<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996.
REGISTRATION NO. 333-9627
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
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 78229-8500
(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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 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; Directors and Executive Officers
of the Company; 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; Directors and Executive Officers of
the Company; 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 December 10, 1996, at The University Club, One West
54th Street, New York, New York, at 9:00 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 fiscal year 1997.
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
October 30, 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 DECEMBER 10, 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
December 10, 1996, at The University Club, One West 54th Street, New York, New
York, at 9:00 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 fiscal year 1997.
(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, October 31, 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.
The information contained in the Annual Report of the Company on Form 10-K
for the fiscal year ending July 27, 1996, including financial statements, is
included in this Proxy Statement/Prospectus.
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.
Between November 27, 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 78229-8500, and at Datapoint's offices at 717 Fifth Avenue, New
York, New York 10022.
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
October 30, 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 DECEMBER 10, 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 December 10, 1996, at The
University Club, One West 54th Street, New York, New York at 9:00 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 November 1, 1996.
The information contained in the Annual Report of the Company on Form 10-K
for the fiscal year ending July 27, 1996, including financial statements, is
included in this Proxy Statement/Prospectus.
On October 18, 1996, the issued and outstanding voting capital stock of
Datapoint consisted of 13,931,640 shares of Common Stock (excluding 7,059,577
shares held in the treasury of Datapoint), held by approximately 3,128 holders
of record and 1,868,056 shares of Preferred Stock held by approximately 415
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 October 31, 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
Preferred Stock and 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 OCTOBER 31, 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
78229-8500.
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 9:00 A.M., NEW YORK CITY TIME, ON DECEMBER
10, 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.
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
(COVER CONTINUED ON NEXT PAGE)
2
<PAGE>
(CONTINUED FROM COVER PAGE)
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 OR ABOUT
NOVEMBER 1, 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
two previous amendments to the Registration Statement. Additionally, the Company
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,
acquisition, marketing, servicing, and to a lesser degree, manufacture of
computer and communication products -- both hardware and software -- for
integrated computer, telecommunication and video conferencing network systems.
The Company is also actively engaged in the business of licensing its video
conferencing technology and its dual protocol local area network ("LAN")
technology.
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 $4.2 million through and
including October 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 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.
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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 pursued and 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
business ("EADS") for a purchase price of approximately $33.0 million.
Of the approximately $29.4 million net proceeds received from the above
sale, the Company paid $850,000 to satisfy and discharge in full the outstanding
senior secured indebtedness owing to the CIT Group/Credit Finance ("CIT") and
paid Northern Telecom Inc. ("NTI"), one of its two generally secured creditors,
$2.2 million representing the two deferred principal payments on secured debt
which were due in December 1994 and December 1995, as well as accrued and unpaid
interest. In addition, the proceeds from the Kalamazoo transaction enabled the
Company to pay by June 30, 1996 (within the 30-day grace period measured from
June 1, 1996) the $2.857 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 December 1993 and of which
seven payments remained to be made, as well as certain contingent payment
obligations. The balance of the proceeds from the sale of EADS will be utilized
by Datapoint for working capital purposes and to pay other obligations of the
Company. This may include, from time to time, repurchasing in the public market
or in privately negotiated transactions the Debentures or otherwise reducing
existing debt owed by the Company to its creditor groups. 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."
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.
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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 nine regularly
scheduled quarterly dividends payable on the
Preferred Stock accumulated from and including
October 15, 1994 through and including October 15,
1996, aggregating approximately $4.2 million ($2.23
per share of Preferred Stock). Quarterly dividends
on the Preferred Stock currently accrue at a rate
of approximately $467,000 per quarter ($.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 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
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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 October 18, 1996, there were approximately
415 record holders of Preferred Stock, and there
was outstanding approximately $41.5 million
aggregate liquidation preference (1,868,056 shares)
(which includes accumulated but unpaid dividends of
approximately $4.2 million through and including
October 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 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 --
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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 December 10, 1996, at 9:00 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 October
31, 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 fiscal year
1997; (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 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
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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 October 18, 1996, there were approximately
1,868,056 shares of Preferred Stock and
approximately 13,931,640 shares of Common Stock
outstanding and entitled to vote at the Annual
Meeting, which shares were held of record by
approximately 415 Holders and 3,128 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 October
18, 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 24.9% of
the outstanding shares of Preferred Stock and
approximately 11.7% 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 1.6% of the outstanding
shares of Preferred Stock and approximately an
additional 2.8% 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 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
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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
9:00 a.m., New York City time, on December 10,
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 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
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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."
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
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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 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 October 18,
1996, there were approximately 3,128 record holders
and 13,931,640
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outstanding shares of Common Stock and
approximately 415 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.
</TABLE>
14
<PAGE>
HISTORICAL CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
27, 1996 and as adjusted to give effect to the Exchange Offer as though it had
been consummated on July 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.
CAPITALIZATION
DATAPOINT CORPORATION
JULY 27, 1996
(Unaudited)
<TABLE>
<CAPTION>
AS ADJUSTED FOR 50% AS ADJUSTED FOR 100%
TENDER ASSUMPTION CONVERSION ASSUMPTION
----------------------- -----------------------
AS AS
(IN THOUSANDS) HISTORICAL ADJUSTMENTS ADJUSTED ADJUSTMENTS ADJUSTED
---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Short term debt:
$ 9,831 $ 9,831 $ 9,831
Long term debt (including current maturities):
8 7/8% Convertible Subordinated Debentures................ 63,652 63,652 63,652
Real estate notes........................................... 530 530 530
Other obligations......................................... 1,220 1,220 1,220
Foreign loan.............................................. 1,657 1,657 1,657
---------- --------- ---------
67,059 67,059 67,059
---------- --------- ---------
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).................................... (62,318) 175A (62,143) 350A (61,968)
---------- ----- --------- ----------- ---------
Total stockholders' deficit............................. (55,202) 0 (55,202) 0 (55,202)
---------- ----- --------- ----------- ---------
Total capitalization........................................ $ 21,688 $ 0 $21,688 $ 0 $ 21,688
---------- ----- --------- ----------- ---------
---------- ----- --------- ----------- ---------
</TABLE>
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.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXPECT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING RESULTS FOR THE FISCAL YEAR
Total revenue...................................................................... $ 179,541 $ 174,901 $ 172,936
Operating income (loss)............................................................ 1,017 (18,232) (81,021)
Income (loss) before extraordinary credits......................................... 19,015 (28,343) (94,765)
Net income (loss).................................................................. 19,342 (28,343) (93,425)
Net income (loss) per common share:
Before extraordinary credit and effect of change in accounting principle......... 1.27 (2.29) (6.69)
After extraordinary credit and effect of change in accounting principle.......... 1.30 (2.29) (6.60)
Net income per common share assuming full dilution:
Before extraordinary credit and effect of change in accounting principle......... 1.11 n/a n/a
After extraordinary credit....................................................... 1.13 n/a n/a
FINANCIAL POSITION AT END OF FISCAL YEAR
Current assets..................................................................... $ 69,995 $ 67,506 $ 79,915
Fixed asset, net................................................................... 14,625 18,877 29,088
Total assets....................................................................... 93,818 101,751 127,434
Current liabilities................................................................ 76,965 100,256 98,202
Long-term debt..................................................................... 63,945 64,923 70,561
Stockholders' equity (deficit)..................................................... (55,202) (74,116) (50,761)
FINANCIAL CONDITION
Working capital.................................................................... $ (6,970) $ (32,750) $ (18,287)
Current ratio...................................................................... .9 to 1 .7 to 1 .8 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.................................................. 13,455,878 13,194,667 14,430,574
Number of common stockholders...................................................... 3,142 3,274 3,378
Preferred shares outstanding....................................................... 1,868,071 1,846,456 1,784,456
Dividends paid or accumulated on preferred stock................................... $ 1,885 $ 1,815 $ 1,784
Number of employees................................................................ 705 991 1,444
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
OPERATING RESULTS FOR THE FISCAL YEAR
Total revenue...................................................................... $ 208,344 $ 255,243
Operating income (loss)............................................................ (1,258) 6,655
Income (loss) before extraordinary credits......................................... (11,859) (10,409)
Net income (loss).................................................................. (11,260) (8,756)
Net income (loss) per common share:
Before extraordinary credit and effect of change in accounting principle......... (.97) (1.62)
After extraordinary credit and effect of change in accounting principle.......... (.93) (1.47)
Net income per common share assuming full dilution:
Before extraordinary credit and effect of change in accounting principle......... n/a n/a
After extraordinary credit....................................................... n/a n/a
FINANCIAL POSITION AT END OF FISCAL YEAR
Current assets..................................................................... $ 94,169 $ 121,991
Fixed asset, net................................................................... 27,950 34,533
Total assets....................................................................... 202,275 248,813
Current liabilities................................................................ 74,759 90,581
Long-term debt..................................................................... 71,551 66,101
Stockholders' equity (deficit)..................................................... 47,021 74,835
FINANCIAL CONDITION
Working capital.................................................................... $ 19,410 $ 31,410
Current ratio...................................................................... 1.3 to 1 1.3 to 1
Long-term debt-to-equity ratio..................................................... 1.5 to 1 .88 to 1
Long-term debt as % of total invested capital...................................... 60% 47%
Other information
Average common shares outstanding.................................................. 14,081,964 11,093,431
Number of common stockholders...................................................... 3,710 3,877
Preferred shares outstanding....................................................... 1,784,456 1,784,456
Dividends paid or accumulated on preferred stock................................... $ 1,784 $ 7,601
Number of employees................................................................ 1,528 1,777
</TABLE>
No cash dividends on common stock have been declared during the five-year
period.
Net income for 1996 includes a gain of $32.2 million resulting from a
divestiture.
- ------------------------
(1) The Company was in a deficit equity position for these periods.
16
<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 Statement of Operations for the year ended July 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 30, 1995. 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 date and for the period 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.
17
<PAGE>
DATAPOINT CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JULY 27, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
100%
CONVERSION
50% TENDER ASSUMPTION ASSUMPTION
---------------------------- ------------
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS
----------- ------------ ------------- ------------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Sales............................................................... $ 98,876 $ (3,679)A $ 95,197 $ (3,679)A
Service............................................................. 80,665 (13,349)A 67,316 (13,349)A
----------- ------------ ------------- ------------
Total Revenue..................................................... 179,541 (17,028) 162,513 (17,028)
Operating Cost and Expenses:
Cost of Sales....................................................... 72,483 72,483
Cost of Service and Other........................................... 51,524 (6,377)A 45,147 (6,377)A
Research and Development............................................ 2,661 2,661
Selling, General and Administrative................................. 51,593 (7,537)A 41,356 (7,537)A
(2,700)B (2,700)B
Reorganization/Restructuring Costs.................................. 263 263
----------- ------------ ------------- ------------
Total Operating Costs and Expenses................................ 178,524 (16,614) 161,910 (16,614)
Operating Income (Loss):.............................................. 1,017 (414) 603 (414)
----------- ------------ ------------- ------------
Non-Operating Income (Expense):
Interest Expense.................................................... (8,619) (8,619)
Realized gain on sale of EADS......................................... 32,200 (32,200)B 0 (32,200)B
Other, Net.......................................................... (1,891) (712)B (2,603) (712)B
----------- ------------ ------------- ------------
Income (Loss) Before Income Taxes and Extraordinary Credit........ 22,707 (33,326) (10,619) (33,326)
Income Taxes.......................................................... 3,692 (272)A 261 (272)A
(3,159)B (3,159)B
----------- ------------ ------------- ------------
Income (Loss) Before Extraordinary Credit......................... 19,015 (29,895) (10,880) (29,895)
Extraordinary Credit-Debt Extinguishment.......................... 327 327
----------- ------------ ------------- ------------
Net Income (loss)................................................. $ 19,342 $ (29,895) $ (10,553) $ (29,895)
----------- ------------ ------------- ------------
----------- ------------ ------------- ------------
Net Income (Loss) Less
Preferred Stock Dividends............................................ $ 17,457 $ (11,496)
----------- -------------
----------- -------------
Net Income (Loss) Per Common Share:
Before Extraordinary Credit....................................... $1.27 $(0.72)
Extraordinary Credit-Debt Extinguishment.......................... 0.03 0.02
-----------
Net Income (Loss)............................................... $1.30 $(0.70)
Average Common Shares:................................................ 13,455,878 3,035,616C 16,491,494 6,071,231C
<CAPTION>
PRO FORMA
--------------
<S> <C>
Revenue:
Sales............................................................... $ 95,197
Service............................................................. 67,416
--------------
Total Revenue..................................................... 162,513
Operating Cost and Expenses:
Cost of Sales....................................................... 72,483
Cost of Service and Other........................................... 45,147
Research and Development............................................ 2,661
Selling, General and Administrative................................. 41,356
Reorganization/Restructuring Costs.................................. 263
--------------
Total Operating Costs and Expenses................................ 161,910
Operating Income (Loss):.............................................. 603
--------------
Non-Operating Income (Expense):
Interest Expense.................................................... (8,619)
Realized gain on sale of EADS......................................... 0
Other, Net.......................................................... (2,603)
--------------
Income (Loss) Before Income Taxes and Extraordinary Credit........ (10,619)
Income Taxes.......................................................... 261
--------------
Income (Loss) Before Extraordinary Credit......................... (10,880)
Extraordinary Credit-Debt Extinguishment.......................... 327
--------------
Net Income (loss)................................................. $ (10,553)
--------------
--------------
Net Income (Loss) Less
Preferred Stock Dividends............................................ $ (10,553)
--------------
--------------
Net Income (Loss) Per Common Share:
Before Extraordinary Credit....................................... $(0.56)
Extraordinary Credit-Debt Extinguishment.......................... 0.02
Net Income (Loss)............................................... $(0.54)
Average Common Shares:................................................ 19,527,109
</TABLE>
See accompanying notes to Pro Forma Condensed Consolidated Statement of
Operations
18
<PAGE>
DATAPOINT CORPORATION
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
A. This adjustment eliminates the operations of the EADS business. As part
of the agreement in connection with the sale of the EADS business, the Company
agreed to continue to sell hardware to Kalamazoo at various discounts from its
normal hardware prices and to continue to provide hardware service maintenance
to Kalamazoo at a 15% discount from the Company's normal hardware service
maintenance prices. 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 related to the EADS business remaining in
the pro forma amounts are $12.6 million for the year ended July 27, 1996. 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 eliminates the gain on the sale of the EADS business and
the direct effects of the transaction which include the estimated income taxes
due in certain of the Company's subsidiaries, accrued Management bonuses based
upon the Company's pre-tax profitability and certain incentives associated with
the sale of EADS, and the settlement of a pension liability related to the
transfer of employees in one of the Company's subsidiaries to Kalamazoo.
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.
19
<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 year ended July 27, 1996, the Company realized net income
after giving effect to preferred stock dividends accumulated of approximately
$17.5 million ($1.30 per share of Common Stock). For the previous fiscal years
ending July 29, 1995 and July 30, 1994 the Company incurred a net loss of $30.2
million ($2.29 per share of Common Stock), and $95.2 million ($6.60 per share of
Common Stock), respectively after giving effect to preferred stock dividends
paid or accumulated. The net results after giving effect to preferred stock
dividends paid or accumulated in such years included the amounts of dividends on
the Preferred Stock of approximately $1.885 million, $1.815 million, $1.784
million, respectively. With respect to fiscal years 1996 and 1995, approximately
$1.885 million and $1.815 million, respectively, of such dividends were
undeclared and unpaid at year end, resulting in cumulative dividends in arrears
of $3.7 million as of July 27, 1996.
During 1996, the Company had total revenue of $179.5 million, an increase of
$4.6 million from the previous year. The increase was primarily attributable to
higher sales in certain of the Company's European subsidiaries offset by a
declining maintenance revenue base in the European subsidiaries and a favorable
impact of $2.2 million related to the weakening U.S. dollar when compared with
the same period a year ago. In addition, as a result of the full year
realization of the several cost cutting actions undertaken in the prior year,
operating expenses decreased $12.3 million. The combination of these two factors
resulted in the Company's achieving operating income during 1996 of $1.0
million.
At July 27, 1996, the Company had outstanding long-term debt (including the
current portion thereof) on a consolidated basis of approximately $67.1 million,
having a debt service requirement of approximately $5.86 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 27, 1996.
At July 27, 1996, the Company had tax operating loss carryforwards
approximating $165 million and $28 million for federal and foreign tax purposes,
respectively, expiring in various amounts beginning in 2001 and 1997,
respectively. Federal long-term capital loss carryforwards of $1.5 million
expire in various amounts beginning in 1997. Utilization of the ordinary and
capital tax loss carryforwards is subject to limitation in the event of more
than 50% change in ownership of the Company. (See Note 4 to Consolidated
Financial Statements).
During 1996, the Company pursued and is continuing to pursue actions to
provide cash infusions, including the sale of selected assets and operations of
the Company, to meet certain of its obligations and to improve its financial
position. In this regard, on May 28, 1996, the Company entered into an agreement
with Kalamazoo Computer Group, plc, a public limited company organized under the
laws of England, providing for the sale by Datapoint to Kalamazoo of EADS, other
than its United Kingdom operations, for the purchase price of $33.0 million.
After net liabilities transferred to Kalamazoo and other expenses related to the
sale, the Company's net cash proceeds were approximately $29.4 million. As part
of the agreement, the Company will continue to provide computer hardware and
hardware services to the EADS network, at various discounts, through a
subcontract agreement with Kalamazoo.
Of the approximately $29.4 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
20
<PAGE>
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 December 1993 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 business, 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.
During the fourth quarter of 1996, a settlement was reached among the litigants.
As such, the District Court entered a Judgment Non Obstante Veredicto (Judgment
Notwithstanding the Verdict) that set aside the jury's findings against the
Company and its two executive officers and set aside all damages. The $3.3
million settlement, which was reached to avoid the considerable expense and
business disruption of a protracted appeal and legal process, had no material
impact on the Company's then current cash position as it included payment of
funds from a non-working capital trust fund which were otherwise not available
to the Company, issuance of a short term note, and shares of the Company's
common stock. 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
21
<PAGE>
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
22
<PAGE>
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 $4.2
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,
23
<PAGE>
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 October 18, 1996,
the aggregate market value of the Preferred Stock was approximately $6.8
million. Assuming the 50% Tender Assumption, the aggregate market value of the
Preferred Stock will be approximately $3.4 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 income, after giving effect to preferred stock dividends
accumulated for fiscal 1996 was $17.457 million. In 1994 and 1995, the Company
incurred a net loss, adjusted for preferred stock dividends paid or accumulated
of $95.209 million and $30.158 million, respectively.
During 1996, the Company had total revenue of $179.5 million, an increase of
$4.6 million from the previous year. The increase was primarily attributable to
higher sales in certain of the Company's European subsidiaries offset by a
declining maintenance revenue base in the European subsidiaries and a favorable
impact of $2.2 million related to the weakening U.S. dollar when compared with
the same period a year ago. In addition, as a result of the full year
realization of the several cost cutting actions undertaken in the prior year,
operating expenses decreased $12.3 million. The combination of these two factors
resulted in the Company's achieving operating income during 1996 of $1.0
million.
During 1996, the company pursued and is continuing to pursue actions to
provide cash infusions, including the sale of selected assets and operations of
the company, to meet certain of its obligations and to improve its financial
position. In this regard, on May 28, 1996, the Company entered into an agreement
with Kalamazoo Computer Group, plc, a public limited company organized under the
laws of England, providing for the sale by Datapoint to Kalamazoo of EADS, other
than its United Kingdom operations, for a purchase price of $33.0 million. After
net liabilities transferred to Kalamazoo and other expenses related to the sale,
the Company's net cash proceeds were approximately $29.4 million. As part of the
agreement, the Company will continue to provide computer hardware and hardware
services to the EADS network, at various discounts, through a subcontract
agreement with Kalamazoo. See "-- Recent Developments."
As a result of the Company's capital deficiency which existed at the end of
1994, and throughout 1995 and 1996, the Company determined not to pay the
October 15, 1994, January 15, 1995, April 15, 1995, July 15, 1995, October 15,
1995, January 15, 1996, April 15, 1996, July 15, 1996 and October 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
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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 October 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 27, 1996, $36.348 million aggregate principal amount of Debentures has been
repurchased. 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 business, 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 $4.2 million through and including October 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 fiscal 1996, the aggregate preferred stock
liquidation preference (including accumulated dividends) would be eliminated (as
compared to approximately $41.1 million, as of July 27, 1996, of which
approximately $3.7 million constituted accumulated but unpaid dividends).
Assuming the 50% Tender Assumption, on a pro forma basis after giving effect to
the Exchange Offer for fiscal 1996, the aggregate preferred stock liquidation
preference (including accumulated dividends) would decrease to approximately
$20.5 and the total preferred stock dividends would decrease to approximately
$1.9 million.
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The Company has not paid the nine regularly scheduled quarterly dividends on
the Preferred Stock due from October 15, 1994 through and including October 15,
1996, aggregating approximately $4.2 million with respect to the Preferred Stock
outstanding as of October 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 $4.2 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 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
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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 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
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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 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,
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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 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%.
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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 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
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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.
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.
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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.
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.
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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, 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
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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 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
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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.
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
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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 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.
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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
and as of the date of this Proxy Statement 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., approached a number of U.S.
and European companies which are potential strategic purchasers of Telephony.
Patricof provided those potential purchasers evidencing interest in Telephony
with certain business and financial information regarding Telephony and 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). On October 22, 1996 the Company announced
that it had received indications of interest in connection with the potential
sale of Telephony and that negotiations are being actively pursued.
Patricof has reviewed the Company's Form 10-K dated July 27, 1996 and 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.
38
<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."
39
<PAGE>
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 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 OCTOBER 18, 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............... 13,931,640 100% 13,931,640 70% 13,931,640 82%
Exchanging Holders of Preferred Stock.......... 0 0% 6,071,182 30% 3,035,591 18%
------------ --- ------------ --- ------------ ---
Total...................................... 13,931,640 100% 20,002,822 100% 16,967,231 100%
------------ --- ------------ --- ------------ ---
------------ --- ------------ --- ------------ ---
</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 $33.0 million. From the sales proceeds, the Company realized
approximately $29.4 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 $29.4 million net proceeds received from the above
sale, the Company paid $850,000 to satisfy and discharge in full the outstanding
senior secured indebtedness owing to 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 $2.9 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 December 1993 and of which seven payments remained to be made, as
well as certain contingent payment obligations. The balance of the proceeds from
the sale of EADS will be utilized by Datapoint for working capital purposes and
to pay other obligations of the Company. This may include, from time to time,
repurchasing its Debentures in the public market or in privately negotiated
transactions or otherwise reducing existing debt owed by the Company to its
creditor groups.
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.
40
<PAGE>
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
During the fourth quarter of 1996, a settlement was reached among the litigants.
As such, the District Court entered a Judgment Non Obstante Veredicto (Judgment
Notwithstanding the Verdict) that set aside the jury's findings against the
Company and its two executive officers and set aside all damages. The $3.3
million settlement, which was reached to avoid the considerable expense,
including the business disruption of a protracted appeal and legal process, had
no material impact on the Company's then current cash position as it included
payment of funds from a non-working capital trust fund 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 licenses. On June 6, 1996,
the Company entered into an agreement with NEC America, Inc. for the licensing
of Datapoint's video conferencing patents. On April 10, 1996, the Company
announced that it had commenced suit in the U.S. District Court for the Eastern
District of New York to recover damages against two companies for infringement
of Datapoint's patent covering multi-speed network processing (U.S. Patent No.
5,008,879). These patents cover certain ARCNET and Fast Ethernet products
recently introduced by various suppliers to the local-area network industry and
dominates certain types of dual-speed LAN Adaptor Products recently introduced
by various industry leaders. 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.) (the "--1685 action") and has negotiated three
settlements, two for an aggregate of $1.0 million and one for an undisclosed
amount. On August 1, 1996, the Company commenced an additional suit against
Intel and Standard 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 "--3819 action")).
The Company has moved to certify the -1685 action as a defendant class action
with respect to all manufacturers, vendors, and users of dual-protocol, Fast
Ethernet-compliant local area network products. On June 28, 1996, the Court
denied that motion, without prejudice to renew at a later date. The Company
intends, in the future, to renew its motion to certify the -1685 action, and to
seek similar "defendant class action" status for the -3819 action. If successful
in its certification efforts, the defendant classes in the -1685 and -3819
actions would include approximately one-hundred potential infringers of the
multispeed network processing and related patents.
In JOHN FRASSANITO AND DAVID A. MONROE V. DATAPOINT CORP., Civil Action No.
H-95-812 (S.D. Tex.) plaintiffs alleged that the Company usurped various
patentable inventions and trade secrets in connection with the development of
its MINX systems. They also asserted a cause of action for patent infringement,
and a cause of action requiring Datapoint to assign certain MINX-related patents
and other intellectual property. On August 16, 1996, the Court dismissed with
prejudice plaintiffs' claims of patent infringement against Datapoint and
dismissed without prejudice 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."
41
<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 13,931,640 shares
(excluding 7,059,577 treasury shares) were issued and outstanding on October 18,
1996. The aggregate market value (based upon the last reported sale price of the
Common Stock on the New York Stock Exchange--Composite Tape on October 18, 1996)
of the shares of Common Stock held by non-affiliates was approximately $14.9
million. (For purposes of calculating the preceding amount only, all directors
and executive officers of the registrant are assumed to be affiliates.) 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.
42
<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 October
18, 1996, there were approximately 415 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 $4.2 million ($2.23 per share) as of October 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."
43
<PAGE>
COMMON STOCK
There are 40,000,000 shares of Common Stock authorized for issuance. As of
October 18, 1996 there were approximately 3,128 record holders and 13,931,640
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............................................................. 1.50 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."
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Throughout 1996, the Company's main objectives to preserve and improve the
Company's cash liquidity and financial position and to allow the Company to meet
its future operating cash flow requirements were as follows:
1. Product marketing to maintain stabilized revenue levels
2. Continued review and reduction of operating costs; and
3. One-time cash infusions to meet operating requirements.
During 1996, the Company had total revenue of $179.5 million, an increase of
$4.6 million from the previous year. The increase was primarily attributable to
higher sales in certain of the Company's European subsidiaries offset by a
declining maintenance revenue base in the European subsidiaries and a favorable
impact of $2.2 million related to the weakening U.S. dollar when compared with
the same period a year ago. In addition, as a result of the full year
realization of the several cost cutting actions undertaken in the prior year,
operating expenses decreased $12.3 million. The combination of these two factors
resulted in the Company's achieving operating income during 1996 of $1.0
million.
During 1996, the Company pursued and is continuing to pursue actions to
provide cash infusions, including the sale of selected assets and operations of
the Company, to meet certain of its obligations and to improve its financial
position. In this regard, on May 28, 1996, the Company entered into an agreement
with Kalamazoo Computer Group, plc, a public limited company organized under the
laws of England, providing for the sale by Datapoint to Kalamazoo of EADS, other
than its United Kingdom operations, for a purchase price of $33.0 million. After
net liabilities transferred to Kalamazoo and other expenses related to the sale,
the Company's net cash proceeds were approximately $29.4 million. As part of the
agreement, the Company will continue to provide computer hardware and hardware
services to the EADS network, at various discounts, through a subcontract
agreement with Kalamazoo.
Of the approximate $29.4 million net proceeds received from the above sale,
the Company paid $850,000 to satisfy and discharge in full the outstanding
senior secured indebtedness owing to the CIT Group/Credit Finance ("CIT") and
paid Northern Telecom Inc. ("NTI"), one of its two generally secured creditors,
$2.2 million representing the two deferred principal payments on secured debt
which were due in December 1994 and December 1995, as well as accrued and unpaid
interest. In addition, the proceeds from the Kalamazoo transaction enabled the
Company to pay by June 30, 1996 (within the 30-day grace period measured from
June 1, 1996) the $2.9 million interest payment on the 8 7/8% convertible
subordinated Debentures. On July 1, 1996, Datapoint entered into an agreement
with NTI pursuant to which Datapoint paid $5.05 million to NTI in full
satisfaction of all amounts due and to be due under the note Datapoint had
entered into with NTI to resolve a patent dispute. The prepayment agreement
relieves the Company of its obligation to make annual $1.0 million payments to
NTI that commenced in December 1993 and of which seven payments remained to be
made, as well as certain contingent payment obligations. The balance of the
proceeds from the sale of EADS will be utilized by Datapoint for working capital
purposes and to pay other obligations of the Company. This may include, from
time to time, repurchasing in the public market or in privately negotiated
transactions the Debentures or otherwise reducing existing debt owed by the
Company to its creditor groups.
In addition, on July 24, 1996, the Company announced that its Board of
Directors determined to offer for exchange for each share of its $1.00
Exchangeable Preferred Stock ($1.00 par value) 3.25 shares of its Common Stock
($.25 par value) and to submit a proposal to stockholders under which each share
of its $1.00 Exchangeable Preferred Stock would be converted into 3.25 shares of
Common Stock. The Company had previously announced on April 16, 1996, that it
intended to submit to its stockholders a proposal to effect the conversion of
the $1.00 Exchangeable Preferred Stock into 2.75 shares of its Common Stock. The
affirmative vote of two-thirds of the outstanding shares of the $1.00
Exchangeable Preferred Stock and a majority vote of
45
<PAGE>
the outstanding shares of the Common Stock will be required to adopt the
proposal which the Company expects to submit at its Annual Meeting of
Stockholders to be held on December 10, 1996. On January 16, 1996, the Company
announced that it was in arrears on its $1.00 preferred stock in an aggregate
amount equal to six full quarterly dividends. As a result, each holder of $1.00
preferred stock currently has the right to exchange each such share into two
shares of the Company's common stock.
FINANCIAL CONDITION AND LIQUIDITY
During 1996, the Company's net cash provided from operations was $1.3
million. Primarily, this was attributable to reduced inventory and accounts
receivable, offset by the $3.8 million in payments of restructuring costs.
During 1996, net cash provided from investing activities increased $25.8
million. This increase was largely due to the approximate $29.4 million net
proceeds received from the sale of EADS to Kalamazoo, offset by fixed asset
purchases, net of dispositions, of $3.4 million.
Net cash used in financing activities was $11.9 million in 1996, primarily
related to the net paydown of the Company's borrowings including the debt
repayments to CIT and NTI.
As of July 27, 1996, the Company had restricted cash of $0.9 million as
compared to $2.5 million in the prior year. The 1996 and 1995 balances were
restricted primarily to cover various lines of credits, reflected as payables to
banks.
Cash used for investment in fixed assets (primarily test equipment, spares
and internally-used equipment) was $3.7 million in 1996, compared to $4.7
million in 1995 and $10.8 million in 1994. There are no material commitments for
capital expenditures at the present time.
Accounts payable decreased to $20.3 million in 1996 from $23.3 million in
1995. Throughout the year, the Company continued to work with its accounts
payable creditors to extend additional credit and credit terms, thus maintaining
functional relationships with such creditors during 1996. The Company has no
significant purchase commitments outstanding as of July 27, 1996.
The Company's cash and cash equivalents increased $14.7 million to $23.2
million. This was primarily due to the cash infusion in 1996 of approximately
$29.4 million resulting from the sale of the Company's EADS business to
Kalamazoo, as described earlier, offset by the payments of a large portion of
the Company's debt.
As of July 27, 1996, the Company has included in payables to banks an amount
of $5.0 million payable to International Factors "De Factorij" B.V., a
subsidiary of ABN-AMRO Bank of the Netherlands. The loan is secured by the
receivables of the Company's U.K., Dutch and German subsidiaries.
The Company had a secured credit facility with The CIT Group/Credit Finance
("CIT"), which consisted of a term loan and a revolving loan. From the proceeds
of the sale of EADS, the Company paid $850,000 to satisfy and discharge in full
the indebtedness owed to CIT.
The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The unused lines of credit at July 27, 1996 totaled $2.7 million
after borrowings of $9.8 million.
The Company believes its available cash, cash equivalents and funds
generated by operations will be sufficient to provide its working capital and
cash requirements for fiscal 1997. In addition, management believes the Company
will be able to discharge its obligations in the long term with cash generated
from operations and other sources such as sale of selected assets or operations,
and capital transactions.
During 1993, the Company settled a long standing patent-related legal action
brought against it by NTI. Pursuant to this settlement, during 1994 and 1993,
the Company paid NTI $1.0 million and $7.5 million, respectively. The Company
also agreed to a ten-year note payable to NTI which required annual $1.0 million
payments each December. As of June 24, 1996, the December 1994 and December 1995
installments were in arrears. From the proceeds of the sale of EADS, the Company
paid NTI $2.2 million representing payment of these deferred payments plus
accrued and unpaid interest. On July 1, 1996, the Company entered into an
46
<PAGE>
agreement with NTI pursuant to which Datapoint paid $5.05 million to NTI in full
satisfaction of all amounts due and to be due. The prepayment agreement relieved
the Company of its obligation to make the annual $1.0 million payments, as well
as certain contingent payment obligations.
As a result of the Company's capital deficiency which existed at the end of
1994 and throughout 1995 and 1996, the Company determined not to pay the October
15, 1994, January 15, 1995, April 15, 1995, July 15, 1995, October 15, 1995,
January 15, 1996, April 15, 1996, July 15, 1996, and the October 15, 1996
preferred dividend payments to stockholders. Since dividends are at least six
quarters in arrears, the preferred stockholders have the right to vote as a
separate class and elect two board members at the next annual meeting of
shareholders and each preferred share (inclusive of all accrued and unpaid
dividends) is exchangeable into two shares of common stock at the option of the
holder.
The Company adopted, effective August 1, 1993, SFAS No. 109, "Accounting for
Income Taxes", which superseded SFAS No. 96 and APB Opinion No. 11. The Company
recorded a favorable cumulative accounting change effect of approximately $1.3
million in the first quarter of fiscal 1994 (see note 4 to Consolidated
Financial Statements).
At July 27, 1996, the Company had available federal tax net operating losses
aggregating approximately $165.0 million, expiring in various amounts beginning
in 2001. In the event that the Company's ability to utilize its net operating
losses to reduce its federal tax liability with respect to current and future
income becomes subject to limitation, the Company may be required to pay, sooner
than it otherwise might have to, any amounts owing with respect to such federal
tax liability, which would reduce the amount of cash otherwise available to the
Company (see note 4 to Consolidated Financial Statements).
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
During the fourth quarter of 1996, a settlement was reached among the litigants.
As such, the District Court entered a Judgment Non Obstante Veredicto (Judgment
Notwithstanding the Verdict) that set aside the jury's findings against the
Company and its two executive officers and set aside all damages. The $3.3
million settlement, which was reached to avoid the considerable expense,
including the business disruption of a protracted appeal and legal process, had
no material impact on the Company's then current cash position as it included
payment of funds from a non-working capital trust fund which were otherwise not
available to the Company, issuance of a short term note, and shares of the
Company's common stock.
REORGANIZATION/RESTRUCTURING COSTS
A rollforward of the restructuring accrual from July 31, 1993 through July
27, 1996 is as follows:
<TABLE>
<CAPTION>
TOTAL
--------------
<S> <C>
(IN THOUSANDS)
Restructuring accrual as of July 31, 1993..................................... $ 2,565
Fiscal 1994 additions......................................................... 14,853
Fiscal 1994 payments.......................................................... (3,430)
-------
Restructuring accrual as of July 30, 1994..................................... 13,988
Fiscal 1995 additions......................................................... 9,213
Fiscal 1995 asset write-offs.................................................. (1,895)
Fiscal 1995 payments.......................................................... (17,138)
-------
Restructuring accrual as of July 29, 1995..................................... $ 4,168
Fiscal 1996 additions......................................................... 263
Fiscal 1996 payments.......................................................... (3,776)
-------
Restructuring accrual as of July 27, 1996..................................... $ 655
-------
-------
</TABLE>
47
<PAGE>
The projected payout of the restructuring accrual balance as of July 27,
1996, which related almost entirely to unpaid employee termination costs, is as
follows:
<TABLE>
<S> <C>
First quarter 1997................................................... $ 491
Second quarter 1997.................................................. 74
Third quarter 1997................................................... 43
Fourth quarter 1997.................................................. 22
Beyond............................................................... 25
---------
Restructuring accrual as of July 27, 1996............................ $ 655
---------
---------
</TABLE>
Restructuring charges are not recorded until specific employees are
determined (and notified of termination) by management in accordance with its
overall restructuring plan. As such, employee termination payments are generally
paid out over a period of time rather than as one lump sum. Although a
reasonable estimate of the amount of future termination costs cannot be made at
this time, management expects to incur additional charges for terminations.
RESULTS OF OPERATIONS
The following is a summary of the Company's sources of revenue for each of
fiscal 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Sales:
U.S........................................................................ $ 3,185 $ 5,728 $ 6,453
Foreign.................................................................... 95,691 78,459 78,300
---------- ---------- ----------
98,876 84,187 84,753
Service and other:
U.S........................................................................ 906 1,393 1,164
Foreign.................................................................... 79,759 89,321 87,019
---------- ---------- ----------
80,665 90,714 88,183
---------- ---------- ----------
Total revenue................................................................ $ 179,541 $ 174,901 $ 172,936
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
1996 COMPARED TO 1995
Total revenue increased by 2.7% to $179.5 million in 1996 from $174.9
million in 1995. The increase was primarily attributable to higher sales volume
in certain of the Company's European subsidiaries offset by a declining
maintenance revenue base in the European subsidiaries and a favorable impact of
$2.2 million related to the weakening U.S. dollar when compared with the same
period a year ago.
Included in the operating income for 1996 of $1.0 million is a $0.4 million
inventory provision and $2.7 million bonus accrual of which $2.1 million is
related to contractual arrangements with three of the Company's executive
officers and based upon the pre-tax profitability of the Company.
Gross profit margins during 1996 were 30.9% compared with 32.9% for 1995.
Excluding the additional inventory provisions recorded in 1996, the gross profit
margins were 31.2%. The decrease was primarily due to the impact of a high sales
volume of a low margin commodity product in a Northern European subsidiary, a
changing product mix toward lower margin, non-company sourced product and
competitive pricing pressures worldwide.
Operating expenses (research and development plus selling, general &
administrative) during 1996 declined 18.4% or $12.3 million from 1995 to $54.3
million. The decline was a result of the continued cost-cutting actions taken
over 1996 and 1995 which reduced costs of internal operations offset by an
unfavorable impact of $0.5 million related to the weakening U.S. dollar when
compared with the same period a year ago. Research and development expenses
decreased from $4.3 million in 1995 to $2.7 million in 1996. Management expects
research and development expenditures to remain relatively flat in 1997.
Non-operating results for 1996 include a gain of $32.2 million from the sale
of the Company's European Automotive Dealer Management Systems business to
Kalamazoo Computer Group, plc. and $0.7 million in foreign currency exchange
rate gains on certain of the Company's intercompany payables and receivables
offset by a $3.3 million legal settlement. Non-operating results for 1995
include the $1.7 million gain on the
48
<PAGE>
sale of vacant land in San Antonio, Texas, $1.0 million from the favorable
settlement of two patent infringement lawsuits, and $1.5 million in foreign
exchange rate losses on the Company's intercompany payables and receivables.
1995 COMPARED TO 1994
Total revenue increased by 1% to $174.9 million in 1995 from $172.9 million
in 1994. The increase was due to a weaker U.S. dollar, on average, in 1995 as
compared to the average U.S. dollar strength in 1994 as the Company incurred a
$14.6 million increase in total revenue attributable solely to currency changes
($6.4 million for sales and $8.1 million for service and other).
Included in the operating loss for 1995 of $18.2 million were additional
inventory provisions of $5.0 million and $1.0 million of additional receivable
provisions. Operating income during 1994 included a fire insurance settlement
gain of $0.9 million related to a fire in the second quarter in a leased
warehouse facility in the Company's Belgian subsidiary.
Gross profit margins during 1995 were 32.9% compared with 37.9% for 1994.
Excluding the additional inventory provisions recorded in 1995, the gross profit
margins were 35.7%. Gross profit margins during 1994 were 37.9% compared with
41.6% for 1993. Excluding the impact upon cost of sales of the fires noted
above, gross profit margins during 1994 were 37.4%.
Operating expenses (research and development plus selling, general &
administrative) during 1995 declined 10% or $7.6 million from 1994 to $66.5
million. The decline was a result of cost-cutting actions taken over 1995 which
reduced costs of internal operations. Excluding the impact of the weaker U.S.
dollar in 1995 as compared with 1994, operating expenses declined $10.3 million
year over year.
Interest expense decreased $0.2 million in 1995 from 1994 as the Company
benefited from both lower rates on borrowings in Europe and decreased borrowing
amounts in the U.S.
Non-operating results for 1995 include a gain of $1.7 million from the sale
of the vacant land in San Antonio, Texas, $1.0 million from the favorable
settlement of two patent infringement lawsuits, and $1.5 million in foreign
exchange rate losses on the Company's intercompany payables and receivables.
Non-operating results for 1994 include the $3.2 million write-off of an
investment in a partially owned company, $0.7 million in foreign currency
exchange rate losses on certain of the Company's intercompany payables and
receivables and a $0.5 million fire settlement gain on fixed assets.
Prior to 1994, the Company's foreign subsidiaries reported their results to
the parent on a one-month lag which allowed more time to compile results but
produced comparability problems in management accounting. Due to improved
internal applications, the one-month lag became unnecessary and therefore was
eliminated subsequent to 1993 and prior to 1994. As a result, the July 1993
results of operations for the Company's foreign subsidiaries was recorded to the
retained deficit. This action resulted in a charge of $5.5 million being
recorded against the retained deficit. The loss incurred in July 1993 resulted
primarily from a low revenue level, which is usual for the first month following
the end of a fiscal year.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Proxy Statement/Prospectus contains forward-looking statements about
the business, financial condition and prospects of the Company. The actual
results of the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties including
without limitation changes in product demand, the availability of products,
changes in competition, economic conditions, new product development, various
inventory risks due to changes in market conditions, changes in tax and other
governmental rules and regulations applicable to the Company, and other risks
indicated in the Company's filings with the Securities and Exchange Commission.
These risks and uncertainties are beyond the ability of the Company to control,
and in many cases, the Company cannot predict the risks and uncertainties that
could cause its actual results to differ materially from those indicated by the
forward-looking statements. When used in this Proxy Statement/Prospectus the
words "believes," "estimates," "plans," "expects," and "anticipates" and similar
expressions as they relate to the Company or its management are intended to
identify forward-looking statements.
49
<PAGE>
BUSINESS OF THE COMPANY
Datapoint Corporation, including its subsidiaries is principally engaged in
the development, acquisition, marketing, servicing and to a lesser degree,
manufacture of computer and communication products -- both hardware and software
- -- for integrated computer, telecommunication and video conferencing network
systems. The Company is also actively engaged in the business of licensing its
video conferencing technology and its dual protocol local area network ("LAN")
technology.
Datapoint was reincorporated in Delaware in 1976 as the successor
corporation to a Texas corporation originally incorporated in 1968 as Computer
Terminal Corporation and which changed its name to Datapoint Corporation in
1972. Its principal executive offices are located at 4 rue d'Aguesseau, 75008,
Paris, France (telephone number -- (33-1) 40 07 37 37) and at 8410 Datapoint
Drive, San Antonio, Texas 78229-8500 (telephone number -- (210)-593-7000).
Throughout the 1970's, the Company developed, distributed and serviced
minicomputers, and later computer networks and telecommunications products.
During that period sales and service revenue was predominately derived from the
U.S. market, supplemented by international sales through a network of
independent distributors.
In 1981, the Company purchased most of its major international distributors,
which have been subsequently operated as subsidiaries. In 1985, the Company
separately incorporated its U.S. hardware service business as an independent
company and distributed its shares to stockholders.
Throughout the 1980's and the early 1990's, the Company's business was
characterized by a significant decline in total revenue, recurring significant
losses, and a reduction of the domestic workforce. This was primarily due to (1)
a mass entry of competitors in the networking marketplace compounded by (2) a
marketplace demand for "Open Systems" products and standard interfaces, both of
which had a negative impact on the traditional networking and data processing
components of the Datapoint business. The marketplace was forced into a sameness
of design that lead to highly competitive pricing being the only significant
product differentiator. These adverse effects were, in turn, worsened by the
increasing availability of low-cost, off-the-shelf software applications
packages written in a number of industry-standard programming languages. Since
1994, the Company has been able to maintain a consistent and slightly increasing
revenue level while at the same time restructuring its operations (mostly
through significant workforce reductions worldwide) to reduce its cost base to
support such revenue levels.
During fiscal year 1996, the Company pursued and is continuing to pursue
actions to provide cash infusions, including the sale of selected assets and
operations of the Company to improve its financial position. In this regard, on
May 28, 1996, the Company entered into an agreement with Kalamazoo Computer
Group, plc, a public limited company organized under the laws of England,
providing for the sale by Datapoint to Kalamazoo of Datapoint's European
Automotive Dealer Management Systems business for a purchase price of
approximately $33.0 million. From the sales proceeds, the Company realized
approximately $29.4 million net of transaction related expenses and adjustments.
(See note 17 to the Consolidated Financial Statements for a more detailed
description of this transaction). The Company has retained Patricof & Co.
Capital Corp. in connection with the potential disposition of its telephony
business, as well as other asset and equity sale transactions and proposals.
During the first quarter of 1996, the Company signed a letter of intent to
become a joint venture partner in spinning off the Company's Multimedia
Information Network Exchange ("MINX") video conferencing patents and operations
into separate entities. While such discussions were terminated in the second
quarter of 1996, the Company is continuing its efforts to enter into discussions
with a suitable partner to exploit the development and marketing of its MINX
video networking technology.
The Company has recently been successful in asserting its United States
video conferencing patents resulting in payments for licenses. On June 6, 1996,
the Company entered into an agreement with NEC America, Inc. for the licensing
of Datapoint's video conferencing patents. On April 10, 1996, the Company
announced that it had commenced suit in the U.S. District Court for the Eastern
District of New York to
50
<PAGE>
recover damages against two companies for infringement of Datapoint's patent
covering multi-speed network processing (U.S. Patent No. 5,008,879). These
patents cover certain ARCNET and Fast Ethernet products recently introduced by
various suppliers to the local-area network industry and dominates certain types
of dual-speed LAN Adaptor Products recently introduced by various industry
leaders. 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.) (the "-1685 action") 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 "-3819 action")). The Company has moved to
certify the -1685 action as a defendant class action with respect to all
manufacturers, vendors, and users of dual-protocol, Fast Ethernet-compliant
local area network products. On June 28, 1996, the Court denied that motion,
without prejudice to renew at a later date. The Company intends, in the future,
to renew its motion to certify the -1685 action, and to seek similar "defendant
class action" status for the -3819 action. If successful in its certification
efforts, the defendant classes in the -1685 and -3819 actions would include
approximately one-hundred potential infringers of the multispeed network
processing and related patents.
In JOHN FRASSANITO AND DAVID A. MONROE V. DATAPOINT CORP., Civil Action No.
H-95-812 (S.D. Tex.) plaintiffs alleged that the Company usurped various
patentable inventions and trade secrets in connection with the development of
its MINX systems. They also asserted a cause of action for patent infringement,
and a cause of action requiring Datapoint to assign certain MINX-related patents
and other intellectual property. On August 16, 1996, the Court dismissed with
prejudice plaintiffs' claims of patent infringement against Datapoint and
dismissed without prejudice 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.
51
<PAGE>
In 1994, consistent with the Company's patent licensing business, the
Company began patent infringement suits against several defendants related to
the Company's video conferencing patents and dual protocol local area network
patents. The Company's patent enforcement policy includes the identification of
video conferencing and dual protocol local area network products and
applications which infringe the related patents and the execution of licensing
agreements through a) normal commercial negotiations or b) pursuant to
settlements of litigation brought against the patent infringers. The Company has
been successful in asserting its U.S. video conferencing patents resulting in
payments for licenses. On June 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. Currently, these patent infringement suits are pending with
respect to Datapoint's patents on its dual protocol networking technology. These
patents cover certain ARCNET and Fast Ethernet products recently introduced by
various suppliers to the local-area network industry and dominates certain types
of dual-speed LAN Adaptor Products recently introduced by various industry
leaders. Such royalty bearing licenses and enforcement of its patents will be a
primary strategy of the Company's business going forward to create long-term
value for its stockholders. 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 industry-standard. The
file servers are based upon a scalable architecture using the Intel
microprocessor because of its cost and performance. The multi-processor
functionality is provided for 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.
52
<PAGE>
MARKETS
CUSTOMERS
Datapoint sells generally to business and government customers, including
the U.S. government, financial institutions, insurance companies, educational
institutions, and manufacturers. During fiscal 1996, no one customer accounted
for 10 percent or more of consolidated revenues.
DOMESTIC
Datapoint markets its products in the United States through independent
sales representatives who, on a commission basis, solicit orders for Datapoint's
products; through value-added resellers, who purchase Datapoint's products for
resale; original equipment manufacturers, who integrate Datapoint's products
into their overall offerings; and through Datapoint's own end user sales force.
Independent sales representatives, value-added resellers, and original equipment
manufacturers generally market Datapoint's products in conjunction with
application software and other products developed and marketed by such firms.
INTERNATIONAL
Datapoint's products are marketed to end users in over forty countries
through a network of wholly-owned subsidiaries and independent distributors.
Datapoint distributes its products internationally through wholly-owned sales
and service operations in Belgium, France, Germany, Holland, Italy, New Zealand,
Spain, Sweden, Switzerland and the United Kingdom and through authorized
distributors worldwide. During fiscal year 1996, 97 percent of Datapoint's
international revenue was derived from customers in Western Europe.
CUSTOMER SERVICE
During 1995, Datapoint entered into an agreement with Decision Servcom, Inc.
(DSI), whereby DSI would serve as the non-exclusive authorized service agent for
Datapoint's proprietary data processing products in the United States.
Maintenance of equipment outside the United States is provided by Datapoint's
international subsidiaries and distributors. The maintenance operations of the
Company's international subsidiaries produced 44 percent of total company
revenues and 52 percent of total company gross profit for the fiscal year ended
July 27, 1996.
In connection with the sale of Datapoint's European Automotive Dealer
Management Systems business to Kalamazoo, Datapoint entered into a subcontract
with Kalamazoo to provide computer hardware and hardware maintenance service to
such EADS network.
MANUFACTURING, RAW MATERIALS, AND SUPPLIES
A significant portion of Datapoint's products are purchased from third
parties, who manufacture products meeting Datapoint's specifications. The
products are then resold badged/unbadged within Datapoint configurations upon
the completion of testing and packaging procedures performed at the Company's
facilities in San Antonio, Texas.
Datapoint seeks, and maintains where practical, multiple sources of supply
for the products, components, and raw materials which it uses. However, certain
products and components are purchased only from single sources, and Datapoint
could experience manufacturing delays if such suppliers should fail to meet
Datapoint's requirements. The interruption of any components, whether for supply
or quality reasons, can become critical to production flows. The Company's
general experience has been good in terms of minimizing exposure; however,
guarantees regarding possible future situations and rectifying actions that
could arise cannot be made.
RESEARCH AND PRODUCT DEVELOPMENT
The technology involved in the design and operation of Datapoint's products
is complex and subject to constant change. Accordingly, Datapoint is committed
to a program of research and development which is oriented toward the
development of new hardware and software products and the improvement and
expansion of its existing products and services.
53
<PAGE>
Datapoint incurred expense of $2.7 million, $4.3 million, and $5.3 million
in the fiscal years ended July 27, 1996, July 29, 1995, and July 30, 1994,
respectively, on research and development activity. Datapoint maintains its
principal research and development facility in San Antonio, Texas.
COMPETITION
Datapoint operates in the intensely competitive computer data processing,
video conferencing and telephony industries that are characterized by the
frequent introduction of new products based upon technological advances.
Datapoint competes, domestically and abroad, with a substantial number of
companies, many of which are larger and have greater resources than Datapoint.
Such companies, considered in the aggregate, compete in the entire line of
products manufactured and marketed by Datapoint. These competitors differ
somewhat depending on the market segment, customer and geographic area involved.
Competition in this market is based primarily on the relationship between
price and performance; the ability to offer a variety of products and unique
functional capabilities; the strength of sales, service and support
organizations; and upgradability, flexibility, and ease of use of products. The
Company could be adversely affected if its competitors introduced
technologically superior products or substantial price reductions.
BACKLOG
The backlog of firm orders for the sale or lease of the Company's products
(using then existing end-user purchase prices for products to be leased and
giving effect to appropriate discounts for products to be sold) as of July 27,
1996, and July 29, 1995 was $8.1 million and $14.2 million, respectively. The
backlog amounts are not necessarily indicative of the Company's future results,
since an increasing amount of the Company's revenues are derived from orders
obtained in the period of shipment. Furthermore, a portion of the Company's
backlog may be cancelable at the customer's option, under certain conditions,
without financial penalty. All orders included in the backlog at July 27, 1996
are currently scheduled for delivery during the subsequent 12 months. All orders
are subject to the Company's ability to meet delivery commitments. The Company
records only firm orders as backlog, and generally such orders are cancelable
only by the Company. In the event that a new product is released, a customer is
allowed to upgrade (i.e., cancel) an existing order and place a new order for
the new product. This is done at the Company's discretion with no financial
penalty to the customer.
Backlog is also not a reliable indicator of future results, as changes in
product mix (depending on whether the product content contained in backlog has a
low or high sales margin) and costs may significantly impact reported results.
Therefore, the Company believes that the backlog data is not meaningful to an
understanding of the Company's business or future reported results.
PATENTS AND TRADEMARKS
Datapoint owns certain patents, copyrights, trademarks and trade secrets in
both network and video conferencing technologies, which it considers valuable
proprietary assets. The Company does not primarily rely on these rights to
establish or protect its market position, but does view them as providing the
Company a technological advantage in certain cases and does intend to fully
exploit their value, The Company believes that in particular its video
conferencing patents and 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 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
54
<PAGE>
No. 5,008,879) (DATAPOINT CORPORATION V. STANDARD MICRO-SYSTEMS, INC. AND INTEL
CORPORATION, No. C.V.-96-1685 JBW (E.D.N.Y.) (the "-1685 actions")). These
patents cover certain ARCNET and Fast Ethernet products recently introduced by
various suppliers to the local-area network industry and dominates certain types
of dual-speed LAN Adaptor Products recently introduced by various industry
leaders. 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 "-3819 action)). The
Company has moved to certify the -1685 action as a defendant class action with
respect to all manufacturers, vendors, and users of dual-protocol, Fast
Ethernet-compliant local area network products. On June 28, 1996, the Court
denied that motion, without prejudice to renew at a later date. The Company
intends, in the future, to renew its motion to certify the -1685 action, and to
seek similar "defendant class action" status for the -3819 action. If successful
in its certification efforts, the defendant classes in the -1685 and -3819
actions would include approximately one-hundred potential infringers of the
multispeed networking 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 27, 1996, the Company had 705 employees. The Company considers its
relations with employees to be satisfactory.
ENVIRONMENTAL MATTERS
Compliance with current federal, state, and local regulations relating to
the protection of the environment has not had, and is not expected to have, a
material effect upon the capital expenditures, earnings, or competitive position
of Datapoint.
55
<PAGE>
PROPERTIES
Datapoint's principal executive offices are located in Paris, France and the
Company maintains executive offices in San Antonio, Texas. Datapoint believes
that its plants and offices are generally well maintained, in good operating
condition and are adequately equipped for their present use. Information
regarding the principal plants and properties, excluding leases assigned or
subleased, as of July 27, 1996 is as follows:
<TABLE>
<CAPTION>
APPROXIMATE
FACILITY
LOCATION USE SQ. FOOTAGE OWNED OR LEASED LAND AREA
- ------------------------ ----------------------------- ------------ --------------------------
<S> <C> <C> <C>
San Antonio, Texas Office 144,000 Owned; 12 acres
(Subject to mortgage)
Gouda, Netherlands Office 52,000 Owned; 1 acre
(Subject to mortgage)
Paris, France Office 7,000 Leased; expires
June 30, 1999
</TABLE>
Additionally, at July 27, 1996, excluding leases assigned or subleased, the
Company leased sales and service offices having an aggregate of 256,000 square
feet in metropolitan areas throughout the world, pursuant to lease agreements
which expire between 1996 and 2009. The aggregate annual rental of all of these
sales and service offices is approximately $3.3 million and most of these leases
are subject to rental increases under certain escalation provisions and renewals
on similar terms.
LEGAL PROCEEDINGS
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April, 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
During the fourth quarter of 1996, a settlement was reached among the litigants.
As such, the District Court entered a Judgment Non Obstante Veredicto (Judgment
Notwithstanding the Verdict) that set aside the jury's findings against the
Company and its two executive officers and set aside all damages. The $3.3
million settlement, which was reached to avoid the considerable expense and
business disruption of a protracted appeal and legal process, had no material
impact on the Company's then current cash position as it included payment of
funds from a non-working capital trust fund which were otherwise not available
to the Company, issuance of a short term note, and shares of the Company's
common stock. 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 1996, 1995 and 1994, the Company has not repurchased any
shares of Preferred Stock.
56
<PAGE>
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 Management Assistance Inc. Liquidating Trust since February
1986. Mr. Agranoff is a director of Bull Run Corporation, Atlantic Gulf
Communities, The American Energy Group, Ltd., and Canal Capital Corporation. Mr.
Agranoff also has been the General Counsel to Edelman Securities Company and
Plaza Securities Company for more than five years. He has been a director of
Datapoint since 1991. The principal business address of Mr. Agranoff is 8410
Datapoint Drive, San Antonio, Texas 78229-8500.
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. The principal business address of Mr. Edelman is 85
Av. General Guisan, CH-1009 Pully, Switzerland.
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. The principal business address of Mr. Garfinkel in 717
Fifth Avenue, 4th Floor, Suite 407, New York, New York 10022.
DANIEL R. KAIL, age 61, has been Managing Trustee of Management Assistance
Inc. Liquidating Trust since January 1986, and prior thereto had been a
director, Executive Vice President and Chief Operating Officer since October
1984 of Management Assistance Inc., a computer manufacturing and servicing
company. He also was a director and Executive Vice President of Canal Capital
Corporation from 1987 until 1991. He has served as a director of Datapoint since
1985 and is Chairman of the Independent Committee and the Compensation Committee
and a member of the Audit Committee. The principal business address of Mr. Kail
is 980 Post Road East, Suite 3, Westport, Connecticut 06880-5300.
DIDIER M. M. RUFFAT, age 60, is currently the Vice-President of Digital
Equipment Europe and the Managing Director of Digital Equipment France. He has
served for 25 years in various capacities with France's BULL computer group,
most recently as President and Chief Executive Officer of BULL Europe, and
previously in senior executive positions in sales, marketing and finance. He has
served as a director of Datapoint since December 1993 and is a member of the
Compensation Committee. The principal business address of Mr. Ruffat is 8 rue de
la Renaissance 92187 Antony Cedex, France.
BLAKE D. THOMAS, age 45, has been the Executive Vice President and Chief
Operating Officer of the Company since December 1995. He had served since 1994
as special consultant for the Board on Datapoint
57
<PAGE>
general management and business affairs. 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 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. The principal business address of Mr. Thomas is 4 rue
D'Aguesseau 75008, Paris, France.
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.
58
<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.
59
<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 4 times during the fiscal year
ended July 27, 1996.
The Compensation Committee makes salary recommendations regarding senior
management to the Board of Directors and administers the Company's Bonus and
Stock Option Plans as described below. The Committee met 2 times during the
fiscal year ended July 27, 1996.
INDEPENDENT COMMITTEE
In connection with the Exchange Offer, the Board created the Independent
Committee, consisting of Director Daniel R. Kail, to consider the terms of the
consideration to be offered in the Exchange Offer to the Holders of Preferred
Stock. The 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 7 times during the fiscal year ended July 27,
1996. Each director, except Mr. Ruffat, attended at least 75% of the aggregate
of (a) the total number of meetings of the Board of Directors (held during the
period of his/her service) and (b) the total number of meetings held by all
committees of the Board on which he/she served (during the period that he/she
served). Mr. Ruffat, based in Paris, attended two Board Meetings and one
Compensation Committee Meeting.
60
<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 and its computer
hardware maintenance division in the U.S., comprising four of Intelogic's six
directors, when Intelogic filed a voluntary petition for relief under Chapter 11
of the Bankruptcy Code in the U.S. Bankruptcy Court, Western District of Texas,
San Antonio Division, Case No. 94-52172-C-11 on August 5, 1994. Intelogic
emerged from bankruptcy pursuant to approval of a modified first amended plan of
reorganization on November 28, 1994. The above named directors resigned from
Intelogic on December 8, 1994. On March 16, 1995, Intelogic again filed for
bankruptcy protection under Chapter 11 of the Bankruptcy Code in the U.S.
Bankruptcy Court, Western District of Texas, San Antonio Division, Case No.
95-50753-LMC-11. During that proceeding, substantially all of Intelogic's
operating assets were sold to a third party on April 5, 1995. Intelogic is
effectively no longer in business.
The above named directors received compensation and/or benefits from
Intelogic prior to their resignations. Also, these directors and former director
may be deemed to have beneficially owned approximately 15% of Intelogic's common
stock as of July 30, 1994. In addition, they had options to purchase shares of
Intelogic common stock equal in the aggregate to approximately 1% of the amount
then outstanding. The overlap of directors does not give rise to a reportable
compensation committee interlock.
Since the 1985 spin-off of Intelogic from Datapoint up until April 5, 1995,
when substantially all of its operating assets were sold to a third party,
Datapoint engaged in and continued to engage in various transactions with
Intelogic as an independent computer maintenance company. All such transactions
were billed to Intelogic by Datapoint at its cost. All other transactions
between Datapoint and Intelogic were pursuant to a Master Maintenance Agreement
entered into at the time of the spin-off and related to the ordinary business
operations of both Datapoint and Intelogic. For fiscal year 1994 Intelogic paid
Datapoint approximately $196,000 for equipment and field support spares,
royalties and expenses, and Datapoint paid Intelogic approximately $3,000 and
$28,000 in 1995 and 1994, respectively, for services and sales.
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.
Director Agranoff has provided various tax, legal and real estate consulting
services prior to serving as Vice President General Counsel and Corporate
Secretary for the Company. During 1994, Datapoint paid
61
<PAGE>
Mr. Agranoff $126,000 for those services. During fiscal years 1996, 1995 and
1994, Datapoint paid legal fees of $485,000, $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 from August 1994 until May 1, 1995 as a special
consultant for which he received compensation of $500 per day payable in shares
of common stock. Subsequently, on May 5, 1995, in consideration of the
additional work and responsibilities he had taken on for the Company as a
special consultant, the Board of Directors approved a special compensation
package for Director Thomas. From May 1, 1995 through July 31, 1995, he was paid
at the rate of $500 per day for his services, plus travel and housing expenses,
plus additional compensation of $2,000 per week for expenses. On July 31, 1995
Director Thomas' consulting contract was extended until December 31, 1995 and
then was to continue on a month-to-month basis to July 31, 1996. Upon the
resignation of Doris Bencsik as President and Chief Operating Officer, Director
Thomas was appointed on December 5, 1995 to the position of Executive Vice
President and Chief Operating Officer. Director Thomas was also entitled under
the extended contract to participate in the Standard Health Benefit program of
the Company until he was appointed Executive Vice President and Chief Operating
Officer. At such time, he converted to the Executive Health Benefit program.
During fiscal 1995, the Board also approved a one time special issuance of
45,000 shares of common stock of the Company to Director Thomas in recognition
of his service to the Company. During the term Director Thomas acted as a
special consultant he did not accrue or receive any regular Board or committee
fees.
Director Ruffat had a consulting agreement from January 1994 through June
1995 under which he received a monthly compensation of $10,000. For 1996 and
1995, Director Ruffat was paid $50,000 and $80,000, respectively, for consulting
services.
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.
62
<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 as of October 18, 1996.
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)............................... 245,651(2)(5) 1.8% 182,471(3)(5) 9.8%
Asher B. Edelman (O&D)................................. 1,634,953(2)(4) 11.7% 466,027(3)(4) 24.9%
Irving J. Garfinkel (D)................................ 237,318(2)(5) 1.7% 70,471(5) 3.8%
Daniel R. Kail (D)..................................... 25,000(2) * -0- *
Didier M.M. Ruffat (D)................................. 25,000(2) * -0- *
Blake D. Thomas (O&D).................................. 51,999(2) * 28,430 1.5%
David Berger (O)....................................... 63,333(2) * 112,000(3) 6.0%
Jan Berger (O)......................................... 66,667(2) * -0- *
Phillip P. Krumb (O)................................... 33,333(2) * -0- *
Roger Edmonds (O)...................................... 12,500(2) * -0- *
Walter Gevers (O)...................................... 46,667(2) * -0- *
John Perkins (O)....................................... 3,333(2) * -0- *
Executive Officers and Directors of Datapoint as a
group (12 persons).................................... 2,021,118 14.5% 494,457 26.5%
</TABLE>
- ------------------------
* Indicates less than 1% ownership
(1) Information relating to beneficial ownership is based upon ownership
information furnished by each person using "beneficial ownership"
definitions set forth in Section 13 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Under those rules, a person is deemed to be
a "beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose or to
direct the disposition of such security. The person is also deemed to be a
beneficial owner of any security of which that person has a right to acquire
beneficial ownership (such as by exercise of options) within 60 days. Under
such rules, more than one person may be deemed to be a beneficial owner of
the same securities, and a person may be deemed to be a beneficial owner of
securities as to which he or she may disclaim any beneficial interest.
Except as otherwise indicated in other table footnotes, the indicated
directors and executive officers possessed sole voting and investment power
with respect to all shares of Common Stock and Preferred Stock attributed.
(2) The tabulation includes shares of Common Stock which may be deemed to be
beneficially owned by such persons by reason of stock options currently
exercisable or which may become exercisable within sixty (60) days after
that date. The number of shares deemed to be beneficially owned by reason of
such options is: Mr. Edelman, 188,333; Mr. Agranoff, 33,333; all other
directors, 25,000 each (total 100,000); Mr. David Berger, 63,333; Mr. Jan
Berger, 66,667; Mr. Krumb, 33,333; Mr. Edmonds, 12,500; Mr. Gevers, 46,667;
Mr. Perkins, 3,333; all officers and directors as a group, 547,499.
(3) Gerald N. Agranoff, Asher B. Edelman, and David Berger are Trustees of the
Datapoint Corporation Supplemental Executive Retirement Plan (the "Datapoint
Plan") and may each be deemed to be beneficial owners of the 112,000
Preferred Shares owned by the Datapoint Plan by virtue of their shared
voting and investment powers as Trustees. In the above tabulation, such
shares have been included
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<PAGE>
within each party's Preferred Shares listing as well as the listing for the
directors and executive officers as a group. Messrs. Agranoff, Edelman, and
Berger each disclaim beneficial ownership of these shares except to the
extent of pecuniary interests in such shares with which each party may
currently be vested; being, Mr. Agranoff, 0 shares, Mr. Edelman, 31,968
shares and Mr. Berger, 9,584 shares.
(4) Mr. Edelman's listed beneficial ownership of 1,634,953 shares of Common
Stock is explained in detail in this paragraph. As the controlling general
partner of each of Plaza Securities Company, A.B. Edelman Limited
Partnership and Citas Partners, which is the sole general partner of
Felicitas Partners, L.P., Mr. Edelman may be deemed to own beneficially the
212,318, 783,890, and 4,402 shares held, respectively, by each of such
entities for purposes of Rule 13d-3 under the Exchange Act, and these shares
are included in the listed ownership. Also included are the 333,779 shares
owned by Canal Capital Corporation ("Canal"), in which companies Mr. Edelman
and various persons and entities with which he is affiliated own interests.
By virtue of investment management agreements between A.B. Edelman
Management Company Inc. and Canal, A.B. Edelman Management Company Inc. has
the authority to purchase, sell and trade in securities on behalf of Canal.
A.B. Edelman Management Company Inc. therefore may be deemed to be the
beneficial owner of the 333,779 shares owned by Canal. Asher B. Edelman is
the sole stockholder of A.B. Edelman Management Company Inc. and these
shares are included. A.B. Edelman Management Company Inc. is also the sole
general partner of Edelman Value Partners, L.P. which currently owns no
common stock. Also included are Mr. Edelman's presently exercisable options
to purchase 188,333 shares. Also included are the 86,204 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 Capital Corporation Retirement Plan ("Canal Plan"), Mr. Edelman
may be deemed to own beneficially and share voting and investment power over
the 27 shares owned by such plan, which are included. Excluded are 15,835
shares beneficially owned by Mr. Edelman's daughters in accounts for which
their mother, Penelope C. Edelman, is the custodian and the 10,500 shares
owned directly by Penelope C. Edelman. Mr. Edelman disclaims beneficial
ownership of these shares.
In addition, Mr. Edelman's listed beneficial ownership of 466,027 shares of
Preferred Stock is explained in detail in this paragraph. As the controlling
general partner of each of Plaza Securities Company, A.B. Edelman Limited
Partnership and Citas Partners, which is the sole general partner of
Felicitas Partners, L.P., Mr. Edelman may be deemed to hold beneficially the
70,471, 51,229 and 581 shares held, respectively, by each of such entities
for purposes of Rule 13d-3 under the Exchange Act, and these shares are
included in the amount stated in the first sentence of this paragraph. Mr.
Edelman is the sole stockholder of A.B. Edelman Management Company Inc.,
which is the general partner of Edelman Value Partners, L.P., owner of
50,300 shares. Also included are the 8,458 shares owned by Canal and the
29,002 shares owned directly by Mr. Edelman's spouse, Maria Regina M.
Edelman. Also included are the 104,400 shares owned by Edelman Value Fund,
Ltd., a corporation in which Maria Regina M. Edelman is an investor and for
which Mr. Edelman serves as investment manager. Mr. Edelman expressly
disclaims both the Maria Regina M. Edelman and Edelman Value Fund, Ltd.
shares. As a trustee of the Canal Plan and the Datapoint Plan, Mr. Edelman
may be deemed to own beneficially and share voting and investment power over
the 39,586 and 112,000 shares, respectively, owned by such plans, which are
included. Mr. Edelman disclaims ownership except as to shares with which he
is vested under each plan. Excluded are the 38,330 shares owned by Mr.
Edelman's daughters in accounts for which their mother, Penelope C. Edelman,
is the custodian and 20,009 shares owned directly by Penelope C. Edelman.
Mr. Edelman disclaims beneficial ownership of these excluded shares.
(5) Messrs. Agranoff and Garfinkel are general partners of Plaza Securities
Company, which owns 212,318 shares of Common Stock and 70,471 shares of
Preferred Stock. Each disclaims beneficial ownership of these shares, which
are included in each party's listing in the beneficial ownership table
above.
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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 from August 1994 until May 1, 1995 as a special
consultant for which he received compensation of $500 per day payable in shares
of common stock. Subsequently, on May 5, 1995, in consideration of the
additional work and responsibilities he had taken on for the Company as a
special consultant, the Board of Directors approved a special compensation
package for Director Thomas. From May 1, 1995 through July 31, 1995, he was paid
at the rate of $500 per day for his services, plus travel and housing expenses,
plus additional compensation of $2,000 per week for expenses. On July 31, 1995,
Director Thomas' consulting contract was extended until December 31, 1995 and
then was to continue on a month-to-month basis to July 31, 1996. Upon the
resignation of Doris Bencsik as President and Chief Operating Officer, Director
Thomas was appointed on December 5, 1995 to the position of Executive Vice
President and Chief Operating Officer. Director Thomas was also entitled under
the extended contract to participate in the Standard Health Benefit program of
the Company until he was appointed Executive Vice President and Chief Operating
Officer. At such time, he converted to the Executive Health Benefit program.
During fiscal 1995, the Board also approved a one time special issuance of
45,000 shares of common stock of the Company to Director Thomas in recognition
of his service to the Company. During the term Director Thomas acted as a
special consultant he did not accrue or receive any regular Board or committee
fees.
Director Ruffat had a consulting agreement from January 1994 through June
1995 under which he received a monthly compensation of $10,000. For 1996 and
1995 Director Ruffat was paid $50,000 and $80,000, respectively, for consulting
services.
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<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, four most highly compensated executive officers for the last
three fiscal years, and one individual for whom disclosure would have been
applicable but for the fact that the individual was not serving as an executive
officer at the end of the last completed fiscal year.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- -----------
OTHER STOCK ALL
NAME AND FISCAL ANNUAL OPTIONS OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION GRANTED (#) COMPENSATION
- -------------------------- ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Asher B. Edelman (1) 1996 $ 299,956 $1,152,918(2) $ 148,752(3) 40,000 $ 17,952(18)
CHAIRMAN OF THE BOARD AND 1995 275,104(4) 0 180,781(3) 0 30,000(18)
CHIEF EXECUTIVE OFFICER 1994 300,534 0 190,012(3) 0 0
Blake D. Thomas (5) 1996 $ 145,166(8) $ 691,751(2) $ 0 100,000 0
EXECUTIVE VICE PRESIDENT 1995 n/a n/a n/a n/a n/a
AND 1994 n/a n/a n/a n/a n/a
CHIEF OPERATING OFFICER
Phillip P. Krumb (6) 1996 $ 175,000 $ 230,584(2) $ 9,373(7) 0 0
VICE PRESIDENT AND 1995 141,346(8) 50,000(9) 57,094(10) 50,000 0
CHIEF FINANCIAL OFFICER 1994 n/a n/a n/a n/a n/a
Gerald N. Agranoff (11) 1996 $ 172,481 $ 400,000(12) $ 7,200(13) 0 0
VICE PRESIDENT, GENERAL 1995 125,192(8) 0 6,000(13) 50,000 0
COUNSEL AND CORP. 1994 n/a n/a n/a n/a n/a
SECRETARY
Jan Berger (14) 1996 $ 180,000 $ 75,000(12) $ 38,662(3) 20,000 $ 10,050(18)
VICE PRESIDENT, MARKETING 1995 180,000 0 38,662(3) 15,000 7,200(18)
1994 180,000 0 30,190(3) 0 0
Doris D. Bencsik (15) 1996 $ 121,731(8) 0 $ 3,000(13) 0 $ 241,694(17)
PRESIDENT AND CHIEF 1995 281,166(4) 0 0 0 61,798(19)
OPERATING OFFICER 1994 259,615 0 0 75,000 31,798(16)
</TABLE>
- ------------------------
(1) Asher B. Edelman was named Chief Executive Officer in February 1993.
(2) Represents bonus based on the Company's net pre-tax earnings.
(3) Represents payments incident to foreign assignment.
(4) Effective in 1995, Mr. Edelman and Mrs. Bencsik agreed to a 10% salary
reduction as part of the Company's cost reduction plan.
(5) Blake D. Thomas commenced employment with the Company in December of fiscal
1996 as Executive Vice President and Chief Operating Officer.
(6) Phillip P. Krumb commenced employment with the Company in September of
fiscal 1995 as Vice President and Chief Financial Officer.
(7) Represents auto allowance and company match of employee profit sharing
plan.
(8) Amount reflects partial year of employment.
(9) Represents a one-time guaranteed bonus per terms of employment agreement.
(10) Represents relocation, housing and auto allowance.
(11) Gerald N. Agranoff commenced employment with the Company in October of
fiscal 1995 as Vice President, General Counsel and Corporate Secretary.
(12) Represents a performance bonus.
(13) Represents auto allowance.
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<PAGE>
(14) Since July 1996, Mr. Berger has been working as a consultant for Kalamazoo
Computer Group, plc.
(15) 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, Mrs. Bencsik resigned from her position of the Company and
on May 20, 1996, Mrs. Bencsik resigned from her position as a director of
the Company.
(16) Represents contractually fixed supplemental early retirement benefit
attributable to prior service as an officer from 1982-87.
(17) Includes $35,444 of contractually fixed supplemental early retirement
benefit attributable to prior service as an officer from 1982-1987. Also
includes $206,500 related to a grant of 150,000 shares of common stock by
the Company's Board of Directors upon Mrs. Bencsik's resignation.
(18) Represents vested portion of the Company's preferred stock contributions to
the Supplemental Executive Retirement Plan on behalf of named employee.
(19) Includes $31,798 of contractually fixed supplemental early retirement
benefit attributable to prior service as an officer from 1982-1987. Also
includes the vested portion of the Company's preferred stock contributions
to the Supplemental Executive Retirement Plan on behalf of named employee
($30,000).
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, four most highly
compensated executive officers for the last fiscal year and one individual for
whom disclosure would have been applicable but for the fact that the individual
was not serving as an executive officer at the end of the last completed fiscal
year.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN FISCAL 1996
--------------------------------------------------- POTENTIAL GAIN AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK PRICE
OPTIONS APPRECIATION FOR OPTION
NUMBER OF GRANTED TO EXERCISE TERM (3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED(2) FISCAL YEAR PER SHARE DATE 5% 10%
- --------------------------------- ----------- ------------ ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Asher B. Edelman................. 40,000 9.67% $ 1.50 08/05/05 $ 37,734 $ 95,625
Blake D. Thomas.................. 100,000 24.18% 1.06 03/20/06 66,820 169,335
Phillip P. Krumb................. 0 0.00% n/a n/a n/a n/a
Gerald N. Agranoff............... 0 0.00% n/a n/a n/a n/a
Jan Berger....................... 20,000 4.84% 1.50 08/05/05 18,867 47,812
Doris D. Bencsik................. 0 0.00% n/a n/a n/a n/a
Gain for all stockholders at
assumed annual rates of
stock price appreciation (4):........................................................ $ 9,868,040 $ 25,007,528
</TABLE>
- ------------------------
(1) No Stock Appreciation Rights (SARs) have ever been granted by Datapoint.
(2) Each grant becomes exercisable in three equal annual installments commencing
on the first anniversary date, with the exception of Blake Thomas's options.
His options are an ISO and do not become exercisable until two years from
the anniversary date.
(3) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates required by the SEC and, therefore, are not intended to
forecast possible future appreciation, if any, of the stock price.
(4) These amounts represent the increase in the market value of Datapoint's
outstanding shares (13.9 million) as of July 27, 1996, that would result
from the same stock price assumptions used to show the potential realizable
value for the named executives.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth certain information regarding stock options
exercised by the Company's Chief Executive Officer, four most highly compensated
executive officers for the last fiscal year and one individual for whom
disclosure would have been applicable but for the fact that the individual was
not serving as an executive officer at the end of the last completed fiscal
year.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JULY 27, 1996 AT JULY 27, 1996
ACQUIRED ON VALUE -------------------------- ------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------------- --------- ----------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Asher B. Edelman.................. 0 $ 0 175,000 40,000 $ 0 $ 0
Blake D. Thomas................... 0 0 25,000 100,000 0 6,250
Phillip P. Krumb.................. 0 0 16,667 33,333 0 0
Gerald N. Agranoff................ 0 0 16,667 33,333 0 0
Jan Berger........................ 0 0 55,000 30,000 0 0
Doris D. Bencsik.................. 0 0 15,000 0 0 0
</TABLE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the five-year cumulative total
return for Datapoint common stock with the Dow Jones 65-Composite Average, a
broad equity market index, and the Dow Jones computer systems index, excluding
IBM.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOW JONES COMPUTER
<S> <C> <C> <C>
systems index Dow Jones 65-
Datapoint Common Stock (without IBM) Composite Average
1991 $ 100 $ 100 $ 100
1992 $ 173 $ 100 $ 114
1993 $ 509 $ 69 $ 130
1994 $ 273 $ 85 $ 132
1995 $ 109 $ 216 $ 127
1996 $ 81.82 $ 223.75 $ 141.08
</TABLE>
The graph assumes $100 invested on July 28, 1991, in Datapoint common stock
and each of the Dow Jones indexes, and that all dividends were reinvested.
During the five-year period Datapoint did not pay any dividends on its common
stock.
EMPLOYMENT AGREEMENTS
Effective April 25, 1990, Datapoint entered into a written employment
agreement memorializing an existing understanding concerning the employment of
Mr. Edelman as Chairman of the Board of Directors and 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
68
<PAGE>
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 June 1, 1991, Datapoint entered into an agreement with Mr. Jan
Berger providing for his employment as Vice President, Marketing, at a minimum
annual base salary of $180,000. The agreement provides for an annual bonus
opportunity, certain executive benefits, and lump-sum payment of one year of
base salary as well as a continuation of benefits for one year should Datapoint
terminate his employment other than for "cause" as strictly defined therein. The
agreement also provides for expatriate accommodations incident to foreign
assignment.
Effective October 1, 1994, Datapoint entered into an agreement with Mr.
Agranoff providing for his employment as General Counsel and Corporate
Secretary. This agreement, as amended, now provides for a minimum annual base
salary of $200,000, annual bonus opportunity, certain executive benefits, and
continuation of base salary payments of up to $100,000, plus any performance
bonus he may be entitled to, as well as a continuation of benefits for six
months should Datapoint terminate his employment other than for cause.
Effective December 5, 1995, Datapoint entered into an agreement with Mr.
Thomas providing for his employment as Executive Vice President and Chief
Operating Officer at a minimum annual base salary of $250,000. The agreement
provides for an annual bonus opportunity of 3% of the Company's net pre-tax
earnings (excluding the excess over $10 million of the net of any extraordinary
gains due to debt repurchase or exchange against all extraordinary losses),
certain executive benefits, and continuation of base salary payments of up to
$100,000, plus any performance bonus he may be entitled to, as well as a
continuation of benefits for six months should Datapoint terminate his
employment other than for cause. The agreement also provides for expatriate
accommodations incident to foreign assignment.
Effective September 19, 1994, Datapoint entered into an agreement with Mr.
Krumb providing for his employment as Vice President and Chief Financial Officer
at a minimum annual base salary of $175,000. The agreement provides for an
annual bonus opportunity of 1% of the Company's net pre-tax earnings (excluding
the excess over $10 million of the net of any extraordinary gains due to debt
repurchase or exchange against all extraordinary losses), certain executive
benefits, and continuation of base salary payments of up to $100,000, plus any
performance bonus he may be entitled to, as well as a continuation of benefits
for six months should Datapoint terminate his employment other than for cause.
The agreement also 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.
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<PAGE>
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 1996 compensation for both the CEO and the other
named executive officers.
TOTAL ANNUAL COMPENSATION
Annual cash compensation consists of two components; a fixed base salary and
a variable annual bonus opportunity. As an executive's level of responsibility
increases, a larger portion of total annual pay is based on bonus and less on
salary. Mr. Agranoff was the only named executive who received a salary increase
during the past year, and Mr. Edelman's salary was last increased in December
1990. The Committee 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, as was the case in fiscal years 1995 and 1994, individual incentive
pay is reduced accordingly.
Messrs. Edelman's, Krumb's and Thomas's bonuses are 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 losses. During fiscal year 1995, the Company incurred net losses
and therefore no bonuses were paid in 1995 under these contractual arrangements.
For the fiscal year 1996, an aggregate of approximately $2.1 million is expected
to be paid under these contractual arrangements.
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 1996, the committee granted stock options to executive officers, as well
as to other executives and selected key employees. In determining the size of
the grant for Mr. Edelman and 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
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<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In addition, the Company maintains a Supplemental Executive Retirement Plan
for certain executive employees selected by the Board of Directors. The plan
provides for employee contributions of up to 10% of applicable compensation. In
addition, at the Board's discretion, the Company may also make contributions on
an annual, individual basis, allocated on a pro-rata basis according to
participant's applicable compensation up to a maximum contribution of 15% of
applicable compensation per employee. As of July 29, 1995 and July 27, 1996, the
Company contributed 62,000 and 50,000 shares of its Preferred Stock,
respectively, to the plan for credit to the accounts of various executive
officers. Under the terms of the plan, benefits accrue to the various executive
officers upon satisfaction of the plan's vesting criteria which is based upon
length of employment with the Company.
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<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 or about
November 1, 1996.
The Board of Directors of the Company has fixed the close of business on
October 31, 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 13,931,640 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 415 holders and 3,128 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 October 18, 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 24.9% of the outstanding shares of Preferred Stock
and approximately 11.7% 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 1.6% of
the outstanding shares of Preferred Stock and approximately 2.8% 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."
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GENERAL
As of October 18, 1996, there were approximately 415 record holders of
Preferred Stock, and there was outstanding approximately $41.5 million aggregate
liquidation preference (1,868,056 shares of Preferred Stock (which includes
accumulated but unpaid dividends of approximately $4.2 million as of October 15,
1996). As of October 18, 1996, there were approximately 3,128 record holders and
13,931,640 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 9:00 a.m., New York City time,
December 10, 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
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prior to 9:00 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.
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 9:00 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
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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.
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 9:00 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.
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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 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 9:00 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;
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(b) prior to 9:00 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 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.
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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 9:00 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."
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
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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
(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 $10,000, 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 27, 1996, the Company had available tax net operating losses of
approximately $165 million and $28 million for federal and foreign tax purposes,
respectively, expiring in various amounts beginning in 2001 and 1997,
respectively. 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
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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
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 fiscal year 1997, 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
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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
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
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voluntary or involuntary termination of Board service for any reason other than
retirement, disability or 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
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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.
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
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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 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.
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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 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 November 27, 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 78229-8500, and at Datapoint's offices at 717 Fifth Avenue, New
York, New York 10022.
88
<PAGE>
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 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
$10,000, 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.
ANNUAL REPORT
The information contained in the Annual Report of the Company on Form 10-K
for the fiscal year ending July 27, 1996, including financial statements, is
included in this Proxy Statement/Prospectus.
THE COMPANY WILL PROVIDED WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDING JULY 27, 1996, INCLUDING
FINANCIAL STATEMENTS AND SCHEDULES THERETO, TO EACH OF THE COMPANY'S
STOCKHOLDERS OF RECORD ON OCTOBER 31, 1996 AND EACH BENEFICIAL STOCKHOLDER ON
THAT DATE, UPON WRITTEN REQUEST MAILED TO THE COMPANY'S OFFICES, 8410 DATAPOINT
DRIVE, SAN ANTONIO, TEXAS 78229-8500 ATTENTION: SECRETARY. REQUESTS FROM
BENEFICIAL STOCKHOLDERS MUST SET FORTH A GOOD FAITH REPRESENTATION AS TO SUCH
OWNERSHIP ON THAT DATE.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries at
July 27, 1996 and July 29, 1995, and for each of the three fiscal years in the
period ended July 27, 1996, 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 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.
89
<PAGE>
DATAPOINT CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors ......................................................... F-1
Consolidated Financial Statements
Consolidated Statements of Operations for the fiscal years 1996, 1995 and 1994........................... F-2
Consolidated Balance Sheets as of July 27, 1996 and July 29, 1995........................................ F-3
Consolidated Statements of Cash Flows for the fiscal years 1996, 1995 and 1994........................... F-4
Consolidated Statements of Stockholders' Deficit for the fiscal years 1996, 1995 and 1994................ F-5
Notes to Consolidated Financial Statements............................................................... F-6
</TABLE>
90
<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 27, 1996 and July 29, 1995
and the related consolidated statements of operations, stockholders' deficit and
cash flows for each of the three fiscal years in the period ended July 27, 1996.
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at July 27, 1996 and July 29, 1995 and the consolidated results of
its operations and its cash flows for each of the three fiscal years in the
period ended July 27, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994.
ERNST & YOUNG LLP
Dallas, Texas
October 21, 1996
F-1
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATAPOINT CORPORATION AND SUBSIDIARIES FISCAL YEARS 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenue:
Sales.............................................................. $ 98,876 $ 84,187 $ 84,753
Service and other.................................................. 80,665 90,714 88,183
------------- ------------- -------------
Total revenue.................................................. 179,541 174,901 172,936
Operating costs and expenses:
Cost of sales...................................................... 72,483 65,234 49,912
Cost of service and other.......................................... 51,524 52,163 57,459
Research and development........................................... 2,661 4,303 5,268
Selling, general and administrative................................ 51,593 62,220 68,808
Write-off of investment in foreign operations...................... -- -- 57,657
Reorganization/restructuring costs................................. 263 9,213 14,853
------------- ------------- -------------
Total operating costs and expenses............................. 178,524 193,133 253,957
------------- ------------- -------------
Operating income (loss).............................................. 1,017 (18,232) (81,021)
Non-operating income (expense):
Interest expense................................................... (8,619) (9,332) (9,097)
Realized gain on sale of European based Auto Dealer Systems........ 32,200 -- --
Other, net......................................................... (1,891) (580) (4,293)
------------- ------------- -------------
Income (loss) before income taxes, extraordinary credit and
effect of change in accounting principle...................... 22,707 (28,144) (94,411)
Income taxes......................................................... 3,692 199 354
------------- ------------- -------------
Income (loss) before extraordinary credit and effect of change
in accounting principle....................................... 19,015 (28,343) (94,765)
Extraordinary credit-debt extinguishment............................. 327 -- --
------------- ------------- -------------
Income (loss) before effect of change in accounting
principle..................................................... 19,342 (28,343) (94,765)
Effect of change in accounting principle............................. -- -- 1,340
Net income (loss).................................................... $ 19,342 $ (28,343) $ (93,425)
------------- ------------- -------------
------------- ------------- -------------
Net income (loss), less preferred stock dividends paid or
accumulated......................................................... $ 17,457 $ (30,158) $ (95,209)
------------- ------------- -------------
------------- ------------- -------------
Net income (loss) per common share:
Before extraordinary credit and effect of change in accounting
principle....................................................... $ 1.27 $ (2.29) $ (6.69)
Extraordinary credit-debt extinguishment......................... .03 -- --
Effect of change in accounting principle......................... -- -- .09
------------- ------------- -------------
Net income (loss).............................................. $ 1.30 $ (2.29) $ (6.60)
------------- ------------- -------------
------------- ------------- -------------
Net income per common share assuming full dilution:
Before extraordinary credit and effect of change in accounting
principle......................................................... $ 1.11 -- --
Extraordinary credit-debt extinguishment........................... .02 -- --
------------- ------------- -------------
Net income..................................................... $ 1.13 -- --
------------- ------------- -------------
------------- ------------- -------------
Average common shares outstanding:
Primary............................................................ 13,455,878 13,194,667 14,430,574
Assuming full dilution............................................. 17,192,020 n/a n/a
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996 AND JULY 29, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 23,184 $ 8,493
Restricted cash and cash equivalents.................................................... 864 2,549
Accounts receivable, net of allowance for doubtful accounts of $2,791 and $3,012,
respectively........................................................................... 38,735 43,072
Inventories............................................................................. 3,726 9,754
Prepaid expenses and other current assets............................................... 3,486 3,638
---------- ----------
Total current assets................................................................ 69,995 67,506
Fixed assets, net......................................................................... 14,625 18,877
Other assets, net......................................................................... 9,198 15,368
---------- ----------
$ 93,818 $ 101,751
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Payables to banks....................................................................... $ 9,831 $ 16,757
Current maturities of long-term debt and long-term debt subject to accelerated
maturity............................................................................... 3,114 9,217
Accounts payable........................................................................ 20,280 23,286
Accrued expenses........................................................................ 29,256 34,857
Deferred revenue........................................................................ 11,642 15,291
Income taxes payable.................................................................... 2,842 848
---------- ----------
Total current liabilities........................................................... 76,965 100,256
Long-term debt, exclusive of current maturities........................................... 63,945 64,923
Other liabilities......................................................................... 8,110 10,688
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $1.00 par value. Shares authorized 10,000,000; shares issued and
outstanding 1,868,071 in 1996 and 1,846,456 in 1995 (aggregate liquidation preference,
including dividends in arrears, $41,061 in 1996 and $38,744 in 1995)................... 1,868 1,846
Common stock of $0.25 par value. Shares authorized 40,000,000; shares issued 20,991,217,
including treasury shares of 7,043,593 in 1996 and 7,866,832 in 1995................... 5,248 5,248
Other capital........................................................................... 212,655 212,630
Foreign currency translation adjustment................................................. 11,567 13,004
Retained deficit........................................................................ (248,226) (261,742)
Treasury stock, at cost................................................................. (38,314) (45,102)
---------- ----------
Total stockholders' deficit......................................................... (55,202) (74,116)
---------- ----------
$ 93,818 $ 101,751
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DATAPOINT CORPORATION AND SUBSIDIARIES FISCAL YEARS 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................................... $ 19,342 $ (28,343) $ (93,425)
Adjustments to reconcile net loss to net cash used in operating
activities:
Losses incurred in lag month eliminated............................... -- -- (5,470)
Effect of change in accounting principle.............................. -- -- (1,340)
Depreciation and amortization......................................... 6,969 9,830 10,729
Write-off of investment in foreign operations......................... -- -- 57,657
Write-off of investment in partially-owned company.................... -- -- 3,210
Proceeds from settlement of litigation................................ -- 5,540 --
Realized gain on fixed assets fire settlement......................... -- -- (534)
Provision for losses on accounts receivable........................... 170 2,147 803
Provision for fixed asset write-off................................... -- 1,895 --
Realized gain on sale of property..................................... -- (1,709) --
Realized gain on sale of EADS......................................... (32,200) -- --
Gain on debt extinguishment........................................... (327) -- --
Changes in assets and liabilities:
Decrease in receivables............................................. 1,467 4,111 801
Decrease in inventory............................................... 5,436 8,885 1,007
Increase (decrease) in accounts payable and accrued expenses........ (6,503) (9,700) 19,747
Increase in other liabilities and deferred credits.................. 2,482 614 388
Decrease in deferred taxes--EADS sale............................... 1,673 -- --
Use of restricted funds held in trust............................... 3,018 -- --
Other, net............................................................ (232) 1,138 139
---------- ---------- ----------
Net cash provided from (used in) operating activities................. 1,295 (5,592) (6,288)
Cash flows from investing activities:
Payments for fixed assets................................................. (3,725) (4,660) (10,828)
Proceeds from the sale of EADS............................................ 29,450 -- --
Proceeds from disposition of fixed assets................................. 278 7,948 2,426
Other, net................................................................ (217) 699 (648)
---------- ---------- ----------
Net cash provided from (used in) investing activities................. 25,786 3,987 (9,050)
Cash flows from financing activities:
Payments on borrowings.................................................... (44,963) (33,149) (32,606)
Proceeds from borrowings.................................................. 31,383 31,840 33,126
Payments of dividends on preferred stock.................................. -- -- (1,784)
Restricted cash for letters of credit..................................... 1,685 1,763 147
Proceeds on sale of common stock.......................................... -- 2,536 52
---------- ---------- ----------
Net cash provided from (used in) financing activities................. (11,895) 2,990 (1,065)
Effect of foreign currency translation on cash.............................. (495) 867 192
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents........................ 14,691 2,252 (16,211)
Cash and cash equivalents at beginning of year.............................. 8,493 6,241 22,452
---------- ---------- ----------
Cash and cash equivalents at end of year.................................... $ 23,184 $ 8,493 $ 6,241
---------- ---------- ----------
---------- ---------- ----------
Cash payments for:
Interest.................................................................... $ 8,625 $ 8,112 $ 8,781
Income taxes (refunds), net................................................. 514 (152) 362
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
DATAPOINT CORPORATION AND SUBSIDIARIES FISCAL YEARS 1996, 1995, AND 1994
(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 JULY 31, 1993.......................... $ 5,248 $ 1,784 $ 212,599 $ 7,707 $ (125,581) $ (54,736)
----------- ----------- ---------- ----------- ----------- ----------
Losses incurred in lag month eliminated........... -- -- -- -- (5,470) --
Net loss.......................................... -- -- -- -- (93,425) --
Common stock options exercised.................... -- -- -- -- (717) 935
Dividends paid on preferred stock................. -- -- -- -- (1,784) --
Foreign currency translation adjustment........... -- -- -- 2,845 -- --
Common stock issued to 401(k) Plan................ -- -- -- -- -- 6
Common stock purchased from 401(k) Plan........... -- -- -- -- -- (172)
----------- ----------- ---------- ----------- ----------- ----------
BALANCE AT JULY 30, 1994.......................... $ 5,248 $ 1,784 $ 212,599 $ 10,552 $ (226,977) $ (53,967)
----------- ----------- ---------- ----------- ----------- ----------
Net loss.......................................... -- -- -- -- (28,343) --
Common stock options exercised.................... -- -- -- -- (1,036) 1,292
Foreign currency translation adjustment........... -- -- -- 2,452 -- --
Regulation S public filing........................ -- -- -- -- (4,029) 5,776
Consulting Compensation........................... -- -- -- -- (445) 594
Employment separation............................. -- -- -- -- (814) 1,064
Executive Retirement Plan contribution............ -- 62 31 -- -- --
Common stock issued to 401(k) Plan................ -- -- -- -- (98) 139
----------- ----------- ---------- ----------- ----------- ----------
BALANCE AT JULY 29, 1995.......................... $ 5,248 $ 1,846 $ 212,630 $ 13,004 $ (261,742) $ (45,102)
----------- ----------- ---------- ----------- ----------- ----------
Net income........................................ -- -- -- -- 19,342 --
Foreign currency translation adjustment........... -- -- -- (1,437) -- --
Lawsuit settlement................................ -- -- -- -- (133) 165
Executive Compensation............................ -- -- -- -- (132) 165
Lawsuit settlement................................ -- -- -- -- (700) 825
Employment separation............................. -- -- -- -- (2,082) 2,413
Consulting Compensation........................... -- -- -- -- (128) 149
Executive retirement.............................. -- -- -- -- (1,031) 1,238
Preferred stock conversion........................ -- (28) -- -- (439) 467
Executive retirement plan contribution............ -- 50 25 -- -- --
Common issued to 401(k) plan...................... -- -- -- -- (1,181) 1,366
----------- ----------- ---------- ----------- ----------- ----------
BALANCE AT JULY 27, 1996.......................... $ 5,248 $ 1,868 $ 212,655 $ 11,567 $ (248,226) $ (38,314)
----------- ----------- ---------- ----------- ----------- ----------
----------- ----------- ---------- ----------- ----------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LIQUIDITY
The Company believes its available cash, cash equivalents and funds
generated by operations will be sufficient to provide its working capital and
cash requirements for fiscal 1997. In addition, management believes the Company
will be able to discharge its obligations in the long term with cash generated
from operations and other sources such as sale of selected assets or operations,
and capital transactions.
FISCAL YEAR
The Company utilizes a 52-53 week fiscal year ending on the Saturday
following the last Friday in July. References to 1996, 1995 and 1994 are for the
fiscal years ended July 27, 1996, July 29, 1995 and July 30, 1994.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany accounts and transactions have
been eliminated upon consolidation.
Prior to 1994, the Company's foreign subsidiaries reported their results to
the parent on a one-month lag which allowed more time to compile results but
produced comparability problems in management accounting. Due to improved
internal applications, the one-month lag became unnecessary and therefore was
eliminated subsequent to 1993 and prior to 1994.
CASH AND CASH EQUIVALENTS
Cash equivalents include short-term, highly-liquid investments with
maturities of three months or less from date of acquisition and as a result the
carrying value approximates fair value because of the short maturity of those
instruments. At July 27, 1996, the Company had $864 in restricted cash. The
amount collateralizes various lines of credit payable to banks which are
recorded as current liabilities.
INVENTORIES
Inventories are stated at the lower of standard cost (approximates first-in,
first-out) or market (replacement cost as to raw materials and net realizable
value as to work in process and finished products).
The Company reviews inventory obsolescence on a quarterly basis. This review
consists of a detailed inventory requirements analysis based upon actual
shipments of each product for the prior twelve months. A computation is then
made of future inventory requirements by product based on the historical
analysis adjusted for future projections including the impact of new product
introductions.
FIXED ASSETS
Fixed assets are carried at cost and depreciated for financial purposes
using straight-line and accelerated methods at rates based on the economic lives
of the assets, which are generally as follows:
<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.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", which
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets' carrying amount. The impairment
loss is measured by comparing the fair value of the asset to its carrying
amount. The Company will adopt Statement No. 121 in the first quarter of 1997.
However, based on presently available estimates, adoption of the new impairment
rules is not expected to have a material impact on the Company's financial
statements.
DEBT
The carrying amounts and the fair values of the Company's debt at July 27,
1996 are:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
--------- ---------
<S> <C> <C>
8 7/8% convertible subordinated debentures.............................. $ 63,652 $ 35,725
</TABLE>
The fair value of the Company's 8 7/8% convertible subordinated debentures
is based on a quoted market price at July 26, 1996.
TRANSLATION OF FOREIGN CURRENCIES
Management has determined that all of the Company's foreign subsidiaries
operate primarily in local currencies. All assets and liabilities of foreign
subsidiaries are translated into U.S. dollars using the exchange rate prevailing
at the balance sheet date, while income and expense accounts are translated at
average exchange rates during the year.
RECLASSIFICATIONS
Certain reclassifications to the financial statements for prior years have
been made to conform to the 1996 presentation.
REVENUE RECOGNITION
Revenue is recognized in accordance with the following criteria:
- Sales revenue is generally recognized at the time of shipment provided
that there are no significant vendor and post-contract support obligations
and that collections of the resulting receivable are probable. If such
obligations are present in the contract, revenue is not recognized until
such time as the contractual obligations are met.
- Software revenue is recognized when the program is shipped, or as the
monthly license fees accrue, or over the terms of the support agreement.
- Service revenue is recognized ratably over a contractual period or as
services are provided.
- Lease revenue is recognized on the operating method ratably over the term
of the lease.
INCOME TAXES
The provision for income taxes is reduced by investment tax credits, which
are recognized in the year the assets giving rise to the credits are placed in
service (flow-through method) or when realized for income tax purposes, if
later.
No tax provision has been made for the undistributed earnings of foreign
subsidiaries as management expects these earnings to be reinvested indefinitely
or received substantially free of additional tax.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income
Taxes", which superseded SFAS No. 96 and APB Opinion No. 11. The adoption of
this new standard had a favorable cumulative accounting change effect of $1,340
recorded in the first quarter of fiscal 1994 (see note 4).
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based on the weighted average number
of common shares outstanding during each year presented. The Company's common
stock equivalents, which include convertible debt, were antidilutive in each
year presented and therefore, were excluded from the computations. The 1996,
1995 and 1994 computations include the effect of dividends paid or accumulated
on preferred stock of $1,885, $1,815, and $1,784, respectively. For 1996,
convertible preferred stock has been included in the fully diluted calculation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. REORGANIZATION/RESTRUCTURING COSTS
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Employee termination costs....................................... $ 251 $ 6,842 $ 14,853
Lease termination costs.......................................... -- 296 --
Asset write-offs................................................. 12 2,075 --
--------- --------- ---------
$ 263 $ 9,213 $ 14,853
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's 1996 and 1995 restructuring charges primarily have been driven
by management's efforts to implement cost cutting measures in light of its
overall plan to return to profitability. In addition, continued competitive
pressures in the Company's industry and a slowdown of customer orders have
influenced the level of restructuring charges.
The 1994 restructuring charges included $13,360 as a result of the
implementation of a statutory plan of reorganization for one of its European
subsidiaries. Management developed the plan, which was subject to administrative
approval, as a result of a continued decline in revenues resulting from the loss
of several significant accounts. These charges related principally to severance
costs associated with the termination of approximately 140 employees spread
throughout sales, service, and administrative positions involved in this
European subsidiary. The reorganization plan was approved in September 1995. Of
the total restructuring amount, $5,570 was paid by the foreign government and is
repayable by the Company over two years beginning in 1996.
Restructuring charges are not recorded until specific employees are
determined (and notified of termination) by management in accordance with its
overall restructuring plan. As such, employee termination payments are generally
paid out over a period of time rather than as one lump sum. Although a
reasonable estimate of the amount of future termination costs cannot be made at
this time, management expects to incur additional charges for terminations.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
3. NON-OPERATING INCOME (EXPENSE)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest earned.................................................................... $ 421 $ 959 $ 313
Realized gain on fixed assets fire settlement...................................... -- -- 534
Write-off of investment in partially owned company................................. -- -- (3,210)
Foreign currency gains (losses).................................................... 728 (1,480) (718)
Realized gain on sale of property.................................................. -- 1,709 --
Litigation settlements............................................................. (2,945) 1,000 --
Other.............................................................................. (95) (2,768) (1,212)
--------- --------- ---------
$ (1,891) $ (580) $ (4,293)
--------- --------- ---------
--------- --------- ---------
</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>
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Income (loss) before income taxes, extraordinary credit and
effect of change in accounting principle:
U.S.................................................... $ (771) $ (22,305) $ (11,430)
Outside the U.S........................................ 23,478 (5,839) (82,981)
--------- ---------- ----------
$ 22,707 $ (28,144) $ (94,411)
--------- ---------- ----------
--------- ---------- ----------
Provision for income taxes:
U.S. federal:
Current.............................................. $ 6 $ 53 $ 73
Outside the U.S.:
Current.............................................. 2,266 229 (61)
Deferred............................................. 1,420 (83) 342
--------- ---------- ----------
3,686 146 281
--------- ---------- ----------
Total provision............................................ $ 3,692 $ 199 $ 354
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (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>
1996 1995 1994
--------- --------- -----------
<S> <C> <C> <C>
Income taxes (tax benefits) at statutory rate.................................... $ 7,947 $ (9,850) $ (33,043)
Increase in taxes resulting from:
Benefit of U.S. tax loss not recognized........................................ 262 7,791 3,298
Foreign losses and other transactions on which a tax benefit could not be
recognized................................................................... 573 1,952 9,288
Nondeductible amortization and write-off of intangible assets.................. -- -- 20,875
Effect of foreign tax refunds and U.S. tax associated with dividends paid...... 6 53 73
Effect of federal tax rate less than (greater than) foreign tax rates.......... (539) 364 142
Benefit of operating loss carryforwards........................................ (4,566) (127) (286)
Other, net..................................................................... 9 16 7
--------- --------- -----------
Provision for income taxes....................................................... $ 3,692 $ 199 $ 354
--------- --------- -----------
--------- --------- -----------
</TABLE>
The undistributed earnings, indefinitely reinvested in international
business, of the Company's foreign subsidiaries aggregated approximately $27,500
at July 27, 1996. Determination of the amount of unrecognized deferred tax
liability on these unremitted earnings is not practicable.
The primary components of deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Property, plant and equipment............................................ $ 7,794 $ 4,475
Loss and credit carryforwards............................................ 71,519 76,898
Accrued restructuring costs.............................................. 335 1,417
Other.................................................................... 8,956 7,138
--------- ---------
88,604 89,928
Less: valuation allowance.................................................. 86,411 86,008
--------- ---------
2,193 3,920
Deferred income tax liabilities:
Accrued retirement costs................................................. (1,930) (2,457)
Other.................................................................... (1,144) (925)
--------- ---------
(3,074) (3,382)
--------- ---------
Net deferred income tax asset (liability).................................. $ (881) $ 538
--------- ---------
--------- ---------
</TABLE>
At July 27, 1996, the net deferred income tax liability of $(881) was
presented in the balance sheet, based on tax jurisdiction, as deferred income
tax assets of $1,642 and deferred income tax liabilities of $2,523. Realization
of the Company's deferred tax assets is dependent on generating sufficient
taxable income in certain taxing jurisdiction prior to the expiration of loss
and credit carryforwards. Management believes that more likely than not the
deferred tax assets will not be realized in the near future and has therefore
provided a valuation allowance to reserve for those deferred tax assets not
considered realizable.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
4. INCOME TAXES (CONTINUED)
At July 27, 1996, the Company had tax operating loss carryforwards
approximating $165,000 and $28,000 for federal and foreign tax purposes,
respectively, expiring in various amounts beginning in 2001 and 1997,
respectively. Federal long-term capital loss carryforwards of $1,500 expire in
various amounts beginning in 1997. Utilization of the ordinary and capital tax
loss carryforwards is subject to limitation in the event of a more than 50%
change in ownership of the Company.
The Company had unused investment, research, and alternative minimum tax
credits for income tax purposes at July 27, 1996 of approximately $3,300
expiring at various dates through 2001 which may be used to offset future tax
liabilities of the Company. Utilization of these credits is subject to
limitation in the event of a more than 50% change in ownership of the Company.
5. INVENTORIES
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Finished products.......................................................... $ 731 $ 6,105
Work in process............................................................ 389 2,613
Raw materials.............................................................. 2,606 1,036
--------- ---------
$ 3,726 $ 9,754
--------- ---------
--------- ---------
</TABLE>
6. FIXED ASSETS
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION NET
---------- ------------ ---------
<S> <C> <C> <C>
JULY 27, 1996
Property, plant and equipment:
Buildings and land improvements............................................ $ 17,093 $ 12,598 $ 4,495
Machinery, equipment, furniture and fixtures............................... 91,553 84,946 6,607
Land....................................................................... 1,414 -- 1,414
---------- ------------ ---------
110,060 97,544 12,516
Field support spares......................................................... 14,161 12,238 1,923
Equipment leased to customers................................................ 5,125 4,939 186
---------- ------------ ---------
$ 129,346 $ 114,721 $ 14,625
---------- ------------ ---------
---------- ------------ ---------
JULY 29, 1995
Property, plant and equipment:
Buildings and land improvements............................................ $ 26,008 $ 18,390 $ 7,618
Machinery, equipment, furniture and fixtures............................... 88,744 81,967 6,777
Land....................................................................... 1,479 -- 1,479
---------- ------------ ---------
116,231 100,357 15,874
Field support spares......................................................... 14,926 12,147 2,779
Equipment leased to customers................................................ 5,630 5,406 224
---------- ------------ ---------
$ 136,787 $ 117,910 $ 18,877
---------- ------------ ---------
---------- ------------ ---------
</TABLE>
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (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 1996, 1995 and 1994 was $7,386, $10,922, and
$9,137, respectively. Most of the leases contain renewal options for various
periods and require the Company to maintain the property. Certain leases contain
provisions for periodic rate adjustments to reflect Consumer Price Index
changes.
At July 27, 1996, future minimum lease payments for noncancelable leases
totaled $20,610 and are payable as follows: 1997-$4,869; 1998-$4,302;
1999-$3,277; 2000- $2,552, 2001-$2,505 and $3,105 thereafter.
8. PAYABLES TO BANK
As of July 27, 1996, the Company had included in payables to banks an amount
of $4,979 payable to International Factors "De Factorij" B.V., a subsidiary of
ABN-AMRO Bank of the Netherlands. The loan is secured by the receivables of the
Company's U.K., Dutch and German subsidiaries.
The Company had a secured credit facility ("Credit Facility") with The CIT
Group, with a maximum borrowing level of $2,000 (given sufficient collateral was
available). The Credit Facility consisted of a term loan and a revolving loan.
The term loan and the revolving loan were paid off in 1995 and 1996,
respectively and the entire Credit Facility was terminated upon payment.
The weighted average interest rate for short term borrowings as of the
fiscal year end was 9.0% , 10.1%, 10.5% for 1996, 1995, and 1994, respectively.
The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The unused lines of credit at July 27, 1996 totaled $2.7 million
after borrowings of $9.8 million.
9. ACCRUED EXPENSES
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Salaries, commissions, bonuses and other benefits........................................... $ 9,247 $ 9,661
Taxes other than income taxes............................................................... 11,161 8,687
Reorganization/restructuring costs.......................................................... 655 4,168
Payable to foreign government............................................................... -- 5,570
Other....................................................................................... 8,193 6,771
--------- ---------
$ 29,256 $ 34,857
--------- ---------
--------- ---------
</TABLE>
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
8 7/8% convertible subordinated debentures.................................................. $ 63,652 $ 64,394
6.5% to 9.0% real estate notes.............................................................. 530 762
Non interest bearing note-NTI (net of discount of $2,354 in 1995)........................... -- 6,646
Other obligations........................................................................... 2,877 2,338
--------- ---------
67,059 74,140
Less: current maturities of long-term debt and long-term debt subject to accelerated
maturity.................................................................................. 3,114 9,217
--------- ---------
$ 63,945 $ 64,923
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
10. LONG-TERM DEBT (CONTINUED)
Interest on the 8 7/8% convertible subordinated debentures is payable
semiannually on June 1 and December 1. The debentures are subordinated in right
of payments to all senior indebtedness, as defined, and are convertible into
common stock of the Company at any time prior to the close of business on June
1, 2006, unless previously redeemed. Each one thousand dollar principal amount
debenture is convertible into 55.231 shares of common stock and, as of July 27,
1996, there were 3,515,564 shares reserved for possible issuance. The debentures
are entitled to a mandatory sinking fund, which commenced June 1, 1991, of
$5,000 annually. The Company, at its option, may increase the sinking fund
payment to $10,000 and may also receive credit against mandatory sinking fund
payments for debentures acquired through means other than the sinking fund. The
Company has applied $30,000 in previous debenture retirements against the
sinking fund requirements for 1991 through 1996. The Company also intends to
apply previous debenture retirements of $5,606 through July 27, 1996 against the
sinking fund requirements for 1997 through 1998. The debentures are also
redeemable at the option of the Company, in whole or in part, at any time at
100% of the principal amount together with accrued interest to the date of
redemption. During fiscal 1996 from the proceeds received from the sale of EADS,
the Company repurchased debentures with a total face value of $742, resulting in
an extraordinary gain of $327, with no related income taxes. Subsequent to July
27, 1996, the Company repurchased debentures with a face value of $2,048
resulting in extraordinary gains of $822.
During fiscal 1993, the Company settled two long-standing legal patent
actions brought against it by NTI. The Company agreed to a ten-year note payable
to NTI which required annual $1,000 payments beginning in December 1993. The
note was recorded at a discount reflecting an annual rate of interest of 10%.
The Company was also contingently obligated to make payments to NTI dependent
upon the Company's future profitability. The contingent payments, up to a
cumulative maximum of $12.5 million, were to have been paid in annual
installments calculated at 33 1/3% of the Company's pre-tax annual profits,
excluding extraordinary items, in excess of $10.0 million in each of the 10
fiscal years beginning with fiscal 1993. During 1995 and 1994, the Company
incurred no liability to make such contingent payments as a result of the net
losses incurred. On June 25, 1996, the Company paid NTI $2.2 million
representing the two deferred principal payments on the secured debt which were
due December 1994 and December 1995 and accrued and unpaid interest.
Additionally, on July 1, 1996, the Company entered into a prepayment agreement
with NTI pursuant to which the Company paid $5.05 million to NTI in full
satisfaction of all amounts due and to be due under the note. The prepayment
agreement fully relieves the Company of its obligation to make annual $1.0
million payments to NTI that commenced in December 1993 and of which seven
payments remained to be made, as well as certain contingent payment obligations.
Aggregate scheduled maturities of long-term debt are as follows:
1997--$3,114; 1998--$3,853; 1999-- $5,092; 2000--$5,000; 2001--$5,000 and
$45,000 thereafter.
11. STOCKHOLDERS' DEFICIT
During 1996 fiscal year, the Company issued 442,488 shares of common stock
held in treasury as a result of employee separations.
Throughout 1996, the Company issued 166,151 shares from common stock held in
treasury to participants in the U.S. 401(k) retirement and savings plan.
The Company settled two different lawsuits during fiscal 1996 by issuing
20,000 shares and 100,000 shares of common stock held in treasury.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
11. STOCKHOLDERS' DEFICIT (CONTINUED)
During 1996 fiscal year, the Board of Directors elected to make a corporate
contribution to the Datapoint Corporation Supplemental Executive Retirement Plan
of 50,000 shares of the Company's $1.00 preferred stock with a $20.00 per share
liquidation preference. The contribution was made on behalf of certain
participants only.
The $1.00 preferred stock has a liquidation preference of $20.00 per share
and cumulative dividends of $1.00 annually. On January 16, 1996, the Company
announced that it was in arrears on its $1.00 preferred stock in an aggregate
amount equal to six full quarterly dividends. As a result, each holder of $1.00
preferred stock has the right to exchange each such share (inclusive of all
accrued and unpaid dividends) into two shares of the Company's common stock.
Under this right of exchange, 28,300 shares of $1.00 preferred stock were
converted to 56,600 shares of common stock during 1996. In addition, as a result
of the dividend arrearages the number of directors constituting the Board of
Directors of the Company will be increased by two and holders of the $1.00
preferred stock (not including those who have exchanged $1.00 preferred stock
for the Company's common stock), voting as a single class, will have the
opportunity to elect two directors of the Company to fill such newly created
directorships at the next annual meeting of stockholders. These rights continue
until such time as the arrearages have been paid in full. Dividends of $3,700
and $1,815 were accumulated and unpaid at July 27, 1996 and July 29, 1995,
respectively.
In addition, on July 24, 1996, the Company announced that its Board of
Directors determined to offer for exchange for each share of its $1.00
Exchangeable Preferred Stock ($1.00 par value) 3.25 shares of its Common Stock
($.25 par value) and to submit a proposal to stockholders under which each share
of its $1.00 Exchangeable Preferred Stock would be converted into 3.25 shares of
Common Stock. The Company had previously announced on April 16, 1996, that it
intended to submit to its stockholders a proposal to effect the conversion of
the $1.00 Exchangeable Preferred Stock into 2.75 shares of its Common Stock. The
affirmative vote of two-thirds of the outstanding shares of the $1.00
Exchangeable Preferred Stock and a majority vote of the outstanding shares of
the Common Stock will be required to adopt the proposal which the Company
expects to submit at its Annual Meeting of Stockholders expected to be held on
December 10, 1996. On January 16, 1996, the Company announced that it was in
arrears on its $1.00 preferred stock in an aggregate amount equal to six full
quarterly dividends. As a result, each holder of $1.00 preferred stock currently
has the right to exchange each such share into two shares of the Company's
common stock.
12. STOCK OPTION PLANS
At July 27, 1996, 2,248,404 shares were reserved for issuance in connection
with the Company's stock option plans. Total options outstanding for all plans
total 1,378,171 and are exercisable at an average price of $3.14.
Under the Company's employee stock option plans, officers and other key
employees may be granted options to purchase common stock and related stock
appreciation rights. Under the terms of these plans, options may be granted at
no less than 75% of fair market value and expire no later than ten years from
the date of grant. The Board may grant options exercisable in full or in
installments, and has generally granted options at fair market value exercisable
in two to four installments beginning one year from the date of grant. As of
July 27, 1996 and July 29, 1995, options for 593,387 and 499,285 shares,
respectively, under all
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (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 27, 1996 have an average exercise price
of $3.70 and expire during the period September 1997 through March 2006.
<TABLE>
<CAPTION>
EMPLOYEE STOCK OPTION PLANS
--------------------------------------
NUMBER OF SHARES
PRICE RANGE -----------------------
OF SHARES UNDER AVAILABLE
UNDER OPTION OPTION FOR OPTION
------------- ---------- -----------
<S> <C> <C> <C>
Outstanding at July 31, 1993.............................................. $ 1.38-8.00 1,195,658 951,653
Granted................................................................... 2.50-7.25 276,989 (276,989)
Exercised................................................................. 1.38-5.62 (103,274) --
Canceled.................................................................. 1.38-7.13 (84,500) 84,500
Expired................................................................... -- -- (1,500)
------------- ---------- -----------
Outstanding at July 30, 1994.............................................. $ 1.38-8.00 1,284,873 757,664
Granted................................................................... 2.69-3.94 557,000 (557,000)
Exercised................................................................. 1.38-1.63 (156,666) --
Canceled.................................................................. 1.63-7.38 (243,215) 243,215
Expired................................................................... -- -- (18,049)
------------- ---------- -----------
Outstanding at July 29, 1995.............................................. $ 1.38-8.00 1,441,992 425,830
Granted................................................................... 1.06-1.94 413,500 (413,500)
Canceled.................................................................. 1.38-6.75 (667,321) 667,321
Expired................................................................... -- -- (109,418)
------------- ---------- -----------
Outstanding at July 27, 1996.............................................. $ 1.06-8.00 1,188,171 570,233
------------- ---------- -----------
------------- ---------- -----------
</TABLE>
During 1992, the 1985 Director Stock Option Plan was terminated. As of July
27, 1996, there were continuing options for 25,000 shares outstanding from this
plan which expire five years from the date of grant. The 1985 Plan was replaced
by the 1991 Director Stock Option Plan. This plan greatly resembles the
terminated 1985 Plan and provides for a one-time grant of an option to purchase,
at fair market value as of the date of the grant, 25,000 shares of common stock
to each director, and an additional 50,000 shares to the present and any newly
elected Chairman of the Board. The 1991 Plan does not grant any options to
individuals holding options under the 1985 Plan. The Plan includes both employee
and non-employee directors and options expire five years from the date of grant.
Total director options outstanding as of July 27, 1996 have an average exercise
price of $3.12 and expire during the period November 1996 through December 1998.
<TABLE>
<CAPTION>
DIRECTOR STOCK OPTION PLANS
-------------------------------------------
NUMBER OF SHARES
PRICE RANGE ----------------------------
OF SHARES UNDER AVAILABLE
UNDER OPTION OPTION FOR OPTION
------------- --------- -----------------
<S> <C> <C> <C>
Outstanding at July 31, 1993......................................... $ 1.88-3.06 250,000 275,000
Granted.............................................................. 6.31 25,000 (25,000)
Exercised............................................................ 2.50 (10,000) --
------------- --------- -------
Outstanding at July 30, 1994......................................... $ 1.88-6.31 265,000 250,000
Canceled............................................................. 2.50 (50,000) 50,000
------------- --------- -------
Outstanding at July 29, 1995......................................... $ 1.88-6.31 215,000 300,000
Expired.............................................................. 1.88 (25,000) --
------------- --------- -------
Outstanding at July 27, 1996......................................... $ 2.50-6.31 190,000 300,000
------------- --------- -------
------------- --------- -------
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
12. STOCK OPTION PLANS (CONTINUED)
The FASB has issued Statement No. 123, "Accounting for Stock-Based
Compensation", which requires either recognition or disclosure of a charge for
the value of stock options granted. The Company will adopt this statement in
1997 at which time it will elect to continue to apply the provisions of
Accounting Principles Board Opinion No. 25 and will make the footnote
disclosures required by Statement No. 123.
13. INFORMATION RELATING TO BUSINESS SEGMENTS AND INTERNATIONAL OPERATIONS
BUSINESS SEGMENT INFORMATION
The Company operates in one industry and is an international computer and
communications systems marketer, manufacturer and developer. Additionally, the
Company provides maintenance services on its products in the United States
through a non-exclusive agreement with DSI and services its products outside the
United States through its international distributors and subsidiaries.
INTERNATIONAL OPERATIONS
The Company conducts the majority of its international marketing and service
operations through its subsidiaries and, to a lesser extent, through various
distributorship arrangements. For products manufactured domestically, the
Company's policy is to transfer such products to and between affiliates at
prices which reflect market conditions. Financial information on a geographic
basis follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -------------
<S> <C> <C> <C>
Revenue--unaffiliated customers:
United States -- domestic................................................ $ 4,090 $ 7,122 $ 7,617
-- export sales.............................................. 3,529 3,899 6,174
Europe................................................................... 170,806 162,146 156,403
Other international...................................................... 1,116 1,734 2,742
---------- ---------- -------------
Total revenue from unaffiliated customers............................ 179,541 174,901 172,936
Revenue--intercompany:
United States............................................................ 4,572 6,390 20,868
Europe................................................................... 105 427 518
Other international...................................................... -- -- 7
Eliminations............................................................. (4,677) (6,817) (21,393)
---------- ---------- -------------
Total consolidated revenue........................................... $ 179,541 $ 174,901 $ 172,936
---------- ---------- -------------
---------- ---------- -------------
Operating income (loss):
United States............................................................ $ (11,671) $ (25,201) $ (8,728)
Europe................................................................... 11,832 7,661 (72,517)
Other international...................................................... 444 (979) (904)
Eliminations............................................................. 412 287 1,128
---------- ---------- -------------
Total operating income (loss)........................................ $ 1,017 $ (18,232) $ (81,021)
---------- ---------- -------------
---------- ---------- -------------
Identifiable assets:
United States............................................................ $ 16,471 $ 21,469 $ 43,595
Europe................................................................... 82,497 83,894 87,159
Other international...................................................... 239 1,116 1,250
Eliminations............................................................. (5,389) (4,728) (4,570)
---------- ---------- -------------
Total identifiable assets............................................ $ 93,818 $ 101,751 $ 127,434
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
14. RETIREMENT INCOME PLANS
Retirement expenses incurred by the Company were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
U.S.:
Matching contributions............................................................... $ 55 $ 119 $ 143
Outside the U.S.:
Defined benefit plans................................................................ 1,279 510 119
Other plans.......................................................................... 970 675 600
--------- --------- ---------
2,249 1,185 719
--------- --------- ---------
$ 2,304 $ 1,304 $ 862
--------- --------- ---------
--------- --------- ---------
</TABLE>
U.S. PLANS
The Company adopted a 401(k) retirement and savings plan effective January
1988. The plan covers all full-time employees who have been employed for at
least 12 months. The Company's retirement and savings plan contribution has been
a 25% matching contribution for employee contributions up to 5% of each
employee's compensation. At the Board's discretion, the Company may also
contribute a profit sharing amount to the plan that is contingent upon the
performance level of the Company at the net income line.
In addition, the Company maintains a Supplemental Executive Retirement Plan
for certain executive employees selected by the Board of Directors. The plan
provides for employee contributions of up to 10% of applicable compensation. In
addition, at the Board's discretion, the Company may also make contributions on
an annual, individual basis, allocated on a pro-rata basis according to
participant's applicable compensation up to a maximum contribution of 15% of
applicable compensation per employee. During the fiscal years ended July 29,
1995 and July 27, 1996, the Company contributed 62,000 and 50,000 shares of its
Preferred Stock, respectively, to the plan for credit to the accounts of various
executive officers. Under the terms of the plan, benefits accrue to the various
executive officers upon satisfaction of the plan's vesting criteria which is
based upon length of employment with the Company.
PLANS OUTSIDE THE U.S.
Most of the Company's foreign subsidiaries provide retirement income plans
which conform to the practice of the country in which they do business. The
types of company-sponsored plans in use are defined benefit and defined
contribution.
Five of the Company's subsidiaries, including the United Kingdom, utilize
defined benefit plans with employee benefits generally being based on years of
service and wages near retirement. The plans cover all full-time employees who
have been employed for at least 12 months. Obligations under these plans are
funded primarily through fixed rate of return investments, primarily insurance
policies, except for Germany where reserves are established for the obligations.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
14. RETIREMENT INCOME PLANS (CONTINUED)
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>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Defined benefit plans:
Service cost........................................................................ $ 659 $ 998 $ 773
Interest cost....................................................................... 2,219 1,931 1,770
Actual return on assets............................................................. (2,508) (887) (926)
Net amortization and deferral....................................................... 909 (1,532) (1,498)
--------- --------- ---------
Net pension cost...................................................................... $ 1,279 $ 510 $ 119
--------- --------- ---------
--------- --------- ---------
</TABLE>
The funded plan status at July 27, 1996 and July 29, 1995 was:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
<S> <C> <C> <C> <C>
OVER- UNDER- OVER- UNDER-
FUNDED FUNDED FUNDED FUNDED
--------- --------- --------- ---------
Actuarial present value of:
Vested benefits...................................................... $ 22,533 $ 4,083 $ 17,141 $ 6,454
Accumulated benefit obligations...................................... $ 22,912 $ 4,202 $ 17,520 $ 6,503
Projected benefit obligations........................................ $ 23,861 $ 4,909 $ 18,197 $ 7,466
Plan assets at fair value............................................ $ 24,476 $ 1,181 $ 20,303 $ 2,632
--------- --------- --------- ---------
Plan assets in excess of (less than) projected benefit obligation.... 615 (3,729) 2,106 (4,834)
Unrecognized net (gain) loss....................................... 4,676 (1,635) 3,611 (2,755)
Unrecognized transition net loss................................... 783 28 797 124
--------- --------- --------- ---------
Prepaid (accrued) pension cost......................................... $ 6,074 $ (5,336) $ 6,514 $ (7,465)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Unrecognized gains and losses are amortized on a straight-line basis over
five years.
Actuarial assumptions used to determine funded status for 1996 and 1995
varied between subsidiaries. Discount rates used to determine projected benefit
obligations range from 5.0% to 9.0% in both 1996 and 1995. Rates of increase in
future compensation levels range from 3.0% to 3.5% in both 1996 and 1995. The
long-term rates of return on plan investments range from 5.0% to 10.0% in both
1996 and 1995.
15. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Director Agranoff had provided various tax, legal and real estate consulting
services prior to serving as Vice President, General Counsel and Corporate
Secretary for the Company. During 1994, the Company paid Mr. Agranoff $126 for
those services. During the fiscal years 1996, 1995 and 1994, Datapoint paid
legal fees of $485, $51 and $5, respectively, to the law firm of Pryor, Cashman,
Sherman, & Flynn, to which firm Mr. Agranoff is of counsel, for legal services
provided by attorneys other than Mr. Agranoff.
Director Thomas worked from August 1994 until May 1, 1995 as a special
consultant for which he received compensation of $0.5 per day payable in shares
of common stock. Subsequently, on May 5, 1995, in consideration of the
additional work and responsibilities he had taken on for the Company as a
special consultant, the Board of Directors approved a special compensation
package for Director Thomas. From
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
15. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
May 1, 1995, through July 31, 1995, he was paid at the rate of $0.5 per day for
his services, plus travel and housing expenses, plus additional compensation of
a flat $2 per week for expenses. On July 31, 1995, Director Thomas's consulting
contract was extended until December 31, 1995 and then was to continue on a
month-to-month basis to July 31, 1996. Upon the resignation of Doris Bencsik as
President and Chief Operating Officer, Director Thomas was appointed on December
5, 1995 to the position of Executive Vice President and Chief Operating Officer.
Director Thomas was also entitled under the extended contract to participate in
the Standard Health Benefit program until he was appointed Executive Vice
President and Chief Operating Officer . At such time, he converted to the
Executive Health Benefit program. During fiscal 1995, the Board also approved a
one time special issuance of 45,000 shares of common stock of the Company to
Director Thomas in recognition of his service to the Company. During the term
Director Thomas acted as a special consultant he did not accrue or receive any
regular Board or committee fees.
Director Ruffat had a consulting agreement from January 1994 through June
1995 under which he received a monthly compensation of $10. For 1996 and 1995
Director Ruffat was paid $50 and $80, respectively, for consulting services.
During fiscal 1996, the Company paid office rent and secretarial expenses of
$39 to Canal Capital Corporation. Chief Executive Officer Edelman and Director
Agranoff are Canal Capital Corporation board members, with Chief Executive
Officer Edelman serving as Chairman of the Board.
16. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various lawsuits generally incidental to its
business. The amounts sought by the plaintiffs in such cases are substantial
and, if all such cases were decided adversely to the Company, the Company's
aggregate liability might be material. However, the Company does not expect such
an aggregate result based upon the limited number of such actions and an
assessment that most such actions will be successfully defended. No provision
has been made in the accompanying financial statements for any possible
liability with respect to such lawsuits.
In addition, in 1994, the Company began patent infringement lawsuits against
several defendants related to the Company's video conferencing patents and dual
protocol local area networking patents. In 1995, the Company negotiated two
settlements for an aggregate of $1.0 million and negotiated one settlement in
1996 for an undisclosed amount. Patent infringement suits against other
defendants are pending. The aggregate amounts sought in these suits are
substantial. However, no provision has been made in the accompanying financial
statements for any possible gains or cash infusions resulting from favorable
judgments in these suits.
In December 1994, a lawsuit was brought against the Company involving the
earlier sale of real estate by the Company. In April 1996, an adverse jury
verdict was rendered against the Company and two of its executive officers.
During the fourth quarter of 1996, a settlement was reached among the litigants.
As such, the District Court entered a Judgment Non Obstante Veredicto (Judgment
Notwithstanding the Verdict) that set aside the jury's findings against the
Company and its two executive officers and set aside all damages. The $3.3
million settlement, which was reached to avoid the considerable expense,
including the business disruption of a protracted appeal and legal process, had
no material impact on the Company's then current cash position as it included
payment of funds from a non-working capital trust fund which were otherwise not
available to the Company, issuance of a short term note, and issuance of shares
of the Company's common stock.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DATAPOINT CORPORATION AND SUBSIDIARIES JULY 27, 1996, JULY 29, 1995 AND JULY 30,
1994 (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
17. DIVESTITURES
On May 28, 1996, the Company entered into an agreement with Kalamazoo
providing for the sale by Datapoint to Kalamazoo of Datapoint's EADS business,
other than its United Kingdom operations, for a purchase price of $33.0 million.
As part of the agreement in connection with the sale of the EADS business,
the Company agreed to continue to sell hardware to Kalamazoo at various
discounts from its normal hardware prices and to continue to provide hardware
service maintenance to Kalamazoo at a 15% discount from the Company's normal
hardware service maintenance prices. While there can be no assurances that the
future volume levels will remain the same, revenues related to the EADS
continuing business were $12.6 million and $14.7 million for the years ended
July 27, 1996 and July 29, 1995, respectively. The Company transferred to
Kalamazoo all of its employees who were dedicated to the EADS business. The
amounts below represent the operations of EADS sold to Kalamazoo plus the effect
of discounts on the continuing EADS's business which are included in the
accompanying statements of operations. Because the Company's accounting records
do not completely segregate the EADS business' historical performance, certain
allocations were required based upon employee effort analyses of EADS and other
appropriate measures.
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Revenues................................................................ $ 17,028 $ 18,459
Costs and expenses...................................................... 13,914 15,411
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
F-20
<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]
October 30, 1996
Independent Committee
Board of Directors
Datapoint Corporation
8410 Datapoint Drive
San Antonio, Texas 78229-8500
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 October 30, 1996 ("the
Prospectus"), CCC has reviewed the 1996 10-K and 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.
Carl A. Goldman
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.
C-2
<PAGE>
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
-----------------------------------
C-3
<PAGE>
October 29, 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 Company's Form 10-K dated July 27, 1996
and 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
C-4
<PAGE>
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) to Amendment No. 2 to the Company's
Registration Statement on Form S-4 filed on September 27, 1996 and
incorporated herein by reference.).
*(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) to Amendment No. 2 to the Company's Registration Statement on
Form S-4 filed on September 27, 1996 and incorporated herein by
reference.).
</TABLE>
- ------------------------
* 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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<PAGE>
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 October 30, 1996.
DATAPOINT CORPORATION
By: /s/ GERALD N. AGRANOFF
-----------------------------------
Vice President, General Counsel
and Secretary
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
- ----------------------------------- Counsel, Secretary and a August 6, 1996
Gerald N. Agranoff 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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<PAGE>
INDEX TO EXHIBITS
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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) (a) 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) (b) Certificate of Designation, Preferences, Rights and
Limitations of Series of $1.00 Preferred Stock (filed as
Exhibit (4)(e) to the Company's Registration Statement on
Form S-4 dated April 30, 1992 and incorporated herein by
reference).
(10) (a) 1983 Employee Stock Option Plan (filed as Exhibit (4)(a)(4)
to the Company's Registration Statement on Form S-8 dated
November 9, 1983 and incorporated herein by reference).
(10) (b) 1985 Director Stock Option Plan (filed as Exhibit (10)(i) to
the Company's Annual Report on Form 10-K for the year ended
August 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>
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGES
- --------- ------------------------------------------------------------ ----------
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(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 (filed as Exhibit (10)(s) to Amendment
No. 2 to the Company's Registration Statement on Form S-4
filed on September 27, 1996 and incorporated herein by
reference).
(10) (t) Employment Agreement with B. Thomas (filed as Exhibit
(10)(t) to Amendment No. 2 to the Company's Registration
Statement on Form S-4 filed on September 27, 1996 and
incorporated herein by reference).
(10) (u) Employment Agreement with P. Krumb (filed as Exhibit (10)(u)
to Amendment No. 2 to the Company's Registration Statement
on Form S-4 filed on September 27, 1996 and incorporated
herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGES
- --------- ------------------------------------------------------------ ----------
<C> <S> <C> <C>
(10) (v) Settlement Agreement with NTI (filed as Exhibit (10)(v) to
Amendment No. 2 to the Company's Registration Statement on
Form S-4 filed on September 27, 1996 and incorporated
herein by reference).
(10) (w) Umbrella Acquisition Agreement between Kalamazoo and
Datapoint (filed as Exhibit 2 to the Company's Current
Report on Form 8-K dated June 25, 1996 and incorporated
herein by reference).
(10) (x) Form of Agreement for sale of assets of Datapoint Group
Vendor and Kalamazoo (filed as Exhibit 3 to the Company's
Current Report on Form 8-K dated June 25, 1996 and
incorporated herein by reference).
(10) (y) Agreement for sale of DARTS Software (filed as Exhibit 4 to
the Company's Current Report on Form 8-K dated June 25,
1996 and incorporated herein by reference).
**(23)(a) Consent of Independent Auditors.
**(23) (b) Letter dated October 21, 1996 from Independent Auditors
regarding Consolidated financial statements as of July 27,
1996 and July 29, 1995 and for each of the three fiscal
years in the period ended July 27, 1996.
**(23)(c) Consent of Patricof & Co. Capital Corporation.
**(27) (a) Schedule II, Datapoint Corporation and Subsidiaries,
Valuation and Qualifying Accounts and Reserves.
**(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 (filed as Exhibit 99(e) to Amendment No. 2 to
the Company's Registration Statement on Form S-4 filed on
September 27, 1996 and incorporated herein by reference).
(99) (f) Analysis of Patricof & Co. Capital Corp. contained in a
presentation to the Board of Directors of Datapoint
Corporation (filed as Exhibit 99(f) to Amendment No. 2 to
the Company's Registration Statement on Form S-4 filed on
September 27, 1996 and incorporated herein by reference).
</TABLE>
- ------------------------
** 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 October 21, 1996, in Amendment No. 3 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
October 29, 1996
<PAGE>
EXHIBIT 23(B)
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 27, 1996 and July 29,
1995, and for each of the three fiscal years in the period ended
July 27, 1996, and have issued our report thereon dated October 21, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 21(b)(2). This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
October 21, 1996
<PAGE>
EXHIBIT 23(C)
October 30, 1996
Board of Directors
Datapoint Corporation
8410 Datapoint Drive
San Antonio, Texas 78229-8500
Gentlemen:
Patricof & Co. Capital Corp. hereby consents to the use in proxy materials to be
filed on or about October 30, 1996 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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
EXHIBIT 27(A)
SCHEDULE II
DATAPOINT CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<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 27, 1996.............................. $ 3,012 $ 170 $ (102) $ (289) $ 2,791
Year ended July 29, 1995.............................. $ 2,568 $ 2,147 $ (21) $ (1,682) $ 3,012
Year ended July 30, 1994.............................. $ 2,466 $ 807 $ (472) $ (233) $ 2,568
- ------------------------
(a) Transfers to and from other balance sheet reserve accounts.
(b) Accounts written-off net of recoveries, other expense accounts and
translation adjustments.
</TABLE>
<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 December 10, 1996 at The
University Club, One West 54th Street, New York, New York at 9:00 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 Phillip P. Krumb 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 Certificate 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 December 10, 1996 at The
University Club, One West 54th Street, New York, New York at 9:00 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 Phillip P. Krumb 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 Certificate 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 Fiscal Year 1997.
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 OCTOBER 31, 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 9:00 A.M.,
NEW YORK CITY TIME, ON TUESDAY, DECEMBER 10, 1996.
<TABLE>
DESCRIPTION OF SHARES TENDERED (SEE INSTRUCTIONS)
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 October 31, 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
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)
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 9:00
a.m., New York City time, on Tuesday, December 10, 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
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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
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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.
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SIGNATURE DATE
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<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
9:00 A.M., NEW YORK CITY TIME, ON TUESDAY,
DECEMBER 10, 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
October 31, 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
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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
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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.
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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):
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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.
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Name of Firm:
Address:
Area Code and Tel. No.:
Authorized Signature
Name:
Title:
Date:
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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.
