the Independent Committee a written fairness
opinion (the "CCC Opinion") concluding that the Exchange Offer is fair, from a
financial point of view, to the Holders of Preferred Stock (other than Mr.
Edelman, with
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respect to whom no opinion was requested). The CCC Opinion is attached hereto as
Annex B, and the written presentation to the Independent Committee describing
CCC's analysis is attached as Exhibit (99)(e) to the Company's Registration
Statement filed with the Commission on September 27, 1996 in connection with the
Exchange Offer.
In connection with rendering the CCC Opinion, Corporate Capital reviewed and
analyzed, among other things: a) drafts of the Registration Statement for the
Company on Form S-4 up to and including the draft as of July 16, 1996 (the
"Registration Statement"); b) the Forms 10-K filed by Datapoint for the fiscal
years 1991 through 1995; c) the Forms 10-Q for the Company for the three fiscal
quarters ended April 27, 1996; d) drafts of the Proxy Statement/Prospectus; e)
the indenture pertaining to the Company's Debentures; f) various corporate
documents, including by-laws, minutes, loan agreements, litigation documents,
employment agreements, product literature, proxies, and so forth; g) certain
internal financial documents, memoranda and other information furnished by the
Company; h) historical market prices for the two classes of stock; i) certain
financial, operational, and stock market data of companies engaged in businesses
comparable to the Company; and additional information provided from time to time
by Datapoint or by other sources deemed relevant. No limitations were imposed by
the Independent Committee with respect to the investigations made or procedures
followed by Corporate Capital in rendering its opinion.
In addition, Corporate Capital: a) met with the Company's principal officers
and visited its San Antonio facility; b) discussed the Company's financial and
operating performance with such officers; c) reviewed with such officers the
current and future prospects of Datapoint; and d) considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as Corporate Capital deemed relevant.
In rendering this opinion, Corporate Capital has not made any independent
appraisal of any of the physical or intangible assets or liabilities of the
Company, and has assumed, without independent verification, the accuracy and
completeness of the financial and other information and representations
contained in the materials that have been provided to it by the Company, or
which are publicly available. Corporate Capital has also relied on the
representations made by various representatives of the Company and their agents
and advisors, and other relevant factors.
Based upon and subject to the foregoing, Corporate Capital is of the opinion
that, as of the date of its opinion letter, the Exchange Consideration to be
received by the Holders of the Preferred Stock (other than Mr. Edelman, with
respect to whom no opinion was requested) upon the terms and conditions set
forth in the Proxy Statement/Prospectus, is fair, from a financial point of
view, to such Holders.
The following is a summary of the material financial analyses utilized by
Corporate Capital in connection with providing its opinion to the Independent
Committee.
STOCK TRADING ANALYSIS
Corporate Capital reviewed markets for, and tracked trading activity of,
both classes of stock from April 30, 1992, the date of inception of trading of
the Preferred Stock, through July 16, 1996. However, particular attention was
paid to the twenty trading days prior to the announcement on April 16, 1996 of
the proposal to exchange 2.75 shares of Common Stock for each share of Preferred
Stock, in order to judge prices accorded by a free market prior to the
proposal's change in the exchange ratio from 2:1, which was in effect since the
Company's preferred dividend payments became six full quarters in arrears. The
average closing price of a share of Common Stock was $1.44 for that twenty-day
period, and $3.10 for a share of the Preferred Stock. This constituted a ratio
of 2.15:1, indicating that the Preferred Stock was trading at just over its 2:1
conversion value in effect prior to the April 16 announcement, or at a premium
of approximately 7.6% over that value. At the ratio of 2.75:1 proposed in the
April 16 announcement, the Preferred Stock was worth approximately $3.96 per
share, a 37.5% premium over the pre-announcement conversion value, and the
additional 0.75 shares of Common Stock proposed in the April 16 announcement
were worth $1.08 per share. Corporate Capital also compared the value of (1) the
increment in the April 16 proposal over the two shares of Common Stock into
which the Holders of Preferred Stock have the ability to convert each share
until all of the Preferred Stock dividend arrearage is paid in full with (2) the
value of the arrearage. This analysis contemplated the possibility that the
Preferred stockholders could receive almost all of the dividend arrearage and
then convert each share of Preferred Stock into two shares of Common Stock. The
cumulative
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Preferred Stock arrearage averaged $1.58, $0.50 above the additional 0.75-share
exchange value proposed in the April 16 announcement. To put it another way, the
incremental exchange value provided in the proposal announced on April 16
constituted a 32% discount off the cumulative arrearage on the Preferred Stock.
On July 16, 1996, the most recent date tracked by Corporate Capital, the
Common Stock closed at $1.13
and the Preferred Stock at $3.25, a ratio of 2.88:1. Thus, the Preferred Stock
sold at a slightly higher price than the 2.75 conversion value proposed on April
16. According to these closing prices, the 0.75-share incremental conversion
value was worth approximately $0.85 per share vs. $1.75 per share in the current
cumulative Preferred Stock arrearage (which would be $2.00 by the end of July),
a discount of approximately 52%.
To reach the cumulative arrearage for the average twenty-day period
preceding the April 16, 1996 announcement would have required $0.50 more of
Common Stock value per share of Preferred Stock. At an average closing price of
$1.44 per share for the Common Stock for this twenty-day period, Corporate
Capital calculated that the exchange ratio would have to be 3.10 shares of
Common Stock for each share of Preferred Stock. As of the most recent date
Corporate Capital examined, given the $1.13 closing price of Datapoint's Common
Stock, the additional value required to reach the cumulative Preferred Stock
dividend arrearage was approximately $0.90 per share, which would require
raising the exchange ratio to 3.55:1.
Corporate Capital was of the opinion that there should be a discount from
the dividend arrearage to reflect both the high risk of actually receiving most
of the arrearage and retaining the conversion right. But Corporate Capital was
also cognizant that there is an intangible value to giving up the seniority of
the Preferred Stock, which is difficult to quantify. This portion of Corporate
Capital's study, comparing the market prices of the Preferred Stock and the
Common Stock, and comparing the value of the arrearage with the market value of
the incremental conversion value, led it to conclude that the exchange ratio
should be no less than 3:1. Thus, Corporate Capital concluded that, from a stock
trading perspective, the Exchange Consideration of 3.25 shares to one share of
Preferred Stock was fair.
COMPARABLE COMPANY ANALYSIS
Corporate Capital examined certain financial operating and stock market data
for selected companies in the value added reseller and servicing businesses
related to computer-based networking and internetworking products and services.
Specifically, Corporate Capital reviewed such data for Alpha Microsystems,
Alphanet Solutions, BTG, Inc., Fore Systems, Inc., Micros-To-Mainframes, Inc.,
Network Peripherals, Inc., North Star Universal, Inc., Optical Data Systems,
Inc., Techforce Corporation, and Western Micro Technology, Inc. (the "Selected
Companies"). These companies were chosen in part because their revenues were in
the range of $30 million to $235 million, as compared to the 1995 revenues of
the Company of approximately $175 million. Corporate Capital noted, however,
that none were really directly comparable to the Company in terms of the nature
of their business, the fact that they have operated primarily domestically
whereas nearly all of Datapoint's business has been in Europe, and that their
financial history and balance sheets have been more stable. Based upon recent
closing prices, such analysis indicated that, for the Selected Companies, the
median market capitalization to trailing twelve months earnings before
depreciation and amortization, interest and taxes ("EBDAIT") was 10.8 times, and
the median market capitalization to earnings before interest and taxes ("EBIT")
was 11.9 times. As determined from the data by Corporate Capital, the median
market value to EBDAIT for the Selected Companies was 7.9 times, the median
market value to EBIT was 9 times and the median market value to the latest
twelve months' earnings per share was 21.4 times. Owing to the relative
financial condition of the Company and its history of losses, Corporate Capital
concluded that such medians should be considered the upper limits of multiples
applied to Datapoint.
Corporate Capital used two sets of projected numbers for Datapoint, assuming
that: a) no further assets would be sold by the Company; and b) certain other
business assets would be sold in the near future. Corporate Capital removed
certain non-recurring items, adjusted for employee reductions, and, in the case
of the second scenario, assumed the application of net proceeds from the asset
sale to the reduction of certain long-term debt.
According to its comparable company analysis, Corporate Capital found that
Datapoint's Common Stock would be valued from a range of $5.27 to $11.90 per
share before dilution stemming from the ratio proposed in the April 16
announcement, and from $3.93 to $8.75 per share after such dilution. The
Exchange
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Consideration of 3.25:1 would increase the dilution, reducing the range to $3.74
to $8.34. Multiplying any of these values by either exchange ratio would produce
such high numbers relative to the market value of the Preferred Stock that even
a lower exchange ratio would be fair to the Preferred Stock shareholders.
However, Corporate Capital concluded that little or no weight should be placed
on this analysis owing to the lack of real comparability, and the inherent risk
in the various assumptions used.
DISCOUNTED CASH FLOW ANALYSIS
Corporate Capital projected the net present value of the Company based on
Corporate Capital's own five-year forecasts. These projected an optimistic case
based on 5% annual sales growth, a no-growth case, and a negative case with
sales declining 5% per annum. Corporate Capital applied in each of these cases
the two previously described scenarios relating to further sale versus retention
of certain other assets. Three discount rates were used: 15.3%, 22%, and 30%,
and applied to the projected net free cash flow over a five-year period
commencing with the 1997 fiscal year, and to a terminal value based on applying
a multiple of seven times projected EBDAIT at the end of five years. Both net
free cash flow and terminal value were discounted back to the April 16
announcement. The resulting scenarios were weighted, with the no-growth scenario
after sale of assets given most prominent weight. This yielded a present value
range for the Common Stock of $1.22 to $1.36 per share, with the lower end of
the range reflecting full dilution. At the proposal announced on April 16 to
exchange 2.75 shares of Common Stock per share of Preferred Stock, the Preferred
Stock would be valued at between $3.36 to $3.74 per share, a range in excess of
the average market price of the Preferred Stock of $3.10 for the twenty days
immediately prior to that announcement. On this basis, in Corporate Capital's
opinion, the exchange ratio appeared to have given some value to the intangible
factors of the loss of the Preferred dividend arrearage, liquidation preference
and board representation for Preferred Stock shareholders. This suggested to
Corporate Capital that the terms of the proposal announced on April 16 were fair
to the Preferred Stock shareholders. Of course, on this basis, the higher
exchange ratio provided in the Exchange Offer would be considerably more
attractive to Holders of the Preferred Stock. However, Corporate Capital could
not place much emphasis on this approach, again because of the speculative
nature of forecasts, which were partially offset by the discount rate factors
used.
LIQUIDATION VALUE
Although one major operation has been sold and another asset may be offered
for sale, the Company has advised Corporate Capital that it has no present
intention to liquidate the Company's remaining business. Nevertheless, Corporate
Capital felt compelled to analyze the Exchange Offer on this basis, because the
Preferred Stock has a $20.00 liquidation value and would be entitled to that sum
plus the cumulative arrearage in a liquidation scenario. Based on the fair
market value of the remaining net assets using the discounted present value and
comparable company analyses described above, in a liquidation after costs,
expenses, and taxes, Corporate Capital estimated that the shares of Preferred
Stock in a liquidation scenario would be worth between 23% and 100% of their
liquidation value. Corporate Capital did not rely on this approach for the
reasons that it is not contemplated by management, the Preferred Stock
shareholders have no control over the possibility that it could happen, and the
figures are based on highly speculative forecasts of cash flow and valuations.
COMPARABLE TRANSACTIONS ANALYSIS
Corporate Capital was able to find and review only two recent transactions
involving similar companies. Both transactions were for companies with revenues
in excess of $1 billion, and in one of the two cases, no price information was
publicly disclosed. The other transaction was the purchase of AmeriData
Technologies, Inc. ("AmeriData") by General Electric Capital Corporation at
$16.00 a share through a recent tender offer. Corporate Capital calculated that
such a purchase of AmeriData's outstanding common stock was at approximately
0.235 times 1995 revenues, 0.1695 estimated 1996 revenues, 5.24 times 1995
EBDAIT, 3.15 times estimated 1996 EBDAIT, 20.25 times 1995 earnings per share
before dilution, 11.9 times estimated 1996 earnings, and finally, 2.2 times
year-end 1995 stated book value. On the basis of such multiples, Corporate
Capital calculated that the implied value of the Company would be in the range
of $0.59 to $3.69 per share, averaging $2.24 per share, and the Exchange
Consideration would be worth $1.92 to $11.99 per share of Preferred Stock.
However, Corporate Capital considered that this was not a very meaningful
approach owing to the size and operating history of AmeriData as compared to the
Company, and gave no weight to this analysis.
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PROJECTED BOOK VALUE
Corporate Capital took as its base case the Company's projected balance
sheet for the end of the fiscal year, which it adjusted to take into account the
sale of EADS and adjustments stemming from that. Corporate Capital then computed
pro forma balance sheets for the two principal scenarios concerning sale versus
retention of certain assets by the Company. The negative net worth of
$80,870,000 of the base case was reduced to a negative $54,351,000 after taking
into account the sale of EADS and no further Dispositions, and to a positive net
worth of $2,792,000 in its optimistic scenario, with specific assets sold under
certain optimistic assumptions.
Taking the most optimistic result, Corporate Capital applied a reduction to
the $2,792,000 net worth to account for the par value of the Preferred Stock of
$1,892,000 in the most recent stated balance sheet, which left the Common Stock
with a book value of $896,000, or nearly $.07 per Share. The Preferred Stock
would have only $1.49 of aggregate book value.
Thus, Corporate Capital concluded that book value technically was next to
worthless, though it should be considered in a minor way.
ABILITY TO PAY ARREARS AND RESUME DIVIDEND PAYMENTS
Corporate Capital also considered the ability of the Company to pay the
cumulative dividend arrearage and resume dividend payments of the Preferred
Stock. Based on Corporate Capital's projections of cash flow per the various
forecasted scenarios described above, Corporate Capital concluded that the
earliest point at which such arrearage could be paid in its entirety would be by
the end of fiscal 1999. With a less optimistic forecast, assuming moderate
growth but no further asset sales beyond that of EADS, the arrearage could be
paid in full at the end of fiscal 2001. Discounting the cumulative arrearage
payments at 30% provided a range of present values of $1.77 to $2.13 per share
of Preferred Stock as of the announcement date of April 16. Since the proposal
announced on that date provided for 2.75 shares of Common Stock to be exchanged
for each share of Preferred Stock, versus the 2:1 conversion ratio then in
effect, the Preferred Stock shareholder would be giving up the possibility of
receiving almost the entire arrearage in return for an additional 0.75 Common
Stock shares, which were worth $1.08 on the basis of the Common Stock market
value at the date of announcement, as against the $1.77 to $2.13 per share
present value of the arrearage. On the basis of the probability-weighted
discounted present value of the Common Stock derived from Corporate Capital's
discounted cash flow analysis, Corporate Capital found that the additional 0.75
shares of Common Stock would be worth between $0.92 to $1.02 per share. The
Exchange Consideration, on the other hand, provided an additional 1.25 shares of
Common Stock over the 2:1 conversion ratio currently in effect. This was worth
$1.80 per share, on the basis of the Common Stock market value at announcement
date, as against the $1.77 to $2.13 present value range for the arrearage. From
the standpoint of discounted cash flow values of the Common Stock, the range of
value provided in the Exchange Consideration was $1.53 to $1.70.
Corporate Capital also compared the value of the Exchange Consideration with
not only giving up the ability to collect the cumulative arrearage in the
future, but also with the market value of the Preferred Stock when dividends
become current. Corporate Capital assumed that once the Preferred Stock dividend
is on a current basis (in 1999 or 2001), the Preferred Stock will sell at
between $8 and $10 a share, based on the stock price history of the Preferred
Stock prior to the deferment of dividend payments. The combined present value of
both arrearage and the assumed Preferred Stock market price, discounted at a 30%
rate, ranged from $3.79 to $6.39, with the higher number representing the higher
price achieved at the earliest date. In comparing these values against the
exchange ratio proposed on April 16, Corporate Capital found that whereas the
2.75 shares of Common Stock at market value prior to the announcement of the
offer yielded a value at the lower end of this range ($3.96), the Exchange
Consideration's 3.25:1 ratio, yielded a value of $4.68 based on the market value
of the Common Stock before the April 16 announcement. Finally, comparing the
combined present value of the arrearage and assumed Preferred Stock price
against the probability-weighted present value of the Common Stock per Corporate
Capital's discounted cash flow analysis, Corporate Capital found that at the
exchange ratio proposed on April 16, the value of the offer would be in a range
from $3.36 to $3.74 per share. On the other hand, the equivalent value of the
Exchange Consideration ranged between $3.97 to $4.42, putting it well within the
range.
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From this perspective, Corporate Capital concluded that the Exchange
Consideration was well within a range of fairness, considering the high risk of
actually achieving the dividend payment and market price scenarios described
above.
OTHER FACTORS
Corporate Capital also considered the fact that the Preferred Stock is
thinly traded compared to the Common Stock, whose average daily volume over the
longest period examined was approximately nine times that of the Preferred
Stock. Thus, it is advantageous to exchange the Preferred Stock for Common Stock
for liquidity purposes.
Corporate Capital reviewed the possible returns from patent litigation which
could potentially reward the Company with royalty payments over time. While this
could only be a positive factor in the valuation of the Company's Preferred and
Common Stock, Corporate Capital expressed its belief that there was no way to
put a reasonable figure on the possibility of payments. Thus, Corporate Capital
has chosen to ignore them in this valuation.
CONCLUSION
Although Corporate Capital gave most weight to the Stock Trading and Ability
to Pay Arrears Analyses, it was of the opinion that its analyses must be
considered as a whole, and as a whole they supported a conclusion that the
Exchange Consideration is fair to the Preferred Stock shareholders from a
financial point of view. Corporate Capital was cognizant throughout its analysis
that any estimates incorporated in such analyses, particularly in the discounted
cash flow analysis, were not necessarily indicative of actual past or future
results or values, which may be more or less favorable than such estimates, and
which are inherently subject to uncertainty.
CCC has reviewed the most current preliminary 1997 budget information of
Datapoint and reviewed its analyses based on such information assuming both the
expected sale of Telephony and the possibility that Telephony will not be sold,
and it remains CCC's opinion that the Exchange Offer is fair, from a financial
point of view, to the exchanging holders of the Company's Preferred Stock (other
than Mr. Edelman, with respect to whom no opinion was requested).
In its capacity as an investment banking firm, Corporate Capital is
regularly engaged in the valuation of businesses and their securities in
connection with recapitalizations, exchange offers, and other corporate
transactions. Corporate Capital has not in the past provided investment banking
services to the Company or to its principal officers and does not have any
equity interest in the Company.
The terms of the engagement of Corporate Capital by the Independent
Committee are set forth in a letter agreement dated May 30, 1996, between
Corporate Capital and the Independent Committee (the "Engagement Letter").
Pursuant to the Engagement Letter, the Company has agreed to pay Corporate
Capital a fee based on Corporate Capital's hourly rate of $300.00, with a
minimum fee of $10,000, plus out-of-pocket expenses. A retainer of $10,000 has
been paid by the Company. The total estimated fee to be paid by the Company is
$54,200. Datapoint, pursuant to the Engagement Letter, has agreed to indemnify
Corporate Capital against certain liabilities in connection with its engagement,
including certain liabilities under the Federal securities laws.
FAIRNESS OPINION OF PATRICOF
Patricof was retained to consider the fairness, from a financial point of
view, of the Exchange Offer to the unaffiliated holders of Common Stock.
Patricof delivered a preliminary opinion on July 18, 1996 with respect to the
fairness, from a financial point of view, to the holders of Common Stock of the
proposed exchange offer at an exchange ratio of 2.75 shares of Common Stock for
each share of Preferred Stock (inclusive and accrued and unpaid dividends). Upon
reconsideration of certain analyses, on July 24, 1996, Patricof delivered to the
Board a written fairness opinion (the "Patricof Fairness Opinion") concluding
that the proposed Exchange Offer at an exchange ratio of 3.25 shares of Common
Stock for each share of Preferred Stock (inclusive of accrued and unpaid
dividends) is fair to the holders of Common Stock (other than Mr. Edelman, with
respect to whom no opinion was requested). Patricof has consented to the use of
its opinion in this Proxy Statement/Prospectus. The Patricof Fairness Opinion is
attached hereto as Annex C,
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and the written presentation to the Board describing Patricof's analysis is
attached as Exhibit (99)(f) to the Company's Registration Statement filed with
the Commission on September 27, 1996 in connection with the Exchange Offer.
BASIS OF FAIRNESS OPINION; SCOPE OF REVIEW
In arriving at its opinion, Patricof reviewed the draft S-4 statements (up
to and including the draft as of July 16, 1996), public filings of the Company,
financial and other information provided by Company management, and information
obtained in conversations with Company management. Information provided by
Company management included financial statements reflecting estimated 1996
fiscal year results, adjusted to remove non-recurring items and to reflect
completed and planned cost reductions, pro forma for the sale of EADS (announced
June 25, 1996) and certain Dispositions. The Company has retained Patricof to
explore the sale of certain assets and intends to use the proceeds from any such
sales to repurchase Debentures. In addition, Company management provided base
case, upside case and downside case projected financial results of the Company
through 2001 together with estimates of the likelihood of occurrence of each
case. Patricof relied upon and assumed without independent verification the
accuracy and completeness of all information about the Company that Patricof
reviewed. With respect to the pro forma financial statements and projections,
Patricof assumed that such pro forma financial statements and projections had
been prepared on bases reflecting the best currently available estimates and
judgments of the management of the Company as to its expected future
performance. Patricof did not assume any responsibility for the information or
forecasts provided to it. Patricof relied upon assurances of Company management
that they are unaware of any facts that would make the information or forecasts
provided to Patricof incomplete or misleading. Patricof did not make an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company.
In addition, Patricof compared certain financial data of the Company with
various other companies whose securities are publicly traded, reviewed the
historical prices and trading volumes of the Common Stock, Preferred Stock and
Debentures of the Company, and, as further discussed below, conducted such other
financial studies, analyses and investigations as it deemed appropriate for
purposes of its opinion, including consideration, on a pre- and post- exchange
basis, of the value per share of Common Stock based on comparative company,
liquidation and discounted cash flow valuation methods.
In rendering its opinion, Patricof performed valuation analyses which
compared the estimated value of the Common Stock on a per share basis prior to
the consummation of the Exchange Offer with the estimated value of the Common
Stock on a per share basis pro forma for the consummation of the Exchange Offer.
The estimated value of the Common Stock prior to the consummation of the
Exchange Offer was calculated as the equity value of the Company less the
estimated value of the Preferred Stock. In its determination of the equity value
of the Company, Patricof relied equally on the results of a discounted cash flow
valuation of the Company and the results of a comparative company valuation of
the Company. These analyses were based primarily on the Company's estimated 1996
fiscal year results, adjusted to remove non-recurring items and to reflect
completed and planned cost reductions results, pro forma for the sale of EADS
and certain Dispositions, assuming the use of proceeds from any such sales plus
cash on hand to repurchase Debentures. In its determination of the estimated
value of the Preferred Stock, Patricof utilized a discounted dividend approach.
Based on these analyses and various assumptions respecting discount rates, the
price at which certain Dispositions will be sold and the price at which
Debentures will be repurchased, Patricof estimates a range of value per share of
Common Stock of $1.86 to $4.16 prior to the consummation of the Exchange Offer
and $1.61 to $3.81 pro forma for the consummation of the Exchange Offer.
Patricof expressed no opinion as to the prices at which the Common Stock may
trade following the consummation of the Exchange Offer.
METHODOLOGY
The following is a summary of the analyses undertaken by Patricof in
rendering the Patricof Fairness Opinion. This summary does not purport, however,
to be a complete description of the analyses underlying the Patricof Fairness
Opinion. The preparation of a fairness opinion is a complex analytical process
involving
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various determinations as the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances at
hand. Accordingly, a fairness opinion is not readily susceptible to summary
description.
In valuing the equity of the Company, Patricof considered (i) the Company's
market focus, growth opportunities, and competition, (ii) the value of the
Company's tangible and intangible assets, (iii) the Company's earnings capacity
and predictability of earnings, (iv) the market value of the Company's Common
and Preferred Stock, (v) the value of comparative public companies ("Comparative
Company Analysis"), (vi) the discounted cash flow projected by the Company
("Discounted Cash Flow Analysis"), and (vii) the discounted value of the
Preferred Stock arrearage and annual dividends.
MARKET FOCUS, GROWTH OPPORTUNITIES AND COMPETITION
As of the date of the April 27, 1996 10-Q, the Company primarily consisted
of three lines of business: the automotive dealer management system business
("EADS"), the computer telephony integration systems business ("CTI"), and the
systems integration and proprietary hardware and software business (Open Systems
Networking division, or "OSN") which includes the MINX video conferencing
business. The Company estimates total revenue of $184.6 million, EBITDA of $15.3
million and loss before extraordinary items (excluding the gain realized on the
sale of EADS) of $6.6 million for the fiscal year ended July 27, 1996.
On June 25, 1996 Datapoint announced the sale of EADS to Kalamazoo Computer
Group plc for a price of $33 million. During 1996 Datapoint took actions to
reduce operating expenses. Adjusting estimated fiscal year 1996 results for the
full year impact of cost reductions and for non-recurring expenses results in an
increase in earnings before interest, taxes, depreciation and amortization
("EBITDA") of $3.1 million. The Company plans to undertake additional cost
cutting programs in the remainder of fiscal year 1996 and into fiscal year 1997.
Adjusting estimated fiscal year 1996 results for these actions results in an
increase in EBITDA of an additional $2.6 million. The Company has estimated 1996
revenue and EBITDA, pro forma for the sale of EADS, and adjusted for
non-recurring items and cost reductions, of $158.2 million and $15.0 million.
The Company generated the majority (over 90%) of this estimated fiscal year 1996
revenue in Europe.
Pro forma for the sale of EADS, the Company is focused on (i) systems
integration for corporate clients in the field of computer telephony
integration, including the sale of computer telephony integration products
manufactured by third parties and provision of ongoing service and maintenance
for this equipment, and (ii) the sale of proprietary and third party computer
systems networking equipment and software, the integration of this equipment and
software into the customers existing systems, and the ongoing service and
maintenance of this equipment (OSN). Both the CTI and OSN divisions face strong
competition from larger, well capitalized companies. Management believes that
the CTI division is well positioned to capitalize on the strong growth expected
in the computer telephony integration market, and that the OSN division will
maintain its current sales level by selling upgrades and service to its
installed base of proprietary hardware and software and by assisting existing
and new customers in integrating third party hardware and software.
VALUE OF TANGIBLE AND INTANGIBLE ASSETS
The Company is not anticipating a liquidation of its assets, and Patricof
therefore placed little weight on the result of a liquidation value analysis of
the Company's tangible assets. Based on the Company's estimated fiscal year end
1996 balance sheet, the value of the Company's tangible assets in a liquidation,
after satisfaction of the Company's liabilities, is likely to be negative and
therefore lower than the going concern value of the Company.
The most significant intangible assets of the Company are its video
conferencing and dual speed local area networking patents, and related
litigation in which Datapoint is plaintiff. These patents and lawsuits are
potentially extremely valuable to the Company. However, Patricof believes based
on discussions with the Company's outside counsel, that there is no way to
predict the outcome of these lawsuits or the value of the patents at this time.
As such, Patricof has not assigned a quantitative value to these assets in its
analyses. However, when comparing the Company to the comparative companies in
the Comparative Company Analysis, Patricof did consider the potential value of
these assets as a positive factor for the Company.
40
<PAGE>
EARNINGS CAPACITY AND PREDICTABILITY OF EARNINGS
The Company has estimated 1996 revenue and EBITDA, pro forma for the sale of
EADS and certain Dispositions, and adjusted for non-recurring items and cost
reductions, of $113.7 million and $13.7 million, respectively. Company
management believes that it is likely the Company will continue to generate this
level of revenue and EBITDA for the foreseeable future due to the stability of
revenue and profits from the installed base of proprietary hardware and software
and due to the Company's ability to generate revenue and profits from the sale
of third party equipment and software to existing and new customers.
MARKET PRICES OF COMMON AND PREFERRED STOCK
Patricof considered, but did not rely upon, the trading history of the
Common Stock and Preferred Stock. The recent trading history of the Common Stock
and Preferred Stock has been influenced by the announcement of the proposed
exchange offer. Prior to the announcement of the proposed exchange offer, the
market prices of these securities did not fully reflect a successful sale of
EADS, and as such do not accurately reflect the current value of the Company.
ESTIMATED EQUITY VALUE OF THE COMPANY BASED ON COMPARATIVE COMPANY ANALYSIS
Patricof selected companies comparative to Datapoint based on six criteria:
(i) primary SIC code of 7373, (ii) revenue between $25 and $500 million, (iii)
negative net income before extraordinary items for at least three of the last
five fiscal years, (iv) traded on NYSE, ASE, or NASDAQ exchange, (v) not the
subject of an ancillary transaction such as a takeover or going private
transaction, and (vi) U.S. company. This resulted in six companies (the
"Comparatives"): (i) Consilium, Inc., (ii) Control Data Systems, Inc., (iii)
IKOS Systems, Inc., (iv) Rational Software Corporation, (v) Structural Dynamics
Research Corporation, and (vi) Sulcus Computer Corporation. Patricof believes
that the most important investor appraisal ratios in valuing the Company's
equity to be total enterprise value (equity value plus net debt, "TEV") to
revenues and TEV to EBITDA. Patricof selected Control Data Systems, Inc. as the
most comparable to the Company. Based on analyst estimates of revenue and EBITDA
for Control Data Systems, Inc. for the fiscal year ended December 31, 1996,
Control Data Systems, Inc. exhibited TEV to revenue and TEV to EBITDA ratios of
0.6x and 9.6x, respectively. Patricof applied a 20% discount to these multiples
to reflect the smaller size and weaker capital structure of the Company, offset
by the potential value of the Company's patents and litigation. The discounted
multiples of 0.5x revenue and 7.7x EBITDA were applied to the Company's
estimated 1996 revenue and EBITDA, pro forma for the sale of EADS and certain
Dispositions, and adjusted for non-recurring items and cost reductions, of
$113.7 million and $13.7 million, to obtain a TEV for the Company. Net debt was
subtracted from this TEV, at varying levels of net debt based on various sales
prices for certain Dispositions and repurchase scenarios for Debentures, to
reach an estimated equity value for the Company of $42.5 to $77.5 million.
ESTIMATED EQUITY VALUE OF THE COMPANY BASED ON DISCOUNTED CASH FLOW ANALYSIS
The Company's unlevered free cash flow from 1997 through 2001 was discounted
to the present. A terminal value was calculated based on the average of (i) the
perpetuity value of 2001 unlevered free cash flow and (ii) a terminal multiple
of between seven and nine times EBITDA. The value of the discounted unlevered
free cash flow was added to the discounted terminal value to obtain a TEV for
the Company for each of the Company's base case, downside case and upside case
projections, given a range of discount rates reflecting a range of Datapoint
cost of equity of 15% to 25%. Net debt was subtracted from this TEV, at varying
levels of net debt based on various sales prices for certain Dispositions and
repurchase scenarios for Debentures, to reach an estimated equity value for the
Company of $21 million to $73 million.
ESTIMATED VALUE OF PREFERRED STOCK
Patricof has been informed by the Company's counsel that there are various
restrictions under Delaware law that may limit the Company's ability to pay
dividends on its Preferred Stock. The accumulated dividend arrearage and the
value of the $1 annual dividend were discounted to the present from the date at
which the Company would reach positive net worth, on the assumption that under
Delaware law then Company would then be permitted to pay such dividends and the
Company's Board would declare dividends
41
<PAGE>
at that juncture. This calculation was performed for each of the base case,
upside case and downside case projections, and based on various sales prices for
certain Dispositions and repurchase scenarios for Debentures, to reach an
estimated value of the Preferred Stock of $6.3 million to $18.4 million.
CONCLUSION
The above ranges of value are necessarily broad, as they reflect the results
of a number of different scenarios considered in arriving at Patricof's opinion.
The scenarios represent a range of assumptions regarding two variables (the
proceeds from the sale of Telephony and the discount rate applied in the
discounted cash flow analysis) in the case of the determination of the
discounted cash flow equity value and the preferred value, and one variable (the
proceeds from the sale of Telephony) in the case of the determination of the
comparative company equity value. The fairness of the Exchange Offer in each of
the scenarios was considered in determining Patricof's opinion (e.g. in the
scenario in Patricof's analysis which results in an equity value at the bottom
of the range, the Exchange Offer is fair to common shareholders, similarly, in
the scenario in which the equity value is at the top end of the range the
Exchange Offer is fair to the common shareholders). Based on the average of the
equity values obtained in the Comparative Company and Discounted Cash Flow
analyses and the value of the Preferred Stock obtained as described above,
Patricof estimates a range of value per share of Common Stock of $1.86 to $4.16
prior to the consummation of the Exchange Offer and $1.61 to $3.81 pro forma for
the consummation of the Exchange Offer. Based on the overlapping ranges of value
and upon the consideration of unquantifiable benefits to holders of Common
Stock, such as increased financial flexibility of the Company following the
consummation of the Exchange Offer, it is Patricof's opinion as of July 24,
1996, that the Exchange Offer is fair, from a financial point of view, to the
holders of Common Stock (other than Mr. Edelman, with respect to whom no opinion
was requested).
Patricof and its affiliate, Apax Partners & Co., has approached a number of
U.S. and European companies which are potential strategic purchasers of
Telephony. Patricof has provided those potential purchasers evidencing interest
in Telephony with certain business and financial information regarding Telephony
and has set a deadline of September 16, 1996 for submission of indications of
interest by prospective purchasers (such indications of interest are to contain
a preliminary valuation of Telephony). Based on conversations with potential
purchasers, Patricof believes that a number of indications of interest will be
submitted by prospective purchasers on September 16, 1996.
Patricof has reviewed the most current 1997 preliminary budget information
of Datapoint and reviewed its analyses based on such information assuming both
the expected sale of Telephony and the possibility that Telephony will not be
sold, and it remains Patricof's opinion that the Exchange Offer is fair, from a
financial point of view, to the holders of the Company's Common Stock (other
than Mr. Edelman, with respect to whom no opinion was requested).
Patricof is a nationally recognized investment banking firm and is
continually engaged in the valuation of businesses in connection with
restructuring, mergers and acquisitions, private placements, leveraged buyouts,
fairness opinions and valuations for estate, corporate and other purposes.
Patricof has served as financial advisor to the Company with respect to the
sale of Telephony since March 20, 1996. With respect to the sale of Telephony,
Patricof has received $100,000 in retainer payments. An additional retainer of
$100,000 is payable to Patricof at such time as a letter of intent or a similar
agreement is entered into. The retainers are creditable against any success fee
due to Patricof upon the sale of Telephony. Patricof will receive a success fee
upon the sale of Telephony of 1 1/2% of the purchase price up to $55 million,
plus an additional 2 1/2% of the purchase price from $55 million to $65 million,
plus an additional 5% of any part of the purchase price exceeding $65 million.
In addition, Patricof has been engaged as financial advisor to the Board of
Directors with respect to the Exchange Offer since April 9, 1996 and the Company
has paid to Patricof $50,000 in connection with this engagement. An additional
$50,000 is payable by the Company upon delivery of Patricof's written opinion.
42
<PAGE>
CERTAIN CONSEQUENCES TO HOLDERS OF PREFERRED STOCK THAT IS NOT EXCHANGED
If the Requisite Votes are received and the Preferred Stock Amendment
becomes effective, each share of Preferred Stock (inclusive of accumulated and
unpaid dividends) will be subject to the Preferred Stock Amendment, and will be
automatically reclassified as and changed into 3.25 shares of Common Stock,
regardless of whether the holder of such Preferred Stock voted for the Preferred
Stock Amendment. Upon receipt of the Requisite Votes at the Annual Meeting, the
Company will file the Preferred Stock Amendment with the Secretary of State of
the State of Delaware. The Company will immediately thereafter commence the
exchange of certificates representing shares of Preferred Stock for certificates
representing shares of Common Stock in accordance with the terms of the
Preferred Stock Amendment. Holders of Preferred Stock that is reclassified as
shares of Common Stock in the Preferred Stock Reclassification will not be
entitled to receive accumulated dividends thereon. Notwithstanding the approval
of the Preferred Stock Amendment at the Annual Meeting, the Board of Directors
reserves the right to abandon filing the Preferred Stock Amendment and
consummation of the Preferred Stock Reclassification. See "The Exchange Offer --
Conditions."
If the Preferred Stock Amendment is not approved at the Annual Meeting, the
Company shall accept for exchange such Preferred Stock tendered and not
withdrawn as of the Expiration Date, provided that at least 66 2/3% of the
outstanding shares of Preferred Stock has been tendered and not withdrawn as of
the Expiration Date. If less than 66 2/3% of the outstanding shares of Preferred
Stock has been tendered and not withdrawn as of the Expiration Date, the Company
may elect to accept for exchange such shares of Preferred Stock in whole, or in
the alternative, to not accept any such shares for exchange.
If the Preferred Stock Amendment is not adopted, certain adverse
consequences may occur to Holders of Preferred Stock whose shares are not
tendered and exchanged in the Exchange Offer including the following: (i) the
trading market for shares of Preferred Stock may become more limited, which may
affect the liquidity and market price of such Preferred Stock and (ii) the
Company may determine not to pay dividends on the Preferred Stock as a result of
its financial position or be prohibited from paying dividends under any future
credit facility entered into by the Company, and as such, the dividend
arrearages on the Preferred Stock will continue to accumulate and remain unpaid,
negatively impacting the Company's ability to improve its financial position.
However, Holders of Preferred Stock not exchanged will (i) have the right to
elect two directors of the Company at the next annual meeting of stockholders
and at each successive annual meeting thereafter until all dividend arrearages
on the Preferred Stock are eliminated; (ii) continue to be entitled to a $20
liquidation preference, plus an amount equal to accrued and unpaid dividends, in
the event of the liquidation, dissolution of winding up of the Company; and
(iii) continue to be senior to any claims of the Holders of Common Stock,
including Common Stock issued in the Exchange Offer, in the event of the
bankruptcy, liquidation or reorganization of the Company. In addition, each
Holder of Preferred Stock has the right to exchange each such share (inclusive
of all accrued and unpaid dividends) into two shares of the Common Stock until
all dividend arrearages on the Preferred Stock are eliminated. See "Risk Factors
- -- Risks Associated with Retention of the Preferred Stock."
DILUTION
The equity interest of the current Holders of Common Stock would be diluted
to not less than approximately 70% of the total issued and outstanding shares of
Common Stock under the 100% Conversion Assumption, or to approximately 82% of
the total issued and outstanding shares of Common Stock under
43
<PAGE>
the 50% Tender Assumption. See "Pro Forma Unaudited Financial Information." The
following table shows the beneficial ownership by the parties indicated therein
of the Common Stock before and after consummation of the Exchange Offer:
COMMON STOCK OWNERSHIP SUMMARY
(AS OF JULY 15, 1996)
<TABLE>
<CAPTION>
AFTER CONSUMMATION
OF THE EXCHANGE OFFER
----------------------------------------------------
100% CONVERSION 50% TENDER
PRE-EXCHANGE OFFER ASSUMPTION ASSUMPTION
------------------------- ------------------------- -------------------------
SHARES % SHARES % SHARES %
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Existing Holders of Common Stock............... 13,929,173 100% 13,929,173 70% 13,929,173 82%
Exchanging Holders of Preferred Stock.......... 0 0% 6,071,182 30% 3,035,591 18%
------------ --- ------------ --- ------------ ---
Total...................................... 13,929,173 100% 20,000,355 100% 16,964,764 100%
------------ --- ------------ --- ------------ ---
------------ --- ------------ --- ------------ ---
</TABLE>
- ------------------------
(1) Existing Holders of Preferred Stock currently have the right to exchange
each share of Preferred Stock outstanding into two shares of Common Stock in
accordance with the terms of the Preferred Stock Designation as a result of
the current dividend arrearages (not included in calculations).
RECENT DEVELOPMENTS
In order for the Company to meet certain of its obligations and to improve
its financial position, the Company is pursuing actions to provide additional
cash infusions, including the sale of selected assets and operations of the
Company. The Company has retained Patricof in connection with the potential
disposition of its Telephony division, as well as other asset and equity sale
transactions and proposals.
On May 28, 1996, the Company entered into an agreement with Kalamazoo
Computer Group, plc, a public limited company organized under the laws of
England, providing for the sale by Datapoint to Kalamazoo of Datapoint's
European Automotive Dealer Management systems division for a purchase price of
approximately $33 million. From the sales proceeds, the Company realized
approximately $29.6 million (net of transaction related expenses and
adjustments). As part of the arrangements, Datapoint will continue to provide
computer hardware and hardware services through a subcontract arrangement with
Kalamazoo.
Of the approximately $29.6 million net proceeds received from the above
sale, the Company paid $850,000 to satisfy and discharge in full the outstanding
senior secured indebtedness owing to CIT and paid NTI, one of its two generally
secured creditors, $2.2 million representing the two deferred principal payments
on secured debt which were due in December 1994 and December 1995, as well as
accrued and unpaid interest. In addition, the proceeds from the Kalamazoo
transaction enabled the Company to pay by June 30, 1996 (within the 30-day grace
period measured from June 1, 1996) the $2.857 million interest payment on the
Debentures. On July 1, 1996, Datapoint entered into an agreement with NTI
pursuant to which Datapoint paid $5.05 million to NTI in full satisfaction of
all amounts due and to be due under a 1992 agreement Datapoint had entered into
with NTI to resolve a patent dispute. The prepayment agreement relieves the
Company of its obligation to make annual $1 million payments to NTI that
commenced in 1992 and of which seven payments remained to be made, as well as
certain contingent payment obligations. The balance of the proceeds will be
utilized by Datapoint for working capital purposes and to pay other obligations
of the Company or to otherwise reduce existing debt owed by the Company to its
creditor groups. This may include, from time to time, repurchasing its
Debentures in the public market or in privately negotiated transactions.
Also during the first quarter of 1996, the Company signed a letter of intent
to become a joint venture partner in spinning off the Company's Multimedia
Information Network Exchange ("MINX") video conferencing patents and operations
into separate entities. While such discussions were terminated in the second
quarter of 1996, the Company is continuing its efforts to enter into discussions
with a suitable partner to exploit the development and marketing of its MINX
video networking technology.
44
<PAGE>
On May 14, 1996, the Company, working with a Florida based systems
integrator for the corrections industry, announced the completion of the
installation of the first large scale video visitation system in the U.S. at the
Brevard County Detention Center in Florida resulting in $204,520 revenue for the
Company.
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April, 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
Subsequent to the end of the third quarter of 1996, a settlement was reached
among the litigants. As such, the District Court entered a Judgment Non Obstante
Veredicto (Judgment Notwithstanding the Verdict) that set aside the jury's
findings against the Company and its two executive officers and set aside all
damages. The settlement, which was reached to avoid the considerable expense and
business disruption of a protracted appeal and legal process, had no material
impact on the Company's current cash position as it included payment of funds
from a non-working capital trust fund that were otherwise not available to the
Company, issuance of a short term note, and shares of the Company's common
stock.
The Company has recently been successful in asserting its United States
video conferencing patents resulting in payments for a license. On June 6, 1996,
the Company entered into an agreement with NEC America, Inc. for the licensing
of Datapoint's video conferencing patents. On April 10, 1996, the Company
announced that it had commenced suit in the U.S. District Court for the Eastern
District of New York to recover damages against two companies for infringement
of Datapoint's patent covering multi-speed network processing (U.S. Patent No.
5,008,879). This patent covers certain ARCNET and Fast Ethernet products
recently introduced by various suppliers to the local-area network industry and
dominates certain types of dual-speed LAN Adaptor Products recently introduced
by various industry leaders. Currently, the Company is pursuing litigation in
this respect against six defendants (DATAPOINT CORPORATION V. COMPRESSION LABS,
INC., No. 3:93-CV-2522 D (N.D.Tex.); DATAPOINT CORPORATION V. PICTURETEL
CORPORATION, No. 3:93-CV-2381-D (N.D.Tex) (for which a trial date has been set
in February 1997); DATAPOINT CORPORATION V. VIDEOLAN CORP., No.96-2861-AET
(D.N.J.); DATAPOINT V. TELEOS COMMUNICATIONS, INC., No. 95-4455-AET (D.N.J.);
DATAPOINT CORPORATION V. STANDARD MICRO-SYSTEMS, INC. AND INTEL CORPORATION, No.
CV-96-1685 JBW (E.D.N.Y.)) and has negotiated three settlements, two for an
aggregate of $1.0 million and one for an undisclosed amount. On August 1, 1996,
the Company commenced an additional suit against Intel and Standard Microsystems
for infringement of a closely-related patent, U.S. No. 5,077,732. (DATAPOINT
CORP. V. STANDARD MICROSYSTEMS CORP. AND INTEL CORP., INDIVIDUALLY, AND AS
REPRESENTATIVES OF THE CLASS OF ALL MANUFACTURERS, VENDORS AND USERS OF FAST
ETHERNET-COMPLIANT, DUAL PROTOCOL LOCAL-AREA NETWORK PRODUCTS, Civil Action No.
CV-96-3819 (JBW)(E.D.N.Y.)). The Company has moved to certify the -1685 action
as a defendant class action with respect to all manufacturers, vendors, and
users of dual-protocol, Fast Ethernet-compliant local area network products; on
June 28, 1996, the Court denied that motion, without prejudice to renew at a
later date. The Company intends, in the future, to renew its motion to certify
the -1685 action, and to seek similar "defendant class action" status for the
- -3819 action. If successful in its certification efforts, the defendant classes
in the -1685 and -3819 actions would include approximately one-hundred potential
infringers of the '879 and '732 patents.
In JOHN FRASSANITO AND DAVID A. MONROE V. DATAPOINT CORP., Civil Action No.
H-95-812 (S.D. Tex.) plaintiffs alleged that the Company usurped various
patentable inventions and trade secrets in connection with the development of
its MINX systems. They also asserted a cause of action for patent infringement,
and a cause of action requiring Datapoint to assign certain MINX-related patents
and other intellectual property. On August 16, 1996, the Court dismissed with
prejudice plaintiffs' claims of patent infringement against Datapoint and
dismissed without prejudice plaintiffs' pendent state law claims and Datapoint's
state law counter-claims for lack of subject matter jurisdiction.
These actions represent the first step in the Company's industry-wide
program to license and enforce its multi-speed networking patents and video
conferencing patents through negotiations and/or litigation. The Company
believes that these patents provide broad coverage in video conferencing and
multi-speed networking technology and present the opportunity for further
royalty bearing licenses. Such royalty bearing licenses and enforcement of its
patents will be a primary strategy of the Company's business going forward to
create long-term value for its stockholders. See "Business of the Company --
Patents and Trademarks."
45
<PAGE>
DESCRIPTION OF COMMON STOCK
GENERAL
The Company's Certificate of Incorporation, as amended, authorizes the
issuance of 40 million shares of Common Stock of which 13,929,173 shares
(excluding 7,062,044 treasury shares) were issued and outstanding on July 15,
1996. The Company has reserved a sufficient number of shares of Common Stock for
issuance upon exchange of shares of the Preferred Stock pursuant to the Exchange
Offer or Preferred Stock Reclassification, as the case may be.
PREEMPTIVE RIGHTS; LIQUIDATION OR DISSOLUTION
The holders of Common Stock do not have preemptive rights and are not
entitled to a liquidation preference in the event of the liquidation,
dissolution or winding up of the Company. Subject to the preferential rights of
the Holders of the Preferred Stock and any other shares of preferred stock of
the Company hereafter issued, all shares of Common Stock rank equally on
dissolution and are entitled to participate equally in such dividends as may be
declared by the Board out of funds legally available therefor. All shares of
Common Stock presently outstanding are, and, when issued upon exchange of the
Preferred Stock pursuant to the Exchange Offer or Preferred Stock
Reclassification, as the case may be, all shares of Common stock will be, fully
paid and nonassessable.
VOTING RIGHTS
The holders of Common Stock are entitled to one vote per share held of
record on all matters upon which stockholders generally have the right to vote.
The Common Stock does not have cumulative voting rights.
DIVIDENDS
Dividends on the Common Stock may be declared by the Board from time to time
out of funds legally available therefor, after provision for the preferential
dividend rights of Holders of the Preferred Stock and any other preferential
dividend rights the Board may fix for any other series of preferred stock that
may be issued and outstanding. The Preferred Stock Designation prohibits the
payment of dividends on the Common Stock whenever quarterly dividend payments on
the Preferred Stock are in arrears. See "Market Prices for Preferred Stock and
Common Stock"; and "Annex A -- Description of Preferred Stock -- Dividends."
LISTING, TRANSFER AGENT
The outstanding Common Stock is listed on the NYSE. Continental Stock
Transfer and Trust Company acts as Registrar and Transfer Agent for the
outstanding Common Stock. The Company will make application and use its best
efforts to seek the authorization of the NYSE for listing any additional shares
of Common Stock issued in the Exchange Offer or Preferred Stock
Reclassification, as the case may be, on the NYSE as may be necessary.
46
<PAGE>
MARKET PRICES FOR PREFERRED STOCK AND COMMON STOCK
PREFERRED STOCK
There are 10,000,000 shares of preferred stock authorized for issuance,
2,000,000 of which have been designated as the Preferred Stock. As of July 15,
1996, there were 432 record holders and 1,868,056 outstanding shares of
Preferred Stock. The Preferred Stock is listed and traded on the NYSE under the
symbol "DPTA".
The following table provides, for the periods indicated, the high and low
closing sales price per share for the Preferred Stock:
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
<S> <C> <C>
HIGH LOW
--------- ---------
Fiscal year 1996
Fourth quarter............................................................. $ 4.00 $ 2.00
Third quarter.............................................................. 4.00 2.00
Second quarter............................................................. 2.63 1.88
First quarter.............................................................. 2.63 1.75
Fiscal year 1995:
Fourth quarter............................................................. 1.88 1.13
Third quarter.............................................................. 1.88 1.00
Second quarter............................................................. 2.63 1.25
First quarter.............................................................. 6.38 2.25
Fiscal year 1994
Fourth quarter............................................................. 8.00 5.75
Third quarter.............................................................. 8.63 7.63
Second quarter............................................................. 8.88 8.00
First quarter.............................................................. 8.38 7.75
Fiscal year 1993
Fourth quarter............................................................. 8.38 7.50
Third quarter.............................................................. 9.13 7.75
Second quarter............................................................. 8.00 6.63
First quarter.............................................................. 7.88 6.25
</TABLE>
The annual dividend rate on the Preferred Stock is $1.00 per share, payable
in cash on a quarterly basis. In fiscal 1993, the Company paid an aggregate of
approximately $1.8 million in dividends on Preferred Stock ($1.00 per share).
From and including October 15, 1994 the Company has not issued the dividends
payable on the Preferred Stock, resulting in accumulated dividends aggregating
approximately $3.7 million ($2.00 per share) as of July 15, 1996. See "Risk
Factors -- Risks Associated with the Company in General -- Financial Condition
of the Company," "-- Risks Associated with Retention of the Preferred Stock" and
"Background; Purposes and Effects of the Exchange Offer." If the Preferred Stock
Amendment is approved and the Preferred Stock Reclassification is consummated,
each share of Preferred Stock (inclusive of unpaid dividends) will be subject to
the Preferred Stock Reclassification and will be reclassified as and changed
into 3.25 shares of Common Stock in accordance therewith. If the Preferred Stock
Reclassification is not consummated, to the extent that the Preferred Stock is
tendered and exchanged in the Exchange Offer, the trading market for Preferred
Stock not tendered and exchanged in the Exchange Offer may become limited or
eliminated. See "Risk Factors -- Risks Associated with Retention of the
Preferred Stock -- NYSE Listing" and "Background; Purposes and Effects of the
Exchange Offer -- Certain Consequences to Non-Tendering Holders of Preferred
Stock."
47
<PAGE>
COMMON STOCK
There are 40,000,000 shares of Common Stock authorized for issuance. As of
July 15, 1996 there were approximately 3,150 record holders and 13,929,173
outstanding shares of Common Stock. The Common Stock is listed and traded on the
NYSE under the symbol "DPT".
The following table provides, for the periods indicated, the high and low
closing sales price for the Common Stock:
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
<S> <C> <C>
HIGH LOW
--------- ---------
Fiscal year 1996
Fourth quarter............................................................. $ 1.88 $ 1.00
Third quarter.............................................................. 1.88 1.00
Second quarter............................................................. 1.44 1.00
First quarter.............................................................. 2.38 1.38
Fiscal year 1995:
Fourth quarter............................................................. 1.88 1.00
Third quarter.............................................................. 2.00 1.25
Second quarter............................................................. 2.34 1.50
First quarter.............................................................. 3.88 1.25
Fiscal year 1994
Fourth quarter............................................................. 6.13 3.38
Third quarter.............................................................. 7.38 4.50
Second quarter............................................................. 8.25 5.88
First quarter.............................................................. 7.63 5.50
Fiscal year 1993
Fourth quarter............................................................. 7.38 3.88
Third quarter.............................................................. 6.75 4.25
Second quarter............................................................. 5.25 1.63
First quarter.............................................................. 2.88 1.38
</TABLE>
Dividends on the Common Stock are paid when and as declared by the Board of
Directors. The Company has not paid cash dividends to date on its Common Stock
and has no present intention to pay cash dividends on its Common Stock in the
near future. The Preferred Stock Designation prohibits the payment of dividends
on the Common Stock whenever quarterly dividend payments on the Preferred Stock
are in arrears. See "Risk Factors -- Risks Associated with the Company in
General -- Financial Condition of the Company", "-- Risks Associated with
Investment in the Exchange Consideration" and "Background; Purposes and Effects
of the Exchange Offer."
48
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL YEARS 1995, 1994, 1993 AND
NINE MONTHS ENDED APRIL 27, 1996
(FULL YEARS REFERRED TO ARE FISCAL YEARS)
OVERVIEW
During 1995, while the Company was able to maintain the revenue level from
the prior year, it continued to experience significant operating losses due to
competitive pressures which resulted in a revenue and gross profit level which
was insufficient to cover the Company's costs. Realizing that the Company's cost
structure would not support a "flat" revenue level (1995 compared with 1994),
the Company implemented several actions in 1995 to reduce its costs. As these
actions were undertaken throughout the year, the full annual benefit of these
actions will not be realized until 1996. The effect of these continuing
competitive pressures resulted in an operating loss of $18.2 million, a working
capital deficiency of $32.8 million and cash used in operations of $5.6 million
in fiscal 1995.
For fiscal year 1995, the Company adopted three main objectives to preserve
and improve the Company's cash liquidity position and allow the Company to meet
its future operating cash flow requirements. These objectives were as follows:
1. Product marketing to maintain stabilized revenue levels
2. Continued review and reduction of operating costs; and
3. One time cash infusions to meet operating requirements.
The Company's revenue level for 1995 improved slightly when compared to
1994. This slight increase was primarily due to improved sales from the new MINX
line of video communications technology, improved sales from the Company's
telephony solutions in the international markets, and improved service revenue
contribution, coupled with maintaining a consistent revenue stream in the
Company's other products.
During 1995, the Company had as one of its major objectives to continue to
review and reduce operating costs. In this regard, throughout 1995, the Company
recorded $9.2 million of restructuring charges (mostly related to severance
costs stemming from reduction of personnel) which was the result of an extensive
review of literally all of the Company's worldwide operations.
While the reorganizations and cost reduction program implemented in 1995
will help to improve the Company's cash liquidity position, the Company is
simultaneously pursuing other actions to provide additional cash infusion(s)
and/or reduce the Company's cost base, including the sale of certain assets and
operations of the Company.
During the third quarter of 1996, the Company continued to achieve its
objectives of maintaining a consistent revenue level and tight cost control.
While the effect of the two factors resulted in revenue generation of $46.8
million and operating income of $1.6 million, after considering the effect of
the Company's investing, financing activities and other non-operation items, the
Company had a net loss of $4.0 million.
Despite the consistent revenue trend and the positive operating performance,
during the third quarter of 1996, the Company's cash and cash equivalents
decreased $1.5 million. In order for the Company to meet certain of its
obligations, including interest payments on its Debentures, the Company is
pursuing actions to provide additional cash infusions and/or reduce its cost
base. In this regard, on May 28, 1996, the Company entered into an agreement
with Kalamazoo Computer Group, plc, a public limited company organized under the
laws of England, providing for the sale by Datapoint to Kalamazoo of Datapoint's
European Automotive Dealer Management Systems division for a purchase price of
approximately $33 million. From the sales proceeds, the Company realized
approximately $29.6 million (net of transaction related expenses and
adjustments). As part of the arrangements, Datapoint will continue to provide
computer hardware and hardware services through a subcontract arrangement with
Kalamazoo.
49
<PAGE>
Also during the first quarter of 1996, the Company signed a letter of intent
to become a joint venture partner in spinning off the Company's MINX video
conferencing patents and operations into separate entities. While such
discussions were terminated in the second quarter of 1996, the Company is
continuing its efforts to enter into discussions with a suitable partner to
exploit the development and marketing of its MINX video networking technology.
On May 14, 1996, the Company, working with a Florida based systems
integrator for the corrections industry, announced the completion of the
installation of the first large scale video visitation system in the U.S. at the
Brevard County Detention Center in Florida resulting in $204,520 revenue for the
Company.
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April, 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
Subsequent to the end of the third quarter of 1996, a settlement was reached
among the litigants. As such, the District Court entered a Judgment Non Obstante
Veredicto (Judgment Notwithstanding the Verdict) that set aside the jury's
findings against the Company and its two executive officers and set aside all
damages. The settlement, which was reached to avoid the considerable expense and
business disruption of a protracted appeal and legal process, had no material
impact on the Company's current cash position as it included payment of funds
from a non-working capital trust fund that were otherwise not available to the
Company, issuance of a short term note, and shares of the Company's common
stock. See "Background; Purposes and Effects of the Exchange Offer -- Recent
Developments."
The Company will continue to proceed with the above actions and any other
actions which will result in additional cost reductions and cash infusions.
These additional cash infusions are necessary to meet certain of the Company's
obligations, including interest payments on the Debentures. While management
anticipates meeting these obligations, no assurances can be given that
sufficient funds will be available. In the event the interest payment on the
Debentures is not made within the 30-day period following any interest date on
the Debentures, the resulting default would entitle the holders of the
Debentures to elect to declare the entire indebtedness of $64.4 million as
immediately due and payable. Such a default would likewise result in defaults in
certain of the Company's other debt instruments.
FINANCIAL CONDITION AND LIQUIDITY
During the first nine months of 1996, the Company's cash used in operations
amounted to $2.3 million. Primarily, this decline was the result of an increase
in foreign subsidiary receivables, payments of the foreign subsidiaries'
restructuring costs, net paydowns of the Company's accounts payable, a reduction
of inventory and an increase in accrued expenses.
The Company used $2.1 million for the purchase of fixed assets (primarily
test equipment, spares and internally used equipment) during the first nine
months of 1996.
As of April 27, 1996, the company had restricted cash and cash equivalents
of $1.1 million, which was restricted primarily to cover various lines of
credit. For the nine month period ended April 27, 1996, the Company's cash flow
from financing activities increased $1.4 million due to a decrease in restricted
cash.
During the first nine months of 1995, the Company's cash and cash
equivalents declined $1.1 million. Cash remained flat during this time period as
substantial one-time cash infusions from the sale of land, sale of common stock,
insurance proceeds, and legal settlement proceeds coupled with operating
activities which emphasized inventory reductions and receivables collections
were essentially offset by the operating loss, payments on borrowings, and
reductions of accounts payable.
During 1995, the Company used $5.6 million in cash related to operating
activities. Primarily, this was the result of the operating loss for the year,
$11.6 million in payments related to the Company's restructuring activities
partially offset by lower inventory purchases of $8.9 million, improved
receivable collections of $4.1 million, $1.7 million related to the gain on the
sale of vacant property and $5.5 million related to the settlement of two
shareholder derivative lawsuits.
During 1995, net cash from investing activities increased $4.0 million. This
increase was primarily due to $7.9 million of proceeds received related to the
sale of vacant property and fixed assets, releases of $1.0 million in payment
guarantees, offset by $4.7 million of fixed asset purchases.
50
<PAGE>
Net cash from financing activities increased $3.0 million in 1995 primarily
due to $2.5 million being received from the sale of common stock, $1.8 million
representing releases of restricted cash related to various letters of credit
and credit lines, offset by a $1.0 million paydown of the Company's loan with
International Factors "De Factorij" B.V.
As of July 29, 1995, the Company had restricted cash of $2.5 million as
compared to $4.3 million the prior year. The 1995 and 1994 balances were
restricted primarily to cover various lines of credits, reflected as payables to
banks.
Cash used for investment in fixed assets was $4.7 million in 1995, compared
to $10.8 million in 1994 and $10.9 million in 1993. There are no material
commitments for capital expenditures at the present time.
Accounts payable decreased to $23.3 million in 1995 from $25.6 million in
1994. The Company continued to work with its accounts payable creditors to
extend additional credit and credit terms, thus maintaining functional
relationships with such creditors during 1995. The Company has no significant
purchase commitments outstanding as of July 29, 1995.
The Company had several one time cash infusions in fiscal 1995. Among these
were the sale of vacant land in San Antonio, Texas ($7.2 million), the sale of
700,000 shares of common stock ($1.7 million), settlement proceeds received from
defendants in patent infringement litigation ($1.0 million), the final insurance
payment related to the fire in the Belgian subsidiary ($1.5 million), and the
settlement of two stockholder derivative suits ($4.2 million, after legal
expenses).
As of July 29, 1995, the Company has included in payables to banks an amount
of $6.5 million payable to International Factors "De Factorij" B.V., a
subsidiary of ABN-AMRO Bank of the Netherlands. The loan is secured by the
receivables of the Company's U.K., Dutch and German subsidiaries.
The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The unused lines of credit at July 29, 1995 totaled $1.1 million
after borrowings of $10.1 million.
During 1993, the Company settled a long standing patent-related legal action
brought against it by NTI. Pursuant to this settlement, during 1994 and 1993,
the Company paid NTI $1.0 million and $7.5 million, respectively. The Company
also agreed to a ten-year note payable to NTI which required annual $1.0 million
payments each December. The Company was in arrears on the December 1994 and
December 1995 payments. On September 13, 1995, NTI notified the Company that it
had declared the entire note immediately due and payable, which as of July 29,
1995 was $6.6 million. The Company entered into discussions with NTI to remedy
this payment default and, subsequent to the end of the first quarter of 1996,
the Company and NTI reached a new agreement to cure the arrearages whereby both
the December 1994 and December 1995 payments would be made on or before January
31, 1996. The Company and NTI subsequently amended the agreement such that the
schedule for the two payments in arrears would be extended to a period not to
exceed the end of the third quarter of 1996. Of the proceeds received from the
sale of EADS to Kalamazoo, the Company paid NTI $2.2 million representing the
two deferred principal payments due December 1994 and December 1995, as well as
accrued and unpaid interest. On July 1, 1996, the Company entered into a
prepayment agreement with NTI pursuant to which Datapoint paid $5.05 million to
NTI in full satisfaction of all amounts due and to be due under a 1992 agreement
Datapoint had entered into with NTI to resolve a patent dispute. The prepayment
agreement relieves the Company of its obligation to make annual $1 million
payments to NTI that commenced in 1992 and of which seven payments remained to
be made, as well as certain contingent payment obligations. See "Background;
Purposes and Effects of the Exchange Offer -- Recent Developments."
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April, 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
Subsequent to the end of the third quarter of 1996, a settlement was reached
among the litigants. As such, the District Court entered a Judgment Non Obstante
Veredicto (Judgment Notwithstanding the Verdict) that set aside the jury's
findings against the Company and its two executive officers and set aside all
damages. The settlement, which was reached to avoid the considerable expense and
business disruption of a protracted appeal and legal process, had no material
impact on the Company's current cash
51
<PAGE>
position as it included payment of funds from a non-working capital trust fund
that were otherwise not available to the Company, issuance of a short term note,
and shares of the Company's common stock. See "Background; Purposes and Effects
of the Exchange Offer -- Recent Developments."
As a result of the Company's capital deficiency which existed at the end of
1994, 1995 and throughout the third quarter of 1996, the Company determined not
to pay the October 15, 1994, January 15, 1995, April 15, 1995, July 15, 1995,
October 15, 1995, January 15, 1996, April 15, 1996 and July 15, 1996 preferred
dividend payments to stockholders. On January 16, 1996, the Company announced
that the preferred dividend payments were six full quarters in arrears, and
that, as such, each holder of Preferred Stock has the right to exchange each
such share (inclusive of all accrued and unpaid dividends) into two shares of
the Common Stock and the holders of Preferred Stock, voting separately as a
class, have the right to elect two directors to the Company's Board of Directors
at the next annual meeting of stockholders. These rights continue until such
time as the dividend arrearages have been paid in full. The number of directors
constituting the Board of Directors of the Company has been increased by two and
Holders of the Preferred Stock (not including those who had exchanged Preferred
Stock for Common Stock), voting as a single class, have the right to elect two
directors to the Board of Directors of the Company at the Annual Meeting of
Stockholders to fill such newly created directorships. See "Annual Meeting" and
"Election of Directors." The Company had 1,868,056 shares of its Preferred Stock
outstanding at July 15, 1996.
The Company adopted, effective August 1, 1993, SFAS No. 109, "Accounting for
Income Taxes" ("FAS 109"), which superseded SFAS No. 96 and APB Opinion No. 11.
The Company recorded a favorable cumulative accounting change effect of
approximately $1.3 million in the first quarter of fiscal 1994 (see note 4 to
Consolidated Financial Statements).
At July 29, 1995, the Company had available federal tax net operating losses
aggregating approximately $157 million, expiring in various amounts beginning in
2001. In the event that the Company's ability to utilize its net operating
losses to reduce its federal tax liability with respect to current and future
income becomes subject to limitation, the Company may be required to pay, sooner
than it otherwise might have to, any amounts owing with respect to such federal
tax liability, which would reduce the amount of cash otherwise available to the
Company (see note 4 to Consolidated Financial Statements).
REORGANIZATION/RESTRUCTURING COSTS
A rollforward of the restructuring accrual from July 31, 1993 through April
27, 1996 is as follows:
<TABLE>
<CAPTION>
TOTAL
--------------
(IN THOUSANDS)
<S> <C>
Restructuring accrual as of July 31, 1993..................................... $ 2,565
Fiscal 1994 additions......................................................... 14,853
Fiscal 1994 payments.......................................................... (3,430)
--------------
Restructuring accrual as of July 30, 1994..................................... 13,988
Fiscal 1995 additions......................................................... 9,213
Asset write-offs.............................................................. (1,895)
Fiscal 1995 payments.......................................................... (17,138)
--------------
Restructuring accrual as of July 29, 1995..................................... 4,168
First quarter 1996 additions.................................................. 48
First quarter 1996 payments................................................... (1,422)
--------------
Restructuring accrual as of October 28, 1995.................................. $ 2,794
Second quarter 1996 additions................................................. 77
Second quarter 1996 payments.................................................. (885)
--------------
Restructuring accrual as of January 27, 1996.................................. $ 1,986
Third quarter 1996 additions.................................................. 69
Third quarter 1996 payments................................................... (608)
--------------
Restructuring accrual as of April 27, 1996.................................... $ 1,447
--------------
--------------
</TABLE>
52
<PAGE>
The projected payout of the restructuring accrual balance as of April 27,
1996, which related almost entirely to unpaid employee termination costs, is as
follows:
<TABLE>
<S> <C>
Fourth quarter 1996............................................ $ 1,139
First quarter 1997............................................. 131
Second quarter 1997............................................ 74
Third quarter 1997............................................. 27
Beyond......................................................... 76
-----------
Restructuring accrual as of April 27, 1996..................... $ 1,447
-----------
-----------
</TABLE>
RESULTS OF OPERATIONS
The following is a summary of the Company's sources of revenue for each of
fiscal 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
U.S.............................................................. $ 5,728 $ 6,453 $ 5,757
Foreign.......................................................... 78,459 78,300 94,463
---------- ---------- ----------
84,187 84,753 100,220
Service and other:
U.S.............................................................. 1,393 1,164 1,529
Foreign.......................................................... 89,321 87,019 106,595
---------- ---------- ----------
90,714 88,183 108,124
---------- ---------- ----------
Total revenue.................................................. $ 174,901 $ 172,936 $ 208,344
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
RECENT EVENTS
On May 28, 1996, the Company entered into an agreement with Kalamazoo
Computer Group, plc, a public limited company organized under the laws of
England, providing for the sale by Datapoint to Kalamazoo of Datapoint's
European Automotive Dealer Management Systems division for a purchase price of
approximately $33 million. From the sales proceeds, the Company realized
approximately $29.6 million (net of transaction related expenses and
adjustments). As part of the arrangements, Datapoint will continue to provide
computer hardware and hardware services through a subcontract arrangement with
Kalamazoo.
Of the approximately $29.6 million net proceeds received from the above
sale, the Company paid $850,000 to satisfy and discharge in full the outstanding
senior secured indebtedness owing to CIT and paid NTI, one of its two generally
secured creditors, $2.2 million representing the two deferred principal payments
on secured debt which were due in December 1994 and December 1995, as well as
accrued and unpaid interest. In addition, the proceeds from the Kalamazoo
transaction enabled the Company to pay by June 30, 1996 (within the 30-day grace
period measured from June 1, 1996) the $2.857 million interest payment on the
Debentures. On July 1, 1996, Datapoint entered into an agreement with NTI
pursuant to which Datapoint paid $5.05 million to NTI in full satisfaction of
all amounts due and to be due under a 1992 agreement Datapoint had entered into
with NTI to resolve a patent dispute. The prepayment agreement relieves the
Company of its obligation to make annual $1 million payments to NTI that
commenced in 1992 and of which seven payments remained to be made, as well as
certain contingent payment obligations. The balance of the proceeds will be
utilized by Datapoint for working capital purposes and to pay other obligations
of the Company. This may include, from time to time, repurchasing in the public
market or in privately negotiated transactions the Debentures or otherwise
reducing existing debt owed by the Company to its creditor groups.
The Company has recently been successful in asserting its United States
video conferencing patents resulting in payments for a license. On June 6, 1996,
the Company entered into an agreement with NEC America, Inc. for the licensing
of Datapoint's video conferencing patents. NEC America, Inc. is now a fully paid
up licensee under these patents. On April 10, 1996, the Company announced that
it had commenced
53
<PAGE>
suit in the U.S. District Court for the Eastern District of New York to recover
damages against two companies for infringement of Datapoint's patent covering
multi-speed network processing (U.S. Patent No. 5,008,879). This patent covers
certain ARCNET and Fast Ethernet products recently introduced by various
suppliers to the local-area network industry and dominates certain types of
dual-speed LAN Adaptor Products recently introduced by various industry leaders.
Currently, the Company is pursuing litigation in this respect against six
defendants (DATAPOINT CORPORATION V. COMPRESSION LABS, INC., No. 3:93-CV-2522-D
(N.D.Tex.) (for which a trial date has been set in February 1997); DATAPOINT
CORPORATION V. PICTURETEL CORPORATION, No. 3:93-CV-2381-D (N.D.Tex); DATAPOINT
CORPORATION V. VIDEOLAN CORP.; No.96-2861-AET (D.N.J.); DATAPOINT V. TELEOS
COMMUNICATIONS, INC., No. 95-4455-AET (D.N.J.); DATAPOINT CORPORATION V.
STANDARD MICRO-SYSTEMS, INC. AND INTEL CORPORATION, No. CV-96-1685 JBW
(E.D.N.Y.)) and has negotiated three settlements, two for an aggregate of $1
million and one for an undisclosed amount.
On August 1, 1996, the Company commenced an additional suit against Intel
and Standard Microsystems for infringement of a closely-related patent, U.S. No.
5,077,732. (DATAPOINT CORP. V. STANDARD MICROSYSTEMS CORP. AND INTEL CORP.,
INDIVIDUALLY, AND AS REPRESENTATIVES OF THE CLASS OF ALL MANUFACTURERS, VENDORS
AND USERS OF FAST ETHERNET-COMPLIANT, DUAL PROTOCOL LOCAL-AREA NETWORK PRODUCTS,
Civil Action No. CV-96-3819 (JBW)(E.D.N.Y.)). The Company has moved to certify
the -1685 action as a defendant class action with respect to all manufacturers,
vendors, and users of dual- protocol, Fast Ethernet-compliant local area network
products; on June 28, 1996, the Court denied that motion, without prejudice to
renew at a later date. The Company intends, in the future, to renew its motion
to certify the -1685 action, and to seek similar "defendant class action" status
for the -3819 action. If successful in its certification efforts, the defendant
classes in the -1685 and -3819 actions would include approximately one-hundred
potential infringers of the '879 and '732 patents.
In JOHN FRASSANITO AND DAVID A. MONROE V. DATAPOINT CORP., Civil Action No.
H-95-812 (S.D. Tex.) plaintiffs alleged that the Company usurped various
patentable inventions and trade secrets in connection with the development of
its MINX systems. They also asserted a cause of action for patent infringement,
and a cause of action requiring Datapoint to assign certain MINX-related patents
and other intellectual property. On August 16, 1996, the Court dismissed with
prejudice plaintiffs' claims of patent infringement against Datapoint and
dismissed without prejudice plaintiffs' pendent state law claims and Datapoint's
state law counter-claims for lack of subject matter jurisdiction.
These actions represent the first step in the Company's industry-wide
program to license and enforce its multi-speed networking patents and video
conferencing patents through negotiations and/or litigation. The Company
believes that these patents provide broad coverage in video conferencing and
multi-speed networking technology and present the opportunity for further
royalty bearing licenses. Such royalty bearing licenses and enforcement of its
patents will be a primary strategy of the Company's business going forward to
create long-term value for its stockholders. See "Business of the Company --
Patents and Trademarks."
THIRD QUARTER 1996
The Company had operating income of $1.6 million and net loss of $4.0
million for the third quarter of 1996 and operating income of $4.8 million and
net loss of $5.1 million for the first nine months of 1996. This compares with
an operating loss of $2.5 million and a net loss of $5.5 million for the third
quarter of 1995 and an operating loss of $18.5 million and a net loss of $24.7
million for the first nine months of 1995. The following is a summary of the
Company's sources of revenue:
54
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- ----------------------
04/27/96 04/29/95 04/27/96 04/29/95
--------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales:
U.S.................................................... $ 612 $ 1,434 $ 2,601 $ 4,475
Foreign................................................ 25,826 22,995 70,721 52,645
--------- --------- ---------- ----------
26,438 24,429 73,322 57,120
Service and other:
U.S.................................................... 180 310 679 1,020
Foreign................................................ 20,185 22,801 61,673 67,700
--------- --------- ---------- ----------
20,365 23,111 62,352 68,720
--------- --------- ---------- ----------
Total revenue........................................ $ 46,803 $ 47,540 $ 135,674 $ 125,840
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
Total revenue during the third quarter of 1996 decreased $0.7 million, or
1.6%, compared with the same period of the prior year. This decrease was
primarily due to the decrease in sales revenue in the U.S., offset by a higher
sales volume in the European subsidiaries. For the first nine months of 1996,
total revenue increased $9.8 million or 7.8% when compared with the same period
of the prior year. This increase was primarily attributable to higher sales in
certain of the Company's European subsidiaries and a declining maintenance
revenue base in the European subsidiaries, and a favorable impact of $3.9
million related to the weakening U.S. dollar when compared with the same period
a year ago, offset by a declining maintenance revenue base in the European
subsidiaries.
The gross profit margin for the third quarter and first nine months of 1996
was 28.4% and 31.3%, respectively, compared with 32.8% and 32.0% for the same
periods of the prior year. The decrease was primarily due to the impact of a
high sales volume of a low margin commodity product in a Northern European
subsidiary, a changing product mix toward lower margin, non-company sourced
product and competitive pricing pressures worldwide.
Operating expenses (research and development plus selling, general and
administrative) during the third quarter of 1996 and for the first nine months
of 1996 decreased $4.6 million and $13.7 million, respectively, as compared with
the same periods a year ago. The decreases are due primarily to the realization
of the various cost reduction activities (mostly related to personnel
reductions) which the Company has implemented throughout the last year.
Non-operating income and expenses for the three months ended April 27, 1996
includes expenses for interest of $2.1 million and a lawsuit settlement of $3.3
million, offset by $0.7 million of transaction gains as a result of the
strengthening U.S. dollar against foreign currencies during the last three
months. Non-operating results for the first nine months of 1995 include a gain
on the sale of vacant land in San Antonio, Texas of $1.7 million.
1995 COMPARED TO 1994
Total revenue increased by 1% to $174.9 million in 1995 from $172.9 million
in 1994. The increase was due to a weaker U.S. dollar, on average, in 1995 as
compared to the average U.S. dollar strength in 1994 as the Company incurred a
$14.6 million increase in total revenue attributable solely to currency changes
($6.4 million for sales and $8.1 million for service and other).
Included in the operating loss for 1995 of $18.2 million were additional
inventory provisions of $5.0 million and $1.0 million of additional receivable
provisions. Operating income during 1994 included a fire insurance settlement
gain of $0.9 million related to a fire in the second quarter in a leased
warehouse facility in the Company's Belgian subsidiary.
Gross profit margins during 1995 were 32.9% compared with 37.9% for 1994.
Excluding the additional inventory provisions recorded in 1995, the gross profit
margins were 35.7%. Gross profit margins during 1994 were 37.9% compared with
41.6% for 1993. Excluding the impact upon cost of sales of the fires noted
above, gross profit margins during 1994 were 37.4% compared with 39.0% for 1993.
55
<PAGE>
Operating expenses (research and development plus selling, general &
administrative) during 1995 declined 10% or $7.6 million from 1994 to $66.5
million. The decline was a result of cost-cutting actions taken over 1995 which
reduced costs of internal operations. Excluding the impact of the weaker U.S.
dollar in 1995 as compared with 1994, operating expenses declined $10.3 million
year over year.
Interest expense decreased $.2 million in 1995 from 1994 as the Company
benefited from both lower rates on borrowings in Europe and decreased borrowing
amounts in the U.S.
Non-operating results for 1995 includes a gain of $1.7 million from the sale
of the vacant land in San Antonio, Texas, $1.0 million from the favorable
settlement of two patent infringement lawsuits, and $1.5 million in foreign
exchange rate losses on the Company's intercompany payables and receivables.
Non-operating results for 1994 includes the $3.2 million write-off of an
investment in a partially owned company, $0.7 million in foreign currency
exchange rate losses on certain of the Company's intercompany payables and
receivables and a $0.5 million fire settlement gain on fixed assets.
Prior to 1994, the Company's foreign subsidiaries reported their results to
the parent on a one-month lag which allowed more time to compile results but
produced comparability problems in management accounting. Due to improved
internal applications, the one-month lag became unnecessary and therefore was
eliminated subsequent to 1993 and prior to 1994. As a result, the July 1993
results of operations for the Company's foreign subsidiaries was recorded to the
retained deficit. This action resulted in a charge of $5.5 million being
recorded against the retained deficit. The loss incurred in July 1993 resulted
primarily from a low revenue level, which is usual for the first month following
the end of a fiscal year.
1994 COMPARED TO 1993
Total revenue declined 17% to $172.9 million in 1994 from $208.3 million in
1993. The decline was due to a stronger U.S. dollar, on average, in 1994 as
compared to the average U.S. dollar strength in 1993 as the Company incurred a
$16.0 million decline in total revenue attributable solely to currency changes.
In addition the French subsidiary incurred a sharp loss of business due to the
loss of several significant accounts to competitors and accordingly suffered a
total revenue loss of $11.7 million. The decline was also due to the sale of the
Australian subsidiary in 1993 which accounted for total revenue of $4.2 million
in 1993. The Company also incurred less significant declines in revenue in the
Company's subsidiaries in Germany, Sweden and Holland attributable to
performance declines resulting primarily from competitive pressures.
Operating income during 1994 included a fire insurance settlement gain of
$0.9 million related to a fire in the second quarter in a leased warehouse
facility in the Company's Belgian subsidiary. Operating income during 1993 also
included $2.8 million in gains on a fire insurance settlement related to a fire
in the French subsidiary, and an additional $2.5 million for business
interruption coverage.
Gross profit margins during 1994 were 37.9% compared with 41.6% for 1993.
Excluding the impact upon cost of sales of the fires noted above, gross profit
margins during 1994 were 37.4% compared with 39.0% for 1993.
Operating expenses (research and development plus selling, general &
administrative) during 1994 declined 9% from 1993 to $74.1 million. The decline
was a result of cost-cutting actions taken over 1994 which significantly reduced
costs of internal operations. In addition, operating expenses were favorably
impacted by the stronger U.S. dollar.
Interest expense decreased slightly in 1994 from 1993 as the Company
benefited from lower rates on borrowings in Europe and late in 1994 the Company
renegotiated its loan with CIT and significantly lowered its borrowing rate in
the U.S. The effect of lower interest rates more than offset a higher borrowing
level.
Non-operating results for 1994 includes the $3.2 million write-off of an
investment in a partially owned company, $0.7 million in foreign currency
exchange rate losses on certain of the Company's intercompany payables and
receivables and a $0.5 million fire settlement gain on fixed assets.
Non-operating results for 1993 also included a fire settlement gain on fixed
assets of $1.2 million. Interest income in 1994 declined significantly from 1993
as the average investment balance in 1994 declined due to the usage of cash in
operations.
56
<PAGE>
BUSINESS OF THE COMPANY
Datapoint Corporation, including its subsidiaries is principally engaged in
the development, manufacture, acquisition, marketing and servicing of computer
and communication products -- both hardware and software -- for integrated
computer, telecommunication and video conferencing network systems.
Datapoint was reincorporated in Delaware in 1976 as the successor
corporation to a Texas corporation originally incorporated in 1968 as Computer
Terminal Corporation and which changed its name to Datapoint Corporation in
1972. Its principal executive offices are located at 4 rue d'Aguesseau, 75008,
Paris, France (telephone number -- (33-1) 40 07 37 37) and at 8410 Datapoint
Drive, San Antonio, Texas 78229-8500 (telephone number -- (210)-593-7000).
Throughout the 1970's, the Company developed, distributed and serviced
minicomputers, and later computer networks and telecommunications products.
During that period sales and service revenue was predominately derived from the
U.S. market, supplemented by international sales through a network of
independent distributors.
In 1981, the Company purchased most of its major international distributors,
which have been subsequently operated as subsidiaries. In 1985, the Company
separately incorporated its U.S. hardware service business as an independent
company and distributed its shares to stockholders.
Throughout the 1980's, the Company's business was characterized by a
significant decline in total revenue, recurring significant losses, and a
reduction of the domestic workforce. During the 1990's this trend has continued
as the Company has experienced a decline in both foreign and domestic total
revenue, and has experienced significant losses and a substantial reduction in
the workforce. The continuation of this trend was primarily due to (1) a mass
entry of competitors in the networking marketplace compounded by (2) a
marketplace demand for "Open Systems" products and standard interfaces, both of
which had a negative impact on the traditional networking and data processing
components of the Datapoint business. The marketplace was forced into a sameness
of design that lead to highly competitive pricing being the only significant
product differentiator. These adverse effects were, in turn, worsened by the
increasing availability of low-cost, off-the-shelf software applications
packages written in a number of industry-standard programming languages. This
resulted in a substantial decline in both foreign and domestic revenues (see
note 1 to Consolidated Financial Statements).
In order for the Company to meet certain of its obligations and improve its
financial position, the Company is pursuing actions to provide additional cash
infusions, including the sale of selected assets and operations of the Company.
The Company has retained Patricof in connection with the potential disposition
of its Telephony division, as well as other asset and equity sale transactions
and proposals. See "Background; Purposes and Effects of the Exchange Offer --
Fairness Opinion of Patricof."
During the first quarter of 1996, the Company signed a letter of intent to
become a joint venture partner in spinning off the Company's Multimedia
Information Network Exchange ("MINX") video conferencing patents and operations
into separate entities. While such discussions were terminated in the second
quarter of 1996, the Company is continuing its efforts to enter into discussions
with a suitable partner to exploit the development and marketing of its MINX
video networking technology.
On May 28, 1996, the Company entered into an agreement with Kalamazoo
Computer Group, plc, a public limited company organized under the laws of
England, providing for the sale by Datapoint to Kalamazoo of Datapoint's
European Automotive Dealer Management Systems division for a purchase price of
approximately $33 million. From the sales proceeds, the Company realized
approximately $29.6 million (net of transaction related expenses and
adjustments). As part of the arrangements, Datapoint will continue to provide
computer hardware and hardware services through a subcontract arrangement with
Kalamazoo.
The Company has recently been successful in asserting its United States
video conferencing patents resulting in payments for a license. On June 6, 1996,
the Company entered into an agreement with NEC America, Inc. for the licensing
of Datapoint's video conferencing patents. On April 10, 1996, the Company
announced that it had commenced suit in the U.S. District Court for the Eastern
District of New York to
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recover damages against two companies for infringement of Datapoint's patent
covering multi-speed network processing (U.S. Patent No. 5,008,879). This patent
covers certain ARCNET and Fast Ethernet products recently introduced by various
suppliers to the local-area network industry and dominates certain types of
dual-speed LAN Adaptor Products recently introduced by various industry leaders.
Currently, the Company is pursuing litigation in this respect against six
defendants (DATAPOINT CORPORATION V. COMPRESSION LABS, INC., No. 3:93-CV-2522-D
(N.D.Tex.); DATAPOINT CORPORATION V. PICTURETEL CORPORATION, No. 3:93-CV-2381-D
(N.D.Tex) (for which a trial date has been set in February 1997); DATAPOINT
CORPORATION V. VIDEOLAN CORP.; No.96-2861-AET (D.N.J.); DATAPOINT V. TELEOS
COMMUNICATIONS, INC., No. 95-4455-AET (D.N.J.); DATAPOINT CORPORATION V.
STANDARD MICRO-SYSTEMS, INC. AND INTEL CORPORATION, No. CV-96-1685 JBW
(E.D.N.Y.)) and has negotiated three settlements, two for an aggregate of $1
million and one for undisclosed amount. On August 1, 1996, the Company commenced
an additional suit against Intel and Standard Microsystems for infringement of a
closely-related patent, U.S. No. 5,077,732. (DATAPOINT CORP. V. STANDARD
MICROSYSTEMS CORP. AND INTEL CORP., INDIVIDUALLY, AND AS REPRESENTATIVES OF THE
CLASS OF ALL MANUFACTURERS, VENDORS AND USERS OF FAST ETHERNET-COMPLIANT, DUAL
PROTOCOL LOCAL-AREA NETWORK PRODUCTS, Civil Action No. CV-96-3819
(JBW)(E.D.N.Y.)). The Company has moved to certify the -1685 action as a
defendant class action with respect to all manufacturers, vendors, and users of
dual-protocol, Fast Ethernet-compliant local area network products; on June 28,
1996, the Court denied that motion, without prejudice to renew at a later date.
The Company intends, in the future, to renew its motion to certify the -1685
action, and to seek similar "defendant class action" status for the -3819
action. If successful in its certification efforts, the defendant classes in the
- -1685 and -3819 actions would include approximately one-hundred potential
infringers of the '879 and '732 patents.
In JOHN FRASSANITO AND DAVID A. MONROE V. DATAPOINT CORP., Civil Action No.
H-95-812 (S.D. Tex.) plaintiffs alleged that the Company usurped various
patentable inventions and trade secrets in connection with the development of
its MINX systems. They also asserted a cause of action for patent infringement,
and a cause of action requiring Datapoint to assign certain MINX-related patents
and other intellectual property. On August 16, 1996, the Court dismissed with
prejudice plaintiffs' claims of patent infringement against Datapoint and
dismissed without prejudice plaintiffs' pendent state law claims and Datapoint's
state law counter-claims for lack of subject matter jurisdiction.
These actions represent the first step in the Company's industry-wide
program to license and enforce its multi-speed networking patents and video
conferencing patents through negotiations and/or litigation. The Company
believes that these patents provide broad coverage in video conferencing and
multi-speed networking technology and present the opportunity for further
royalty bearing licenses. Such royalty bearing licenses and enforcement of its
patents will be a primary strategy of the Company's business going forward to
create long-term value for its stockholders. See "Background; Purposes and
Effects of the Exchange Offer -- Recent Developments" and "Business of the
Company -- Patents and Trademarks."
PRODUCTS
The Company provides a complete line of products that meet data processing,
video communications, and telecommunications requirements. The network-based
products include video communications, data sharing applications,
platform-independent local area networking, wide area networking, relational
database systems, and telecommunications integration.
In 1994, the Company announced its third generation of Multimedia
Information Network Exchange (MINX) video communications products which provide
the capacity for large video networks, data conferencing features, and
aggressive pricing. A complete range of products is available from a fully
interactive, broadcast-quality, full-motion video network which can accommodate
over 700 local workstations to a single video station for a remote office. All
of the video products are interoperable and provide functionality and picture
quality that is unparalleled in the industry. Concurrently, the Company
strengthened its direct Sales, Support, and Engineering efforts to respond to
the growing desktop video communications market. On May 14, 1996, the Company,
working with a Florida based systems integrator for the corrections industry,
announced the completion of the installation of the first large scale video
visitation system in the U.S. at the Brevard County Detention Center in Florida
resulting in $204,520 in revenue for the Company.
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The Company has recently been successful in asserting its United States
video conferencing patents resulting in payments for a license. On June 6, 1996,
the Company entered into an agreement with NEC America, Inc. for the licensing
of Datapoint's video conferencing patents. The Company is also taking steps
through an industry-wide program to license and enforce its multi-speed
networking patents through negotiations and/or litigation. This patent covers
certain ARCNET and Fast Ethernet products recently introduced by various
suppliers to the local-area network industry and dominates certain types of
dual-speed LAN Adaptor Products recently introduced by various industry leaders.
Such royalty bearing licenses and enforcement of its patents will be a primary
strategy of the Company's business going forward to create long-term value for
its stockholders. See "Background; Purposes and Effects of the Exchange Offer --
Recent Developments" and "Business of the Company -- Patents and Trademarks."
The Company's Open Systems Networking products are designed around
industry-standards. The file servers are based upon a scalable architecture
using the Intel microprocessor because of its cost and performance. The
multi-processor functionality is provided for the Company's highly sophisticated
RMS network operating system. The same systems can be used for Windows N.T. and
UNIX operating systems. The Company offers high-performance, Pentium and Pentium
Pro file servers. All systems support redundant disk, RAID and popular network
protocols such as TCP/IP and Net BIOS.
The Company's networking products focus on linking file servers,
workstations, terminals, printers, and other peripherals (such as modems) to the
network. High performance networking software and hardware components comprise
the product offering and provide the ability to implement high-capacity, highly
efficient networks composed of client/server and data communications devices.
The networking solutions provide the capability of running MS-DOS, WINDOWS,
UNIX, and RMS simultaneously along with both ARCNET, ARCNETPLUS, and Ethernet
adapters. These capabilities provide customers the flexibility to design network
architecture to meet their specific requirements.
Realizing that personal computers are the desktop workstation of choice, the
Company offers PC-based hardware and software. One software component is a full
featured, Microsoft Windows compliant terminal emulation package for the RMS
environment which can be run on existing PCs. Industry-standard terminals are
offered for customers who desire a low-cost data station rather than a networked
PC.
The Company offers a complete set of telecommunications products and
services to meet the requirements of large call centers, customer service
organizations, and telemarketing firms. Power dialers to increase call
efficiency for outbound communications applications, interactive voice response
systems which allow customers to interrogate an organization's database with a
simple telephone, and automatic call distribution systems that manage large
volume of incoming calls comprise the portfolio of telecommunications products.
The Company has an agreement with AT&T to market their Definity line of
automatic call distributors through several of the Company's European
subsidiaries. Telecommunications solutions are provided with the combined
expertise in networking, data processing, and telecommunications products.
The supplier and value-added reseller relationships that the Company
continues to develop, allow its customers worldwide to enhance their
productivity with sensible, cost-effective computer-based networking, telephony
and video communication solutions.
MARKETS
CUSTOMERS
Datapoint sells generally to business and government customers, including
the U.S. government, financial institutions, insurance companies, educational
institutions, and manufacturers. During fiscal 1995, no one customer accounted
for 10 percent or more of consolidated revenues.
DOMESTIC
Datapoint markets its products in the United States through independent
sales representatives who, on a commission basis, solicit orders for Datapoint's
products; through value-added resellers, who purchase Datapoint's products for
resale; original equipment manufacturers, who integrate Datapoint's products
into
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their overall offerings; and through Datapoint's own end user sales force.
Independent sales representatives, value-added resellers, and original equipment
manufacturers generally market Datapoint's products in conjunction with
application software and other products developed and marketed by such firms.
INTERNATIONAL
Datapoint's products are marketed to end users in over forty countries
through a network of wholly-owned subsidiaries and independent distributors.
Datapoint distributes its products internationally through wholly-owned sales
and service operations in Belgium, France, Germany, Holland, Hong Kong, Italy,
New Zealand, Spain, Sweden, Switzerland and the United Kingdom and through
authorized distributors worldwide. During fiscal year 1995, 98 percent of
Datapoint's international revenue was derived from customers in Western Europe.
CUSTOMER SERVICE
During 1995, Datapoint entered into an agreement with Decision Servcom, Inc.
(DSI), whereby DSI would serve as the non-exclusive authorized service agent for
Datapoint's proprietary data processing products in the United States.
Maintenance of equipment outside the United States is provided by Datapoint's
international subsidiaries and distributors. The maintenance operations of the
Company's international subsidiaries produced 51 percent of total company
revenues and 60 percent of total company gross profit for the fiscal year ended
July 29, 1995.
In connection with the sale of Datapoint's European Automotive Dealer
Management Systems division to Kalamazoo, Datapoint entered into a subcontract
with Kalamazoo to provide computer hardware and hardware maintenance service to
such division network.
MANUFACTURING, RAW MATERIALS, AND SUPPLIES
A significant portion of Datapoint's products are purchased from third
parties, who manufacture products meeting Datapoint's specifications. The
products are then resold badged/unbadged within Datapoint configurations.
Datapoint manufactures the remainder of its products, primarily by assembling
various purchased components into subassemblies which are then assembled into
finished products, primarily performed at Datapoint's facilities in San Antonio,
Texas.
Datapoint seeks, and maintains where practical, multiple sources of supply
for the products, components, and raw materials which it uses. However, certain
products and components are purchased only from single sources, and Datapoint
could experience manufacturing delays if such suppliers should fail to meet
Datapoint's requirements. The interruption of any components, whether for supply
or quality reasons, can become critical to production flows. The Company's
general experience has been good in terms of minimizing exposure; however,
guarantees regarding possible future situations and rectifying actions that
could arise cannot be made.
RESEARCH AND PRODUCT DEVELOPMENT
The technology involved in the design and operation of Datapoint's products
is complex and subject to constant change. Accordingly, Datapoint is committed
to a program of research and development which is oriented toward the
development of new hardware and software products and the improvement and
expansion of its existing products and services.
Datapoint incurred expense of $4.3 million, $5.3 million, and $7.8 million
in the fiscal years ended July 29, 1995, July 30, 1994, and July 31, 1993,
respectively, on research and development activity. Datapoint maintains its
principal research and development facility in San Antonio, Texas.
COMPETITION
Datapoint operates in the intensely competitive computer data processing,
video conferencing and telephony industries that are characterized by the
frequent introduction of new products based upon technological advances.
Datapoint competes, domestically and abroad, with a substantial number of
companies, many of which are larger and have greater resources than Datapoint.
Such companies, considered in the aggregate, compete in the entire line of
products manufactured and marketed by Datapoint. These competitors differ
somewhat depending on the market segment, customer and geographic area involved.
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Competition in this market is based primarily on the relationship between
price and performance; the ability to offer a variety of products and unique
functional capabilities; the strength of sales, service and support
organizations; and upgradability, flexibility, and ease of use of products. The
Company could be adversely affected if its competitors introduced
technologically superior products or substantial price reductions.
BACKLOG
The backlog of firm orders for the sale or lease of the Company's products
(using then existing end-user purchase prices for products to be leased and
giving effect to appropriate discounts for products to be sold) as of July
29,1995 and July 30, 1994 was $14.2 million and $5.9 million, respectively. The
backlog amounts are not necessarily indicative of the Company's future results,
since an increasing amount of the Company's revenues are derived from orders
obtained in the period of shipment. Furthermore, a portion of the Company's
backlog may be cancelable at the customer's option, under certain conditions,
without financial penalty. All orders included in the backlog at July 29, 1995
are currently scheduled for delivery during the subsequent 12 months. All orders
are subject to the Company's ability to meet delivery commitments. The Company
records only firm orders as backlog, and generally such orders are cancelable
only by the Company. In the event that a new product is released, a customer is
allowed to upgrade (i.e., cancel) an existing order and place a new order for
the new product. This is done at the Company's discretion with no financial
penalty to the customer.
Backlog is also not a reliable indicator of future results, as changes in
product mix (depending on whether the product content contained in backlog has a
low or high sales margin) and costs may significantly impact reported results.
Therefore, the Company believes that the backlog data is not meaningful to an
understanding of the Company's business or future reported results.
PATENTS AND TRADEMARKS
Datapoint owns certain patents, copyrights, trademarks and trade secrets in
both network and video conferencing technologies, which it considers valuable
proprietary assets. The Company does not primarily rely on these rights to
establish or protect its market position, but does view them as providing the
Company a technological advantage in certain cases and does intend to fully
exploit their value, The Company believes that its video conferencing patents,
multi-speed network processing patents and related patents are of material
importance to its business as a whole.
In 1994, the Company began patent infringement suits against several
defendants related to the Company's video conferencing patents. In 1995, the
Company received $1.0 million from two such defendants and patent infringement
suits against other defendants are currently pending. (DATAPOINT CORPORATION V.
COMPRESSION LABS, INC., No. 3:93-CV-2522-D (N.D.Tex); DATAPOINT CORPORATION V.
PICTURETEL CORPORATION, No. 3:93-CV-2381-D (N.D. Tex) (for which a trial date
has been set in February 1997); DATAPOINT CORPORATION V. VIDEOLAN CORP.; No.
96-2861-AET (D.N.J.); DATAPOINT V. TELEOS COMMUNICATIONS, INC., No. 95-4455-AET
(D.N.J.)) On June 6, 1996, the Company entered into an agreement with NEC
America, Inc. for the licensing of Datapoint's video conferencing patents. On
April 10, 1996, the Company announced that it had commenced suit in the U.S.
District Court for the Eastern District of New York to recover damages against
two companies for infringement of Datapoint's patent covering multi-speed
network processing (U.S. Patent No. 5,008,879) (DATAPOINT CORPORATION V.
STANDARD MICRO-SYSTEMS, INC. AND INTEL CORPORATION, No. C.V.-96-1685 JBW
(E.D.N.Y.)). This patent covers certain ARCNET and Fast Ethernet products
recently introduced by various suppliers to the local-area network industry and
dominates certain types of dual-speed LAN Adaptor Products recently introduced
by various industry leaders. On August 1, 1996, the Company commenced an
additional suit against Intel and Standard Microsystems for infringement of a
closely-related patent, U.S. No. 5,077,732. (DATAPOINT CORP. V. STANDARD
MICROSYSTEMS CORP. AND INTEL CORP., INDIVIDUALLY, AND AS REPRESENTATIVES OF THE
CLASS OF ALL MANUFACTURERS, VENDORS AND USERS OF FAST ETHERNET-COMPLIANT, DUAL
PROTOCOL LOCAL-AREA NETWORK PRODUCTS, Civil Action No. CV-96-3819
(JBW)(E.D.N.Y.)). The Company has moved to certify the -1685 action as a
defendant class action with respect to all manufacturers, vendors, and users of
dual-protocol, Fast Ethernet-compliant local area network products; on June 28,
1996, the Court denied that motion, without prejudice to renew at a later date.
The Company intends, in the future, to renew its motion
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to certify the -1685 action, and to seek similar "defendant class action" status
for the -3819 action. If successful in its certification efforts, the defendant
classes in the -1685 and -3819 actions would include approximately one-hundred
potential infringers of the '879 and '732 patents.
In JOHN FRASSANITO AND DAVID A. MONROE V. DATAPOINT CORP., Civil Action No.
H-95-812 (S.D. Tex.) plaintiffs alleged that the Company usurped various
patentable inventions and trade secrets in connection with the development of
its MINX systems. They also asserted a cause of action for patent infringement,
and a cause of action requiring Datapoint to assign certain MINX-related patents
and other intellectual property. On August 16, 1996, the Court dismissed with
prejudice plaintiffs' claims of patent infringement against Datapoint and
dismissed without prejudice plaintiffs' pendent state law claims and Datapoint's
state law counter-claims for lack of subject matter jurisdiction.
These actions represent the first step in the Company's industry-wide
program to license and enforce its video conferencing and multi-speed networking
patents through negotiations and/or litigation. Currently, the Company is
pursuing litigation in this respect against six defendants and has negotiated
three settlements, two for an aggregate of $1 million and one for an undisclosed
amount. The Company believes that these patents provide broad coverage in video
conferencing and multi-speed networking technology and present the opportunity
for further royalty bearing licenses. Such royalty bearing licenses and
enforcement of its patents will be a primary strategy of the Company's business
going forward to create long-term value for its stockholders. See "Background;
Purposes and Effects of the Exchange Offer -- Recent Developments."
The Company utilizes a number of trademarks, most importantly "DATAPOINT",
"ARCNET" and "MINX". The Company registers or otherwise protects those
trademarks it deems valuable to its business and anticipates no significant
impairment of its ability to continue to use and protect its important
trademarks. Datapoint, the "D" logo, ARC, ARCNET, RMS, MINX, and Resource
Management System are trademarks of Datapoint Corporation registered in the U.S.
Patent and Trademark office. Attached Resource Computer, ARCNETPLUS, and DATALAN
are trademarks of the Company. (AT&T is a registered trademark of American
Telephone and Telegraph. Ethernet is a registered trademark of Xerox
Corporation. Intel is a registered trademark of Intel Corporation. Microsoft and
MS-DOS are registered trademarks of Microsoft Corporation. UNIX is a registered
trademark of UNIX System Laboratories, Inc.)
EMPLOYEES
At July 29, 1995, the Company had 991 employees. The Company considers its
relations with employees to be satisfactory.
ENVIRONMENTAL MATTERS
Compliance with current federal, state, and local regulations relating to
the protection of the environment has not had, and is not expected to have, a
material effect upon the capital expenditures, earnings, or competitive position
of Datapoint.
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PROPERTIES
Datapoint's principal executive offices are located in Paris, France and the
Company maintains executive offices in San Antonio, Texas. Datapoint believes
that its plants and offices are generally well maintained, in good operating
condition and are adequately equipped for their present use. Information
regarding the principal plants and properties, excluding leases assigned or
subleased, as of July 15, 1996 is as follows:
<TABLE>
<CAPTION>
APPROXIMATE
FACILITY
LOCATION USE SQ. FOOTAGE OWNED OR LEASED LAND AREA
- ------------------------ ----------------------------- ------------ --------------------------
<S> <C> <C> <C>
San Antonio, Texas Manufacturing, warehouse 110,000 Leased (a)
and office
San Antonio, Texas Office 144,000 Owned; 12 acres
(Subject to mortgage)
Gouda, Netherlands Office 52,000 Owned; 1 acre
(Subject to mortgage)
Paris, France Office 8,000 Leased (a)
</TABLE>
- ------------------------
(a) Leases on facilities expire on various dates extending through August, 2002.
Additionally, at July 29, 1995, excluding leases assigned or subleased, the
Company leased sales and service offices having an aggregate of 350,000 square
feet in metropolitan areas throughout the world, pursuant to lease agreements
which expire between 1995 and 2009. The aggregate annual rental of all of these
sales and service offices is approximately $5.3 million and most of these leases
are subject to rental increases under certain escalation provisions and renewals
on similar terms.
LEGAL PROCEEDINGS
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April, 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
Subsequent to the end of the third quarter of 1996, a settlement was reached
among the litigants. As such, the District Court entered a Judgment Non Obstante
Veredicto (Judgment Notwithstanding the Verdict) that set aside the jury's
findings against the Company and its two executive officers and set aside all
damages. The settlement, which was reached to avoid the considerable expense and
business disruption of a protracted appeal and legal process, had no material
impact on the Company's current cash position as it included payment of funds
from a non-working capital trust fund that were otherwise not available to the
Company, issuance of a short term note, and shares of the Company's common
stock. See "Background; Purposes and Effects of the Exchange Offer -- Recent
Developments."
The Company is a defendant in various lawsuits generally incidental to its
business. The amounts sought by the plaintiffs in such cases are substantial
and, if all such cases were decided adversely to the Company, the Company's
aggregate liability might be material. However, the Company does not expect such
an aggregate result based upon the limited number of such actions and an
assessment that most such actions will be successfully defended. No provision
has been made in the accompanying financial statements for any possible
liability with respect to such lawsuits.
CERTAIN PURCHASES OF PREFERRED STOCK
During fiscal 1995, 1994 and 1993, the Company has not repurchased any
shares of Preferred Stock.
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ELECTION OF DIRECTORS
At the Annual Meeting, eight directorships are to be filled, constituting
the entire Board of Directors of Datapoint, two directorships to be filled by
the plurality vote of the Holders of Preferred Stock and six directorships to be
filled by the plurality vote of the Holders of Common Stock. The directors so
elected will hold office until the next annual meeting of stockholders and until
their respective successors are elected and qualified.
Although the Board of Directors does not contemplate that any of the
nominees for directors named herein will be unavailable for election, in the
event of a vacancy in the slate of nominees, the proxy will be voted for the
election of a nominee who will be selected by the Board of Directors, unless the
Board of Directors elects instead to reduce the number of directors.
Each of the nominees for election as a director at the Annual Meeting by
holders of Common Stock currently serves as a director of the Company. The
nominees for election as directors by Holders of Common Stock are as follows:
GERALD N. AGRANOFF, age 49, is currently Vice President, General Counsel and
Corporate Secretary of Datapoint. Mr. Agranoff has been a general partner of
Edelman Securities Company L.P., (formerly Arbitrage Securities
Company)("Edelman Securities Company"), for more than five years. Mr. Agranoff
also has been a General Partner of Plaza Securities Company since January, 1987,
and a Trustee of MAI Liquidating Trust since February 1986. Mr. Agranoff is a
director of Bull Run Corporation, Atlantic Gulf Communities, The American Energy
Group, Ltd., and Canal Capital Corporation. Mr. Agranoff also has been the
General Counsel to Edelman Securities Company and Plaza Securities Company for
more than five years. He has been a director of Datapoint since 1991.
ASHER B. EDELMAN, age 56, joined Datapoint's Board of Directors as its
Chairman in March 1985, and has served in that capacity and as Chairman of its
Executive Committee to the present date, and as Chief Executive Officer since
February 1993. Mr. Edelman has served as General Partner of Asco Partners, a
general partner of Edelman Securities Company, since June 1984 . Mr. Edelman is
a director, Chairman of the Board and Chairman of the Executive Committee of
Canal Capital Corporation.
IRVING J. GARFINKEL, age 59, has been a General Partner of Asco Partners, a
general partner of Edelman Securities Company, for more than five years. Mr.
Garfinkel also has been a General Partner and controller of Plaza Securities
Company for more than the past five years. He has served as a director of
Datapoint since 1991, and is Chairman of the Audit Committee and serves on the
Compensation Committee.
DANIEL R. KAIL, age 61, has been Managing Trustee of Management Assistance
Inc. Liquidating Trust since January 1986, and prior thereto had been a
director, Executive Vice President and Chief Operating Officer since October
1984 of Management Assistance Inc., a computer manufacturing and servicing
company. He also was a director and Executive Vice President of Canal Capital
Corporation from 1987 until 1991. He has served as a director of Datapoint since
1985 and is Chairman of the Independent Committee and the Compensation Committee
and a member of the Audit Committee.
DIDIER M. M. RUFFAT, age 60, is currently the Vice-President of Digital
Equipment Europe and the Managing Director of Digital Equipment France. He has
served for 25 years in various capacities with France's BULL computer group,
most recently as President and Chief Executive Officer of BULL Europe, and
previously in senior executive positions in sales, marketing and finance. He has
served as a director of Datapoint since December 1993 and is a member of the
Compensation Committee.
BLAKE D. THOMAS, age 45, is currently the Executive Vice President and Chief
Operating Officer of the Company. In addition, he has been engaged in the
business of investing in listed securities for more than five years. He is
President of Blake D. Thomas, Inc., a corporation that until 1991 published The
Thomas Report, an investment newspaper that specialized in evaluating stocks
traded on the New York Stock Exchange, was General Partner of Mainsail Limited
Partnership from 1990 until its dissolution in December 1992, has been since
1990 General Partner of Foresail Limited Partnership, which is engaged in the
business of investing in listed securities; and has been since November 1991
President of Symba, Inc., which until April '96 was the
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General Partner of Windward Limited Partnership. Windward was engaged in the
business of investing in listed securities and was dissolved in April 1996. He
has served as a director of Datapoint since 1992. He has also served since
August 1994 as a special consultant for the Board on Datapoint general
management and business affairs.
Datapoint, Mr. Edelman, Mr. Thomas and Mainsail Limited Partnership entered
into an agreement in settlement of litigation involving an exchange offer for
Datapoint's now-extinguished $4.94 Exchangeable Preferred Stock whereby, among
other things, Datapoint agreed to propose (and Mr. Edelman agreed to support)
Mr. Thomas for election to the Board of Directors of Datapoint at the 1991 and
1992 annual meetings of stockholders.
The nominees for election as directors by Holders of Preferred Stock are as
follows:
CHARLES F. ROBINSON, F.C.A, age 50, has been General Partner of
Anglo-American Financial since its inception in 1979. He is a Director and
Senior Vice-President of Anglo-American Investor Services Corp. Anglo-American
Financial was one of the first market makers in stripped bonds. Through its
subsidiaries Anglo-American Financial has also acted as an options broker on the
London Stock Exchange, an SEC registered Investment Advisor, and an NASD and
SIPC broker-dealer selling fixed-income securities to financial institutions and
individuals. He was a Chartered Accountant with Arthur Young in London where he
was responsible for developing the firm's computer auditing procedures in the
United Kingdom. Mr. Robinson obtained a Senior Optima in mathematics at
Cambridge University and is a Fellow of the Institute of Chartered Accountants
in England and Wales.
ROBERT D. SUMMER, age 63, is currently President and Chief Executive Officer
of Dimensional Media Associates, Inc. ("DMA"). Mr. Summer joined DMA after
holding a series of high level positions in the music industry. As President and
Chief Executive Officer, he guides DMA's transition from invention and product
development to full operations, including the rollout of consumer, commercial
and medical products. The company markets proprietary 3D optical technologies.
Before joining DMA in 1995, Mr. Summer served as Executive Vice President, Sony
Music Entertainment; and concurrently as President, Sony Entertainment European
Community Affairs, representing the corporation's software interests to
international government groups. He joined CBS Records International in 1986 as
President and continued in that position through the company's acquisition by
Sony in 1988. Mr. Summer joined CBS Records after nearly three decades with RCA
Records, where he served in key executive posts including President, RCA/Ariola
(now BMG); President, RCA Records; Vice President, RCA Records USA: Vice
President, RCA Records International; and President, RCA Red Seal, the company's
classical music division. Mr. Summer has served as Chairman of the Recording
Industry Association of American (RIAA) and Vice President and member of The
Board of Directors of the International Federation of the Phonographic Industry
(IFPI) where he served as a key negotiator for the industry. He received his
bachelor's degree in engineering from Carnegie Mellon University in 1955.
65
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names, ages, positions and offices with the Company of the current
directors and executive officers of the Company are set forth below.
<TABLE>
<CAPTION>
DIRECTOR/
AGE AS OF OFFICER
NAME JULY 15, 1996 POSITION SINCE
- ------------------------------------------- --------------- ------------------------------------------- -----------
<S> <C> <C> <C>
A.B. Edelman............................... 56 Director -- Chairman of the Board and Chief 1985
Executive Officer
B.D. Thomas................................ 45 Executive Vice President, Chief Operating 1992
Officer and Director
P.P. Krumb................................. 54 Vice President and Chief Financial Officer 1994
G.N. Agranoff.............................. 49 Vice President, General Counsel, Corporate 1991
Secretary and Director
D. Berger.................................. 47 Vice President, Sales & Distribution 1993
J. Berger.................................. 53 Vice President, Sales & Marketing 1991
I. J. Garfinkel............................ 59 Director 1991
D.R. Kail.................................. 61 Director 1985
D.M.M. Ruffat.............................. 60 Director 1993
R. Edmonds................................. 51 Vice President, Technical Services 1996
W. Gevers.................................. 59 Vice President, OSN 1996
J. Perkins................................. 48 Vice President, Development 1996
</TABLE>
The principal occupations and business experience of each of the current
directors of the Company are described under "Election of Directors." The
principal occupations and business experience of each of the current executive
officers of the Company who are not also directors are described below.
PHILLIP P. KRUMB, age 54, joined the Company as Vice President and Chief
Financial Officer in October 1994. Prior to joining the Company he was employed
by IOMEGA Corporation for 7 years as Senior Vice President Finance and Chief
Financial Officer. The principal business address of Mr. Krumb is 8410 Datapoint
Drive, San Antonio, Texas 78229-8500.
DAVID BERGER, age 47, was promoted to Vice President, Sales and Distribution
in July 1993. Mr. Berger joined the Company in 1991 as Managing Director of the
Company's United Kingdom subsidiary. Prior to joining the Company, Mr. Berger
was employed from 1988 to 1991 by RS2, a U.K. marketing communications company,
as Group Managing Director. The principal business address of Mr. Berger is 4
rue d'Aguesseau 75008, Paris, France.
JAN BERGER, age 53, joined the Company as Vice President, Sales and
Marketing in June 1991. Prior to joining the Company, Mr. Berger was employed by
SCANVEST of Norway, Datapoint's largest independent foreign distributor, for 21
years, most recently as Managing Director, and previously as Director of
Marketing. The principal business address of Mr. Berger is 4 rue d'Aguesseau
75008, Paris, France.
ROGER EDMONDS, age 51, was promoted to Vice President, Technical Services in
February 1996. Mr. Edmonds joined the Company's United Kingdom subsidiary in
1972 as Project Leader, and has held various management positions within the
Company. Mr. Edmonds is also currently Technical Director of the U.K.
subsidiary. The principle business address of Mr. Edmonds is Datapoint House,
400 North Circular Road, London NW10 0JG.
66
<PAGE>
WALTER GEVERS, age 59, was promoted to Vice President, OSN in March 1996.
Mr. Gevers joined the Company as Managing Director, Datapoint Belgium in January
1983. Prior to joining the Company, Mr. Gevers was employed by SAIT Electronics,
Datapoint's distributor in Belgium, for nineteen years as Sales Manager. The
principal business address of Mr. Gevers is rue de la Fusee 100, 1130 Bruxelles,
Belgium.
JOHN PERKINS, age 48, was promoted to Vice President, Development in May
1996. Mr. Perkins joined the Company as Director, Engineering in 1981. Prior to
joining the Company, Mr. Perkins was employed by General Electric Information
Services Company as Market Planner. The principal business address of Mr.
Perkins is 8410 Datapoint Drive, San Antonio, Texas 78229-8500.
AUDIT, COMPENSATION AND EXECUTIVE COMMITTEES
The Company has Audit, Compensation and Executive Committees of the Board of
Directors. The Company does not have a Nominating Committee. The current members
of the Audit Committee are Irving J. Garfinkel (Chairman) and Daniel R. Kail.
The current members of the Compensation Committee are Daniel R. Kail (Chairman),
Didier M. M. Ruffat and Irving J. Garfinkel. The members of the Executive
Committee are Asher B. Edelman (Chairman) and Blake D. Thomas.
The Audit Committee annually recommends to the Board of Directors
independent auditors for the Company and its subsidiaries; meets with the
independent auditors concerning the audit; evaluates non-audit services and the
financial statements and accounting developments that may affect the Company;
meets with management concerning matters similar to those discussed with the
outside auditors; and makes reports and recommendations to the Board of
Directors and the Company's management and independent auditors from time to
time as it deems appropriate. The Committee met 5 times during the fiscal year
ended July 29, 1995.
The Compensation Committee makes salary recommendations regarding senior
management to the Board of Directors and administers the Company's Bonus and
Stock Option Plans as described below. The Committee met 2 times during the
fiscal year ended July 29, 1995.
INDEPENDENT COMMITTEE
In connection with the Exchange Offer, the Board created the Independent
Committee, consisting of Director Daniel R. Kail, to consider the terms of the
consideration to be offered in the Exchange Offer to the Holders of Preferred
Stock. The Independent Committee retained Morris Nichols to advise it in
connection with the Exchange Offer. Corporate Capital was retained by the
Independent Committee to express its opinion regarding the fairness, from a
financial point of view, of the Exchange Consideration to be received by
exchanging Holders of Preferred Stock (other than Mr. Edelman, with respect to
whom no opinion was requested). The terms of the Exchange Offer were approved by
the Board of Directors upon the recommendation of the Independent Committee.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors met 8 times during the fiscal year ended July 29,
1995, and, during such fiscal year, each director attended at least 75% of the
aggregate of (a) the total number of meetings of the Board of Directors (held
during the period of his/her service) and (b) the total number of meetings held
by all committees of the Board on which he/she served (during the period that
he/she served).
67
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION;
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Edelman (the Company's current Chairman of the Board and Chief Executive
Officer), Messrs. Agranoff and Kail (currently directors), and former Company
director Dwight D. Sutherland were also directors of Intelogic Trace, Inc.
("Intelogic"), a wholly-owned subsidiary of the Company, comprising four of
Intelogic's six directors, when Intelogic filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court, Western
District of Texas, San Antonio Division, Case No. 94-52172-C-11 on August 5,
1994. Intelogic emerged from bankruptcy pursuant to approval of a modified first
amended plan of reorganization on November 28, 1994. The above named directors
resigned from Intelogic on December 8, 1994. On March 16, 1995, Intelogic again
filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code in the
U.S. Bankruptcy Court, Western District of Texas, San Antonio Division, Case No.
95-50753-LMC-11. During that proceeding, substantially all of Intelogic's
operating assets were sold to a third party on April 5, 1995. Intelogic is
effectively no longer in business.
The above named directors received compensation and/or benefits from
Intelogic prior to their resignations. Also, these directors and former director
may be deemed to have beneficially owned approximately 15% of Intelogic's common
stock as of July 30, 1994. In addition, they had options to purchase shares of
Intelogic common stock equal in the aggregate to approximately 1% of the amount
then outstanding. The overlap of directors does not give rise to a reportable
compensation committee interlock.
Since the 1985 spin-off of Intelogic from Datapoint's U.S. computer hardware
maintenance division up until April 5, 1995, when substantially all of its
operating assets were sold to a third party, Datapoint engaged in and continued
to engage in various transactions with Intelogic as an independent computer
maintenance company. All such transactions were billed to Intelogic by Datapoint
at its cost. All other transactions between Datapoint and Intelogic were
pursuant to a Master Maintenance Agreement entered into at the time of the
spin-off and related to the ordinary business operations of both Datapoint and
Intelogic. For fiscal years 1994 and 1993, Intelogic paid Datapoint
approximately $196,000 and $366,000, respectively, for equipment and field
support spares, royalties and expenses, and Datapoint paid Intelogic
approximately $3,000, $28,000 and $246,000 in 1995, 1994 and 1993, respectively,
for services and sales. Included in accounts receivable are amounts due from
Intelogic of $298,000 and $315,000 for 1994 and 1993, respectively.
During fiscal year 1991, Datapoint sold its outstanding stock in Datapoint
Canada, a wholly-owned subsidiary, to Intelogic. The proceeds consisted of
$350,000 in cash and 25,000 shares of Intelogic preferred stock, redeemable at
the option of Intelogic, in escalating amounts, beginning at $62.50 per share on
or before November 9, 1992, and increasing to $100.00 per share on or before
November 10, 1994, until a mandatory redemption date of November 9, 1995. The
preferred stock was to also accrue dividends at an annual rate of $10.00 per
share, if paid in cash, or at an annual rate of $18.00 per share if paid in
additional shares of preferred stock. As an element of the transaction, the
parties caused Datapoint Canada to repay approximately $1,300,000 in operating
capital loans provided to Datapoint Canada as a subsidiary of Datapoint. No gain
or loss was recorded on the sale. As an aspect of consideration for the sale,
Datapoint received a five-year option to purchase substantially all of
Intelogic's holdings of Datapoint's common and preferred stock. The option
allowed Datapoint to purchase from Intelogic up to 2,700,000 shares of Common
Stock for $0.75 a share and up to 85,000 shares of Old Preferred Stock for
$1.375 a share. The Old Preferred Stock owned by Intelogic was exchanged for
85,000 shares of Preferred Stock and 170,000 shares of Common Stock in the 1992
Preferred Stock Exchange. Datapoint exercised its option and repurchased and
retired 85,000 shares of Preferred Stock and 170,000 shares of Common Stock.
In September 1994, the Company reached an agreement with Intelogic, in
conjunction with Intelogic's court approved reorganization, to cancel its option
to purchase at $0.75 per share, its Common Stock held by Intelogic in exchange
for all of the Company's holdings of Intelogic preferred stock which had no
carrying value. As a result of the exchange, the Company received from Intelogic
2,400,000 shares of Datapoint Common Stock.
68
<PAGE>
Director Agranoff has provided various tax, legal and real estate consulting
services for Datapoint. During 1994 and 1993, Datapoint paid Mr. Agranoff
$126,000 and $104,000, respectively, for those services. During fiscal year 1995
and 1994, Datapoint paid legal fees of $51,000 and $5,000 to the law firm of
Pryor, Cashman, Sherman & Flynn, to which firm Mr. Agranoff is of counsel, for
legal services provided by attorneys other than Mr. Agranoff.
Director Thomas worked since August 1994 until May 1, 1995 as a special
consultant for which he received compensation of $500 per day payable in shares
of common stock. Subsequently, on May 5, 1995, in consideration of the
additional work and responsibilities he had taken on for the Company as a
special consultant, the Board of Directors approved a special compensation
package for Director Thomas. From May 1, 1995 through July 31, 1995, he was paid
at the rate of $500 per day for his services, plus travel and housing expenses,
plus additional compensation of $2,000 per week for expenses. Director Thomas
was also (and currently is) entitled to participate in the Executive Health
Benefit program of the Company. The Board also approved a one time special
issuance of 45,000 shares of common stock of the Company to Director Thomas in
recognition of his service to the Company. During the term Director Thomas acted
as a special consultant he did not accrue or receive any regular Board or
committee fees. Upon the resignation of Doris Bencsik as President and Chief
Operating Officer, Director Thomas was appointed on December 5, 1995 to the
position of Executive Vice President and Chief Operating Officer.
Director Ruffat had a consulting agreement from January 1994 through June
1995 under which he received a monthly compensation of $10,000. For 1996 and
1995, an offshore company of which Director Ruffat has an interest in was paid
$50,000 and $80,000, respectively, for consulting services.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Datapoint believes that, during the fiscal year ended July 27, 1996, its
officers and directors complied with all filing requirements under Section 16(a)
of the Securities Exchange Act of 1934; except that executive officers Messrs.
Edmonds, Gevers and Perkins failed to file Form 3 required by such Section.
69
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the Common Stock
and Preferred Stock beneficially owned by each director and executive officer
and by all directors and executive officers as a group. Except as noted below,
each person has full voting and investment power over the shares indicated.
Voting power includes the power to direct the voting of the shares held, and
investment power includes the power to direct the disposition of shares held.
Based on filings with the Commission or information provided to the Company,
there are no beneficial owners of 5% or more of either the Preferred Stock or
the Common Stock other than as set forth below.
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
BENEFICIALLY PERCENT BENEFICIALLY PERCENT
NAME OF DIRECTOR OWNED (1) OF CLASS OWNED (1) OF CLASS
- --------------------------------------------------- ------------------ ------------- ------------------ ------------
<S> <C> <C> <C> <C>
Gerald N. Agranoff (O&D)........................... 16,667(2)(4) * -0-(2)(4)(5) *
Asher B. Edelman (O&D)............................. 1,611,593(3) 11.9% 194,241(3)(5) 10.4%
Irving J. Garfinkel (D)............................ 25,000(4) * -0-(4) *
Daniel R. Kail (D)................................. 25,000 * -0- *
Didier M.M. Ruffat (D)............................. 25,000 * -0- *
Blake D. Thomas (O&D).............................. 51,999 * 28,430 1.5%
David Berger (O)................................... 48,333 * -0-(5) *
Jan Berger (O)..................................... 55,000 * -0- *
Phillip P. Krumb (O)............................... 16,667 * -0- *
Roger Edmonds (O).................................. 10,000 * -0- *
Walter Gevers (O).................................. 38,333 * -0- *
John Perkins (O)................................... 1,667 * -0- *
Executive Officers and Directors of Datapoint as a
group (12 persons)................................ 1,925,259 14.2% 222,671 11.9%
</TABLE>
- ------------------------
* Indicates less than 1% ownership
(1) The information set forth above and in these notes as to capital stock owned
by officers and directors is current as of April 26, 1996, and includes
shares of Common Stock which may be deemed to be beneficially owned by such
persons by reason of stock options currently exercisable or which may become
exercisable within sixty (60) days after that date. The number of shares
deemed to be beneficially owned by reason of such options is: Mr. Edelman,
175,000; Mr. Agranoff, 16,667; all other directors, 25,000 each (total
100,000); Mr. David Berger, 48,333; Mr. Jan Berger, 55,000; Mr. Krumb,
16,667; Mr. Edmonds, 10,000; Mr. Gevers, 38,333; Mr. Perkins, 1,667; all
officers and directors as a group, 461,667.
(2) Mr. Agranoff is a director of Canal Capital Corporation ("Canal"), which
owns 333,779 shares of Common Stock and 8,458 shares of Preferred Stock. Mr.
Agranoff disclaims beneficial ownership of these shares, which are not
included in the beneficial ownership table above.
(3) Mr. Edelman's listed beneficial ownership of 1,611,593 shares of Common
Stock is explained in detail in this paragraph. As the controlling general
partner of each of Plaza Securities Company, A.B. Edelman Limited
Partnership and Citas Partners, which is the sole general partner of
Felicitas Partners, L.P., Mr. Edelman may be deemed to own beneficially the
212,318, 783,890, and 4,402 shares held, respectively, by each of such
entities for purposes of Rule 13d-3 under the Exchange Act, and these shares
are included in the listed ownership. Also included are the 333,779 shares
owned by Canal, in which companies Mr. Edelman and various persons and
entities with which he is affiliated own interests. By virtue of investment
management agreements between A.B. Edelman Management Company Inc. and
Canal, A.B. Edelman Management Company Inc. has the authority to purchase,
sell and trade in
70
<PAGE>
securities on behalf of Canal. A.B. Edelman Management Company Inc.
therefore may be deemed to be the beneficial owner of the 333,779 shares
owned by Canal. Asher B. Edelman is the sole stockholder of A.B. Edelman
Management Company Inc. and these shares are included. Also included are Mr.
Edelman's presently exercisable options to purchase 175,000 shares. Also
included are 76,204 shares owned by Mr. Edelman's spouse, Maria Regina M.
Edelman, 5000 shares held by Mr. Edelman in a Keough account, and the 21,000
shares beneficially owned by Mr. Edelman's daughters in accounts for which
he is the custodian. As a trustee of the Canal Retirement Plan, Mr. Edelman
may be deemed to own beneficially and share voting and investment power over
the 27 shares owned by such plan, which are excluded. Also excluded are 835
shares beneficially owned by Mr. Edelman's daughters in accounts for which
their mother, Penelope C. Edelman, is the custodian and 500 shares owned
directly by Penelope C. Edelman. Mr. Edelman disclaims beneficial ownership
of these excluded shares.
In addition, Mr. Edelman beneficially owns 194,241 shares of Preferred
Stock, explained in detail in this paragraph. As the controlling general
partner of each of Plaza Securities Company, A.B. Edelman Limited
Partnership and Citas Partners, which is the sole general partner of
Felicitas Partners, L.P., Mr. Edelman may be deemed to hold beneficially the
70,471, 51,229 and 581 shares held, respectively, by each of such entities
for purposes of Rule 13d-3 under the Exchange Act, and these shares are
included in the amount stated in the first sentence of this paragraph. Mr.
Edelman is the sole stockholder of A.B. Edelman Management Company, Inc.,
which is the general partner of Edelman Value Partners, L.P. owner of 50,300
shares. Also included are the 8,458 shares owned by Canal and the 13,202
shares owned by Mr. Edelman's spouse, Maria Regina M. Edelman. As a trustee
of the Canal Retirement Plan, Mr. Edelman may be deemed to own beneficially
and share voting and investment power over the 39,586 shares owned by such
plan, which are excluded. Also excluded are the 10,500 shares owned by
Edelman Value Fund, Ltd. for which Mr. Edelman serves as investment manager.
Also excluded are the 38,330 shares owned by Mr. Edelman's daughters in
accounts for which their mother, Penelope C. Edelman, is the custodian and
20,009 shares owned directly by Penelope C. Edelman. Mr. Edelman disclaims
beneficial ownership of these excluded shares.
(4) Messrs. Agranoff and Garfinkel are general partners of Plaza Securities
Company, which owns 212,318 shares of Common Stock and 70,471 shares of
Preferred Stock. They disclaim beneficial ownership of these shares, which
are not included in the beneficial ownership table above.
(5) Messrs. Agranoff, Edelman and David Berger are the trustees of the Datapoint
Corporation Supplemental Executive Retirement Plan. As trustees of this
plan, Messrs. Agranoff, Edelman and Berger may be deemed to own beneficially
and share voting and investment power over the 112,000 preferred shares
owned by such plan, which are excluded. Messrs. Agranoff, Edelman and Berger
each disclaim beneficial ownership of these excluded shares.
71
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are employees of Datapoint receive no additional compensation
for serving on the Board of Directors or its committees. Each director who is
not an employee of Datapoint receives fees as follows. Each non-employee
director receives an annual fee of $15,000, payable in quarterly installments.
Executive Committee members receive an additional $5,000 annual fee. Committee
Chairmen receive an additional $2,000 annual fee. Board members serving on more
than one committee receive an additional $1,000 annual fee. Each non-employee
director also receives a fee of $750 for each Board meeting attended, $500 for
each committee meeting attended and $500 for attendance at each meeting on
Datapoint's business other than a Board of Directors or committee meeting. Each
non-employee director is, at Datapoint's expense, provided with $50,000 of group
term life insurance and $250,000 accidental death insurance. Each non-employee
director has the option to purchase, at his own expense, coverage for himself
and his dependents under Datapoint's group medical and dental insurance plan.
Datapoint maintains a retirement plan and a retirement medical care plan to
cover non-employee Board members. Both plans presently are purely contractual
rather than funded, and are self-insured except that retirees are required to
participate in Medicare parts A and B. The retirement plan provides for a
maximum annual benefit equal to a director's annual retainer in effect on the
date of retirement. A partial benefit will be paid to directors with less than
five years' service, and a full benefit will be paid to directors with five or
more years of service. The benefit will be payable for the greater of ten years
or life, and in the event a retiree should die within ten years of retirement,
the remaining benefit will be paid to his estate. The retirement medical care
plan affords non-employee directors, upon retirement, benefits and premiums
equivalent to COBRA coverage available to certain former employees and/or
dependents under Datapoint's group medical plan. Only directors elected to the
Board prior to March 25, 1996 are elibible to participate in the retirement
plan.
Director Thomas worked since August 1994 until May 1, 1995 as a special
consultant for which he received compensation of $500 per day payable in shares
of common stock. Subsequently, on May 5, 1995, in consideration of the
additional work and responsibilities he had taken on for the Company as a
special consultant, the Board of Directors approved a special compensation
package for Director Thomas. From May 1, 1995 through July 31, 1995, he was paid
at the rate of $500 per day for his services, plus travel and housing expenses,
plus additional compensation of $2,000 per week for expenses. Director Thomas
was also (and currently is) entitled to participate in the Executive Health
Benefit program of the Company. The Board also approved a one time special
issuance of 45,000 shares of common stock of the Company to Director Thomas in
recognition of his service to the Company. During the term Director Thomas acted
as a special consultant he did not accrue or receive any regular Board or
committee fees. Upon the resignation of Doris Bencsik as President and Chief
Operating Officer, Director Thomas was appointed on December 5, 1995 to the
position of Executive Vice President and Chief Operating Officer.
Director Ruffat had a consulting agreement from January 1994 through June
1995 under which he received a monthly compensation of $10,000. For 1996 and
1995, an offshore company of which Director Ruffat has an interest in was paid
$50,000 and $80,000, respectively, for consulting services.
72
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding all cash
compensation paid or accrued for services rendered by the Company's Chief
Executive Officer and four most highly compensated executive officers for the
last three fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- -------------
OTHER STOCK ALL
NAME AND FISCAL ANNUAL OPTIONS OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION GRANTED(#) COMPENSATION
- ---------------------- ----------- ----------- ----------- ----------- ------------- -------------
Asher B. Edelman (1) 1995 $ 275,104(11) 0 $ 180,781(2) 0 0
CHAIRMAN OF THE BOARD 1994 300,534 0 190,012(2) 0 0
AND 1993 300,000 0 184,734(2) 50,000 0
CHIEF EXECUTIVE
OFFICER
<S> <C> <C> <C> <C> <C> <C>
Doris D. Bencsik (3) 1995 $ 281,166(11) 0 $ 0 0 31,798(6)
PRESIDENT AND 1994 259,615 0 0 75,000 31,798(6)
CHIEF OPERATING 1993 76,154(4) 0 56,500(5) 75,000 31,798(6)
OFFICER
Keith L. Thrower (12) 1995 $ 165,000 0 $ 97,405(2) 15,000 0
VICE PRESIDENT, 1994 165,000 0 90,140(2) 0 0
TECHNICAL SERVICES 1993 165,000 0 87,082(2) 10,000 0
Jan Berger 1995 $ 180,000 0 $ 38,662(2) 15,000 0
VICE PRESIDENT, 1994 180,000 0 30,190(2) 0 0
MARKETING 1993 180,000 0 36,000(2) 10,000 0
David Berger (7) 1995 $ 150,000 0 $ 82,062(2) 25,000 0
VICE PRESIDENT, 1994 150,000 0 110,999(10) 0 0
SALES & DISTRIBUTION 1993 133,358 284,726(8) 11,615(9) 40,000 0
</TABLE>
TABLE FOOTNOTES
(1) Asher B. Edelman was named Chief Executive Officer in November 1992 (fiscal
1993).
(2) Represents expenses incident to foreign assignment.
(3) Doris D. Bencsik commenced employment with the Company on a half-time basis
as Executive Vice President and Chief Operating Officer in February of
fiscal 1993 and converted to a full time status and was promoted to
President on November 1, 1993, at a minimum annual salary of $300,000. On
December 5, 1995, Ms. Bencsik resigned from her position as an officer of
the Company and on May 20, 1996, Ms. Bencsik resigned from her position as a
director of the Company.
(4) Amount reflects half-time status and partial year of employment.
(5) Includes consulting fees of $55,000 attributable to service from October
1992 through January 1993.
(6) Represents contractually fixed supplemental early retirement benefit
attributable to prior service as an officer from 1982-87.
(7) David Berger commenced employment with the Company in May of fiscal 1991
and was named Vice President, Sales and Distribution in July 1993.
(8) Represents performance bonus paid for service as managing director of
United Kingdom subsidiary.
(9) Represents value of personal use of company automobile as managing director
of United Kingdom subsidiary.
(10) Represents payments incident to relocation and foreign assignment.
(11) Effective in 1995, Mr. Edelman and Mrs. Bencsik agreed to a 10% salary
reduction as part of the Company's cost reduction plan.
(12) Effective February 1, 1996, Mr. Thrower resigned from his position as an
officer of the Company.
73
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR (1)
The following table sets forth certain information regarding all stock
option grants made to the Company's Chief Executive Officer and four most highly
compensated executive officers in the last fiscal year.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN FISCAL 1995 POTENTIAL GAINS AT
------------------------------------------------------ ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE
GRANTED TO APPRECIATION FOR
NUMBER EMPLOYEES EXERCISE OPTION TERM (3)
OF OPTIONS IN PRICE EXPIRATION ---------------------
NAME GRANTED (2) FISCAL YEAR PER SHARE DATE 5% 10%
- ------------------------------------ ----------- ----------- ----------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Asher B. Edelman.................... 0 0.00% n/a n/a n/a n/a
Doris D. Bencsik(4)................. 0 0.00% n/a n/a n/a n/a
David Berger........................ 25,000 4.49% $ 2.69 10/05/07 $ 42,254 $ 107,079
Jan Berger.......................... 15,000 2.69% 2.69 10/05/07 25,352 64,248
Keith L. Thrower(5)................. 15,000 2.69% 2.69 10/05/07 25,352 64,248
</TABLE>
Gain for all stockholders at assumed annual rates of stock price
appreciation (6): $22,182,073 $56,214,054
- ------------------------
(1) No Stock Appreciation Rights (SARs) have ever been granted by Datapoint
under the existing stock option plans.
(2) Each grant becomes exercisable in three equal annual installments commencing
on the first anniversary date.
(3) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates required by the SEC and, therefore, are not intended to
forecast possible future appreciation, if any, of the stock price.
(4) On December 5, 1995, Ms. Bencsik resigned from her position as an officer of
the Company and on May 20, 1996, Ms. Bencsik resigned from her position as a
director of the Company.
(5) Effective February 1, 1996, Mr. Thrower resigned from his position as an
officer of the Company.
(6) These amounts represent the increase in the market value of Datapoint's
outstanding shares (13.1 million) as of July 29, 1995, that would result
from the same stock price assumptions used to show the potential realizable
value for the named executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth certain information regarding stock options
exercised by the Company's Chief Executive Officer and four most highly
compensated executive officers in the last fiscal year and the fiscal year-end
value of unexercised options.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JULY 29, 1995 AT JULY 29, 1995
ACQUIRED VALUE -------------------------- ------------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ----------- ---------- ----------- ------------- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Asher B. Edelman................. 150,000 $ 300,000 158,333 16,667 $ 0 0
Doris D. Bencsik(1).............. 0 0 90,000 75,000 0 0
David Berger..................... 0 0 26,667 38,333 0 0
Jan Berger....................... 0 0 46,667 18,333 0 0
Keith L. Thrower(2).............. 0 0 46,667 18,333 0 0
</TABLE>
- ------------------------
(1) On December 5, 1995, Ms. Bencsik resigned from her position as an officer of
the Company and on May 20, 1996, Ms. Bencsik resigned from her position as a
director of the Company.
(2) Effective February 1, 1996, Mr. Thrower resigned from his position as an
officer of the Company.
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EMPLOYMENT AGREEMENTS
Effective April 25, 1990, Datapoint entered into a written employment
agreement memorializing an existing understanding concerning the employment of
Mr. Edelman as Chairman of the Board of Directors and Chairman of the Executive
Committee of Datapoint. The agreement, as amended, now provides for a base
salary of $300,000, an annual bonus opportunity of 5% of the Company's net
pre-tax earnings (excluding the excess over $10 million of the net of any
extraordinary gains due to debt repurchase or exchange against all extraordinary
losses) and payment of certain of his expenses, subject to limitations,
including expenses relating to his presence at Datapoint's European offices. The
amended agreement further provides for a lump-sum payment of two years salary
and benefits plus one year of bonus at plan should Mr. Edelman's employment
involuntarily terminate other than by death or disability, or for "cause" as
strictly defined therein.
Effective February 4, 1993, Datapoint entered into an agreement with Mrs.
Bencsik providing for her employment as Executive Vice President and Chief
Operating Officer with a minimum annual base salary of $150,000 for half-time
service until November 1, 1993, and for her employment as President and Chief
Operating Officer with a minimum annual base salary of $300,000 for full-time
service thereafter. The agreement provides for an annual bonus opportunity,
certain executive benefits, and base salary continuation for two (2) years
should Datapoint terminate her employment prior to September, 1996 other than
for "cause" as strictly defined therein. On December 5, 1995, Ms. Bencsik
resigned from her position as an officer of the Company and on May 20, 1996, Ms.
Bencsik resigned from her position as a director of the Company.
Effective July 1, 1993, Datapoint entered into an agreement with Mr. David
Berger providing for his employment as Vice President, Sales and Distribution,
at a minimum annual base salary of $150,000. The agreement provides for an
annual bonus opportunity, certain executive benefits, and continuation of base
salary and benefits for one year should Datapoint terminate his employment other
than for cause. The agreement also provides for expatriate accommodations
incident to foreign assignment.
Effective June 1, 1991, Datapoint entered into an agreement with Mr. Jan
Berger providing for his employment as Vice President, Marketing, at a minimum
annual base salary of $180,000. The agreement provides for an annual bonus
opportunity, certain executive benefits, and lump-sum payment of one year of
base salary as well as a continuation of benefits for one year should Datapoint
terminate his employment other than for "cause" as strictly defined therein. The
agreement also provides for expatriate accommodations incident to foreign
assignment.
Effective April 1, 1991, Datapoint entered into an agreement with Mr.
Thrower providing for his employment as Vice President, Services, at a minimum
annual base salary of $150,000. The agreement provides for an annual bonus
opportunity, certain executive benefits, and lump-sum payment of one year of
base salary as well as a continuation of benefits for one year should Datapoint
terminate his employment other than for "cause" as strictly defined therein. The
agreement also provides for expatriate accommodations incident to foreign
assignment. Mr. Thrower resigned from Datapoint effective February 1, 1996.
Effective October 1, 1994, Datapoint entered into an agreement with Mr.
Agranoff providing for his employment as General Counsel and Corporate
Secretary. This agreement, as amended, now provides for a minimum annual base
salary of $200,000, annual bonus opportunity, certain executive benefits, and
continuation of base salary payments of up to $100,000, plus any performance
bonus he may be entitled to, as well as a continuation of benefits for six
months should Datapoint terminate his employment other than for cause.
Effective December 5, 1995, Datapoint entered into an agreement with Mr.
Thomas providing for his employment as Executive Vice President and Chief
Operating Officer at a minimum annual base salary of $250,000. The agreement
provides for an annual bonus opportunity of 3% of the Company's net pre-tax
earnings (excluding the excess over $10 million of the net of any extraordinary
gains due to debt repurchase or exchange against all extraordinary losses),
certain executive benefits, and continuation of base salary payments of up to
$100,000, plus any performance bonus he may be entitled to, as well as a
continuation of benefits for six months should Datapoint terminate his
employment other than for cause. The agreement also provides for expatriate
accommodations incident to foreign assignment.
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<PAGE>
Effective September 19, 1994, Datapoint entered into an agreement with Mr.
Krumb providing for his employment as Vice President and Chief Financial Officer
at a minimum annual base salary of $175,000. The agreement provides for an
annual bonus opportunity of 1% of the Company's net pre-tax earnings (excluding
the excess over $10 million of the net of any extraordinary gains due to debt
repurchase or exchange against all extraordinary losses), certain executive
benefits, and continuation of base salary payments of up to $100,000, plus any
performance bonus he may be entitled to, as well as a continuation of benefits
for six months should Datapoint terminate his employment other than for cause.
The agreement also provides for certain relocation accommodations which were
terminated at the end of 1995.
COMPENSATION COMMITTEE REPORT
Datapoint's executive compensation program is based on three fundamental
principles.
Datapoint must offer compensation opportunities sufficient to attract,
retain and reward talented executives who are sufficiently capable of addressing
the challenges of a worldwide business in a difficult industry.
Compensation should include a substantial component of pay-for-performance
sufficiently related to the financial results of the Company and/or the
executive's performance to financially motivate the executive's efforts to
increase stockholder value. This may cause individual compensation amounts to
change significantly from year to year.
Compensation should provide a direct link between the long-term interest of
executives and stockholders. Through the use of stock-based incentives, the
Compensation Committee focuses the attention of executives on managing the
Company from the perspective of an owner with an equity stake.
For executive officers, compensation now consists primarily of base salary,
a short-term performance incentive opportunity in the form of a variable cash
bonus based on either the financial performance of the Company or of their area
of responsibility, and a long-term incentive opportunity provided by stock
options.
The committee also obtains ratification by the non-employee members of the
Board on most aspects of compensation and long-term incentives for executive
officers.
The remainder of the report reviews the annual and long-term components of
Datapoint's executive compensation program, along with the decisions made by the
committee regarding fiscal year 1995 compensation for both the CEO and the other
named executive officers.
TOTAL ANNUAL COMPENSATION
Annual cash compensation consists of two components; a fixed base salary and
a variable annual bonus opportunity. As an executive's level of responsibility
increases, a larger portion of total annual pay is based on bonus and less on
salary. None of the named executives received a salary change during the past
year and Mr. Edelman's salary was last increased in December, 1990. The
Committee set the base salary of executive officers based upon a subjective
analysis of competitive salaries of equally qualified executives, occasionally
confirmed by reference to general salary surveys; prior compensation of the
individual or of previous holders of the position is also considered.
Contractual minimum base salaries are customarily negotiated with the
executives.
The short-term performance incentive bonus opportunity is established either
as a percentage, unique for each individual, of a numerical corporate
performance indicia, or as a target percentage of pay which is the amount that
can be earned based upon assigned objectives being met. Performance is measured
as a percent of attainment against these objectives. When performance exceeds
objectives, an executive's incentive pay can exceed the target rate, and when it
falls below, individual incentive pay is reduced accordingly.
Messrs. Edelman's, Krumb's and Thomas's bonuses are each based on a
contractually specified percentage of Datapoint's pre-tax profits, which are
defined as net pre-tax earnings, excluding the excess over $10 million of the
net of any extraordinary gains due to debt repurchase or exchange against all
extraordinary
76
<PAGE>
losses. During fiscal year 1995, the Company incurred net losses and therefore
no bonuses were paid in 1995 under these contractual arrangements. For the
fiscal year 1996, an aggregate of approximately $1.8 million is expected to be
paid under these contractual arrangements as a result of the sale of certain
assets.
The remainder of the named executives have been assigned bonus targets as a
percentage of their base salary based upon 100% achievement of individualized
goals and objectives, a substantial portion of which are related to the
financial performance of corporate functions relevant to their respective
responsibilities.
LONG TERM INCENTIVES
The committee believes that stock options appropriately link executive
interests to the enhancement of stockholder value and utilizes them as its long
term incentive program; no additional long-term incentive programs are utilized.
Stock options generally are granted at fair market value as of the date of
grant, become exercisable over three years, and have a term of ten years. The
stock options provide value to the recipients only when the price of Datapoint
stock increases above the option grant price.
In 1995, the committee granted stock options to executive officers, as well
as to other executives and selected key employees. In determining the size of
the grant for Mr. Edelman and the other named executive officers, the committee
assessed the following factors: their potential by position and ability (i) to
contribute to the creation of long-term stockholder value; (ii) to contribute to
the successful execution of Datapoint's product line broadening strategy; and
(iii) to implement Datapoint's cost reduction objectives; (iv) their relative
levels of responsibility; and (v) the number of options they already held.
This report has been provided by the Compensation Committee.
Daniel R. Kail, Chairman
Irving J. Garfinkel
Didier M. M. Ruffat
77
<PAGE>
THE EXCHANGE OFFER AND STOCK SOLICITATION
THE EXCHANGE OFFER AND STOCK SOLICITATION
Upon the terms and subject to the conditions set forth in this Proxy
Statement/Prospectus and in the accompanying Letter of Transmittal, the Company
is offering to exchange for each share of Preferred Stock which has been
tendered and not withdrawn as of the Expiration Date 3.25 shares of Common
Stock.
The Company is soliciting in the Stock Solicitation the Requisite Votes
(I.E., affirmative votes of Holders of at least two-thirds of the outstanding
shares of the Preferred Stock, voting separately as a class, and affirmative
votes of Holders of at least a majority of the outstanding shares of Common
Stock, voting separately as a class) to the Preferred Stock Amendment. See "The
Preferred Stock Amendment." Purchasers of Preferred Stock after the Record Date
who wish to vote for the Preferred Stock Amendment must arrange with their
seller to receive an appropriate proxy from the holder of record on the Record
Date of such Preferred Stock.
All references herein to the Exchange Offer shall be deemed to include the
Stock Solicitation, unless otherwise required by context or specified herein.
This Proxy Statement/Prospectus, Stock Proxies and Letter of Transmittal are
each being mailed to holders of Preferred Stock and Common Stock on
, 1996.
The Board of Directors of the Company has fixed the close of business on
, 1996 as the Record Date for determining the Holders of Preferred
Stock and Common Stock who will be entitled to notice, and only holders of
record of shares of Preferred Stock and Common Stock on the Record Date or any
persons who have obtained a properly completed proxy from such record holder are
entitled to vote at the Annual Meeting or any adjournment or postponement
thereof. On the Record Date, it is anticipated that approximately 1,868,056
shares of Preferred Stock and approximately 13,929,173 shares of Common Stock
will be outstanding and entitled to vote at the Annual Meeting, which shares are
anticipated to be held of record by approximately 432 holders and 3,150 holders,
respectively. Holders of record on the Record Date or any person who has
obtained a properly completed proxy from such record holders are entitled to
cast one vote per share of Preferred Stock and/or one vote per share of Common
Stock, either in person or by a properly executed proxy, in connection with the
approval of the Preferred Stock Amendment. The presence of Holders of a majority
of shares of Preferred Stock and a majority of shares of Common Stock entitled
to vote, represented in person or by a properly executed proxy, is necessary to
constitute a quorum for the Annual Meeting. The Preferred Stock Designation
requires the affirmative vote of Holders of at least two-thirds of the
outstanding shares of Preferred Stock, voting separately as a class, to approve
the Preferred Stock Amendment, which also requires the approval of the holders
of at least a majority of the outstanding shares of the Common Stock, voting
separately as a class.
All shares of Preferred Stock and Common Stock represented at the Annual
Meeting by properly executed Stock Proxies received prior to the vote at the
Annual Meeting, unless previously revoked, will be voted in accordance with the
instructions thereon. If no instructions are given, Stock Proxies will be voted
for the Preferred Stock Amendment. Any Stock Proxy may be revoked at any time
until the Preferred Stock Amendment is approved at the Annual Meeting. Holders
of Preferred Stock and Holders of Common Stock may also vote their shares in
person at the Annual Meeting. See "-- Withdrawal of Tenders and Revocation of
Proxies." As of July 15, 1996, Asher B. Edelman, Chairman of the Board and Chief
Executive Officer of the Company, and corporations and partnerships with which
he is affiliated, are anticipated to be the beneficial owners of an aggregate of
approximately 11.8% of the outstanding shares of Preferred Stock and
approximately 12.1% of the outstanding shares of Common Stock, and all of the
other executive officers and directors of the Company as a group are anticipated
to be the beneficial owners of an aggregate of approximately 1.5% of the
outstanding shares of Preferred Stock and approximately 2.0% of the outstanding
shares of Common Stock (in each case excluding shares beneficially owned by Mr.
Edelman). Mr. Edelman and the corporations and partnerships with which he is
affiliated and such other executive officers and directors have indicated their
current intention to tender their shares of Preferred Stock in the Exchange
Offer and to vote in favor of the Preferred Stock Amendment. See "Security
Ownership of Certain Beneficial Owners and Management."
78
<PAGE>
GENERAL
As of July 15, 1996, there were 432 record holders of Preferred Stock, and
there was outstanding approximately $41.1 million aggregate liquidation
preference (1,868,056 shares of Preferred Stock (which includes accumulated but
unpaid dividends of approximately $3.7 million as of July 15, 1996). As of July
15, 1996, there were approximately 3,150 record holders and 13,929,173
outstanding shares of Common Stock.
The Company shall be deemed to have accepted validly tendered Preferred
Stock in the Exchange Offer and validly delivered Stock Proxies when, as and if
the Company has given oral or written notice thereof to the Depositary. The
Depositary will act as agent for the tendering Holders of Preferred Stock for
the purposes of receiving the Exchange Consideration from the Company.
If the Preferred Stock Amendment is not adopted, the Company shall accept
for exchange such Preferred Stock validly tendered and not withdrawn as of the
Expiration Date, provided that at least 66 2/3% of the outstanding shares of
Preferred Stock has been tendered and not withdrawn as of the Expiration Date.
If less than 66 2/3% of the outstanding shares of Preferred Stock has been
tendered and not withdrawn as of the Expiration Date, the Company may elect to
accept for exchange such shares of Preferred Stock in whole, or in the
alternative, to not accept any such shares for exchange. The Exchange
Consideration will be delivered in exchange for Preferred Stock tendered in the
Exchange Offer promptly after acceptance on the Expiration Date. In the event
that the Requisite Votes are received at the Annual Meeting, then, immediately
upon the filing of the Preferred Stock Amendment with the Secretary of State of
the State of Delaware, shares of Preferred Stock will be reclassified as and
changed into shares of Common Stock and the Company will commence the exchange
of certificates representing shares of Preferred Stock for the certificates
representing shares of Common Stock in accordance with the terms of the
Preferred Stock Amendment. Notwithstanding the approval of the Preferred Stock
Amendment at the Annual Meeting, the Board of Directors reserves the right to
abandon filing the Preferred Stock Amendment and consummation of the Preferred
Stock Reclassification. The Company's obligation to accept Preferred Stock for
exchange and to accept delivered Stock Proxies is subject to the satisfaction of
the conditions set forth below under "-- Conditions."
No fractional shares will be issued upon exchange of Preferred Stock or upon
the Preferred Stock Reclassification. Each person otherwise entitled to a
fractional share of Common Stock will receive a payment in cash in lieu of such
fractional share based upon the average high and low prices of the Common Stock
on the NYSE on the Expiration Date. The Company intends to cause such payments
to be made promptly after the Expiration Date of the Exchange Offer.
Holders of Preferred Stock who tender in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Preferred Stock pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes, in connection with the
Exchange Offer. See "-- Fees and Expenses."
Holders of Preferred Stock and Holders of Common Stock who do not vote for
the Preferred Stock Amendment will not have dissenters' rights under applicable
state law or under the Company's Certificate of Incorporation, nor will
dissenters' rights be voluntarily accorded to Holders of Preferred Stock and
Holders of Common Stock in connection with the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 10:00 a.m., New York City time,
, 1996, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the last
date to which the Exchange Offer is extended.
In order to extend the Expiration Date with respect to the Exchange Offer,
the Company will notify the Depositary of any extension by oral or written
notice and will make a public announcement thereof, each prior to 10:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specific period or on a daily basis.
79
<PAGE>
The Company expressly reserves the right to (i) delay accepting any
Preferred Stock, to extend the Exchange Offer or to terminate the Exchange Offer
and not accept Preferred Stock not previously accepted if any of the conditions
set forth herein under "-- Conditions" shall exist or shall have occurred and
shall not have been waived or satisfied by the Company, by giving oral or
written notice of such delay, extension or termination to the Depositary, or
(ii) amend at any time or from time to time, the terms of the Exchange Offer.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by public announcement thereof. If the terms
of the Exchange Offer are amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendment
in a manner reasonably calculated to inform the Holders of such amendment and
the Company will extend the Exchange Offer for a period which the Company in its
discretion deems appropriate, depending upon the significance of the amendment
and the manner of disclosure to Holders of the Preferred Stock, if the Exchange
Offer would otherwise expire during such period. Any such extension shall be in
compliance with the applicable rules and regulations of the Commission.
Notwithstanding the approval of the Preferred Stock Amendment at the Annual
Meeting, the Board of Directors reserves the right to abandon filing the
Preferred Stock Amendment and consummation of the Preferred Stock
Reclassification.
Without limiting the manner in which the Company may choose to make a public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
DIVIDENDS ON PREFERRED STOCK
The Company has not paid the dividends accumulated on the Preferred Stock
from and including October 15, 1994. By tendering shares of their Preferred
Stock in the Exchange Offer, holders of Preferred Stock will waive their right
to receive any accumulated dividends on the Preferred Stock if such shares are
accepted for exchange.
HOW TO TENDER PREFERRED STOCK IN THE EXCHANGE OFFER
A Holder electing to tender Preferred Stock in the Exchange Offer should
either (a) complete all portions of the Letter of Transmittal, or a facsimile
thereof, and mail or otherwise deliver the completed Letter of Transmittal, or
such facsimile, together with certificates for shares of Preferred Stock and any
other required documents to the Depositary at one of its addresses set forth on
the back cover page of this Proxy Statement/Prospectus, or effect the tender of
Preferred Stock pursuant to the procedure for book-entry transfer as set forth
below, or (b) request his broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for him. A Holder of Preferred Stock who
wishes to vote for the Preferred Stock Amendment but not tender shares of
Preferred Stock in the Exchange Offer should follow the instructions under "--
How to Vote Preferred Stock in the Stock Solicitation" below. A Holder of
Preferred Stock who wishes to tender shares of Preferred Stock in the Exchange
Offer but not vote for the Preferred Stock Amendment should follow the
instructions for completing the tender of shares of Preferred Stock on the
Letter of Transmittal.
IN ORDER FOR A TENDER OF PREFERRED STOCK TO CONSTITUTE A VALID TENDER ON OR
PRIOR TO THE EXPIRATION DATE, HOLDERS SHOULD COMPLETE THE LETTER OF TRANSMITTAL
IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH THEREIN AND DELIVER SUCH LETTER OF
TRANSMITTAL TO THE DEPOSITARY ON OR PRIOR TO 10:00 A.M., NEW YORK CITY TIME, ON
THE EXPIRATION DATE.
HOW TO VOTE PREFERRED STOCK IN THE STOCK SOLICITATION
Holders of Preferred Stock may vote on the Preferred Stock Amendment at the
Annual Meeting by completing and signing the YELLOW proxy card and mailing or
delivering such proxy to the Depositary at one of the addresses set forth on the
back cover page of this Proxy Statement/Prospectus. If no instructions are
indicated, proxies will be voted in favor of the Preferred Stock Amendment.
Holders of Preferred Stock whose purchase has been registered after the Record
Date and who wish to vote at the Annual Meeting must arrange with their seller
to receive a proxy from the holder of record on the Record Date of such
Preferred Stock. Holders of Preferred Stock may also vote their shares of
Preferred Stock by attending the Annual Meeting and voting in person.
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HOW TO VOTE COMMON STOCK IN THE STOCK SOLICITATION
Holders of Common Stock may vote on the Preferred Stock Amendment at the
Annual Meeting by completing and signing the WHITE proxy card and mailing or
delivering such proxy to the Depositary at one of the addresses set forth on the
back cover page of this Proxy Statement/Prospectus. If no instructions are
indicated, proxies will be voted in favor of the Preferred Stock Amendment.
Holders of Common Stock whose purchase has been registered after the Record Date
and who wish to vote at the Annual Meeting must arrange with their seller to
receive a proxy from the holder of record on the Record Date of such Common
Stock. Holders of Common Stock may also vote their shares of Common Stock by
attending the Annual Meeting and voting in person.
TENDERS AND STOCK PROXIES -- GENERAL
The tender by a Holder of Preferred Stock pursuant to one of the procedures
set forth herein will constitute an agreement between such holder and the
Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
The method of delivery of shares of Preferred Stock, Stock Proxies and
Letters of Transmittal and all other required documents to the Depositary is at
the election and risk of each holder. Except as otherwise provided herein, such
delivery will be deemed made only when actually received by the Depositary.
Instead of effecting delivery by mail, it is recommended that Holders use an
overnight or hand delivery service. If shares of Preferred Stock are sent by
mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to assure timely
delivery. No documents should be sent to the Company, the Solicitation Agent or
the transfer agent for the Preferred Stock.
The Depositary will make a request promptly after the date of this Proxy
Statement/Prospectus to establish accounts with respect to the Preferred Stock
at The Depositary Trust Company ("DTC") and the Philadelphia Depository Trust
Company ("PDTC", and together with DTC, the "Book Entry Transfer Facilities")
for the purpose of facilitating the Exchange Offer. Any financial institution
that is a participant in any of the Book Entry Transfer Facilities' systems may
make book entry delivery of the Preferred Stock by causing DTC or PDTC to
transfer such Preferred Stock into the Depositary's account in accordance with
such Book Entry Transfer Facility's procedure for such transfer. Although
delivery of Preferred Stock may be effected through book entry transfer in the
Depositary's account at DTC or PDTC, the Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received or confirmed by the
Depositary at one of its addresses set forth on the back cover of this Proxy
Statement/Prospectus prior to 10:00 a.m., New York City time, on the Expiration
Date. DELIVERY OF DOCUMENTS TO A BOOK ENTRY TRANSFER FACILITY IN ACCORDANCE WITH
ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Any beneficial holder whose shares of Preferred Stock are registered or held
of record on the Record Date in the name of his broker, dealer, commercial bank,
trust company or other nominee who wishes to tender shares of Preferred Stock
and/or vote for the Preferred Stock Amendment should contact such registered
holder or holder of record on the Record Date promptly and instruct such holder
to tender shares of Preferred Stock and/or vote for the Preferred Stock
Amendment on his behalf. If such beneficial holder wishes to tender shares of
Preferred Stock and/or vote for the Preferred Stock Amendment on his own behalf,
such beneficial holder must either make appropriate arrangements to register
ownership of the Preferred Stock in such holder's name or obtain a properly
completed stock power from the registered holder reflecting the change in
ownership and/or obtain a proxy from the holder of record on the Record Date
authorizing the beneficial holder to vote Preferred Stock by proxy on behalf of
such record holder. The transfer of record ownership of shares of Preferred
Stock may take considerable time and, depending on when such transfer is
requested, may not be accomplished prior to the Expiration Date.
Signatures on each Letter of Transmittal must be guaranteed unless the
shares of Preferred Stock delivered pursuant thereto are delivered (i) by a
registered holder of Preferred Stock who has not completed the boxes on the
Letter of Transmittal entitled "Special Issuance Instructions" or "Special
Delivery Instructions" or (ii) for the account of an Eligible Institution (as
defined below). In the event that signatures are
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required to be guaranteed, such guarantees must be by a firm that is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office in the United States (an "Eligible Institution").
If the Letter of Transmittal with respect to the shares of Preferred Stock
being tendered is signed by a person other than the registered holder, such
certificate(s) must be endorsed or accompanied by an appropriate stock power
bearing the signature of the registered holder or holders exactly as the name or
names appeared on the certificate(s). A Stock Proxy must be signed by the holder
of record on the Record Date or any person who has obtained a properly completed
proxy from the record holder, which proxy must accompany the Proxy delivered by
a holder to the Annual Meeting.
If the Letter of Transmittal, Stock Proxies or any certificates, stock
powers or other proxies are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, if required by the Company, proper evidence satisfactory to the
Company of their authority to so act must be submitted.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, withdrawal and revocation of tendered shares of Preferred
Stock and delivered Stock Proxies will be resolved by the Company, whose
determination will be final and binding. The Company reserves the absolute right
to reject any or all tenders and withdrawals of shares of Preferred Stock and
deliveries and revocations of Stock Proxies that are not in proper form or the
acceptance of which would, in the opinion of the Company or counsel for the
Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular shares of Preferred
Stock. The Company's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Stock Proxies and Letter of
Transmittal) will be final and binding. Unless waived, any irregularities in
connection with tenders and withdrawals of shares of Preferred Stock and
deliveries and revocations of Stock Proxies must be cured within such time as
the Company shall determine. Neither the Company nor the Depositary shall be
under any duty to give notification of defects in such tenders, withdrawals,
deliveries or revocations or shall incur any liability for failure to give such
notification. Tenders and withdrawals of shares of Preferred Stock and
deliveries and revocations of Stock Proxies will not be deemed to have been made
until such irregularities have been cured or waived. Any shares of Preferred
Stock received by the Depositary that are not properly tendered or delivered and
as to which the irregularities have not been cured or waived will be returned by
the Depositary to the tendering Holders of Preferred Stock unless otherwise
provided in the Letter of Transmittal as soon as practicable following the
Expiration Date.
Although it does not expect to do so, in the event the Company should
increase the consideration offered for the Preferred Stock in the Exchange
Offer, such increased consideration will be paid to all Holders whose shares of
Preferred Stock are accepted in the Exchange Offer, including those shares of
Preferred Stock tendered before the announcement of the increase. In the event
that the consideration being offered in the Exchange Offer is increased or
decreased, the Exchange Offer shall remain open for at least ten business days
from the date that notice of an increase or decrease in the consideration
offered is first published, sent or given to holders.
GUARANTEED DELIVERY PROCEDURES
If a Holder of Preferred Stock desires to tender such Preferred Stock and
the certificate(s) representing such shares of Preferred Stock are not
immediately available, or time will not permit such Holder's certificate(s) or
other required documents to reach the Depositary before 10:00 a.m., New York
City time, on the Expiration Date, or if such Holder cannot complete the
procedure for book-entry transfer on a timely basis, a tender may be effected
if:
(a) the tender is made through an Eligible Institution;
(b) prior to 10:00 a.m., New York City time, on the Expiration Date, the
Depositary receives from such Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by telegram, telex, facsimile
transmission, mail or hand delivery) setting forth the name and address of
the Holder, and the number of shares of Preferred Stock to be delivered,
stating that the delivery is being
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made thereby and guaranteeing that within five NYSE trading days after the
date of execution of the Notice of Guaranteed Delivery, the certificate(s)
representing the shares of Preferred Stock, and any other documents required
thereby, will be deposited by the Eligible Institution with the Depositary;
and
(c) the certificate(s) for all tendered shares of Preferred Stock, or a
combination of a book entry transfer of such Preferred Stock into the
Depositary's applicable account at a Book Entry Transfer Facility as
described above, the Letter of Transmittal, and all other documents required
thereby are received by the Depositary within five NYSE trading days after
the date of execution of such Notice of Guaranteed Delivery.
Failure to complete the guaranteed delivery procedures outlined above will
not, of itself, affect the validity of, or effect a revocation of, any Letter of
Transmittal properly executed by a Holder of Preferred Stock who attempted to
use the guaranteed delivery procedures.
WITHDRAWAL OF TENDERS AND REVOCATION OF STOCK PROXIES
Tenders of shares of Preferred Stock may be withdrawn at any time until the
Expiration Date. Notwithstanding the foregoing, tenders of shares of Preferred
Stock may also be withdrawn after the expiration of forty business days from the
date hereof, if such shares have not yet been accepted for payment. Stock
Proxies may be revoked at any time until the Preferred Stock Amendment is
approved at the Annual Meeting. A withdrawal of shares of Preferred Stock
tendered for exchange shall not have any effect on a Stock Proxy with respect to
such shares and a revocation (on or prior to the Expiration Date) of a Stock
Proxy given by a holder of Preferred Stock shall not have any effect on those
shares of Preferred Stock tendered for exchange.
Any Holder of Preferred Stock who has tendered shares of Preferred Stock in
the Exchange Offer or executed a Stock Proxy with respect to the Preferred Stock
Amendment, or who succeeds to the record ownership of Preferred Stock in respect
of which such tenders or proxies have previously been given, may withdraw such
shares of Preferred Stock or revoke such Stock Proxies by delivery of a written
notice of withdrawal or revocation. To be effective, a written or facsimile
transmission notice of withdrawal of shares or revocation of proxy must (i) be
timely received by the Depositary at one of its addresses specified on the back
cover of this Proxy Statement/Prospectus before (A) in the case of a withdrawal
of a tender with respect to Preferred Stock, the Expiration Date or (B) in the
case of a revocation of a Stock Proxy, at any time until the Preferred Stock
Amendment is approved at the Annual Meeting, (ii) specify the name of the
registered holder (or holder of record on the Record Date in the case of proxies
only) of the Preferred Stock to be withdrawn or as to which proxy is revoked,
(iii) contain the description of the Preferred Stock to be withdrawn or as to
which consent or proxy is revoked, the certificate numbers shown on the
particular certificates evidencing such shares of Preferred Stock and the
aggregate number of shares represented by such Preferred Stock certificate, and
(iv) be signed by the registered holder (or holder of record on the Record Date
in the case of proxies only) of such Preferred Stock in the same manner as the
original signature on the Proxy or Letter of Transmittal (including any required
signature guarantees), or be accompanied by documents of transfer sufficient to
have the transfer agent for the Preferred Stock register the transfer of such
Preferred Stock into the name of the person withdrawing Preferred Stock or
revoking a Stock Proxy. The signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution unless such Preferred Stock has been
tendered (i) by a registered holder of Preferred Stock who has not completed the
boxes on the Letter of Transmittal entitled "Special Issuance Instructions" or
"Special Delivery Instructions," or (ii) for the account of an Eligible
Institution. If the Preferred Stock to be withdrawn has been delivered or
otherwise identified to the Depositary, a signed notice of withdrawal is
effective immediately upon receipt of written or facsimile transmission notice
of withdrawal even if physical release is not yet effected. A holder may also
revoke a Stock Proxy by attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
revocation of a Stock Proxy) or by executing a subsequent Stock Proxy and
delivering it to the Depositary before the Preferred Stock Amendment is approved
at the Annual Meeting.
Any shares of Preferred Stock which have been tendered for exchange but
which are not exchanged will be returned to the Holder thereof without cost to
such Holder as soon as practicable following the relevant Expiration Date.
Properly withdrawn shares of Preferred Stock may be retendered at any time prior
to 10:00 a.m., New York City time, on the Expiration Date by following one of
the procedures described under "-- How to Tender Preferred Stock in the Exchange
Offer."
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A proxy given pursuant to this solicitation by a Holder of Preferred Stock
or Common Stock may be revoked at any time before the approval of the Preferred
Stock Amendment at the Annual Meeting. Such a proxy may be revoked (i) by filing
with the Depositary at or before the Annual Meeting a written notice of
revocation bearing a later date than the proxy, (ii) by duly executing a
subsequent proxy relating to the same shares and delivering it to the Depositary
at or before the Annual Meeting, or (iii) by attending the Annual Meeting and
voting in person (although attendance at the Annual Meeting will not in and of
itself constitute revocation of a proxy).
CERTAIN EFFECTS OF THE EXCHANGE OFFER ON THE MARKET FOR THE PREFERRED STOCK;
EXCHANGE ACT REGISTRATION
The Preferred Stock is currently registered under the Exchange Act. In the
event that the Requisite Votes are received and the Preferred Stock Amendment is
adopted, and the Preferred Stock Reclassification is consummated, there will be
no shares of Preferred Stock outstanding, and, accordingly, its registration
under the Exchange Act and its listing on the NYSE shall terminate. The Company,
however, will continue to be subject to reporting requirements under the
Exchange Act. In the event the Preferred Stock Amendment is not adopted, there
will continue to be shares of Preferred Stock outstanding and such shares will
continue to be registered under the Exchange Act. However, the Preferred Stock
may be delisted from the NYSE (although the Company has no intention of seeking
such delisting) and, in any event, the trading market in such security could be
adversely affected. See "Risk Factors -- Risks Associated with Retention of the
Preferred Stock -- NYSE Listing" and "Background; Purposes and Effects of the
Exchange Offer -- Certain Consequences to Holders of Preferred Stock That is Not
Exchanged".
Shares of Preferred Stock accepted in the Exchange Offer shall (upon
compliance with any applicable provisions of the laws of the State of Delaware)
have the status of authorized and unissued shares of preferred stock, par value
$1.00, of the Company, undesignated as to series and may be redesignated and
reissued as part of any series of such preferred stock.
CONDITIONS
The obligation of the Company to accept for exchange any shares of Preferred
Stock validly tendered pursuant to the Exchange Offer and/or to consummate the
Preferred Stock Reclassification is subject to the following conditions:
(a) that there shall not have occurred any change or development
involving a prospective change in or affecting the business or financial
affairs of the Company, which in the reasonable judgment of the Board of
Directors of the Company, would or might prohibit, restrict or delay
consummation of the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company or which may be material to
the Holders of Preferred Stock in deciding whether to tender their Preferred
Stock or to vote for the Preferred Stock Amendment;
(b) that no order shall have been entered in any action or proceeding
before any court or governmental or administrative agency or commission, (x)
restraining or prohibiting the making or consummation of the Exchange Offer
or any other transaction contemplated by the Exchange Offer, or assessing
any material damages as a result thereof or (y) making the acquisition by
the Company of some or all of the shares of Preferred Stock pursuant to the
Exchange Offer illegal or resulting in a material delay in the ability of
the Company to accept for exchange some or all of the shares of Preferred
Stock pursuant to the Exchange Offer; and that no statute, rule or
regulation shall be enacted, promulgated or deemed applicable to the
Exchange Offer or any of the transactions contemplated by the Exchange Offer
by any government or governmental authority, domestic or foreign, that would
directly or indirectly result in any of the consequences referred to in
clauses (x) and (y) hereof which in the reasonable judgment of the Company
makes it inadvisable to proceed with the Exchange Offer;
(c) that no action or proceeding before or by any court or governmental
regulatory or administrative agency or instrumentality, or by any other
person shall have been instituted or threatened or be pending, which (x)
challenges the making or consummation of the Exchange Offer, or otherwise
directly or indirectly relates to the Exchange Offer or (y) otherwise
directly materially adversely affects the Company or its subsidiaries which,
in the reasonable judgment of the Company in any such case, makes it
inadvisable to proceed with the Exchange Offer; or
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(d) that at least 66 2/3% of the outstanding shares of Preferred Stock
has been tendered and not withdrawn as of the Expiration Date. If less than
66 2/3% of the outstanding shares of Preferred Stock has been tendered and
not withdrawn as of the Expiration Date, the Company may elect to accept for
exchange such shares of Preferred Stock in whole, or in the alternative, to
not accept any such shares for exchange.
If any of the conditions listed above is not satisfied, the Company may (i)
terminate the Exchange Offer, refuse to accept any shares of Preferred Stock or
Stock Proxies and return all tendered shares of Preferred Stock and Stock
Proxies to tendering Holders, or (ii) extend the Exchange Offer and retain all
shares of Preferred Stock tendered and Stock Proxies theretofore delivered,
subject to withdrawal rights and later consummation or termination of the
Exchange Offer. THE COMPANY ALSO MAY IN ITS SOLE DISCRETION WAIVE OR AMEND
CERTAIN OF THE TERMS AND CONDITIONS TO THE EXCHANGE OFFER PRIOR TO THE
CONSUMMATION OR TERMINATION OF THE EXCHANGE OFFER. If such waiver or amendment
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver or amendment in a manner reasonably calculated to inform
Holders of Preferred Stock and Common Stock of such waiver or amendment, and the
Company will extend the Exchange Offer for a period which the Company in its
discretion deems appropriate, subject to any applicable laws, including, to the
extent applicable, Rules 13e-4 and 14e-1 under the Exchange Act, depending on
the significance of the waiver or amendment and the manner of disclosure to the
Holders of Preferred Stock and Common Stock. IN THE EVENT THE COMPANY WAIVES OR
MODIFIES ANY OF SUCH TERMS OR CONDITIONS, THE COMPANY AND/OR HOLDERS OF
PREFERRED STOCK MAY BE EXPOSED TO ADDITIONAL RISKS WHICH CANNOT PRESENTLY BE
PREDICTED OR EVALUATED.
NOTWITHSTANDING THE APPROVAL AND ADOPTION OF THE PREFERRED STOCK AMENDMENT
AT THE ANNUAL MEETING, THE COMPANY RESERVES THE RIGHT TO ABANDON FILING THE
PREFERRED STOCK AMENDMENT AND THE CONSUMMATION OF THE PREFERRED STOCK
RECLASSIFICATION.
SOLICITATION AGENT
The Company has retained Shareholder Communications Corporation to assist in
the solicitation of exchanges and consents in the Stock Solicitation. In
addition to the delivery of this Proxy Statement/ Prospectus to security
holders, Shareholder Communications Corporation will orally solicit the
exchanges and votes of the Holders of Preferred Stock and Common Stock.
For the services of Shareholder Communications Corporation as Solicitation
Agent in connection with the Exchange Offer, the Company has agreed to pay a fee
equal to approximately $4,000, plus expenses. The Solicitation Agent will not
receive a fee for securities tendered on its own account. In addition, the
Company will reimburse Shareholder Communications Corporation for its expenses,
including fees and expenses of its counsel. The Company has also agreed to
indemnify Shareholder Communications Corporation against certain liabilities and
expenses, including liabilities under Federal securities laws. Shareholder
Communications Corporation will receive no additional compensation for its
services as Solicitation Agent for the Exchange Offer.
DEPOSITARY
Continental Stock Transfer and Trust Company has been appointed as
Depositary for the Exchange Offer. Questions and requests for assistance may be
directed to the Depositary at one of its addresses and telephone number set
forth on the back cover of this Proxy Statement/Prospectus.
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FEES AND EXPENSES
The Stock Proxies are being solicited on behalf of the Board of Directors.
The expenses of soliciting tenders of Preferred Stock and obtaining Stock
Proxies will be borne by the Company. The principal solicitation is being made
by mail; however, additional solicitation may be made by telephone or in person
by officers and regular employees of the Company and its affiliates, who will
not receive additional compensation. Arrangements may also be made with
brokerage houses and other custodians, nominees and fiduciaries to forward the
material regarding the Exchange Offer to the beneficial owners of Preferred
Stock. The Company will reimburse such forwarding agents for reasonable
out-of-pocket expenses incurred by them, but no compensation will be paid for
their services. In addition, the Solicitation Agent will assist the Company with
the solicitation of tenders of Preferred Stock and deliveries of Stock Proxies.
See "-- Solicitation Agent."
The total cash expenditures to be incurred by the Company in connection with
the Exchange Offer, other than payments to Patricof and Corporate Capital, but
including printing, accounting and legal fees and the fees and expenses of the
Depositary and the Solicitation Agent are estimated to be approximately
$400,000.
THE PREFERRED STOCK AMENDMENT
The Preferred Stock Reclassification cannot be consummated without the
receipt of the Requisite Votes in favor of the Preferred Stock Amendment.
Generally, the Preferred Stock Amendment would, upon the filing of the Preferred
Stock Amendment with the Secretary of State of the State of Delaware,
automatically reclassify and change each share of Preferred Stock (inclusive of
accrued and unpaid dividends) into 3.25 shares of Common Stock.
The Preferred Stock Amendment would provide that all outstanding shares of
Preferred Stock (inclusive of accrued but unpaid dividends), including shares of
Preferred Stock tendered in the Exchange Offer, shall be automatically
reclassified as and changed into shares of Common Stock immediately upon filing
of the Preferred Stock Amendment with the Secretary of State of the State of
Delaware. At such time, the person entitled to receive the Common Stock as a
result of the Preferred Stock Reclassification shall be treated for all purposes
as the registered holder of such Common Stock. Notice of the adoption of the
Preferred Stock Amendment and the exchange of certificates representing
Preferred Stock shall be mailed by the Company at least 20, but not more than
30, days subsequent to the filing of the Preferred Stock Amendment with the
Secretary of State of the State of the Delaware to each Holder of Preferred
Stock and to the Holders of Common Stock, and such notice shall set forth the
procedures for Holders of Preferred Stock to exchange such certificates of
Preferred Stock for certificates representing Common Stock.
Specifically, the Preferred Stock Amendment will amend the Charter as
follows:
"The Certification of Incorporation, as amended, of the Corporation is
hereby amended by adding the following new Subsection (D) to Article Four as
follows:
(D). Effective upon the filing of this Certificate of Amendment to the
Corporation's Certificate of Incorporation, each outstanding share of $1.00
Exchangeable Preferred Stock, $20 liquidation preference per share, of the
Corporation ("Preferred Stock") (inclusive of accrued and unpaid dividends),
shall be reclassified as and changed into 3.25 shares of Common Stock.
Notice of the filing of this Certificate of Amendment shall be mailed to
each holder of Preferred Stock, at the holder's address as it appears on the
books of the Corporation, as promptly as practicable following such filing.
Such notice shall set forth the procedures for exchanging certificates
formerly representing shares of Preferred Stock for the shares of Common
Stock. Upon surrender to the Corporation of the certificates (duly endorsed
in blank) representing shares of Preferred Stock, certificates representing
the appropriate number of shares of Common Stock shall be issued and
delivered to the surrendering holders."
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The Preferred Stock Amendment will eliminate all outstanding shares of
Preferred Stock, including accumulated dividends, future dividend payment
requirements, the liquidation preference and the right of Holders of Preferred
Stock to elect two directors to the Company's Board of Directors until all
accrued and unpaid dividends are no longer in arrears.
NOTWITHSTANDING THE APPROVAL AND ADOPTION OF THE PREFERRED STOCK AMENDMENT
AT THE ANNUAL MEETING, THE COMPANY RESERVES THE RIGHT TO ABANDON FILING THE
PREFERRED STOCK AMENDMENT AND THE CONSUMMATION OF THE PREFERRED STOCK
RECLASSIFICATION.
A VOTE "FOR" THE APPROVAL AND ADOPTION OF THE PREFERRED
STOCK AMENDMENT IS RECOMMENDED BY THE BOARD OF DIRECTORS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief discussion of certain federal income tax
considerations applicable to Holders whose Preferred Stock is exchanged in the
Exchange Offer and, if applicable, the reclassification of the Preferred Stock
pursuant to the Preferred Stock Reclassification. This discussion is provided
for information only and does not address all aspects of taxation that may be
relevant to a particular Holder in light of its particular tax circumstances or
to certain types of Holders such as banks, insurance companies, closely held
corporations, personal service corporations, foreign corporations and persons
who are not citizens or residents of the United States, all of which may be
subject to special federal tax laws. Accordingly, this discussion should not be
relied on for purposes of determining the specific tax consequences of the
Exchange Offer or Preferred Stock Reclassification to a particular Holder.
The following discussion is based upon existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed regulations
thereunder, and current administrative rulings and court decisions. No assurance
can be given that legislative or administrative changes or court decisions may
not be forthcoming which would require significant modification of the
statements expressed in this section. As indicated below, uncertainties
resulting from the lack of definitive judicial or administrative authority and
interpretation apply to various tax aspects of exchanges such as the Exchange
Offer and the Preferred Stock Reclassification as discussed herein. The tax
matters relating to the transactions described herein are complex and subject to
varying interpretations. The effect of existing income tax laws and of proposed
changes in income tax laws will vary with the particular circumstances of each
Holder.
THE PROPONENTS ARE NOT REQUESTING A RULING FROM THE INTERNAL REVENUE SERVICE
WITH RESPECT TO ANY OF THE TAX ASPECTS OF THE EXCHANGE OFFER OR PREFERRED STOCK
RECLASSIFICATION, AND NO OPINION OF COUNSEL HAS BEEN OBTAINED BY THE COMPANY
WITH RESPECT THERETO. NO REPRESENTATIONS OF ASSURANCES ARE BEING MADE WITH
RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES AS DESCRIBED HEREIN. ACCORDINGLY,
NO ASSURANCE CAN BE GIVEN THAT THE IRS WILL NOT CHALLENGE THE VIEWS EXPRESSED
HEREIN, NOR IS THERE ANY CERTAINTY THAT ANY SUCH CHALLENGE WILL NOT BE SUSTAINED
BY A COURT. THE TAX CONSIDERATIONS APPLICABLE TO CERTAIN HOLDERS (SUCH AS
PENSION OR PROFIT-SHARING TRUSTS OF FOREIGN INVESTORS) MAY BE DIFFERENT THAN THE
GENERAL DISCUSSION CONTAINED HEREIN. THERE MAY ALSO BE STATE, LOCAL OR FOREIGN
TAX CONSIDERATIONS APPLICABLE TO EACH HOLDER WHICH ARE NOT ADDRESSED HEREIN.
THEREFORE, EACH HOLDER IS URGED TO CONSULT WITH AND RELY ON HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES WITH RESPECT TO THAT HOLDER'S
INTEREST.
EXCHANGE OF PREFERRED STOCK FOR COMMON STOCK
The exchange of Preferred Stock for Common Stock should be a
recapitalization within the meaning of Section 368(a)(1)(E) of the Code and,
accordingly, an exchanging Holder of Preferred Stock should not recognize gain
or loss on the exchange. However, if, as described in the next paragraph,
Section 305 of the Code applies to the exchange, an exchanging Holder of
Preferred Stock may recognize income on the exchange.
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Pursuant to Section 305 of the Code and the regulations promulgated
thereunder, if the fair market value of the Common Stock received exceeds the
"issue price" of the Preferred Stock surrendered, the receipt of such Common
Stock would be treated as a taxable distribution attributable to the dividend
arrearage on the Preferred Stock. The amount so treated as a taxable
distribution equals the lesser of the excess of the fair market value of the
Common Stock received over the issue price of the Preferred Stock surrendered or
the amount of the dividends in arrears. Based upon the average closing trading
price for the Company's Old Preferred Stock on or about the date that shares of
such stock were tendered to the Company in the 1992 Exchange Offer in exchange
for the Common and the Preferred Stock, the Company believes that the issue
price of the Preferred Stock is approximately $5.00. Accordingly, if the fair
market value of the Common Stock received for one share of Preferred Stock
exceeds the issue price of the Preferred Stock, the lesser of such excess or the
amount of dividend arrearage on the Preferred Stock will be taxable as a
dividend to the recipient to the extent of the Company's current and accumulated
earnings and profits.
The rules pertaining to "Section 306 stock" should be inapplicable to the
Preferred Stock unless the Preferred Stock surrendered therefor constitutes
"Section 306 stock," although no assurance can be given in this regard. Because
of the absence of authority and guidance on this issue, it is unclear whether
the Preferred Stock received in the 1992 Exchange Offer would constitute
"Section 306 stock." Preferred Stock which was acquired by a Holder from another
stockholder in a taxable transaction would not constitute "Section 306 stock."
If any of the Preferred Stock is treated as "Section 306 stock," because the
Exchange Offer should constitute a tax-free transaction, only that portion
treated as a taxable distribution, as described above, would be taxable as
ordinary income. However, if after the disposition the Holder retains no equity
interest in the Company either actually or constructively, no portion of the
distributions would be taxable pursuant to Section 306.
The aggregate tax basis of the Common Stock received in the exchange will
equal (i) the adjusted basis of the Preferred Stock exchanged therefor plus (ii)
the amount of income, if any, taxed as a dividend pursuant to Section 305 of the
Code. The holding period for the portion of any Common Stock treated as a
dividend distribution under Section 305 of the Code will begin the day after
receipt. The holding period for the balance of the Common Stock will include the
holding period for the Preferred Stock exchanged therefor. The subsequent sale
or exchange of the Common Stock will, if the Common Stock is held as a capital
asset, result in capital gain or loss equal to the difference between the amount
realized and the Holder's adjusted tax basis in the Common Stock immediately
before such sale or exchange.
If any Holder receives cash in the Exchange in lieu of a fractional share,
such Holder would recognize capital gain or loss, provided that the shares of
stock surrendered for such cash were held as a capital asset. The amount of
capital gain or loss will generally be equal to the difference between the
amount of cash received and such Holder's adjusted tax basis in the shares of
stock surrendered.
NET OPERATING LOSS (NOL) CARRYOVERS
As of July 29, 1995, the Company had available federal tax net operating
losses of approximately $157 million. However, the Exchange Offer or the
Preferred Stock Reclassification may result in a change in ownership (defined
below), whereby the Company would be limited as to its utilization of the NOL's.
Section 382 of the Code provides that if persons who own 5% or more of the
stock (measured by value) of a loss corporation ("5% Shareholders") increase
their percentage ownership in a loss corporation by more than 50 percentage
points within a 3 year period, the loss corporation will be deemed to have
incurred an ownership change (such change hereinafter referred to as a "change
in ownership"). A loss corporation includes a corporation which has an NOL or
built-in-loss for the taxable year in which the ownership changes occurs. Those
transactions that may cause a change in ownership include tax-free
recapitalizations pursuant to Section 368(a)(1)(E) of the Code. For these
purposes, all holders of less than 5% of the stock of the loss corporation are
treated as a single 5% shareholder ("public group 5% shareholders"). However,
for purposes of determining whether a tax-free recapitalization results in a
change in ownership, the public group 5% shareholders are segregated into, and
treated as, two public group 5% shareholders; the public group 5% percent
shareholders who owned the stock of the loss corporation before the transaction
and those who owned the stock of the loss corporation as a result of the
transaction. Because the Preferred Stock
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is not stock for purposes of determining whether the Company has experienced a
change in ownership, the Holders of the Preferred Stock who receive less than 5%
of the Common Stock of the Company will be treated as a new public group 5%
shareholder.
If the Exchange Offer or Preferred Stock Reclassification results in a
change in ownership either because the Holders will increase their ownership in
the Company by more than 50 percentage points or when aggregated with any 5%
shareholder, or equity structure shifts, including the exercise of options, that
may have occurred or will occur within the 3 year period of the Exchange Offer,
the Company's ability to utilize its NOL carryovers will be limited. The amount
of NOL's the Company may then use to offset taxable income would be equal to the
product of (i) the equity value of the Company as of the date of the ownership
change multiplied by (ii) the long term tax exempt rate in effect. The value of
the Company is the fair market value of the stock determined immediately prior
to the change in ownership. For this purpose, stock includes the Preferred
Stock.
RECLASSIFICATION OF PREFERRED STOCK IN PREFERRED STOCK RECLASSIFICATION
The consequences to a Holder of a reclassification of Preferred Stock into
Common Stock in the Preferred Stock Reclassification are identical to those
described above under "-- Exchange of Preferred Stock for Common Stock."
THE FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED EXCHANGE OFFER AND THE
PREFERRED STOCK RECLASSIFICATION ARE COMPLEX. THE FOREGOING SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A
PARTICULAR HOLDER OF PREFERRED STOCK IN LIGHT OF HIS PARTICULAR CIRCUMSTANCES
AND INCOME TAX SITUATION. EACH HOLDER OF PREFERRED STOCK SHOULD CONSULT SUCH
HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE
EXCHANGE OFFER AND THE PREFERRED STOCK RECLASSIFICATION INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
RATIFICATION OF APPOINTMENT OF AUDITORS
Subject to stockholder ratification, the Board of Directors has appointed
the firm Ernst & Young LLP as independent auditors for the fiscal year ending
July 27, 1996, and until their successors are selected. The appointment was made
upon recommendation of the Audit Committee. A representative of Ernst & Young
LLP will be present at the Annual Meeting with the opportunity to make a
statement if he desires to do so and it is expected that such representative
will be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock present in person or represented by proxy at the Annual Meeting
of Stockholders and entitled to vote upon such ratification is required for
ratification of the appointment of Ernst & Young LLP as auditors.
A VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
AUDITOR IS RECOMMENDED BY THE BOARD OF DIRECTORS.
1996 DIRECTOR STOCK OPTION PLAN
In the past, the Company has established, with the approval of its
stockholders, stock option plans for its directors and key executives. Certain
options granted under the prior plans were granted at a high exercise price
and/or will expire in the near future. The Company believes it is in the best
interest of its stockholders and the Company to adopt new stock option plans in
order to continue to make options grants to eligible employees and directors and
thereby link director and executive compensation with stockholder value.
Accordingly, Datapoint intends to adopt, effective as of November 1, 1996
and contingent upon stockholder approval, a 1996 Director Stock Option Plan
("1996 Director Plan") which is substantially similar to Datapoint's previous
director stock option plans. See "Compensation of Directors" and "Compensation
of Executive Officers." The 1996 Director Plan provides for a one-time grant to
each director of an option to purchase, at fair market value on the date of
grant, 25,000 shares of Common Stock, and an
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additional grant to each newly elected Chairman of the Board of an option to
purchase, at fair market value on the date of grant, 50,000 shares of Common
Stock. A maximum of 500,000 shares of Common Stock will be reserved for the
issuance of option grants under the 1996 Director Plan. Datapoint intends to
register these shares on Form S-8 under the Securities Act of 1993, as amended,
as soon as practicable after receiving stockholder approval of the 1996 Director
Plan.
The Board of Directors believes that the adoption of the 1996 Director Plan
is in the best interests of stockholders and Datapoint because the ability to
grant options to directors under this Plan is an important factor in attracting,
motivating and retaining distinguished personnel with proven ability and vision
to serve on the Board of Directors and guide the Company towards future growth
and financial success.
DESCRIPTION OF THE 1996 DIRECTOR STOCK OPTION PLAN
The following summary of the 1996 Director Stock Option Plan is qualified in
its entirety by the specific language of the Plan, a copy of which appears in
Annex D, attached hereto.
GENERAL. The 1996 Director Plan is designed to enable Datapoint to attract
and retain persons of outstanding competence to serve as members of its Board of
Directors and to provide a direct link between directors' compensation and
shareholder value. Participation in this Plan is restricted to directors and
only non-incentive options ("Non-Incentive Stock Options") to purchase shares of
the Common Stock of Datapoint may be granted. This Plan also provides that in
the event of any stock dividend, recapitalization, reorganization, merger,
consolidation, split-up, exchange of shares, combination, or like change in the
capital structure of Datapoint, appropriate adjustments will be made to the
shares of Common Stock subject to the 1996 Director Plan and to any outstanding
awards. To the extent any outstanding option expires or terminates prior to its
exercise in full, the shares of Common Stock no longer subject to the option
will be returned to the 1996 Director Plan and made available for future grants.
A stock option may not be granted under this Plan which expires more than ten
years from the date of grant (the "Termination Date").
ELIGIBILITY. All directors of Datapoint are eligible to receive options
under the 1996 Director Plan.
SHARES SUBJECT TO THE PLAN. A maximum of 500,000 shares of Common Stock
shall be authorized for exercise of the stock options granted under the 1996
Director Plan. The shares to be used may be either treasury shares or newly
issued shares.
OPTION FEATURES. The only type of stock options that may be granted under
the 1996 Director Plan are Non-Incentive Stock Options. The option price per
share shall not be less than the fair market value of a share of Common Stock on
the date of grant.
Under the 1996 Plan, each current director and, thereafter, each newly
elected director, is entitled to be granted an option to purchase 25,000 shares
of Common Stock. The 1996 Plan also provides for an additional option to be
granted to the current Chairman of the Board and, thereafter, to each newly
elected Chairman of the Board, to purchase 50,000 shares of Common Stock. The
terms and conditions applicable to all option grants are specified in the 1996
Director Plan document.
A participant may exercise an option by delivering a written notice of
exercise to Datapoint and tendering payment of the full price of the shares
being exercised. The exercise price of a stock option may be paid in cash,
shares of Common Stock (subject to such conditions as may be set by the
Committee) or a combination of cash and stock. In general, all options granted
under the 1996 Director Plan are immediately exercisable.
In the event of a participant's retirement or termination from service on
the Board due to disability, any outstanding option shall, in general, only be
exercisable within one year after such event (but not subsequent to the
expiration of the option), by the participant. Similarly, in the event of a
participant's death, any outstanding option shall only be exercisable within one
year after the participant's death (but not subsequent to the expiration of the
option), by the participant's estate or beneficiary. In the event of a
participant's voluntary or involuntary termination of Board service for any
reason other than retirement, disability or
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death, any outstanding option shall expire on the earlier of the Termination
Date or the one hundred and eightieth day following the date of the
participant's termination from the Board of Directors of Datapoint. Options held
by a participant terminated for gross misconduct are subject to forfeiture.
No stock option granted under the 1996 Director Plan shall be assignable or
transferable except by will or the laws of descent and distribution and is
exercisable during the participant's lifetime only by the participant.
PLAN ADMINISTRATION. The 1996 Director Plan shall be administered by the
Compensation Committee of the Board of Directors. The Compensation Committee
shall be composed of at least three "Non-Employee Directors" within the meaning
of the recent amendments to Rule 16b-3, promulgated under Section 16 of the
Securities Exchange Act of 1934, as amended, that generally become effective
August 15, 1996. This Committee will have the authority to make the option
grants specified in the 1996 Director Plan all of which will be evidenced by
written grant agreements containing terms and conditions also specified in the
1996 Director Plan. In accordance with the recent amendments to Rule 16b-3, the
1996 Director Plan provides for options granted under this Plan to be approved,
in advance of such grant, by the Compensation Committee or, if the Committee is
not then composed solely of "Non-Employee Directors," by the Board of Directors
of Datapoint. As a result, option grants must be approved by either the
Committee or the Board and thus will no longer be automatic.
AMENDMENT AND TERMINATION. Unless sooner terminated, no options may be
granted under the 1996 Director Plan after November 1, 2006. The Board of
Directors may terminate, amend or suspend the 1996 Director Plan without
stockholder approval, except that no modification may, without the participant's
consent, alter or impair any of the rights or obligations under any stock option
theretofore granted. The 1996 Director Plan is intended to comply in all
respects with the new Rule 16b-3 requirements and the Board of Directors is
authorized to make all necessary technical amendments to the Plan to comply with
the requirements of this Rule.
FEDERAL TAX CONSEQUENCES. In general, no gain or loss is recognized by the
option holder at the time a Non-Incentive Stock Option is granted under the 1996
Director Plan. Upon the exercise of a Non-Incentive Stock Option, the difference
between the fair market value of the Common Stock on the date of exercise and
the option price will be taxable as compensation income to the option holder and
Datapoint would be entitled to a deduction for federal income tax purposes for
the same amount. Upon a subsequent sale or exchange of stock acquired pursuant
to the exercise of a Non-Incentive Stock Option, the option holder would have
taxable gain or loss, measured by the difference between the amount realized on
the disposition and the tax basis of such shares.
The foregoing statements are intended to summarize the general principles of
current federal income tax law applicable to options that may be granted under
the 1996 Director Plan. The tax consequences of awards made under this Plan are
complex, subject to change, and may vary depending on the taxpayer's particular
circumstances.
A VOTE "FOR" APPROVAL OF THE 1996 DIRECTOR STOCK OPTION PLAN IS RECOMMENDED
BY THE BOARD OF DIRECTORS.
1996 EMPLOYEE STOCK OPTION PLAN
Datapoint intends to adopt, effective as of November 1, 1996 and contingent
upon stockholder approval, a 1996 Employee Stock Option Plan ("1996 Employee
Plan"), which is substantially similar to Datapoint's previous employee stock
option plans ("Employee Plans"). See "Compensation of Directors" and
"Compensation of Executive Officers." A maximum of 2,000,000 shares of Common
Stock will be reserved for the issuance of awards under the 1996 Employee Plan.
Datapoint intends to register these shares on Form S-8 under the Securities Act
of 1933, as amended, as soon as practicable after receiving stockholder approval
of the 1996 Employee Plan. Management believes that the prior Employee Plans
have enhanced Datapoint's position in the highly competitive market for
executive talent, but to remain competitive it is important that a plan
permitting the grant of additional options be adopted.
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<PAGE>
The Board of Directors believes approval of the 1996 Employee Plan is in the
best interests of stockholders and Datapoint because the availability of an
adequate number of shares reserved for the issuance of awards and the ability to
grant stock options and make other stock-based awards to key employees are
important factors in attracting, motivating, and retaining qualified personnel
essential to the success of Datapoint.
DESCRIPTION OF THE 1996 EMPLOYEE STOCK OPTION PLAN
The following summary of the 1996 Employee Plan is qualified in its entirety
by the specific language of the Plan, a copy of which appears in Annex E,
attached hereto.
GENERAL. The purposes of the 1996 Employee Plan are to attract and retain
the best available personnel for positions of substantial responsibility and to
provide additional incentives to key employees and officers to promote the
growth and success of Datapoint. This Plan provides for the grant of incentive
stock options, within the meaning of Section 422 of the Code ("Incentive Stock
Options") to employees of Datapoint and for the grant of non-incentive stock
options ("Non-Incentive Stock Options"), stock appreciation rights ("SARs") and
options to purchase shares of restricted stock ("Restricted Stock") to eligible
key employees of Datapoint and its subsidiaries. In the event of any stock
dividend, recapitalization, reorganization, merger, consolidation, split-up,
exchange of shares, combination, or like change in the capital structure of
Datapoint, appropriate adjustments will be made to the shares subject to the
Plan and to any outstanding awards. To the extent any outstanding option under
the 1996 Employee Plan expires or terminates prior to its exercise in full the
shares of Common Stock no longer subject to the option will be returned to the
1996 Employee Plan and made available for future grants.
ELIGIBILITY. In general, all employees of Datapoint and its subsidiaries
who contribute to the management, direction and overall success of Datapoint are
eligible to receive options under the 1996 Employee Plan. Members of the Board
of Directors who are not employees of Datapoint shall not be eligible for option
grants under the 1996 Employee Plan. It is anticipated that a total of
approximately 700 employees are potentially eligible to be granted options under
the 1996 Plan.
SHARES SUBJECT TO THE PLAN. A maximum of 2,000,000 shares of Datapoint's
Common Stock shall be authorized for exercise of the stock options granted under
the 1996 Employee Plan. The shares to be used may be either treasury shares or
newly issued shares.
OPTION FEATURES. Both Incentive Stock Options and Non-Incentive Stock
Options may be granted under the 1996 Employee Plan. Incentive Stock Options
must be granted at an option price per share equal to the fair market value of a
share of Common Stock on the date of grant. While the option price per share for
Non-Incentive Options may be less than fair market value, the option price per
share may not be less than 75 percent of the fair market value of a share of
Common Stock on the date of grant.
A participant may exercise an option by delivering a written notice of
exercise to Datapoint and tendering payment of the full price of the shares
being exercised. The exercise price of a stock option may be paid in cash,
shares of Datapoint's Common Stock (if authorized by and subject to such
conditions as may be set by the Committee) or a combination of cash and stock.
A stock option may not be granted under the 1996 Employee Plan that expires
more than ten years after the date of grant (the "Termination Date"). The
Committee will determine the dates after which options may be exercised in whole
or in part, and may establish installment exercise terms so that an option
becomes fully exercisable in a series of cumulative portions. The Committee may
also accelerate the period of the exercise of any stock option or portion
thereof.
In the event of a participant's retirement or termination of employment due
to disability, any outstanding option shall, in general, be exercisable within
one year after such event (but not subsequent to the expiration of the option),
by the participant. In the event of a participant's death, any outstanding
option shall be exercisable within one year after such event (but not subsequent
to the expiration of the option), by the participant's estate or beneficiary. In
the event of a participant's voluntary or involuntary termination of employment
with Datapoint or its subsidiaries for any reason other than retirement, death
or disability, any
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<PAGE>
outstanding options shall expire on the earlier of the Termination Date or the
one hundred and eightieth day following the date of cessation of employment.
Options held by a participant terminated for gross misconduct are subject to
forfeiture.
No stock option granted under the 1996 Employee Plan shall be assignable or
transferable except by will or the laws of descent and distribution and is
exercisable during the participant's lifetime only by the participant.
STOCK APPRECIATION RIGHTS. At or after the grant of a stock option, the
Committee may, in its discretion, grant a participant a SAR. A SAR represents
the right to exercise an option, or portion thereof, and receive in exchange the
excess, if any, as of the date such right is exercised of (a) the fair market
value of the shares of Datapoint Common Stock associated with the option, or
portion thereof, which is exercised over (b) the aggregate option price of such
shares payable by the participant if he exercised such option, or portion
thereof, through the purchase of shares. A SAR is only exercisable during the
term of the associated option.
Upon a participant's exercise of a SAR, Datapoint's payment to the
participant may be made (at the election of the Committee) in cash, or in shares
of Datapoint Common Stock valued at their fair market value on the date of the
exercise, or partly in cash and partly in shares of Datapoint Common Stock.
RESTRICTED STOCK. A stock option may provide, in the discretion of the
Committee, that the shares of Datapoint Common Stock received upon the exercise
of a stock option shall be subject, for a specified period, to certain sale and
transfer restrictions. Such restricted period may be accelerated or waived by
the Committee in its discretion. Except for sale and transfer restrictions, the
participant, as owner of shares of Datapoint Common Stock, shall have all the
rights of a stockholder, including (but not limited to) the right to receive all
dividends paid on such shares and the right to vote such shares. In the event
that a participant ceases to be an employee of Datapoint for any reason during a
restricted period, Datapoint may, at its discretion, purchase from the
participant any shares subject to restrictions at the price originally paid for
the stock by the participant. With respect to restricted stock that was acquired
by a participant pursuant to the exercise of a SAR, Datapoint shall have the
option to reacquire such shares without the payment of any consideration.
PLAN ADMINISTRATION. The 1996 Employee Plan shall be administered by the
Compensation Committee (the "Committee") which shall be composed of
"Non-Employee Directors" within the meaning of the recent amendments to Rule
16b-3, as promulgated under Section 16 of the Securities Act of 1934, as
amended, that generally became effective August 15, 1996. The Committee has the
full and complete authority to make all option grants and to establish the
conditions of the written agreements evidencing all such grants, subject to the
terms of the 1996 Employee Plan. In accordance with the recent amendments to
Rule 16b-3, the 1996 Employee Plan provides for all option grants to be approved
in advance by the Committee or, if the Committee is not then composed solely of
"Non-Employee Directors," by the Board of Directors, in order to assure that all
options granted under the Plan comply in all respects with the requirements of
Rule 16b-3. No determination has been made as to the amount or type of options
to be granted during any year of the 1996 Employee Plan and no participants have
been selected for option grants.
AMENDMENT AND TERMINATION. Unless sooner terminated, no stock option may be
granted under the 1996 Employee Plan after November 1, 2006. The Board of
Directors may terminate, suspend or amend the 1996 Employee Plan without
stockholder approval, except that no modification may, without the participant's
consent, alter or impair any of the rights or obligations under any stock option
theretofore granted. The Board of Directors is authorized to make all technical
amendments to the 1996 Employee Plan necessary to comply with Rule 16b-3.
FEDERAL TAX CONSEQUENCES. The Federal income tax consequences applicable to
Datapoint and a participant in connection with stock options granted under the
1996 Employee Plan, whether Incentive Stock Options within the meaning of
Section 422 of the Code or Non-Incentive Stock Options, are complex, and depend,
in part, on the surrounding facts and circumstances.
In general, a participant will not recognize any income upon the grant or
exercise of an Incentive Stock Option. Although no income is recognized upon the
exercise of an incentive stock option, the exercise does
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generate an item of tax preference equal to the difference between the exercise
price of the option and the fair market value of the underlying shares on the
date of exercise. This tax preference item may subject the participant to
payment of alternative minimum tax. If the participant holds the stock acquired
through the exercise of an Incentive Stock Option for more than two years from
the grant of the option and more than one year from the exercise of the option,
the difference between the option price and the price at which the stock so
acquired is sold will be treated as long-term capital gain. A failure to satisfy
either holding periods will result in ordinary income being recognized by the
participant upon the disposition of the stock in an amount equal to the
difference, with certain adjustments, between the option price and the fair
market value of the stock on the date of exercise, and in capital gain being
recognized in an amount equal to the excess, if any, of the price at which the
stock is sold over the fair market value of the stock on the date of exercise.
In order to be eligible for this tax treatment, as a general rule, a participant
must exercise his Incentive Stock Option within three months after his
termination of employment with Datapoint.
Although, as a general rule, a participant will not recognize any income
upon the grant of a Non-Incentive Stock Option, he will recognize ordinary
income upon the exercise of such option in an amount equal to the difference
between the option price and the fair market value of the underlying stock on
the date of exercise. The granting of SARs does not produce taxable income to
the participant or a tax deduction for Datapoint. Upon exercise of such rights,
any cash and the fair market value on the exercise date of any stock received is
taxable to the participant as ordinary income.
Based on the tax rules described above, Datapoint would be entitled to a
deduction equal to the amount of ordinary income recognized by a participant in
connection with either (a) the disqualifying disposition of an Incentive Stock
Option or (b) upon the exercise of a Non-Incentive Stock Option or a SAR.
Datapoint would generally be entitled to the deduction in same tax year the
participant would be required to recognize ordinary income with respect to the
transaction.
A VOTE "FOR" APPROVAL OF THE 1996 EMPLOYEE STOCK OPTION PLAN IS RECOMMENDED
BY THE BOARD OF DIRECTORS.
STOCKHOLDER PROPOSALS
Pursuant to the Bylaws of the Company, proposals by stockholders intended to
be presented at the next annual meeting of stockholders and included in the
proxy solicitation material for the next annual meeting of stockholders must be
received by Datapoint at its principal executive office for inclusion in
Datapoint's proxy statement and form of proxy relating to that meeting no later
than sixty days before the date of the meeting or, in certain cases, ten days
following public announcement thereof. Stockholders submitting such proposals
are requested to address them to the Corporate Secretary of Datapoint at the
address set forth on the first page hereof. It is suggested that such proposals
be sent by Certified Mail, Return Receipt Requested.
LIST OF STOCKHOLDERS
Between , 1996, and the Annual Meeting of Stockholders, a
complete list of stockholders entitled to vote at such meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder, shall be open for
examination during ordinary business hours by any stockholder, for any purpose
germane to the meeting, at Datapoint's offices at 8410 Datapoint Drive, San
Antonio, Texas 78229-8539, and at Datapoint's offices at 717 Fifth Avenue, New
York, New York 10022.
Proxies are being solicited by and on behalf of the Board of Directors. All
expenses of this solicitation, including the cost of preparing and mailing this
Proxy Statement/Prospectus, will be borne by Datapoint. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of Datapoint in person or by telephone, telegram or other
means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for out-of-pocket expenses in
connection with such solicitation. Arrangements will also be made with
custodians, nominees and fiduciaries for forwarding the proxy solicitation
material to beneficial owners of Datapoint Stock held of record by such
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<PAGE>
persons, and Datapoint may reimburse such custodians, nominees and fiduciaries
for reasonable expenses incurred in connection therewith. In addition,
Shareholder Communications Corporation, 17 State Street, New York, New York,
10004 has been engaged to solicit proxies on behalf of Datapoint for a fee of
approximately $4,000, excluding any additional expenses which might be incurred.
OTHER BUSINESS
The Board of Directors does not intend to bring any other matters before the
Annual Meeting and does not know of any matters to be brought before the Annual
Meeting by others. If any other matter should come before the Annual Meeting, it
is the intention of the persons named in the accompanying proxy to vote the
proxy on behalf of the stockholders they represent in accordance with their best
judgment.
EXPERTS
The consolidated financial statements (including schedule) of the Company
and its subsidiaries at July 29, 1995 and July 30, 1994, and for each of the
three fiscal years in the period ended July 29, 1995, included in this Proxy
Statement/Prospectus and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon (which
contain an explanatory paragraph with respect to the Company's ability to
continue as a going concern) appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY.
NO POSTAGE STAMP IS NECESSARY IF MAILED IN THE UNITED STATES.
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<PAGE>
DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Auditors...................................... F-1
Consolidated Balance Sheets at July 29, 1995 and July 30, 1994...... F-2
For the Three Fiscal Years Ended July 29, 1995:
Consolidated Statements of Operations............................. F-3
Consolidated Statements of Cash Flow.............................. F-4
Consolidated Statements of Stockholders' Deficit.................. F-5
Notes to Consolidated Financial Statements........................ F-6
Schedule II -- Valuation and Qualifying Accounts and Reserves....... F-22
Consolidated Balance Sheets (unaudited) at April 27, 1996 and July
29, 1995........................................................... F-23
For the Nine Months Ended April 27, 1996 and April 29, 1995
(unaudited):
Consolidated Statements of Operations............................. F-24
Consolidated Statements of Cash Flow.............................. F-25
Notes to Consolidated Financial Statements........................ F-26
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
96
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors
Datapoint Corporation
We have audited the accompanying consolidated balance sheets of Datapoint
Corporation and subsidiaries (the Company) as of July 29, 1995, and July 30,
1994 and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three fiscal years in the period ended
July 29, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
July 29, 1995 and July 30, 1994 and the consolidated results of its operations
and its cash flows for each of the three fiscal years in the period ended July
29, 1995 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
described in Note 1 to the consolidated financial statements, the Company has
incurred recurring operating losses, and has a working capital deficiency and a
net capital deficiency at July 29, 1995. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994.
/s/ ERNST & YOUNG LLP
Dallas, Texas
November 2, 1995
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995 AND JULY 30, 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 8,493 $ 6,241
Restricted cash and cash equivalents.................................................... 2,549 4,312
Accounts receivable, net of allowance for doubtful accounts of $3,012 and $2,568,
respectively........................................................................... 43,072 44,379
Inventories............................................................................. 9,754 17,674
Prepaid expenses and other current assets............................................... 3,638 7,309
---------- ----------
Total current assets................................................................ 67,506 79,915
Fixed assets, net......................................................................... 18,877 29,088
Other assets, net......................................................................... 15,368 18,431
---------- ----------
$ 101,751 $ 127,434
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Payables to banks....................................................................... $ 16,757 $ 17,963
Current maturities of long-term debt and long-term debt subject to accelerated
maturity............................................................................... 9,217 2,370
Accounts payable........................................................................ 23,286 25,649
Accrued expenses........................................................................ 34,857 37,732
Deferred revenue........................................................................ 15,291 13,728
Income taxes payable.................................................................... 848 760
---------- ----------
Total current liabilities........................................................... 100,256 98,202
Long-term debt, exclusive of current maturities........................................... 64,923 70,561
Other liabilities......................................................................... 10,688 9,432
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $1.00 par value. Shares authorized 10,000,000; shares issued and
outstanding 1,846,456 in 1995 and 1,784,456 in 1994 (aggregate liquidation preference
$36,929 in 1995 and $35,689 in 1994)................................................... 1,846 1,784
Common stock of $0.25 par value. Shares authorized 40,000,000; shares issued 20,991,217,
including treasury shares of 7,866,832 in 1995 and 6,546,825 in 1994................... 5,248 5,248
Other capital........................................................................... 212,630 212,599
Foreign currency translation adjustment................................................. 13,004 10,552
Retained deficit........................................................................ (261,742) (226,977)
Treasury stock, at cost................................................................. (45,102) (53,967)
---------- ----------
Total stockholders' deficit......................................................... (74,116) (50,761)
---------- ----------
$ 101,751 $ 127,434
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATAPOINT CORPORATION AND SUBSIDIARIES FISCAL YEARS 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Sales................................................................. $ 84,187 $ 84,753 $ 100,220
Service and other..................................................... 90,714 88,183 108,124
------------ ------------ ------------
Total revenue..................................................... 174,901 172,936 208,344
Operating costs and expenses:
Cost of sales......................................................... 65,234 49,912 48,359
Cost of service and other............................................. 52,163 57,459 73,387
Research and development.............................................. 4,303 5,268 7,754
Selling, general and administrative................................... 62,220 68,808 73,859
Write-off of investment in foreign operations......................... -- 57,657 --
Reorganization/restructuring costs.................................... 9,213 14,853 6,243
------------ ------------ ------------
Total operating costs and expenses................................ 193,133 253,957 209,602
------------ ------------ ------------
Operating loss.......................................................... (18,232) (81,021) (1,258)
Non-operating expense:
Interest expense...................................................... (9,332) (9,097) (9,349)
Other, net............................................................ (580) (4,293) (291)
------------ ------------ ------------
Loss before income taxes, extraordinary credit and effect of
change in accounting principle................................... (28,144) (94,411) (10,898)
Income taxes............................................................ 199 354 961
------------ ------------ ------------
Loss before extraordinary credit and effect of change in
accounting principle............................................. (28,343) (94,765) (11,859)
Extraordinary credit:
Utilization of tax loss carryforward.................................. -- -- 599
------------ ------------ ------------
Loss before effect of change in accounting principle.............. (28,343) (94,765) (11,260)
Effect of change in accounting principle................................ -- 1,340 --
------------ ------------ ------------
Net loss................................................................ $ (28,343) $ (93,425) $ (11,260)
------------ ------------ ------------
------------ ------------ ------------
Net loss, less preferred stock dividends paid or accumulated............ $ (30,158) $ (95,209) $ (13,044)
------------ ------------ ------------
------------ ------------ ------------
Net loss per common share:
Before extraordinary credit and effect of change in accounting
principle............................................................ $ (2.29) $ (6.69) $ (.97)
Utilization of tax loss carryforward.................................. -- -- .04
Effect of change in accounting principle.............................. -- .09 --
------------ ------------ ------------
Net loss.......................................................... $ (2.29) $ (6.60) $ (.93)
------------ ------------ ------------
------------ ------------ ------------
Average common shares................................................... 13,194,667 14,430,574 14,081,964
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DATAPOINT CORPORATION AND SUBSIDIARIES FISCAL YEARS 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................................... $ (28,343) $ (93,425) $ (11,260)
Adjustments to reconcile net loss to net cash used in operating activities:
Losses incurred in lag month eliminated................................... -- (5,470) --
Effect of change in accounting principle.................................. -- (1,340) --
Depreciation and amortization............................................. 9,830 10,729 11,083
Write-off of investment in foreign operations............................. -- 57,657 --
Write-off of investment in partially-owned company........................ -- 3,210 --
Proceeds from settlement of litigation.................................... 5,540 -- --
Realized gain on fixed assets fire settlement............................. -- (534) (1,165)
Provision for losses (recoveries) on accounts receivable.................. 2,147 803 (405)
Provision for fixed asset write-off....................................... 1,895 -- --
Realized gain on sale of property......................................... (1,709) -- --
Changes in assets and liabilities:
Decrease in receivables................................................. 4,111 801 17,643
Decrease in inventory................................................... 8,885 1,007 2,124
Increase (decrease) in accounts payable and accrued expenses............ (9,700) 19,747 (19,871)
Increase in other liabilities and deferred credits...................... 614 388 1,678
Other, net................................................................ 1,138 139 (26)
---------- ---------- ----------
Net cash used in operating activities................................. (5,592) (6,288) (199)
Cash flows from investing activities:
Payments for fixed assets................................................... (4,660) (10,828) (10,874)
Proceeds from disposition of fixed assets................................... 7,948 2,426 7,739
Other, net.................................................................. 699 (648) 598
---------- ---------- ----------
Net cash from (used in) investing activities.......................... 3,987 (9,050) (2,537)
Cash flows from financing activities:
Payments on borrowings...................................................... (33,149) (32,606) (51,746)
Proceeds from borrowings.................................................... 31,840 33,126 59,235
Payments of dividends on preferred stock.................................... -- (1,784) (1,784)
Disbursements related to Preferred Stock Exchange........................... -- -- (116)
Restricted cash for letters of credit....................................... 1,763 147 (240)
Proceeds on sale of common stock............................................ 2,536 52 763
---------- ---------- ----------
Net cash provided from (used in) financing activities................. 2,990 (1,065) 6,112
Effect of foreign currency translation on cash................................ 867 192 (945)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.......................... 2,252 (16,211) 2,431
Cash and cash equivalents at beginning of year................................ 6,241 22,452 20,021
---------- ---------- ----------
Cash and cash equivalents at end of year...................................... $ 8,493 $ 6,241 $ 22,452
---------- ---------- ----------
---------- ---------- ----------
Cash payments for:
Interest...................................................................... $ 8,112 $ 8,781 $ 8,938
Income taxes (refunds), net................................................... (152) 362 1,156
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
DATAPOINT CORPORATION AND SUBSIDIARIES FISCAL YEARS 1995, 1994, AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
$1.00 CURRENCY
COMMON PREFERRED OTHER TRANSLATION RETAINED TREASURY
STOCK STOCK CAPITAL ADJUSTMENT DEFICIT STOCK
----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 1, 1992.......................... $ 5,246 $ 1,784 $ 212,589 $ 23,240 $ (109,514) $ (58,510)
Net loss........................................... -- -- -- -- (11,260) --
Common stock options exercised..................... 2 -- 10 -- -- --
Dividends paid on preferred stock.................. -- -- -- -- (1,784) --
Foreign currency translation adjustment............ -- -- -- (15,533) -- --
Common issued to 401(k) Plan....................... -- -- -- -- (6) 13
Common stock options exercised..................... -- -- -- -- (3,017) 3,761
----------- ----------- ---------- ----------- ----------- ----------
BALANCE AT JULY 31, 1993........................... $ 5,248 $ 1,784 $ 212,599 $ 7,707 $ (125,581) $ (54,736)
----------- ----------- ---------- ----------- ----------- ----------
Losses incurred in lag month eliminated............ -- -- -- -- (5,470) --
Net loss........................................... -- -- -- -- (93,425) --
Common stock options exercised..................... -- -- -- -- (717) 935
Dividends paid on preferred stock.................. -- -- -- -- (1,784) --
Foreign currency translation adjustment............ -- -- -- 2,845 -- --
Common stock issued to 401(k) Plan................. -- -- -- -- -- 6
Common stock purchased from 401(k) Plan............ -- -- -- -- -- (172)
----------- ----------- ---------- ----------- ----------- ----------
BALANCE AT JULY 30, 1994........................... $ 5,248 $ 1,784 $ 212,599 $ 10,552 $ (226,977) $ (53,967)
----------- ----------- ---------- ----------- ----------- ----------
Net loss........................................... -- -- -- -- (28,343) --
Common stock options exercised..................... -- -- -- -- (1,036) 1,292
Foreign currency translation adjustment............ -- -- -- 2,452 -- --
Regulation S public filing......................... -- -- -- -- (4,029) 5,776
Consulting Compensation............................ -- -- -- -- (445) 594
Employment separation.............................. -- -- -- -- (814) 1,064
Executive Retirement Plan contribution............. -- 62 31 -- -- --
Common stock issued to 401(k) Plan................. -- -- -- -- (98) 139
----------- ----------- ---------- ----------- ----------- ----------
BALANCE AT JULY 29, 1995........................... $ 5,248 $ 1,846 $ 212,630 $ 13,004 $ (261,742) $ (45,102)
----------- ----------- ---------- ----------- ----------- ----------
----------- ----------- ---------- ----------- ----------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statement
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994 AND JULY 31,
1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LIQUIDITY
The Company's cash and cash equivalents increased $2,252 in 1995, compared
with a decrease of $16,211 in 1994 and an increase of $2,431 in 1993. The
increase in 1995 is primarily due to the one time cash infusions, partially
offset by the decline in gross profit and the decrease in 1994 was due to the
decline in revenue and gross profit margins partially offset by reduced
operating costs and expenses.
During 1995, while the Company was able to maintain the revenue level from
the prior year, it continued to experience significant operating losses due to
competitive pressures which resulted in a revenue and gross profit level which
was insufficient to cover the Company's costs. Realizing that the Company's cost
structure would not support a "flat" revenue level (1995 compared with 1994),
the Company implemented several actions in 1995 to reduce its costs. As these
actions were undertaken throughout the year, the full annual benefit of these
actions will not be realized until 1996. The effect of these continuing
competitive pressures resulted in an operating loss of $18,232, a working
capital deficiency of $32,750 and cash used in operations of $5,592.
For fiscal year 1995, the Company adopted three main objectives to preserve
and improve the Company's cash liquidity position and allow the Company to meet
its future operating cash flow requirements. These objectives were as follows:
1. Product marketing to maintain stabilized revenue levels
2. Continued review and reduction of operating costs; and
3. One time cash infusions to meet operating requirements.
The Company's revenue level for 1995 improved slightly when compared to
1994. This slight increase was primarily due to improved sales from the new MINX
line of video communications technology, improved sales from the Company's
telephony solutions in the international markets, and improved service revenue
contribution, coupled with maintaining a consistent revenue stream in the
Company's other products.
During 1995, the Company had as one of its major objectives to continue to
review and reduce operating costs. In this regard, throughout 1995, the Company
recorded $9,213 of restructuring charges (mostly related to severance costs
stemming from reduction of personnel) which was the result of an extensive
review of literally all of the Company's worldwide operations. During 1995, the
Company made $11,568 in restructuring payments, which negatively affected cash
flow from operations.
While the reorganizations and cost reduction program implemented in 1995
will help to improve the Company's cash liquidity position, the Company is
simultaneously pursuing other actions to provide additional cash infusion(s)
and/or reduce the Company's cost base. In this regard, subsequent to year-end,
the Company signed a letter of intent with Automatic Data Processing (ADP) to
sell to ADP the Company's European-based Auto Dealer Systems business for
$32,000. While the specific terms of the agreement will not be known until an
agreement, if any, is completed, an important aspect of the agreement is that
ADP will subcontract Field Engineering support from the Company. In addition,
ADP will arrange to acquire certain hardware through Datapoint's current
channels, including the Company's manufactured hardware. The Company expects to
benefit from continued revenue from its Field Engineering channel and from a
substantial reduction in the operating costs of its European subsidiaries. The
sale, if completed, is expected to close in the Company's second quarter of
1996. Also subsequent to year-end, the Company signed a letter of intent for
Vertical Financial Holdings, to become a joint venture partner with the Company
in spinning off the Company's MINX video conferencing patents and operations
into separate entities. The Company has informed Vertical Financial Holdings
that its exploration of joint venture possibilities is no longer exclusive
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994 AND JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and is exploring joint venture opportunities with other potential partners.
While the specific terms of any joint venture will not be known until an
agreement, if any, is completed, the Company expects to retain a significant,
but minority interest in the operations, and a majority interest in the patents.
While it is not expected that there will be a significant cash infusion at the
time of any closing, if consummated, the Company expects to benefit from
reduction of operating costs related to the MINX operations and from
participation in a future royalty stream derived from the licensing of the MINX
patents.
The Company will continue to proceed with the above actions and any other
actions which will result in additional cost reductions and cash infusions.
These additional cash infusions are necessary to meet certain of the Company's
obligations, including interest of $2,857 on its 8-7/8% convertible subordinated
debentures payable on December 1, 1995. While management anticipates meeting
this obligation, no assurances can be given that sufficient funds will be
available. In the event the payment is not made within the 30-day period
following December 1, 1995, the resulting default would entitle the holders of
the debentures to elect to declare the entire indebtedness of $64,394 as
immediately due and payable. Such a default would likewise result in defaults in
certain of the Company's other debt instruments.
FISCAL YEAR
The Company utilizes a 52-53 week fiscal year ending on the Saturday
following the last Friday in July. References to 1995, 1994 and 1993 are for the
fiscal years ended July 29, 1995, July 30, 1994, and July 31, 1993.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany accounts and transactions have
been eliminated upon consolidation.
Prior to 1994, the Company's foreign subsidiaries reported their results to
the parent on a one-month lag which allowed more time to compile results but
produced comparability problems in management accounting. Due to improved
internal applications, the one-month lag became unnecessary and therefore was
eliminated subsequent to 1993 and prior to 1994. As a result, the July 1993
results of operations for the Company's foreign subsidiaries was recorded to the
retained deficit. This action resulted in a charge of $5,470 being recorded
against the retained deficit. The loss incurred in July 1993 resulted primarily
from a low revenue level, which is usual for the first month following the end
of a fiscal year.
CASH AND CASH EQUIVALENTS
Cash equivalents include short-term, highly liquid investments with
maturities of three months or less from date of acquisition and as a result the
carrying value approximates fair value because of the short maturity of those
instruments. At July 29, 1995, the Company had $2,549 of restricted cash. The
amount collateralizes various lines of credit payable to banks which are
recorded as current liabilities.
INVENTORIES
Inventories are stated at the lower of standard cost (approximates first-in,
first-out) or market (replacement cost as to raw materials and net realizable
value as to work in process and finished products).
The Company reviews inventory obsolescence on a quarterly basis. This review
consists of a detailed inventory requirements analysis based upon actual
shipments of each product for the prior twelve months. A computation is then
made of future inventory requirements by product based on the historical
analysis adjusted for future projections including the impact of new product
introductions.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994 AND JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Fixed assets are carried at cost and depreciated for financial purposes
using straight-line and accelerated methods at rates based on the economic lives
of the assets, which are generally as follows:
<TABLE>
<S> <C>
5-30
Buildings and land improvements.................................. years
3-10
Machinery, equipment, furniture and fixtures..................... years
Equipment leased to customers.................................... 4 years
Field support spares............................................. 3 years
</TABLE>
Major improvements that add to the productive capacity or extend the life of
an asset are capitalized while repairs and maintenance are charged to expense as
incurred.
DEBT
The carrying amounts and the fair values of the Company's debt at July 29,
1995 are:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
--------- ---------
<S> <C> <C>
8 7/8% convertible subordinated debentures.............................. $ 64,394 $ 22,216
</TABLE>
The fair value of the Company's 8 7/8% convertible subordinated debentures
is based on a quoted market price at July 28, 1995.
TRANSLATION OF FOREIGN CURRENCIES
Management has determined that all of the Company's foreign subsidiaries
operate primarily in local currencies. All assets and liabilities of foreign
subsidiaries are translated into U.S. dollars using the exchange rate prevailing
at the balance sheet date, while income and expense accounts are translated at
average exchange rates during the year.
RECLASSIFICATIONS
Certain reclassifications to the financial statements for prior years have
been made to conform to the 1995 presentation.
REVENUE RECOGNITION
Revenue is recognized in accordance with the following criteria:
- Sales revenue is generally recognized at the time of shipment provided
that there are no significant vendor and post-contract support obligations
and that collections of the resulting receivable are probable. If such
obligations are present in the contract, revenue is not recognized until
such time as the contractual obligations are met.
- Software revenue is recognized when the program is shipped, or as the
monthly license fees accrue, or over the terms of the support agreement.
- Service revenue is recognized ratably over a contractual period or as
services are provided.
- Lease revenue is recognized on the operating method ratably over the term
of the lease.
INCOME TAXES
The provision for income taxes is reduced by investment tax credits, which
are recognized in the year the assets giving rise to the credits are placed in
service (flow-through method) or when realized for income tax purposes, if
later.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994 AND JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
No tax provision has been made for the undistributed earnings of foreign
subsidiaries as management expects these earnings to be reinvested indefinitely
or received substantially free of additional tax.
In February 1992, the Financial Accounting Standards Board issued SFAS No.
109, "Accounting for Income Taxes" ("FAS 109"), which superseded SFAS No. 96 and
APB Opinion No. 11. The adoption of this new standard had a favorable cumulative
accounting change effect of $1,340 recorded in the first quarter of fiscal 1994
(see note 4).
LOSS PER COMMON SHARE
Loss per common share is based on the weighted average number of common
shares outstanding during each year presented. The Company's common stock
equivalents, which include convertible debt, were antidilutive for the years
presented and therefore, were excluded from the computation. The 1995, 1994 and
1993 computations include the effect of dividends paid or accumulated on
preferred stock of $1,815, $1,784, and $1,784, respectively.
2. REORGANIZATION/RESTRUCTURING COSTS
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Employee termination costs...................................... $ 6,842 $ 14,853 $ 5,955
Lease termination costs......................................... 296 -- 170
Asset write-offs................................................ 2,075 -- 118
--------- --------- ---------
$ 9,213 $ 14,853 $ 6,243
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's 1995 restructuring charges primarily have been driven by
management's efforts to implement cost cutting measures in light of its overall
plan to return to profitability as discussed in Note 1. In addition, competitive
pressures in the Company's industry and a slowdown of customer orders have
influenced the level of restructuring charges.
The 1994 restructuring charges included $13,360 as a result of the
implementation of a statutory plan of reorganization for one of its European
subsidiaries. Management developed the plan, which was subject to administrative
approval, as a result of a continued decline in revenues resulting from the loss
of several significant accounts. These charges related principally to severance
costs associated with the termination of approximately 140 employees spread
throughout sales, service, and administrative positions involved in this
European subsidiary. The reorganization plan was approved in September 1995. Of
the total restructuring amount, $5,570 was paid by the foreign government and is
repayable by the Company over two years beginning in 1996.
During 1993, the Company implemented a restructuring plan designed to
improve the Company's internal operations and re-position its sales and
marketing teams to benefit from the planned introduction in fiscal 1994 of a
broad range of new products. As a result, the Company recorded restructuring
charges of $6,243, primarily related to staff reductions in the U.S. operations
and in its larger subsidiaries.
Restructuring charges are not recorded until specific employees are
determined (and notified of termination) by management in accordance with its
overall restructuring plan. As such, employee termination payments are generally
paid out over a period of time rather than as one lump sum. Although a
reasonable estimate of the amount of future termination costs cannot be made at
this time, management expects to incur additional charges for terminations.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994 AND JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
3. NON-OPERATING INCOME (EXPENSE)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Interest earned................................................................... $ 959 $ 313 $ 2,018
Realized gain on fixed assets fire settlement..................................... -- 534 1,165
Write-off of investment in partially owned company................................ -- (3,210) --
Foreign currency losses........................................................... (1,480) (718) (2,361)
Realized gain on sale of property................................................. 1,709 -- --
Settlement of patent infringements................................................ 1,000 -- --
Other............................................................................. (2,768) (1,212) (1,113)
--------- --------- ---------
$ (580) $ (4,293) $ (291)
--------- --------- ---------
--------- --------- ---------
</TABLE>
4. INCOME TAXES
Effective August 1, 1993, the Company adopted SFAS No. 109 "Accounting for
Income Taxes" prospectively. SFAS No. 109 requires a change from the deferred
method of accounting for income taxes to the asset and liability method of
accounting for income taxes.
As a result of adoption of SFAS No. 109, the Company recorded additional
deferred income tax assets of $2,075, after a valuation allowance of $66,720,
and increased deferred income tax liabilities by $735 which, in total resulted
in a $1,340 credit ($.09 per share) for the cumulative effect of the accounting
change.
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Income (loss) before income taxes, extraordinary credit and effect of change
in accounting principle:
U.S......................................................................... $ (22,305) $ (11,430) $ 2,646
Outside the U.S............................................................. (5,839) (82,981) (13,544)
---------- ---------- ----------
$ (28,144) $ (94,411) $ (10,898)
---------- ---------- ----------
---------- ---------- ----------
Provision for income taxes:
U.S. federal:
Current................................................................... $ 53 $ 73 $ 32
Deferred.................................................................. -- -- (221)
---------- ---------- ----------
$ 53 $ 73 $ (189)
---------- ---------- ----------
Outside the U.S.:
Current................................................................... 229 (61) 793
Deferred.................................................................. (83) 342 (242)
Charge in lieu of income taxes............................................ -- -- 599
---------- ---------- ----------
146 281 1,150
---------- ---------- ----------
Total provision............................................................... $ 199 $ 354 $ 961
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994 AND JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
4. INCOME TAXES (CONTINUED)
The differences between the tax provision in the financial statements and
the tax benefit computed at the U.S. federal statutory rates are:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
Tax benefit at statutory rate................................ $ (9,850) $ (33,043) $ (3,705)
Increase (decrease) in taxes resulting from:
Benefit of U.S. tax loss not recognized.................... 7,791 3,298 --
Foreign losses and other transactions on which a tax
benefit could not be recognized........................... 1,952 9,288 3,684
Adjustment of prior year taxes............................. -- -- (336)
Nondeductible amortization and write-off of intangible
assets.................................................... -- 20,875 712
Effect of foreign tax refunds and U.S. tax associated with
dividends paid............................................ 53 73 143
Effect of federal tax rate less than (greater than) foreign
tax rates................................................. 364 142 452
Benefit of operating loss carryforwards.................... (127) (286) --
Other, net................................................. 16 7 11
--------- ---------- ---------
Provision for income taxes................................... $ 199 $ 354 $ 961
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The undistributed earnings, indefinitely reinvested in international
business, of the Company's foreign subsidiaries aggregated approximately $15,428
at July 29, 1995. Determination of the amount of unrecognized deferred tax
liability on these unremitted earnings is not practicable.
The primary components of deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Property, plant and equipment......................................... $ 4,475 $ 3,955
Loss and credit carryforwards......................................... 76,898 68,213
Accrued restructuring costs........................................... 1,417 4,453
Other................................................................. 7,138 9,180
--------- ---------
89,928 85,801
Less: valuation allowance............................................... 86,008 82,217
--------- ---------
3,920 3,584
Deferred income tax liabilities:
Accrued retirement costs.............................................. (2,457) (2,141)
Other................................................................. (925) (988)
--------- ---------
(3,382) (3,129)
Net deferred income tax asset........................................... $ 538 $ 455
--------- ---------
--------- ---------
</TABLE>
At July 29, 1995, the net deferred income tax asset of $538 was presented in
the balance sheet, based on tax jurisdiction, as deferred income tax assets of
$3,079 and deferred income tax liabilities of $2,541. Realization of the
Company's deferred tax assets is dependent on generating sufficient taxable
income in
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994 AND JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
4. INCOME TAXES (CONTINUED)
certain taxing jurisdiction prior to the expiration of loss and credit
carryforwards. Management believes that more likely than not the deferred tax
assets will not be realized and has therefore provided a valuation allowance to
reserve for those deferred tax assets not considered realizable.
At July 29, 1995, the Company had tax operating loss carryforwards
approximating $157,000 and $35,000 for federal and foreign tax purposes,
respectively, expiring in various amounts beginning in 2001 and 1996,
respectively. Federal long-term capital loss carryforwards of $16,000 expire in
various amounts beginning in 1996. Utilization of the ordinary and capital tax
loss carryforwards is subject to limitation in the event of a more than 50%
change in ownership of the Company.
The Company had unused investment, research, and alternative minimum tax
credits for income tax purposes at July 29, 1995 of approximately $3,300
expiring at various dates through 2001 which may be used to offset future tax
liabilities of the Company. Utilization of these credits is subject to
limitation in the event of a more than 50% change in ownership of the Company.
5. INVENTORIES
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Finished products........................................................ $ 6,105 $ 10,416
Work in process.......................................................... 2,613 1,601
Raw materials............................................................ 1,036 5,657
--------- ---------
$ 9,754 $ 17,674
--------- ---------
--------- ---------
</TABLE>
6. FIXED ASSETS
<TABLE>
<CAPTION>
ACCUMULATED
JULY 29, 1995 COST DEPRECIATION NET
--------- ----------- ---------
<S> <C> <C> <C>
Property, plant and equipment:
Buildings and land improvements............................. $ 26,008 $ 18,390 $ 7,618
Machinery, equipment, furniture and fixtures................ 88,744 81,967 6,777
Land........................................................ 1,479 -- 1,479
--------- ----------- ---------
116,231 100,357 15,874
Field support spares.......................................... 14,926 12,147 2,779
Equipment leased to customers................................. 5,630 5,406 224
--------- ----------- ---------
$ 136,787 $ 117,910 $ 18,877
--------- ----------- ---------
--------- ----------- ---------
JULY 30, 1994
Property, plant and equipment:
Buildings and land improvements............................. $ 19,736 $ 14,102 $ 5,634
Machinery, equipment, furniture and fixtures................ 88,213 75,959 12,254
Land ($5,500 held for sale)................................. 6,856 -- 6,856
--------- ----------- ---------
114,805 90,061 24,744
Field support spares.......................................... 15,262 11,337 3,925
Equipment leased to customers................................. 5,009 4,590 419
--------- ----------- ---------
$ 135,076 $ 105,988 $ 29,088
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994, JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
7. LEASE COMMITMENTS
The Company leases certain facilities and equipment under various leases.
Substantially all of the leases are classified as operating leases. Rental
expense for operating leases for 1995, 1994 and 1993 was $10,922, $9,137, and
$10,785, respectively. Most of the leases contain renewal options for various
periods and require the Company to maintain the property. Certain leases contain
provisions for periodic rate adjustments to reflect Consumer Price Index
changes.
At July 29, 1995, future minimum lease payments for noncancelable leases
totaled $30,819 and are payable as follows: 1996-$7,513; 1997-$5,867;
1998-$5,151; 1999-$3,960; 2000-$3,515 and $4,813 thereafter.
8. PAYABLES TO BANK
As of July 29, 1995, the Company had included in payables to banks an amount
of $6,455 payable to International Factors "De Factorij" B.V., a subsidiary of
ABN-AMRO Bank of the Netherlands. The loan is secured by the receivables of the
Company's U.K., Dutch and German subsidiaries.
The Company has a secured credit facility ("Credit Facility") with The CIT
Group, with a maximum borrowing level of $2,000, given sufficient collateral.
The Credit Facility consists of a term loan and a revolving loan. The borrowings
outstanding under the Credit Facility, as of July 29, 1995, were $1,346, the
maximum based upon the available collateral as of that date, and the Credit
Facility is callable at the option of the lender. The borrowing consists of
$1,346 related to the revolving loan and included in payables to banks. The term
loan was paid off in 1995. The collateral for the revolving Credit Facility
consists of the Company's U.S. trade receivables and certain trade receivables
from independent foreign distributors, U.S. inventories, real property, contract
rights and general intangibles, equipment and fixtures, and certain certificates
of deposit issued to or for the account of the Company. The Credit Facility
requires that the Company meet a number of non-financial covenants on an ongoing
basis. The Credit Facility was extended and expires in June 1996. The Credit
Facility also includes a restriction upon the payment of dividends, allowing
dividends to be paid on the Company's $1.00 preferred stock; but prohibiting
dividend payments on the Company's common stock.
The weighted average interest rate for short-term borrowings as of the
fiscal year end was 10.1% , 10.5%, 10.0% for 1995, 1994, and 1993, respectively.
The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The unused lines of credit at July 29, 1995 totaled $1.1 million
after borrowings of $10.1 million.
9. ACCRUED EXPENSES
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Salaries, commissions, bonuses and other benefits....................... $ 9,661 $ 8,839
Taxes other than income taxes........................................... 8,687 6,986
Reorganization/restructuring costs...................................... 4,168 13,988
Payable to foreign government (see Note 2).............................. 5,570 --
Other................................................................... 6,771 7,919
--------- ---------
$ 34,857 $ 37,732
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994, JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
8 7/8% convertible subordinated debentures $ 64,394 $ 64,394
Domestic term loan, average interest 9.4%................................................... -- 1,066
6.5% to 9.0% real estate notes.............................................................. 762 993
Noninterest bearing note-NTI (net of discount of $2,354 in 1995 and $2,906 in 1994)......... 6,646 6,094
Noninterest bearing note-CISI............................................................... -- 195
Other obligations........................................................................... 2,338 189
--------- ---------
74,140 72,931
Less: current maturities of long-term debt and long-term debt subject to accelerated
maturity................................................................................... 9,217 2,370
--------- ---------
$ 64,923 $ 70,561
--------- ---------
--------- ---------
</TABLE>
Interest on the 8 7/8% convertible subordinated debentures is payable
semiannually on June 1 and December 1. The debentures are subordinated in right
of payments to all senior indebtedness, as defined, and are convertible into
common stock of the Company at any time prior to the close of business on June
1, 2006, unless previously redeemed. Each one thousand dollar principal amount
debenture is convertible into 55,231 shares of common stock and, as of July 29,
1995, there were 3,556,545 shares reserved for possible issuance. The debentures
are entitled to a mandatory sinking fund, which commenced June 1, 1991, of
$5,000 annually. The Company, at its option, may increase the sinking fund
payment to $10,000 and may also receive credit against mandatory sinking fund
payments for debentures acquired through means other than the sinking fund. The
Company has applied $25,000 in previous debenture retirements against the
sinking fund requirements for 1991 through 1995. The Company also intends to
apply previous debenture retirements of $10,606 through July 29, 1995 against
the sinking fund requirements for 1996 through 1998. The debentures are also
redeemable at the option of the Company, in whole or in part, at any time at
100% of the principal amount together with accrued interest to the date of
redemption.
During 1993, the Company settled two longstanding legal patent actions
brought against it by Northern Telecom Inc. ("NTI") and Compagnie Internationale
de Services en Informatique, S.A. ("CISI"). The Company agreed to a ten-year
note payable to NTI which requires annual $1,000 payments beginning in December
1993. The note was recorded at a discount reflecting an annual rate of interest
of 10%. The Company is presently in arrears on the December 1994 payment. On
September 13, 1995, NTI notified the Company that it has declared the entire
note immediately due and payable. The note has been classified as long-term debt
subject to accelerated maturity at July 29, 1995. The Company is currently in
discussions with NTI to remedy this payment default. The Company is also
contingently obligated to make payments to NTI dependent upon the Company's
future profitability. The contingent payments, up to a cumulative maximum of
$12.5 million, are to be paid in annual installments calculated at 33 1/3% of
the Company's pre-tax annual profits, excluding extraordinary items, in excess
of $10.0 million in each of the 10 fiscal years beginning with fiscal 1993.
During 1995, 1994 and 1993, the Company incurred no liability to make such
contingent payments as a result of the net losses incurred.
Aggregate scheduled maturities of long-term debt are as follows: 1996 --
$4,349; 1997 -- $749; 1998 -- $5,159; 1999 -- $5,714; 2000 -- $5,682 and $52,487
thereafter.
11. STOCKHOLDERS' DEFICIT
In August 1994, the Company sold 700,000 shares of its common stock held in
treasury for $1,750 in a transaction outside the United States pursuant to
Regulation S of the Securities and Exchange Commission.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994, JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
11. STOCKHOLDERS' DEFICIT (CONTINUED)
The Company utilized the proceeds for working capital needs. In addition, in
September 1994, the Company reached an agreement with Intelogic Trace, Inc.
("Intelogic"), in conjunction with Intelogic's court approved reorganization, to
cancel its option to repurchase at $.75 per share, its common stock held by
Intelogic in exchange for all of the Company's holding of Intelogic preferred
stock, which had no carrying value. As a result of the exchange, the Company
received from Intelogic 2,400,000 shares of Datapoint common stock.
The Company issued 129,000 shares of common stock held in treasury as
settlement with the release of an employee. As compensation for consulting work,
71,999 shares of common stock held in treasury were issued to a director.
During 1995 fiscal year, the Board of Directors elected to make a corporate
contribution to the Datapoint Corporation Supplemental Executive Retirement Plan
of 62,000 shares of the Company's $1 preferred stock with a $20 per share
liquidation preference. The contribution was made on behalf of certain
participants only.
Throughout 1995, employees and directors of the Company exercised 156,666
options for shares of common stock. Additionally, the Company issued 22,328
shares from treasury to participants in the U.S. 401(k) retirement and savings
plan. In 1994, the Company purchased and placed into treasury 24,023 shares from
the Company's U.S. 401(k) retirement and savings plan.
The $1.00 preferred stock has a liquidation preference of $20.00 per share
and cumulative dividends of $1.00 annually. If dividends are six quarters in
arrears, the preferred shareholders have the right to vote as a separate class
and elect two board members at the next annual meeting of shareholders and each
preferred share is exchangeable into two shares of common stock at the option of
the holder. These new directorships will be filled annually by the preferred
shareholders voting as a separate class until the dividends in arrears have been
paid in full. As a result of the Company's capital deficiency, dividend payments
are prohibited under Delaware law. Dividends of $1,815 were accumulated and
unpaid at July 29, 1995.
12. STOCK OPTION PLANS
At July 29, 1995, 2,382,822 shares were reserved for issuance in connection
with the Company's stock option plans. Total options outstanding for all plans
total 1,631,992 and are exercisable at an average price of $3.97.
Under the Company's employee stock option plans, officers and other key
employees may be granted options to purchase common stock and related stock
appreciation rights. Under the terms of these plans, options may be granted at
no less than 75% of fair market value and expire no later than ten years from
the date of grant. The Board may grant options exercisable in full or in
installments, and has generally granted options at fair market value exercisable
in two to four installments beginning one year from the date of grant. As of
July 29, 1995 and July 30, 1994, options for 499,285 and 561,209 shares,
respectively, under all
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994, JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
12. STOCK OPTION PLANS (CONTINUED)
employee plans were exercisable and no stock appreciation rights had been
granted. Options outstanding as of July 29, 1995 have an average exercise price
of $4.16 and expire during the period June 1995 through October 2004.
<TABLE>
<CAPTION>
EMPLOYEE STOCK OPTION PLANS
--------------------------------------
<S> <C> <C> <C>
NUMBER OF SHARES
PRICE RANGE -----------------------
OF SHARES UNDER AVAILABLE
UNDER OPTION OPTION FOR OPTION
------------- ---------- -----------
Outstanding at July 30, 1994.......................... $ 1.38-8.00 1,284,873 757,664
Granted............................................... 2.69-3.94 557,000 (557,000)
Exercised............................................. 1.38-1.63 (156,666) --
Canceled.............................................. 1.63-7.38 (243,215) 243,215
Expired............................................... -- -- (18,049)
------------- ---------- -----------
Outstanding at July 29, 1995.......................... $ 1.38-8.00 1,441,992 425,830
------------- ---------- -----------
------------- ---------- -----------
</TABLE>
During 1992, the 1985 Director Stock Option Plan was terminated. As of July
29, 1995, there were continuing options for 50,000 shares outstanding from this
plan which expire five years from the date of grant. The 1985 Plan was replaced
by the 1991 Director Stock Option Plan. This plan greatly resembles the
terminated 1985 Plan and provides for a one-time grant of an option to purchase,
at fair market value as of the date of the grant, 25,000 shares of common stock
to each director, and an additional 50,000 shares to the present and any newly
elected Chairman of the Board. The 1991 Plan does not grant any options to
individuals holding options under the 1985 Plan. The Plan includes both employee
and non-employee directors and options expire five years from the date of grant.
Total director options outstanding as of July 29, 1995 have an average exercise
price of $2.53 and expire during the period April 1996 through May 1997.
<TABLE>
<CAPTION>
DIRECTOR STOCK OPTION PLANS
-------------------------------------
<S> <C> <C> <C>
NUMBER OF SHARES
PRICE RANGE ----------------------
OF SHARES UNDER AVAILABLE
UNDER OPTION OPTION FOR OPTION
------------- --------- -----------
Outstanding at July 30, 1994............................ $ 1.88-3.06 240,000 275,000
Canceled................................................ 2.50 (50,000) 50,000
------------- --------- -----------
Outstanding at July 29, 1995............................ $ 1.88-3.06 190,000 325,000
------------- --------- -----------
------------- --------- -----------
</TABLE>
13. INFORMATION RELATING TO BUSINESS SEGMENTS AND INTERNATIONAL OPERATIONS
BUSINESS SEGMENT INFORMATION
The Company operates in one industry and is an international computer and
communications systems marketer, manufacturer and developer. Additionally, the
Company provides maintenance services on its products in the United States
through a non-exclusive agreement with Decision Servcom, Inc. and services its
products outside the United States through its international distributors and
subsidiaries.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994, JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
13. INFORMATION RELATING TO BUSINESS SEGMENTS AND INTERNATIONAL
OPERATIONS (CONTINUED)
INTERNATIONAL OPERATIONS
The Company conducts the majority of its international marketing and service
operations through its subsidiaries and, to a lesser extent, through various
distributorship arrangements. The Company's manufacturing is performed
domestically, and the Company's policy is to transfer products between
affiliates at prices which reflect market conditions. Financial information on a
geographic basis is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenue -- unaffiliated customers:
United States -- domestic.................................................. $ 7,122 $ 7,617 $ 7,286
-- export sales................................................. 3,899 6,174 8,039
Europe..................................................................... 162,146 156,403 185,595
Other international........................................................ 1,734 2,742 7,424
---------- ---------- ----------
Total revenue from unaffiliated customers.............................. 174,901 172,936 208,344
---------- ---------- ----------
---------- ---------- ----------
Revenue -- intercompany:
United States.............................................................. 6,390 20,868 24,910
Europe..................................................................... 427 518 516
Other international........................................................ -- 7 62
Eliminations............................................................... (6,817) (21,393) (25,488)
---------- ---------- ----------
Total consolidated revenue............................................. $ 174,901 $ 172,936 $ 208,344
---------- ---------- ----------
---------- ---------- ----------
Operating income (loss):
United States.............................................................. $ (25,201) $ (8,728) $ 1,080
Europe..................................................................... 7,661 (72,517) (5,376)
Other international........................................................ (979) (904) (1,297)
Eliminations............................................................... 287 1,128 4,335
---------- ---------- ----------
Total operating income (loss).......................................... $ (18,232) $ (81,021) $ (1,258)
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
United States.............................................................. $ 21,469 $ 43,595 $ 57,506
Europe..................................................................... 79,166 82,589 143,385
Other international........................................................ 1,116 1,250 1,384
---------- ---------- ----------
Total identifiable assets.............................................. $ 101,751 $ 127,434 $ 202,275
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Included in identifiable assets for 1993 is the excess of the cost of
foreign investments over the value of the net assets acquired. The balance was
written-off in 1994 as part of a reassessment of the carrying value in light of
the financial condition of the Company. Accumulated amortization and write-down
of this excess was $110,476 at July 30, 1994 and $50,797 at July 31, 1993.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994, JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
14. RETIREMENT INCOME PLANS
Retirement expenses incurred by the Company were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
U.S.:
Matching contributions............................................. $ 119 $ 143 $ 138
Outside the U.S.:
Defined benefit plans.............................................. 510 119 (8)
Other plans........................................................ 675 600 65
--------- --------- ---------
1,185 719 57
--------- --------- ---------
$ 1,304 $ 862 $ 195
--------- --------- ---------
--------- --------- ---------
</TABLE>
U.S. PLAN
The Company adopted a 401(k) retirement and savings plan effective January
1988. The plan covers all full-time employees who have been employed for at
least 12 months. The Company's retirement and savings plan contribution has been
a 25% matching contribution for employee contributions up to 5% of each
employee's compensation. At the Board's discretion, the Company may also
contribute a profit sharing amount to the plan that is contingent upon the
performance level of the Company at the net income line.
PLANS OUTSIDE THE U.S.
Most of the Company's foreign subsidiaries provide retirement income plans
which conform to the practice of the country in which they do business. The
types of company-sponsored plans in use are defined benefit and defined
contribution.
Five of the Company's subsidiaries, including the United Kingdom, utilize
defined benefit plans with employee benefits generally being based on years of
service and wages near retirement. The plans cover all full-time employees who
have been employed for at least 12 months. Obligations under these plans are
funded primarily through fixed rate of return investments, primarily insurance
policies, except for Germany where reserves are established for the obligations.
The Company's United Kingdom and New Zealand subsidiaries have defined
contribution plans. The plans cover all full-time salaried employees who have
been employed for at least 12 months and contributions are based upon a
percentage of compensation. Obligations under this plan are funded primarily
through deposits in pooled investments or insurance policies.
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Defined benefit plans:
Service cost..................................................... $ 998 $ 773 $ 1,329
Interest cost.................................................... 1,931 1,770 1,917
Actual return on assets.......................................... (887) (926) (860)
Net amortization and deferral.................................... (1,532) (1,498) (2,394)
--------- --------- ---------
Net pension cost................................................. $ 510 $ 119 $ (8)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994, JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
14. RETIREMENT INCOME PLANS (CONTINUED)
The funded plan status at July 29, 1995 and July 30, 1994 was:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
<S> <C> <C> <C> <C>
OVER- UNDER- OVER- UNDER-
FUNDED FUNDED FUNDED FUNDED
--------- --------- --------- ---------
Actuarial present value of:
Vested benefits.................................... $ 17,141 $ 6,454 $ 16,389 $ 3,234
Accumulated benefit obligations.................... $ 17,520 $ 6,503 $ 16,699 $ 3,815
Projected benefit obligations...................... $ 18,197 $ 7,466 $ 17,619 $ 5,624
Plan assets at fair value.......................... $ 20,303 $ 2,632 $ 21,259 $ 918
--------- --------- --------- ---------
Plan assets in excess of (less than) projected
benefit obligation................................ 2,106 (4,834) 3,640 (4,706)
Unrecognized net (gain) loss..................... 3,611 (2,755) 1,519 (1,955)
Unrecognized transition net loss................. 797 124 806 31
--------- --------- --------- ---------
Prepaid (accrued) pension cost..................... $ 6,514 $ (7,465) $ 5,965 $ (6,630)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Actuarial assumptions used to determine funded status for 1995 and 1994
varied between subsidiaries. Discount rates used to determine projected benefit
obligations range from 5.0% to 9.0% in 1995 and 1994. Rates of increase in
future compensation levels range from 3.0% to 3.5% in 1995 and 1994. The
long-term rates of return on plan investments range from 5.0% to 10.0% in 1995
and 5.0% to 10.0% in 1994.
15. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Director Agranoff had provided various tax, legal and real estate consulting
services prior to being Vice President & General Counsel for the Company. During
1994 and 1993, the Company paid Mr. Agranoff $126 and $104, respectively, for
those services. During the fiscal years 1995 and 1994, Datapoint paid legal fees
of $51 and $5, respectively, to the law firm of Pryor, Cashman, Sherman, &
Flynn, to which firm Mr. Agranoff is of counsel, for legal services provided by
attorneys other than Mr. Agranoff.
Director Thomas has worked since August 1994 as a special consultant for
which he has received compensation payable in shares of common stock until May
1, 1995. Subsequently, on May 5, 1995, in consideration of the additional work
and responsibilities he has taken on for the Company as a special consultant,
the Board of Directors approved a special compensation package for Director
Thomas. From May 1, 1995 through July 31, 1995, he was paid at the rate
specified per day for his services, plus travel and housing expenses, plus
additional flat rate compensation per week. Director Thomas was also entitled to
participate in the Executive Health Benefit program of the Company until July
31, 1995 at which time, under a new agreement, he converted to the Standard
Health Benefit program. The Board also approved a one time special issuance of
shares of common stock of the Company to Director Thomas in recognition of his
service to the Company. During the term of the agreement with Director Thomas,
he will not accrue nor receive any regular Board or committee fees. (Included in
compensation of Directors note in the proxy)
Director Ruffat had a consulting agreement from January 1994 through June
1995 in which he would receive a monthly compensation of $10. For 1995, he has
been paid $80.
16. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various lawsuits generally incidental to its
business. The amounts sought by the plaintiffs in such cases are substantial
and, if all such cases were decided adversely to the Company, the Company's
aggregate liability might be material. However, the Company does not expect such
an
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 29, 1995, JULY 30, 1994, JULY 31,
1993 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
aggregate result based upon the limited number of such actions and an assessment
that most such actions will be successfully defended. No provision has been made
in the accompanying financial statements for any possible liability with respect
to such lawsuits.
In addition, in 1994, the Company began patent infringement lawsuits against
several defendants related to the Company's video conferencing patents. In 1995,
the Company received $1,000 from two such defendants and patent infringement
suits against other defendants are pending. The aggregate amounts sought in
these suits are substantial. However, no provision has been made in the
accompanying financial statements for any possible gains or cash infusions
resulting from favorable judgments in these suits.
F-20
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors
Datapoint Corporation
We have audited the consolidated financial statements of Datapoint Corporation
and subsidiaries (the Company) as of July 29, 1995 and July 30, 1994, and for
each of the three fiscal years in the period ended July 29, 1995, and have
issued our report thereon dated November 2, 1995. Our audits also included the
financial statement schedules listed in the Index at Item 21(a). These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statements schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
November 2, 1995
F-21
<PAGE>
SCHEDULE II
DATAPOINT CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
(A)
BALANCE CHARGED CHARGED (B)
AT TO (TO) FROM OTHER BALANCE
BEGINNING COSTS AND OTHER ADDITIONS AT END
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS (DEDUCTIONS) OF YEAR
- --------------------------------------------------------- ----------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended July 29, 1995................................. $ 2,568 $ 2,147 ($ 21) $ (1,682) $ 3,012
Year ended July 30, 1994................................. $ 2,466 $ 807 $ (472) $ (233) $ 2,568
Year ended July 31, 1993................................. $ 5,297 $ (405) $ 312 $ (2,738) $ 2,466
</TABLE>
(a) Transfers to and from other balance sheet reserve accounts.
(b) Accounts written-off net of recoveries, other expense accounts and
translation adjustments.
F-22
<PAGE>
CONSOLIDATED BALANCE SHEETS
DATAPOINT CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
APRIL 27, JULY 29,
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................. $ 4,964 $ 8,493
Restricted cash and cash equivalents.................................................. 1,056 2,549
Accounts receivable, net of allowance for doubtful accounts of $2,647 and $3,012,
respectively......................................................................... 41,788 43,072
Inventories........................................................................... 8,583 9,754
Prepaid expenses and other current assets............................................. 4,464 3,638
----------- ----------
Total current assets................................................................ 60,855 67,506
Fixed assets, net of accumulated depreciation of $115,725 and $117,910, respectively.... 14,933 18,877
Other assets, net....................................................................... 14,430 15,368
----------- ----------
$ 90,218 $ 101,751
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Payable to banks...................................................................... $ 17,134 $ 16,757
Current maturities of long-term debt.................................................. 4,096 9,217
Accounts payable...................................................................... 21,581 23,286
Accrued expenses...................................................................... 34,697 34,857
Deferred revenue...................................................................... 13,299 15,291
Income taxes payable.................................................................. 1,481 848
----------- ----------
Total current liabilities........................................................... 92,288 100,256
Long-term debt, exclusive of current maturities......................................... 69,103 64,923
Other liabilities....................................................................... 9,788 10,688
Commitments and contingencies
STOCKHOLDERS' DEFICIT:
Preferred stock of $1.00 par value. Shares authorized 10,000,000; shares issued and
outstanding of 1,868,071 in 1996 and 1,846,456 in 1995 (aggregate liquidation
preference of $37,361 in 1996 and $36,929 in 1995)................................... 1,868 1,846
Common stock of $.25 par value. Shares authorized 40,000,000; shares issued of
20,991,217 including treasury shares of 7,438,287 in 1996 and 7,866,832 in 1995,
respectively......................................................................... 5,248 5,248
Other capital......................................................................... 212,683 212,630
Foreign currency translation adjustment............................................... 10,730 13,004
Retained deficit...................................................................... (269,920) (261,742)
Treasury stock, at cost............................................................... (41,570) (45,102)
----------- ----------
Total stockholders' deficit......................................................... (80,961) (74,116)
----------- ----------
$ 90,218 $ 101,751
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements
F-23
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATAPOINT CORPORATION AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
APRIL 27, APRIL 29, APRIL 27, APRIL 29,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Sales............................................. $ 26,438 $ 24,429 $ 73,322 $ 57,120
Service and other................................. 20,365 23,111 62,352 68,720
------------- ------------- ------------- -------------
Total revenue................................... 46,803 47,540 135,674 125,840
OPERATING COSTS AND EXPENSES:
Cost of sales..................................... 20,485 17,583 54,276 45,411
Cost of service and other......................... 13,009 14,387 38,910 40,172
Research and development.......................... 627 1,124 2,043 3,403
Selling, general and administrative............... 11,024 15,153 35,465 47,840
Restructuring costs............................... 69 1,810 194 7,505
------------- ------------- ------------- -------------
Total operating costs and expenses.............. 45,214 50,057 130,888 144,331
------------- ------------- ------------- -------------
Operating income (loss)......................... 1,589 (2,517) 4,786 (18,491)
NON-OPERATING INCOME (EXPENSE):
Interest expense.................................. (2,144) (2,235) (6,488) (6,985)
Other, net........................................ (3,009) (746) (2,252) 873
------------- ------------- ------------- -------------
Loss before income taxes and extraordinary
item........................................... (3,564) (5,498) (3,954) (24,603)
Income taxes........................................ 430 3 1,181 83
------------- ------------- ------------- -------------
Net loss........................................ $ (3,994) $ (5,501) $ (5,135) $ (24,686)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net loss less preferred stock dividend.......... $ (4,466) $ (5,947) $ (6,553) $ (26,024)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net loss per common share:.......................... $ (.33) $ (.46) $ (.49) $ (1.96)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Average common shares............................... 13,472,367 12,942,448 13,359,265 13,245,119
</TABLE>
See accompanying notes to consolidated financial statements
F-24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DATAPOINT CORPORATION AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
NINE MONTHS ENDED
----------------------
APRIL 27, APRIL 29,
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss................................................................................ $ (5,135) $ (24,686)
Adjustments to reconcile net income to net cash provided from operating activities:
Provision for unrealized losses on marketable securities.............................. -- 187
Depreciation and amortization......................................................... 5,285 6,885
Provision for fixed asset write-off................................................... -- 1,870
Realized gain on sale of property..................................................... -- (1,709)
Provision for (recoveries) losses on accounts receivable.............................. (253) 103
Change in assets and liabilities:
(Increase) decrease in receivables.................................................. (2,391) 6,223
Decrease in inventory............................................................... 812 6,625
Decrease in accounts payable........................................................ (717) (4,468)
Increase (decrease) in accrued expenses............................................. 1,289 773
(Decrease) increase in other liabilities and deferred credits....................... (644) 1,583
Other, net............................................................................ (547) 1,533
---------- ----------
Net cash (used in) and provided from operating activities........................... (2,301) (5,081)
CASH FLOW FROM INVESTING ACTIVITIES:
Payments for fixed assets............................................................... (2,083) (3,131)
Proceeds from disposition of fixed assets............................................... 50 7,910
Other, net.............................................................................. 35 800
---------- ----------
Net cash used in investing activities............................................... (1,998) 5,579
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings................................................................ 26,505 15,381
Payments on borrowings.................................................................. (26,549) (21,439)
Proceeds from sale of common stock...................................................... -- 1,804
Decrease in restricted cash for letters of credit....................................... 1,493 1,892
---------- ----------
Net cash (used in) provided from financing activities............................... 1,449 (2,362)
Effect of foreign currency translation on cash............................................ (679) 771
---------- ----------
Net decrease in cash and cash equivalents................................................. (3,529) (1,093)
Cash and cash equivalents at beginning of year............................................ 8,493 6,241
---------- ----------
Cash and cash equivalents at end of period................................................ $ 4,964 $ 5,148
---------- ----------
---------- ----------
Cash payments for:
Interest................................................................................ $ 4,674 $ 4,769
Income taxes, net....................................................................... $ 398 $ 939
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
DATAPOINT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
1. PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
Datapoint Corporation (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and in accordance with
generally accepted accounting principles. In the opinion of management, the
information furnished reflects all adjustments which are necessary for a fair
statement of the results of the interim periods presented. All adjustments made
in the interim statements are of a normal recurring nature.
It is recommended that these statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
and Form 10-K for the year ended July 29, 1995.
The results of operations for the three and nine months ended April 27,
1996, are not necessarily indicative of the results to be expected for the full
year.
2. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
APRIL 27, JULY 29,
1996 1995
----------- -----------
<S> <C> <C>
Raw materials...................................................................... $ 319 $ 1,036
Work in process.................................................................... 1,460 2,613
Finished goods..................................................................... 6,804 6,105
----------- -----------
$ 8,583 $ 9,754
----------- -----------
----------- -----------
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various lawsuits generally incidental to its
business. The amounts sought by the plaintiffs in such cases are substantial
and, if all such cases were decided adversely to the Company, the Company's
aggregate liability might be material. However, the Company does not expect such
an aggregate result based upon the limited number of such actions and an
assessment that most such actions will be successfully defended. No provision
has been made in the accompanying financial statements for any possible
liability with respect to such lawsuits.
In order for the Company to meet certain of its obligations, including
interest of $2.9 million on its 8 7/8% convertible subordinated debentures
payable on June 1, 1996, the Company is pursuing actions to provide additional
cash infusions. In this regard, upon termination of negotiations to sell the
Company's European based Auto Dealer Systems business to Automatic Data
Processing ("ADP"), the Company entered into a non-exclusive Heads of Agreement
during the third quarter of 1996 with Kalamazoo Computer Group, PLC
("Kalamazoo"), a provider of automotive dealer management systems based in the
United Kingdom. This agreement provided for a joint venture in which Kalamazoo
would have a 51% interest and the Company a 49% interest, as well as payment to
the Company of $15.5 million. The joint venture would combine the Company's
European based Auto Dealer Systems business (other than its United Kingdom
operations) with Kalamazoo's Netherlands' operations. Subsequent to the end of
the third quarter of 1996, the Company and Kalamazoo finalized negotiations
pertaining to the outright sale (in lieu of the joint venture) by the Company to
Kalamazoo of 100% of the Company's interest in its European based Auto Dealer
Systems business (other than its United Kingdom operations) for $33.0 million.
After payments of taxes, escrow deposits, contingencies, and other expenses
related to this sale, the Company expects the net cash proceeds from the sale to
exceed $20.0 million. As part of the arrangements, the Company will continue to
provide computer hardware and hardware services to the network through a
subcontract arrangement with Kalamazoo. While the Board of Directors of both
Kalamazoo and the Company have approved the purchase and sale, consummation is
subject to approval by Kalamazoo's shareholders. While there are no absolute
assurances that the Kalamazoo shareholders will approve the
F-26
<PAGE>
DATAPOINT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
purchase, the Company expects that such approval will be obtained and that the
closing will take place at the end of June, 1996. If this transaction is not
completed by the end of June, 1996, the Company will not have the proceeds from
such anticipated sale to make the June 1, 1996 bond interest payment of $2.9
million during the 30 day grace period following June 1, 1996. As such, the
Company is simultaneously exploring alternative methods to enable it to make the
interest payment in order to comply with the terms of the Indenture, dated as of
June 1, 1981. In the event the payment is not made within the 30 day grace
period, the resulting default would entitle the holders of the debentures to
declare the entire indebtedness of $64.4 million as immediately due and payable.
Such a default would likewise result in defaults in certain of the Company's
other debt instruments. In addition, subsequent to the end of the third quarter
of 1996, the Company entered into an agreement with Northern Telecom Inc.
("NTI") whereby the Company would not make interest payments on the debentures
until two deferred principal payments of secured debt owed to Northern Telecom
Inc., totaling $2.0 million plus accrued interest, were paid. (See discussion
below).
During 1993, the Company settled a long standing patent-related legal action
brought against it by NTI. Pursuant to this settlement, during 1994 and 1993,
the Company paid NTI $1.0 million and $7.5 million, respectively. The Company
also agreed to a ten-year note payable to NTI which requires annual $1.0 million
payments each December. This obligation is collateralized by substantially all
of the Company's assets. The Company is presently in arrears on the December
1994 and December 1995 payments. On September 13, 1995, NTI notified the Company
that it had declared the entire note immediately due and payable, which as of
July 29, 1995 was $6.6 million. The Company entered into discussions with NTI to
remedy this payment default and, during the second quarter of 1996, the Company
and NTI reached a new agreement to cure the arrearages whereby both the December
1994 and December 1995 payments would be made on or before January 31, 1996. The
Company and NTI amended the agreement such that the schedule for the two
payments in arrears would be extended to a period not to exceed the end of the
third quarter of 1996. As of the end of the third quarter of 1996, the payments
remained unpaid. Subsequent to the end of the third quarter of 1996, the Company
entered into another agreement with NTI, whereby the Company agreed not to make
payments of the $2.9 million interest on the Company's 8 7/8% Convertible
Subordinated Debentures, due June 1, 1996, until the arrearages and the related
unpaid interest were paid. The Company is also contingently obligated to make
payments to NTI dependent upon the Company's future profitability. The
contingent payments, up to a cumulative maximum of $12.5 million, are to be paid
in annual installments calculated at 33 1/3% of the Company's pre-tax annual
profits, excluding extraordinary items, in excess of $10.0 million in each of
the ten fiscal years beginning with fiscal 1993. During 1995, 1994 and 1993, the
Company incurred no liability to make such contingent payments as a result of
the net losses incurred.
As a result of the Company's capital deficiency which existed at the end of
1994, 1995 and throughout the third quarter of 1996, the Company is prohibited,
under Delaware law, to pay the October 15, 1994, January 15, 1995, April 15,
1995, July 15, 1995, October 15, 1995, January 15, 1996 and April 15, 1996
preferred dividend payments to shareholders. On January 16, 1996, the Company
announced that the preferred dividend payments were six full quarters in
arrears, and that, as such, each holder of $1.00 preferred stock has the right
to exchange each such share into two shares of the Company's common stock. In
addition, the number of directors constituting the Board of Directors of the
Company will be increased by two and holders of the $1.00 preferred stock (not
including those who have exchanged $1.00 preferred stock for the Company's
common stock), voting as a single class, will have the opportunity to elect two
directors of the Company to fill such newly created directorships at the next
annual meeting of shareholders. These rights continue until such time as the
arrearages have been paid in full. In addition, on April 16, 1996, the Company
announced that it intends to submit a proposal to stockholders under which each
share of its $1.00 Exchangeable Preferred Stock ($1.00 par value) would be
converted into 2.75 shares of common stock ($0.25 par value). A two-thirds vote
of the holders of the $1.00 Exchangeable Preferred Stock and a majority vote of
F-27
<PAGE>
DATAPOINT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
the Common Stock will be required to effectuate the proposal to amend the
Certificate of Designation, preferences, rights and limitations establishing the
Preferred Stock, which the Company expects to submit at its Annual Meeting of
Stockholders anticipated for the first quarter of fiscal year 1997. If the
proposal is not adopted, shares of Preferred Stock that are not exchanged will
remain outstanding. The Board of Directors has retained Patricof & Co. Capital
Corp. to act as its financial advisor and to render an opinion as to the
fairness of the proposal from a financial point of view to the holders of the
Common Stock. In addition, the Board of Directors has formed a Committee of
Independent Directors who has retained Corporate Capital Consultants, Inc. to
act as its financial advisor and to render an opinion as the fairness of the
proposal from a financial point of view to the holders of the $1.00 Exchangeable
Preferred Stock. Under the proposal, if adopted, holders of the $1.00
Exchangeable Preferred Stock would relinquish rights to dividends in arrears.
The Company had 1,868,071 shares of its $1.00 preferred stock outstanding at
April 27, 1996.
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April, 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
Subsequent to the end of the third quarter of 1996, a settlement was reached
among the litigants. As such, the District Court entered a Judgment Non Obstante
Veredicto (Judgment Notwithstanding the Verdict) that set aside the jury's
findings against the Company and its two executive officers and set aside all
damages. The $3.3 million settlement, which was reached to avoid the
considerable expense, including the business disruption of a protracted appeal
and legal process, had no material impact on the Company's current cash position
as it included payment of funds from a non-working capital trust fund which were
otherwise not available to the Company, issuance of a short term note, and
shares of the Company's common stock.
During the third quarter of 1996, the Company was notified by the CIT
Group/Credit Finance, Inc. ("CIT") that the term of the Company's loan agreement
with CIT terminates on June 14, 1996, on which date all obligations must be paid
in full. The amount to be repaid, which at the end of the third quarter was
approximately $1.0 million, is expected to be paid from replacement financing
obtained from another financial institution, and/or the sale of the Company's
European based Auto Dealer Systems business.
F-28
<PAGE>
ANNEX A
DESCRIPTION OF PREFERRED STOCK
The Preferred Stock was issued pursuant to a certificate of designation,
rights, preferences and limitations (the "Preferred Stock Designation") filed
with the Secretary of State of the State of Delaware amending the Company's
Certificate of Incorporation, as amended, and setting forth the rights,
preferences and limitations of the Preferred Stock. The terms of the Preferred
Stock include those stated in the Preferred Stock Designation, and the Preferred
Stock possesses all those rights and privileges as are afforded to capital stock
by applicable law in the absence of any express grant of rights or privileges in
the Certificate of Incorporation of the Company, subject to the terms of the
Preferred Stock Designation. The Preferred Stock is subject to all such terms,
and holders of the Preferred Stock are referred to the Certificate of
Incorporation of the Company, the Preferred Stock Designation and the General
Corporation Law of the State of Delaware.
A copy of the Preferred Stock Designation is available as described under
"Available Information." The following summary of all material provisions of the
Preferred Stock Designation does not purport to be complete and is subject, and
is qualified in its entirety by reference, to all the provisions of the
Preferred Stock Designation, including the definition therein of certain terms
used below. Wherever defined terms of the Preferred Stock Designation not
otherwise defined herein are referred to, such defined terms are incorporated
herein by reference.
GENERAL
The Company is authorized to issue 10,000,000 shares of preferred stock,
2,000,000 shares of which are designated as Preferred Stock pursuant to the
Preferred Stock Designation. The Preferred Stock has a par value of $1.00 per
share and a liquidation preference of $20.00 per share. The Preferred Stock does
not have any preemptive rights.
DIVIDENDS
Holders of shares of Preferred Stock are entitled to receive, when and as
declared by the Board of Directors out of funds legally available for such
purpose, cumulative dividends at an annual rate of $1.00 per share. Such
dividends are payable on the fifteenth day of January, April July and October in
each year ("Quarterly Dividend Payment Date") when and as declared by the Board
of Directors, out of sums legally available therefor. Dividends payable for a
portion of a quarterly period are computed on the basis of a 360-day year
consisting of twelve 30-day months. Accrued but unpaid dividends will not
compound.
Pursuant to the terms of the Preferred Stock Designation, whenever quarterly
dividends payable on the Preferred Stock are in arrears, the Company will be
prohibited from (i) paying dividends on, making any other distributions on, or
redeeming or purchasing or otherwise acquiring for consideration any stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Preferred Stock provided that the Company will be able at any
time to redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for, or out of the net cash proceeds from the sale of, other shares of
any such junior stock, (ii) paying dividends on or making any other
distributions on any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Preferred Stock, except
dividends that pay ratably on the Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled, or (iii) redeeming or
purchasing or otherwise acquiring for consideration any stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Preferred Stock, provided that the Company will be able at any time to
redeem, purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Company ranking junior to the Preferred
Stock. Pursuant to the terms of the Preferred Stock Designation, the Company
will be restricted from permitting any subsidiary of the Company to purchase or
otherwise acquire for consideration any shares of stock of the Company unless
the Company could purchase such shares at such time and in such manner.
A-1
<PAGE>
EXCHANGE
Whenever quarterly dividends payable on the Preferred Stock are in arrears
in an aggregate amount at least equal to six full quarterly dividends (which
need not be consecutive), each of the outstanding shares of Preferred Stock
shall, at the option of the holder thereof, be exchangeable into two shares of
Common Stock (until such cumulative dividends have been paid in full). At the
time of exchange, the rights of the holders of the Preferred Stock as preferred
stockholders of the Company shall cease, all dividend arrearages in respect of
such shares shall be eliminated and the person or persons entitled to receive
the Common Stock issuable upon exchange shall be treated for all purposes as the
registered holder or holders of Common Stock.
LIMITATION ON REDEMPTION OR EXCHANGE
Provisions of Delaware law prohibiting the redemption or repurchase by a
corporation of its shares when capital is impaired or when such redemption or
repurchase would result in an impairment of capital will apply to any redemption
or repurchase of the Preferred Stock.
LIQUIDATION, DISSOLUTION OR WINDING UP
Upon any liquidation, dissolution or winding up of the Company, no
distribution will be permitted to be made (i) to the holders of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Preferred Stock unless, prior thereto, the holders of Preferred Stock
shall have received $20 per share, plus an amount equal to unpaid dividends
thereon, including accumulated dividends, whether or not declared, to the date
of such payment, or (ii) to the holders of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Preferred
Stock except distributions made ratably on the Preferred Stock and all other
such parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up.
VOTING RIGHTS
The Holders of Preferred Stock will not have any voting rights except as set
forth in the following paragraphs.
The following actions will be required to be approved by Holders of
two-thirds of the shares of Preferred Stock, voting as a class: (i) any
amendment to the Certificate of Incorporation of the Company which would
materially alter the relative rights and preferences of the Preferred Stock so
as to adversely affect the holders thereof; and (ii) issuance of securities of
any class of the Company's capital stock ranking prior (as to dividends or upon
liquidation, dissolution or winding up) to the Preferred Stock.
Whenever quarterly dividends payable on the Preferred Stock are in arrears
in an aggregate amount at least equal to six full quarterly dividends (which
need not be consecutive), the number of directors constituting the Board of
Directors of the Company shall be increased by two and the holders of the
Preferred Stock shall have, in addition to the rights set forth above, the
special right, voting separately as a single class, to elect two directors of
the Company to fill such newly created directorships at the next successive
annual meeting of stockholders (and with two directorships to be so voted upon
at each successive annual meeting of stockholders thereafter until such
cumulative dividends have been paid in full).
A-2
<PAGE>
ANNEX B
July 24, 1996
[logo]
Independent Committee
Board of Directors
Datapoint Corporation
8400 Datapoint Drive
San Antonio, Texas 78229-4500
Gentlemen:
You have asked Corporate Capital Consultants, Inc. ("CCC") to provide a
written opinion as to the fairness, from a financial point of view, to the
exchanging preferred shareholders ("the Exchanging Preferred Shareholders"),
other than Asher B. Edelman, with respect to whom no opinion was requested, of
Datapoint Corporation ("Datapoint" or "the Company") of the consideration to be
received by them in an offer by the Company, whereby each share of Datapoint's
$1.00 Exchangeable Preferred Stock ("the Preferred Stock") tendered by the
Exchanging Preferred Shareholders would be exchanged for 3.25 shares of the
common stock of the Company ("the Exchange Offer") upon the terms and conditions
set forth in the draft of the preliminary Proxy Statement and Prospectus ("the
Prospectus") dated July 24, 1996.
CCC is a specialist investment banking firm which, since its inception in
1974, performs services in the areas of financial consulting, corporate
valuation and fairness opinions, and mergers and acquisitions. In the valuation
area, CCC has provided corporate valuations, often in conjunction with pending
purchase offers, plans to sell or recapitalizations, for both public and
privately-held companies in a broad range of industries. In the case of public
companies, CCC has furnished fairness opinions in conjunction with a number of
tender offers, going-private transactions, and the purchase of minority
interests.
In connection with rendering this opinion, CCC has reviewed and analyzed,
among other things: a) drafts of the Registration Statement for the Company on
Form S-4 up to and including the draft dated July 16, 1996 ("the Registration
Statement"); b) the Forms 10-K filed by Datapoint for the fiscal years 1991
through 1995; c) the Forms 10-Q for the Company for the three fiscal quarters
ended April 27, 1996; d) drafts of the Prospectus; e) the indenture pertaining
to the Company's 8 7/8% Convertible Subordinated Debentures due 2006; f) various
corporate documents, including by-laws, minutes, loan agreements, litigation
documents, employment agreements, product literature, proxies, and so forth; g)
certain internal financial documents, memoranda and other information furnished
by the Company; h) historical market prices for the two classes of stock; i)
certain financial, operational, and stock market data of companies engaged in
businesses comparable to the Company; and additional information provided from
time to time by Datapoint or by other sources we deemed relevant.
In addition, we: a) met with the Company's principal officers and visited
its San Antonio facility; b) discussed the financial and operating performance
with such officers; c) reviewed with such officers the current and future
prospects of Datapoint; and d) considered such other information, financial
studies, analyses and investigations and financial economic and market criteria
as we deemed relevant.
In rendering this opinion, we have not made any independent appraisal of any
of the physical or intangible assets or liabilities of the Company, and we have
assumed, without independent verification, the accuracy and completeness of the
financial and other information and representations contained in the materials
which have been provided to us by the Company, or which are publicly available.
We have also relied on the representations made by various representatives of
the Company and their agents and advisors, and on other relevant factors.
B-1
<PAGE>
CCC, in reviewing the fairness of the Exchange Offer, took into account the
financial and operating performance of Datapoint, in relation to a group of
similar public companies and their market values. We considered various
multiples of earnings, cash flow, and book value of these companies in rendering
our opinion. We also prepared a discounted cash flow analysis based on our own
scenarios for the Company over the next five years. Other approaches to fairness
included an analysis of market history for both the Preferred Stock and common
stock, projected book value giving effect to the recent sale of the Company's
automotive business and the possible sale of selected assets and operations of
the Company, estimated liquidation value of both types of shares, comparable
transactions, and other factors.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the consideration to be received by the holders of the
Preferred Stock, other than Asher B. Edelman, with respect to whom no opinion
was requested, upon the terms and conditions set forth in the Prospectus is
fair, from a financial point of view, to such holders.
Very truly yours,
CORPORATE CAPITAL CONSULTANTS, INC.
/s/ Carl A. Goldman
President
B-2
<PAGE>
[logo]
September 6, 1996
Independent Committee
Board of Directors
Datapoint Corporation
8400 Datapoint Drive
San Antonio, Texas 78229-4500
Gentlemen:
With regard to rendering its opinion as to the fairness, from a financial
point of view, to the exchanging preferred shareholders ("the Exchanging
Preferred Shareholders"), other than Asher B. Edelman, of Datapoint Corporation
("Datapoint" or "the Company") of the consideration to be received by them in an
offer by the Company, whereby each share of Datapoint's $1.00 Exchangeable
Preferred Stock ("the Preferred Stock") tendered by the Exchanging Preferred
Shareholders would be exchanged for 3.25 shares of the common stock of the
Company ("the Exchange Offer") upon the terms and conditions set forth in the
draft of the joint Proxy Statement/Prospectus dated July 24, 1996 ("the
Prospectus"), CCC has reviewed the most current preliminary 1997 budget
information of Datapoint and reviewed its analysis based on this information,
assuming both the expected sale of Datapoint's Telephony division and the
possibility that this division will not be sold.
Based on CCC's review of both this information and its analysis based on
such information, it remains CCC's opinion that the Exchange Offer is fair, from
a financial point of view, to the Exchanging Preferred Shareholders.
Very truly yours,
CORPORATE CAPITAL CONSULTANTS, INC.
Peter L. Ratner
Senior Vice President
B-3
<PAGE>
ANNEX C
July 24, 1996
[logo]
Board of Directors
Datapoint Corporation
8400 Datapoint Drive
San Antonio, Texas 78229-8500
Gentlemen:
By letter dated April 9, 1996, Patricof & Co. Capital Corp. was engaged by
the board of directors of Datapoint Corporation ("Datapoint" or the "Company")
to express an opinion relating to the fairness, from a financial point of view,
of the consideration to the holders of Datapoint common stock, other than Mr.
Edelman, with respect to whom no opinion was requested, of the Company's offer
to exchange each share of $1.00 Exchangeable Preferred Stock (inclusive of
accrued dividends), $20 liquidation preference per share (the "Preferred
Stock"), for shares of the common stock, par value $0.25 per share (the "Common
Stock"), of the Company (the "Exchange Offer").
It is our understanding that the Preferred Stock is in arrears in the
payment of dividends totalling $2.00 per share as of July 15, 1996.
I. PROCEDURES FOLLOWED
In connection with our analysis of the Exchange Offer and as a basis for
forming our opinion, we have reviewed and analyzed such information as we
considered relevant, including but not limited to the following:
A. DOCUMENTS CONSULTED
1. Public Filings of Datapoint Corporation
-- 10-Ks for the years ended July 31, 1995, 1994, 1993
-- 10-Q for the quarter ended 4/27/96
2. Public filings of companies used for comparative purposes:
3. Relevant Agreements and Contracts, including:
-- March 17, 1992 Exchange Offer and Proxy
-- 8 7/8% Convertible Subordinated Debenture prospectus and
Indenture
-- Acquisition agreements between Kalamazoo and Datapoint
4. Other Company documents
-- Draft S-4 describing the Exchange Offer
-- Company Data
-- Annual Operating Plan for fiscal year 1996
-- Fiscal year 1996 forecast (as of May) pro forma for
restructurings & sale of EADS and certain Dispositions
-- Other internal company financial statements (historic, current,
and prospective)
-- Company financial projections for 1997-2001
-- Company product descriptions
-- Minx business plan
C-1
<PAGE>
-- Bylaws, articles of incorporation, minutes and other corporate
items
5. Trading history of Datapoint Common Stock and Preferred Stock
B. FACILITIES VISITED
1. We visited Datapoint's U.S. headquarters in San Antonio, Texas.
C. PERSONS INTERVIEWED
1. We interviewed certain Datapoint officers to discuss the Company's
historic, current, and prospective financial and operating condition. The
Company personnel interviewed included, but was not limited to, its
chairman, chief operating officer, chief financial officer, chief counsel
and director of open systems product development.
2. We also interviewed Datapoint's outside patent attorneys.
II. FACTORS CONSIDERED AND ALTERNATIVE APPROACHES
A. In arriving at our conclusion we considered, among other elements, the
Company's business (historic, current, and prospective) and its financial
condition. We also made numerous financial and operating comparisons between the
Company and a group of public companies that could be used for comparative
purposes, and determined the investor appraisal ratios accorded the common
stocks of these companies.
B. We considered several approaches usable for the purpose of determining
the value of the equity, as outlined below:
1. Comparative company analysis;
2. Discounted cash flow analysis;
3. Liquidation analysis;
4. The market value of the Common Stock.
We considered several approaches usable for determining the value of the
Preferred Stock, as outlined below:
1. Discounted dividend value
2. Comparative security analysis
3. The market value of the Preferred Stock.
C. We relied most heavily on the results from the comparative company
approach and discounted cash flow analysis in valuing the equity of the Company,
and less heavily on the liquidation approach. We relied most heavily on the
discounted dividend approach in valuing the Preferred Stock and less heavily on
the comparative security analysis.
III. ASSUMPTIONS AND LIMITATIONS
A. We have relied on, and assumed without independent verification, the
accuracy and completeness of the financial and other information contained in
publicly available sources or provided to us orally or in writing by Datapoint,
its officers, directors, employees and agents, its outside counsel, its
independent auditors, independent appraisers, or others.
B. We have assumed that the information supplied to us by Datapoint's
management and others represented good faith efforts to describe the Company's
operations and financial condition including, without limitation, the financial
impact to Datapoint of planned and completed restructurings, the sale of the
Company's Autobusiness Division, and the projected sale of certain of the
Company's assets.
C. We have not undertaken any independent appraisal of Datapoint's assets,
nor have we inspected these companies' books or contracts or made inquiries of
customers, competitors, creditors, or others.
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D. We express no opinion on any tax issues related to the Exchange Offer.
E. This letter is furnished to you in connection with your consideration of
and evaluation of the Exchange Offer, in connection with our engagement to
determine the fairness, from a financial point of view, to the holders of
Datapoint's Common Stock. The analyses contained in this fairness opinion are
for the purposes of the Exchange Offer and cannot be used in connection with any
other transactions or for any other purposes.
IV. CONCLUSION
Based upon the foregoing, and subject to the assumptions and limitations set
forth in Section III hereof, and effective only as of the date of this letter,
we are of the opinion that the Exchange Offer at 3.25 shares of Common Stock for
each share of Preferred Stock is fair from a financial point of view to the
holders of Datapoint Common Stock, other than Mr. Edelman, with respect to whom
no opinion was requested.
Very truly yours,
PATRICOF & CO. CAPITAL CORP.
By: /s/ Gary H. Matt
-----------------------------------
Its: /s/ Managing Director
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September 9, 1996
Board of Directors
Datapoint Corporation
8400 Datapoint Drive
San Antonio, TX 78229-8500
Gentlemen:
With regard to its opinion dated July 24, 1996 as to the fairness, from a
financial point of view, of the consideration to the holders of Datapoint common
stock of Datapoint's offer to exchange for each share of $1.00 Exchangeable
Preferred Stock (inclusive of accrued dividends) 3.25 shares of the common stock
of Datapoint, Patricof has reviewed the most current 1997 preliminary budget
information of Datapoint and reviewed its analysis based on such information
assuming both the expected sale of Telephony and the possibility that Telephony
will not be sold. It remains Patricof's opinion that the Exchange Offer is fair,
from a financial point of view, to the holders of the Company's common stock
(other than Mr. Edelman, with respect to whom no opinion was requested).
Very truly yours,
/s/ Gary H. Matt
Gary H. Matt
Managing Director
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ANNEX D
DATAPOINT CORPORATION
1996 DIRECTOR STOCK OPTION PLAN
ARTICLE I
PURPOSE
The purpose of the Datapoint Corporation 1996 Director Stock Option Plan is
to encourage directors to acquire a proprietary interest in the Common Stock of,
and to continue their association with, the Company. Furthermore, the
availability and offering of stock options to such directors is believed to
strengthen the ability of the Company to attract and retain directors with
outstanding qualifications and experience.
ARTICLE II
DEFINITIONS
The following capitalized terms used in the Plan shall have the respective
meanings set forth in this Article:
2.1 BOARD: The Board of Directors of Datapoint Corporation.
2.2 CODE: The Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
2.3 COMMITTEE: The Compensation Committee of the Board; provided, however,
the Compensation Committee shall not take any action under this Plan unless it
is at all times composed solely of not less than three "Non-Employee Directors"
within the meaning of Rule 16b-3, as promulgated under the Securities Exchange
Act of 1934, as amended. In the event the Compensation Committee is unable to
act, the Board shall take any and all actions required or permitted to be taken
by the Committee under this Plan.
2.4 COMMON STOCK: The common stock of Datapoint Corporation.
2.5 COMPANY: Datapoint Corporation and any of its subsidiaries.
2.6 DISABILITY: Disability within the meaning of section 22(e)(3) of the
Code, as determined by the Committee.
2.7 ELIGIBLE DIRECTOR: A member of the Board of the Company.
2.8 FAIR MARKET VALUE: The average of the high and low reported sales
prices of Common Stock on the New York Stock Exchange -- Composite Tape as
reported in the Southwest edition of THE WALL STREET JOURNAL. If there were no
Common Stock sales on such day, then: (a) in the case of an Option grant, Fair
Market Value is the average of the high and low reported sales prices on the
last preceding day on which sales occurred; and (b) in the case of the exercise
of an Option, the Fair Market Value is the "Weighted Average" of the average of
the high and low reported sales prices on the last preceding day on which sales
occurred and such average on the first succeeding day on which sales occurred.
The Weighted Average is determined by first multiplying (i) the average between
the high and low sales prices on the last preceding day on which sales occurred
by the number of days after exercise until the first subsequent sales occurred,
(ii) the average between the high and low sales prices on the next succeeding
day on which sales occurred by the number of days before exercise of the last
preceding day on which sales occurred. The Weighted Average is the sum of (i)
and (ii) above, divided by the number of days from the last preceding day on
which sales occurred to the next succeeding day on which sales occurred.
2.9 OPTION: A stock option granted under the Plan.
2.10 OPTION PRICE: The purchase price of a share of Common Stock under an
Option.
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2.11 PLAN: The Datapoint Corporation 1996 Director Stock Option Stock
Plan, as from time to time amended.
2.12 RETIREMENT: Cessation of service on the Board at or after age 65.
2.13 SUBSIDIARY: A subsidiary corporation, as defined in section 424(f) of
the Code.
2.14 TERMINATION DATE: A date fixed by the Committee but not later than
the day following the fifth anniversary of the date on which the Option is
granted.
ARTICLE III
ADMINISTRATION
3.1 Except as otherwise provided in the Plan, the Committee shall make all
grants hereunder, administer the Plan, construe and interpret the Plan,
establish and amend rules and regulations for its administration, and perform
all other acts relating to its administration, including the delegation of
administrative responsibilities, which it believes reasonable and proper;
provided, however, that all Options granted hereunder shall be approved in
advance by the Committee, and if the Committee is unable to act, then all such
Option grants made hereunder shall be approved in advance by the Board.
3.2 The Committee shall consist of not less than three members of the
Board. The members of the Committee shall serve at the pleasure of the Board,
which shall have the power, at any time and from time to time, to remove members
from the Committee or to add members thereto. Vacancies on the Committee,
however caused, shall be filled by the Board.
3.3 Any decision made, or action taken, by the Committee in connection with
the interpretation and administration of the Plan shall be final and conclusive.
ARTICLE IV
SHARES SUBJECT TO THE PLAN
4.1 The total number of shares of Common Stock available for grants of
Options under the Plan shall be 500,000 subject to adjustment in accordance with
Article VIII of the Plan. These shares may be either authorized but unissued or
reacquired shares of Common Stock. If an Option or portion thereof shall expire
or terminate for any reason without having been exercised in full, the
unpurchased shares covered by such Option shall be available for future grants
of Options.
ARTICLE V
ELIGIBILITY AND GRANT OF OPTIONS
5.1 Options may be granted only to Eligible Directors of the Company.
5.2 Each current Eligible Director shall be granted, as of the date of
adoption of the Plan by the Board, but exercisable only after the date of the
approval of the Plan by the shareholders of the Company, an Option to purchase
25,000 shares of Common Stock. Thereafter, each newly elected Eligible Director
shall be granted, as of the date of election to the Board, an Option to purchase
25,000 shares of Common Stock. Additionally, the current Chairman of the Board
shall receive, as of the date of the adoption of the Plan by the Board, but
exercisable only after the date of the approval of the Plan by the shareholders
of the Company, an Option to purchase an additional 50,000 shares of Common
Stock. Thereafter, each newly elected Chairman of the Board shall receive, as of
the date of his election as Chairman of the Board, an Option to purchase
additional shares of Common Stock.
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5.3 An Eligible Director or Chairman of the Board who receives a grant
pursuant to Section 5.2 of the Plan shall not thereafter be eligible for a
further grant under the Plan whether or not such original grant has been
exercised, except in the limited case of a sitting director being promoted to
Chairman as detailed in Section 5.2 hereof.
ARTICLE VI
TERMS OF OPTIONS
6.1 OPTION AGREEMENTS: All Options shall be evidenced by written
agreements executed by the Company and the Optionee. Such Options shall be
subject to the applicable provisions of the Plan, and shall contain such
provisions as are required by the Plan and any other provisions the Committee
may prescribe. All agreements evidencing Options shall specify the total number
of shares subject to each grant, the Option Price and the Termination Date.
6.2 OPTION PRICE: The Option Price shall not be less than the Fair Market
Value of a share of Common Stock on the date the Option is granted.
6.3 PERIOD OF EXERCISE: Options shall be exercisable at any time after the
date of the Option grant provided such grant has been approved in advance by the
Committee (or the Board, as applicable). However, no Option or portion thereof
shall be exercisable after the Termination Date.
6.4 MANNER OF EXERCISE AND PAYMENT: An option, or portion thereof, shall
be exercised by delivery of a written notice of exercise to the Company and
payment of the full price of the shares being purchased pursuant to the Option.
An Optionee may exercise an Option with respect to less than the full number of
shares for which the Option may then be exercised, but an Optionee must exercise
the Option in full shares of Common Stock. The price of Common Stock purchased
pursuant to an Option, or portion thereof, may be paid:
(a) in United States dollars in cash or by check, bank draft or money order
payable to the order of the Company,
(b) through the delivery of shares of Common Stock with an aggregate Fair
Market Value on the date of exercise equal to the Option Price, if so
specified in the relevant Option agreement, or
(c) by any combination of the above methods of payment.
The Committee shall determine acceptable methods for tendering Common Stock
as payment upon exercise of an Option and may impose such limitations and
prohibitions on the use of Common Stock to exercise an Option as it deems
appropriate, including, without limitation, any limitation or prohibition
designed to avoid certain accounting consequences which may result from the use
of Common Stock as payment upon exercise of an Option.
6.5 NONTRANSFERABILITY OF OPTIONS: Each Option shall, during the
Optionee's lifetime, be exercisable only by the Optionee, and neither it nor any
right hereunder shall be transferable otherwise than by will or the laws of
descent and distribution or be subject to attachment, execution or other similar
process. In the event of any attempt by the Optionee to alienate, assign,
pledge, hypothecate or otherwise dispose of an Option or of any right hereunder,
except as provided for herein, or in the event of any levy or any attachment,
execution or similar process upon the rights or interest hereby conferred, the
Company may terminate the Option by notice to the Optionee and the Option shall
thereupon become null and void.
6.6 CESSATION OF DIRECTORSHIP OF OPTIONEE:
(a) CESSATION OF DIRECTORSHIP OTHER THAN BY REASON OF RETIREMENT,
DISABILITY, OR DEATH. If an Optionee shall cease to be a director of the
Company otherwise than by reason of Retirement, Disability, or death, each
Option held by the Optionee, together with all rights hereunder, shall
terminate on the earlier of the Termination Date or the one-hundred and
eightieth day following the date of cessation of the directorship, to the
extent not previously exercised; provided, however, that in
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the event the Optionee's directorship service is terminated due to gross
misconduct, the Options granted to such Optionee hereunder shall be null and
void after such termination occurs or such determination is made.
(b) CESSATION OF DIRECTORSHIP BY REASON OF RETIREMENT OR
DISABILITY. If an Optionee shall cease to be a director of the Company by
reason of Retirement or Disability, each Option held by the Optionee shall
remain exercisable until the earlier of:
i. the termination Date,
ii. the death of the Optionee, or such later date not more than one
year after the death of the Optionee as the Committee, in its
discretion, may provide pursuant to Section 6.6(c) of the Plan, or
iii. the first anniversary of the date of the cessation of the
Optionee's directorship, and thereafter all such Options shall
terminate together with all rights hereunder, to the extent not
previously exercised.
(c) CESSATION OF DIRECTORSHIP BY REASON OF DEATH. In connection with
adjusting the terms of outstanding Options, the Committee shall take any
such action, including price adjustment, as in its judgment shall be
necessary to preserve the Optionee's rights substantially proportionate to
the rights existing prior to such event, and to the extent that such action
shall include an increase or decrease in the number of shares of Common
Stock subject to outstanding Options, the number of shares available under
Article IV above shall be increased or decreased, as the case may be,
proportionately. The judgment of the Committee with respect to any matter
referred to in this Article shall be conclusive and binding upon each
Optionee.
ARTICLE VII
ADJUSTMENTS
7.1 If (a) the Company shall at any time be involved in a transaction to
which section 424(a) of the Code is applicable; (b) the Company shall declare a
dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any
other event shall occur which in the judgment of the Board necessitates action
by way of adjusting the terms of the outstanding Options, the Board shall take
any such action, including price adjustment, as in its judgment shall be
necessary to preserve the Optionee's rights substantially proportionate to the
rights existing prior to such event, and to the extent that such action shall
include an increase or decrease in the number of shares of Common Stock subject
to outstanding Options, the number of shares available under Article IV above
shall be increased or decreased, as the case may be, proportionately. The
judgment of the Committee with respect to any matter referred to in this Article
shall be conclusive and binding upon each Optionee.
ARTICLE VIII
AMENDMENT AND TERMINATION OF PLAN
8.1 The Board may at any time, or from time to time, suspend or terminate
the Plan in whole or in part, or amend it in such respects as the Board may deem
appropriate.
8.2 No amendment, suspension or termination of this Plan shall, without the
Optionee's consent, alter or impair any of the rights or obligations under any
Option theretofore granted to an Optionee under the Plan.
8.3 The Board may amend this Plan, subject to the limitations cited above,
in such manner as it deems necessary to permit the granting of Options meeting
the requirements of future amendments or issued regulations, if any, to the Code
and to Rule 16b-3, promulgated under the Securities Exchange Act of 1934, as
amended.
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ARTICLE IX
GOVERNMENT AND OTHER REGULATIONS
9.1 The obligation of the Company to issue, or transfer and deliver shares
for Options exercised under the Plan shall be subject to all applicable laws,
regulations, rules, orders and approvals which shall then be in effect and
required by governmental entities and any stock exchanges on which Common Stock
is traded.
9.2 In addition to, and without limiting, the Company's rights under the
preceding paragraph, the Committee any postpone any exercise of an Option for
such time as the Committee in its discretion may deem necessary in order to
permit the Company with reasonable diligence (i) to effect or maintain the
listing of the Common Stock on the New York Stock Exchange or to effect or
maintain registration under the Securities Act of 1933, as amended, of the Plan
or the shares issuable upon the exercise of the Option, (ii) to determine that
such shares and Plan are exempt from registration, or (iii) to comply with any
applicable laws, regulations, rules, orders or approval requirements then in
effect and required by governmental entities or any stock exchange on which the
Common Stock is traded. Any such postponement shall not extend the term of an
Option, and neither the Company or its directors or officers shall have any
obligation or liability to any Optionee or Optionee's successor with respect to
any shares subject to an Option that lapses unexercised because of such
postponement.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 PLAN DOES NOT CONFER STOCKHOLDER RIGHTS: Neither the Optionee nor any
person entitled to exercise the Optionee's rights in the event of the Optionee's
death shall have any rights of a stockholder with respect to the shares subject
to each Option, except to the extent that, and until, such shares shall have
been issued upon the exercise of each Option.
10.2 PLAN EXPENSES: Any expenses of administering this Plan shall be borne
by the Company.
10.3 USE OF EXERCISE PROCEEDS: Payments received from Optionees upon the
exercise of Options shall be used for the general corporate purposes of the
Company, except that any Common Stock received in payment may be retired, or
retained in the Company's treasury and reissued.
10.4 INDEMNIFICATION: In addition to such other rights of indemnification
as they may have as members of the Board, or the Committee, the members of the
Committee and the Board shall be indemnified by the Company against all costs
and expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any action
taken or failure to act under or in connection with the Plan or any Option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except a judgment based upon a finding of bad faith;
provided that upon the institution of any such action, suit or proceeding a
Committee or Board member shall, in writing, give the Company notice thereof and
an opportunity, at its own expense, to handle and defend the same before such
Committee or Board member undertakes to handle and defend it on such member's
own behalf.
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ARTICLE XI
SHAREHOLDER APPROVAL AND EFFECTIVE DATES
11.1 The Plan shall become effective when it is adopted by the Board.
However, if the Plan is not approved within one year after the Plan is adopted
by the Board by the vote at a meeting of the shareholders of Datapoint
Corporation of the holders of a majority of the outstanding shares of Datapoint
Corporate entitled to vote, the Plan and all Options shall terminate at the time
of that meeting of shareholders or, if no such meeting is held, after the
passage of one year from the date the Plan was adopted by the Board. Options may
not be granted under the Plan after November 1, 2006.
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ANNEX E
DATAPOINT CORPORATION
1996 EMPLOYEE STOCK OPTION PLAN
ARTICLE I
PURPOSE
The purpose of the Datapoint Corporation 1996 Employee Stock Option Plan is
to provide certain selected employees of Datapoint Corporation and its
subsidiaries an opportunity to purchase or receive shares of Common Stock of
Datapoint Corporation or to benefit from the appreciation thereof, thus
providing an increased incentive for these employee to contribute to the future
success and prosperity of Datapoint Corporation, enhancing the value of the
stock for the benefit of the stockholders, and increasing the ability of
Datapoint Corporation to attract and retain individuals of exceptional skills.
ARTICLE II
DEFINITIONS
The following capitalized terms used in the Plan shall have the respective
meanings set forth in this Article:
2.1 BOARD: The Board of Directors of Datapoint Corporation.
2.2 CODE: The Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
2.3 COMMITTEE: The Committee, appointed by the Board and described in
Section 3.2 of the Plan, that shall be responsible for administering the Plan
and making Option Grants hereunder.
2.4 COMMON STOCK: The common stock of Datapoint Corporation.
2.5 COMPANY: Datapoint Corporation and any of its Subsidiaries, if any.
2.6 DISABILITY: Disability within the meaning of section 22(e)(3) of the
Code, as determined by the Committee.
2.7 EMPLOYER: The corporation that employs the employee or Optionee.
2.8 FAIR MARKET VALUE: The average of the high and low reported sales
prices of Common Stock on the New York Stock Exchange-Composite Tape as reported
in the Southwest edition of THE WALL STREET JOURNAL. If there were no Common
Stock sales on such day, then:
a. in the case of an Option grant, Fair Market Value is the average of the
high and low reported sales prices on the last preceding day on which
sales occurred; and
b. in the case of the exercise of an Option, the Fair Market Value is the
"Weighted Average" of the average of the high and low reported sales
prices on the last preceding day on which sales occurred and such average
on the first succeeding day on which sales occurred. The Weighted Average
is determined by first multiplying (i) the average between the high and
low sales prices on the last preceding day on which sales occurred by the
number of days after exercise until the first subsequent sales occurred,
and (ii) the average between the high and low sales prices on the next
succeeding day on which sales occurred by the number of days before
exercise of the last preceding day on which sales occurred.
2.9 ISO: An incentive stock option within the meaning of section 422 of
the Code.
2.10 NON-EMPLOYEE DIRECTOR: A director who: (i) is not currently an
officer or employee of Datapoint Corporation or of any Subsidiary; (ii) (A) does
not receive compensation, either directly or indirectly, for any
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non-director service in an amount that would be required to be disclosed under
Item 404(a) of Regulation S-K or (B) possess an interest in any other
transaction requiring disclosure under such Item; and (iii) is not engaged in a
business relationship disclosable under Item 404(b) of Regulation S-K.
2.11 NON-ISO: A stock option that is not an ISO.
2.12 OPTION: A stock option granted under the Plan.
2.13 OPTION PRICE: The purchase price of a share of Common Stock under an
Option.
2.14 OPTIONEE: An employee of the Company who has been granted one or more
Options.
2.15 PARENT CORPORATION: A parent corporation, as defined in section
424(e) of the Code.
2.16 PLAN: The Datapoint Corporation 1996 Employee Stock Option Plan, as
from time to time amended.
2.17 RESTRICTED PERIOD: A period beginning on the date the Option is
granted and ending on a date determined by the Committee.
2.18 RESTRICTED STOCK: Common Stock subject to the restrictions described
in Section 6.11 of the Plan, so long as such restrictions are in effect.
2.19 RETIREMENT: Retirement on or after age sixty-five, or, with the
advance consent of the Company, at an earlier age.
2.20 STOCK APPRECIATION RIGHT: A Stock Appreciation Right as defined in
Section 6.7 of the Plan.
2.21 SUBSIDIARY: A subsidiary corporation, as defined in section 424(f) of
the Code.
2.22 TERMINATION DATE: A date fixed by the Committee but not later, with
respect to an ISO, than the day preceding the tenth anniversary of the date on
which the Option is granted or, with respect to a Non-ISO, than the day
following the tenth anniversary of the date on which the Option is granted.
ARTICLE III
ADMINISTRATION
3.1 Except as otherwise provided in the Plan, the Committee shall
administer the Plan and shall have full power to grant Options, construe and
interpret the Plan, establish and amend rules and regulations for its
administration, and perform all other acts relating to the Plan, including the
delegation of administrative responsibilities, which it believes reasonable and
proper.
3.2 The Committee shall consist of not less than three members of the
Board, all of whom shall be Non-Employee Directors, and appointed by the Board.
The members of the Committee shall serve at the pleasure of the Board, which
shall have the power, at any time and from time to time, to remove members from
the Committee or to add members thereto. Vacancies on the Committee, however
caused, shall be filled by the Board. The Board shall take all steps necessary
to assure that the Committee is composed of Non-Employee Directors within the
meaning of Rule 16b-3 as promulgated under the Securities Exchange Act of 1934,
as amended, and that Options granted under this Plan comply in all respects with
the requirements of Rule 16b-3. Options granted hereunder shall be approved in
advance by the Committee. However, if the Committee, for whatever reason, is
unable to act, then Options granted under this Plan shall be approved in advance
by the Board.
3.3 Subject to the provisions of the Plan, the Committee shall establish
the policies and criteria pursuant to which it shall grant Options and
administer the Plan. Subject to the provisions of the Plan, the Committee shall,
in its discretion, determine which employees of the Company shall be granted
Options, the number of shares subject to option under any such Options, the
dates after which Options may be exercised,
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in whole or in part, and the terms and conditions of the Options. This shall
include Options granted with terms and conditions that will permit their
designation in accordance with the wishes of the prospective Optionee as ISOs or
Non-ISOs.
3.4 The Committee may at any time, with the consent of the Optionee, in its
sole discretion, cancel any Option and issue to the Optionee a new Option for an
equivalent or lesser number of Common Stock shares, and at a lesser Option
Price.
3.5 Any decision made, or action taken, by the Committee or the Board
arising out of or in connection with the interpretation and administration of
the Plan shall be final and conclusive.
ARTICLE IV
SHARES SUBJECT TO THE PLAN
4.1 The total number of shares of Common Stock available for grants of
Options under the Plan shall be 2,000,000, subject to adjustment in accordance
with Article VIII of the Plan. These shares may be either authorized but
unissued or reacquired shares of Common Stock. If an Option or portion thereof
shall expire, terminate or be cancelled for any reason without having been
exercised in full, the unpurchased shares covered by such Option shall be
available for future grants of Options. An Option, or portion thereof, exercised
through the exercise of a Stock Appreciation Right pursuant to Section 6.7 of
the Plan shall be treated, for the purposes of this Article IV, as though the
Option, or portion thereof, had been exercised through the purchase of Common
Stock, with the result that the shares of Common Stock subject to the Option, or
portion thereof, that was so exercised shall not be available for future grants
of Options.
ARTICLE V
ELIGIBILITY
5.1 Options may be granted to employees of the Company or, with respect to
Non-ISO's, to persons who have been engaged to become employees of the Company.
Members of the Board who are not employees of the Company shall not be eligible
for Option grants hereunder.
ARTICLE VI
TERMS OF OPTIONS
6.1 OPTION AGREEMENTS. All Options shall be evidenced by written
agreements executed by the Company and the Optionee. Such Options shall be
subject to the applicable provisions of the Plan, and shall contain such
provisions as are required by the Plan and any other provisions the Committee
may prescribe. All agreements evidencing Options shall specify the total number
of shares subject to each grant, the Option Price and the Termination Date.
Those Options that comply with the requirements for an ISO set forth in section
422 of the Code at the request of the Optionee shall be designated ISOs, and all
other Options shall be designated Non-ISOs.
6.2 OPTION PRICE. The Option Price shall not be less than seventy-five
percent (75%) of the Fair Market Value of a share of Common Stock on the date
the Option is granted. However, if the Option is intended to be an ISO, the
Option Price shall not be less than the Fair Market Value of a share of Common
Stock on the date the Option is granted.
6.3 PERIOD OF EXERCISE. The Committee shall determine the dates after
which Options may be exercised in whole or in part for any reason whatsoever. If
Options are exercisable in installments, installments or portions thereof that
are exercisable and not exercised shall accumulate and remain exercisable. The
Committee may also amend an Option to accelerate the dates after which Options
may be exercised in whole or in part. However, no Option or portion thereof
shall be exercisable after the Termination Date; in
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addition, no Option or portion thereof granted to any Optionee subject to the
restrictions of Section 16(b) of the Securities Exchange Act of 1934, as
amended, shall be made exercisable during the six month period beginning on the
date such Option was granted.
6.4 SPECIAL RULES REGARDING ISOS GRANTED TO CERTAIN
EMPLOYEES. Notwithstanding any contrary provisions of Section 6.2 and 6.3 of
the Plan, no ISO shall be granted to any employee who, at the time the Option is
granted, owns (directly, or within the meaning of section 424(d) of the Code)
more than ten percent of the total combined voting power of all classes of stock
of the Employer or of any Subsidiary or Parent Corporation thereof, unless (a)
the Option Price under such Option is at least one hundred and ten percent
(110%) of the Fair Market Value of a share of Common Stock on the date the
Option is granted and (b) the Termination Date of such Option is a date not
later than the day preceding the fifth anniversary of the date on which the
Option is granted.
6.5 MANNER OF EXERCISE AND PAYMENT. An Option, or portion thereof, shall
be exercised by delivery of a written notice of exercise to the Company and
payment of the full price of the shares being purchased pursuant to the Option.
An Optionee may exercise an Option with respect to less than the full number of
shares for which the Option may then be exercised, but an Optionee must exercise
the Option in full shares of Common Stock. The price of Common Stock purchased
pursuant to an Option, or portion thereof, may be paid in United States dollars
in cash or by check, bank draft or money order payable to the order of the
Company, or, if specifically permitted under the terms of the Option, through
the delivery of shares of Common Stock with an aggregate Fair Market Value on
the date of exercise equal to the Option Price, or by any combination of the
above methods of payment. The Committee shall determine acceptable methods for
tendering Common Stock as payment upon exercise of an Option and may impose such
limitations and prohibitions on the use of Common Stock to exercise an Option as
it deems appropriate, including, without limitation, any limitation or
prohibition designed to avoid certain accounting consequences which may result
from the use of Common Stock as payment upon exercise of an option.
6.6 WITHHOLDING TAXES. The Company may, in its discretion, require an
Optionee to pay to the Company the amount, or make such other arrangements, at
the time of exercise or thereafter, that the Company deems necessary to satisfy
its obligation to withhold Federal, state or local income or other taxes
incurred by reason of the exercise.
6.7 STOCK APPRECIATION RIGHTS. At or after the grant of an Option, the
Committee, in its discretion, may provide an Optionee with an alternate means of
exercising an Option, or a designated portion thereof, by granting the Optionee
a Stock Appreciation Right. A Stock Appreciation Right is a right to receive,
upon exercise of an Option or any portion thereof, in the Committee's
discretion, an amount of cash equal to and/ or shares of Common Stock having a
Fair Market Value on the date of exercise equal to the excess of the Fair Market
Value of a share of Common Stock on the date of exercise over the Option Price,
multiplied by the number of shares of Common Stock that the Optionee would have
received had the Option or such portion thereof been exercised through the
purchase of shares of Common Stock at the Option Price, provided that (a) such
Option or portion thereof has been designated as exercisable in this alternative
manner, (b) such Option or portion thereof is otherwise exercisable, and (c) the
Fair Market Value of a share of Common Stock on the date of exercise exceeds the
Option Price.
6.8 NONTRANSFERABILITY OF OPTIONS. Each Option shall, during the
Optionee's lifetime, be exercisable only by the Optionee, and neither it nor any
right hereunder shall be transferable otherwise than by will, the laws of
descent and distribution, or, solely with respect to Non-ISO's, a qualified
domestic relations order (as defined in the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder) nor will any Option
granted hereunder be subject to attachment, execution or other similar process.
In the event of any attempt by the Optionee to alienate, assign, pledge,
hypothecate or otherwise dispose of an Option or of any right hereunder, except
as provided for herein, or in the event of any levy or any attachment, execution
or similar process upon the rights of interests hereby conferred, the Company
may terminate the Option by notice to the Optionee and the Option shall
thereupon become null and void.
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6.9 CESSATION OF EMPLOYMENT OF OPTIONEE.
(a) CESSATION OF EMPLOYMENT OTHER THAN BY REASON OF RETIREMENT,
DISABILITY, OR DEATH. If an Optionee shall cease to be employed by the
Company otherwise than by reason of Retirement, Disability, or death, each
Option held by the Optionee, together with all rights hereunder, shall be
exercisable only to the extent exercisable on the date of the cessation of
employment, and shall terminate on the earlier of the Termination Date or
the one hundred and eightieth day following the date of cessation of
employment, to the extent not previously exercised; provided, however, that
in the event the Optionee's employment with the Company is terminated due to
his gross misconduct, the Options granted to such Optionee hereunder shall
be null and void after such termination occurs or such determination is made
by the Committee.
(b) CESSATION OF EMPLOYMENT BY REASON OF RETIREMENT OR DISABILITY. If
an Optionee shall cease to be employed by the Company by reason of
Retirement or Disability, each Option held by the Optionee shall remain
exercisable, to the extent it was exercisable at the time of cessation of
employment, until the earliest of:
i. the Termination Date,
ii. the death of the Optionee, or such later date not more than one
year after the death of the Optionee as the Committee, in its
discretion, may provide pursuant to section 6.9(c) of the Plan, or
iii. the first anniversary of the date of the cessation of the
Optionee's employment, and thereafter all such Options shall
terminate together with all rights hereunder, to the extent not
previously exercised.
(c) CESSATION OF EMPLOYMENT BY REASON OF DEATH. In the event of the
death of the Optionee, while employed by the Company, an Option may be
exercised at any time or from time to time prior to the earlier of the
Termination Date or the first anniversary of the date of the Optionee's
death, by the person or persons to whom the Optionee's rights under each
Option shall pass by will or by the applicable laws of descent and
distribution, to the extent that the Optionee was entitled to exercise it on
the Optionee's date of death. In the event of the death of the Optionee
while entitled to exercise an option pursuant to Section 6.9(b), the
Committee, in its discretion, may permit such Option to be exercised at any
time or from time to time prior to the Termination Date during a period of
up to one year from the death of the Optionee, as determined by the
Committee, by the person or persons to whom the Optionee's rights under each
Option shall pass by will or by the applicable laws of descent and
distribution, to the extent that the Option was exercisable at the time of
cessation of the Optionee's rights under an Option have passed by will or by
the applicable laws of descent and distribution shall be subject to all
terms and conditions of the Plan and the Option applicable to the Optionee.
6.10 NOTIFICATION OF SALES OF COMMON STOCK. Any Optionee who disposes of
shares of Common Stock acquired upon the exercise of an ISO: (a) within two
years after date of the grant of the ISO under which the shares were acquired;
(b) within one year after the transfer of such shares to the Optionee; or (c)
more than three months after his termination of employment with the Company,
shall notify the Company of such disposition and of the amount realized upon
such disposition. In the event an Optionee terminates employment with the
Company due to Disability, the words "three months" in Section 6.10(c) shall be
replaced with the words "one year."
6.11 RESTRICTIONS UPON SHARES OF COMMON STOCK ACQUIRED UPON EXERCISE OF AN
OPTION:
(a) PROVISIONS CONCERNING RESTRICTED STOCK. An Option may provide, in
the discretion of the Committee, that all or a portion of the Common Stock
to be received by the Optionee upon exercise of the Option (including
exercise of a Stock Appreciation Right) shall be Restricted Stock. None of
the shares of Common Stock acquired by the Optionee upon the exercise of an
Option shall be Restricted Stock unless the Option agreement expressly
provides that all or a portion of such shares shall be shares of Restricted
Stock and the Restricted Period with respect to such shares is stated in the
Option agreement. The Committee may establish different Restricted Periods
with respect to different shares
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of Common Stock acquired pursuant to an Option. The Committee may also
accelerate the dates at which the Restricted Period ends or otherwise waive
or modify the restrictions on Restricted Stock with the consent of the
Optionee before or after an Option is exercised, Common Stock delivered to
an estate, heir or beneficiary of an Optionee pursuant to the exercise of an
Option after the Optionee's death shall not be Restricted Stock.
(b) RESTRICTIONS ON TRANSFERABILITY. During the Restricted Period
shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered, except as provided herein. Except for such
restrictions, the Optionee, as owner of such shares, shall have all the
rights of a stockholder, including (but not limited to) the right to receive
all dividends paid on such shares and the right to vote such shares.
Restricted Stock may be transferred to the Company in satisfaction of the
Company's obligation to withhold taxes pursuant to Section 6.6 of the Plan,
or be placed into escrow to secure the Company's ability to satisfy such
obligation, and any restrictions with respect to shares transferred in
satisfaction of such obligation shall terminate. Each certificate issued in
respect of shares of Restricted Stock acquired pursuant to the exercise of
an Option shall be registered in the name of the Optionee, shall be
deposited by him with the Company together with stock power endorsed in
blank and shall be the following (or similar legend):
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY IMPOSED BY THAT CERTAIN INSTRUMENT
ENTITLED 'DATAPOINT CORPORATION 1996 EMPLOYEE STOCK OPTION PLAN', WHICH
GRANTS TO THE COMPANY AN OPTION TO PURCHASE SUCH SHARES IN CERTAIN
INSTANCES. A COPY OF SUCH PLAN IS ON FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY."
At the end of the Restricted Period, or when the restrictions have otherwise
terminated with respect to one or more shares of Restricted Stock, the
Company shall deliver to the Optionee (or his legal representative,
beneficiary or heir) one share of Common Stock without the legend referred
to herein for each such share of Restricted Stock deposited with it by the
Optionee.
(c) COMPANY'S OPTION TO REPURCHASE UPON CESSATION OF EMPLOYMENT. If an
Optionee cease to be an employee of the Company during the restricted Period
for any reason, the Company shall have an option, with respect to Options
exercised otherwise than pursuant to a Stock Appreciation Right, to purchase
all or a portion of the shares of Restricted Stock acquired by the Optionee
pursuant to the exercise of an Option, at a price equal to the price
originally paid therefor by the Optionee. With respect to shares of
Restricted Stock acquired pursuant to the exercise of a Stock Appreciation
Right, the Company shall have the option to reacquire such shares without
the payment of any consideration. The Company may exercise its option to
purchase or reacquire the Restricted Stock within ninety days of the date on
which the Optionee ceases to be employed by the Company. The Company shall
exercise its option by giving notice to the Optionee in writing of such
exercise. The Company shall pay in cash the purchase price for shares of
Restricted Stock within five (5) days after exercising its option pursuant
to this paragraph. If the Company does not exercise its option to purchase
or reacquire shares of Restricted Stock, upon the expiration of the period
during which the Company may exercise its option to purchase such shares of
Restricted Stock, the Company shall deliver to the Optionee (or the
Optionee's legal representative, beneficiary or heir) one share of Common
Stock without the legend referred to herein for each share of Restricted
Stock deposited with it by the Optionee.
ARTICLES VII
LIMITATION ON GRANTS OF ISOS
7.1 The aggregate Fair Market Value (determined as of the date the Option
is granted) of the Common Stock which any employee may exercise for the first
time in any calendar year under this or any other stock option plan maintained
by the Employer or by any Subsidiary or Parent Corporation of the Employer as an
ISO shall be limited to $100,000 or such higher amount as may be permitted from
time to time under the Code.
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ARTICLE VIII
ADJUSTMENTS
8.1 If (a) the Company shall at any time be involved in a transaction to
which section 424(a) of the Code is applicable; (b) the Company shall declare a
dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any
other event shall occur which in the judgment of the Committee necessitates
action by way of adjusting the terms of the outstanding Options, the Committee
shall take any such action, including price adjustment, as in its judgment shall
be necessary to preserve the Optionee's rights substantially proportionate to
the rights existing prior to such event, and to the extent that such action
shall include an increase or decrease in the number of shares of Common Stock
subject to outstanding Options, the number of shares available under Article IV
above shall be increased or decreased, as the case may be, proportionately. The
judgment of the Committee with respect to any matter referred to in this Article
shall be conclusive and binding upon each Optionee.
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
9.1 The Board may at any time, or from time to time, suspend or terminate
the Plan in whole or in part or amend it in such respects as the Board may deem
appropriate.
9.2 No amendment, suspension or termination of this Plan shall, without the
Optionee's consent, alter or impair any of the rights or obligations under any
Option theretofore granted to an Optionee under the Plan.
9.3 The Board may amend this Plan, subject to the limitations cited above,
in such matter as it deems necessary to permit the granting of Options meeting
the requirements of future amendments or issued regulations, if any, to the Code
and Rule 16b-3.
ARTICLE X
GOVERNMENT AND OTHER REGULATIONS
10.1 The obligation of the Company to issue, or transfer and deliver shares
for Options exercised under the Plan shall be subject to all applicable laws,
regulations, rules, orders and approvals which shall then be in effect and
required by governmental entities and any stock exchanges on which Common Stock
is traded.
10.2 In addition to, and without limiting, the Company's rights under the
preceding paragraph, the Committee may postpone any exercise of an Option or
Stock Appreciation Right for such time as the Committee in its discretion may
deem necessary in order to permit the Company with reasonable diligence (i) to
effect or maintain the listing of the Common Stock in the New York Stock
Exchange or to effect or maintain registration under the Securities Act of 1933,
as amended, of the Plan or the shares issuable upon the exercise of the Option
or the Stock Appreciation Right, (ii) to determine that such shares and Plan are
exempt from registration, or (iii) to comply with any applicable laws,
regulations, rules, orders, or approval requirements then in effect and required
by governmental entities of any stock exchange on which the Common Stock is
traded. Any such postponement shall not extend the term of an Option, and
neither the Company nor its directors or officers shall have any obligation or
liability to any Optionee or Optionee's successor with respect to any shares
subject to an Option or Stock Appreciation Right that lapses unexercised because
of such postponement.
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ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 PLAN DOES NOT CONFER EMPLOYMENT OR STOCKHOLDER RIGHTS. The right of
the Company to terminate (whether by dismissal or otherwise) the Optionee's
employment with it at any time at will, or as otherwise provided by any
agreement between the Company and the Optionee, is specifically reserved.
Neither the Optionee nor any person entitled to exercise the Optionee's rights
in the event of the Optionee's death shall have any rights of a stockholder with
respect to the shares subject to each Option, except to the extent that, and
until, such shares shall have been issued upon the exercise of each Option.
11.2 PLAN EXPENSES. Any expenses of administering this Plan shall be borne
by the Company.
11.3 USE OF EXERCISE PROCEEDS. Payments received from Optionees upon the
exercise of Options shall be used for the general corporate purposes of the
Company, except that any Common Stock received in payment may be retired, or
retained in the Company's treasury and reissued.
11.4 INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board, or the Committee, the members of the
Committee and the Board shall be indemnified by the Company against all costs
and expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any action
taken or failure to act under or in connection with the Plan or any Option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except a judgment based upon a finding of bad faith;
provided that upon the institution of any such action, suit or proceeding a
Committee or Board member shall, in writing, give the Company notice thereof and
an opportunity, at its own expenses, to handle and defend the same before such
Committee or Board member undertakes to handle and defend it on such member's
own behalf.
ARTICLE XII
SHAREHOLDER APPROVAL AND EFFECTIVE DATES
12.1 The Plan shall become effective when it is adopted by the Board.
However, if the Plan is not approved within one year after the Plan is adopted
by the Board by the vote at a meeting of the stockholders of Datapoint
Corporation of the holders of a majority of the outstanding shares of Datapoint
Corporation entitled to vote, the Plan and all Options shall terminate at the
time of that meeting of stockholders or, if no such meeting is held, after the
passage of one year from the date the Plan was adopted by the Board. Options may
not be granted under the Plan after November 1, 2006.
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THE DEPOSITARY IS:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
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BY FACSIMILE: BY HAND OR OVERNIGHT COURIER:
BY MAIL: (212) 509-5150
TELEPHONE: 19th Floor
2 Broadway 2 Broadway
New York, NY 10003 (212) 509-4000 Ext. 227 New York, NY 10003
</TABLE>
THE SOLICITATION AGENT IS:
SHAREHOLDER COMMUNICATIONS CORPORATION
(800) 733-8481 Ext. 402
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law grants the Company the
power to indemnify any director, officer, employee or agent against reasonable
expenses (including attorneys' fees) incurred by him in connection with any
proceeding brought by or on behalf of the corporation and against judgment,
fines, settlements and reasonable expenses (including attorneys' fees) incurred
by him in connection with any other proceeding, if (a) he conducted himself in
good faith and he reasonably believed his conduct to be in or not opposed to the
best interests of the corporation, and (b) in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful.
Except as ordered by a court, however, no indemnification is to be made in
connection with any proceeding brought by or in the right of the corporation
where the person involved is adjudged to be liable to the corporation.
Article Eight of the Company's Certificate of Incorporation, as amended,
provides as follows: "To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a director of
the corporation shall not be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director."
Section 25 of the Amended and Restated Bylaws of the Company provides as
follows:
"Each person who is or was a director or officer of the corporation or is or
was serving at the request of the corporation as a director or officer of
another corporation (including the heirs, executors, administrators or estate of
such person)- shall be indemnified by the corporation (and by any corporation
succeeding this corporation by way of a merger or consolidation) to the full
extent permitted or authorized by the laws of the State of Delaware, as now in
effect and as hereafter amended, against any liability, judgment, fine, amount
paid in settlement, cost and expense (including attorneys' fees) asserted or
threatened against and incurred by such person in his capacity as or arising out
of his status as a director or officer of the corporation or, if serving at the
request of the corporation, as a director or officer of another corporation. The
indemnification provided by this bylaw provision shall not be exclusive of any
other rights to which those indemnified may be entitled under any other bylaw or
under any agreement, vote of stockholders or disinterested directors or
otherwise, and shall not limit in any way any right which the corporation may
have to make different or further indemnifications with respect to the same or
different persons or classes of persons.
No person shall be liable to the corporation for any loss, damage, liability
or expense suffered by it on account of any action taken or omitted to be taken
by him as director or officer of the corporation or of any other corporation
which he serves as a director or officer at the request of the corporation, if
such person (i) exercised the same degree of care and skill as a prudent man
would have exercised under the circumstances in the conduct of his own affairs,
or (ii) took or omitted to take such action in reliance upon advice of counsel
for the corporation, or for such other corporation, or upon statements made or
information furnished by directors, officers, employees or agents of the
corporation, or of such other corporation, which he had no reasonable grounds to
disbelieve.
Notwithstanding anything to the contrary set forth elsewhere herein, to the
fullest extent permitted by the Delaware General Corporation Law as the same
exists or may hereafter be amended, a director of the corporation shall not be
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director."
The Company has in place agreements with certain officers and directors
affirming the Company's obligation to indemnify them to the fullest extent
permitted by law and providing various other projections. Certain of such
officers and directors are also beneficiaries of a trust created by the Company
to provide assurance to such individuals of the payment of the Company's
obligations under the indemnification agreements. In December 1994, a lawsuit
was brought against the Company involving the earlier sale of real estate by the
Company. In April, 1996, an adverse jury verdict was rendered against the
Company and two of its executive officers. Subsequent to the end of the third
quarter of 1996, a settlement was reached among the
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litigants. As such, the District Court entered a Judgment Non Obstante Veredicto
(Judgment Notwithstanding the Verdict) that set aside the jury's findings
against the Company and its two executive officers and set aside all damages.
The settlement included payment of funds from such trust fund and the depletion
thereof, issuance of a short term note, and shares of the Company's common
stock.
In addition, the Company has purchased an officers' and directors' liability
insurance policy effective July 8, 1996 for a period of one year. The limit of
liability for each claim is capped at $3 million for the term of the policy.
Such policy covers claims made against an insured person under the policy in
both indemnifiable and unindemnifiable situations. Such insurance does not
provide coverage for wrongful acts committed or allegedly committed before July
8, 1996.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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(a) Exhibits
The exhibits listed on the accompanying index to exhibits are filed
as part of this report.
(b) Financial Statements
The consolidated financial statements listed in the accompanying
index to the financial statements are filed as part of this report.
(b)(2) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts and Reserves
All other schedules are omitted since they are either not applicable
or the required information is shown in the Company's financial
statements or notes thereto.
Individual financial statements of the Company are omitted because
the Company is primarily an operating company and subsidiaries
included in the Consolidated Financial Statements being filed in the
aggregate do not have minority equity interest and/or indebtedness
to any person other than the Company or its consolidated
subsidiaries in amounts which together exceed 5% of the total
consolidated assets as shown by the most recent year-end
Consolidated Balance Sheet.
*(c)(1) Analysis of Corporate Capital Consultants, Inc. contained in a
presentation to the Independent Committee of Datapoint Corporation
(filed as Exhibit 99(e) hereto).
*(c)(2) Analysis of Patricof & Co. Capital Corp. contained in a presentation
to the Board of Directors of Datapoint Corporation (filed as Exhibit
99(f) hereto).
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- ------------------------
* Confidential treatment requested pursuant to Rule 406.
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ITEM 22. UNDERTAKINGS
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(a) (1) The undersigned registrant hereby undertakes as follows:
that prior to any public re-offering of the securities
registered hereunder through use of a prospectus which is a
part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of
Rule 145(c) under the Securities Act of 1933, the issuer
undertakes that such re- offering prospectus will contain
the information called for by the applicable registration
form with respect to re-offerings by persons who may be
deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(a) (2) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding or
(ii) that purports to meet the requirements of section
10(a)(3) under the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule
415 under such Act, will be filed as a part of an amendment
to the registration statement and will not be used until
such amendment is effective, and that, for purposes of
determining any liability under such Act, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
(a) (3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant
to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
(a) (4) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as
part of the registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Act shall be deemed to be a part of this registration
statement as of the time it was declared effective. For the
purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11 or 13 of
this Form, within one business day of receipt of such
request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the
effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included
in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on September 27, 1996.
DATAPOINT CORPORATION
By: /s/ GERALD N. AGRANOFF
-----------------------------------
Vice President and General Counsel
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Phillip
P. Krumb and Gerald N. Agranoff his true and lawful attorney-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
/s/ ASHER B. EDELMAN
- ----------------------------------- Chairman of the Board and August 6, 1996
Asher B. Edelman Chief Executive Officer
/s/ BLAKE D. THOMAS Executive Vice President,
- ----------------------------------- Chief Operating Officer August 6, 1996
Blake D. Thomas and a Director
/s/ PHILLIP P. KRUMB
- ----------------------------------- Vice President and August 6, 1996
Phillip P. Krumb Chief Financial Officer
/s/ GERALD N. AGRANOFF
- ----------------------------------- Vice President, General August 6, 1996
Gerald N. Agranoff Counsel and a Director
/s/ IRVING J. GARFINKEL
- ----------------------------------- Director August 6, 1996
Irving J. Garfinkel
/s/ DANIEL R. KAIL
- ----------------------------------- Director August 6, 1996
Daniel R. Kail
/s/ DIDIER M.M. RUFFAT
- ----------------------------------- Director August 6, 1996
Didier M.M. Ruffat
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INDEX TO EXHIBITS
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<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGES
- --------- ------------------------------------------------------------ ----------
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(3) (a) Certificate of Incorporation of Datapoint Corporation, as
amended (filed as Exhibit (3)(a) to the Company's Annual
Report on Form 10-K for the year ended July 31, 1993, and
incorporated herein by reference).
(3) (b) Bylaws of Datapoint Corporation, as amended (filed as
Exhibit (3)(b) to the Company's Annual Report on Form 10-K
for the year ended August 1, 1992, and incorporated herein
by reference).
(4) (b) Debenture holder Notice of Adjustment to Conversion Rate,
dated as of June 11, 1981, between Datapoint Corporation
and Continental Illinois Bank and Trust Company of Chicago,
as Trustee, providing for 8 7/8% Convertible Subordinated
Debentures Due 2006 (filed as Exhibit (4)(a) to the
Company's Annual Report on Form 10-K for the year ended
July 27, 1985 and said Indenture filed as Exhibit 4 to the
Company's Registration Statement on Form S-116 (No.
2-72395), each incorporated herein by reference).
(4) (c) Certificate of Designation, Preferences, Rights and
Limitations of Series of $1.00 Preferred Stock (filed as
Exhibit (4)(e) to the Company's Registration Statement on
Form S-4 dated April 30, 1992 and incorporated herein by
reference).
(10) (a) 1983 Employee Stock Option Plan (filed as Exhibit (4)(a)(4)
to the Company's Registration Statement on Form S-8 dated
November 9, 1983 and incorporated herein by reference).
(10) (b) 1985 Director Stock Option Plan (filed as Exhibit (10)(i) to
the Company's Annual Report on Form 10-K for the year ended
August 11, 1987 and incorporated herein by reference).
(10) (c) 1986 Employee Stock Option Plan (filed as Exhibit (10)(h) to
the Company's Annual Report on Form 10-K for the year ended
August 1, 1987 and incorporated herein by reference).
(10) (d) 1991 Director Stock Option Plan (filed as Exhibit (10)(b)(2)
to Amendment No. 1 dated February 6, 1992 to the Company's
Registration Statement on Form S-4 (Registration No.
33-44097) and incorporated herein by reference).
(10) (e) 1992 Employee Stock Option Plan (filed as Exhibit (4)(a)(4)
to the Company's Registration Statement on Form S-8 dated
January 19, 1993 and incorporated herein by reference).
(10) (f) Agreement for Transfer of Assets and Liabilities in Exchange
for Stock, dated as of June 28, 1985, between the Company
and Intelogic Trace, Inc. (filed as Exhibit (10)(a) to the
Company's Current Report on Form 8-K dated July 28, 1985
and incorporated herein by reference).
(10) (g) Master Maintenance Agreement, dated as of June 28, 1985,
between the Company and Intelogic Trace, Inc. (filed as
Exhibit (10)(b) to the Company's Current Report on Form 8-K
dated July 28, 1985 and incorporated herein by reference).
(10) (h) Maintenance Agreement regarding open systems products
between the Company and Intelogic Trace, Inc., (filed as
Exhibit (10)(g) to the Company's Annual Report on Form 10-K
for the year ended August 1, 1992, and incorporated herein
by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGES
- --------- ------------------------------------------------------------ ----------
<C> <S> <C> <C>
(10) (i) Agreement between the Company and Arbitrage Securities
Company, as amended (filed as Exhibit (10)(f) to the
Company's Annual Report on Form 10-K for the year ended
July 29, 1989 and incorporated herein by reference).
(10) (j) Indemnity Agreements with Officers and Directors (filed as
Exhibit (10)(f) to the Company's Annual Report on Form 10-K
for the year ended August 1, 1987 and incorporated herein
by reference).
(10) (k) First Amendment to Indemnification Agreement with certain
Officers and Directors, (filed as Exhibit (10)(h) to the
Company's Annual Report on Form 10-K for the year ended
July 28, 1990 and incorporated herein by reference).
(10) (l) Second Amendment to Employment Agreement with A.B. Edelman
(said amendment filed as Exhibit (10)(h)(3) to the
Company's Registration Statement on Form S-4 dated April
30, 1992), amending Employment Agreement dated January 9,
1991 (said agreement filed as Exhibit (10)(j) to the
Company's Annual Report on Form 10-K for the year ended
July 28, 1990), as amended by Amendment No. 1 dated
December 1, 1990 (said amendment filed as Exhibit (10)(i)
to the Company's Annual Report on Form 10-K for the year
ended July 27, 1991), each of which are incorporated herein
by reference.
(10) (m) Employment Agreement with D. Berger (filed as Exhibit
(10)(m) to the Company's Annual Report on Form 10-K for the
Year ended July 31, 1993 and incorporated herein by
reference).
(10) (n) Employment Agreement with J. Berger (filed as Exhibit
(10)(n) to the Company's Annual Report on Form 10-K for the
Year ended August 1, 1992 and incorporated herein by
reference).
(10) (o) Employment Agreement with K.L. Thrower (filed as Exhibit
(10)(o) to the Company's Annual Report on Form 10-K for the
Year ended August 1, 1992 and incorporated herein by
reference).
(10) (p) First Amendment to the Grantor Trust Agreement dated June
18, 1991 (filed as Exhibit (10)(n) to the Company's Annual
Report on Form 10-K for the year ended July 27, 1991 and
incorporated herein by reference).
(10) (q) Manufacturing facilities Agreement of Lease between the
Company and Willis and Cox Associates, dated June 21, 1991
(filed as Exhibit (10)(q) to the Company's Annual Report on
Form 10-K for the Year ended August 1, 1992 and
incorporated herein by reference).
(10) (r) Employment Agreement with D. Bencsik (filed as Exhibit
(10)(r) to the Company's Annual Report on the Form 10-K for
the Year ended July 30, 1994 and incorporated herein by
reference).
*(10) (s) Employment Agreement with G. Agranoff and Amendment No. 1 to
Employment Agreement.
*(10) (t) Employment Agreement with B. Thomas.
*(10) (u) Employment Agreement with P. Krumb.
*(10) (v) Settlement Agreement with NTI.
(10) (w) Umbrella Acquisition Agreement between Kalamazoo and
Datapoint (filed as Exhibit 2 to the Company's Current
Report on Form 8-K dated June 25, 1996 and incorporated
herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGES
- --------- ------------------------------------------------------------ ----------
<C> <S> <C> <C>
(10) (x) Form of Agreement for sale of assets of Datapoint Group
Vendor and Kalamazoo (filed as Exhibit 3 to the Company's
Current Report on Form 8-K dated June 25, 1996 and
incorporated herein by reference).
(10) (y) Agreement for sale of DARTS Software (filed as Exhibit 4 to
the Company's Current Report on Form 8-K dated June 25,
1996 and incorporated herein by reference).
**(23)(a) Consent of Independent Auditors.
**(23)(b) Consent of Patricof & Co. Capital Corporation.
**(99) (a) Form of Proxy to be used in soliciting the Holders of
Datapoint Corporation $1.00 Exchangeable Preferred Stock.
**(99) (b) Form of Proxy to be used in soliciting the Holders of
Datapoint Corporation Common Stock, par value $.25 per
share.
**(99) (c) Form of Letter of Transmittal to be used by the Holders of
Datapoint Corporation $1.00 Exchangeable Preferred Stock.
**(99) (d) Form of Notice of Guaranteed Delivery.
**(99) (e) Analysis of Corporate Capital Consultants, Inc. contained in
a presentation to the Independent Committee of Datapoint
Corporation.
**(99) (f) Analysis of Patricof & Co. Capital Corp. contained in a
presentation to the Board of Directors of Datapoint
Corporation.
</TABLE>
- ------------------------
* Previously filed with the Commission.
** Filed herewith.
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our Firm under the caption "Experts" and to
the use of our reports dated November 2, 1995, in Amendment No. 2 to the
Registration Statement (Form S-4 No. 333-9627) and related Prospectus of
Datapoint Corporation for the registration of 6,071,182 shares of its common
stock.
/s/ ERNST & YOUNG LLP
Dallas, Texas
September 5, 1996
<PAGE>
EXHIBIT 23(B)
September 9, 1996
Board of Directors
Datapoint Corporation
8400 Datapoint Drive
San Antonio, Texas 78229-8500
Gentlemen:
Patricof & Co. Capital Corp. hereby consents to the use in proxy materials to be
filed today by Datapoint Corporation ("Datapoint") of our opinion regarding the
fairness, from a financial point of view, of the consideration to the holders of
Datapoint common stock of Datapoint's offer to exchange for each share of $1.00
Exchangeable Preferred Stock (inclusive of accrued dividends) 3.25 shares of the
common stock of Datapoint.
Very truly yours,
PATRICOF & CO. CAPITAL CORP.
By: /s/ Gary H. Matt
------------------------------------------
Gary H.Matt
MANAGING DIRECTOR
<PAGE>
EXHIBIT 99(A)
[PREFERRED STOCK]
DATAPOINT CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the Notice of Annual
Meeting of Stockholders (the "Annual Meeting") of Datapoint Corporation, a
Delaware corporation ("Datapoint"), to be held on , 1996 at The
University Club, One West 54th Street, New York, New York at 10:00 a.m., local
time, and at any adjournment thereof and the Proxy Statement/Prospectus in
connection therewith (the "Proxy Statement/Prospectus") and (2) appoints Gerald
N. Agranoff and Daniel R. Kail and each of them, his proxies with full power of
substitution for and in the name, place, and stead of the undersigned, to vote
upon and act with respect to all of the shares of Preferred Stock, $20.00
liquidation preference per share ( the "Preferred Stock"), of Datapoint standing
in the name of the undersigned, or with respect to which the undersigned is
entitled to vote and act, at the Annual Meeting and at any adjournments or
postponements thereof.
The board of directors recommends a vote FOR the items listed below.
The undersigned directs that his proxy be voted as follows:
(1) The nominees for election of directors by Holders of Preferred Stock are
Charles F. Robinson and Robert D. Summer.
/ / FOR all nominees except as marked below / / WITHHOLD AUTHORITY for
all nominees
(INSTRUCTION: to withhold authority to vote for one or more nominees, mark FOR
above and print the name(s) of the person(s) with respect to whom you wish to
withhold authority to vote in the space provided below.)
- --------------------------------------------------------------------------------
(2) Approval and Adoption of an Amendment to the Company's Articles of
Incorporation which would reclassify and change each share of Preferred Stock
into 3.25 shares of Common Stock.
<TABLE>
<S> <C> <C>
FOR / / AGAINST / / ABSTAIN / /
</TABLE>
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY SHOULD BE VOTED AS SPECIFIED ABOVE. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS.
(Please see reverse side)
<PAGE>
The undersigned hereby revokes any proxy heretofore given to vote or act
with respect to the Preferred Stock and hereby ratifies and confirms all that
the proxies, their substitutes, or any of them may lawfully do by virtue hereof.
If one or more of the proxies named shall be present in person or by
substitute at the Annual Meeting or at any adjournments or postponements
thereof, the proxies so present and voting, either in person or by substitute,
shall exercise all of the powers hereby given.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY
BE REPRESENTED AT THE MEETING.
Dated _____________________, 1996
_________________________________
Signature of Stockholder
_________________________________
Signature if held jointly
Please date this proxy and sign
your name exactly as it appears
hereon. Where there is more than
one owner, each should sign. When
signing as an attorney,
administrator, executor,
guardian, or trustee, please add
your title as such. If executed
by a corporation, the proxy
should be signed by a duly
authorized officer.
<PAGE>
EXHIBIT 99(B)
DATAPOINT CORPORATION [COMMON STOCK]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the Notice of Annual
Meeting of Stockholders (the "Annual Meeting") of Datapoint Corporation, a
Delaware corporation ("Datapoint"), to be held on , 1996 at The
University Club, One West 54th Street, New York, New York at 10:00 a.m., local
time, and at any adjournment thereof and the Proxy Statement/Prospectus in
connection therewith (the "Proxy Statement/Prospectus") and (2) appoints Gerald
N. Agranoff and Daniel R. Kail and each of them, his proxies with full power of
substitution for and in the name, place, and stead of the undersigned, to vote
upon and act with respect to all of the shares of Common Stock, $1.00 par value
(the "Common Stock"), of Datapoint, standing in the name of the undersigned, or
with respect to which the undersigned is entitled to vote and act, at the Annual
Meeting and at any adjournments or postponements thereof.
The board of directors recommends a vote FOR the items listed below.
The undersigned directs that his proxy be voted as follows:
(1) The nominees for election of directors by Holders of Common Stock are Gerald
N. Agranoff, Asher B. Edelman, Irving J. Garfinkel, Daniel R. Kail, Didier
M. M. Ruffat and Blake D. Thomas.
/ / FOR all nominees except as marked below / / WITHHOLD AUTHORITY for
all nominees
(INSTRUCTION: to withhold authority to vote for one or more nominees, mark FOR
above and print the name(s) of the person(s) with respect to whom you wish to
withhold authority to vote in the space provided below.)
- --------------------------------------------------------------------------------
(2) Approval and Adoption of an Amendment to the Company's Articles of
Incorporation which would reclassify and change each share of Preferred
Stock into 3.25 shares of Common Stock.
FOR / / AGAINST / / ABSTAIN / /
(3) Proposal to ratify the appointment of Ernst and Young LLP, Certified Public
Accountants, as Datapoint's Independent Auditors for the Fiscal Year ending July
27, 1996.
FOR / / AGAINST / / ABSTAIN / /
(4) Approval and Adoption of the 1996 Director Stock Option Plan.
FOR / / AGAINST / / ABSTAIN / /
(5) Approval and Adoption of the 1996 Employee Stock Option Plan.
FOR / / AGAINST / / ABSTAIN / /
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY SHOULD BE VOTED AS SPECIFIED ABOVE. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS.
(Please see reverse side)
<PAGE>
The undersigned hereby revokes any proxy heretofore given to vote or act
with respect to the Common Stock and hereby ratifies and confirms all that the
proxies, their substitutes, or any of them may lawfully do by virtue hereof.
If one or more of the proxies named shall be present in person or by
substitute at the Annual Meeting or at any adjournments or postponements
thereof, the proxies so present and voting, either in person or by substitute,
shall exercise all of the powers hereby given.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY
BE REPRESENTED AT THE MEETING.
Date: ___________________________, 1996
_______________________________________
Signature of Stockholder
_______________________________________
Signature if held jointly
Please date this proxy and sign your name exactly as it appears hereon.
Where there is more than one owner, each should sign. When signing as an
attorney, administrator, executor, guardian, or trustee, please add your title
as such. If executed by a corporation, the proxy should be signed by a duly
authorized officer.
<PAGE>
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES REPRESENTING
$1.00 EXCHANGEABLE PREFERRED STOCK
OF
DATAPOINT CORPORATION
DELIVERED FOR EXCHANGE PURSUANT TO THE PROXY
STATEMENT/PROSPECTUS DATED , 1996
---------------------
DEPOSITARY:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<CAPTION>
BY HAND OR
BY MAIL: BY FACSIMILE: OVERNIGHT COURIER:
- --------------------- --------------------- ---------------------
<S> <C> <C>
2 Broadway (212) 509-5150 19th Floor
New York, NY 10003 2 Broadway
New York, NY 10003
TELEPHONE:
---------------------
(212) 509-4000
Ext. 227
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Letter of Transmittal is to be completed either if certificates
("Certificates") evidencing $1.00 Exchangeable Preferred Stock, $20.00
liquidation preference per share (the "Shares"), are to be forwarded herewith or
if a delivery of such Shares are to be made by book-entry transfer to the
account of Continental Stock Transfer & Trust Company, as Depositary (the
"Depositary"), at The Depository Trust Company ("DTC") or the Philadelphia
Depository Trust Company ("PDTC") (each, a "Book-Entry Transfer Facility" and
together, the "Book-Entry Transfer Facilities") pursuant to the procedures set
forth below. Delivery of documents to a Book-Entry Transfer Facility does not
constitute delivery to the Depositary.
PLEASE REVIEW INSTRUCTIONS CAREFULLY BEFORE COMPLETING THIS FORM.
______CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY FACILITIES AND COMPLETE THE
FOLLOWING:
Name of
Institution ________________________________________________________________
Book-Entry Transfer Facility: (Check One)
______DTC ______PDTC
Account Number ____________ Transaction Code ____________
______CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered
Owners __________________________________________________________________
Date of Execution of Notice of Guaranteed
Delivery _____________________________________________
Name of Institution which Guaranteed
Delivery __________________________________________________
If Delivered by Book-Entry Transfer, Check Box of Applicable Depository
Institution:
[ ] DTC [ ] PDTC (check one)
Account Number (if Delivered by Book-Entry
Transfer) ____________________________________________
Transaction Code
Number _____________________________________________________________________
<PAGE>
THIS LETTER OF TRANSMITTAL AND CERTIFICATES MUST BE
DELIVERED TO THE DEPOSITARY BY NO LATER THAN 10:00 A.M.,
NEW YORK CITY TIME, ON , , 1996.
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF SHARES TENDERED (SEE INSTRUCTIONS)
<CAPTION>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARES TENDERED
(PLEASE FILL IN, IF BLANK, EXACTLY AS (ATTACHED ADDITIONAL SIGNED LIST IF
NAME(S) APPEAR(S) ON CERTIFICATE(S)) NECESSARY)
<S> <C> <C> <C>
<CAPTION>
# OF SHARES
REPRESENTED # OF SHARES
CERTIFICATE BY TO BE
NUMBER(S)* CERTIFICATE(S)* EXCHANGED
<S> <C> <C> <C>
Total Shares to be Exchanged
*Need not be completed if tendering shares
by book-entry transfer
</TABLE>
The undersigned hereby delivers to the Depositary, subject to the terms and
conditions of this Letter of Transmittal and the Proxy Statement/Prospectus
dated , 1996, with any supplements and amendments thereto (the "Proxy
Statement/Prospectus") of Datapoint Corporation (the "Company") the Shares
described above.
Unless the undersigned instructs otherwise, the certificate for the Exchange
Consideration (as defined in the Proxy Statement/Prospectus) will be mailed to
the address, indicated above on the label in the box entitled "Description of
Shares Tendered". Any special instructions for issuance or delivery of any
certificate must be indicated in the appropriate boxes that appear below.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender the Shares in connection herewith, free and clear
of all liens, claims and encumbrances, and that upon the acceptance of such
Shares, neither the Company nor the Depositary will be subject to any adverse
claim in respect of such Shares. The undersigned will, upon request, execute and
deliver any additional documents reasonably deemed appropriate or necessary by
the Depositary in connection with the surrender of the tender of the Shares
hereby.
The undersigned understands that tender of the Shares is not made in
acceptable form until receipt by the Depositary of this Letter of Transmittal,
or a facsimile hereof, duly completed and signed, together in the circumstances
in which evidences of authority are required hereby, with all accompanying
evidences of authority in form satisfactory to the Company (which may delegate
power in whole or in part to the Depositary). All questions as to validity, form
and eligibility of tender of Shares hereunder will be determined by the Company
(which may delegate power in whole or in part to the Depositary) and such
determination shall be final and binding. Neither the Company nor the Depositary
shall be obligated to give notice of any defects or irregularities in any Letter
of Transmittal, and neither the Company nor the Depositary shall incur any
liability for failure to give any such notice.
<PAGE>
The undersigned understands that exchange for the tendered Shares will be
made upon receipt by the Depositary of this Letter of Transmittal, the
Certificate(s) and all other necessary documents in form satisfactory to the
Depositary as promptly as practicable after the Expiration Date (as defined in
the Proxy Statement/Prospectus).
<TABLE>
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if certificates for the To be completed ONLY if certificates for the
Common Stock or Shares not tendered are to Common Stock or Shares not tendered are to
be issued in the name of someone other than be sent to someone other than the
the undersigned. undersigned at an address other than that
shown under "Description of Shares
Tendered".
Issue (check one) [ ] Common Stock or Mail (check one) [ ] Common Stock or
[ ] Shares not tendered to: [ ] Shares not tendered to:
Name Name
(Please (Please Print)
Print) Address
Address
(Zip Code)
(Zip Code)
(Tax Identification or Social Security (Tax Identification or Social Security
Number) Number)
</TABLE>
<PAGE>
HOLDERS MUST SIGN IN THE SPACE PROVIDED BELOW
<TABLE>
<S> <C>
SIGN HERE
Signature(s) of Holder(s)
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) or on a security position listing, or by person(s) authorized to
become registered holder(s) by the Certificate(s) and document(s) transmitted
herewith.
(Please Print)
Dated
Name(s)
Capacity
Address
(Zip
Code)
Telephone Number
(Include Area Code)
Tax Identification or
Social Security Number
(Complete Accompanying Substitute Form W-9)
Guarantee of Signature(s)
</TABLE>
PLEASE REVIEW INSTRUCTIONS CAREFULLY
BEFORE COMPLETING THIS FORM
<PAGE>
INSTRUCTIONS
1. EXECUTION AND DELIVERY. If a Holder elects to have such Holder's Shares
exchanged, this Letter of Transmittal or a facsimile hereof must be properly
filled in, dated and signed, and must be mailed or otherwise delivered,
together with your Certificate(s) or confirmation of book-entry transfer
into the Depositary's account at any Book-Entry Transfer Facility, to the
Depositary at the address set forth on the face hereof by no later than
10:00 a.m., New York City time, on , , 1996. Please do not
send Certificates directly to Datapoint Corporation.
The method of delivery of all documents is at your option and risk, but it is
recommended that documents be delivered either through your broker or by
registered mail with return receipt requested, properly insured.
Stockholders whose Certificates are not immediately available or who cannot
complete the procedures for book-entry transfer on a timely basis or for
whom time will not permit all required documents to reach the Depositary on
or prior to the Expiration Date, may nevertheless tender their Shares by
properly completing and duly executing a Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedures set forth in the Proxy
Statement/Prospectus. Pursuant to such procedure: (i) such tender must be
made by or through an Eligible Institution, (ii) a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in the form made
available by the Company, must be received by the Depositary prior to the
Expiration Date, and (iii) the Certificates representing all tendered Shares
in proper form for transfer, or Book-Entry Confirmation with respect to all
tendered Shares, in either case, together with a Letter of Transmittal (or
manually signed facsimile thereof), properly completed and duly executed,
and with any required signature guarantees and any other documents required
by this Letter of Transmittal, must be received by the Depositary within
five New York Stock Exchange, Inc. trading days after the date of execution
of such Notice of Guaranteed Delivery. If Certificates are forwarded
separately to the Depositary, a properly completed and duly executed Letter
of Transmittal (or manually signed facsimile thereof) must accompany each
such delivery.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ANY
OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING
STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
2. INSUFFICIENT SPACE. If there is insufficient space to list all of your
Certificates for Shares being tendered, please attach and sign a separate
list.
3. SIGNATURE. If this Letter of Transmittal is signed by the registered
holder(s) of the Shares tendered herewith, the signature(s) must correspond
exactly with the name(s) of such registered holder(s) on the face of the
Certificate(s) representing the Shares.
If this Letter of Transmittal is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or any
other person acting in a fiduciary or representative capacity, the person
signing must give such person's full title in such capacity, and appropriate
evidence of authority to act in such capacity must be forwarded with this
Letter of Transmittal.
Certificate(s) delivered by an assignee of the registered holder thereof must
be properly endorsed or accompanied by a properly executed assignment with
the signature(s) guaranteed (see Instruction 4). Certificate(s) delivered by
the registered holder thereof should not be endorsed or assigned for
transfer.
4. GUARANTEE OF SIGNATURES. Any signature appearing on this Letter of
Transmittal must be guaranteed in the space provided by a financial
institution that is a member of the Securities Transfer Agents Medallion
Program, the Stock Exchange Medallion Program or the NYSE Medallion
Signature Program (an "Eligible Institution") UNLESS the Certificate(s) is
surrendered by a registered holder who has not completed the box entitled
"Special Delivery Instructions" or the box entitled "Special Issuance
Instructions". Any signature appearing on any endorsed Certificate(s) or
stock power required by Instruction 6 must also be guaranteed by an Eligible
Institution.
5. PARTIAL EXCHANGE. If fewer than all the Shares evidenced by any certificate
submitted are to be exchanged, fill in the amount of Shares which are to be
exchanged in the box entitled "# of Shares to be Exchanged". In such cases,
new certificate(s) for the remainder of the Shares that were evidenced by
your old certificate(s) will be sent to you, unless otherwise provided in
the appropriate box on this Letter of Transmittal, as soon as practicable
after the Expiration Date. All Shares represented by certificates delivered
to the Depositary will be deemed to have been tendered in full unless
otherwise indicated.
<PAGE>
6. SPECIAL PAYMENT AND DELIVERY. If the Exchange Consideration for surrendered
Certificate(s) is to be issued in the name of a person other than the
signer(s) of this Letter of Transmittal and/or if the Exchange Consideration
for surrendered Certificate(s) is to be sent to a person other than the
signer(s) of this Letter of Transmittal or to the signer(s) at an address
other than the address shown on the stock records, the appropriate boxes on
this Letter of Transmittal must be completed. Any signature appearing on any
endorsed Certificate(s) or stock power for special payment or delivery must
be guaranteed by an Eligible Institution.
7. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s) representing
Shares has been lost, destroyed or stolen, the stockholder should promptly
notify the Depositary in writing. The stockholder will then be instructed as
to the steps that must be taken in order to replace the Certificates(s).
This Letter of Transmittal and related documents cannot be processed until
the procedures for replacing lost or destroyed certificates have been
followed.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance may be
directed to the Depositary at the address set forth on the first page of
this Letter of Transmittal. Additional copies of this Letter of Transmittal
and the Guidelines for Certification of Taxpayer Identification Number of
Substitute Form W-9 may be obtained from the Depositary at the addresses set
forth on the first page of this Letter of Transmittal from the brokers,
dealers, commercial banks or trust companies.
9. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any stock
transfer taxes applicable to the surrender of Certificate(s). However, if
surrendered Certificate(s) are registered in the name of any person other
than the person signing this Letter of Transmittal, all transfer tax stamps
required must be affixed to the Certificate(s), or evidence satisfactory to
the Depositary of the payment of or exemption from such tax must be
submitted therewith. If such stamps are not affixed or such other evidence
is not submitted, the amount of such stock transfer taxes will be deducted
from any funds payable by the Depositary hereunder.
10. SUBSTITUTE FORM W-9. In order to avoid "backup withholding" of federal
income tax on any cash received upon the surrender of Certificate(s), a
holder thereof must, unless an exemption applies, provide the Depositary
with its correct taxpayer identification number ("TIN") on Substitute Form
W-9 and certify, under penalties of perjury, that such number is correct and
that such holder is not otherwise subject to backup withholding. If the
correct TIN and certifications are not provided, any payments made for the
surrender of Certificate(s) may be subject to backup withholding of 31% on
the payment made for all Certificate(s) surrendered by the holder.
The TIN that must be provided on the Substitute Form W-9 is that of the
registered holder(s) of Certificate(s) appearing on the transfers attached
to, or endorsed on, such Certificate(s) pursuant to a transfer effective
prior to the Expiration Date. The TIN for an individual is his or her social
security number.
THE ENCLOSED SUBSTITUTE FORM W-9 MUST BE COMPLETED AND RETURNED WITH
THIS LETTER OF TRANSMITTAL, THE SURRENDERED CERTIFICATE(S) AND ANY OTHER
DOCUMENTATION REQUIRED FOR TENDER. FAILURE TO DO SO MAY RESULT IN BACKUP
WITHHOLDING AT 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED
"GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
IMPORTANT TAX INFORMATION
PURPOSE OF FORM
Use this to report the taxpayer identification number (TIN) of the record
owner of the Shares to the Depositary. Payers must generally withhold 31% of
taxable interest, dividend, and certain other payments if you fail to furnish
payers with the correct taxpayer identification number (this is referred to as
backup withholding). For most individual taxpayers the taxpayer identification
number is the social security number.
To prevent backup withholding on these payments, be sure to notify the
Depositary of the correct taxpayer identification number. You must use this form
to certify that the taxpayer identification number you are giving to the
Depositary is correct and that you are not subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
Give the Depositary the social security number or employer identification
number of the record owner of the Shares. If the Shares belong to you as an
individual, give your social security number. If the Shares are held is in more
than one name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidelines on which number to report.
<PAGE>
PLEASE REVIEW ENCLOSED GUIDELINES FOR DETAILS
<TABLE>
<S> <C> <C>
PAYER'S NAME: CONTINENTAL STOCK TRANSFER & TRUST COMPANY
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN PART III--Social Security Number
IN THE BOX AT RIGHT AND CERTIFY or Employer Identification
BY SIGNING AND DATING BELOW. Number
--------------------------------
(If awaiting TIN write "Applied
For")
PART II -- For Payees exempt from backup withholding, see the
enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 and complete as instructed therein.
FORM W-9 Certification--Under penalties of perjury, I certify that:
DEPARTMENT OF THE TREASURY (1) The Number shown on this form is my correct Taxpayer
INTERNAL REVENUE SERVICE Identification Number (or I am waiting for a number to be issued
to me); and
(2) I am not subject to backup withholding either because I have
not been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to
report all interest or dividends, or the IRS has notified me
that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if
you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on
PAYER'S REQUEST FOR your tax return. However, if after being notified by the IRS that
TAXPAYER IDENTIFICATION you were subject to backup withholding, you received another
NUMBER ("TIN") notification from the IRS that you were no longer subject to
backup withholding, do not cross out item (2). (Also see
instructions in the enclosed Guidelines).
SIGNATURE DATE
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all payments made to me thereafter will be withheld
until I provide a number.
<TABLE>
<S> <C>
---------------------------------------------- --------------------------------------
SIGNATURE DATE
</TABLE>
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF PREFERRED STOCK
OF
DATAPOINT CORPORATION
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
10:00 A.M., NEW YORK CITY TIME, ON
, 1996, UNLESS EXTENDED.
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Offer (as defined below) if certificates representing
$1.00 Exchangeable Preferred Stock, $20.00 liquidation preference per share (the
"Shares"), of Datapoint Corporation, a Delaware corporation (the "Company"), are
not immediately available or the procedures for book-entry transfer cannot be
completed on a timely basis or time will not permit all required documents to
reach Continental Stock Transfer and Trust Company (the "Depositary") prior to
the Expiration Date (as defined in the Proxy Statement/ Prospectus, dated
, 1996, of the Company (the "Proxy Statement/Prospectus")). This
Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mailed to the Depositary.
THE DEPOSITARY FOR THE OFFER IS:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
BY HAND OR
BY MAIL: BY FACSIMILE: OVERNIGHT COURIER:
2 Broadway (212) 509-5150 19th Floor
New York, NY 10003 2 Broadway
New York, NY 10003
TELEPHONE:
(212) 509-4000 Ext. 227
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO
A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Datapoint Corporation, upon the terms and
subject to the conditions set forth in the Proxy Statement/Prospectus and in the
related Letter of Transmittal (which, together with any supplements and
amendments thereto, collectively constitute the "Offer"), receipt of each of
which is hereby acknowledged, the number of Shares indicated below pursuant to
the guaranteed delivery procedures set forth in the Proxy Statement/Prospectus.
<TABLE>
<S> <C>
Number of Shares:
Certificate Nos. (if available):
Check ONE box if Shares will be tendered
by book-entry transfer:
[ ] The Depository Trust Company
[ ] Philadelphia Depository Trust Company
Account Number:
Dated:
Name(s) of Record Holder(s):
Address(es):
Area Code and Tel. No.:
Signature(s):
</TABLE>
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
The undersigned, an Eligible Institution (as defined in the Proxy
Statement/Prospectus) hereby guarantees to deliver to the Depositary the
certificates representing all of the Shares tendered hereby, in proper form for
transfer, or a Book-Entry Confirmation (as defined in the Proxy
Statement/Prospectus) with respect to such Shares, in either case together with
a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof) and with any required signature guarantees, and any
other documents required by the Letter of Transmittal, all within five New York
Stock Exchange, Inc. trading days after the date hereof.
<TABLE>
<S> <C>
Name of Firm:
Address:
Area Code and Tel. No.:
Authorized Signature
Name:
Title:
Date:
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR SHARES SHOULD BE SENT ONLY TOGETHER WITH YOUR LETTER
OF TRANSMITTAL.
<PAGE>
Exhibit 99(e)
[CORPORATE CAPITAL CONSULTANTS, INC. LOGO]
----------------------------------
<PAGE>
Presentation to the
Independent Committee of the
Board of Directors of
DATAPOINT CORPORATION
Prepared by
Corporate Capital Consultants, Inc.
<PAGE>
DATAPOINT CORPORATION
PRESENTATION TO THE INDEPENDENT COMMITTEE
OF THE BOARD OF DIRECTORS BY
CORPORATE CAPITAL CONSULTANTS, INC.
INDEX
o Draft Opinion Letter
o Charts and Schedules:
I. Stock Price History
II. Comparable Company Study
III. Forecasts and Discounted Cash Flow
IV. Pro Forma Balance Sheets
V. Projected Book Value
VI. Liquidation Value
VII. Comparable Transactions Analysis
VIII. Ability to Pay Arrears and Resume
Preferred Dividend Payments
IX. Litigation
X. Summary and Conclusions
<PAGE>
DRAFT
-----
[CORPORATE CAPITAL LOGO]
CORPORATE CAPITAL
CONSULTANTS INC.
1185 AVENUE OF THE AMERICAS
18TH FLOOR
NEW YORK, NEW YORK 10036-2601
TEL: (212) 843-0352
FAX: (212) 843-0574
JULY 24, 1996
Independent Committee
Board of Directors
Datapoint Corporation
8400 Datapoint Drive
San Antonio, Texas 78229-4500
Gentlemen:
You have asked Corporate Capital Consultants, Inc. ("CCC") to provide a
written opinion as to the fairness, from a financial point of view, to the
exchanging preferred shareholders ("the Exchanging Preferred Shareholders"),
other than Asher B. Edelman, of Datapoint Corporation ("Datapoint" or "the
Company") of the consideration to be received by them in an offer by the
Company, whereby each share of Datapoint's $1.00 Exchangeable Preferred Stock
("the Preferred Stock") tendered by the Exchanging Preferred Shareholders would
be exchanged for shares of the common stock of the Company ("the
---------
Exchange Offer") upon the terms and conditions set forth in the draft of the
joint Proxy Statement and Prospectus ("the Prospectus") dated July 24, 1996.
CCC is a specialist investment banking firm which, since its inception in
1974, performs services in the areas of financial consulting, corporate
valuation and fairness opinions, and mergers and acquisitions. In the valuation
area, CCC has provided corporate valuations, often in conjunction with pending
purchase offers, plans to sell or recapitalizations, for both public and
privately-held companies in a broad range of industries. In the case of public
companies, CCC has furnished fairness opinions in conjunction with a number of
tender offers, going-private transactions, and the purchase of minority
interests.
In connection with rendering this opinion, CCC has reviewed and analyzed,
among other things: a) drafts of the Registration Statement for the Company
on Form S-4 up to and including the draft dated July 16, 1996 ("the
Registration Statement"); b) the Forms 10-K filed by Datapoint for the fiscal
years 1991 through 1995; c) the Forms 10-Q for the Company for the three fiscal
quarters ended April 27, 1996; d) drafts of the Prospectus; e) the indenture
pertaining to the Company's 8-7/8% Convertible Subordinated Debentures due
2006; f) various corporate documents, including by-laws, minutes, loan
agreements, litigation documents, employment agreements, product literature,
proxies, and so forth; g) certain internal financial documents, memoranda and
other information furnished by the Company; h) historical market prices for the
two classes of stock; i) certain financial, operational, and stock market data
of companies engaged in businesses comparable to the Company; and additional
information provided from time to time by Datapoint or by other sources we
deemed relevant.
<PAGE>
-2-
Independent Committee, Board of Directors
Datapoint Corporation
In addition, we: a) met with the Company's principal officers and visited
its San Antonio facility; b) discussed the financial and operating performance
with such officers; c) reviewed with such officers the current and future
prospects of Datapoint; and d) considered such other information, financial
studies, analyses and investigations and financial economic and market criteria
as we deemed relevant.
In rendering this opinion, we have not made any independent appraisal of
any of the physical or intangible assets or liabilities of the Company, and we
have assumed, without independent verification, the accuracy and completeness of
the financial and other information and representations contained in the
materials which have been provided to us by the Company, or which are publicly
available. We have also relied on the representations made by various
representatives of the Company and their agents and advisors, and on other
relevant factors.
CCC, in reviewing the fairness of the Exchange Offer, took into account
the financial and operating performance of Datapoint, in relation to a group of
similar public companies and their market values. We considered various
multiples of earnings, cash flow, and book value of these companies in rendering
our opinion. We also prepared a discounted cash flow analysis based on our own
scenarios for the Company over the next five years. Other approaches to
fairness included an analysis of market history for both the Preferred Stock and
common stock, projected book value giving effect to the recent sale of the
Company's automotive business and the possible sale of selected assets and
operations of the Company, estimated liquidation value of both types of shares,
comparable transactions, and other factors.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the consideration to be received by the holders of the
Preferred Stock other than Asher B. Edelman upon the terms and conditions set
forth in the Prospectus is fair, from a financial point of view, to such
holders.
Very truly yours,
CORPORATE CAPITAL CONSULTANTS, INC.
Carl A. Goldman
CAG:evk President
<PAGE>
DATAPOINT CORPORATION
STOCK PRICE HISTORY
-------------------
CCC reviewed markets for both classes of stock back to April 30, 1992,
the inception of trading of the Preferred. We charted trading activity of both
classes of stock from the period commencing August 5, 1994, a point prior to the
announcement of the first deferral regarding the preferred dividend payment,
through July 16, 1996. However, particular attention was paid to the twenty
trading days prior to the announcement of the Exchange Offer in order to judge
prices accorded by a free market prior to this important change in the exchange
ratio.
The average closing price of a share of Common was $1.44 for that
twenty-day period, and $3.10 for a share of the Preferred. This is a ratio of
2.15:1, indicating that the Preferred was selling at just over its 2:1
conversion value in effect prior to the Exchange Offer, or at a premium of
approximately 7.6%. At 2.75:1, the Preferred was worth approximately $3.96 per
share, a 37.5% premium over the pre-Exchange Offer conversion value, and the
extra 0.75 shares of Common were worth $1.08 per share. The cumulative Preferred
arrearage averaged $1.58 over that period, $0.50 above the extra 0.75-share
exchange value per the Exchange Offer. In other words, the incremental exchange
value constituted a 32% discount off the cumulative arrearage on the Preferred.
On July 16, 1996, the most recent date we reviewed, the Common closed at
$1.13 and the Preferred at $3.25, a ratio of 2.88:1. Thus, the Preferred sold at
a slightly higher (approximately $0.16) price than the 2.75 conversion value per
the Exchange Offer. According to these closing prices, the 0.75-share
incremental conversion value thus was worth approximately $0.85 per share vs.
$1.75 in current cumulative Preferred arrearages (which are soon to total
$2.00), a discount of approximately 52%.
To reach the cumulative arrearage for the average twenty-day period
preceding the Exchange Offer announcement would require $0.50 more of Common
stock value per Preferred share. At an average closing price of $1.44 per share
for the Common for this twenty-day period, the exchange ratio would have to be
raised by 0.35 shares. As of the most recent date we examined, given the $1.13
closing price of Datapoint's Common, the additional value required to reach the
cumulative Preferred arrearage is approximately $0.90 per share, which would
require raising the exchange ratio by approximately 0.8 shares. As a practical
matter, some premium over recent exchange ratios between the two classes may be
needed to get Preferred stockholders to vote for the Exchange Offer, even though
to revert to the current 2:1 conversion value in effect would presumably cause a
drop in the market price of the Preferred from $3.25 to $2.26, based on July 16
closing prices, a 30% decline.
There should be a discount from the arrearage to reflect the high risk
of actually receiving them. But the Preferred price will tend to increase
relative to Common as more arrearages accumulate, absent other factors. In this
portion of our study, we would have to recommend an increase in the exchange
ratio, possibly to 3:1.
<PAGE>
DATAPOINT CORPORATION: PRICE BEHAVIOR OF $1.00 EXCHANGEABLE PREFERRED
AND COMMON STOCK FROM INCEPTION OF PREFERRED TRADING TO ANNOUNCEMENT
OF EXCHANGE OFFER
[Graph illustrating narrative
under "Stock Price History]
[GRAPH]
---Common
---Preferred
Page 1
<PAGE>
DATAPOINT CORPORATION: COMPARATIVE CLOSING PRICES OF PREFERRED AND COMMON
STOCK AND DEBENTURES 8/5/94 THROUGH 7/16/96
[Graph illustrating narrative
under "Stock Price History]
[GRAPH]
---Common
---Preferred
---Debentures
<PAGE>
DATAPOINT CORPORATION: COMPARATIVE CLOSING PRICES AND DAILY
VOLUMES OF PREFERRED AND COMMON STOCK -
8/5/94 THROUGH 7/16/96
[Graph illustrating narrative
under "Stock Price History]
[GRAPH]
<PAGE>
DATAPOINT CORPORATION: INCREMENTAL VALUE OF EXCHANGE OFFER
vs. CUMULATIVE ARREARAGE ON PREFERRED
VALUE
[Graph illustrating narrative
under "Stock Price History]
<PAGE>
DATAPOINT CORPORATION: COMPARISON OF INCREMENTAL CONVERSION VALUE,
CUMULATIVE ARREARAGE AND MOVING AVERAGE
[Graph illustrating narrative
under "Stock Price History]
[GRAPH]
---Cumulative Arrearage
---Incremental Value of Exchange Offer
---20-Day Moving Average Incremental Value
<PAGE>
DATAPOINT CORPORATION
COMPARABLE COMPANY STUDY
------------------------
Through a search using SIC Codes and after consultations with various
analysts who follow this sector of the computer services industry, CCC studied
ten companies that could be considered somewhat comparable to the Company's main
business of network information technology. The size of such comparables was
limited to the smallest at $31.4 million revenues (Alpha Microsystems) to the
largest at $235 million (Fore Systems). It should be noted that none are really
direct competitors since they are mostly U.S.-based operations while Datapoint
is almost entirely European-based. Its European competitors tend to be very
large companies with diversified businesses which we do not consider comparable
for study purposes.
CCC used two sets of numbers for Datapoint - before the possible sale of
the telephony business (but after giving effect to the recent sale of the
automotive dealership business to Kalamazoo) and after such a sale. Pro Forma
estimated revenues for fiscal 1996 were $158,200,000 to $113,700,000,
respectively. Datapoint's Profit & Loss Statement was further adjusted to remove
certain non-recurring items and the impact of employee reductions. This "Base
Case" was provided, for the most part, by the Company. CCC adjusted interest
costs and other expenses from the application of net proceeds from the
automotive sale and the estimated net proceeds of the possible sale of telephony
for * applying that to the redemption of convertible debentures at $70.
Qualitatively, the Company's EBDAIT, EBIT, and EBDAIT to total assets
margins are in the same general area of the comparables. But with the Company's
deficit net worth and deficit working capital, the Company is in a much riskier
financial condition than the comparables.
CCC concentrated on market cap and market value to EBDAIT and EBIT.
Taxes are a minor consideration, except for foreign taxes, due to the NOL
carryforward. CCC cannot use market to book with a negative book value. CCC also
examined market value of comparables to earnings per share, but estimated
taxation is questionable as noted above, so this aspect is less important.
The median market cap is 10.8X EBDAIT, 11.9X EBIT.
The median market value is 7.9X EBDAIT, 9.0X EBIT, 21.4X latest twelve
months E/P/S.
Use of such medians should be considered the UPPER LIMIT of values due
to the financial condition of the Company and its history of losses.
Note: EBDAIT is Earnings before depreciation, amortization, interest
and taxes and is operating income PLUS other income, plus depreciation and
amortization.
EBIT is Earnings before interest, PLUS other income, before
taxes.
Earnings Per Share is net income after preferred dividend.
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
- 2 -
<TABLE>
<CAPTION>
Estimated Pro Forma 1996 Estimated Pro Forma 1996
After Sale of Automotive Net of Telephony Sale
------------------------ ------------------------
<S> <C> <C>
EBDAIT $18,319,000 $16,784,000
EBIT $11,619,000 $10,384,000
E/P/S ($0.16) $0.04
Market Cap
- ----------
EBDAIT
------
Median Market Cap (10.8X) $197,845,000 $181,267,000
Less: Total Debt at par 81,000,000 38,100,000
Less: Preferred at Stated Value 1,896,000 1,896,000
-------------- -------------
Total 114,949,000 141,271,000
Plus: Cash 16,700,000 21,500,000
-------------- -------------
Imputed value common $131,649,000 $162,771,000
On 13,670,930 shares $9.63 per Share $11.90 per Share
Removing Preferred and adding
new common @ 2.75:1 is
18,808,066 shares $ 7.10 per Share $ 8.75 per Share
EBIT
----
Median Market Cap (11.9X) $138,266,000 $123,570,000
Less: Total Debt at par 81,000,000 38,100,000
Less: Preferred at Stated Value 1,896,000 1,896,000
-------------- -------------
Total 55,370,000 83,574,000
Plus: Cash 16,700,000 21,500,000
-------------- -------------
Imputed value common $ 72,070,000 $105,074,000
On 13,670,930 shares $5.27 per Share $7.69 per Share
On 18,808,066 shares $3.93 per Share $5.69 per Share
Market Value
- ------------
EBDAIT
------
Median Market Value (7.9X) $144,720,000 $132,594,000
Less: Accumulated Arrears @ $2 3,736,000 3,736,000
-------------- ---------------
Net Value $140,984,000 $128,858,000
Imputed value $10.31 per Share $9.42 per Share
Imputed value after conversion $ 7.69 per Share $7.05 per Share
EBIT
----
Median Market Value (9.0X) $104,571,000 $ 93,456,000
Less: Accumulated Arrears @ $2 3,736,000 3,736,000
-------------- ----------------
Net Value $100,835,000 $ 89,720,000
Imputed value $7.38 per Share $6.56 per Share
Imputed Value after conversion $5.56 per Share $4.97 per Share
E/P/S ($0.16) $0.04
-----
21.4X n.a. $0.86 per Share
</TABLE>
<PAGE>
- 3 -
In this study, at a 2.75:1 ratio, Common stock values range from $5.27
to $11.90 per share before dilution vs. the closing price of the Preferred at
$3.10 per share just prior to the offer, and $3.25 recently.
After dilution, assuming conversion of all Preferred, the Common
is valued at $3.93 to $8.75 per share. 2.75 shares would be valued at $10.81
to $24.06.
The incremental .75 shares involves an incremental 1,401,053 shares of
dilution. Using, as an example, the lowest value for the Common stock as a
result of applying an EBIT multiple, $3.93 per share, the original 2:1 exchange
ratio yielded a value of $4.14 per share after dilution. Thus, the incremental
.75 decreases the value by $4.14 - $3.93, or $0.21 per share, but the ADDITIONAL
.75 SHARES are valued at .75 times $3.93, or $2.77. In short, in this study, the
incremental value provided in the Exchange Offer is worth as little as $2.77 -
$0.31, or $2.46 more per share of Preferred.
The pro forma earnings are risky at best, and, therefore, this study is
speculative. But no more speculative than the potential receipt of what would be
$2.00 a share at the end of this fiscal year. Thus, the exchange looks
attractive from this point of view.
<PAGE>
<TABLE><CAPTION>
COMPARATIVE FINANCIAL DATA FOR PUBLICLY-HELD COMPANIES
AND DATAPOINT CORPORATION
Company ALPHA ALPHANET BTG, FORE MICROS-TO- NETWORK NORTH STAR
MICROSYSTEMS SOLUTIONS INC. SYSTEMS, INC. MAINFRAMES, INC. PERIPHERALS, INC. UNIVERSAL, INC.
------------ --------- ---- ------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales
TTM $31.4 $75.0 $213.6 $235.2 $47.3 $44.0 $57.7
CY 1995 32.8 74.0 213.6 235.2 47.3 47.1 54.9
CY 1994 38.8 70.5 156.0 106.2 43.0 33.5 47.2
CY 1993 39.3 47.0 103.6 39.3 29.0 10.7 46.8
3-Yr, CAGR -8.6% 25.5% 43.6% 144.6% 27.7% 109.8% 8.3%
Net Income/Margin
TTM ($4.0) def. $2.5 3.3% $3.0 1.4% $9.7 4.1%(4) $1.0 2.1%(5)($8.7) def.(6) $2.4 4.2%
CY 1995 (3.6) def. 2.4 3.2%(2) 3.0 1.4% 9.7 4.1% 1.0 2.1%(5) 6.7 14.2% (2.4) def.(7)
CY 1994 (6.2) def. 1.8 2.6% 3.1 2.0% 12.9 12.1% 0.9 2.1% 5.7 17.0% (3.3) def.
CY 1993 0.3 0.8% 0.3 0.6% 1.8 1.7% 3.7 9.4% 0.5 1.7% 0.4 3.7% (4.6) def.
3-Yr, CAGR NM 182.8% 29.1% 61.9% 41.4% 309.3% NM
Gross Profit/Margin
TTM $9.0 28.7% $10.2 13.6% $49.9 23.4% $136.5 58.0% $6.9 14.6% $20.3 46.1% $15.8 27.4%
CY 1995 9.8 29.9% 10.1 13.6% 49.9 23.4% 136.5 58.0% 6.9 14.6% 22.5 47.8% 15.4 28.1%
CY 1994 11.4 29.4% 9.2 13.0% 37.4 24.0% 61.0 57.4% 5.5 12.8% 16.0 47.8% 12.9 27.3%
CY 1993 15.5 39.4% 5.6 11.9% 26.0 25.1% 24.2 61.6% 4.1 14.1% 5.1 47.7% 14.2 30.3%
3-Yr, CAGR -20.5% 34.3% 38.5% 137.5% 29.7% 110.0% 4.1%
Operating Income/Margin
TTM ($4.7) def. $4.2 5.6% $7.5 3.5% $10.6 4.5% $1.7 3.6%(5)($8.7) def.(6) $0.4 0.7%
CY 1995 (4.2) def. 4.2 5.7% 7.5 3.5% 10.6 4.5% 1.7 3.6% 8.1 17.2% 0.5 0.9%
CY 1994 (6.4) def. 3.2 4.5% 6.9 4.4% 16.1 15.2% 1.5 3.5% 6.5 19.4% (0.8) def.
CY 1993 0.4 1.0% 0.7 1.5% 4.2 4.1% 4.7 12.0% 0.9 3.1% 0.4 3.7% (2.1) def.(8)
3-Yr, CAGR NM 144.9% 33.6% 50.2% 37.4% 350.0% NM
EBT/Margin
TTM ($4.0) def. $4.1 5.5% $5.2 2.4% $20.6 8.8% $1.7 3.6%(5) ($6.4) def.(6) $5.4 9.4%(9)
CY 1995 (3.6) def. 4.1 5.5% 5.2 2.4% 20.6 8.8% 1.7 3.6% 10.3 21.9% (2.4) def.
CY 1994 (6.3) def. 3.1 4.4% 5.5 3.5% 18.9 17.8% 1.5 3.5% 7.1 21.2% (3.3) def.
CY 1993 0.2 0.5% 0.6 1.3% 3.4 3.3% 5.0 12.7% 8.0 27.6% 0.4 3.7% (4.6) def.
3-Yr, CAGR NM 161.4% 23.7% 103.0% -53.9% 407.4% NM
Interest
TTM $0.02 0.1% $0.1 0.1% $3.1 1.5% $0.0 0.0% $0.0 0.0% $0.0 0.0% $4.1 7.1%
CY 1995 0.0 0.0% 0.1 0.1% 3.1 1.5% 0.0 0.0% 0.0 0.0% 0.0 0.0% 4.3 7.8%
CY 1994 0.0 0.0% 0.2 0.3% 1.4 0.9% 0.0 0.0% 0.0 0.1% 0.0 0.0% 4.4 9.3%
CY 1993 0.1 0.2% 0.2 0.4% 0.8 0.8% 0.0 0.0% 0.1 0.3% 0.0 0.0% 4.4 9.4%
3-Yr, CAGR -78.9% -29.3% 96.9% 0.0% -68.4% 0.0% -1.1%
EBIT/Margin
TTM ($3.9) def. $4.2 5.6% $8.3 3.9% $20.6 8.8% $1.7 3.6% ($6.4) def.(6) $9.5 16.5%
CY 1995 (3.6) def. 4.2 5.7% 8.3 3.9% 20.6 8.8% $1.7 3.6% 10.3 21.9% $1.9 3.5%
CY 1994 (6.3) def. 3.3 4.7% 6.9 4.4% 18.9 17.8% 1.5 3.6% 7.1 21.2% 1.1 2.3%
CY 1993 0.3 0.7% 0.8 1.7% 4.2 4.1% 5.0 12.7% 8.1 27.9% 0.4 3.7% (0.2) def.
3-Yr, CAGR NM 129.1% 40.6% 103.0% NM 407.4% NM
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE FINANCIAL DATA FOR PUBLICLY-HELD COMPANIES
AND DATAPOINT CORPORATION
Company ALPHA ALPHANET BTG, FORE MICROS-TO- NETWORK NORTH STAR
MICROSYSTEMS SOLUTIONS INC. SYSTEMS, INC. MAINFRAMES, INC. PERIPHERALS, INC. UNIVERSAL, INC.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Depcn & Amort.
TTM $2.4 7.6% $0.2 0.3% $2.2 1.0% $8.5 3.6% $0.1 0.2% $1.3 3.0% $0.8 1.4%(9)
CY 1995 2.3 7.0% 0.2 0.3% 2.2 1.0% 8.5 3.6% 0.1 0.2% 1.3 2.8% 0.8 1.5%
CY 1994 3.4 8.8% 0.1 0.1% 1.0 0.6% 3.5 3.3% 0.1 0.2% 0.7 2.1% 1.7 3.6%
CY 1993 2.3 5.9% 0.1 0.2% 1.1 1.1% 0.9 2.3% 0.1 0.3% 0.4 3.7% 1.6 3.4%
3-Yr, CAGR 0.0 41.4% 41.4% 207.3% 2.9% 80.3% -29.3%
EBDAIT/Margin
TTM ($1.5) def. $4.5 5.9% $10.5 4.9% $29.1 12.4% $1.8 3.8% ($5.1) def.(6) $10.3 17.9%
CY 1995 (1.3) def. 4.4 5.9% 10.5 4.9% 29.1 12.4% 1.8 3.8% 11.6 24.6% 2.7 4.9%
CY 1994 (2.9) def. 3.4 4.8% 7.9 5.1% 22.4 21.1% 1.6 3.8% 7.8 23.3% 2.8 5.9%
CY 1993 2.6 6.6% 0.9 1.9% 5.3 5.1% 5.9 15.0% 8.2 28.2% 0.8 7.5% 1.4 3.0%
3-Yr, CAGR NM 121.1% 40.8% 122.1% NM 280.8% 38.9%
E.P.S.
TTM ($0.60) $0.61 $0.47 $0.11 $0.31(3) ($0.78) $0.23 (7)(9)
CY 1995 (0.54) 0.61 0.47 0.11 0.31(3) 0.57 (0.25)(7)
CY 1994 (0.95) NA 0.60 0.18 0.40 0.62 (0.35)(7)
CY 1993 0.08 NA 0.38 0.06 0.30 0.05 (0.49)(7)
3-Yr, CAGR NM NA 11.2% 35.4% NM 237.6% NM
Sales
CY 1995 $32.8 $74.0 $213.6 $235.2 $47.3 $47.1 $54.9
CY 1994 38.8 70.5 156.0 106.2 43.0 33.5 47.2
CY 1993 39.3 47.0 103.6 39.3 29.0 10.7 46.8
CY 1992 45.0 35.4 56.5 12.5 15.3 7.2 42.8
CY 1991 49.3 29.6 28.8 2.0 18.6 1.8 37.0
5- Yr. CAGR -9.7% 25.7% 65.0% 229.3% 26.3% 126.2% 10.4%
Net Income/Margin
CY 1995 ($3.6) def. $2.4 3.2% $3.0 1.4% $9.7 4.1% ($3.6) def. $6.7 14.2% ($2.4) def.
CY 1994 (6.2) def. 1.8 2.6% 3.1 2.0% 12.9 12.1% 0.9 2.1% 5.7 17.0% (3.3) def.
CY 1993 0.3 0.8% 0.3 0.6% 1.8 1.7% 3.7 9.4% 0.5 1.7% 0.4 3.7% (4.6) def.
CY 1992 (3.7) def. 0.3 0.8% 1.2 2.1% (1.4) def. 0.4 2.6% (0.8) def. NA NA
CY 1991 0.2 0.4% 0.2 0.7% 0.1 0.3%(3) (2.7) def. 0.3 1.6% (2.0) def. NA NA
5- Yr. CAGR NM 86.1% 134.0% NM NM NM NM
E.P.S.
CY 1995 ($0.54) $0.61 $0.47 $0.11 $0.79 $0.57 ($0.25)
CY 1994 (0.95) NA 0.60 0.18 0.55 0.62 (0.35)
CY 1993 0.08 NA 0.38 0.06 0.23 0.05 (0.49)
CY 1992 (1.25) NA 0.25 0.00 (0.07) NA NA
CY 1991 0.05(1) NA 0.05(3) 0.00 (0.01) NA NA
5-Yr. Avge: (0.52) NA 0.35 0.07 0.30 0.41 NA
<PAGE>
<CAPTION>
COMPARATIVE FINANCIAL DATA FOR PUBLICLY-HELD COMPANIES
AND DATAPOINT CORPORATION
Company ALPHA ALPHANET BTG, FORE MICROS-TO- NETWORK NORTH STAR
MICROSYSTEMS SOLUTIONS INC. SYSTEMS, INC. MAINFRAMES, INC. PERIPHERALS, INC. UNIVERSAL, INC.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Assets
LFQ $13.0 $28.7 $109.5 $424.4 $16.2 $68.2 $116.3
CY 1995 13.1 18.5(2) 109.5 424.4 16.2 70.1 110.2
CY 1994 17.9 16.7 72.3 131.5 9.4 65.2 111.1
Total Debt
LFQ $0.8 $0.2 $45.0 $0.0 $0.0 $0.0 $41.1
CY 1995 0.9 0.8 45.0 0.0 0.0 0.0 43.4
CY 1994 0.5 1.7 24.5 0.0 0.0 0.0 45.7
Shareholders' Equity
LFQ $7.3 $15.1(2) $27.7 $336.0 $11.0 $57.8 $39.9
CY 1995 6.5 6.6(2) 27.7 336.0 11.0 65.7 34.5
CY 1994 10.0 3.9 23.0 97.7 4.9 57.8 34.2
Invested Capital
LFQ $8.1 $15.3 $72.7 $336.0 $11.0 $57.8 $81.0
CY 1995 $7.4 7.4 72.7 336.0 $11.0 65.7 77.9
CY 1994 $10.5 5.6 47.5 97.7 4.9 57.8 79.9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPPARATIVE FINANCIAL DATA FOR PUBLICLY-HELD COMPANIES AND DATAPOINT CORPORATION
Company OPTICAL DATA TECHFORCE WESTERN MICRO
SYSTEMS, INC CORPORATION TECHNOLOGY, INC. Minimum Mean Median
------------ ----------- ---------------- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
SALES
TTM $116.5 $57.1 $100.6 $ 31.4 $102.4 $ 75.0
CY 1995 111.5 49.2 106.5 32.8 102.5 74.0
CY 1994 86.6 30.7 119.3 33.5 77.9 70.5
CY 1993 55.9 8.9 96.8 10.7 52.0 46.8
3-Yr, CAGR 41.2% 135.1% 4.9% -8.6% 44.1% 27.7%
NET INCOME/MARGIN
TTM $14.2 12.2% $2.0 3.4% ($4.0) def. 1.4% 4.6% 3.7%
CY 1995 13.7 12.3% 1.0 2.0% (10) (5.1) def.(11) 1.4% 6.2% 3.7%
CY 1994 8.6 9.9% 0.8 2.5% (1.0) def. 2.0% 7.6% 6.2%
CY 1993 4.9 8.8% 1.0 11.2% (1.1) def. 0.6% 3.8% 1.7%
3-Yr, CAGR 67.2% 0.0% 115.3% 29.1% 115.3% 67.2%
GROSS PROFIT/MARGIN
TTM $57.9 49.7% $18.2 31.9% $12.7 12.6% 12.6% 30.5% 27.4%
CY 1995 56.0 50.2% 15.7 31.9% 13.1 12.3% 12.3% 30.9% 28.1%
CY 1994 39.8 46.0% 9.9 32.2% 16.6 13.9% 12.8% 30.2% 27.3%
CY 1993 26.1 46.7% 3.3 37.1% 17.0 17.6% 11.9% 32.7% 30.3%
3-Yr, CAGR 46.5% 118.1% -12.2% -20.5% 40.9% 34.3%
OPERATING INCOME/MARGIN
TTM $22.0 18.9% $4.0 7.0% $0.4 0.4% 0.4% 5.3% 3.6%
CY 1995 21.2 19.0% 2.8 5.7% (0.7) def. 0.9% 7.8% 4.5%
CY 1994 13.3 15.4% 2.2 7.2% (0.3) def. 3.5% 10.4% 9.8%
CY 1993 7.6 13.6% 2.0 22.5% 0.3 0.3% 0.3% 4.9% 3.4%
3-Yr, CAGR 67.0% 18.3% NM 33.6% 113.9% 58.6%
EBT/MARGIN
TTM $22.9 19.7% $3.2 5.6% (4.0) def. 2.4% 8.2% 7.1%
CY 1995 22.1 19.8% 1.7 3.5% (5.1) def. 2.4% 10.3% 7.1%
CY 1994 13.8 15.9% 1.4 4.6% (1.2) def. 3.5% 11.1% 10.2%
CY 1993 7.9 14.1% 1.7 19.1% (1.4) def. 0.5% 9.0% 3.7%
3-Yr, CAGR 67.3% 0.0 NM -53.9% 118.1% 85.1%
INTEREST
TTM $0.0 0.0% $0.8 1.4% $0.8 0.8% 0.0% 1.1% 0.1%
CY 1995 0.0 0.0% 1.1 2.2% 0.9 0.8% 0.0% 1.1% 0.0%
CY 1994 0.0 0.0% 0.8 2.6% 0.9 0.8% 0.0% 1.3% 0.1%
CY 1993 0.0 0.0% 0.0 0.0% 0.5 0.5% 0.0% 1.3% 0.3%
3-Yr, CAGR NM NM 30.4% -78.9% -6.3% -0.6%
EBIT/MARGIN
TTM $22.9 19.7% $4.0 7.0% ($3.1) def. 3.6% 9.7% 7.2%
CY 1995 22.1 19.8% 2.8 5.7% (4.3) def. 3.5% 9.6% 5.7%
CY 1994 13.8 15.9% 2.2 7.2% (0.3) def. 2.3% 10.0% 4.7%
CY 1993 7.9 14.1% 1.7 19.1% (0.9) def. 0.7% 9.3% 4.1%
3-Yr, CAGR 67.3% 28.3% NM 40.6% 149.5% 103.0%
<CAPTION>
Company DATAPOINT DATAPOINT
Maximum CORPORATION CORPORATION
------- ----------- -----------
(with Telephony)(12) (Without Telephony) (12)
<S> <C> <C> <C>
SALES
TTM $235.2 $158.2 $113.7
CY 1995 235.2 174.9 174.9
CY 1994 156.0 172.9 172.9
CY 1993 103.6 208.3 208.3
3-Yr, CAGR 144.6% -8.4% -8.4%
NET INCOME/MARGIN
TTM 12.2% $1.6 (13) $4.4 3.9% (13)
CY 1995 14.2% (28.3) (28.3) def.
CY 1994 17.0% (94.8) (94.8) def.
CY 1993 9.4% (11.9) (11.9) def.
3-Yr, CAGR 309.3% NM
GROSS PROFIT/MARGIN
TTM 58.0% $47.1 29.8% $33.3 29.3%
CY 1995 58.0% 57.5 32.9% 57.5 32.9%
CY 1994 57.4% 65.6 37.9% 65.6 37.9%
CY 1993 61.6% 86.6 41.6% 86.6 41.6%
3-Yr, CAGR 137.5% -18.5% -18.5%
OPERATING INCOME/MARGIN
TTM 18.9% $9.7 6.1% $8.4 7.4%
CY 1995 19.0% (18.2) def. (18.2) def.
CY 1994 19.4% (81.0) def.(14) (81.0) def.(13)
CY 1993 13.6% (1.3) def. (1.3) def.
3-Yr, CAGR 350.0% NM NM
EBT/MARGIN
TTM 19.7% $4.0 2.5% $6.5 5.7%
CY 1995 21.9% (28.1) def. (28.1) def.
CY 1994 21.2% (94.4) def. (94.4) def.
CY 1993 27.6% (10.9) def. (10.9) def.
3-Yr, CAGR 407.4% NM NM
INTEREST
TTM 7.1% $7.7 4.9% $3.9 3.4%
CY 1995 7.8% 9.3 5.3% 9.3 5.3%
CY 1994 9.3% 9.1 5.3% 9.1 5.3%
CY 1993 9.4% 9.3 4.5% 9.3 4.5%
3-Yr, CAGR 96.9% 0.0% 0.0%
EBIT/MARGIN
TTM 19.7% $11.7 7.4% $10.4 9.1%
CY 1995 21.9% (18.8) def. (18.8) def.
CY 1994 21.2% (85.3) def. (85.3) def.
CY 1993 27.9% (1.6) def. (1.6) def.
3-Yr, CAGR 407.4% 242.8% 242.8%
</TABLE>
Page 4
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE FINANCIAL DATA FOR PUBLICLY-HELD COMPANIES AND DATAPOINT CORPORATION
Company OPTICAL DATA TECHFORCE WESTERN MICRO
- ------- SYSTEMS, INC. CORPORATION TECHNOLOGY, INC. Minimum Mean Median
------------- ----------- ---------------- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Depcn & Amort.
TTM 2.2 1.9% 2.3 4.0% 0.6 0.6% 0.2% 2.2% 1.4%
CY 1995 2.1 1.9% 1.9 3.9% 0.5 0.5% 0.2% 2.1% 1.5%
CY 1994 1.8 2.1% 1.4 4.6% 0.6 0.5% 0.1% 2.4% 2.1%
CY 1993 1.4 2.5% 0.0 0.4% 0.9 0.9% 0.2% 2.3% 2.3%
3-Yr, CAGR 22.5% 589.2% -25.5% -29.3% 37.9% 22.5%
EBDAIT/Margin
TTM $25.1 21.5% $6.3 11.0% ($2.6) def. 3.8% 11.1% 9.2%
CY 1995 24.2 21.7% 4.7 9.6% (3.8) def. 3.8% 11.2% 5.9%
CY 1994 15.6 18.0% 3.6 11.7% 0.3 0.3% 0.3% 10.3% 5.5%
CY 1993 9.3 16.6% 1.7 19.6% 0.0 0.0% 0.0% 9.3% 6.6%
3-Yr, CAGR 61.3% 64.3% NM 38.9% 110.8% 91.2%
E.P.S.
TTM $0.84 $0.28 (4) ($1.07)
CY 1995 0.81 0.16 (1.36)
CY 1994 0.52 0.13 (0.27)
CY 1993 0.30 NA (0.31)
3-Yr, CAGR 64.3% NA NM 11.2% 87.1% 49.9%
Sales
CY 1995 $111.5 $49.2 $106.5
CY 1994 86.6 30.7 119.3
CY 1993 55.9 8.9 96.8
CY 1992 49.2 4.9 80.5
CY 1991 37.1 1.8 85.5
5-Yr, CAGR 31.4% 115.7% 5.6% -9.7% 56.7% 26.3%
Net Income/Margin
CY 1995 $13.7 12.3% $1.0 2.0% (10) ($5.1) def. (5)
CY 1994 8.6 9.9% 0.8 2.5% (10) ($1.0) def. (5)
CY 1993 4.9 8.8% 1.0 11.2% (10) (1.1) def. (5)
CY 1992 5.0 10.2% 0.7 14.3% (10) (0.4) def. (5)
CY 1991 1.8 4.9% 0.2 11.1% (10) (1.4) def. (5)
5-Yr, CAGR 66.1% 49.5% NM 66.1% 95.4% 86.1%
E.P.S.
CY 1995 $0.81 $0.16 (10) ($1.36)
CY 1994 0.52 0.13 (10) (0.27)
CY 1993 0.30 NA (0.31)
CY 1992 0.33 NA (0.12)
CY 1991 0.14 NA (0.45)
5-Yr. Avge: 0.42 NA (0.50)
<CAPTION>
Company DATAPOINT DATAPOINT
- ------- Maximum CORPORATION CORPORATION
------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Depcn & Amort.
TTM 7.6% $6.7 4.2% $6.4 5.6%
CY 1995 7.0% 9.8 5.6% 9.8 5.6%
CY 1994 8.8% 10.7 6.2% 10.7 6.2%
CY 1993 5.9% 11.1 5.3% 11.1 5.3%
3-Yr, CAGR 207.3% -6.0% -6.0%
EBDAIT/Margin
TTM 21.5% $18.4 11.6% $16.8 14.8%
CY 1995 24.6% (9.0) def. (9.0) def.
CY 1994 23.3% (74.6) def. (74.6) def.
CY 1993 28.2% 9.5 4.6% 9.5 4.6%
3-Yr, CAGR 280.8% NM NM
E.P.S.
TTM ($0.16) (12) $0.05 (14)
CY 1995 (2.29) (2.29)
CY 1994 (6.69) (6.69)
CY 1993 (0.97) (0.97)
3-Yr, CAGR 237.6% NM NM
Sales
CY 1995 $174.9 $174.9
CY 1994 172.9 172.9
CY 1993 208.3 208.3
CY 1992 255.2 255.2
CY 1991 265.5 265.5
5-Yr. CAGR 229.3% -9.9% -9.9%
Net Income/Margin
CY 1995 ($28.3) def. ($28.3) def.
CY 1994 (94.8) def. (94.8) def.
CY 1993 (11.9) def. (11.9) def.
CY 1992 (10.4) def. (10.4) def.
CY 1991 5.4 2.0% 5.4 2.0%
5-Yr. CAGR 134.0% #NUM! #NUM!
E.P.S.
CY 1995 ($2.29) ($2.29)
CY 1994 (6.69) (6.69)
CY 1993 (0.97) (0.97)
CY 1992 (1.62) (1.62)
CY 1991 0.30 0.30
5-Yr. Avge: (2.25) (2.25)
</TABLE>
Page 5
<PAGE>
<TABLE><CAPTION>
COMPARATIVE FINANCIAL DATA FOR PUBLICLY-HELD COMPANIES AND DATAPOINT CORPORATION
COMPANY OPTICAL DATA TECHFORCE WESTERN MICRO
- ------- SYSTEMS, INC. CORPORATION TECHNOLOGY, Inc. Minimum Mean
------------- ----------- ---------------- ------- ----
<S> <C> <C> <C> <C> <C>
SYMBOL
Total Assets
LFQ $78.1 $44.3 $40.2 $13.0 $99.4
CY 1995 71.7 38.3 35.9 13.1 96.6
CY 1994 52.6 25.0 37.9 9.4 57.2
Total Debt
LFQ $0.0 $6.6 $8.1 $0.0 $10.6
CY 1995 0.0 4.3 7.2 0.0 10.8
CY 1994 0.0 10.5 9.3 0.0 9.1
Shareholders' Equity
LFQ $62.4 $27.0 $12.3 $7.3 $63.3
CY 1995 58.7 25.1 11.0 6.5 62.0
CY 1994 43.4 (0.8) 14.4 3.9 32.1
Invested Capital
LFQ $62.4 $33.6 $20.4 $6.1 573.9
CY 1995 58.7 30.4 18.2 7.4 72.8
CY 1994 43.4 9.7 23.7 4.9 41.2
<CAPTION>
COMPANY DATAPOINT DATAPOINT
- ------- Median Maximum CORPORATION CORPORATION
------ ------- ----------- -----------
<S> <C> <C> <C> <C>
Total Assets
LFQ $68.2 $424.4 84.4 $77.6
CY 1995 70.1 424.4 101.8 101.8
CY 1994 52.6 131.5 127.4 127.4
Total Debt
LFQ $0.2 $45.0 $81.0 $38.1
CY 1995 0.8 45.0 90.9 90.9
CY 1994 0.5 45.7 90.9 90.9
Shareholders' Equity
LFQ $27.7 $336.0 ($54.4) ($11.5)
CY 1995 27.7 336.0 (74.1) (74.1)
CY 1994 23.0 97.7 (50.8) (50.8)
Invested Capital
LFQ $57.8 $336.0 $26.6 $26.6
CY 1995 58.7 336.0 16.8 16.8
CY 1994 43.4 97.7 40.1 40.1
</TABLE>
Page 6
<PAGE>
COMPARATIVE FINANCIAL DATA FOR PUBLICLY-HELD COMPANIES
AND DATAPOINT CORPORATION
Note: (1) Alpha Microsystems' CY 91 Income is before Extraordinary Item
($151 K or $.05 per shr.)
Note: (2) Prior to its initial public offering on March 20, 1996,
Alphanet Solutions, was an S corp. Accordingly, EPS, income taxes and
net income prior thereto are pro-forma.
Note: (3) BTG's income is from Continuing Oper'ns only for FY 1992.
Otherwise, co. would have expcd. a net loss of $478K, or $.20 per
shr.
Note: (4) During the latest fiscal year, Fore Systems has acquired four
companies and written off apx. $29.4 MM in Merger-Related expenses,
consisting of transaction costs such as fees to financial advisors,
legal and accounting fees. The acquisitions were all accounted for
on a pooling basis; hence, historic sales and earnings have been
adjusted to reflect them. However, the write-off of the merger-
related expenses lowered Operating Income considerably. Excluding
this write-off, operating income would have been appx. $40 MM, EBT
appx. $49.9 and Net Income appx. $23.7 MM, or $.27 per shr.
Note: (5) Micros-to-Mainframes included a non-recurring non-cash charge
of $4.655 MM for conversion of co.'s convertible preferred shares
based on cumulative sales target with the amount shown as pro forma,
based on expectation of s/h approval following the next annual mtg.
of co. I chose to treat this as a non-recurring item and have adjusted
EBT, Net, EPS etc. accordingly on pro-forma basis to exclude this
item.
Note: (6) Network Peripherals acquired NuCom Systems, Inc. 3/21/96, and,
pursuant to that acquisition, wrote off $13.3 MM in Research and
Development, In Process during its first quarter, which was the
"estimated current fair market value, using a risk-adjusted income
approach, of specifically identified technologies which had not
reached technical feasibility and had no future uses," according to
the company. Without this write-off, Network Peripherals would have
still had an unprofitable first quarter; however, on a TTM basis,
its net income, EBT and operating income would have all been
positive.
Note: (7) North Star Universal is a holding company, which has
experienced losses before equity in earnings of unconsolidated
subsidiaries and discontinued oper'ns for at least the past 3 yrs.
Since its unconsolidtd. subsidiaries are involved in far different
businesses from the operating subsidiaries, for the sake of
consistency, EPS have been recomputed on pro-forma basis to reflect
only opeating sub. results. Otherwise, EPS from Continuing Oper'ns
would have been $.31, $.15 and ($1.44) for FY 1995-1993, respectively.
The company is also in the process of undergoing reorganization,
whereby its equity in certain unconsolidated subsidiaries is largely
being spun off to shareholders.
Note: (8) North Star's FY 1993 Operating loss is after Restructuring
Charge of $1.95 MM; however, the company had an operating loss even
before the restructuring charge.
Note: (9) North Star's quarterly EBT and income before equity in
unconsolidated subsidiaries and discontinued operations reflect a
one-time $7.7 MM gain on sale of stock in one unconsolidate
subsidiary (CorVel). Otherwise, North Star would have experienced
pretax losses in its 1st Qtr. 1996 of $714K and, on a TTM Basis,
$3.5 MM. ($.07 and $.36, per share, respectively). Also, quarterly
D&A data are unavailable; hence, as a surrogate, the previous FY's
D&A total was used for TTM, assuming no dramatic change from quarter
to quarter.
Note: (10) Techforce was a partnership prior to its recapitalization in
3/94 and initial public offering on 12/14/95. Accordingly, EBT, net
income and EPS for pre-IPO period are pro-forma.
Note: (11) Western Micro Technology's EBT and Net are from Continuing
Oper'ns only, with discontinued operations account for $615K of
income, or $.10 per shr.
Note: (12) TTM and LFQ figures for Datapoint are pro forma, per projected
FYE results. Two sets of pro-forma numbers are provided. The first
assumes that sale of Datapoint's Telephony business is not achieved
by FYE 1996, and reflects only the sale of the the company's
automotive business to Kalamazoo plc. and application of proceeds
per projections provided by the company and modified by CCC
assumptions. The second set of pro-forma numbers assumes sales of
Datapoint's Telephony businesses and application of their proceeds
primarily to retire a substantial part of the company's 8 7/8%
Debentures at a discount from par. This set of pro-forma numbers
assumes the Flat Growth scenario generated by CCC, with sale of
Telephony at * net of liabilities.
Note: (13) Re Datapoint's FY 1994 Operating Loss, appx. $57.7 MM pertains
to a write-off of investment in foreign operations. Without this
write-off, the operating loss would have been appx. $23.4 MM, as
opposed to $81 MM. Since restructuring charges have been applied
in each of the past three fiscal years, they are not treated here as
non-recurring expenses, but have been included in operating
expenses; accordingly, for all other comparables, restructuring
expenses have not been segregated or brought below the operating
expense line.
Note: (14) Datapoint's TTM EPS are pro-forma, reflecting EPS to Common,
after deducing accrued or paid Preferred dividends to date (est.
$3.74 MM by FYE 1996, or 8 qtrs @ $.25/qtr. x 1,868,071 shrs. Pfd.
outstanding), from pro-forma net income and dividing by 13.67 MM
shrs. common stock outstanding (per 4/96 10-Q).
Page 7
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
COMPARATIVE MARKET AND FINANCIAL DATA FOR COMPARABLE
PUBLICLY-HELD COMPANIES AND DATAPOINT CORPORATION
<TABLE><CAPTION>
Company ALPHA MICROS-TO- NETWORK
- ------- MICRO- ALPHANET BTG, FORE MAINFRAMES, PERIPHERALS, NORTH STAR
SYSTEMS SOLUTIONS INC. SYSTEMS,INC. INC. INC. UNIVERSAL,INC.
------- --------- --- ------------ ----------- ------------ ---------------
SYMBOL ALMI ALPH BTGI FORE MTMC NPIX NSRU
<S> <C> <C> <C> <C> <C> <C> <C>
Latest Fiscal Year 2/25/96 12/31/95 3/31/96 3/31/96 3/31/96 12/31/95 12/31/95
Latest 12 Months 5/26/96 3/31/96 3/31/96 3/31/96 3/31/96 3/31/96 3/31/96
Current Stock Price - 7/12/96 $2.41 $7.00 $12.25
$33.75 $4.13 $14.88 $7.63
52-Wk. High $5.78 $12.00 $15.25 $44.75 $8.63 $20.75 $8.75
52-Wk. Low $0.50 $6.75 $8.38 $15.25 $3.75 $8.25 $5.50
Shares Outstanding (millions) 6.6 5.1 6.1 89.2 3.5 11.8 9.5
Market Value ($MM) $15.9 $35.7 $74.5 $3,008.8 $14.2 $175.5 $72.1
Market Capitalization ($MM)(1) $15.5 $24.5 $119.5 $2,712.7 $10.3 $168.0 $127.5
Market Cap. as Multiple of:
Latest 12 Months Sales 0.5 0.3 0.6 11.5 0.2 3.8 2.2
Latest 12 Months EBDAIT (2) def. 5.5 11.4 93.2 5.7 def. 12.4
Latest 12 Months EBIT (3) def. 5.8 14.4 131.7 6.0 def. 13.4
Market Value as Multiple of:
Latest 12 Months EBDAIT def. 8.0 7.1 103.4 7.9 def. 7.0
Latest 12 Months EBIT def. 8.5 9.0 146.1 8.3 def. 7.6
Latest 12 Months Inv. Capital 2.0 2.3 1.0 9.0 1.3 3.0 0.9
Common Stock Price as Multiple of:
Latest 12 Months E.P.S. def. 11.5 26.1 306.8 13.3 def. 33.2
Current Fiscal year E.P.S. NA 9.7 25.5 62.5 NA 82.6 NA
Next Fiscal Year E.P.S. NA 7.4 14.2 46.2 NA 39.1 NA
Average 5 Yrs. E.P.S. def. NA 35.0 482.1 13.8 36.0 NA
Book Value per Share 2.2 2.4 2.7 9.0 1.5 3.0 1.8
Net Tangible Bk. Val. per Shr. 2.2 2.4 9.9 9.0 1.5 3.0 2.1
Latest 12 Months Sales ($MM) $31.4 $75.0 $213.6 $235.2 $47.3 44.0 57.7
3-Yr. C.A.G.R. -8.6% 25.5% 43.6% 144.6% 27.7% 109.8% 8.3%
Latest 12 Months Gross Profit ($MM) $9.0 $10.2 $49.9 $136.5 $6.9 $20.3 $15.8
Gross Profit Margin 28.7% 13.6% 23.4% 58.0% 14.6% 46.1% 27.4%
3-Yr. C.A.G.R. -20.5% 34.3% 38.5% 137.5% 29.7% 110.0% 4.1%
Latest FY Gross Profit Margin 29.9% 13.6% 23.4% 58.0% 14.6% 47.8% 28.1%
Page 1
<PAGE>
COMPARATIVE MARKET AND FINANCIAL DATA FOR COMPARABLE
PUBLICLY-HELD COMPANIES AND DATAPOINT CORPORATION
<CAPTION>
Company ALPHA MICROS-TO- NETWORK
- ------- MICRO- ALPHANET BTG, FORE MAINFRAMES, PERIPHERALS, NORTH STAR
SYSTEMS SOLUTIONS INC. SYSTEMS,INC. INC. INC. UNIVERSAL,INC.
------- --------- --- ------------ ----------- ------------ ---------------
Latest 12 Months EBDAIT ($MM) ($1.5) $4.5 $10.5 $29.1 $1.8 ($5.1) $10.3
EBDAIT Margin def. 5.9% 4.9% 12.4% 3.8% def. 17.9%
3-Yr. C.A.G.R. NM 121.1% 40.8% 122.1% NM 280.8% 38.9%
Latest FY EBDAIT Margin def. 5.9% 4.9% 12.4% 3.8% 24.6% 4.9%
Latest 12 Months EBIT ($MM) ($3.9) $4.2 $8.3 $20.6 $1.7 ($6.4) $9.5
EBIT Margin def. 5.6% 3.9% 8.8% 3.6% def. 16.5%
3-Yr. C.A.G.R. NM 129.1% 40.6% 103.0% NM 407.4% NM
Latest FY EBIT Margin def. 5.7% 3.9% 8.8% 3.6% 21.9% 3.5%
Latest 12 Months EBIT ROIC def. 27.6% 11.4% 6.1% 15.5% def. 11.7%
Latest FY EBIT ROIC def. 56.8% 11.4% 6.1% 15.5% 15.7% 2.4%
Latest 12 Months EBDAIT/Total Assets def. 15.5% 9.6% 6.9% 11.1% def. 8.9%
Latest FY EBDAIT/Total Assets def. 23.8% 9.6% 6.9% 11.1% 16.5% 2.5%
Return on Equity def. 16.6% 10.8% 2.9% 10.4% def. 6.0%
Return on Net Tangible Book def. 16.6% 40.0% 2.9% 10.4% def. 6.9%
LFQ Total Debt as % Total Assets 6.2% 0.7% 41.1% 0.0% 0.0% 0.0% 35.3%
LFQ Total Debt as % Equity 11.0% 1.3% 162.5% 0.0% 0.0% 0.0% 103.0%
Dividend Nil Nil Nil Nil Nil Nil
Yield Nil Nil Nil Nil 0.0% Nil Nil
Earnings Per Share
Latest 12 Months E.P.S. ($0.60) $0.61 $0.47 $0.11 0.31 ($0.78) $0.23
Current Fiscal year E.P.S. (4) $0.72 $0.48 $0.54 NA $0.18 NA
Next Fiscal Year E.P.S. (4) NA $0.95 $0.86 $0.73 NA $0.38 NA
3-Yr. C.A.G.R. NM NA 11.2% 35.4% NM 237.6% NM
LFQ Total Assets $13.0 $28.7 $109.5 $424.4 $16.2 $68.2 $116.3
Book Value per Share $1.11 $2.96 $4.56 $3.77 $2.78 $4.90 $4.22
Net Tangible Bk. Val. per Share $1.08 $2.96 $1.23 $3.77 $2.78 $4.90 $3.70
Summary Capitalization ($MM): 5/26/96 % 3/31/96 % 3/31/96 % 3/31/96 % 3/31/96 % 3/31/96 % 3/31/96 %
--------- -- ------- -- -------- -- --------- -- ------ -- -------- -- --------- --
Cash & Investments $1.7 $11.4 $0.3 $296.1 $5.3 $7.5 $11.2
Goodwill $0.2 $0.0 $20.2 $0.0 $0.0 $0.0 $4.9
Total Debt $0.8 9 $0.2 1 $45.0 62 $0.0 0 $0.0 0 $0.0 0 $41.1 39
Deferred Taxes & Min. Interests 0.5 6 0.0 0 0.3 0 0.0 0 0.0 0 0.0 0 25.5 24
Preferred Equity 0.0 0 0.0 0 0.0 0 0.0 0 1.4 13 0.0 0 0.0 0
Common Shareholders' Equity 7.3 85 15.1 99 27.7 38 336.0 100 9.6 87 57.8 100 39.9 37
------ -- ----- -- ----- -- ------ -- ----- -- ------ -- ------ --
Total Capitalization $8.6 100 $15.3 100 $73.0 100 $336.0 100 $11.0 100 $57.8 100 $106.5 100
Page 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE MARKET AND FINANCIAL DATA FOR COMPARABLE PUBLICLY-HELD COMPANIES AND DATAPOINT CORPORATION
Company OPTICAL WESTERN
- ------- DATA TECHFORCE MICRO
SYSTEMS, INC. CORPORATION TECHNOLOGY, INC. Minimum Mean
------------- ----------- ---------------- ------- ----
SYMBOL ODSI TFRC WSTM
<S> <C> <C> <C> <C> <C>
Latest Fiscal Year 12/31/95 12/31/95 12/31/95
Latest 12 Months 3/31/96 3/31/96 3/31/96
Current Stock Price - 7/12/96 $18.00 $5.75 $8.13
52-Wk. High $43.25 $13.25 $11.38
52-Wk. Low $16.75 $5.50 $2.88
Shares Outstanding (millions) 16.2 7.9 4.0
Market Value ($MM) $291.6 $45.5 $32.5 $14.2 $376.6
Market Capitalization ($MM)(1) $271.6 $43.7 $40.3 $10.3 $353.4
Market Cap. as Multiple of:
Latest 12 Months Sales 2.3 0.8 0.4 0.2 2.3
Latest 12 Months EBDAIT (2) 10.8 6.9 def. 5.5 20.9
Latest 12 Months EBIT (3) 11.9 10.9 def. 5.8 27.7
Market Value as Multiple of:
Latest 12 Months EBDAIT 11.6 7.2 def. 7.0 21.7
Latest 12 Months EBIT 12.7 11.4 def. 7.6 29.1
Latest 12 Months Inv. Capital 4.7 1.4 1.6 0.9 2.7
Common Stock Price as Multiple of:
Latest 12 Months E.P.S. 21.4 20.5 def. 11.5 61.8
Current Fiscal year E.P.S. 16.1 11.3 NA 9.7 34.6
Next Fiscal Year E.P.S. 11.7 7.5 NA NA NA
Average 5 Yrs. E.P.S. 42.9 NA def. 13.8 122.0
Book Value per Share 4.7 1.7 2.6 1.5 3.2
Net Tangible Bk. Val. per Shr. 4.7 1.7 3.7 1.5 4.0
Latest 12 Months Sales ($MM) $116.5 $57.1 $100.6 $31.4 $97.8
3-Yr. C.A.G.R. 41.2% 135.1% 4.9% -8.6% 53.2%
Latest 12 Months Gross Profit ($MM) $57.9 $18.2 $12.7
Gross Profit Margin 49.7% 31.9% 12.6% 12.6% 30.6%
3-Yr. C.A.G.R. 46.5% 118.1% -12.2% -20.5% 48.6%
Latest FY Gross Profit Margin 50.2% 31.9% 12.3% 12.3% 31.0%
<CAPTION>
Company DATAPOINT DATAPOINT
- ------- CORPORATION CORPORATION
----------- -----------
Median Maximum (with Telephony)(5) (without Telephony)(5)
------ -------
SYMBOL DPT DPT
<S> <C> <C> <C> <C>
Latest Fiscal Year 7/29/95 7/29/95
Latest 12 Months 7/29/96 7/29/96
Current Stock Price - 7/12/96 $1.25 $1.25
52-Wk. High $2.38 $2.38
52-Wk. Low $1.00 $1.00
Shares Outstanding (millions) 13.7 13.7
Market Value ($MM) $58.8 $3,008.8 $17.1 $17.1
Market Capitalization ($MM)(1) $81.6 $2,712.7 $83.3 $35.6
Market Cap. as Multiple of:
Latest 12 Months Sales 0.7 11.5 0.5 0.3
Latest 12 Months EBDAIT (2) 10.8 93.2 4.5 2.1
Latest 12 Months EBIT (3) 11.9 131.7 7.1 3.4
Market Value as Multiple of:
Latest 12 Months EBDAIT 7.9 103.4 0.9 1.0
Latest 12 Months EBIT 9.0 146.1 1.5 1.6
Latest 12 Months Inv. Capital 1.8 9.0 0.6 0.6
Common Stock Price as Multiple of:
Latest 12 Months E.P.S. 21.4 306.8 def. 25.0
Current Fiscal year E.P.S. 20.8 82.6 NA NA
Next Fiscal Year E.P.S. NA NA NA NA
Average 5 Yrs. E.P.S. 36.0 482.1 def. def.
Book Value per Share 2.5 9.0 Neg. Neg.
Net Tangible Bk. Val. per Shr. 2.7 9.9 Neg. Neg.
Latest 12 Months Sales ($MM) 66.4 $235.2 $158.2 $113.7
3-Yr. C.A.G.R. 34.5% 144.6% -8.4% -8.4%
Latest 12 Months Gross Profit ($MM) $47.1 $33.3
Gross Profit Margin 28.0% 58.0% 29.8% 29.3%
3-Yr. C.A.G.R. 36.4% 137.5% -18.5% -18.5%
Latest FY Gross Profit Margin 29.0% 58.0% 32.9% 32.9%
</TABLE>
Page 3
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE MARKET AND FINANCIAL DATA FOR COMPARABLE PUBLICLY-HELD COMPANIES AND DATAPOINT CORPORATION
Company OPTICAL WESTERN
- ------- DATA TECHFORCE MICRO
SYSTEMS, INC. CORPORATION TECHNOLOGY, INC. Minimum Mean
------------- ----------- ---------------- ------- ----
<S> <C> <C> <C> <C> <C>
Latest 12 Months EBDAIT ($MM) $25.1 $6.3 ($2.6)
EBDAIT Margin 21.5% 11.0% def. 3.8% 11.1%
3-Yr. C.A.G.R. 61.3% 64.3% NM 38.9% 104.2%
Latest FY EBDAIT Margin 21.7% 9.6% def. 3.8% 11.0%
Latest 12 Months EBIT ($MM) $22.9 $4.0 ($3.1)
EBIT Margin 19.7% 7.0% def. 3.6% 9.3%
3-Yr. C.A.G.R. 67.3% 28.3% NM 28.3% 129.3%
Latest FY EBIT Margin 19.8% 5.7% def. 3.5% 9.1%
Latest 12 Months EBIT ROIC 36.7% 11.9% def. 6.1% 17.3%
Latest FY EBIT ROIC 37.6% 9.2% def. 2.4% 19.4%
Latest 12 Months EBDAIT/Total Assets 32.1% 14.2% def. 6.9% 14.0%
Latest FY EBDAIT/Total Assets 33.8% 12.3% def. 2.5% 14.5%
Return on Equity 22.8% 7.3% def. 2.9% 11.0%
Return on Net Tangible Book 22.8% 7.3% def. 2.9% 15.2%
LFQ Total Debt as % Total Assets 0.0% 14.9% 20.1% 0.0% 11.8%
LFQ Total Debt as % Equity 0.0% 24.4% 65.9% 0.0% 36.8%
Dividend Nil Nil Nil
Yield Nil Nil Nil 0.0% 0.0%
Earnings Per Share
Latest 12 Months E.P.S. $0.84 $0.28 ($1.07)
Current Fiscal year E.P.S. (4) $1.12 $0.51 NA
Next Fiscal Year E.P.S. (4) $1.54 $0.77 NA
3-Yr. C.A.G.R. 64.3% NA NM 11.2% 87.1%
LFQ Total Assets $78.1 $44.3 $40.2 $13.0 $93.9
Book Value per Share $3.85 $3.41 $3.08
Net Tangible Bk. Val. per Share $3.85 $3.41 $2.20
Summary Capitalization ($MM) 3/31/96 % 3/31/96 % 3/31/96 %
------- - ------- - ------- -
Cash & Investments $20.5 $8.4 $0.3
Goodwill $0.0 $0.0 $3.5
Total Debt $0.0 0 $6.6 20 $8.1 40 0 17
Deferred Taxes & Min. Interests 0.5 1 0.0 0 0.0 0 0 3
Preferred Equity 0.0 0 0.0 0 0.0 0 0 1
Common Shareholders' Equity 62.4 99 27.0 80 12.3 60 37 78
--------- -- --------- --- ---- --
Total Capitalization $62.9 100 $33.6 100 $20.4 100
<CAPTION>
Company DATAPOINT DATAPOINT
- ------- CORPORATION CORPORATION
----------- -----------
Median Maximum (with Telephony)(5) (without Telephony)(5)
------ -------
<S> <C> <C> <C> <C>
Latest 12 Months EBDAIT ($MM) $18.4 $16.8
EBDAIT Margin 11.0% 21.5% 11.6% 14.8%
3-Yr. C.A.G.R. 64.3% 280.8% NM NM
Latest FY EBDAIT Margin 7.7% 24.6% def. def.
Latest 12 Months EBIT ($MM) $11.7 $10.4
EBIT Margin 7.0% 19.7% 7.4% 9.1%
3-Yr. C.A.G.R. 85.1% 407.4% 242.8% 242.8%
Latest FY EBIT Margin 5.7% 21.9% def. def.
Latest 12 Months EBIT ROIC 11.9% 36.7% 44.0% 39.1%
Latest FY EBIT ROIC 13.5% 56.8% def. def.
Latest 12 Months EBDAIT/Total Assets 11.1% 32.1% 21.8% 21.6%
Latest FY EBDAIT/Total Assets 11.7% 33.8% def. def.
Return on Equity 10.4% 22.8% def. def.
Return on Net Tangible Book 10.4% 40.0% def. def.
LFQ Total Debt as % Total Assets 3.4% 41.1% 96.0% 49.1%
LFQ Total Debt as % Equity 6.1% 162.5% -148.9% -331.3%
Dividend Nil Nil
Yield 0.0% 0.0% Nil Nil
Earnings Per Share
Latest 12 Months E.P.S. ($0.16) $0.05
Current Fiscal year E.P.S. (4) ($0.16) $0.05
Next Fiscal Year E.P.S. (4) NA NA
3-Yr. C.A.G.R. 49.9% 237.6% NM NM
LFQ Total Assets $56.3 $424.4 $84.4 $77.6
Book Value per Share ($4.12) ($0.98)
Net Tangible Bk. Val. per Share ($4.12) ($0.98)
Summary Capitalization ($MM) 7/29/96 % 7/29/96 %
------------ - ------------ -
Cash & Investments $16.7 $21.5
Goodwill $0.0 $0.0
Total Debt 1 62 $81.0 305 $38.1 143
Deferred Taxes & Min. Interests 0 24 0.0 0 0.0 0
Preferred Equity 0 13 1.9 7 1.9 7
Common Shareholders' Equity 87 100 (56.3) -212 (13.4) -50
------------ ---- ------------ ---
Total Capitalization $26.6 100 $26.6 100
</TABLE>
Page 4
<PAGE>
COMPARATIVE MARKET AND FINANCIAL DATA FOR COMPARABLE
PUBLICLY-HELD COMPANIES AND DATAPOINT CORPORATION
Note: (1) Market Capitalization = Market Value, plus Total Debt,
Preferred Equity, Deferred Taxes and Minority Interest, less Cash.
Note: (2) EBDAIT = Earnings Before Depreciation, Amortization, Interest
and Taxes.
Note: (3) EBIT = Earnings Before Interest and Taxes.
Note: (4) All Earnings Per Share estimates for current and next fiscal
years for comparable public companies have been obtained from either
Bloomberg Information Services or the Institutional Brokers Estimate
System as of July 12, 1996.
Note: (5) Earnings and balance sheet data for its FYE 7/30/96 are pro-
forma, with the first column assuming that company is unable to sell
its Telephony business by the end of the fiscal year and apply the
sale proceeds accordingly. The second column assumes that the
Telephony business is sold by FYE. For this latter column, this
analysis further applies the No Growth scenario assumptions, one of
three assumptions generated by CCC. In this scenario, it is
assumed that the Telephony business is sold for * net of liabilities,
with the proceeds applied to retire a substantial part of Datapoint's
8 7/8% Debentures through open market purchases at a 70% discount from
face value.
Page 5
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
DATAPOINT CORPORATION
FORECASTS AND DISCOUNTED CASH FLOW
----------------------------------
CCC used two scenarios, once again, to project cash flows and discount them
to their present value appropriately. First, CCC used the post-automotive sale,
and second, a post-sale of the telephony business. Each had a no-growth,
negative growth and optimistic projection. The cash flow assumptions are
outlined in the notes to those exhibits.
CCC used what is termed a recurring EBDAIT for determining the terminal
value and a multiple of 7 times, the minimum generated in the comparable company
study.
The cash flow was "net free cash flow," that is, cash flow after capital
expenditures and required working capital. Furthermore, the net free cash flow
was unleveraged, eliminating the effect of debt, since the value of the debt as
of the end of fiscal year 1996 was deducted from the present value of the cash
flows. All figures were discounted at rates from 15.3% to 30% per the attached
memorandum. After deduction of debt, the balance available for common after the
par value of the Preferred plus accrued dividends was computed. CCC also
computed the value available for common after dilution at the ratio of 2.75:1.
The result was a value of $4.10 per share for the common before dilution,
and $3.28 after dilution using the 30% discount rate and utilizing the most
optimistic of the scenarios after the sale of telephony. The numbers are lower
if the telephone business is not sold due to the higher debt. Under this
scenario, the optimistic case indicates a value of $1.37 per common share and
$1.29 per share after dilution. However, in CCC's opinion, the scenarios should
be weighted to reflect no-growth and negative growth projections. Using a lower
22% for the discount rate in the optimistic scenario, and the lowest rate,
15.3%, for no growth and negative growth, with weightings of 50% for no growth
as the most likely event and 25% for each of the others, we arrive at a range of
$1.81 to $1.62 before and after dilution if the telephony business is sold. If
NOT SOLD, the weighted values are negative. In our opinion, the chance of sale
is at least 75%, which suggests the value of the common is $1.22 to $1.36.
CCC concluded that a range of $1.22 to $1.36 should be used for the
discounted cash flow approach.
<PAGE>
CORPORATE CAPITAL CONSULTANTS, INC.
MEMORANDUM
----------
TO: Peter L. Ratner
FROM: Carl A. Goldman
DATE: July 12, 1996
RE: DATAPOINT CORP. - DISCOUNT RATES TO BE USED FOR DCF
---------------------------------------------------
1) Take yield on debentures (can't do cost of capital because no
earnings and stock at $1+).
(Update debenture run thru 7/11/96).
But at 6/21/96 - 8-7/8 - 58 = 15.3%.
-----
2) Build up method; Assumptions 5 Year DCF:
a) 5-Year Treasury (risk-free rate) - 6-5/8, 6/1/2001 6.66%
b) Ibbotson (P. 157) Risk Premia
1. Intermediate - horizon 7.40%
2. Size Premia - micro cap. 4.00%
c) beta per Bloomberg 1.35%
3) Equity discount rate formula
Cost of equity = Risk Free Rate plus beta times risk premia
plus unsystematic risk.
6.66% + 1.35 (7.4% + 4.0%) + 0 = 22.05%
------
Unsystematic risk is zero, which assumes there is no additional
risk since size is already taken into account through the micro-cap premium
and volatility is in the beta. However, the history of losses creates a
problem in unsystematic risk, so this formula may understate the cost of
equity.
4) CCC cannot use a weighted cost of capital because there is a
deficit equity. Clearly the equity rate should be higher than the
debenture rate due to the higher risk.
5) For DCF, use low rate of 15.3%, base case at 22%, high case at 30%
(which would be a venture capital type rate.)
CAG:evk
<PAGE>
DATAPOINT CORP.: BASE CASE INDICATING EFFECT OF ASSET DISPOSITIONS
Fiscal Year Ended July 29, 1996
<TABLE><CAPTION>
Impact of Reductions for
Base Case Employee Reductions Sale of Automotive P&L, Net of Sale of
Entire Company & N/R Items Segment Automotive Segment
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $184,614 100.0% $184,614 100.0% $26,378 100.0% $158,236 100.0%
Cost of Sales 126,922 68.7% 124,660 67.5% 13,531 51.3% 111,129 70.2%
----------- ---------- --------- ---------
Gross Profit 57,692 31.3% 59,954 32.5% 12,847 48.7% 47,107 29.8%
Operating Expenses 33,822 18.3% 33,168 18.0% 7,040 26.7% 26,128 16.5%
Corporate G&A (1) 11,726 6.4% 9,343 5.1% 570 2.2% 8,773 5.5%
R&D 2,871 1.6% 2,548 1.4% 0 0.0% 2,548 1.6%
----------- ---------- --------- ---------
Operating Income 9,273 5.0% 14,895 8.1% 5,237 19.9% 9,658 6.1%
Interest (2) 8,791 8,791 1,139 7,652
----------- ---------- ---------
Run Rate Income/(Loss) 482 6,104 4,098 2,006
Other Income/(Expense):
Restructuring Expense (77) 77 0 0
Other Int'l Operating
Exp. (175) 380 0 205
Transaction Gain/(Loss) 1,756 0 0 1,756
----------- ---------- --------- ---------
Sub-total 1,504 457 0 1,961
Pretax Income/(Loss) 1,986 6,561 4,098 3,967
Taxes (4) (6,039) (2,767) (391) (2,376)
----------- ---------- --------- ---------
Net Income/(Loss) (4,053) 3,794 3,707 1,591
Depreciation & Amortizn. 6,900 6,900 200 6,700
Capital Expenditures 2,777 2,777 200 2,577
<CAPTION>
Reductions for P&L, Net of Sale of
Sale of Telephony Telephony and
Business Automotive Segments
------------------ -------------------
<S> <C> <C> <C> <C>
Revenues $44,506 100.0% $113,730 100.0%
Cost of Sales 30,666 68.9% 80,463 70.7%
---------- ----------
Gross Profit 13,840 31.1% 33,267 29.3%
Operating Expenses 11,079 24.9% 15,049 13.2%
Corporate G&A (1) 1,526 3.4% 7,247 6.4%
R&D 0 0.0% 2,548 2.2%
---------- ----------
Operating Income 1,235 2.8% 8,423 7.4%
Interest (2) 3,804 3,848
---------- ----------
Run Rate Income/(Loss) (2,569) 4,575
Other Income/(Expense):
Restructuring Expense 0 0
Other Int'l Operating
Exp 0 205
Transaction Gain/(Loss) 0 (3) 1,756 (3)
---------- ----------
Sub-total 0 1,961
Pretax Income/(Loss) (2,569) 6,536
Taxes (4) (264) (2,112)
---------- ----------
Net Income/(Loss) (2,833) 4,424
Depreciation & Amortizn. 300 6,400 5.6%
Capital Expenditures 300 2,277
</TABLE>
Page 1
<PAGE>
DATAPOINT CORP.: BASE CASE INDICATING EFFECT OF ASSET DISPOSITIONS
Fiscal Year Ended July 29, 1996
Note: (1) Corporate G&A is net of $994 K in non-recurring US HQ Expense,
per Datapoint's CFO.
Note: (2) Interest Reductions assume application of part or all of net
proceeds of each division's sale to retirement of certain debt, with
consequent interest reductions. See Pro-Forma Interest Computation
and Assumptions Worksheets for itemization of these reductions.
Note: (3) Even though Base Case and subsequent cases contemplate sale of
Telephony Division w/application of substantial part of proceeds to
retirement of Datapoint's Debentures at a gain, the gain has been
excluded here, as the purpose of this projection is to provide the
basis of non-recurring income and EBDAIT over the course of a five-
year period, and it is not expected that such a buy-back will occur
again during this time.
Note: (4) Although Datapoint has a tax loss carry-forward totaling appx.
$150 MM to date, per company officers, the taxes shown here pertain
to foreign operations, and are not affected by the carry-forward.
Page 2
<PAGE>
<TABLE><CAPTION>
Base Case Optimistic Scenario
--------- -------------------
<S> <C> <C>
Sales N/A +5% per annum
Cost of Sales 71% of Sls 70% of Sls
Operating Expenses 13% of Sls increase at half the rate of Sls
Corporate G&A N/A +1% per annum
R& D N/A +1.5% per annum
Deprec'n & Amortizn. $6.4 MM, net auto & tele business -10% per annum
$6.7 MM w/ tele business retention -10% per annum
Interest Expense:
- -----------------
With Retention of Telephony: Reflects retirement of Reflects retirement of
NTI, CIT debt and NTI, CIT debt and
partial retirement of partial retirement of
IFN debt pertaining to A/R IFN debt pertaining to A/R
from automotive segment. from automotive segment.
Assumes mortgage on Assumes mortgage on
Dutch building is replaced Dutch building is replaced
with debt on similar terms. with debt on similar terms.
With Sale of Telephony: Also reflects open market Also reflects open market
purchase of Debentures purchase of Debentures
at 70% of face value at 70% of face value
based on * net based on * net
proceeds from sale of proceeds from sale of
Telephony Business Telephony Business
(see separate pro-forma (see separate pro-forma
interest computation interest computation
spread-sheet) spread-sheet)
Income Taxes No U.S. income taxes owing to No U.S. income taxes owing to
$150 MM TLCF; assume flat $150 MM TLCF; assume flat
offshore taxes @ $2.4 MM per offshore taxes @ $2.1 MM per
annum w/ Telephony retention, annum w/ Telephony retention,
$2.1 MM w/ Telephony sale. $2.1 MM w/ Telephony sale.
Capital Expenditures Assume $2.6 MM w/retention of Assume $2.6 MM w/retention of
tele business, $2.3 MM with sale; tele business, $2.3 MM with sale;
remain flat each year. remain flat each year.
<CAPTION>
No Growth Scenario Negative Scenario
------------------ -----------------
<S> <C>
No change -5% per annum
71% of Sls 70% of Sls
13% of Sls decrease at half the rate of Sls
+0.5% per annum +1% per annum
+0.5% per annum No growth
-10% per annum -10% per annum
-10% per annum -10% per annum
Reflects retirement of Reflects retirement of
NTI, CIT debt and NTI, CIT debt and
partial retirement of partial retirement of
IFN debt pertaining to A/R IFN debt pertaining to A/R
from automotive segment. from automotive segment.
Assumes mortgage on Assumes mortgage on
Dutch building is replaced Dutch building is replaced
with debt on similar terms. with debt on similar terms.
Also reflects open market Also reflects open market
purchase of Debentures purchase of Debentures
at 70% of face value at 70% of face value
based on * net based on * net
proceeds from sale of proceeds from sale of
Telephony Business Telephony Business
(see separate pro-forma (see separate pro-forma
interest computation interest computation
spread-sheet) spread-sheet)
No U.S. income taxes owing to No U.S. income taxes owing to
$150 MM TLCF; assume flat $150 MM TLCF; assume flat
offshore taxes @ $2.1 MM per offshore taxes @ $2.1 MM per
annum w/ Telephony retention, annum w/ Telephony retention,
$2.1 MM w/ Telephony sale. $2.1 MM w/ Telephony sale.
Assume $2.6 MM w/retention of Assume $2.6 MM w/retention of
tele business, $2.3 MM with sale; tele business, $2.3 MM with sale;
remain flat each year. remain flat each year.
</TABLE>
Page 3
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
REFLECTING SAVINGS FROM SALES OF EITHER AUTOMOTIVE OR BOTH
AUTOMOTIVE AND TELEPHONY BUSINESSES
<TABLE><CAPTION>
Base Case Optimistic No Growth Negative Growth
<S> <C> <C> <C> <C>
Total Interest Expense $8,791 $8,791 $8,791 $8,791
Retirement of NTI Note (726) (726) (726) (726)
Retirement of CIT Facility (278) (278) (278) (278)
Partial paydown of IFN Mortgage
(Germany & UK) (135) (135) (135) (135)
--------- --------- -------- --------
Interest with Retention of Telephony Business: 7,652 7,652 7,652 7,652
Impact of Sale of Telephony Business:
- -------------------------------------
Reduction of Debenture interest
through open market purchases:
Scenario 1: Telephony sold for
*, net (Base, No Growth and Negative Scenarios) (3,804) (3,804) (3,804)
Scenario 2: Telephony sold for
*, net (Optimistic Scenario) (5,071)
--------- --------- -------- -------
$3,848 $2,581 $3,848 $3,848
Scenario 1 Telephony Sale - Net Proceeds: *
- -----------------------------------------
Face amount of Debentures purchased (at 70% of face value) 42,857
Interest on Debentures purchased $3,804
Scenario 2 Telephony Sale - Net Proceeds: *
- -----------------------------------------
Face amount of Debentures purchased (at 70% of face value) 57,143
Interest on Debentures purchased $5,071
Gains on Debenture purchases at discount:
- -----------------------------------------
Scenario 1: $12,857
Scenario 2: 17,143
</TABLE>
Page 4
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
DATAPOINT CORPORATION:
FIVE-YEAR FORECAST OF INCOME & CASH FLOW
ASSUMING SALE OF TELEPHONY BUSINESS PRIOR TO 1996 FISCAL YEAR END
<PAGE>
DATAPOINT CORPORATION; FIVE-YEAR FORECAST OF INCOME & CASH FLOW
ASSUMING SALE OF TELEPHONY BUSINESS PRIOR TO 1996 FISCAL YEAR END
AND DEBENTURE BUY-BACK @ 70%
DOLLARS IN THOUSANDS
OPTIMISTIC SCENARIO
-------------------
<TABLE><CAPTION>
Fiscal Year Ended 1996 1997 1998
--------------------- ----------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % $ % % Change $ % % Change
Revenues $ 113,730 100.0% $119,417 100.0% 5.0% $125,387 100.0% 5.0%
Cost of Sales 80,463 70.7% 82,475 69.1% 2.5% 84,536 67.4%
----------- ------------ ---------
Gross Profit 33,267 29.3% 36,942 30.9% 40,851 32.6%
Operating Expenses 15,049 13.2% 15,425 12.9% 2.5% 15,811 12.6% 2.5%
Corporate G&A 7,247 6.4% 7,319 6.1% 1.0% 7,393 5.9% 1.0%
R&D 2,548 2.2% 2,586 2.2% 1.5% 2,625 2.1% 1.5%
----------- ------------ ---------
Operating Income 8,423 7.4% 11,611 9.7% 15,022 12.0%
Interest 2,581 (1) 2,581 2,581
----------- ------------ ---------
Other Income/(Expense):
Restructuring Expense 0
Other Int'l Operating Exp. 205
Transaction Gain/(Loss) 1,756
-----------
Sub-total 1,961
Pretax Income/(Loss) 7,803 9,030 12,442
Taxes (2,112) (2,112) (2,112)
----------- ------------ ---------
Net Income/(Loss) 5,691 6,918 10,330
Interest 2,581 2,581 2,581
Depreciation & Amortizn. 6,400 5.6% 5,760 4.8% -10.0% 5,184 4.1% -10.0%
Capital Expenditures (2,277) (2,277) (2,277)
----------- ------------ ---------
Net Free Cash Flow before W.C.
(unleveraged) 12,395 12,982 15,817
Working Capital requirements (12,395) (12,982) (5,800)(2)
----------- ------------ ---------
Net Free Cash Flow (unlevrgd.) 0 0 10,017
Terminal Value 0 0 0
----------- ------------ ---------
Total Flows to be Discounted 0 0 10,017
Operating income 8,423 11,611 15,022
Depreciation & Amortizn. 6,400 5.6% 5,760 4.8% -10.0% 5,184 4.1% -10.0%
----------- ------------ ---------
Recurring EBDAIT (3) $14,823 $17,371 $20,206
less debt (4) Net Value less Pfd.(5) per C/S shr.
------------- --------- ------------ -----------
PV at: 15.3% $147,926 (23,900) $124,026 ($5,604) $118,422 $8.66
22.0% $114,142 (23,900) $ 90,242 ($5,604) $ 84,638 $6.19
30.0% $85,529 (23,900) $ 61,629 ($5,604) $ 56,025 $4.10
<CAPTION>
Fiscal Year Ended 1999 2000 2001
---------------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % Change $ % % Change $ % % Change
Revenues $131,657 100.0% 5.0% $138,240 100.0% 5.0% $145,152 100.0% 5.0%
Cost of Sales 86,650 65.8% 88,816 64.2% 91,036 62.7%
------------ ----------- --------
Gross Profit 45,007 34.2% 49,423 35.8% 54,115 37.3%
Operating Expenses 16,206 12.3% 2.5% 16,611 12.0% 2.5% 17,027 11.7% 2.5%
Corporate G&A 7,467 5.7% 1.0% 7,541 5.5% 1.0% 7,617 5.2% 1.0%
R&D 2,664 2.0% 1.5% 2,704 2.0% 1.5% 2,745 1.9% 1.5%
------------ ----------- ---------
Operating Income 18,670 14.2% 22,567 16.3% 26,727 18.4%
Interest 2,150 1,901 1,901
------------ ----------- ---------
Other Income/(Expense):
Restructuring Expense
Other Int'l Operating Exp.
Transaction Gain/(Loss)
Sub-total
Pretax Income/(Loss) 16,520 20,666 24,826
Taxes (2,112) (2,112) (2,112)
------------ ----------- ---------
Net Income/(Loss) 14,408 18,554 22,714
Interest 2,150 1,901 1,901
Depreciation & Amortizn. 4,666 3.5% -10.0% 4,199 3.0% -10.0% 3,779 2.6% -10.0%
Capital Expenditures (2,277) (2,277) (2,277)
------------ ----------- ---------
Net Free Cash Flow before W.C.
(unleveraged) 18,946 22,377 26,117
Working Capital requirements (1,254) (1,317) (1,382)
------------ ----------- ---------
Net Free Cash Flow (unlevrgd.) 17,692 21,060 24,735
Terminal Value 0 0 213,542 (7)
------------ ----------- ---------
Total Flows to be Discounted 17,692 21,060 238,277
Operating income 18,670 22,567 26,727
Depreciation & Amortizn. 4,666 3.5% -10.0% 4,199 3.0% -10.0% 3,779 2.6% -10.0%
------------ ----------- ---------
Recurring EBDAIT (3) $23,335 $26,766 $ 30,506
per diluted C/S shr. for exchange (6)
PV at: -------------------------------------
$6.59
$4.80
$3.28
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
Dollars in Thousands DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
ASSUMING SALE OF TELEPHONY BUSINESS PRIOR TO 1996 FISCAL YEAR END AND DEBENTURE BUY-BACK @ 70%
Optimistic Scenario
-------------------
Fiscal Year Ended 1996 1997
--------------- ------------------------
$ % $ % % Change
- - - - --------
<S> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 0 0
less, Interest expense (2,581)
-------
Net Cash flow avail. after int. 0 (2,581)
Balance of remaining CSD's (70% discount buy-back) 7,657
FCF to repurchase remaining CSD's: 0
Pcpal. value for remaining repurchase (par) 0
Interest on repurchased CSD's 8.875% 0
Total Debentures bought back post-1996: 7,657
Net FCF available for Pfd. Dividend payment 0
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 3,736 5,604
Initial Wkg. Cap. deficit (6,100)
Cum. Wkg. Cap. requirement
(20% sls) $23,883
less, cum net FCF to W.C. 12,395 (19,277)
------
Net FCF to Wkg. Cap. 6,295
Net wkg. cap. requirement 4,606
<CAPTION>
Dollars in Thousands
Optimistic Scenario
-------------------
Fiscal Year Ended 1998 1999
------------------------- ------------------------
$ % % Change $ % % Change
- - -------- - - --------
<S> <C> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 10,017 17,692
less, Interest expense (5,161) (2,150)
------- --------
Net Cash flow avail. after int. 4,856 15,543
Balance of remaining CSD's (70% discount buy-back) 7,657 2,801
FCF to repurchase remaining CSD's: 4,856 2,801
Pcpal. value for remaining repurchase (par) 4,856 2,801
Interest on repurchased CSD's 8.875% 431 249
Total Debentures bought back post-1996:
Net FCF available for Pfd. Dividend payment 0 12,741
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 7,472 9,340
Initial Wkg. Cap. deficit
Cum. Wkg. Cap. requirement
(20% sls) $25,077 $26,331
less, cum net FCF to W.C. (25,077) (26,331)
Net FCF to Wkg. Cap.
Net wkg. cap. requirement
0 ($0)
<CAPTION>
Dollars in Thousands
Optimistic Scenario
-------------------
Fiscal Year Ended 2000 2001
----------------------- ------------------------
$ % % Change $ % % Change
- - -------- - - --------
<S> <C> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 21,060 24,735
less, Interest expense (1,901) (1,901)
------- -----------
Net Cash flow avail. after int. 19,159 22,834
Balance of remaining CSD's (70% discount buy-back) 0 0
FCF to repurchase remaining CSD's: 0 0
Pcpal. value for remaining repurchase (par) 0 0
Interest on repurchased CSD's 8.875% 0 0
Total Debentures bought back post-1996:
Net FCF available for Pfd. Dividend payment 19,159 22,834
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 11,208
Initial Wkg. Cap. deficit
Cum. Wkg. Cap. requirement
(20% sls) $27,648 $29,030
less, cum net FCF to W.C. (27,648) (29,030)
Net FCF to Wkg. Cap.
Net wkg. cap. requirement
($0) $0
</TABLE>
Page 2
<PAGE>
DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
ASSUMING SALE OF TELEPHONY BUSINESS PRIOR TO 1996 FISCAL YEAR END
AND DEBENTURE BUY-BACK @ 70%
Dollars in Thousands
Optimistic Scenario
- --------------------
Note: (1) Interest expense reflects application of * net proceeds from sale
of Telephony division to retirement of 8 7/8% Convertible Subordinated
Debentures at average 30% discount from par; hence appx. $57.1 MM of
debentures are retired, with consequent decrease of interest of $5.1 MM.
This scenario further assumes retirement of the remaining $7.7 MM of
debentures at par in 1998, with consequent reduction of approximately
$680 K of interest in subsequent years.
Note: (2) For purposes of this projection, it is assumed that the company
requires approximately one-fifth of revenues for working capital
requirements. This scenario posits a beginning working capital
deficit at year-end 1996 of approximately $6.1 MM, with free cash
flow devoted to meeting that goal in subsequent years. It is
further assumed that $7.7 MM of cash flow (after interest expense)
is utilized to retire the outstanding balance of Convertible
Subordinated Debentures by year-end 1999. For all subsequent years,
all cash flow above the amount necessary to meet the working capital
requirement is considered net free cash flow. For the purposes of
an unleveraged discounted cash flow, an unleveraged net free cash
flow is computed; for determining the ability and timing of the
company's retirement of its outstanding debentures, a free cash flow
after interest expense has been provided.
Note: (3) Recurring EBDAIT excludes the Other Income items that pertained
to fiscal year 1996, since those were generally considered non-
recurring items.
Note: (4) Debt as of the end of fiscal year 1996, assuming sale of the
Telephony division during the year and the application of the net
proceeds to the retirement of approximately $57.1 MM of debentures,
purchased at 30% from par. See pro-forma balance sheet and computation
of pro-forma total debt in accompanying spread-sheets for backup.
Note: (5) To determine the present value of future cash flow to the
common shareholders, the cumulative arrearage as of fiscal year-end
(8 quarters), plus the par value of the Preferred shares outstanding
(approximately 1,868,000 shares) have been deducted.
Note: (6) To determine the fully diluted value of the present value of
cash flow to common shareholders, it has been assumed that the
Preferred shares have all been exchanged, per the exchange ratio
proposed in the current offer by Datapoint.
Note: (7) To determine Terminal Value, we have applied the minimum
Price/EBDAIT multiple derived from our comparable company study
(7.0) to the final year's projected EBDAIT for this scenario.
Page 3
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
<TABLE>
Dollars in Thousands DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
NO GROWTH SCENARIO ASSUMING SALE OF TELEPHONY BUSINESS PRIOR TO 1996 FISCAL YEAR END AND DEBENTURE BUY-BACK @ 70%
--------------------
<CAPTION>
Fiscal Year Ended 1996 1997 1998
----------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % $ % % Change $ % % Change
- - - - -------- - - --------
Revenues $113,730 100.0% $113,730 100.0% 0.0% $113,730 100.0% 0.0%
Cost of Sales 80,463 70.7% 80,463 70.7% 80,463 70.7%
--------- --------- ---------
Gross Profit 33,267 29.3% 33,267 29.3% 33,267 29.3%
Operating Expenses 15,049 13.2% 15,049 13.2% 0.0% 15,049 13.2% 0.0%
Corporate G&A 7,247 6.4% 7,283 6.4% 0.5% 7,320 6.4% 0.5%
R&D 2,548 2.2% 2,561 2.3% 0.5% 2,574 2.3% 0.5%
--------- --------- ---------
Operating Income 8,423 7.4% 8,374 7.4% 8,325 7.3%
Interest 3,848 (1) 3,848 3,848
--------- --------- ---------
Other Income/(Expense):
Restructuring Expense 0
Other Int'l Operating Exp. 205
Transaction Gain/(Loss) 1,756
---------
Sub-total 1,961
Pretax Income/(Loss) 6,536 4,526 4,476
Taxes (2,112) (2,112) (2,112)
--------- --------- ---------
Net Income/(Loss) 4,424 2,414 2,364
Interest 3,848 3,848 3,848
Depreciation and Amortizn. 6,400 5.6% 5,760 5.1% -10.0% 5,184 4.6% -10.0%
Capital Expenditures (2,277) (2,277) (2,277)
--------- --------- ---------
Net Free Cash Fow before W.C.: 12,395 9,745 9,120
(unleveraged)
Working Capital requirements (2) (12,395) (9,745) (6,706)
--------- ---------
Net Free Cash Flow (unlevrgd.) 0 0 2,414
Terminal Value 0 0 0
--------- --------- ---------
Total Flows to be Discounted 0 0 2,414
Operating Income 8,423 8,374 8,325
Depreciation & Amortizn. 6,400 5.6% 5,760 5.1% -10.0% 5,184 4.6% -10.0%
--------- --------- ---------
Recurring EBDAIT (3) $14,823 $14,134 $13,509
PV at: less debt(4) Net Value less Pfd.(5) per C/S shr.
- ------ ------------ --------- ------------ ------------
15.3% $56,722 (38,100) $18,622 ($5,604) $13,018 $0.95
22.0% $43,721 (38,100) $5,621 ($5,604) $17 $0.00
30.0% $32,710 (38,100) ($5,390) ($5,604) ($10,994) ($0.80)
<CAPTION>
Dollars in Thousands
NO GROWTH SCENARIO
--------------------
Fiscal Year Ended 1999 2000 2001
---------------------------- ------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % Change $ % % Change $ % % Change
- - -------- - - -------- - - --------
Revenues $113,730 100.0% 0.0% $113,730 100.0% 0.0% $113,730 100.0% 0.0%
Cost of Sales 80,463 70.7% 80,463 70.7% 80,463 70.7%
--------- --------- ---------
Gross Profit 33,267 29.3% 33,267 29.3% 33,267 29.3%
Operating Expenses 15,049 13.2% 0.0% 15,049 13.2% 0.0% 15,049 13.2% 0.0%
Corporate G&A 7,356 6.5% 0.5% 7,393 6.5% 0.5% 7,430 6.5% 0.5%
R&D 2,586 2.3% 0.5% 2,599 2.3% 0.5% 2,612 2.3% 0.5%
--------- --------- ---------
Operating Income 8,275 7.3% 8,226 7.2% 8,176 7.2%
Interest 3,848 3,848 3,528
--------- --------- ---------
Other Income/(Expense):
Restructuring Expense
Other Int'l Operating Exp.
Transaction Gain/(Loss)
Sub-total
Pretax Income/(Loss) 4,427 4,377 4,647
Taxes (2,112) (2,112) (2,112)
--------- --------- ---------
Net Income/(Loss) 2,315 2,265 2,535
Interest 3,848 3,848 3,528
Depreciation and Amortizn. 4,666 4.1% -10.0% 4,199 3.7% -10.0% 3,779 3.3% -10.0%
Capital Expenditures (2,277) (2,277) (2,277)
--------- --------- ---------
Net Free Cash Fow before W.C.: 8,552 8,036 7,566
(unleveraged)
Working Capital requirements (2) 0 0 0
--------- --------- ---------
Net Free Cash Flow (unlevrgd.) 8,552 8,036 7,566
Terminal Value 0 0 83,684 (7)
--------- --------- ---------
Total Flows to be Discounted 8,552 8,036 91,249
Operating Income 8,275 8,226 8,176
Depreciation & Amortizn. 4,666 4.1% -10.0% 4,199 3.7% -10.0% 3,779 3.3% -10.0%
--------- --------- ---------
Recurring EBDAIT (3) $12,941 $12,425 $11,955
PV at: per diluted C/S shr. for exchange (6)
- ------ -------------------------------------
$0.99
$0.30
($0.29)
Page 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dollars in Thousands DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
NO GROWTH SCENARIO ASSUMING SALE OF TELEPHONY BUSINESS PRIOR TO 1996 FISCAL YEAR END AND DEBENTURE BUY-BACK @ 70%
--------------------
Fiscal Year Ended 1996 1997 1998
---------------- ----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % $ % % Change $ % % Change
- - - - -------- - - --------
Net Free Cash Flow (unlevrgd.) 0 2,414
less, Interest expense (8) (3,848) (7,697)
------- -------
Net Cash flow avail. after int. (3,848) (5,283)
Balance of remaining CSD's (70% discount buy-back) 21,943 21,943
FCF to repurchase remaining
CSD's: 0 0
Pcpal. value for remaining
purchase (par) 0 0
Interest on repurchased CSD's 8.875% 0 0
Total Debentures bought back
post-1996: 7,645
Net FCF available for Pfd.
Dividend payment 0 0
cumulative Pfd. arrearage @
yr.-end:
1,868.1 shrs. 3,736 5,604 7,472
Initial Wkg. Cap. deficit (6,100)
Cum. Wkg. Cap. requirement
(20% sls) $22,746 $22,746
less, cum net FCF to W.C. 12,395 (16,040) (22,746)
------
Net FCF to Wkg. Cap. 6,295
Net wkg. cap. requirement 6,706 (0)
<CAPTION>
Dollars in Thousands
NO GROWTH SCENARIO
--------------------
Fiscal Year Ended 1999 2000 2001
------------------------------ ----------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % Change $ % % Change $ % % Change
- - -------- - - -------- - - ------
Net Free Cash Flow (unlevrgd.) 8,552 8,036 7,566
less, Interest expense (8) (9,131) (4,428) (3,528)
-------- ------- -------
Net Cash flow avail. after
int. (580) 3,608 4,038
Balance of remaining CSD's
* 21,943 21,943 18,335
FCF to repurchase remaining
CSD's: 0 3,608 4,038
Pcpal. value for remaining
purchase (par) 0 3,608 4,038
Interest on repurchased CSD's 0 320 358
Total Debentures bought back
post-1996:
Net FCF available for Pfd.
Dividend payment 0 0 0
cumulative Pfd. arrearage @
yr.-end:
1,868.1 shrs. 9,340 11,208 13,076
Initial Wkg. Cap. deficit
Cum. Wkg. Cap. requirement
(20% sls) $22,746 $22,746 $22,746
less, cum net FCF to W.C. (22,746) (22,746) (22,746)
Net FCF to Wkg. Cap.
Net wkg. cap. requirement
($0) $0 $0
</TABLE>
Page 2
<PAGE>
DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
ASSUMING SALE OF TELEPHONY BUSINESS PRIOR TO 1996 FISCAL YEAR END
AND DEBENTURE BUY-BACK @ 70%
Dollars in Thousands
No Growth Scenario
- --------------------
Note: (1) Interest expense reflects application of * net proceeds
from sale of Telephony division to retirement of 8 7/8% Convertible
Subordinated Debentures at average 30% discount from par; hence appx.
$42.9 MM of debentures are retired, with consequent decrease of interest
of 3.8 MM. This scenario further assumes that all free cash flow after
working capital requirements are applied towards reduction of the
Debenture balance, and that company is unable to repurchase Debentures
at less than par.
Note: (2) For purposes of this projection, it is assumed that the company
requires approximately one-fifth of annual revenues for working
capital requirements. This scenario posits a beginning working
capital deficit at year-end 1996 of approximately $6.1 MM, with free
cash flow initially devoted to meeting that goal in subsequent
years. Once annual targets are met, all subsequent free cash flow
generated above the amount necessary to meet this requirement (after
interest expense) is applied towards reducing the company's
Convertible Subordinated Debenture balance. For all years subsequent
to the initial buy-back of 1996, it is assumed that the company is
only able to repurchase the Debentures at par. Once all of the
outstanding Debentures are retired, it is further assumed that the
remaining cash flow may be applied to paying the arrearages on the
Preferred stock. In this projection, Datapoint is unable to
generate sufficient free cash flow during the period covered by this
projection to reduce or eliminate the Preferred arrearage.
Note: (3) Recurring EBDAIT excludes the Other Income items that pertained
to fiscal year 1996, since those were generally considered non-
recurring items.
Note: (4) Debt as of the end of fiscal year 1996, assuming sale of the
Telephony division during the year and application of the net
proceeds to the retirement of approximately $42.9MM of debentures,
purchased at an average discount of 30% from par. See pro-forma balance
sheet and computation of pro-forma total debt in accompanying
spread-sheets for backup.
Note: (5) To determine the present value of future cash flow to the
common shareholders, the cumulative arrearage as of fiscal year-end
(8 quarters), plus the par value of the Preferred shares outstanding
(approximately 1,868,000 shares) have been deducted.
Note: (6) To determine the fully diluted value of the present value of
cash flow to common shareholders, it has been assumed that the
Preferred shares have all been exchanged, per the exchange ratio
proposed in the current offer by Datapoint.
Note: (7) To determine Terminal Value, we have applied the minimum
Price/EBDAIT multiple derived from our comparable company study
(7.0) to the final year's projected EBDAIT for this scenario.
Note: (8) For purposes of determining the Company's ability either to
retire Debentures or cure its Preferred arrearage, a free cash flow
net of interest and working capital requirements has been computed.
In those situations in which this total is negative (i.e., where
interest for the year exceeds FCF net working capital requirements,
the spread-sheet employs the convention of carrying over unpaid
interest to the following year. However, in point of fact, it is
most likely that the company will utilize the funds allocated for
working capital requirements to pay out that year's interest rather
than risking default to any of its creditors.
Page 3
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
<TABLE><CAPTION>
DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
ASSUMING SALE OF TELEPHONY BUSINESS PRIOR TO 1996 FISCAL YEAR END AND DEBENTURE BUY-BACK @ 70%
DOLLARS IN THOUSANDS
NEGATIVE GROWTH SCENARIO
- ------------------------
Fiscal Year Ended 1996 1997 1998 1999
----------------- ------------------------- --------------------------- -----------------------
$ % $ % % Change $ % % Change $ % % Change
- - - - -------- - - -------- - - --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $113,730 100.0% $108,044 100.0% -5.0% $102,641 100.0% -5.0% $97,509 100.0% -5.0%
Cost of Sales 80,463 70.7% 75,630 70.0% 71,849 70.0% 68,258 70.0%
-------- -------- -------- --------
Gross Profit 33,267 29.3% 32,413 30.0% 30,792 30.0% 29,253 30.0%
Operating Expenses 15,049 13.2% 14,673 13.6% -2.5% 14,306 13.9% -2.5% 13,948 14.3% -2.5%
Corporate G&A 7,247 6.4% 7,319 6.8% 1.0% 7,393 7.2% 1.0% 7,467 7.7% 1.0%
R&D 2,548 2.2% 2,548 2.4% 0.0% 2,548 2.5% 0.0% 2,548 2.6% 0.0%
-------- -------- -------- -------
Operating Income 8,423 7.4% 7,873 7.3% 6,546 6.4% 5,290 5.4%
Interest 3,848 (1) 3,848 3,848 3,848
-------- -------- -------- -------
Other Income/(Expense):
Restructuring Expense 0
Other Int'l Operating Exp. 205
Transaction Gain/(Loss) 1,756
-------
Sub-total 1,961
Pretax Income/(Loss) 6,536 4,024 2,697 1,441
Taxes (2,112) (2,112) (2,112) (2,112)
-------- --------- ---------- ---------
Net Income/(Loss) 4,424 1,912 585 (671)
Interest 3,848 3,848 3,848 3,848
Depreciation & Amortizn. 6,400 5.6% 5,760 5.3% -10.0% 5,184 5.1% -10.0% 4,666 4.8% -10.0%
Capital Expenditures (2,277) (2,277) (2,277) (2,277)
-------- --------- --------- --------
Net Free Cash Flow before W.C.: 12,395 9,244 7,341 5,566
(unleveraged)
Working Capital requirements (2) (12,395) (9,244) (4,989) 0
-------- ------------ --------- ------------
Net Free Cash Flow (unlevrgd.) 0 0 2,352 5,566
Terminal Value 0 0 0 0
-------- ------------ --------- ------------
Total Flows to be Discounted 0 0 2,352 5,566
Operating Income 8,423 7,873 6,546 5,290
Depreciation & Amortizn. 6,400 5.6% 5,760 5.3% -10.0% 5,184 5.1% -10.0% 4,666 4.8% -10.0%
------- ---------- -------- ----------
Recurring EBDAIT (3) $14,823 $13,633 $11,730 $9,955
<CAPTION>
DOLLARS IN THOUSANDS
NEGATIVE GROWTH SCENARIO
- ------------------------
Fiscal Year Ended 2000 2001
------------------------------ ----------------------------
$ % % Change $ % % Change
- - -------- - - --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $92,634 100.0% -5.0% $88,002 100.0% -5.0%
Cost of Sales 64,844 70.0% 61,601 70.0%
-------- --------
Gross Profit 27,790 30.0% 26,401 30.0%
Operating Expenses 13,600 14.7% -2.5% 13,260 15.1% -2.5%
Corporate G&A 7,541 8.1% 1.0% 7,617 8.7% 1.0%
R&D 2,548 2.8% 0.0% 2,548 2.9% 0.0%
------- -------
Operating Income 4,101 4.4% 2,976 3.4%
Interest 3,848 3,848
------- -------
Other Income/(Expense):
Restructuring Expense
Other Int'l Operating Exp.
Transaction Gain/(Loss)
Sub-total
Pretax Income/(Loss) 253 (872)
Taxes (2,112) (2,112)
-------- --------
Net Income/(Loss) (1,859) (2,984)
Interest 3,848 3,848
Depreciation & Amortizn. 4,199 4.5% -10.0% 3,779 4.3% -10.0%
Capital Expenditures (2,277) (2,277)
-------- ----------
Net Free Cash Flow before W.C. 3,911 2,366
(unleveraged)
Working Capital requirements (2) 0 0
-------- ----------
Net Free Cash Flow (unlevrgd.) 3,911 2,366
Terminal Value 0 47,288 (7)
------- -------
Total Flows to be Discounted 3,911 49,655
Operating Income 4,101 2,976
Depreciation & Amortizn. 4,199 4.5% -10.0% 3,779 4.3% -10.0%
------- -------
Recurring EBDAIT (3) $ 8,300 $6,755
PV at: less debt (4) Net Value less Pfd.(5) per C/S shr. per diluted C/S shr. for exchange (6)
- ------ ------------- --------- ------------ ------------ -------------------------------------
15.3% $31,981 (38,100) ($6,119) ($5,604) ($11,723) ($O.86) ($0.33)
22.0% $24,783 (38,100) ($13,317) ($5,604) ($18,921) ($1.38) ($0.71)
30.0% $18,668 (38,100) ($19,432) ($5,604) ($25,036) ($1.83) ($1.03)
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
ASSUMING SALE OF TELEPHONY BUSINESS PRIOR TO 1996 FISCAL YEAR END AND DEBENTURE BUY-BACK @ 70%
DOLLARS IN THOUSANDS
NEGATIVE GROWTH SCENARIO
- ------------------------
Fiscal Year Ended 1996 1997 1998
----------------- ------------------------- -------------------------
$ % $ % % Change $ % % Change
- - - - -------- - - --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 0 2,352
less, Interest expense (8) (3,848) (7,697)
------ --------
Net Cash flow avail. after int. (3,848) (5,345)
Balance of remaining CSD's
(70% discount buy-back) 21,943 21,943
FCF to repurchase remaining CSD's: 0 0
Pcpal. value for remaining
repurchase (par) 0 0
Interest on repurchased CSD's 8.875% 0 0
Total Debentures bought back post-1996: 0
Net FCF available for Pfd. Dividend payment 0 0
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 3,736 5,604 7,472
Initial Wkg. Cap. deficit (6,100)
Cum. Wkg. Cap. requirement
(20% sls) $21,609 $20,528
less, cum net FCF to W.C. 12,395 (15,539) (20,528)
-------
Net FCF to Wkg. Cap. 6,295
Net wkg. cap. requiremt. 6,070 0
<CAPTION>
DOLLARS IN THOUSANDS
NEGATIVE GROWTH SCENARIO
- ------------------------
Fiscal Year Ended 1999 2000 2001
------------------------ -------------------------- ------------------------
$ % % Change $ % % Change $ % % Change
- - -------- - - -------- - - --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 5,566 3,911 2,366
less, Interest expense (8) (9,194) (7,475) (7,413)
------- --------- --------
Net Cash flow avail. after int. (3,627) 3,564 5,046
Balance of remaining CSD's
(*) 21,943 21,943 21,943
FCF to repurchase remaining CSD's: 0 0 0
Pcpal. value for remaining
repurchase (par) 0 0 0
Interest on repurchased CSD's 0 0 0
Total Debentures bought back post-1996:
Net FCF available for Pfd. Dividend paytment 0 0 0
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 9,340 11,208 13,076
Initial Wkg. Cap. deficit
Cum. Wkg. Cap. requirement
(20% sls) $19,502 $18,527 $17,600
less, cum net FCF to W.C. (20,528) (20,528) (20,528)
Net FCF to Wkg. Cap.
Net wkg. cap. requiremt. ($1,026) ($975) ($926)
</TABLE>
Page 2
<PAGE>
DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
ASSUMING SALE OF TELEPHONY BUSINESS PRIOR TO 1996 FISCAL YEAR END
AND DEBENTURE BUY-BACK @ 70%
Dollars in Thousands
Negative Growth Scenario
- ------------------------
Note: (1) Interest expense reflects application of * net proceeds
from sale of Telephony division to retirement of 8 7/8% Convertible
Subordinated Debentures at average 30% discount from par; hence appx.
$42.9 MM of debentures are retired, with consequent decrease of interest
of $3.8 MM. This scenario further assumes application of all cash flow
generated by company in excess of working capital requirements to retire
remaining outstanding Debentures at par.
Note: (2) For purposes of this projection, it is assumed that the company
requires approximately one-fifth of annual revenues for working
capital requirements. This scenario posits a beginning working
capital deficit at year-end 1996 of approximately $6.1 MM, with free
cash flow initially devoted to meeting that goal in subsequent
years. Once annual targets are met, all subsequent free cash flow
generated above the amount necessary to meet this requirement is
applied towards reducing the company's Convertible Subordinated
Debenture balance. For all years subsequent to the initial buy-back
of 1996, it is assumed that the company is only able to repurchase the
Debentures at par. Once all of the outstanding Debentures are retired,
it is further assumed that the remaining cash flow may be applied to
paying the arrearages on the Preferred stock. In this projection,
Datapoint is unable to generate sufficient free cash flow during the
period covered by this projection to reduce or eliminate the Preferred
arrearage.
Note: (3) Recurring EBDAIT excludes the Other Income items that pertained
to fiscal year 1996, since those were generally considered non-
recurring items.
Note: (4) Debt as of the end of fiscal year 1996, assuming sale of the
Telephony division during the year and application of the net
proceeds to the retirement of approximately $42.9 MM of debentures,
purchased at average discount of 30% from par. See pro-forma balance
sheet and computation of pro-forma total debt in accompanying
spread-sheets for backup.
Note: (5) To determine the present value of future cash flow to the
common shareholders, the cumulative arrearage as of fiscal year-end 1996
(8 quarters), plus the par value of the Preferred shares outstanding
(approximately 1,868,000 shares) have been deducted.
Note: (6) To determine the fully diluted value of the present value of
cash flow to common shareholders, it has been assumed that the
Preferred shares have all been exchanged, per the exchange ratio
proposed in the current offer by Datapoint.
Note: (7) To determine Terminal Value, we have applied the minimum
Price/EBDAIT multiple derived from our comparable company study
(7.0) to the final year's projected EBDAIT for this scenario.
Note: (8) For purposes of determining the Company's ability either to
retire Debentures or cure its Preferred arrearage, a free cash flow
net of interest and working capital requirements has been computed.
In those situations in which this total is negative (i.e., where
interest for the year exceeds FCF net working capital requirements,
the spread-sheet employs the convention of carrying over unpaid
interest to the following year. However, in point of fact, it is
most likely that the company will utilize the funds allocated for
working capital requirements to pay out that year's interest rather
than risking default to any of its creditors.
Page 3
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
DATAPOINT CORPORATION:
FIVE-YEAR FORECAST OF INCOME & CASH FLOW
ASSUMING RETENTION OF TELEPHONY BUSINESS
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands) DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
Optimistic Scenario ASSUMING RETENTION OF TELEPHONY BUSINESS AND DEBENTURE BUY-BACK @ 70%
Fiscal Year Ended 1996 1997
-------------------------- ----------------------------------------
$ % $ % % Change
--- --- --- --- --------
<S> <C> <C> <C> <C> <C>
Revenues $158,236 100.0% $166,148 100.0% 5.0%
Cost of Sales 111,129 70.2% 113,907 68.6% 2.5%
- -------- -------- --------
Gross Profit 47,107 29.8% 52,241 31.4%
Operating Expenses 26,128 16.5% 26,781 16.1% 2.5%
Corporate G&A 8,773 5.5% 8,861 5.3% 1.0%
R&D 2,548 1.6% 2,586 1.6% 1.5%
-------- --------
Operating Income 9,658 6.1% 14,012 8.4%
Interest 7,652 (1) 7,652
-------- --------
Other Income/(Expense):
Restructuring Expense 0
Other Int'l Operating Exp. 205
Transactional Gain/(Loss) 1,756
--------
Sub-total 1,961
Pretax Income/(Loss) 3,967 6,360
Taxes (2,376) (2,376)
-------- --------
Net Income/(Loss) 1,591 3,984
Interest 7,652 7,652
Depreciation & Amortizn. 6,700 4.2% 6,030 3.6% -10.0%
Capital Expenditures (2,577) (2,277)
-------- --------
Net Free Cash Flow before W.C.
(unleveraged) 13,366 15,389
Working Capital requirements (13,366) (15,389)
-------- --------
Net Free Cash Flow (unlevrgd.) 0 0
Terminal Value 0 0
-------- --------
Total Flows to be Discounted 0 0
Operating Income 9,658 14,012
Depreciation & Amortizn. 6,700 4.2% 6,030 3.6% -10.0%
-------- --------
Recurring EBDAIT(3) $ 16,358 $ 20,042
PV at: less debt(4) Net Value
- ------ ------------ ---------
15.3% $183,616 (81,000) $102,616
22.0% $141,164 (81,000) $ 60,164
30.0% $105,279 (81,000) $ 24,279
<CAPTION>
Fiscal Year Ended 1998 1999
------------------------------------------ -------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $174,455 100.0% 5.0% $183,178 100.0% 5.0%
Cost of Sales 116,755 66.9% 119,674 65.3%
-------- --------
Gross Profit 57,700 33.1% 63,504 34.7%
Operating Expenses 27,451 15.7% 2.5% 28,137 15.4% 2.5%
Corporate G&A 8,949 5.1% 1.0% 9,039 4.9% 1.0%
R&D 2,625 1.5% 1.5% 2,664 1.5% 1.5%
-------- --------
Operating Income 18,675 10.7% 23,664 12.9%
Interest 7,652 7,652
-------- --------
Other Income/(Expense):
Restructuring Expense
Other Int'l Operating Exp.
Transactional Gain/(Loss)
Sub-total
Pretax Income/(Loss) 11,023 16,012
Taxes (2,376) (2,376)
-------- --------
Net Income/(Loss) 8,647 13,636
Interest 7,652 7,652
Depreciation & Amortizn. 5,427 3.1% -10.0% 4,884 2.7% -10.0%
Capital Expenditures (2,277) (2,277)
-------- --------
Net Free Cash Flow before W.C.
(unleveraged) 19,449 23,895
Working Capital requirements(2) (12,236) (2) (1,745)
-------- --------
Net Free Cash Flow (unlevrgd.) 7,213 22,150
Terminal Value 0 0
-------- --------
Total Flows to be Discounted 7,213 22,150
Operating Income 18,675 23,664
Depreciation & Amortizn. 5,427 3.1% -10.0% 4,884 2.7% -10.0%
-------- --------
Recurring EBDAIT(3) $ 24,102 $ 28,548
per diluted C/S shr.
PV at: less Pfd.(5) per C/S shr. for exchange(6)
- ------ ------------ ------------- -------------------
$ (5,604) $ 97,012 $ 7.10 $ 5.46
$ (5,604) $ 54,560 $ 3.99 $ 3.20
$ (5,604) $ 18,675 $ 1.37 $ 1.29
<CAPTION>
Fiscal Year Ended 2000 2001
------------------------------------------ ---------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $192,337 100.0% 5.0% $201,954 100.0% 5.0%
Cost of Sales 122,666 63.8% 125,732 62.3%
-------- --------
Gross Profit 69,671 36.2% 76,221 37.7%
Operating Expenses 28,840 15.0% 2.5% 296,561 14.6% 2.5%
Corporate G&A 9,129 4.7% 1.0% 9,221 4.6% 1.0%
R&D 2,704 1.4% 1.5% 2,745 1.4% 1.5%
-------- --------
Operating Income 26,997 15.1% 34,695 17.2%
Interest 6,840 4,295
-------- --------
Other Income/(Expense):
Restructuring Expense
Other Int'l Operating Exp.
Transactional Gain/(Loss)
Sub-total
Pretax Income/(Loss) 22,158 30,399
Taxes (2,376) (2,376)
-------- --------
Net Income/(Loss) 19,762 28,023
Interest 6,840 4,295
Depreciation & Amortizn. 4,396 2.3% -10.0% 3,956 2.0% -10.0%
Capital Expenditures (2,277) (2,277)
-------- --------
Net Free Cash Flow before W.C.
(unleveraged) 28,740 33,998
Working Capital requirements(2) (1,831) (1,924)
-------- --------
Net Free Cash Flow (unlevrgd.) 26,909 32,074
Terminal Value 0 270,556 (7)
-------- --------
Total Flows to be Discounted 26,909 302,630
Operating Income 28,997 34,695
Depreciation & Amortizn. 4,396 2.3% -10.0% 3,956 2.0% -10.0%
-------- --------
Recurring EBDAIT(3) $ 33,393 $ 38,651
PV at:
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands) DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
Optimistic Scenario ASSUMING RETENTION OF TELEPHONY BUSINESS AND DEBENTURE BUY-BACK @ 70%
Fiscal Year Ended 1996 1997
-------------------------- ----------------------------------------
$ % $ % % Change
--- --- --- --- --------
<S> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 0 0
less Interest expense(8) (7,652)
------
Net Cash flow avail. after int. (7,652)
Balance of remaining CSD's: 64,800
FCF to repurchase remaining CSD's: 0
Pcpal. value for remaining repurchase (70% discount) 0
Interest on repurchased CSD's 8.875% 0
Total Debentures bought back post-1996: 64,800
Net FCF available for Pfd. Dividend payment 0
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 3,736 5,604
Initial Wkg. Cap. deficit (6,100)
Cum Wkg. Cap. requirement
20% sls) $ 33,230
less, cum net FCF to W.C. 13,366 (22,655)
-------
Net FCF to Wkg. Cap. 7,266
Net wkg. cap. requirement 10,574
<CAPTION>
Fiscal Year Ended 1998 1999
------------------------------------------ -------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 7,213 22,150
less Interest expense(8) (15,304) (15,743)
-------- --------
Net Cash flow avail. after int. (8,091) 6,407
Balance of remaining CSD's: 64,800 64,800
FCF to repurchase remaining CSD's: 0 6,407
Pcpal. value for remaining repurchase (70% discount) 0 9,154
Interest on repurchased CSD's 8.875% 0 812
Total Debentures bought back post-1996: 64,800
Net FCF available for Pfd. Dividend payment 0 0
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 7,472 9,340
Initial Wkg. Cap. deficit
Cum Wkg. Cap. requirement
20% sls) $ 34,891 $ 36,636
less, cum net FCF to W.C. (34,891) (36,636)
Net FCF to Wkg. Cap.
Net wkg. cap. requiremt (0) $ (1)
<CAPTION>
Fiscal Year Ended 2000 2001
------------------------------------------ ---------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 26,909 32,074
less Interest expense(8) (6,840) (4,295)
-------- --------
Net Cash flow avail. after int. 20,069 27,779
Balance of remaining CSD's: 55,646 26,976
FCF to repurchase remaining CSD's: 20,069 18,883
Pcpal. value for remaining repurchase (70% discount) 28,671 26,976
Interest on repurchased CSD's 8.875% 2,545 2,394
Total Debentures bought back post-1996: 64,800
Net FCF available for Pfd. Dividend payment 0 8,896
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 11,208 13,076
Initial Wkg. Cap. deficit
Cum Wkg. Cap. requirement
(20% sls) $ 36,467 $ 40,391
less, cum net FCF to W.C. (36,467) (40,391)
Net FCF to Wkg. Cap.
Net wkg. cap. requiremt $ 1 $ (1)
Page 2
</TABLE>
<PAGE>
DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
ASSUMING RETENTION OF TELEPHONY BUSINESS AND DEBENTURE BUY-BACK @ 70%
(Dollars in Thousands)
Optimistic Scenario
- ----------------------
Note: (1) Interest expense reflects retention of the Telephony business,
with no application of its sale proceeds to retire the company's
outstanding debentures. However, it is assumed that any cash flow
generated above working capital requirements are applied to retire
Debentures at 70% of par value. Per this scenario, the company is
able to retire all of its outstanding Debentures by year-end 2000,
leaving it with approx. $11 MM in free cash flow to apply towards
curing of the cumulative preferred arrearage at that time.
Note: (2) For purposes of this projection, it is assumed that the company
requires approximately one-fifth of revenues for working capital
requirements. This scenario posits a beginning working capital
deficit at year-end 1996 of approximately $6.1MM, with free cash
flow devoted to meeting that goal in subsequent years. For all
subsequent years, all cash flow above the amount necessary to meet
the working capital requirement is considered net free cash flow. In
this projection, all net free cash flow above working capital
requirements (after interest expense) is assumed to be applied by
Datapoint to reduce its Debentures at a 30% discount to par. This
scenario projects retirement of all Debentures by year-end 2001, and
positive free cash flow generated during that year and beyond.
Note: (3) Recurring EBDAIT excludes the Other Income items that pertained
to fiscal year 1996, since those were generally considered non-
recurring items.
Note: (4) Debt is as of the end of fiscal year 1996, assuming
retention of the Telephony division. See pro-forma balance sheet
and computation of pro-forma total debt in accompanying spread-
sheets for backup.
Note: (5) To determine the present value of future cash flow to the
common shareholders, the cumulative arrearage as of fiscal year-end
(8 quarters), plus the par value of the Preferred shares outstanding
(approximately 1,868,000 shares) have been deducted.
Note: (6) To determine the fully diluted value of the present value of
cash flow to common shareholders, it has been assumed that the
Preferred shares have all been exchanged, per the exchange ratio
proposed in the current offer by Datapoint.
Note: (7) To determine Terminal Value, we have applied the minimum
Price/EBDAIT multiple derived from our comparable company study
(7.0) to the final year's projected EBDAIT for this scenario.
Note: (8) For purposes of determining the Company's ability either to
retire Debentures or cure its Preferred arrearage, a free cash flow
net of interest and working capital requirements has been computed.
In those situations in which this total is negative (i.e., where
interest for the year exceeds FCF net working capital requirements,
the spread-sheet employs the convention of carrying over unpaid
interest to the following year. However, in point of fact, it is
most likely that the company will utilize the funds allocated for
working capital requirements to pay out that year's interest rather
than risking default to any of its creditors.
Page 3
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands) DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
No Growth Scenario ASSUMING RETENTION OF TELEPHONY BUSINESS AND DEBENTURE BUY-BACK @ 70%
Fiscal Year Ended 1996 1997
------------------------ ---------------------------------------
$ % $ % % Change
--- --- --- --- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 158,236 100.0% $ 158,236 100.0% 0.0%
Cost of Sales 111,129 70.2% 111,129 70.2%
--------- ------------
Gross Profit 47,107 29.8% 47,107 29.8%
Operating Expenses 26,128 16.5% 26,128 16.5% 0.0%
Corporate G&A 8,773 5.5% 8,817 5.6% 0.5%
R&D 2,548 1.6% 2,561 1.6% 0.5%
--------- ------------
Operating Income 9,658 6.1% 9,601 6.1%
Interest 7,652 (1) 7,652
--------- ------------
Other Income/(Expense):
Restructuring Expense 0
Other Int'l Operating Exp. 205
Transactional Gain/(Loss) 1,756
---------
Sub-total 1,961
Pretax Income/(Loss) 3,967 1,949
Taxes (2,376) (2,376)
--------- ------------
Net Income/(Loss) 1,591 (427)
Interest 7,652 7,652
Depreciation & Amortizn. 6,700 4.2% 6,030 3.8% -10.0%
Capital Expenditures (2,577) (2,577)
--------- ------------
Net Free Cash Flow before W.C.
(unleveraged) 13,366 10,678
Working Capital requirements(2) (13,366) (10,678)
--------- ------------
Net Free Cash Flow (unlevrgd.) 0 0
Terminal Value 0 0
--------- ------------
Total Flows to be Discounted 0 0
Operating Income 9,658 9,601
Depreciation & Amortizn. 6,700 4.2% 6,030 3.8% -10.0%
--------- ------------
Recurring EBDAIT(3) $ 16,358 $ 15,631
PV at: less debt(4) Net Value
- ------ ------------ ---------
15.3% $58,658 (81,000) $(22,342)
22.0% $44,783 (81,000) $(36,217)
30.0% $33,101 (81,000) $(47,899)
<CAPTION>
Fiscal Year Ended 1998 1999
----------------------------------------- -------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 158,236 100.0% 0.0% $158,236 100.0% 0.0%
Cost of Sales 111,129 70.2% 111,129 70.2%
------------ --------
Gross Profit 47,107 29.8% 47,107 29.8%
Operating Expenses 26,128 16.5% 0.0% 26,128 16.5% 0.0%
Corporate G&A 8,861 5.6% 0.5% 8,905 5.6% 0.5%
R&D 2,574 1.6% 0.5% 2,586 1.6% 0.5%
------------ --------
Operating Income 9,545 6.0% 9,487 6.0%
Interest 7,652 7,652
------------ --------
Other Income/(Expense):
Restructuring Expense
Other Int'l Operating Exp.
Transactional Gain/(Loss)
Sub-total
Pretax Income/(Loss) 1,893 1,835
Taxes (2,376) (2,376)
------------ --------
Net Income/(Loss) (483) (541)
Interest 7,652 7,652
Depreciation & Amortizn. 5,427 3.4% -10.0% 4,884 3.1% -10.0%
Capital Expenditures (2,577) (2,577)
------------ --------
Net Free Cash Flow before W.C.:
(unleveraged) 10,019 9,419
Working Capital requirements(2) (10,019) (3,684)
------------ --------
Net Free Cash Flow (unlevrgd.) 0 5,735
Terminal Value 0 0
------------ --------
Total Flows to be Discounted 0 5,735
Operating Income 9,545 9,487
Depreciation & Amortizn. 5,427 3.4% -10.0% 4,884 3.1% -10.0%
------------ --------
Recurring EBDAIT(3) $ 14,972 $ 14,372
per diluted C/S shr.
PV at: less Pfd.(5) per C/S shr for exchange(6)
- ------ ------------ ----------- ---------------
$ (5,604) $(27,946) $(2.04) $ (1.19)
$ (5,604) $(41,821) $(3.06) $ (1.93)
$ (5,604) $(53,503) $(3.91) $ (2.55)
<CAPTION>
Fiscal Year Ended 2000 2001
-------------------------------- --------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $158,236 100.0% 0.0% $158,236 100.0% 0.0%
Cost of Sales 111,129 70.2% 111,129 70.2%
-------- --------
Gross Profit 47,107 29.8% 47,107 29.8%
Operating Expenses 26,128 16.5% 0.0% 26,128 16.5% 0.0%
Corporate G&A 8,950 5.7% 0.5% 8,995 5.7% 0.5%
R&D 2,599 1.6% 0.5% 2,612 1.7% 0.5%
-------- --------
Operating Income 9,430 6.0% 9,372 5.9%
Interest 7,652 7,652
-------- --------
Other Income/(Expense):
Restructuring Expense
Other Int'l Operating Exp.
Transactional Gain/(Loss)
Sub-total
Pretax Income/(Loss) 1,778 1,720
Taxes (2,376) (2,376)
-------- --------
Net Income/(Loss) (598) (656)
Interest 7,652 7,652
Depreciation & Amortizn. 4,396 2.8% -10.0% 3,956 2.5% -10.0%
Capital Expenditures (2,577) (2,577)
-------- --------
Net Free Cash Flow before W.C.
(unleveraged) 8,873 8,375
Working Capital requirements(2) 0 0
-------- --------
Net Free Cash Flow (unlevrgd.) 8,873 8,375
Terminal Value 0 93,299 (7)
-------- --------
Total Flows to be Discounted 8,873 101,674
Operating Income 9,430 9,372
Depreciation & Amortizn. 4,396 2.8% -10.0% 3,956 2.5% -10.0%
-------- --------
Recurring EBDAIT(3) $ 13,826 $ 13,328
PV at:
- ------
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands) DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
No Growth Scenario ASSUMING RETENTION OF TELEPHONY BUSINESS AND DEBENTURE BUY-BACK @ 70%
Fiscal Year Ended 1996 1997
------------------------ ---------------------------------------
$ % $ % % Change
--- --- --- --- --------
<S> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 0 0
Less Interest expense(8) (7,652)
Net Cash flow avail. after int. ------------
(7,652)
Balance of remaining CSD's: 64,800
FCF to repurchase remaining CSD's: 0
Pcpal. value for remaining repurchase (70% discount) 0
Interest on repurchased CSD's 8.875% 0
Total Debentures bought back post-1996: 0
Net FCF available for Pfd. Dividend payment 0
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 3,736 5,604
Initial Wkg. Cap. deficit (6,100)
Cum Wkg. Cap. requirement
(20% sls) $ 31,647
less, cum net FCF to W.C. 13,366 (17,944)
---------
Net FCF to Wkg. Cap. 7,266
Net wkg. cap. requirement 13,703
<CAPTION>
Fiscal Year Ended 1998 1999
----------------------------------------- -------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 0 5,735
Less Interest expense(8) (15,304) (22,956)
Net Cash flow avail. after int. ------------ --------
(15,304) (17,221)
Balance of remaining CSD's: 64,800 64,800
FCF to repurchase remaining CSD's: 0 0
Pcpal. value for remaining repurchase (70% discount) 0 0
Interest on repurchased CSD's 8.875% 0 0
Total Debentures bought back post-1996: 0
Net FCF available for Pfd. Dividend payment 0 0
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 7,472 9,340
Initial Wkg. Cap. deficit
Cum Wkg. Cap. requirement
(20% sls) $ 31,647 $ 31,647
less, cum net FCF to W.C. (27,963) (31,647)
Net FCF to Wkg. Cap.
Net wkg. cap. requiremt 3,684 $0
<CAPTION>
Fiscal Year Ended 2000 2001
-------------------------------- --------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 8,873 8,375
Less Interest expense(8) (24,873) (23,653)
-------- --------
Net Cash flow avail. after int. (16,001) (15,277)
Balance of remaining CSD's: 64,800 64,800
FCF to repurchase remaining CSD's: 0 0
Pcpal. value for remaining repurchase (70% discount) 0 0
Interest on repurchased CSD's 8.875% 0 0
Total Debentures bought back post-1996: 0
Net FCF available for Pfd. Dividend payment 0 0
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 11,208 13,076
Initial Wkg. Cap. deficit
Cum Wkg. Cap. requirement
(20% sls) $ 31,647 $ 31,647
less, cum net FCF to W.C. (31,647) (31,647)
Net FCF to Wkg. Cap.
Net wkg. cap. requiremt $0 $0
</TABLE>
Page 2
<PAGE>
Dollars in Thousands DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME
No Growth Scenario AND CASH FLOW ASSUMING RETENTION OF TELEPHONY BUSINESS
------------------ AND DEBENTURE BUY-BACK @ 70%
NOTE: (1) Interest expense reflects retention of the Telephony business,
with no application of its sale proceeds to retire the company's
outstanding debentures. However, it is assumed that any cash flow
generated above working capital requirements are applied to retire
Debentures @ 70% of par value.
NOTE: (2) For purposes of this projection, it is assumed that the company
requires approximately one-fifth of revenues for working capital
requirements. This scenario posits a beginning working capital
deficit at year-end 1996 of approximately $6.1 MM, with free cash flow
devoted to meeting that goal in subsequent years. For all subsequent
years, all cash flow above the amount necessary to meet the working
capital requirement is considered net free cash flow. In this
projection, all net free cash flow above working capital requirements
(after interest expense) is assumed to be applied by Datapoint to
reduce its Debentures at a 30% discount to par. Accordingly, this
projection indicates that Datapoint will be unable to generate
sufficient cash flow to apply towards payment of the cumulative
Preferred arrearage by 2001.
NOTE: (3) Recurring EBDAIT excludes the Other Income items that pertained
to fiscal year 1996, since those were generally considered non-
recurring items.
NOTE: (2) For purposes of this projection, it is assumed that the company
requires approximately one-fifth of revenues for working capital
requirements. This scenario posits a beginning working capital
deficit at year-end 1996 of approximately $6.1 MM, with free cash
flow devoted to meeting that goal in subsequent years. For all
subsequent years, all cash flow above the amount necessary to meet the
requirement is considered net free cash flow. In this projection,
Datapoint is able to generate free cash flow by 1999.
NOTE: (4) Debt as of the end of fiscal year 1996, assuming retention of the
Telephony division. See pro-forma balance sheet and computation of
pro-forma total debt in accompanying spread-sheets for backup.
NOTE: (5) To determine the present value of future cash flow to the common
shareholders, the cumulative arrearage as of fiscal year-end (8
quarters), plus the par value of the Preferred shares outstanding
(approximately 1,868,000 shares) have been deducted.
NOTE: (6) To determine the fully diluted value of the present value of cash
flow to common shareholders, it has been assumed that the Preferred
shares have all been exchanged, per the exchange ratio proposed in the
current offer by Datapoint.
NOTE: (7) To determine Terminal Value, we have applied the minimum
Price/EBDAIT multiple derived from our comparable company study (7.0)
to the final year's projected EBDAIT for this scenario.
NOTE: (8) For purposes of determining the company's ability either to
retire Debentures or cure its Preferred arrearage, a free cash flow
net of interest and working capital requirements has been computed.
In those situations in which this total is negative (i.e., where
interest for the year exceeds FCF net working capital requirements,
the spread-sheet employs the convention of carrying over unpaid
interest to the following year. However, in point of fact, it is most
likely that the company will utilize the funds allocated for working
capital requirements to pay out that year's interest rather than
risking default to any of its creditors.
Page 3
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands) DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
Negative Growth Scenario ASSUMING RETENTION OF TELEPHONY BUSINESS AND DEBENTURE BUY-BACK @ 70%
Fiscal Year Ended 1996 1997
----------------------- ----------------------------------
$ % $ % % Change
--- --- --- --- --------
<S> <C> <C> <C> <C> <C>
Revenues $158,236 100.0% $150,324 100.0% -5.0%
Cost of Sales 111,129 70.2% 105,227 70.0%
-------- --------
Gross Profit 47,107 29.8% 45,097 30.0%
Operating Expenses 26,128 16.5% 25,475 16.9% -2.5%
Corporate G&A 8,773 5.5% 8,861 5.9% 1.0%
R&D 2,548 1.6% 2,548 1.7% 0.0%
-------- --------
Operating Income 9,658 6.1% 8,214 5.5%
Interest 7,652 (1) 7,652
-------- --------
Other Income/(Expense):
Restructuring Expense 0
Other Int'l Operating Exp. 205
Transactional Gain/(Loss) 1,756
--------
Sub-total 1,961
Pretax Income/(Loss) 3,967 562
Taxes (2,376) (2,376)
-------- --------
Net Income/(Loss) 1,591 (1,894)
Interest 7,652 7,652
Depreciation & Amortizn. 6,700 4.2% 6,030 4.0% -10.0%
Capital Expenditures (2,577) (2,577)
-------- --------
Net Free Cash Flow before W.C.
(unleveraged) 13,366 9,291
Working Capital requirements(2) (13,366) (9,291)
-------- --------
Net Free Cash Flow (unlevrgd.) 0 0
Terminal Value 0 0
-------- --------
Total Flows to be Discounted 0 0
Operating Income 9,658 8,214
Depreciation & Amortizn. 6,700 4.2% 6,030 4.0% -10.0%
-------- --------
Recurring EBDAIT(3) $ 16,358 $ 14,244
PV at: less debt(4) Net Value
- ------ ------------ ---------
15.3% $23,125 (81,000) $(57,875)
22.0% $17,578 (81,000) $(63,422)
30.0% $12,923 (81,000) $(68,077)
<CAPTION>
Fiscal Year Ended 1998 1999
------------------------------------- --------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $142,808 100.0% -5.0% $135,668 100.0% -5.0%
Cost of Sales 99,966 70.0% 94,967 70.0%
-------- --------
Gross Profit 42,842 30.0% 40,700 30.0%
Operating Expenses 24,838 17.4% -2.5% 24,217 17.9% -2.5%
Corporate G&A 8,949 6.3% 1.0% 9,039 6.7% 1.0%
R&D 2,548 1.8% 0.0% 2,548 1.9% 0.0%
-------- --------
Operating Income 6,507 4.6% 4,896 3.6%
Interest 7,652 7,652
-------- --------
Other Income/(Expense):
Restructuring Expense
Other Int'l Operating Exp.
Transactional Gain/(Loss)
Sub-total
Pretax Income/(Loss) (1,145) (2,756)
Taxes (2,376) (2,376)
-------- --------
Net Income/(Loss) (3,521) (5,132)
Interest 7,652 7,652
Depreciation & Amortizn. 5,427 3.8% -10.0% 4,884 3.6% -10.0%
Capital Expenditures (2,577) (2,577)
-------- --------
Net Free Cash Flow before W.C.:
(unleveraged) 6,981 4,828
Working Capital requirements(2) (6,981) (3,596)
-------- --------
Net Free Cash Flow (unlevrgd.) 0 1,232
Terminal Value 0 0
-------- --------
Total Flows to be Discounted 0 1,232
Operating Income 6,507 4,896
Depreciation & Amortizn. 5,427 3.8% -10.0% 4,884 3.6% -10.0%
-------- --------
Recurring EBDAIT(3) $ 11,934 $ 9,781
per diluted C/S shr.
PV at: less Pfd.(5) per C/S shr for exchange(6)
- ------ ------------ ----------- ---------------
($5,604) ($63,479) ($4.64) ($3.08)
($5,604) ($69,026) ($5.05) ($3.37)
($5,604) ($73,681) ($5.39) ($3.62)
<CAPTION>
Fiscal Year Ended 2000 2001
-------------------------------- -------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $128,884 100.0% -5.0% $122,440 100.0% -5.0%
Cost of Sales 90,219 70.0% 85,708 70.0%
-------- --------
Gross Profit 38,665 30.0% 36,732 30.0%
Operating Expenses 23,612 18.3% -2.5% 23,021 18.8% -2.5%
Corporate G&A 9,129 7.1% 1.0% 9,221 7.5% 1.0%
R&D 2,548 2.0% 0.0% 2,548 2.1% 0.0%
-------- --------
Operating Income 3,376 2.6% 1,942 1.6%
Interest 7,652 7,652
-------- --------
Other Income/(Expense):
Restructuring Expense
Other Int'l Operating Exp.
Transactional Gain/(Loss)
Sub-total
Pretax Income/(Loss) (4,276) (5,710)
Taxes (2,376) (2,376)
-------- --------
Net Income/(Loss) (6,652) (8,086)
Interest 7,652 7,652
Depreciation & Amortizn. 4,396 3.4% -10.0% 3,956 3.2% -10.0%
Capital Expenditures (2,577) (2,577)
-------- --------
Net Free Cash Flow before W.C.
(unleveraged) 2,819 946
Working Capital requirements(2) 0 0
-------- --------
Net Free Cash Flow (unlevrgd.) 2,819 946
Terminal Value 0 41,290 (7)
-------- --------
Total Flows to be Discounted 2,819 42,235
Operating Income 3,376 1,942
Depreciation & Amortizn. 4,396 3.4% -10.0% 3,956 3.2% -10.0%
-------- --------
Recurring EBDAIT(3) $ 7,772 $ 5,899
PV at:
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands) DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME AND CASH FLOW
Negative Growth Scenario ASSUMING RETENTION OF TELEPHONY BUSINESS AND DEBENTURE BUY-BACK @ 70%
Fiscal Year Ended 1996 1997
----------------------- ----------------------------------
$ % $ % % Change
--- --- --- --- --------
<S> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 0 0
less Interest expense(8) (7,652)
-------
Net Cash flow avail. after int. (7,652)
Balance of remaining CSD's: 64,800
FCF to repurchase remaining CSD's: 0
Pcpal. value for remaining repurchase (70% discount) 0
Interest on repurchased CSD's 8.875% 0
Total Debentures bought back post-1996: 0
Net FCF available for Pfd. Dividend payment 0
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 3,736 5,604
Initial Wkg. Cap. deficit (6,100)
Cum Wkg. Cap. requirement
(20% sls) $ 30,065
less, cum net FCF to W.C. 13,366 (16,557)
-------
Net FCF to Wkg. Cap. 7,266
Net wkg. cap. requiremt 13,508
<CAPTION>
Fiscal Year Ended 1998 1999
------------------------------------- --------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 0 1,232
Less Interest expense(8) (15,304) (22,956)
------- -------
Net Cash flow avail. after int. (15,304) (21,724)
Balance of remaining CSD's: 64,800 64,800
FCF to repurchase remaining CSD's: 0 0
Pcpal. value for remaining repurchase (70% discount) 0 0
Interest on repurchased CSD's 8.875% 0 0
Total Debentures bought back post-1996: 0
Net FCF available for Pfd. Dividend payment 0 0
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 7,472 9,340
Initial Wkg. Cap. deficit
Cum Wkg. Cap. requirement
(20% sls) $ 28,562 $ 27,134
less, cum net FCF to W.C. (23,538) (24,134)
Net FCF to Wkg. Cap.
Net wkg. cap. requiremt 5,024 $0
<CAPTION>
Fiscal Year Ended 2000 2001
-------------------------------- -------------------------------
$ % % Change $ % % Change
--- --- -------- --- --- --------
<S> <C> <C> <C> <C> <C> <C>
Net Free Cash Flow (unlevrgd.) 2,819 946
Less Interest expense(8) (29,376) (34,209)
------- -------
Net Cash flow avail. after int. (26,557) (33,263)
Balance of remaining CSD's: 64,800 64,800
FCF to repurchase remaining CSD's: 0 0
Pcpal. value for remaining repurchase (70% discount) 0 0
Interest on repurchased CSD's 8.875% 0 0
Total Debentures bought back post-1996: 0
Net FCF available for Pfd. Dividend payment 0 0
cumulative Pfd. arrearage @ yr.-end:
1,868.1 shrs. 11,208
Initial Wkg. Cap. deficit
Cum Wkg. Cap. requirement
(20% sls) $ 25,777 $ 24,488
less, cum net FCF to W.C. (27,134) (27,134)
Net FCF to Wkg. Cap.
Net wkg. cap. requiremt ($ 1,357) ($ 1,289)
</TABLE>
Page 2
<PAGE>
Dollars in Thousands DATAPOINT CORPORATION: FIVE-YEAR FORECAST OF INCOME
Negative Growth Scenario AND CASH FLOW ASSUMING RETENTION OF TELEPHONY BUSINESS
- ------------------------ AND DEBENTURE BUY-BACK @ 70%
NOTE: (1) Interest expense reflects retention of the Telephony business,
with no application of its sale proceeds to retire the company's
outstanding debentures. However, it is assumed that any cash flow
generated above working capital requirements are applied to retire
Debentures @ 70% of par value.
NOTE: (2) For purposes of this projection, it is assumed that the company
requires approximately one-fifth of revenues for working capital
requirements. This scenario posits a beginning working capital
deficit at year-end 1996 of approximately $6.1 MM, with free cash flow
devoted to meeting that goal in subsequent years. For all subsequent
years, all cash flow above the amount necessary to meet the working
capital requirement is considered net free cash flow. In this
projection, all net free cash flow above working capital requirements
(after interest expense) is assumed to be applied by Datapoint to
reduce its Debentures at a 30% discount to par. Accordingly, this
projection indicates that Datapoint will be unable to generate
sufficient cash flow to apply towards payment of the cumulative
Preferred arrearage by 2001.
NOTE: (3) Recurring EBDAIT excludes the Other Income items that pertained
to fiscal year 1996, since those were generally considered non-
recurring items.
NOTE: (4) Debt as of the end of fiscal year 1996, assuming retention of the
Telephony division. See pro-forma balance sheet and computation of
pro-forma total debt in accompanying spread-sheets for backup.
NOTE: (5) To determine the present value of future cash flow to the common
shareholders, the cumulative arrearage of fiscal year-end (8
quarters), plus the par value of the Preferred shares outstanding
(approximately 1,868,000 shares) have been deducted.
NOTE: (6) To determine the fully diluted value of the present value of cash
flow to common shareholders, it has been assumed that the Preferred
shares have all been exchanged, per the exchange ratio proposed in the
current offer by Datapoint.
NOTE: (7) To determine Terminal Value, we have applied the minimum
Price/EBDAIT multiple derived from our comparable company study (7.0)
to the final year's projected EBDAIT for this scenario.
NOTE: (8) For purposes of determining the company's ability either to
retire Debentures or cure its Preferred arrearage, a free cash flow
net of interest and working capital requirements has been computed.
In those situations in which this total is negative (i.e., where
interest for the year exceeds FCF net working capital requirements,
the spread-sheet employs the convention of carrying over unpaid
interest to the following year. However, in point of fact, it is most
likely that the company will utilize the funds allocated for working
capital requirements to pay out that year's interest rather than
risking default to any of its creditors.
Page 3
<PAGE>
DATAPOINT CORPORATION
STATED BOOK VALUE (PRO FORMA)
-----------------------------
Starting with the Company's Pro Forma Balance Sheet for fiscal 1996
dated June 25, 1996, we further adjusted for other uses of proceeds from the
sale of automotive ("Darts"). It does not fully use ALL the cash - some is
still tied up in escrow. No funds are used to retire debentures.
After the sale to Kalamazoo, CCC's Pro Forma Balance Sheet shows a
negative working capital of $6,100,000. Shareholders' equity is a negative
$54,351,000, and long-term liabilities (primarily the 8-7/8% debentures) are
$73,320,000.
At this point, the Company is clearly in no position to pay a preferred
dividend and arrears. As for liquidation value of the preferred, that, too, is
underwater, technically. Thus, there is no book value per share of common and no
liquidation value for the preferred.
The "Telebus" or telephony business, is being offered for sale in the
mid * range. While there is a possibility that an acceptable transaction may be
completed in this calendar year, it must be considered speculative both as to
price and actual closing. But because Darts has finally been sold (after many
months of discussion and negotiation), CCC believes we should also calculate
the possible affect of a sale on the Profit & Loss Statement and Balance Sheet
using a * net sales price and a more optimistic * net sales price. The proceeds
is assumed to be used to retire the 8-7/8% debentures at an average price of
$70. The debentures have sold in smaller quantities recently in the upper $50s.
It is thinly traded, with only $64 million face amount outstanding. The 1996
range has been a low of $39-3/4 to a high of $58-1/2. Volume has been as low as
3 bonds to a high of 192 bonds, when they trade. It is anyone's guess what it
will take to retire a majority of the bonds, particularly when, and if, the
telephony business is sold and it is known that the money is available for such
a buy-back.
CCC adjusted for the sale of telephony under two scenarios - * and *,
buying in $42,857,000 face amount of bonds up to $57,143,000 in the second
scenario. The latter is optimistic in two ways - a) the Company receives a net
of * and b) that almost 90% of the bonds can be retired at $70.
In any event, the adjustments for the two scenarios result in a
still-negative working capital forecasted at $6,100,000, a negative book value
of $11,494,000 on a * sale, and a positive book value of $2,792,000 on a *
sale. The remaining long-term debt is $30,463,000 down to $16,177,000 on the
higher price. Without predicting further changes to bank or other debt, it
is still a very small possibility that, even under the optimistic scenario,
the Company could pay a dividend or pay off its arrears. The remaining
positive equity under the optimistic scenario still causes the preferred to
have only $1.49 in book value.
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
<TABLE>
<CAPTION>
DATAPOINT CORPORATION: PRO-FORMA BALANCE SHEETS FOR VARIOUS SCENARIOS
Adjustments for Adjustments for
Balance Sheet as of July 29, 1996: Telephony Sale (Flat Telephony Sale
Adjustments for Post Sale of & Negative Growth (Optimistic
Base Case Automotive Sale Automotive Scenarios) Scenario)
--------- --------------- ---------- ---------- ---------
Item $(000) $(000) $(000) $(000) $(000)
- ---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Equivalents 3,864 12,862 16,726 4,801 4,590
Accounts Receivable 39,802 (5,594) 34,208 (11,621) (11,621)
Inventory 5,951 (798) 5,153
Other 4,506 (1,277) 3,229
------- ------ ------- ------ ------
Total Current Assets 54,123 5,193 59,316 (6,820) (7,031)
Fixed Assets, net 13,796 (1,111) 12,685 0 0
Other Assets 14,981 (2,597) 12,384 0 0
Total Assets 82,900 1,485 84,385 (6,820) (7,031)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank Debt - O.D. 16,602 (1,978) 14,624
Current Portion of Long-term Debt 4,397 (2,675) 1,722
Trade Payables 18,168 (3,861) 14,307 (4,998) (4,998)
Accrued Expenses and Taxes Payable 32,139 (7,092) 25,047 (1,822) (2,033)
Other 13,545 (3,829) 9,716
------- ------ ------- ------ ------
Total Current Liabilities 84,851 (19,435) 65,416 (6,820) (7,031)
Long-term Liabilities 78,925 (5,605) 73,320 (42,857) (57,143)
Shareholders' Equity (80,876) 26,525 (54,351) 42,857 57,143
Total Liabilities and Shareholders' Equity 82,900 1,465 84,385 (6,820) (7,031)
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
DATAPOINT CORPORATION: PRO-FORMA BALANCE SHEETS FOR VARIOUS SCENARIOS
Balance Sheet as of July 29, 1996:
Pro-forma Post Sale of Pro-forma Post Sale of
Telephony (Flat & Neg. Growth) Telephony (Optimistic Scenario)
------------------------------ -------------------------------
Item $(000) $(000)
- ---- ------ ------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Equivalents 21,527 21,316
Accounts Receivable 22,587 22,587
Inventory 5,153 5,153
Other 3,229 3,229
------ ------
Total Current Assets 52,496 52,285
Fixed Assets, net 12,685 12,685
Other Assets 12,384 12,384
Total Assets 77,565 77,354
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank Debt - O.D. 14,624 14,624
Current Portion of Long-term Debt 1,722 1,722
Trade Payables 9,309 9,309
Accrued Expenses and Taxes Payable 23,225 23,014
Other 9,716 9,716
------ ------
Total Current Liabilities 58,596 58,385
Long-term Liabilities 30,463 16,177
Shareholders' Equity (11,494) 2,792
Total Liabilities and Shareholders' Equity 77,565 77,354
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
DATAPOINT CORPORATION: CALCULATION OF PRO-FORMA TOTAL DEBT
(in millions of dollars) Adjustments Debt, post- Adjustments
As of for Automotive Automotive for Telephony
4/27/96 (Base Case) Sale Sale Sale
------- --------- ---- ---- (Flat & No Growth)
------------------
<S> <C> <C> <C> <C> <C>
Current Liabilities:
Bank Debt - O.D. 17.1 16.6 (2.0) (1) 14.6 -
Current Portion of Long-term Debt 4.1 4.4 (2.7) (2) 1.7 -
----- ----- ----- ----- -----
Total Long-term Debt 21.2 21.0 (4.7) 16.3
Long-term Liabilities
Convertible Sub Debentures & NTI 69.1 69.1 (4.4) (3) 64.7 (49.2) (4)
Other LTL 9.8 9.8 (1.3) 8.6 -
----- ----- ----- ----- -----
78.9 78.9 (5.7) 73.3
Hence, Total Debt: 90.3 90.1 81.0
<CAPTION>
(in millions of dollars) Adjustments Debt, post- Debt, post-
for Telephony Telephony Telephony
Sale Sale Sale
(Optimistic Scenario) (Flat & No Growth) (Optimistic Scenario)
--------------------- ------------------ ---------------------
<S> <C> <C> <C>
Current Liabilities:
Bank Debt - O.D. - 14.6 14.6
Current Portion of Long-term Debt - 1.7 1.7
----- ----- -----
Total Long-term Debt 16.3 16.3
Long-term Liabilities
Convertible Sub Debentures & NTI 57.1 (5) 21.8 7.6
Other LTL 8.6 8.6
----- ----- -----
30.4 16.2
Hence, Total Debt: 38.1 23.9
</TABLE>
Notes:
(1) Includes $1 MM of IFN debt and $978 K for CIT paydown.
(2) Represents current portion of NTI debt paydown.
(3) Represents balance of NTI paydown.
(4) In Flat & No Growth scenarios, assumes * of telephony business sale
proceeds go to retire Debentures at 30% discount from par; hence $42.9
MM of Debentures retired here.
(5) In Optimistic scenario, assumes * of telephony business sale proceeds
go to retire Debentures at 30% discount from par; hence $57.1 MM of
Debentures are retired here.
Page 1
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
DATAPOINT CORPORATION
PROJECTED BOOK VALUE
--------------------
The Pro Forma Balance Sheets for the two principal scenarios project a
negative net worth of $80,870,000 at current fiscal year end, reduced to a
negative $54,351,000 after automotive, and a positive net worth of $2,792,000 in
our optimistic scenario where the telephony business is sold for a net of *
and debentures are retired at $70.
Taking the most optimistic view, the $2,792,000 net worth is reduced by
the $1 par value Preferred of $1,868,071, leaving common stock book value at
$924,000, or nearly 7 (cent) per share, excluding arrears. The Preferred would
have a book value of only $1.49 per share.
Thus, book value technically is next to worthless, though should be
considered in a minor way.
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
DATAPOINT CORPORATION
LIQUIDATION VALUE
-----------------
The remaining net assets after the sale of the telephony business can
be valued through the use of the comparable company and discounted cash flow
approaches, which we have already considered.
The comparable company approach suggests that the balance of assets
could be worth from $93 million to $180 million before various adjustments,
based on estimated pro forma EBDAIT and EBIT numbers. The pro forma balance
sheet requires the following adjustments:
Negative Working Capital $ 6,100,000
Long-term liabilities $ 16,177,000
------------
$ 22,277,000
This assumes that all inventory and receivables can be turned into cash
at 100% of their book value.
In a liquidation, we would assume that all other assets have no value,
although the San Antonio and Amsterdam properties can be sold at some number in
the $5 to $7 million range.
Costs of liquidating are high, including severance pay, legal,
accounting, fees and commissions, and other costs. The values, of course, depend
on what a third party thinks he can realistically achieve in earnings and cash
flow from a company that has lost money for several years, albeit with other
businesses included.
We would tend to discount these values by 50% given the risks involved.
Thus, $93 million to $180 million, less 50%, or $46.5 million to $90 million,
less $22 million shown above, less $10 million for liquidating costs, would
yield $14.5 million to $58 million.
On that basis, the Preferred would achieve its liquidating value of
$37,361,420 only if the higher numbers are met, and 38.8% of liquidating value,
or $7.76 per share, for the lower numbers.
On a discounted cash flow basis, our most optimistic scenario after
the sale of telephony suggests gross values of $81.7 million to $143.5
million, whereas the no-growth scenario suggests $32.7 million to $56.7
million. Using the same approach discussed above at 50%, less balance sheet
and closing costs, we arrive at a range of $8.5 million to as high as
$39.4 million. This higher figure permits the Preferred to attain its
liquidating value. On the retention of telephony, our calculation results in
NO available funds in a liquidation scenario.
<PAGE>
Datapoint Corportion: Liquidation Value Page 2
These calculations should not be accorded any weight, in CCC's opinion,
because there are no current plans to liquidate, the figures are based on highly
speculative forecasts of cash flow, and the Company has a poor record. Thus, it
is important to review this aspect, but it does not influence our conclusion.
<PAGE>
DATAPOINT CORPORATION
COMPARABLE TRANSACTIONS ANALYSIS
--------------------------------
CCC was able to find and review only two recent transactions involving
similar companies. Both transactions were for companies with revenues in excess
of $1 billion, and in one of the two cases, no price information was publicly
disclosed. The other transaction was the purchase of AmeriData Technologies,
Inc. ("Ameridata") by General Electric Capital Corporation at $16 a share
through a recent tender offer. CCC calculates that such a purchase for the
outstanding common stock was at approximately .235 times 1995 revenues, .1695
estimated 1996 revenues, 5.24 times 1995 EBDAIT, 3.15 times estimated 1996
EBDAIT, 20.25 times 1995 earnings per share before dilution and 11.9 times
estimated 1996 earnings, and finally, 2.2 times year-end 1995 stated book value.
On such figures, the implied value of the Company is in the range of $0.59 to
$3.69 per share, averaging $2.24 per share. The .75 incremental shares in the
new Exchange Offer adds $0.44 to $2.77 per share, average $1.61 per share.
However, CCC considers that this is not a very meaningful approach because of
the size and operating history of Ameridata compared to the Company.
GE to Ameridata:
<TABLE>
<CAPTION>
Datapoint After Datapoint After
Automotive Telephony
--------------- ---------
<S> <C> <C>
.235 times 1995 Revenues Not Available Not Available
.1695 times estimated 1996 Revenues $26,821,000 $19,277,235
Imputed Datapoint Value $1.96 per Share $1.41 per Share
3.15 times estimated 1996 EBDAIT $57,704,850 $52,869,660
Imputed Datapoint value $0.56 per Share $3.69 per Share
11.9 times estimated 1996 Earnings Negative $0.59 per Share
2.2 times 1999 book Not Applicable Not Applicable
Range is $0.59 to $3.69 per share - average $2.14 per Share.
At 2.75:1 = $1.62 to $10.15 per Share value, average $5.89 per Share.
.75 incremental shares is $0.44 to $2.77 per Share value, average $1.61 per
Share. This is against the loss of $2.00 per share arrears at year-end.
</TABLE>
<PAGE>
DATAPOINT CORPORATION
ABILITY TO PAY ARREARS AND RESUME
---------------------------------
PREFERRED DIVIDEND PAYMENTS
---------------------------
Current Arrears - $1.75 Per Share on 1,868,071 Shares is $3,269,124
Arrears Grow $467,018 Per Quarter, $1,868,071 Per Year
In CCC's opinion dividends should not be paid on the preferred until the
balance sheet shows a positive net worth, working capital is restored to a
normalized condition and the debentures are redeemed. Whether or not the
telephony business is sold for a net of * on a negative growth, or no-growth
sales scenario, the Company cannot resume dividends in the next five years
(beyond this we have not computed the possibility.) Under the optimistic
scenarios where the telephony business is sold for a net of * and the 8 7/8%
Debentures are repurchased at an average of 70% of par, the arrears can be
paid starting in the fiscal year to end 7/31/99. At the end of fiscal 1999,
arrears are $5.00 a share. If Telephony is not sold, under the optimistic
scenario, the $7.00 of arrears can be paid starting in fiscal 2001. On a
scenario where telephony is sold and debentures are repurchased at 80% of par,
only part of the arrears can be repaid in fiscal 1999. But this does not
materially change the values.
The present value of those payments brought back to the announcement
date, April 16, 1996 at the various rates used in the discounted cash flow
scenario range from $1.77 to as high as $3.32 per share. Keeping in mind that
this is from an optimistic scenario, the emphasis should be on the highest
discount rate (30%) which provides a range of $1.77 to $2.13, averaging $1.95.
Finally, what is the relative value of 2.75 shares of common compared to
giving up the future arrears and future price of the preferred, taken back to
the present value at announcement date.
CCC believes that once the preferred dividend is current, the preferred
will sell between $8 and $10 per share. If the arrears are able to be paid by
the end of fiscal 1999 in the optimistic scenario or 2001 if telephony is not
sold, the present value at a 30% discount rate is $2.02 to $4.26. The total
value including arrears is $3.79 to $6.39.
The common , on the other hand , at 2.75 times the $1.44 market is $3.96
per share of preferred. At 2.75 times the discounted present value it is $3.36
to $3.74.
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
DATAPOINT CORPORATION
LITIGATION
----------
CCC interviewed Dr. David Garrod and Peter Cobrin, partners in the law
firm of Cobrin, Gittes & Samuel, who are handling certain patent litigation. The
two sets of litigation involve video conferencing (as illustrated by the Minx
system) and Arcnet, the networking system.
The former involved NEC at first, which was settled, and other suits
against V-Tel and Video Server were settled. The Company has a current case
against PictureTel Corporation, Compression Labs and Telios and started a suit
against others such as Video-Lan.
If successful, substantial royalties could be paid to Datapoint by such
as PictureTel. Settlement discussions are on-going with Compression Labs and
Telios which could involve significant near-term sums and possible ongoing
royalties.
The Arcnet litigation involves a Local Area Network (LAN) and the
Ethernet. Currently there are two defendants, Standard Microsystems and Intel
Corporation. More defendants are possible if class action is certified. If not,
then more suits will be filed anyway against others such as 3 COM. A call to the
attorneys on July 17, 1996 revealed that the Judge did not certify the class.
There is really no way to put a reasonable figure on the value of these
suits from the point of view of adding to the value of the Company's Preferred
or Common stock. We have chosen to ignore them at this point, except to say that
they can only be a positive step for the Company's future.
<PAGE>
DATAPOINT CORPORATION
SUMMARY AND CONCLUSION
----------------------
CCC reviewed the stock price history, selected comparative companies,
discounted cash flow, comparative transactions, book value litigation and the
ability to pay the arrears.
Primary emphasis was placed on the stock price history as the only
factual comparison of preferred and common. Here we concluded that the exchange
ratio should be increased to 3:1.
Less emphasis was placed on a discounted cash flow approach. It has many
risks involving whether or not overhead savings can be made, the telephony
business sold and at what price the price debentures can be repurchased, and the
potential for growth in the face of competition. CCC performed several
iterations at different discount rates. CCC concluded that the value of the
common shares was within a range of $1.22 to $1.36 per share. At 2:1 exchange,
the preferred is valued at $2.44 to $2.72 per share. Another .75 shares of
common increases the value to $3.36 to $3.74 per share. With the preferred at an
average of $3.10 prior to announcement and $3.25 more recently, the exchange
gives little value to the intangible factors of the loss of arrears, liquidation
preference, and board representation.
No real emphasis was placed on the comparable company study. It is based
on the same speculative elements of the Company cited above. Furthermore, the
companies in the study are not closely parallel in business, geographical
location, capital structure and history of profits.
The comparative transaction, while academically interesting, is not
truly comparable and reflects a much larger company. Liquidation is not really
the goal here. The book value approach shows nominal values for the common.
Litigation is not quantifiable on any reasonable basis. These factors were given
little weight in the overall analysis.
Finally, CCC raises the question of the present value of an incremental
.75 shares in the exchange as against giving up hopes of receiving the arrears.
If the arrears are payable at various times starting in the year 1999, they are
valued in our opinion at between $1.77 and $2.13 share. This should be compared
to giving up the value of those arrears and intangibles to achieve an extra .75
common at $1.44 which is the average market price prior to announcement, or the
equivalent to of $1.08 per preferred share. On a discounted cash flow basis it
is equivalent to $0.92 to $1.02 per share. Compared to the present value of the
arrears, the exchange is not sufficiently attractive to the preferred. Another
.25 to .50 shares of common should provide a more fair exchange to the
preferred.
<PAGE>
In CCC's opinion the relative value of 2.75 shares of common compared to
the future arrears and future price of the preferred, discounted back to present
value, further confirms the opinion that the exchange value should be increased.
We conclude from the above that the preferred should receive no less
than an additional .25 shares of common.
<PAGE>
Exhibit 99(f)
CONFIDENTIAL PRESENTATION
TO
BOARD OF DIRECTORS
OF
DATAPOINT CORPORATION
Patricof & Co. Capital Corp.
July 24, 1996
DATAPOINT CORPORATION CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
TABLE OF CONTENTS
TAB PAGE
- --------------------------------------------------------------
1. Transaction Overview.....................................1
2. Patricof Due Diligence...................................2
3. General Observations Concerning Datapoint................4
4. Summary Financial Information...........................17
5. Summary of Issues Respecting Fairness...................20
6. Valuation of Equity before Exchange Offer...............21
7. Comparative Company Approach............................23
8. Liquidation Value Approach..............................41
9. Discounted Cash Flow Valuation..........................42
10. Valuation of Preferred Stock...........................50
11. Conclusion.............................................57
Supplemental Materials
- ----------------------
A. Comparative Company Financial Data
B. Datapoint Preferred Stock and Convertible Debenture Summary Term Sheets
C. Datapoint Common Stock and Preferred Stock Price and Volume Data
D. Comparative Preferred Securities
E. Datapoint Historical Financials
F. Discounted Cash Flow - Base Case
G. Discounted Cash Flow - Downside Case
H. Discounted Cash Flow - Upside Case
<PAGE>
Patricof & Co. Capital Corp.
PREFACE
This report has been prepared by Patricof & Co. Capital Corp. ("Patricof") in
connection with Patricof's opinion to be rendered to the Board of Directors of
Datapoint Corporation ("Datapoint" or the "Company") as to the fairness from a
financial point of view of the Exchange Offer, described herein, to the
Company's Common Shareholders. The material in this report and all analyses
contained herein are confidential and are solely for the use of the Board of
Directors and its advisors. Any publication or use of this material or the
analyses contained herein without the express written consent of Patricof is
strictly prohibited.
In the course of our activities as financial advisor, Patricof received and
reviewed business and financial information on the Company developed by
Datapoint and held discussions with the management of Datapoint and with others
regarding this information. In connection with the analyses contained herein, we
have not independently verified the accuracy of any such information and have
relied on all such information as being complete and accurate in all material
respects. In addition, we have not obtained any independent appraisal of
Datapoint's properties or assets.
Patricof has employed several analytical methodologies herein and no one method
of analysis should be regarded as critical to the overall conclusion we have
reached. Each analytical technique has inherent strengths and limitations, and
the nature of the available information may further affect the value of
particular techniques. Our conclusion is based on all the analyses and factors
presented herein taken as a whole and also on application of our experience.
Such conclusion often involves significant elements of judgment and qualitative
as well as quantitative analysis. Hence, we express no opinion as to the
probative force standing alone, of any one or more parts of the material that
follows. Our only opinion is the formal written opinion that we have expressed
or will express as to the fairness from a financial point of view of the
consideration being paid in the transaction. The opinion, the analyses contained
herein and all conclusions drawn from such analyses are necessarily based upon
market, economic and other conditions that exist and can be evaluated as of the
date of this presentation, and on information available to us as of the date
hereof.
DATAPOINT CORPORATION ii CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
TRANSACTION OVERVIEW
- The Company has proposed to exchange 3.25 shares of $0.25 par value Common
Stock (the "Common Stock") for each share of its $1.00 Exchangeable
Preferred Stock (the "Preferred Stock") (the "Exchange Offer"). The
Preferred Stock has a $20 liquidation preference per share, is currently
convertible into 2.00 shares of Common Stock, and had a dividend arrearage
of $2.00 per share at July 15, 1996.
- Concurrently with the Exchange Offer, the Company will solicit votes to
amend the Preferred Stock such that each share of Preferred Stock
(inclusive of accumulated dividends) not otherwise exchanged in the
Exchange Offer would be immediately converted into 3.25 shares of Common
Stock (the "Preferred Stock Amendment").
- The votes of at least two-thirds of the outstanding shares of Preferred
Stock, voting separately as a class, and a majority of the outstanding
shares of Common Stock is required to approve the Preferred Stock
Amendment. If the Preferred Stock Amendment is approved, all shares of
Preferred Stock not tendered in the Exchange Offer will be subject to the
Preferred Stock Amendment and will be automatically reclassified and
changed into shares of Common Stock.
<TABLE>
PRO FORMA CAPITALIZATION
<CAPTION>
Shares Common Stock outstanding
outstanding at pro forma for conversion at
----------------------------------------------
4/27/96 2.00:1 3.25:1
------------------- ----------------------- ----------------------
<S> <C> <C> <C>
Common Stock 13,670,930 13,670,930 13,670,930
Preferred Stock 1,868,071 3,736,142 6,071,231
----------------------- ----------------------
Pro forma for conversion 17,407,072 19,742,161
======================= ======================
</TABLE>
DATAPOINT CORPORATION CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
PATRICOF DUE DILIGENCE
PERSONS INTERVIEWED
Datapoint Corporation
- ---------------------
<TABLE>
<S> <C>
Asher Edelman Chairman
Blake Thomas Chief Operating Officer
Gerald Agranoff, Esq. Chief Counsel
Philip Krumb Chief Financial Officer
John Perkins Director, Open Systems Product Development
David Berger Vice President - Sales & Distribution (Telebusiness)
Ken Witt Finance Department
Cobrin, Gittes & Samuel
- -----------------------
Peter T. Cobrin, Esq.
David J. Garrod, Ph.D.
DATAPOINT CORPORATION 2 CONFIDENTIAL
</TABLE>
<PAGE>
Patricof & Co. Capital Corp.
PATRICOF DUE DILIGENCE (CONTINUED)
DOCUMENTS REVIEWED
- Public Filings of Datapoint Corporation 10-Ks for the years ended July 31,
1995, 1994, 1993 10-Q for the quarter ended 4/27/96
- Public filings of companies used for comparative purposes
- Relevant Agreements and Contracts, including:
- March 17, 1992 Exchange Offer and Proxy
- 8 7/8% Convertible Subordinated Debenture prospectus and Indenture
- Acquisition agreements between Kalamazoo and Datapoint
- Draft S-4 describing the Exchange Offer
- Company Data
- Annual Operating Plan for fiscal year 1996
-Fiscal year 1996 forecast (as of May) pro forma for restructurings &
sale of Autobusiness and Telebusiness
- Other internal company financial statements (historic, current, and
prospective)
- Company product descriptions
- Minx business plan
- By laws, articles of incorporation, minutes and other corporate
items
- Trading history of Datapoint Common Stock, Preferred Stock and Convertible
Debentures
DATAPOINT CORPORATION 3 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING DATAPOINT
- As of the date of the 4/27/96 10-Q, the Company consisted of three
divisions: the automotive dealer management system division
("Autobusiness"), the computer telephony integration systems integration
division ("Telebusiness"), and the systems integration and proprietary
hardware and software business (Open Systems Networking division, or "OSN")
which includes the Minx video conferencing business ("Minx").
- The Company estimates total revenue of $184.6 million, EBITDA of $15.3
million and loss before extraordinary items of $3.3 million for the fiscal
year ended July 31, 1996.
ESTIMATED RESULTS FOR FISCAL YEAR 1996
Revenue EBITDA
------------ -------------
Autobusiness (a) $26.4 $5.9
Telebusiness 44.5 1.2
OSN (b) 113.7 8.1
------------ -------------
Total $184.6 $15.3
============ =============
- -------------------------------------------
(a) Does not include service revenue which Datapoint will
continue to generate as a subcontractor to Kalamazoo.
(b) Includes Minx revenue and EBITDA. Minx sales revenue
is not material, and Minx operates at approximately breakeven
profitability.
SOURCE: DATAPOINT. (ALL COMPANY DATA THROUGHOUT THIS
PRESENTATION IS SOURCED FROM DATAPOINT).
DATAPOINT CORPORATION 4 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
SALE OF AUTOBUSINESS AND RESTRUCTURING
- On June 25, 1996 Datapoint announced the sale of Autobusiness to Kalamazoo
Computer Group plc for a price of $33 million.
- During 1996 Datapoint took actions to reduce operating expenses. Adjusting
estimated fiscal year 1996 results for the full year impact of cost
reductions and for non-recurring expenses results in an increase in EBITDA
of $3.1 million.
- The Company plans to undertake additional cost cutting programs in the
remainder of fiscal year 1996. Adjusting estimated fiscal year 1996 results
for these actions results in an increase in EBITDA of an additional $2.6
million.
- The table on the following page presents estimated 1996 fiscal year
operating results pro forma for the sale of Autobusiness and adjusted for
cost reduction and non-recurring expenses.
DATAPOINT CORPORATION 5 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
ADJUSTED ESTIMATED FY 1996 INCOME STATEMENT PRO FORMA FOR AUTOBUSINESS SALE
<TABLE>
<CAPTION>
A B C: A+B D E: C+D F G: E+F
Cost Reduction Adjusted
reductions Planned for sale of estimated
Estimated & non- cost Autobusiness PF 1996
FY 1996 recurring reductions & NTI note pro forma
------------ ------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue $184.6 $0.0 $184.6 $0.0 $184.6 ($26.4) $158.2
Cost of goods sold (a) 125.2 0.4 124.8 (1.9) 122.9 (13.4) 109.5
------------ ------------- --------- ------------- ------------ ------------- -----------------
Gross profit
59.4 0.4 59.9 1.9 61.7 (12.9) 48.8
Subsidiary operating exp. (b) 28.9 (0.6) 28.3 (0.0) 28.3 (6.4) 21.8
------------ ------------- --------- ------------- ------------ ------------- -----------------
Operating income before corp. 30.5 1.0 31.6 1.9 33.4 (6.5) 26.9
European HQ overhead
5.3 (0.4) 4.9 (0.4) 4.5 (0.6) 3.9
US HQ overhead (c)
7.1 (1.3) 5.8 (0.3) 5.5 - 5.5
R&D
2.9 (0.3) 2.6 (0.0) 2.5 - 2.5
------------ ------------- --------- ------------- ------------ ------------- -----------------
EBITDA 18.3 15.0
15.3 3.1 2.6 20.9 (5.9)
Depreciation
7.0 - 7.0 - 7.0 (0.7) 6.3
------------ ------------- --------- ------------- ------------ ------------- -----------------
Operating income (EBIT) 11.3
8.3 3.1 2.6 13.9 (5.2) 8.7
Interest expense, net
(8.8) - (8.8) - (8.8) 1.1 (7.7)
------------ ------------- --------- ------------- ------------ ------------- -----------------
Pretax
(0.5) 3.1 2.5 2.6 5.1 (4.1) 1.0
Taxes & other
(2.7) - (2.7) - (2.7) 0.4 (2.3)
------------ ------------- --------- ------------- ------------ ------------- -----------------
Income before extraordinary items
(3.3) 3.1 (0.2) 2.6 2.4 (3.7) (1.4)
Extraordinary (loss)/gain (d)
(1.8) 3.5 1.8 - 1.8 - 1.8
------------ ------------- --------- ------------- ------------ ------------- -----------------
Net income ($5.0) $6.6 $1.6 $2.6 $4.1 ($3.7) $0.4
============ ============= ========= ============= ============ ============= =================
</TABLE>
<TABLE>
<CAPTION>
Notes:
- -----
<S> <C>
(a) Excludes depreciation of $1.8 million, which has been reclassified in "Depreciation".
(b) Excludes depreciation of $4.9 million, which has been reclassified in "Depreciation".
(c) Excludes depreciation of $0.3 million, which has been reclassified in "Depreciation".
(d) Includes $3.3 million related to litigation settlement.
</TABLE>
DATAPOINT CORPORATION 6 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
<TABLE>
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
ADJUSTED ESTIMATED FY 1996 BALANCE SHEET PRO FORMA FOR AUTOBUSINESS SALE
<CAPTION>
A B C D E: C+D
PF for sale
PF for Payment of Autobus.
FYE Estimated sale of of NTI & pmt of
1995 FYE '96 Autobus. note NTI note
------------ ------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Cash $11.0 $3.9 $21.8 ($5.0) $16.8
Trade receivables 39.8 34.2
43.1 - 34.2
Inventory
9.8 6.0 5.2 - 5.2
Other current assets
3.6 4.5 3.2 - 3.2
------------ ------------- ------------- ------------- -----------------
Total current assets 54.1 64.4
67.5 (5.0) 59.4
Net fixed assets 13.8 12.7
18.9 - 12.7
Other assets 15.0 12.4
15.4 - 12.4
------------ ------------- ------------- ------------- -----------------
Total assets $101.8 $82.9 $89.4 ($5.0) $84.4
============ ============= ============= ============= =================
Bank debt
$16.8 $16.6 $14.6 $0 $14.6
Current portion LTD
9.2 4.4 2.4 (0.7) 1.7
Trade payables 18.2 14.3
23.3 - 14.3
Accrued expenses 32.1 25.1
34.9 - 25.1
Other current liabilities 13.5
16.1 9.7 - 9.7
------------ ------------- ------------- ------------- -----------------
Total current liabilities 100.3 84.8 66.1
(0.7) 65.4
Long term debt 64.9 64.9
64.9 - 64.9
Other long term liabilities 14.0 12.8
10.7 (4.4) 8.4
------------ ------------- ------------- ------------- -----------------
Total liabilities 175.9 163.8 143.8 138.8
(5.0)
Equity (80.9) (54.4) (54.3)
(74.1) 0.0
------------ ------------- ------------- ------------- -----------------
Total liabilities & equity $101.8 $82.9 $89.4 ($5.0) $84.4
============ ============= ============= ============= =================
</TABLE>
DATAPOINT CORPORATION 7 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
SALES BY COUNTRY
- Over 90% of Datapoint's revenue is generated in Europe. The following is a
breakdown of Datapoint's estimated sales for fiscal year 1996, pro forma
for the sale of Autobusiness.
ESTIMATED FYE JULY 31, 1996 REVENUE
OSN Telebus. Total
------------ ------------- -------------
Sweden $41.3 $1.4 $42.7
U.K. 16.4 20.2 36.6
Belgium 15.0 3.7 18.7
France 11.2 4.9 16.1
Germany 6.1 0.3 6.4
Holland 4.7 0.8 5.5
Spain 2.6 3.5 6.1
Italy 1.2 7.4 8.6
Other Europe 6.1 2.3 8.4
------------ ------------- -------------
Total Europe 104.6 44.5 149.1
U.S., Pacific and other 9.1 0.0 9.1
------------ ------------- -------------
Total $113.7 $44.5 $158.2
============ ============= =============
DATAPOINT CORPORATION 8 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
TELEBUSINESS
- Telebusiness is principally engaged in the development, marketing,
distribution and servicing of computer and communications products, both
hardware and software, in the field of computer telephony integration
("CTI"). Telebusiness acts primarily as a systems integrator, providing
corporations with integrated solutions for CTI applications using hardware
and software supplied by third parties. Telebusiness typically services
these CTI systems after installation, providing it with a profitable
ongoing stream of revenue.
- Telebusiness competes with hardware suppliers such as IBM as well as with
consultancies and value added resellers. Management believes Telebusiness
is poised for growth due to its large market share in the CTI niche of the
European systems integration market, the knowledge and expertise of its
systems engineers and the quality of its customer base.
- Telebusiness revenue was concentrated in the U.K. (approximately 45% of
1996 estimated revenue) but the Company has invested considerable
resources in developing the market for CTI on the European continent.
This market has lagged the U.S. and U.K. market in adoption of CTI
technology, but is expected to provide a significant amount of growth in
the future.
- Telebusiness is projected to generate revenue of $67.7 million in fiscal
year 1997, up from $44.5 million estimated for fiscal year 1996. Assuming
the implementation of Telebusiness management's plans to enter new product
lines, EBIT is projected to increase to $8.2 million from $3.0 million
estimated for 1996 (on a stand-alone basis, excluding certain corporate
overhead allocations).
- Datapoint is currently exploring the sale of Telebusiness. The tables on
the following pages illustrate the effect of the sale of Telebusiness for *
in net proceeds and the use of these proceeds plus $10 million of cash on
hand to repurchase debentures at 80% of face value.
DATAPOINT CORPORATION 9 CONFIDENTIAL
* [ Confidential Material: Confidential portions have been omitted and filed
separately with the Securities and Exchange Commission pursuant to Rule 406
under the Securities Act of 1933, as amended, and Rule 24b-2 under the
Securities Exchange Act of 1934, as amended, and denoted herein by "*" ]
<PAGE>
Patricof & Co. Capital Corp.
<TABLE>
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
ADJUSTED ESTIMATED FY 1996 INCOME STATEMENT PRO FORMA FOR TELEBUSINESS SALE
<CAPTION>
A B C: A+B D E: C+D
Impact of
PF for Reduction PF for repurchase of PF for
sale of for sale of sale of debentures repurchase of
Autobus. Telebus. Telebus. & other debentures
------------- ------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Total revenue $158.2 ($44.5) $113.7 $0.0 $113.7
Cost of goods sold 109.5 (30.7) 78.8 78.8
------------- ------------- ------------- ----------------- -----------------
Gross profit 48.8 (13.8) 34.9
- 34.9
Subsidiary operating exp. 21.8 (11.1) 10.7 10.7
------------- ------------- ------------- ----------------- -----------------
Operating income before corp. 26.9 24.2
(2.8) - 24.2
European HQ overhead
3.9 (1.5) 2.4 - 2.4
US HQ overhead
5.5 - 5.5 - 5.5
R&D
2.5 - 2.5 - 2.5
------------- ------------- ------------- ----------------- -----------------
EBITDA 15.0 13.7
(1.2) - 13.7
Depreciation
6.3 - 6.3 - 6.3
------------- ------------- ------------- ----------------- -----------------
Operating income (EBIT)
8.7 (1.2) 7.4 - 7.4
Interest expense, net
(7.7) - (7.7) 5.2 (2.5)
------------- ------------- ------------- ----------------- -----------------
Pretax
1.0 (1.2) (0.3) 5.2 4.9
Taxes & other
(2.3) 0.3 (2.1) - (2.1)
------------- ------------- ------------- ----------------- -----------------
Income before extraordinary items
(1.4) (1.0) (2.3) 5.2 2.8
Extraordinary (loss)/gain
1.8 - 1.8 - 1.8
------------- ------------- ------------- ----------------- -----------------
Net income $0.4 ($1.0) ($0.6) $5.2 $4.6
============= ============= ============= ================= =================
</TABLE>
DATAPOINT CORPORATION 10 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
<TABLE>
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
ADJUSTED ESTIMATED FY 1996 BALANCE SHEET PRO FORMA FOR TELEBUSINESS SALE & DEB. REPURCHASE
<CAPTION>
A B C: A+B D E: C+D F G: E+F
PF for PF for Impact Pro forma PF for
sale of Removal removal of sale for sale repurch.
Autobus. & of of of of Repurch. of
pmt of NTI Telebus. Telebus. Telebus. Telebusiness debentures debent.
-------------------------- ------------- ------------- ----------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash $16.8 $5.4 $22.2 * * ($40.0) *
Trade receivables 34.2 (11.6) 22.6 *
* * -
Inventory 5.2
- 5.2 * * - *
Other current assets 3.2
- 3.2 * * - *
--------- ------------- ------------- ------------- ----------------- --------------- -------------
Total current assets 53.2 * (40.0) *
59.4 (6.2) *
Net fixed assets 12.7 12.7 *
- * * -
Other assets 12.4 12.4 *
- * * -
--------- ------------- ------------- ------------- ----------------- --------------- -------------
Total assets $84.4 ($6.2) $78.2 * * ($40.0) *
========= ============= ============= ============= ================= =============== =============
Bank debt $14.6 $0.0 14.6 *
* * -
Current portion LTD 1.7
- 1.7 * * - *
Trade payables 14.3
(5.0) 9.3 * * - *
Accrued expenses 25.1 23.9 *
(1.2) * * -
Other current liabilities 9.7
- 9.7 * * - *
--------- ------------- ------------- ------------- ----------------- --------------- -------------
Total current liabilities 59.3 *
65.4 (6.2) * * -
Long term debt 64.9 64.9 *
- * * (50.0)
Other long term liabilities 8.4
- 8.4 * * - *
--------- ------------- ------------- ------------- ----------------- --------------- -------------
Total liabilities 138.8 132.6 * *
(6.2) * (50.0)
Equity (54.3) (54.3) * * 10.0 *
--------- ------------- ------------- ------------- ----------------- --------------- -------------
-
Total liabilities & equity $84.4 ($6.2) $78.2 * * (40.0) *
========= ============= ============= ============= ================= =============== =============
DATAPOINT CORPORATION 11 CONFIDENTIAL
</TABLE>
* Confidential portions omitted and filed separately with the Commission
<PAGE>
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
OSN
- OSN is engaged in the development, marketing, distribution and servicing
of hardware and software computer products. OSN markets a variety of
hardware and software, including Datapoint proprietary hardware and
software as part of integrated computing solutions to corporations.
Datapoint outsources the manufacture of proprietary hardware. Proprietary
hardware consists primarily of single and multiple processor computer
servers, and Arcnet cards which allow computers to transmit data within a
network (similar to Ethernet). Datapoint holds a patent on a dual-speed
operating protocol allowing upgrades to its Arcnet products, without
requiring the upgrade of the customer's entire system. (See "Patents").
- A substantial installed base of Datapoint proprietary hardware and
software exists. While a portion of this installed base is expected to
switch to other, non-proprietary systems in the future, Datapoint believes
that this will take place slowly over a period of years, and that the
Company will be chosen by many of these customers to assist in the switch
and continue to service the system. However, revenue generated through the
sale of proprietary hardware and software is substantially more profitable
than those from sale of third party hardware and software.
- In 1996, OSN revenue was concentrated in Sweden, the U.K., Belgium and
France.
- Approximately $20 million of OSN's $41 million in Swedish revenue was
generated through the sale of third-party personal computers to the Swedish
government at low (15%) gross margins. Datapoint management is confident
that its Swedish subsidiary will find additional sales opportunities,
either with the Swedish government or other customers, sufficient to
replace any non-recurring personal computer sales revenue.
- Approximately 50% of the $15 million of revenue in Belgium was generated
through sales to a single customer.
- In the U.K., OSN generated $10 million in revenue through third-party
maintenance contracts and $6 million through the sale of third-party
personal computers.
DATAPOINT CORPORATION 12 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
OSN (CONTINUED)
- Revenue from the French subsidiary totaled $11.2 million. The French
subsidiary owes approximately $7.2 million over time to the equivalent of a
bankruptcy trustee (the result of a restructuring and downsizing of this
subsidiary to return it to profitability). Datapoint has limited access to
the cash flow generated by the French subsidiary until this amount is paid.
Management expects to pay this amount over eight years.
- In 1996, OSN generated approximately $10 million in royalties on the
Datapoint proprietary operating system (the "RMS" operating system) at a
100% gross margin. The primary application of RMS is database management.
It is not expected that customers will replace RMS with other systems,
because the RMS operating system is compatible with industry standard
network software (e.g. Microsoft, Novell), and the changeover from RMS to
other database management systems is costly. Datapoint maintains
compatibility by developing upgrades for the RMS software when necessary.
- OSN competes with large hardware manufacturers, such as Unysis, and with
value added resellers and systems integration consultancies. Management
believes OSN has a competitive advantage due to the installed base of
Datapoint proprietary hardware and software, and due to its reputation as a
system integrator.
DATAPOINT CORPORATION 13 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
MINX
- Minx is a video conferencing system. Datapoint has reduced the resources
allocated to this business to approximately 15 employees. Minx operates at
approximately breakeven profitability, with about $5 million in sales of
replacement parts to an installed base of video conferencing equipment,
most at U.S. correctional facilities and other U.S. government facilities.
- Datapoint holds a number of video conferencing technology patents.
Datapoint has received one-time royalty payments related to the settlement
of certain patent-infringement lawsuits totaling approximately $1 million,
and is the plaintiff in a number of outstanding lawsuits related to these
patents. (See "Patents").
DATAPOINT CORPORATION 14 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
PATENTS
- Datapoint holds five patents related to (i) the technology developed for
use in the Minx video conferencing products and (ii) the OSN dual-speed
Local Area Network ("LAN") operating protocol developed to allow upgrades
to its Arcnet networking products.
- The Minx video conferencing technology patent is used for video
transmission over telephone lines, and includes the compression of data for
transmission from a LAN. It also covers the technology which creates the
"bridge" connecting the LAN to a telephone line, allowing this function to
be controlled by the LAN operator (the "chairman control" function). In
many competing systems, a user must contract with outside service providers
for connection to a telephone line, limiting the flexibility of use of the
video conferencing system.
- The OSN dual-speed operating protocol patent enables the LAN to be
upgraded to operate at a greater number of megabytes per second without
losing compatibility with existing equipment which operates at a lesser
number of megabytes per second. Without this dual-speed feature, all
equipment connected to the LAN would have to be upgraded to be compatible
with the faster speed.
- The Company has filed patent infringement lawsuits related to its Minx
patents against a number of parties including PictureTel, CLI and Telios.
The suit with the largest potential value is against PictureTel (NASDAQ -
PCTL), a leading video conferencing equipment manufacturer with $347
million in sales in 1995. While PictureTel's system does not operate
through a LAN, this suit is based upon, among other things, PictureTel's
use of compression technology covered by the Datapoint patent. A recent
PictureTel motion for summary judgment based on a point of law was denied.
During the course of the Company's action, a suit has been filed against
the Company by individuals claiming to be omitted inventors challenging
Datapoint's right to its video conferencing patents. The Company's
intellectual property counsel, Cobrin, Gittes & Samuel expect this
challenge to lead to another round of fact-finding by PictureTel.
DATAPOINT CORPORATION 15 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
GENERAL OBSERVATIONS CONCERNING DATAPOINT (CONTINUED)
PATENTS (CONTINUED)
- Datapoint has settled lawsuits against several manufacturers of video
conferencing equipment for patent licensing fees. These companies include
VTEL, NEC and Videoserver. In each case, Datapoint received * in up-front
licensing fees. The VTEL patent license is in perpetuity, but
does not allow sales of equipment utilizing the Datapoint patent to
Datapoint's major competitors (PictureTel, NEC and others) and does not
include the rights to the "chairman control" feature of the Datapoint
patent. The NEC licensing arrangement requires an additional payment of
$1 million to Datapoint if NEC's video conferencing sales reach
$24 million by the year 2000.
- Additional lawsuits may be filed in the future under the video
conferencing patents against companies producing video transmission
equipment for use at the desktop PC by individuals, as part of a LAN.
- Datapoint has filed patent infringement lawsuits related to the OSN
patents against a large number of manufacturers of dual-speed networking
products. The Company has consolidated these suits in a class action. No
trial date has been set.
- While it is possible that a favorable outcome of these lawsuits could be
of substantial value to Datapoint, Datapoint's counsel believes that it is
impossible to predict the eventual outcome of the lawsuits at this time.
DATAPOINT CORPORATION 16 CONFIDENTIAL
*Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Estimated FY 1996, Adjusted(a)
-----------------------------------------
Pro forma Pro forma(b)
Fiscal year ended July 29, LTM as for sale of for sale of Auto.
----------------------------------------
1993 1994 1995 of 4/96 Autobusiness and Telebusiness
------------ ------------- ------------- ------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $208.3 $172.9 $174.9 $184.7 $158.2 *
Gross profit $86.6 $65.6 $57.5 $59.8 $48.8 *
Gross margin % 42% 38% 33% 32% 31% *
EBITDA $15.8 ($2.1) $0.2 $11.5 $15.0 *
EBITDA margin % 8% -1% 0% 6% 9% *
Income before extraordinary
items ($5.6) ($22.2) ($19.1) ($6.8) ($1.4) *
Total assets $202.3 $127.4 $101.8 $90.2 $84.4 *
Total debt $89.9 $90.9 $90.9 $90.3 $81.3 *
Total cash and equivalents $22.5 $6.2 $8.5 $5.0 $16.8 *
Book value of equity $47.0 ($50.7) ($74.1) ($81.0) ($54.3) *
</TABLE>
- -------------------------------------------
(a) Adjusted for impact of expense reductions and non-recurring items.
(b) Assumes sale price of * and use of proceeds, plus $10 million of cash on
hand, to repurchase debentures at 80% of face value.
DATAPOINT CORPORATION 17 CONFIDENTIAL
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
SUMMARY FINANCIAL INFORMATION (CONTINUED)
OBSERVATIONS
- Performance has suffered in recent years due to increasing competition and
the impact of an industry shift away from proprietary systems to open
standards.
- This led to a relatively high debt level and a negative net worth, as
illustrated by a net debt-to-EBITDA ratio of 7.4x and net shareholder
deficit of $81.0 million as of April 27, 1996. To improve the financial
condition of the Company management sold the Autobusiness in the fourth
quarter of 1996 and is exploring the sale of Telebusiness.
- The proceeds of the sale of Autobusiness were used to pay transaction
expenses, corporate payables and to retire debt. As a result, the Company's
net debt-to-EBITDA ratio and shareholder deficit are reduced to 4.3x and
$54.3 million, respectively, pro forma for the sale.
- Over the past several years, the Company has not devoted significant
resources to the development of new customers and revenue sources, due to
liquidity and leverage concerns. With the sale of Autobusiness, the Company
has significantly improved its capitalization and should be able to focus
on improving its operations.
- The sale of Telebusiness would further strengthen the Company's balance
sheet.
DATAPOINT CORPORATION 18 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
FINANCIAL INFORMATION (CONTINUED)
POTENTIAL AREAS FOR CONCERN
- Datapoint may be unable to maintain pro forma profitability and/or meet
the projections utilized in the discounted cash flow analysis due to a
combination of:
(i) competition from larger, better capitalized companies;
(ii) inability to effectively generate new customers and revenues to
replace customers expected to switch from Datapoint proprietary
products to third-party products;
(iii) greater than expected switching of OSN's customers from
Datapoint proprietary products to third-party products;
(iv) inability to sell Telebusiness, and as a result inability to
reduce leverage.
- Operating results may be impacted by issues beyond the Company's control
such as:
(i) a general recession;
(ii) unfavorable foreign exchange rates;
(iii) technological change.
DATAPOINT CORPORATION 19 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
SUMMARY OF ISSUES RESPECTING FAIRNESS
- To assess the fairness of the Exchange Offer from a financial point of
view, Patricof considered, among other things:
(i) Value of Datapoint equity before the Exchange Offer
(ii) Value of Datapoint Preferred Stock before the Exchange Offer
(iii) Value of Datapoint Common Stock before the Exchange Offer
(iv) Value of Datapoint Common Stock after the Exchange Offer
- Patricof considered the rights of holders of Preferred Stock with respect
to dividends, liquidation preference and the ability to influence corporate
actions in determining the value of the elimination of this security to the
holders of Common Stock.
- Patricof considered and employed several valuation approaches:
Comparative company analysis
Discounted cash flow analysis
Preferred Stock valuation based on discounted value of future dividends
- Patricof considered an approach based on the public market for the Common
Stock and the Preferred Stock. The recent trading history of these
securities has been impacted by the April 16, 1996 announcement of the
Exchange Offer. (See Supplementary Materials for trading data).
- No dividends may be paid on the Preferred Stock until Datapoint attains a
positive book equity. Thus, the prices at which (i) Telebusiness is sold
and (ii) Debentures are repurchased greatly impact the timing of potential
dividend payments on the Preferred Stock.
DATAPOINT CORPORATION 20 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
VALUATION OF EQUITY BEFORE EXCHANGE OFFER
- Patricof considered two approaches, the comparative company approach and
the discounted cash flow approach.
<TABLE>
<CAPTION>
RESULTS OF EQUITY VALUATION ANALYSIS
Equity Value
Range
--------------------------
Comparative Company Low High
- ------------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Pro forma for sale of Autobusiness & Telebusiness
- Telebusiness proceeds of * $55.0 $65.0
- Telebusiness proceeds of * $42.5 $52.5
- Telebusiness proceeds of * $67.5 $77.5
No sale of Telebusiness $25.0 $35.0
Discounted Cash Flow 15% cost of equity 20% cost of equity 25% cost of equity
- ---------------------
-------------------------- -------------------------- -----------------------
PF for sale of Autobusiness & Telebusiness Low High Low High Low High
------------ ------------- ------------ ------------- ------------ ---------
- Telebusiness proceeds of * $55.0 $62.0 $42.0 $49.0 $33.0 - $40.0
- Telebusiness proceeds of * $42.0 $49.0 $29.0 $36.0 $21.0 - $28.0
- Telebusiness proceeds of * $66.0 $73.0 $54.0 $61.0 $46.0 - $53.0
DATAPOINT CORPORATION 21 CONFIDENTIAL
</TABLE>
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
VALUE OF EQUITY BEFORE EXCHANGE OFFER (CONTINUED)
- We performed comparative company analysis under two scenarios: (i)
assuming the sale of Telebusiness for net proceeds of between *
and the repurchase of Debentures at 80% of face value using the
proceeds plus $10 million of cash on hand, and (ii) assuming no sale of
Telebusiness. The comparative company valuation is higher in (i) above, as
the application of comparative company multiples to the estimated 1996
revenue, EBITDA and assets of Telebusiness generates less value than
Datapoint expects to realize from the sale of Telebusiness. The repurchase
of debentures at a discount in (i) above further increases equity value.
- The discounted cash flow analysis assumes the sale of Telebusiness and
repurchase of debentures as outlined above. If Telebusiness were not sold,
it is uncertain whether the higher debt level would be offset by higher
profits of Datapoint due to Telebusiness.
DATAPOINT CORPORATION 22 CONFIDENTIAL
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH
COMPARATIVE COMPANY SELECTION CRITERIA
- Listed in OneSource database with a primary SIC code of 7373:
"Establishments primarily engaged in developing or modifying computer
software and packaging or bundling the software with purchased computer
hardware to create and market an integrated system for specific
application. Establishments in this industry must provide the following
services:
(i) development or modification of computer software;
(ii) marketing of purchased computer hardware;
(iii) involvement in all phases of systems development from
design through installation."
- Revenues between $25 million and $500 million.
- Negative net income before extraordinary items (based on GAAP) for at
least three of the last five fiscal years.
- Traded on a major exchange or NASDAQ.
- Company not the subject of an ancillary transaction such as a takeover or
going private deal. (One potential comparative, New Image Industries, Inc.,
was eliminated from the group because it completed a significant
acquisition on May 31, 1996 and did not release pro forma operating
results.)
- U.S. company.
DATAPOINT CORPORATION 23 CONFIDENTIAL
<PAGE>
Patricof & Co. Capital Corp.
<TABLE>
COMPARATIVE COMPANY APPROACH (CONTINUED)
COMPARATIVE COMPANY DESCRIPTIONS
<CAPTION>
COMPANY LTM REV. BUSINESS DESCRIPTION
<S> <C> <C>
Consilium, Inc. $34.3 million Consilium is a leading supplier of manufacturing execution software, and offers related
software maintenance and consulting. Its software is designed to assist manufacturing
companies in controlling manufacturing processes. Consilium is the leader in this field.
Its WorkStream product line consists of 24 integrated software modules sharing a common
database and user interface. A WorkStream system monitors and controls manufacturing's five
key elements during the manufacturing process: materials, equipment, personnel,
specifications and facilities. Consilium's FlowStream product line was designed to
complement the WorkStream product line by extending the benefits of its plant floor
management software to process manufacturers. FlowStream supports best practices for
manufacturers in the pharmaceutical, medical device and chemical industries. Products are
marketed through a direct sales force and distributors in the U.S., Japan, South Korea,
Taiwan, Southeast Asia, Western Europe and Israel.
Control Data $403.0 Control Data Systems is a systems integrator that develops and implements open systems
Systems, Inc. million solutions for customers in technical, government and commercial markets worldwide. The
principal application of the company's systems is for corporation-wide management of data.
The company develops custom solutions based on hardware, software and peripherals available
from its growing group of open systems technology partners and suppliers. The company
integrates computer solutions to business-specific problems in manufacturing design,
network communications and database management. The company is not captive to a particular
product set or technology, and is thus allowed to work in a multi-vendor environment
without bias. Revenue contributions in 1995 from hardware products, software and services,
and maintenance and support were 45%, 38% and 17%, respectively. The company completed the
divestiture of seven international subsidiaries in October 1995, reducing revenue by nearly
$100 million. The divestiture was part of the company's strategy to move away from
proprietary systems and develop its systems integration business.
DATAPOINT CORPORATION 24 CONFIDENTIAL
</TABLE>
<PAGE>
Patricof & Co. Capital Corp.
<TABLE>
COMPARATIVE COMPANY APPROACH (CONTINUED)
COMPARATIVE COMPANY DESCRIPTIONS (CONTINUED)
<CAPTION>
COMPANY LTM REV. BUSINESS DESCRIPTION
<S> <C> <C>
IKOS Systems, $36.2 million IKOS Systems designs, develops, manufactures, markets and supports high-performance
Inc. hardware-assisted systems for simulation of integrated circuits (ICs) and IC-based
electronic systems. IKOS specializes in the Electronic Design Automation (EDA) market. Its
products are used by designers of electronic systems to determine whether a system design
functions properly prior to incurring the cost and time to build the actual system. The
company sells its products to a broad range of customers in the communications,
semiconductor, multimedia/graphics, computer, aerospace and consumer electronics
industries. Its direct sales force and distribution network cover North America, Europe and
Asia.
Rational $91.1 million Rational Software is a software development company. It develops, markets and supports a
Software comprehensive solution for developing and managing complex software systems. It provides an
Corporation integrated family of software tools that spans major phases of the software development
process, from initial graphical object modeling of business processes such as order
processing and system requirements for products such as telecommunication switching
systems, through detailed design, coding, compilation, delivery and maintenance. These
products are designed for use with industry-standard hardware platforms and operating
systems. In addition, the company provides a broad range of technical consulting, training
and support services.
DATAPOINT CORPORATION 25 CONFIDENTIAL
</TABLE>
<PAGE>
Patricof & Co. Capital Corp.
<TABLE>
COMPARATIVE COMPANY APPROACH (CONTINUED)
COMPARATIVE COMPANY DESCRIPTIONS (CONTINUED)
<CAPTION>
COMPANY LTM REV. BUSINESS DESCRIPTION
- ------- -------- --------------------
<S> <C> <C>
Structural Dynamics $240.8 SDRC is a leading international supplier of mechanical design automation software and
Research Corporation million engineering services used by automotive, aerospace and industrial manufacturers for the
design, analysis, testing and manufacturing of sophisticated mechanical products. The
company's software and services are intended to reduce product development time and costs
and to improve product quality by enabling customers to optimize product designs prior to
production. Software products are sold to end-users primarily through a direct sales force,
and also through original equipment manufacturers, distributors, value-added resellers and
hardware suppliers.
Sulcus Computer $45.9 Sulcus develops, manufactures, markets and installs microcomputer systems designed to
Corporation million automate the creation, handling, storage and retrieval of information and documents. The
company designs its systems primarily for the hospitality and real estate industries and to
a lesser extent, the legal profession. Sulcus' sales practices are currently systems
oriented (rather than individual sales of hardware or software) toward the vertical
marketing of its integrated products. The company's systems are offered together with full
services training, maintenance and support, and have been installed throughout North and
South America, Europe, Africa, Asia and Australia.
Source: Company reports and S&P tearsheets.
DATAPOINT CORPORATION 26 CONFIDENTIAL
</TABLE>
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
DATAPOINT'S PERFORMANCE RELATIVE TO THE COMPARATIVE GROUP
. Relative Performance of Datapoint to the universe of Comparatives:
Size: Slightly larger than the median of the group based on assets,
revenues, and EBITDA;
Growth: Lower than the median of the group based on revenue and EBITDA
growth;
Margins: Significantly lower gross margins than the median of the
Comparatives for all periods, EBITDA and operating margins
for the most recent period are near the median for the
Comparatives;
Liquidity: Significantly lower than the median of the Comparatives;
Leverage: Significantly higher than the Comparatives.
Datapoint Corporation 27 Confidential
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
DATAPOINT'S PERFORMANCE RELATIVE TO THE COMPARATIVE GROUP
. Datapoint is substantially less profitable than the median of the
Comparatives on a gross margin and earnings basis. A number of the
Comparatives are software design companies, and have gross margins of 70%
or more and EBITDA margins of 10% to 20%.
. Two of the Comparatives are primarily involved in developing and marketing
integrated systems. These are Control Data Systems, Inc. ("Control
Data") and Sulcus Computer Corporation ("Sulcus").
. Among the Comparatives, Control Data is the most similar to Datapoint in
operations and in financial performance:
(i) Control Data is "transitioning from a developer and manufacturer
of proprietary mainframe computer systems to a software and services
provider focused on enterprise integration and product design and
information services".(a)
(ii) Control Data is primarily involved in integrating the information
processing systems of a corporation, and allowing corporate-wide access
to data. Control Data acts as a system integrator, providing the
expertise to put such a system in place using a variety of third-party
hardware and software platforms.
(iii) Control Data's customers are large corporations.
(iv) Control Data markets its systems internationally and in the U.S.
(v) Control Data's gross margin and EBITDA margin are similar to
those of Datapoint.
. Sulcus is focused on a very specific niche within the real estate and
hospitality industries, and does not sell primarily to large corporations.
It sells proprietary products, not designed to work with open systems.
(a) Control Data 10-Q dated March, 1996.
Datapoint Corporation 28 Confidential
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
TOTAL ASSETS (A)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Datapoint Corporation PF
Datapoint Corporation
Median of Comparative
Group
Sulcus Computer
Corporation
Structural Dynamics
Research Corporation [GRAPH]
Rational Software
Corporation
IKOS Systems, Inc.
Control Data Systems, Inc.
Consilium, Inc.
$0.0 $50.0 $100.0 $150.0 $200.0 $250.0
</TABLE>
TOTAL ASSETS
Consilium, Inc. $28.9
Control Data Systems, Inc. 218.0
IKOS Systems, Inc. 32.8
Rational Software Corporation 85.7
Structural Dynamics Research Corporation 119.0
Sulcus Computer Corporation 45.6
Median of Comparative Group 65.6
Datapoint Corporation 90.2
Datapoint Corporation PF 84.4
(a) Based on total assets in most recent period ended.
Note: Datapoint Corporation PF reflects projected 1996 results of the
Autobusiness restructuring.
Source: Company reports.
Datapoint Corporation 29 Confidential
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
LTM SALES
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Datapoint Corporation PF
Datapoint Corporation
Median of Comparative
Group
Sulcus Computer
Corporation
Structural Dynamics [GRAPH]
Research Corporation
Rational Software
Corporation
IKOS Systems, Inc.
Control Data Systems, Inc.
Consilium, Inc.
$0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 $350.0 $400.0 $450.0
</TABLE>
LTM SALES
Consilium, Inc. $34.3
Control Data Systems, Inc. 403.0
IKOS Systems, Inc. 36.2
Rational Software Corporation 91.1
Structural Dynamics Research Corporation 240.8
Sulcus Computer Corporation 45.9
Median of Comparative Group 68.5
Datapoint Corporation 184.7
Datapoint Corporation PF 158.2
Note: Datapoint PF figures are estimated 1996, adjusted for restructurings and
non-recurring expenses, pro forma for sale of Autobusiness.
Source: Company reports.
Datapoint Corporation 30 Confidential
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
LTM EBITDA
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Datapoint Corporation PF
Datapoint Corporation
Median of Comparative
Group
Sulcus Computer [GRAPH]
Corporation
Structural Dynamics
Research Corporation
Rational Software
Corporation
IKOS Systems, Inc.
Control Data Systems, Inc.
Consilium, Inc.
$0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0
</TABLE>
LTM EBITDA
Consilium, Inc. $1.3
Control Data Systems, Inc. 11.8
IKOS Systems, Inc. 7.2
Rational Software Corporation 8.7
Structural Dynamics Research Corporation NM
Sulcus Computer Corporation 5.7
Median of Comparative Group 7.2
Datapoint Corporation 11.5
Datapoint Corporation PF 15.0
Note: EBITDA refers to earnings before interest, taxes and depreciation and
amortization. In this analysis, EBITDA is defined as operating income before
depreciation and amortization.
Note: Structural Dynamics Research Corp. did not provide restated EBITDA
information after the acquisition of CAMAX Manufacturing Technologies in
June 1996.
Note: Datapoint Corporation PF reflects projected 1996 results of the
Autobusiness restructuring.
Source: Company reports.
Datapoint Corporation 31 Confidential
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
RELATIVE REVENUE GROWTH
300
HIGH
250 LOW/CONTROL DATA
MEDIAN
200 Datapoint Corporation
150 [GRAPH]
100
50
0
1991 1992 1993 1994 1995 LTM 1996P/PF
<TABLE>
<CAPTION>
RELATIVE REVENUE GROWTH 1991 1992 1993 1994 1995 LTM 1996P/PF
---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consilium, Inc. 100 101 104 102 121 126
Control Data Systems, Inc. 100 90 79 91 79 70 59
IKOS Systems, Inc. 100 92 109 143 189 240
Rational Software Corporation 100 118 117 121 151 151
Structural Dynamics Research Corporation NA NA 100 112 135 145
Sulcus Computer Corporation 100 206 277 243 259 259
HIGH 100 206 277 243 259 259
LOW/CONTROL DATA 100 90 79 91 79 70 59
MEDIAN 100 101 107 116 143 148
Datapoint Corporation 100 96 78 65 66 70 60
</TABLE>
Note: 1996P/PF reflects 1996 results for Control Data Systems (based on
research report by Cowen & Co.) and pro forma results for Datapoint based
on the restructuring of its Autobusiness.
Source: Company reports.
Datapoint Corporation 32 Confidential
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
GROSS MARGIN PERCENTAGE
80.0%
HIGH
70.0% LOW/CONTROL DATA
MEDIAN
60.0% Datapoint Corporation PF
50.0%
40.0%
30.0% [GRAPH]
20.0%
10.0%
0.0%
1991 1992 1993 1994 1995 LTM 1996PF
<TABLE>
<CAPTION>
GROSS MARGIN PERCENTAGE 1991 1992 1993 1994 1995 LTM 1996P/PF
---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consilium, Inc. 78.0% 74.6% 72.7% 74.0% 76.5% 75.6%
Control Data Systems, Inc. 41.1% 38.0% 36.8% 27.0% 27.4% 28.9%
IKOS Systems, Inc. 74.7% 71.1% 61.7% 72.6% 75.0% 76.9%
Rational Software Corporation 65.4% 69.6% 64.0% 65.6% 70.9% 70.9%
Structural Dynamics Research Corporation NM NM 70.5% 72.1% 71.0% 70.6%
Sulcus Computer Corporation 65.4% 57.9% 53.2% 52.3% 58.8% 59.0%
HIGH 78.0% 74.6% 72.7% 74.0% 76.5% 76.9%
LOW/CONTROL DATA 41.1% 38.0% 36.8% 27.0% 27.4% 28.9%
MEDIAN 65.4% 69.6% 62.8% 68.9% 70.9% 70.8%
Datapoint Corporation PF 41.1% 39.9% 41.5% 37.9% 32.9% 32.3% 30.8%
</TABLE>
Note: Datapoint Corporation PF reflects projected 1996 results of the
Autobusiness restructuring.
Source: Company reports.
Datapoint Corporation 33 Confidential
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
EBITDA MARGIN
20.0%
Control Data Systems, Inc.
10.0% HIGH
LOW
0.0% MEDIAN
Datapoint Corporation
- -10.0%
- -20.0%
- -30.0%
- -40.0%
1991 1992 1993 1994 1995 LTM 1996P/PF
<TABLE>
<CAPTION>
EBITDA MARGIN 1991 1992 1993 1994 1995 LTM 1996P/PF
---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consilium, Inc. 1.1% -7.8% -8.0% -4.9% 11.1% 3.9%
Control Data Systems, Inc. 3.6% 4.9% 5.1% 3.0% 3.0% 2.9% 5.9%
IKOS Systems, Inc. -23.9% -10.5% -37.8% 13.1% 16.3% 20.0%
Rational Software Corporation 6.7% 13.0% 8.9% 11.7% 9.6% 9.6%
Structural Dynamics Research Corporation NA NA NA NA NA NA
Sulcus Computer Corporation 18.9% 15.4% 9.5% -2.4% 11.7% 12.3%
HIGH 18.9% 15.4% 9.5% 13.1% 16.3% 20.0%
LOW -23.9% -10.5% -37.8% -4.9% 3.0% 2.9%
MEDIAN 3.6% 4.9% 5.1% 3.0% 11.1% 9.6%
Datapoint Corporation 12.0% 7.7% 7.6% -1.2% 0.1% 6.2% 9.5%
</TABLE>
Note: Structural Dynamics Research Corp. did not provide restated EBITDA
information after the acquisition of CAMAX Manufacturing Technologies in
June 1996.
Note: 1996P/PF reflects projected 1996 results for Control Data Systems
(based on research report by Cowen & Co.) and pro forma results for Datapoint
based on the restructuring of its Autobusiness.
Source: Company reports.
Datapoint Corporation 34 Confidential
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
DEBT-TO-CAPITAL RATIO
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Datapoint Corporation PF
Datapoint Corporation
Median of Comparative
Group
Sulcus Computer
Corporation
Structural Dynamics [GRAPH]
Research Corporation
Rational Software
Corporation
IKOS Systems, Inc.
Control Data Systems, Inc.
Consilium, Inc.
$-10.0% 10.0% 30.0% 50.0% 70.0% 90.0% 110.0% 130.0% 150.0%
</TABLE>
DEBT-TO-CAPITAL RATIO (a)
Consilium, Inc. 12.3%
Control Data Systems, Inc. 1.0%
IKOS Systems, Inc. 5.2%
Rational Software Corporation 1.3%
Structural Dynamics Research Corporation 1.6%
Suleus Computer Corporation 23.2%
Median of Comparative Group 3.4%
Datapoint Corporation 971.0%
Datapoint Corporation PF 301.9%
(a) Ratio based on most recent reporting period. Calculated as book value of
total debt divided by the sum of the book value of total debt and equity.
Note: X-axis scale does not extend to reflect high level of Datapoint and
Datapoint PF debt.
Note: Datapoint Corporation PF reflects projected 1996 results of the
Autobusiness restructuring.
Source: Company reports.
Datapoint Corporation 35 Confidential
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
COMPARATIVE COMPANY VALUATION
Of the universe of Comparatives, Control Data most resembles Datapoint. We
therefore determined that the investor appraisal ratios exhibited by Control
Data should form the basis for the valuation of Datapoint. The following is the
calculation of the total enterprise value ("TEV") of Control Data:
CALCULATION OF CONTROL DATA TEV
($ in millions)
Control Data freely-traded minority interest equity value $270.6
Plus: Debt 0.9
Less: Cash (79.5)
=============
Control Data (TEV) $192.0
=============
. Projected 1996 earnings figures have been generated by research analysts
are publicly available. Investor appraisal ratios based on projected
figures, rather than historical figures, are more appropriate due to the
pro forma nature of the Datapoint results to which they will be applied.
. Investor appraisal ratios for Control Data based on projected figures are
as follows:
CALCULATION OF CONTROL DATA INVESTOR APPRAISAL RATIOS
($ in millions)
---------------------------------------
Revenue EBITDA Assets
------------ ------------- ------------
Control Data projected 1996 results $340.0 $20.0 $218.0
TEV/projected results 0.56x 9.6x 0.88x
Datapoint Corporation 36 Confidential
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
COMPARATIVE COMPANY VALUATION CONCLUSION
. A discount of 20% is applied to the multiples exhibited by Control Data
due to Datapoint's smaller size, higher leverage and negative equity value,
offset by the potential for significant profits related to its patents and
patent litigation, and by the potential benefits of its net operating loss
carryforwards (which, at $157 million as of 12/31/95, are somewhat larger
than those of Control Data, although due to the international nature of the
revenues of these two companies it is uncertain how much of these operating
loss carryforwards will be utilized).
. The following tables present the values obtained by applying the resulting
multiples to the estimated FY 1996 results, adjusted for cost reductions
and non-recurring items, pro forma for the sale of Autobusiness and
assuming the sale of Telebusiness for net proceeds of * and *, and the use
of these proceeds plus $10 million of cash on hand to retire debentures at
80% of face value.
CALCULATION OF DATAPOINT EQUITY VALUE - TELEBUSINESS SOLD FOR
* ($ in millions)
TEV as a multiple of:
-------------------------------
Revenue EBITDA Assets
--------- -------- --------
Datapoint (a) $113.7 $13.7 $68.2
Control Data multiple 0.6x 9.6x 0.9x
Premium/(discount) -20% -20% -20%
--------- -------- --------
Multiple applied to Datapoint results 0.5x 7.7x 0.7x
--------- -------- --------
Freely-traded minority interest TEV 51.4 105.4 48.1
Less: Debt (31.3) (31.3) (31.3)
Plus: Cash 12.2 12.2 12.2
========= ======== ========
Freely-traded minority interest equity value $32.3 $86.4 $29.0
========= ======== ========
- -------------------------------
(a) Estimated FY 1996 adjusted for cost reductions and non-recurring expenses,
pro forma for the sale of Autobusiness and Telebusiness.
. The equity value range selected based on this analysis is $55 to $65
million.
Datapoint Corporation 37 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
CALCULATION OF DATAPOINT EQUITY VALUE - TELEBUSINESS SOLD FOR *
($ in millions)
TEV as a multiple of:
-----------------------------
Revenue EBITDA Assets
--------- -------- --------
Datapoint (a) $113.7 $13.7 $68.2
Control Data multiple 0.6x 9.6x 0.9x
Premium/(discount) -20% -20% -20%
--------- -------- --------
Multiple applied to Datapoint results 0.5x 7.7x 0.7x
--------- -------- --------
Freely-traded minority interest TEV 51.4 105.4 48.1
Less: Debt (43.8) (43.8) (43.8)
Plus: Cash 12.2 12.2 12.2
========= ======== ========
Freely-traded minority interest equity value $19.8 $73.9 $16.5
========= ======== ========
- -------------------------------
(a) Estimated FY 1996 adjusted for cost reductions and non-recurring expenses,
pro forma for the sale of Autobusiness and Telebusiness.
. The equity value range selected based on this analysis is $42.5 to $52.5
million.
Datapoint Corporation 38 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
CALCULATION OF DATAPOINT EQUITY VALUE - TELEBUSINESS SOLD FOR *
($ in millions)
TEV as a multiple of:
------------------------------
Revenue EBITDA Assets
--------- -------- --------
Datapoint (a) $113.7 $13.7 $68.2
Control Data multiple 0.6x 9.6x 0.9x
Premium/(discount) -20% -20% -20%
--------- -------- ---------
Multiple applied to Datapoint results 0.5x 7.7x 0.7x
--------- -------- ---------
Freely-traded minority interest TEV 51.4 105.4 48.1
Less: Debt (18.8) (18.8) (18.8)
Plus: Cash 12.2 12.2 12.2
========= ======== =========
Freely-traded minority interest equity value $44.8 $98.9 $41.5
========= ======== =========
- -------------------------------
(a) Estimated FY 1996 adjusted for cost reductions and non-recurring expenses,
pro forma for the sale of Autobusiness and Telebusiness.
. The equity value range selected based on this analysis is $67.5 to $77.5
million.
Datapoint Corporation 39 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
COMPARATIVE COMPANY APPROACH (CONTINUED)
CONCLUSION - NO SALE OF TELEBUSINESS
. The following table presents the values obtained by applying the resulting
multiples to the estimated FY 1996 results, adjusted for cost reductions
and non-recurring items and pro forma for the sale of Autobusiness. It is
possible that the sale of Telebusiness will generate more value than the
application of the multiples used in this analysis would imply.
CALCULATION OF DATAPOINT EQUITY VALUE - TELEBUSINESS NOT SOLD
($ in millions)
TEV as a multiple of:
-----------------------------
Revenue EBITDA Assets
--------- -------- --------
Datapoint (a) $158.2 $15.0 $84.4
Control Data multiple 0.56x 9.6x 0.9x
Premium/(discount) -20% -20% -20%
--------- -------- --------
Multiple applied to Datapoint results 0.5x 7.7x 0.7x
--------- -------- --------
Freely-traded minority interest TEV 71.5 114.9 59.5
Less: Debt (81.3) (81.3) (81.3)
Plus: Cash 16.8 16.8 16.8
========= ======== ========
Freely-traded minority interest equity value $7.0 $50.4 ($5.0)
========= ======== ========
- -------------------------------
(a) Estimated FY 1996 adjusted for cost reductions and non-recurring expenses,
pro forma for the sale of Autobusiness.
. The equity value range selected based on this analysis is $25 to $35
million.
Note: The difference in TEV between the "Telebusiness Sold" and "Telebusiness
Not Sold" cases results from the fact that in the "Telebusiness Not Sold" case,
Telebusiness revenue, EBITDA and assets, when multiplied by the comparative
company multiples, yield a smaller value than the * in sale proceeds assumed
in the "Telebusiness Sold" case. The difference in equity value is a
combination of the difference in TEV and the impact of (i) the repurchase of
debentures at a discount, and (ii) the cash which results from the removal of
Telebusiness from the balance sheet (and effective liquidation of a portion
of Telebusiness working capital).
Datapoint Corporation 40 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
LIQUIDATION VALUE APPROACH
. The Company does not plan a liquidation. In a liquidation, the Preferred
Stock has a preference value of $20 per share, or $37.4 million.
. Liquidation could imply two very different events:
(i) The sale of the fixed assets and working capital of the company to
realize the value of individual assets (ii) The sale of the assets of
the Company as a going concern, including the goodwill associated with
the Company's business.
. In the first instance the value of the assets after satisfying the
liabilities is likely to be negative.
. A sale of the Company as a going concern should result in a value similar
to that discussed in the "Comparative Company Valuation", above, as that
valuation considers the value attributable to the Company and to its most
significant non-income producing asset, the patent litigation.
Datapoint Corporation 41 Confidential
<PAGE>
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
. We performed a discounted cash flow valuation of Datapoint based on a
discounted cash flow analysis that: - Discounts cumulative stream of
free cash flow to the present;
- Assumes a terminal value based on capitalized earnings or cash flow
in the future.
. Management's projections formed the basis of the analysis. We used three
scenarios:
(i) Management's base case of 0% sales growth, constant gross margins
(equal to 1996 pro forma gross margins); (ii) A downside case of 5%
annual sales growth, with constant gross margins; (iii) An upside case
of 10% annual sales decline, with constant gross margins.
. The sale of Telebusiness for net proceeds of * was assumed.
. In all scenarios it was assumed that the Company used the proceeds of the
sale of Telebusiness and $10 million of cash on hand to repurchase
debentures at an average price of 80% of face value.
. Key assumptions:
(i) Terminal year 2001;
(ii) Datapoint's calculated weighted average cost of capital ("WACC")
is 18.5%;
(iii) A range of cost of equity of 15%, 20% and 25% is used to
discount Datapoint's free cash flow and terminal value.
These costs of equity imply a WACC of 13.3%, 17.3% and 21.3%,
respectively.
(iii) Terminal multiple of 2001 EBITDA in a range of 6.0x, 7.0x and
8.0x;
(iv) Perpetuity terminal value calculated as 2001 free cash flow
divided by the discount rate; (v) Average of terminal multiple value
and perpetuity value used as terminal value; (vi) Utilization of
Datapoint's NOL results in taxes at 33% rather than the statutory rate
in the projected years.
Datapoint Corporation 42 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
SUMMARY PROJECTED FINANCIAL INFORMATION - BASE CASE, TELEBUSINESS SOLD FOR
*
($ in millions)
<TABLE>
<CAPTION>
Projected
----------------------------------------------------------------
PF 1996 1997 1998 1999 2000 2001
------------ ------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $113.7 $113.7 $113.7 $113.7 $113.7 $113.7
Gross profit $34.9 $34.9 $34.9 $34.9 $34.9 $34.9
Gross margin % 31% 31% 31% 31% 31% 31%
EBITDA $13.7 $13.7 $13.7 $13.7 $13.7 $13.7
EBITDA margin % 12% 12% 12% 12% 12% 12%
Income before extraordinary items $2.8 $3.7 $4.2 $4.7 $5.1 $5.5
Total assets $68.2 $70.3 $73.6 $77.5 $81.8 $86.5
Total debt * $31.3 $31.3 $31.3 $31.3 $31.3
Total cash and equivalents $12.2 $16.9 $22.4 $27.8 $33.3 $38.7
Book value of equity * ($10.6) ($6.4) ($1.8) $3.3 $8.8
</TABLE>
. Datapoint achieves a positive net worth in fiscal year 2000.
- Assuming the sale of Telebusiness for * in net proceeds
and the use of these proceeds plus $10 million of cash on hand to
repurchase debentures at 80% of face, positive net worth is attained
in 2003.
- Assuming the sale of Telebusiness for * in net proceeds
and the use of these proceeds plus $10 million of cash on hand to
repurchase debentures at 80% of face, positive net worth is attained
in 1997.
Datapoint Corporation 43 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
SUMMARY PROJECTED FINANCIAL INFORMATION -
DOWNSIDE CASE, TELEBUSINESS SOLD FOR *
($ in millions)
<TABLE>
<CAPTION>
Projected
----------------------------------------------------------------
PF 1996 1997 1998 1999 2000 2001
------------ ------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $113.7 $108.0 $102.6 $97.5 $92.6 $88.0
Gross profit $34.9 $33.2 $31.5 $29.9 $28.4 $27.0
Gross margin % 31% 31% 31% 31% 31% 31%
EBITDA $13.7 $12.5 $11.4 $10.3 $9.3 $8.3
EBITDA margin % 12% 12% 11% 11% 10% 9%
Income before extraordinary items $2.8 $2.9 $2.6 $2.3 $2.0 $1.7
Total assets $68.2 $68.2 $68.9 $69.3 $69.5 $69.4
Total debt * $31.3 $31.3 $31.3 $31.3 $31.3
Total cash and equivalents $12.2 $16.2 $20.3 $23.6 $26.1 $27.9
Book value of equity * ($11.4) ($8.8) ($6.5) ($4.5) ($2.8)
</TABLE>
. In the downside case Datapoint achieve a positive net worth in 2004.
- Assuming the sale of Telebusiness for * in net proceeds
and the use of these proceeds plus $10 million of cash on hand to
repurchase debentures at 80% of face, positive net worth is not
attained during the projected period.
- Assuming the sale of Telebusiness for * in net proceeds
and the use of these proceeds plus $10 million of cash on hand to
repurchase debentures at 80% of face, positive net worth is attained
in 1997.
.
Datapoint Corporation 44 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
SUMMARY PROJECTED FINANCIAL INFORMATION -
UPSIDE CASE, TELEBUSINESS SOLD FOR *
($ in millions)
<TABLE><CAPTION>
Projected
----------------------------------------------------------------
PF 1996 1997 1998 1999 2000 2001
------------ ------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $113.7 $125.1 $137.6 $151.4 $166.5 $183.2
Gross profit $34.9 $38.4 $42.2 $46.5 $51.1 $56.2
Gross margin % 31% 31% 31% 31% 31% 31%
EBITDA $13.7 $16.2 $18.9 $21.9 $25.4 $29.2
EBITDA margin % 12% 13% 14% 14% 15% 16%
Income before extraordinary items $2.8 $5.3 $7.7 $10.3 $13.1 $16.3
Total assets $68.2 $74.3 $83.8 $96.2 $111.7 $130.6
Total debt * $31.3 $31.3 $31.3 $31.3 $31.3
Total cash and equivalents $12.2 $18.2 $26.7 $37.3 $50.3 $65.9
Book value of equity * ($9.0) ($1.3) $9.0 $22.1 $38.3
</TABLE>
. In the upside case Datapoint achieves a positive net worth in fiscal year
1999.
- Assuming the sale of Telebusiness for * in net
proceeds and use of these proceeds plus $10 million in cash on
hand to repurchase debentures at 80% of face, positive net worth
is attained in 2000.
- Assuming the sale of Telebusiness for * in net proceeds
and the use of these proceeds plus $10 million in cash on hand to
repurchase debentures at 80% of face, positive net worth is attained
in 1997.
Datapoint Corporation 45 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
CALCULATION OF DATAPOINT WEIGHTED AVERAGE COST OF CAPITAL
<TABLE>
<CAPTION>
CALCULATION OF COST OF EQUITY
USING CAPITAL ASSET PRICING MODEL WEIGHTED AVERAGE COST OF CAPITAL
- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C>
Beta (a) 1.35 Assumed constant debt-to-value ratio (f) 20.0%
Market risk premium ("Rm - Rf") (b) 7.1%
Small company risk premium ("Rs") (c) 5.3% Assumed after tax cost of debt (g) 6.4%
Risk-free rate ("Rf") (d) 6.6%
------------
Cost of equity ("Ke") (e) 21.5% Cost of equity per CAPM 21.5%
============
Weighted average cost of capital 18.5%
============
</TABLE>
- ------------------------------------------
(a) Control Data Corp.'s Beta is used as a proxy for Datapoint's Beta after the
sale of Telebusiness and reduction of leverage. Datapoint's Beta is presently
1.29. (b) Common stock total returns minus intermediate-term government bond
total returns for 1926-1992, based on mean returns as derived by Ibbotson &
Associates. Intermediate-term government bond is measured by Ibbotson using a
one-bond portfolio with a maturity of five years. (c) Ibbotson & Associates
small stock returns less total common stock returns. (d) Represents the yield on
a five year government bond on July 12, 1995 (Source: Bloomberg). (e) Calculated
using CAPM, where Ru = Rf +Rs+ (B * (Rm - Rf)). (f) Chosen based on the low (0%)
value ratio of Control Data Corp. (g) Adjusted for tax shield at a tax rate of
33%, which assumes the utilization of some NOLs. Cost of debt is assumed to be
9.5%, based on Datapoint's current borrowing costs.
Datapoint Corporation 46 Confidential
<PAGE>
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
EQUITY VALUATION MATRICES
- -----------------------------------------------------------------------------
BASE CASE - TELEBUSINESS SOLD FOR *
Terminal Value EBITDA Multiple
-----------------------------------------------
6.0x 7.0x 8.0x
--------------- --------------- ---------------
Discount 13.3% $46.9 $50.6 $54.3
Rate 15.3% 40.9 44.3 47.7
17.3% 36.0 39.1 42.2
19.3% 31.8 34.7 37.5
21.3% 28.2 30.9 33.5
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
DOWNSIDE CASE - TELEBUSINESS SOLD FOR *
Terminal Value EBITDA Multiple
-----------------------------------------------
6.0x 7.0x 8.0x
--------------- --------------- ---------------
Discount 13.3% $24.1 $26.4 $28.6
Rate 15.3% 20.6 22.7 24.7
17.3% 17.7 19.6 21.5
19.3% 15.3 17.0 18.7
21.3% 13.1 14.7 16.3
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
UPSIDE CASE - TELEBUSINESS SOLD FOR *
Terminal Value EBITDA Multiple
-----------------------------------------------
6.0x 7.0x 8.0x
--------------- --------------- ---------------
Discount 13.3% $109.3 $117.1 $124.9
Rate 15.3% 96.2 103.4 110.6
17.3% 85.6 92.2 98.7
19.3% 76.7 82.7 88.8
21.3% 69.1 74.6 80.2
- -----------------------------------------------------------------------------
Datapoint Corporation 47 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION (CONTINUED)
TELEBUSINESS SALE PRICE SENSITIVITY
- -----------------------------------------------------------------------------
BASE CASE - TELEBUSINESS SOLD FOR *
Terminal Value EBITDA Multiple
-----------------------------------------------
6.0x 7.0x 8.0x
--------------- --------------- ---------------
Discount 13.3% $34.4 $38.1 $41.8
Rate 15.3% 28.4 31.8 35.2
17.3% 23.5 26.6 29.7
19.3% 19.3 22.2 25.0
21.3% 15.7 18.4 21.0
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
BASE CASE - TELEBUSINESS SOLD FOR *
Terminal Value EBITDA Multiple
-----------------------------------------------
6.0x 7.0x 8.0x
--------------- --------------- ---------------
Discount 13.3% $59.4 $63.1 $66.8
Rate 15.3% 53.4 56.8 60.2
17.3% 48.5 51.6 54.7
19.3% 44.3 47.2 50.0
21.3% 40.7 43.4 46.0
- -----------------------------------------------------------------------------
Note:
- ----
Matrices on these pages assume a range of 15% to 25% cost of equity which
results in a weighted average cost of capital range of 13.3% to 21.3%.
Datapoint Corporation 48 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
DISCOUNTED CASH FLOW VALUATION
RESULTS OF DISCOUNTED CASH FLOW VALUATION
<TABLE>
<CAPTION>
Equity value range at Datapoint cost of equity of
--------------------------------------------------------------------------------
15% 20% 25%
-------------------------- -------------------------- --------------------------
Low High Low High Low High
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Telebusiness sold for * $55.0 $62.0 $42.0 $49.0 $33.0 - $40.0
Telebusiness sold for * $42.0 $49.0 $29.0 $36.0 $21.0 - $28.0
Telebusiness sold for * $66.0 $73.0 $54.0 $61.0 $46.0 - $53.0
</TABLE>
Note:
- ----
Value ranges chosen based on weighted average of management's base, downside and
upside cases.
Datapoint Corporation 49 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
VALUATION OF PREFERRED STOCK
The Preferred Stock was valued at the present value of the dividends in arrears
and future dividends, weighted for different projections scenarios. Datapoint
achieves a positive net worth in a different year in each of the nine projection
scenarios (base case projections with Telebusiness proceeds of * ; downside
case with Telebusiness proceeds of * ; and upside case at each level of
proceeds). The values which result from this analysis, at the different
Telebusiness sale prices and at different discount rates, are as follows:
RESULTS OF PREFERRED DISCOUNTED DIVIDEND VALUATION ANALYSIS
Value per share at discount rate of:
---------------------------------------
15% 20% 25%
------------ ------------- ------------
- Telebusiness sold for * $7.87 $6.54 $5.50
- Telebusiness sold for * $5.55 $4.28 $3.36
- Telebusiness sold for * $9.86 $9.44 $9.07
Datapoint Corporation 50 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
VALUATION OF PREFERRED STOCK BASED ON DIVIDENDS
. The sale of Telebusiness is critical to Datapoint's ability to attain a
positive net worth. If the Company does not attain a positive net worth, it
cannot pay dividends on the Preferred Stock. The Company plans to use the
proceeds of the sale of Telebusiness to repurchase debentures on the open
market. The repurchase of debentures at a discount would also increase net
worth.
. The following matrix illustrates the sensitivity of Datapoint's pro forma
1996 net worth to the sale price of Telebusiness and the percentage of face
value at which the Debentures are repurchased (this analysis assumes that
the net proceeds of the sale of Telebusiness plus $10 million of cash on
hand are utilized to repurchase Debentures).
NET WORTH GIVEN TELEBUSINESS PROCEEDS AND % OF FACE
($ in millions)
* * * * *
---------------------------------------------------------
70% ($21.5) ($7.2) $7.1 $21.4 $35.7
80% ($26.8) ($14.3) ($1.8) $10.7 $23.2
90% ($31.0) ($19.9) ($8.8) $2.3 $13.5
100% ($34.3) ($24.3) ($14.3) ($4.3) $5.7
Datapoint Corporation 51 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
VALUATION OF PREFERRED STOCK BASED ON DIVIDENDS (CONTINUED)
The following matrix contains the discounted value of the arrearages and
dividends per share of Preferred Stock at differing discount rates ranging
from 15% - 25% (a range which includes Datapoint's CAPM calculated cost of
equity of 21.5%). The column on the left indicates the year in which
Datapoint reaches a positive net worth, and is thus able to pay the
arrearage and begin paying dividends.
Dividends beginning in: Cost of equity
----------------------------------------
15.0% 20.0% 25.0%
------------ ------------- -------------
1997 $9.86 $9.44 $9.07
1998 $9.33 $8.56 $7.89
1999 $8.77 $7.72 $6.83
2000 $8.20 $6.91 $5.87
2001 $7.62 $6.16 $5.02
2002 $7.06 $5.47 $4.28
2003 $6.52 $4.84 $3.64
2004 $5.99 $4.26 $3.08
Datapoint Corporation 52 Confidential
<PAGE>
Patricof & Co. Capital Corp.
VALUATION OF PREFERRED STOCK BASED ON DIVIDENDS (CONTINUED)
. The following tables calculate the expected value of the Preferred Stock
given Telebusiness proceeds of *, * and *. The calculation is based on
the value of the Preferred Stock in each of management's base, downside
and upside projections at each level of proceeds, weighted at 60% for the
base case and 20% for the downside and upside cases. In the tables that
follow, the year in which Datapoint is projected to reach positive net
worth is stated in parentheses for each case.
PREFERRED STOCK VALUE - TELEBUSINESS PROCEEDS OF *
Cost of equity
----------------------------------------
15.0% 20.0% 25.0%
------------ ------------- -------------
Base case (2000) $8.20 $6.91 $5.87
Downside case (2004) $5.99 $4.26 $3.08
Upside case (1999) $8.77 $7.72 $6.83
Weighted
- --------
Base case (2000) $4.92 $4.15 $3.52
Downside case (2004) $1.20 $0.85 $0.62
Upside case (1999) $1.75 $1.54 $1.37
------------ ------------- -------------
Weighted value $7.87 $6.54 $5.50
============ ============= =============
Preferred shares outstanding 1.868 1.868 1.868
============ ============= =============
Aggregate value of Preferred Stock $14.7 $12.2 $10.3
============ ============= =============
Datapoint Corporation 53 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
VALUATION OF PREFERRED STOCK BASED ON DIVIDENDS (CONTINUED)
PREFERRED STOCK VALUE - TELEBUSINESS PROCEEDS OF *
Cost of equity
----------------------------------------
15.0% 20.0% 25.0%
------------ ------------- -------------
Base case (2003) $6.52 $4.84 $3.64
Downside case (never) $0.00 $0.00 $0.00
Upside case (2000) $8.20 $6.91 $5.87
Weighted
- --------
Base case (2000) $3.91 $2.90 $2.18
Downside case (2004) $0.00 $0.00 $0.00
Upside case (1999) $1.64 $1.38 $1.17
------------ ------------- -------------
Weighted value $5.55 $4.28 $3.36
============ ============= =============
Preferred shares outstanding 1.868 1.868 1.868
============ ============= =============
Aggregate value of Preferred Stock $10.4 $8.0 $6.3
============ ============= =============
Datapoint Corporation 54 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
VALUATION OF PREFERRED STOCK BASED ON DIVIDENDS (CONTINUED)
PREFERRED STOCK VALUE - TELEBUSINESS PROCEEDS OF *
Cost of equity
----------------------------------------
15.0% 20.0% 25.0%
------------ ------------- -------------
Base case (1997) $9.86 $9.44 $9.07
Downside case (1997) $9.86 $9.44 $9.07
Upside case (1997) $9.86 $9.44 $9.07
Weighted
- --------
Base case (2000) $5.91 $5.67 $5.44
Downside case (2004) $1.97 $1.89 $1.81
Upside case (1999) $1.97 $1.89 $1.81
------------ ------------- -------------
============ ============= =============
Weighted value $9.86 $9.44 $9.07
============ ============= =============
Preferred shares outstanding 1.868 1.868 1.868
============ ============= =============
Aggregate value of Preferred Stock $18.4 $17.6 $16.9
============ ============= =============
Datapoint Corporation 55 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
VALUATION OF PREFERRED STOCK
CONCLUSION
RESULTS OF PREFERRED DISCOUNTED DIVIDEND VALUATION ANALYSIS
Value per share at discount rate of:
-------------------------------------
15% 20% 25%
------------ ------------ -----------
- Telebusiness sold for * $7.87 $6.54 $5.50
- Telebusiness sold for * $5.55 $4.28 $3.36
- Telebusiness sold for * $9.86 $9.44 $9.07
Datapoint Corporation 56 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
CONCLUSION
. Management's projections assume the sale of Telebusiness and the use of
proceeds to repurchase debentures. These actions reduce the capital deficit
of Datapoint and, therefore, increase the present value of potential
dividend payments on the Preferred Stock. Assuming the net proceeds of the
sale are between * and *, and that the net proceeds plus $10 million in
cash on hand is used to repurchase debentures at 80% of face value, the
following table presents the per share values which result for the Common
Stock before the Exchange Offer.
<TABLE>
VALUE OF COMMON STOCK BEFORE EXCHANGE
($ in millions except per share amounts)
<CAPTION>
Net Proceeds from Telebusiness Sale
-------------------------------------------------------------------------------
* * *
-------------------------- -------------------------- -------------------------
Equity value range: Low High Low High Low High
------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Comparative company $42.5 $52.5 $55.0 $65.0 $67.5 $77.5
Discounted cash flow (20% cost of equity) 29.0 36.0 42.0 49.0 54.0 61.0
------------ ------------- ------------ ------------- ------------ ------------
Average equity value 35.8 44.3 48.5 57.0 60.8 69.3
Discounted dividend value
of Preferred Stock (20% cost of equity) 8.0 8.0 12.2 12.2 17.6 17.6
------------ ------------- ------------ ------------- ------------ ------------
Common equity value $27.7 $36.2 $36.3 $44.8 $43.1 $51.6
Common Stock outstanding 13.670 13.670 13.670 13.670 13.670 13.670
Value per share of Common Stock $2.03 $2.65 $2.65 $3.28 $3.15 $3.78
============ ============= ============ ============= ============ ============
</TABLE>
Datapoint Corporation 57 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
CONCLUSION (CONTINUED)
The following table presents the calculation of value per share of Common
Stock after the Exchange Offer, assuming the sale of Telebusiness:
VALUE OF COMMON STOCK AFTER EXCHANGE
($ in millions except per share amounts)
<TABLE>
<CAPTION>
Net Proceeds from Telebusiness Sale
-------------------------------------------------------------------------------
* * *
-------------------------- -------------------------- -------------------------
Equity value range: Low High Low High Low High
------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Comparative company $42.5 $52.5 $55.0 $65.0 $67.5 $77.5
Discounted cash flow (20% cost of equity) 29.0 36.0 42.0 49.0 54.0 61.0
------------ ------------- ------------ ------------- ------------ ------------
Average equity value $35.8 $44.3 $48.5 $57.0 $60.8 $69.3
Common Stock outstanding 13.670 13.670 13.670 13.670 13.670 13.670
Preferred @ 3.25:1 6.071 6.071 6.071 6.071 6.071 6.071
------------ ------------- ------------ ------------- ------------ ------------
Common Stock after conversion 19.741 19.741 19.741 19.741 19.741 19.741
Value per Common Share 1.81 2.24 2.46 2.89 3.08 3.51
============ ============= ============ ============= ============ ============
</TABLE>
Datapoint Corporation 58 Confidential
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Patricof & Co. Capital Corp.
CONCLUSION (CONTINUED)
. The following table compares the value per share of Common Stock before
and after the Exchange Offer, given a range of net proceeds from the sale
of Telebusiness, assuming a 15% to 25% range of cost of equity for
Datapoint.
SUMMARY OF PER SHARE COMMON STOCK VALUE BEFORE AND AFTER EXCHANGE OFFER
<TABLE>
<CAPTION>
Net Proceeds from Telebusiness Sale
-------------------------------------------------------------------------------
* * *
-------------------------- -------------------------- -------------------------
(15% cost of equity) Low High Low High Low High
------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Value per share of Common Stock
Before Exchange Offer $2.33 $2.95 $2.95 $3.57 $3.54 $4.16
After Exchange Offer 2.14 2.57 2.79 3.22 3.38 3.81
<CAPTION>
Net Proceeds from Telebusiness Sale
-------------------------------------------------------------------------------
* * *
-------------------------- -------------------------- -------------------------
(20% cost of equity) Low High Low High Low High
------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Value per share of Common Stock
Before Exchange Offer $2.03 $2.65 $2.65 $3.28 $3.15 $3.78
After Exchange Offer 1.81 2.24 2.46 2.89 3.08 3.51
<CAPTION>
Net Proceeds from Telebusiness Sale
-------------------------------------------------------------------------------
* * *
-------------------------- -------------------------- -------------------------
(25% cost of equity) Low High Low High Low High
------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Value per share of Common Stock
Before Exchange Offer $1.86 $2.49 $2.47 $3.09 $2.91 $3.53
After Exchange Offer 1.61 2.04 2.23 2.66 2.87 3.31
</TABLE>
. Because the value per share of Common Stock is within the same range
before and after the Exchange Offer, the Exchange Offer is fair, from a
financial point of view, to the holders of Common Stock.
. In addition, the holders of Common Stock benefit in non-quantifiable ways
from the Exchange Offer, including the removal of a potential impediment to
distributing value to holders of the Common Stock.
Datapoint Corporation 59 Confidential
* Confidential portions omitted and filed separately with the Commission.
