SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
Act Of 1934 For the fiscal year ended August 1, 1998
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) Of The Securities
Exchange Act Of 1934 For the transition period from _________ to
---------
Commission file number 1-7636
DATAPOINT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1605174
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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) 40 07 37 37
(210) 593-7000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
Common Stock, $.25 par value National Association of Securities Dealers'
Over-the-Counter Bulletin Board
$1.00 Exchangeable Preferred Stock,
$1.00 par value National Association of Securities Dealers'
Over-the-Counter Bulletin Board
8-7/8% Convertible Subordinated
Debentures Due 2006 Over-the-Counter
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No .
As of October 13, 1998, 18,158,572 shares of Datapoint Corporation Common
Stock were outstanding (excluding 2,832,645 shares held in Treasury), and the
aggregate market value (based upon the last reported sale price of the Common
Stock on the National Association of Securities Dealers' Over-the-Counter
Bulletin Board -- Composite Tape on October 13, 1998) of the shares of Common
Stock held by non-affiliates was approximately $8.5 million. (For purposes of
calculating the preceding amount only, all directors and executive officers of
the registrant are assumed to be affiliates.)
<PAGE>
PART I
ITEM 1. Business.
General
Datapoint Corporation, including its subsidiaries (hereinafter "Datapoint"
or "the Company"), is principally engaged in the development, acquisition,
marketing, servicing, and system integration of computer and communication
products -- both hardware and software. These products and services are 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. They were originally incorporated in 1968 as
Computer Terminal Corporation and 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 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. Between
1994 and 1996, the Company was able to maintain a consistent and slightly
increasing revenue level while, at the same time, restructuring its operations
mostly through significant workforce reductions worldwide. The aim was to reduce
its cost base to support such revenue levels. At the end of 1996, the Company
sold its European based Automotive Dealer Management Systems business ("EADS")
to Kalamazoo Computer Group, plc, a public limited company organized under the
laws of England ("Kalamazoo"), (as discussed more fully below). The decline in
revenue levels in 1997 reflects the result of this sale.
Since fiscal year 1996, the Company pursued, and is continuing to pursue,
actions to provide cash infusions, including the sale of surplus real estate
and/or selected assets of the Company in order to improve its financial
condition. In this regard, on May 28, 1996, the Company entered into an
agreement with Kalamazoo, providing for the sale by Datapoint to Kalamazoo of
Datapoint's EADS for a purchase price of $33.0 million.
In addition, on October 27, 1997, the Company sold the three buildings it
owned in San Antonio, Texas to a private unaffiliated group for approximately
$3.2 million (net of mortgage obligations and closing costs). The sales contract
provided for the leaseback by the Company of one of the buildings (approximately
38,000 square feet) for an initial lease term of five years.
Subsequent to year-end, the Company signed a letter of intent to sell the
building it owns in Gouda, Netherlands to a private unaffiliated group for
approximately $2.2 million (net of mortgage obligations and closing costs). The
sales contract provides for the leaseback by the Company of approximately 18,000
square feet for an initial lease term of five years and approximately 12,000
square feet for an initial lease term of one year. The Company closed on the
sale of the building on October 26, 1998.
During the second quarter of 1997, the Company accepted 1,145,945 shares of
its $1.00 Exchangeable Preferred Stock, having a liquidation preference $20 per
share ("the $1.00 Preferred Stock"), which was tendered in its exchange offer
(the "Exchange Offer") described in the proxy statement/prospectus delivered to
the holders of the Company's common stock, par value $.25 per share (the "Common
Stock"), and to the holders of $1.00 Preferred Stock. Under the terms of the
exchange offer, each share of $1.00 Preferred Stock tendered was exchanged for
3.25 shares of Common Stock. The exchange offer expired December 10, 1996. The
tendered shares approximated 61.34% of the total outstanding shares of $1.00
Preferred Stock immediately prior to the expiration of the exchange offer. For
purposes of calculating net income applicable to common shareholders in 1997,
and related per share amounts, a gain of $3,810 on exchange and retirement of
preferred stock was added to net income. This gain includes the excess of the
carrying value of preferred stock accepted in the exchange over the fair value
of the common stock issued. In addition, the gain includes accumulated dividends
on the retired preferred stock.
<PAGE>
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 believes that in particular its video
conferencing patents and multi-speed network processing patents and the related
patents are important to its business as a whole.
Video Conferencing Patents
Datapoint, along with John Frassanito and David A. Monroe, owns United
States Patent Nos. 4,710,917 and 4,847,829 related to video teleconferencing
technology. Datapoint has filed infringement actions against several companies.
In 1995, the Company negotiated two settlements for such infringement for an
aggregate of $1.0 million, and, in 1996, the Company entered into an agreement
with NEC America, Inc. for the licensing of the `917 and `829 patents for an
undisclosed amount.
The status of the patent infringement litigation is as follows:
(1) Datapoint Corporation v. PictureTel Corporation, No. 3:93-CV-2381-D
(N.D. Texas). This case was tried in March and April of 1998 with an adverse
result. Notice of Appeal has been filed.
(2) Datapoint Corporation v. Compression Labs, Inc. No. 3:93-CV-2522-D
(N.D. Texas); Datapoint Corporation v. Teleos Communications, Inc. No.
95-4455-AET (D.N.J.); Datapoint Corporation v. Videolan Technologies, Inc.;
Videolan Technologies, Inc. v. Datapoint Corporation, No. 96 CV-604-H (W.D.
Kentucky) et al; Datapoint Corporation v. Intel Corp. No. 97-CV-2581 (N.D.
Texas). These cases have been dismissed subject to being reopened if the Company
is successful in its appeal of certain of the issues adversely determined in the
PictureTel litigation described above.
Multi-speed Networking Patents
Datapoint is also the owner of United States Patent Nos. 5,008,879 and
5,077,732 related to network technology. The Company believes these patents
cover most products introduced by various suppliers to the networking industry
and dominates certain types of dual-speed technology on networking recently
introduced by various industry leaders. Datapoint has asserted one or both of
these patents in the United States District Court for the Eastern District of
New York against a number of parties:
(1) Datapoint Corporation v. Standard Micro-Systems, Inc. and Intel
Corporation, No. C.V.-96-1685;
(2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp., Accton
Technologies Corp., Cabletron Systems, Inc., Bay Networks, Inc., Crosscom Corp.
and Assante Technologies, Inc. No. CV 96 4534;
(3) Datapoint Corporation v. Dayna Communications, Inc., Sun Microsystems,
Inc., Adaptec, Inc. International Business Machines Corp., Lantronix, SVEC
America Computer Corporation, and Nbase Communications, No. CV 96 6334; and
(4) Datapoint Corporation 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,
No. CV-96-03819.
These actions have been consolidated for discovery, and for purposes of
claim construction. On January 20, 1998, a hearing commenced in the United
States District Court that concluded on January 23, 1998 during which claim
construction was submitted to a Special Master. The Special Master's report was
issued April of 1998. The Company has filed two sets of objections to certain
portions of this report. A final hearing on such objections is expected to
scheduled for November of 1998. These objections ultimately may have to be
resolved at the Appellate Court level.
The above actions represent the Company's continuing efforts to license and
enforce its video conferencing and multi-speed networking 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. While such royalty
bearing licenses and enforcement of its patents are important to the Company's
business to create long-term value for its stockholders, the ultimate outcome of
the above litigation, appeals with respect to the litigation, and /or
negotiations cannot be determined at this time.
Products
The Company provides communication solutions to the world through data,
voice, and video integration. A complete line of products for data processing,
video communications, and telecommunications is available.
<PAGE>
The Company has enhanced its MINX video communications products, and its
Networked Video Systems, NVS, which provide the capacity for large video
networks and data conferencing features. A complete range of products is
available from a fully interactive, broadcast-quality, full-motion video network
which can accommodate over 3,000 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.
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 products 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 16, 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, four patent infringement suits are pending with
respect to Datapoint's patents on its dual protocol local area 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 are a primary strategy of the Company's business to create long-term
value for its stockholders.
The Company's Networking products are industry-standard. The file servers
are based upon a scalable architecture using the Intel microprocessor. The
multi-processor functionality is provided for the Company's highly sophisticated
RMS network operating system. The same systems can be used for Windows NT, UNIX
and other operating systems. The Company offers high-performance, Pentium PRO
and Pentium II file servers. All systems support RAID disks and popular network
protocols such as TCP/IP and NetBios.
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,
WINDOWS NT, UNIX, and RMS simultaneously along with flexible choices of adapters
such as ARCNET, ARCNETPLUS, Ethernet and FastEthernet. These capabilities
provide customers the flexibility to design network architectures to meet their
specific requirements.
Realizing that personal computers are the desktop workstation of choice,
the Company offers PC-based hardware and software. A Microsoft Windows compliant
terminal emulation package for the RMS environment which can be run on existing
PCs is also provided.
The Company resells 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
volumes of incoming calls comprise the portfolio of telecommunications products.
The Company has an agreement with Lucent to market their Definity line of
automatic call distributors through several of the Company's European
subsidiaries. The Company also has Intelligent Call Exchange ("ICE") from
Computer Talk Technology, Inc. ("CTT") in its product portfolio. This PC based
call center is the first of a new generation of technology products addressing a
much wider marketplace and takes advantage of the large base of skilled
engineers the Company has throughout Europe. In addition, the Company markets
the Electronic Data Gathering Expertise ("EDGE") telebusiness software from
International Management Associates, Ltd., ("IMA") to enhance its call center
capabilities and provide vertical market applications for industries throughout
Europe. Also, during the fiscal year, the Company entered into a Value Added
Reseller agreement with Nortel (Northern Telecom) Europe allowing Datapoint to
sell and support Nortel's Symposium portfolio of multimedia products. As part of
the agreement, the Company will create a unique Symposium competency center to
provide customers with solutions support and integration facilities. This
pan-European agreement is currently operational in Italy, but will be extended
to encompass other European countries. 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.
<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 years 1996 through 1998, 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, Norway,
Spain, Sweden, Switzerland and the United Kingdom and through authorized
distributors worldwide. During fiscal years 1998, 1997 and 1996, approximately
99 percent, 99 percent and 96 percent, respectively, of Datapoint's
international revenue was derived from customers in Western Europe.
Customer Service
In the United States, Datapoint has 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. Maintenance
of equipment outside the United States is provided by Datapoint's international
subsidiaries and distributors. The service operations of the Company's
international subsidiaries produced 41 percent of total company revenues and 52
percent of total company gross profit for the fiscal year ended August 1, 1998.
In fiscal year 1996, Datapoint entered into a subcontract with Kalamazoo to
provide hardware maintenance service to Kalamazoo's European Automotive Dealer
System network.
Manufacturing, Raw Materials, and Supplies
The majority of Datapoint's products are purchased from third parties. The
products are then resold badged/unbadged within Datapoint configurations upon
the completion of testing and packaging.
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 delay of any components, whether for supply or
quality reasons, can become critical to product flows. The Company's general
experience has been good in terms of minimizing exposure; however, guarantees
regarding possible future situations and rectifying actions that could arise
cannot be made.
Research and Product Development
The technology involved in the design and operation of Datapoint's products
is complex and subject to constant change. Accordingly, Datapoint is committed
to a program of research and development which is oriented toward the
development of new hardware and software products and the improvement and
expansion of its existing products and services.
Datapoint incurred expense of $2.5 million, $2.1 million, and $2.7 million
in the fiscal years ended August 1, 1998, August 2, 1997, and July 27, 1996,
respectively, on research and development activities. Datapoint maintains its
principal research and development facility in San Antonio, Texas.
<PAGE>
Competition
Datapoint operates in the intensely competitive computer data processing,
video conferencing and telephony industries. These industries 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; 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
as of August 1, 1998 and August 2, 1997 was $8.5 million and $9.6 million,
respectively. Calculations were based on then existing end-user purchase prices
for products and gave effect to appropriate discounts for products to be sold.
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
August 1, 1998, 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 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 believes that in particular its video
conferencing patents and multi-speed network processing patents and the related
patents are important to its business as a whole.
Video Conferencing Patents
Datapoint, along with John Frassanito and David A. Monroe, owns United
States Patent Nos. 4,710,917 and 4,847,829 related to video teleconferencing
technology. Datapoint has filed infringement actions against several companies.
In 1995, the Company negotiated two settlements for such infringement for an
aggregate of $1.0 million, and, in 1996, the Company entered into an agreement
with NEC America, Inc. for the licensing of the `917 and `829 patents for an
undisclosed amount.
The status of the patent infringement litigation is as follows:
(1) Datapoint Corporation v. PictureTel Corporation, No. 3:93-CV-2381-D
(N.D. Texas). This case was tried in March and April of 1998 with an adverse
result. Notice of Appeal has been filed.
(2) Datapoint Corporation v. Compression Labs, Inc. No. 3:93-CV-2522-D
(N.D. Texas); Datapoint Corporation v. Teleos Communications, Inc. No.
95-4455-AET (D.N.J.); Datapoint Corporation v. Videolan Technologies, Inc.;
Videolan Technologies, Inc. v. Datapoint Corporation, No. 96 CV-604-H (W.D.
Kentucky) et al; Datapoint Corporation v. Intel Corp. No. 97-CV-2581 (N.D.
Texas). These cases have been dismissed subject to being reopened if the Company
is successful in its appeal of certain of the issues adversely determined in the
PictureTel litigation described above.
<PAGE>
Multi-speed Networking Patents
Datapoint is also the owner of United States Patent Nos. 5,008,879 and
5,077,732 related to network technology. The Company believes these patents
cover most products introduced by various suppliers to the networking industry
and dominates certain types of dual-speed technology on networking recently
introduced by various industry leaders. Datapoint has asserted one or both of
these patents in the United States District Court for the Eastern District of
New York against a number of parties:
(1) Datapoint Corporation v. Standard Micro-Systems, Inc. and Intel
Corporation, No. C.V.-96-1685;
(2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp., Accton
Technologies Corp., Cabletron Systems, Inc., Bay Networks, Inc., Crosscom Corp.
and Assante Technologies, Inc. No. CV 96 4534;
(3) Datapoint Corporation v. Dayna Communications, Inc., Sun Microsystems,
Inc., Adaptec, Inc. International Business Machines Corp., Lantronix, SVEC
America Computer Corporation, and Nbase Communications, No. CV 96 6334; and
(4) Datapoint Corporation 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,
No. CV-96-03819.
These actions have been consolidated for discovery, and for purposes of
claim construction. On January 20, 1998, a hearing commenced in the United
States District Court that concluded on January 23, 1998 during which claim
construction was submitted to a Special Master. The Special Master's report was
issued April of 1998. The Company has filed two sets objections to certain
portions of this report. A final hearing on such objections is expected to be
scheduled for November of 1998. These objections ultimately may have to be
resolved at the Appellate Court level.
The above actions represent the Company's continuing efforts to license and
enforce its video conferencing and multi-speed networking 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. While such royalty
bearing licenses and enforcement of its patents are a primary strategy of the
Company's business to create long-term value for its stockholders, the ultimate
outcome of the above litigation, appeals with respect to the litigation, and /or
negotiations cannot be determined at this time.
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 August 1, 1998, the Company had 652 employees. The Company considers its
relations with its 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.
<PAGE>
ITEM 2. Properties.
Datapoint's principal executive offices are located in Paris, France and in
San Antonio, Texas. Datapoint believes that its facilities 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 August 1, 1998, is as follows:
Approximate
Facility
Location Use Sq. Footage Owned or Leased Land Area
San Antonio, Texas Office 38,000 Leased; expires October 1, 2002
Gouda, Netherlands Office 52,000 Owned; 1 acre (Subject to mortgage)*
Paris, France Office 7,000 Leased; expires June 30, 1999
Additionally, at August 1, 1998, excluding leases assigned or subleased, the
Company leased sales and service offices having an aggregate of 302,000 square
feet in metropolitan areas worldwide, pursuant to lease agreements which expire
between 1998 and 2009. The aggregate annual rental of all of these sales and
service offices is approximately $3.1 million and most of these leases are
subject to rental increases under certain escalation provisions and renewals on
similar terms.
*Subsequent to year end, the Company signed a letter of intent to sell the
building it owns in Gouda, Netherlands to a private unaffiliated group for
approximately $2.2 million (net of mortgage obligations and closing costs). The
sales contract provides for the leaseback by the Company of approximately 18,000
square feet for an initial lease term of five years and approximately 12,000
square feet for an initial lease term of one year. The Company closed on the
sale of the building on October 26, 1998.
ITEM 3. Legal Proceedings.
In John Frassanito and David A. Monroe v. Datapoint Corp., 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 plaintiff's pendent State law claims and Datapoint's
State law counter-claims for lack of subject matter jurisdiction. Plaintiffs in
this action moved to intervene in the Picturetel and CLI actions. In September
1997, the Company announced that it had received a court order approving a
confidential agreement between the parties resolving this matter without further
proceedings.
From time to time, the Company is a defendant in lawsuits generally
incidental to its business. The Company is not currently aware of any such suit,
which if decided adversely to the Company, would result in a material liability.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Datapoint Corporation announced in early August that its securities would no
longer be listed on the New York Stock Exchange under the symbol "DPT",
effective at the end of business Friday, August 21, 1998. The New York Stock
Exchange's decision was an administrative event for Datapoint and did not
reflect any material change in the Company's financial health. As of August 24,
1998, the common stock is quoted on the National Association of Securities
Dealers' Over-the Counter Bulletin Board under the symbol "DTPT". As of October
13, 1998, there were approximately 2,958 holders of record and 18,158,572
outstanding shares of Common Stock. The prices below represent the high and low
prices for composite transactions for stock traded during the applicable period.
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.
As of October 13, 1998, the closing price of the stock was $0.63.
Fiscal
year High Low
1998 Q4 2.25 1.13
Q3 3.13 1.50
Q2 3.44 2.50
Q1 4.13 2.06
High Low
1997 Q4 3.13 .94
Q3 1.13 .88
Q2 1.50 1.00
Q1 1.63 .94
<PAGE>
ITEM 6. Selected Financial Data.
Selected Financial Data
Five-Year Comparison
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Operating Results for the Fiscal Year
Total revenue $151,445 $142,121 $179,541 $174,901 $172,936
Operating income (loss) 5,074 2,033 1,017 (18,232) (81,021)
Income (loss) before extraordinary credit
and effect of change in accounting principle (1,224) 1,173 19,015 (28,343) (94,765)
Net income (loss) (669) 2,383 19,342 (28,343) (93,425)
Basic earnings (loss) per common share:
Income (loss) before extraordinary credit (.11) .01 1.28 (2.29) (6.69)
Gain on the exchange and retirement of preferred stock -- .24 -- -- --
Extraordinary credit .03 .07 .02 -- .09
Net income (loss) per share (.08) .32 1.30 (2.29) (6.60)
Diluted earnings (loss) per common share:
Income (loss) before extraordinary credit (.11) .01 1.11 (2.29) (6.69)
Gain on the exchange and retirement of preferred stock -- .24 -- -- --
Extraordinary credit .03 .07 .02 -- .09
Net income (loss) per share (.08) .32 1.13 (2.29) (6.60)
Financial Position at End of Fiscal Year
Current assets $50,807 $45,340 $69,995 $67,506 $79,915
Fixed assets, net 9,468 11,764 14,625 18,877 29,088
Total assets 66,816 62,388 93,818 101,751 127,434
Current liabilities 61,376 53,679 76,965 100,256 98,202
Long-term debt 58,115 60,875 63,945 64,923 70,561
Stockholders' equity (deficit) (64,437) (64,084) (55,202) (74,116) (50,761)
Other Information
Average common shares outstanding 17,967,924 16,109,774 13,455,878 13,194,667 14,430,574
Number of common stockholders of record 2,966 3,070 3,142 3,274 3,378
Preferred shares outstanding 721,976 721,976 1,868,071 1,846,456 1,784,456
Dividends paid or accumulated on preferred stock $722 $1,009 $1,885 $1,815 $1,784
Number of employees 652 641 705 991 1,444
</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.
See notes to Consolidated Financial Statements and Management
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
Throughout 1998, 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. The vigorous pursuit of patent royalties due from the licensing and
enforcement of its video conferencing and multi-speed networking patents.
During 1998, the Company had a net loss of $669 thousand compared with net
income of $2.4 million for the previous year. Included in the net income of
$19.3 million for 1996 is a $32.2 million non-operating gain related to the sale
of EADS in the fourth quarter of 1996.
During 1998, the Company had total revenue of $151.4 million, an increase of
$9.3 million from the previous year. The increase in revenue was primarily due
to the receipt of several new contracts awarded to the Company's Spanish,
Italian and British subsidiaries and continued strong hardware sales in the
Swedish subsidiary. This revenue increase reflects the offset of approximately
$8.7 million, resulting from a stronger U.S. dollar, on average, during fiscal
1998, as compared to the same period of 1997.
Operating expenses (research and development plus selling, general &
administrative) for 1998 were $35.8 million, a decrease of $1.7 million from the
$37.5 million recorded in 1997. Approximately $1.5 million of the decrease is
related to the effect of the strengthening U.S. dollar when compared with the
same period a year ago. The Company recorded restructuring charges of $96
thousand in 1998, compared with $2.4 million recorded in the prior year.
During 1998 and 1997, the Company repurchased approximately $2.7 million and
$2.9 million, in face value, of its 8 7/8% convertible subordinated debentures.
This resulted in an extraordinary gain of $555 thousand and $1.2 million,
respectively.
In previous fiscal years, included in non-operating income and expense were
transaction gains or losses resulting from the strengthening or weakening of the
U.S. dollar against foreign currencies. These exchange gains or losses related
to short term intercompany notes and international subsidiary U.S. dollar
denominated cash were offset by translation adjustment to Stockholders' Deficit
and therefore, had no impact on the Company's financial position.
During fiscal year 1998, management reassessed the characteristics of its
intercompany notes with international subsidiaries (payable by the U.S. parent)
and determined that a substantial portion were long-term in nature and not
payable in the foreseeable future. As a result, during fiscal year 1998,
transaction gains of $57 thousand relating to these loans are included as a
foreign currency adjustment to Stockholders' Deficit, which in prior years,
would have been included in non-operating income and expense, as described
above. During fiscal year 1997, a transaction gain of approximately $6.2 million
was included in non-operating income but was offset by translation adjustment to
Stockholders' Deficit.
In addition, on October 27, 1997, the Company sold the three buildings it owned
in San Antonio, Texas to a private unaffiliated group for approximately $3.2
million (net of mortgage obligations and closing costs). The sales contract
provided for the leaseback by the Company of one of the buildings (approximately
38,000 square feet) for an initial lease term of five years.
During the second quarter of 1997, the Company accepted 1,145,945 shares of its
$1.00 Exchangeable Preferred Stock, having a liquidation preference $20 per
share ("the $1.00 Preferred Stock"), which was tendered in its exchange offer
(the "exchange offer") described in the proxy statement/prospectus delivered to
the holders of the Company's common stock, par value $.25 per share (the "Common
Stock"), and to the holders of $1.00 Preferred Stock. Under the terms of the
exchange offer, each share of $1.00 Preferred Stock tendered was exchanged for
3.25 shares of Common Stock. The exchange offer expired December 10, 1996. The
tendered shares approximated 61.34% of the total outstanding shares of $1.00
Preferred Stock immediately prior to the expiration of the exchange offer. For
purposes of calculating net income applicable to common shareholders in 1997,
and related per share amounts, a gain of $3,810 on exchange and retirement of
preferred stock was added to net income. This gain includes the excess of the
carrying value of preferred stock accepted in the exchange over the fair value
of the common stock issued. In addition, the gain includes accumulated dividends
on the retired preferred stock.
<PAGE>
Subsequent to year-end, the Company signed a letter of intent to sell the
building it owns in Gouda, Netherlands to a private unaffiliated group for
approximately $2.2 million (net of mortgage obligations and closing costs). The
sales contract provides for the leaseback by the Company of approximately 18,000
square feet for an initial lease term of five years and approximately 12,000
square feet for an initial lease term of one year. The Company closed on the
sale of the building on October 26, 1998.
Financial Condition and Liquidity
During 1998, the Company's cash and cash equivalents decreased $3.4 million due
primarily to the usage of cash in operations.
During 1998, the Company's net cash provided from investing activities was
approximately $1.0 million. Included in this amount is $3.2 million from the
sale of the San Antonio, Texas office buildings offset by approximately $2.4
million of fixed asset purchases (primarily test equipment, spares, and
internally-used equipment).
Net cash used in financing activities was $2.5 million in 1998, primarily
related to the net paydown of the Company's borrowings. As of August 1, 1998,
the Company had restricted cash of $352 thousand as compared to $154 thousand in
the prior year. The 1998 and 1997 balances were restricted primarily to cover
various lines of credits, reflected as payables to banks.
As of August 1, 1998, the Company had cash and cash equivalents of $12.1
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 1999. In addition, management believes the Company
will be able to discharge its obligations in the near term with cash generated
from operations and other sources such as sale of selected assets and/or capital
transactions.
As of August 1, 1998, the Company had included in payables to banks an amount of
$1,906 and $1,747, payable by the Dutch and U.K. subsidiaries, respectively, to
International Factors "De Factorij" B.V., a subsidiary of ABN-AMRO Bank of the
Netherlands. The Dutch loan was secured by the building that the Company's Dutch
subsidiary owned in the Netherlands, and by certain receivables of the Dutch
subsidiary. Subsequent to year-end, the Company sold the Dutch building (as
described above) and from the proceeds paid the $1,906 Dutch subsidiary
obligation. The U.K. loan is secured by certain receivables of the U.K.
subsidiary.
The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The availability of the unused lines of credit is subject to
certain collateral restrictions. The unused lines of credit at August 1, 1998,
totaled $7.1 million after borrowings of $7.9 million.
As a result of the Company's capital deficiency which existed at the end of 1994
and throughout 1995, 1996, 1997, and 1998, the Company determined not to pay the
quarterly preferred dividend payments due to stockholders during the period of
October 15, 1994 through October 15, 1998. 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. As
a result of the dividend arrearages, the number of directors constituting the
Board of Directors of the Company was increased by two with the vote of the
holders of the $1.00 preferred stock (not including those who have exchanged
$1.00 preferred stock for the Company's common stock). These rights continue
until such time as the arrearages have been paid in full.
At August 1, 1998, the Company had available federal tax net operating losses
aggregating approximately $184,000, 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).
<PAGE>
Reorganization/Restructuring Costs
(In thousands)
A rollforward of the restructuring accrual from July 29, 1995 through August 1,
1998 is as follows:
TOTAL
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
Fiscal 1997 additions 2,425
Fiscal 1997 payments (2,572)
- -------------------------------------------------------------------
Restructuring accrual as of August 2, 1997 $508
Fiscal 1998 additions 96
Fiscal 1998 payments (422)
- -------------------------------------------------------------------
Restructuring accrual as of August 1, 1998 $182
The projected payout of the restructuring accrual balance as of August 1, 1998
which relates almost entirely to unpaid employee termination costs, is as
follows:
First quarter 1999 $ 42
Second quarter 1999 105
Third quarter 1999 10
Fourth quarter 1999 10
Beyond 15
- --------------------------------------------------------------------
Restructuring accrual as of August 1, 1998 $ 182
Restructuring charges are not recorded until specific employees are determined
(and notified of termination) by management in accordance with its overall
restructuring plan. Employee termination payments are generally paid out over a
period of time rather than as one lump sum.
Results of Operations
The following is a summary of the Company's sources of revenue for each of
fiscal 1998, 1997 and 1996:
(In thousands)
1998 1997 1996
---- ---- ----
Sales:
U.S. $3,182 $4,241 $3,185
Foreign 85,742 74,127 95,691
------ ------ ------
88,924 78,368 98,876
Service and other:
U.S. 1,123 1,185 906
Foreign 61,398 62,568 79,759
------ ------ ------
62,521 63,753 80,665
------ ------ ------
Total revenue $151,445 $142,121 $179,541
======== ======== ========
1998 Compared to 1997
During 1998, the Company had total revenue of $151.4 million, an increase of
$9.3 million from the previous year. The increase in revenue was primarily due
to the receipt of several new contracts awarded to the Company's Spanish,
Italian and British subsidiaries and continued strong hardware sales in the
Swedish subsidiary. This revenue increase reflects the offset of approximately
$8.7 million, resulting from a stronger U.S. dollar, on average, during fiscal
1998, as compared to the same period of 1997.
Gross profit margins during 1998 were 27.0% compared with 29.5% for 1997. The
decrease was primarily the result of a large volume of sales by a Northern
European subsidiary of lower margin product and competitive pricing pressures
worldwide partially offset by higher service margins due to continued cost
cutting actions.
<PAGE>
On October 27, 1997, the Company sold the three buildings it owned in San
Antonio, Texas to a private unaffiliated group for approximately $3.2 million
(net of mortgage obligations and closing costs). The sales contract provided for
the leaseback by the Company of one of the buildings (approximately 38,000
square feet) for an initial lease term of five years.
In previous fiscal years, included in non-operating income and expense were
transaction gains or losses resulting from the strengthening or weakening of the
U.S. dollar against foreign currencies. These exchange gains or losses related
to short term intercompany notes and international subsidiary U.S. dollar
denominated cash were offset by translation adjustment to Stockholders' Deficit
and therefore, had no impact on the Company's financial position.
During fiscal year 1998, management reassessed the characteristics of its
intercompany notes with international subsidiaries (payable by the U.S. parent)
and determined that a substantial portion were long-term in nature and not
payable in the foreseeable future. As a result, during fiscal year 1998,
transaction gains of $57 thousand relating to these loans are included as a
foreign currency adjustment to Stockholders' Deficit, which in prior years,
would have been included in non-operating income and expense, as described
above. During fiscal year 1997, a transaction gain of approximately $6.2 million
was included in non-operating income but was offset by translation adjustment to
Stockholders' Deficit.
Operating expenses (research and development plus selling, general &
administrative) for 1998 were $35.8 million, a decrease of $1.7 million from the
$37.5 million recorded in 1997. Approximately $1.5 million of the decrease is
related to the effect of the strengthening U.S. dollar when compared with the
same period a year ago. The Company recorded restructuring charges of $96
thousand during 1998, compared with $2.4 million recorded in the prior year.
Research and development expenses increased from $2.1 million in 1997 to $2.5
million in 1998.
1997 Compared to 1996
During 1997, the Company had total revenue of $142.1 million, a decrease of
$37.4 million from the previous year. Approximately $17.5 million of the
decrease is attributable to the loss of business (mostly service) resulting from
the sale of EADS to Kalamazoo. Approximately $7.2 million was due to the
unfavorable impact related to the strengthening U.S. dollar when compared with
the same period in the prior year. The remainder was primarily due to a weaker
sales performance in two of the Company's western European subsidiaries when
compared to the previous year.
Gross profit margins during 1997 were 29.5% compared with 30.9% for 1996. The
decrease was primarily due to 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.
Included in non-operating income for 1997 is $6.2 million related to transaction
gains resulting from the strengthening U.S. dollar against foreign currencies,
as compared to a gain of $0.7 million for the prior year. These gains, caused by
the strengthening U.S. dollar against certain foreign currencies, relate to
intercompany notes and international subsidiary U.S. dollar
denominated cash.
<PAGE>
Operating expenses (research and development plus selling, general &
administrative) during 1997 declined 30.9% or $16.8 million from 1996 to $37.5
million. Approximately $6.6 million of the decrease is attributable to the sale
of EADS. Approximately $1.1 million related to the effect of the strengthening
U.S. dollar when compared with the same period a year ago, and the remainder due
to cost cutting actions undertaken by the Company. The Company recorded
restructuring charges of $2.4 million in 1997, compared with $0.3 million
recorded in the prior year. Research and development expenses decreased from
$2.7 million in 1996 to $2.1 million 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 a $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.
YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, generate invoices, or engage in similar normal business
activities.
Based on recent assessments, the Company determined that it will be required to
modify or replace significant portions of hardware and software so that those
systems will properly utilize dates beyond December 31, 1999. The Company
presently believes that with modifications and replacement of existing hardware
and software, the Year 2000 Issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed on a timely
basis, the Year 2000 Issue could have a material impact on the operations of the
Company.
The Company's plan to resolve the Year 2000 Issue involves the following four
phases: assessment, remediation, testing, and implementation. To date, the
Company has substantially completed (90%) of its assessment of all Information
Technology ("IT") systems that could be significantly affected by the Year 2000.
The completed assessment indicated that most of the company's significant
information technology systems could be affected, particularly general ledger
and the remaining financial systems (Billing, Inventory, etc.).
The Company has also assessed its non "IT" operating systems to insure
compliance with Year 2000. Affected systems included those primarily related to
the office and facilities' environment (telephone systems, security systems,
etc.). While the Company has determined that some of these systems are not Year
2000 compliant, the Company intends to replace/modify these prior to July 31,
1999, and does not expect to have a material exposure with these systems.
The majority of the Company's products are purchased from third parties, who
furnish products meeting the Company's specifications. The Company has obtained
information about the Year 2000 compliance status of its significant suppliers
and subcontractors and continues to monitor their compliance. To date, the
Company is not aware of any supplier/subcontractor Year 2000 issue that would
materially impact the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that their suppliers
will be Year 2000 ready. The inability of suppliers/sub-contractors to complete
their Year 2000 resolution process in a timely fashion could materially impact
the Company. The effect of non-compliance by suppliers is not determinable at
this time.
<PAGE>
The Company also sells a variety of proprietary software products which the
Company developed. The Company is 90% complete with the assessment of Year 2000
compatibility of these software products and has made the results available on
the Company's Internet "web" page and have communicated these results to
customers on a demand basis.
For its information technology exposures, to date, the Company is approximately
10% complete on the remediation phase and expects to complete software
reprogramming and replacement no later than August 1, 1999. Once software is
reprogrammed and replaced for a system, the Company begins testing and
implementation. These phases run concurrently for different systems. Completion
of the testing and implementation phases for all significant systems is expected
by August 1, 1999.
For operating equipment, the Company is beginning the remediation phases and
expects to complete its remediation efforts by August 1, 1999.
The Company will utilize both internal and external resources to reprogram, or
replace, test, and implement the software and operating equipment for Year 2000
modifications. The total cost of the Year 2000 project is estimated at $1.3
million and is being funded through operating cash flows. To date, the Company
has incurred approximately $0.1 million (all expensed) related to all phases of
the Year 2000 project. Of the total remaining project costs, approximately $1.0
million is attributable to the purchase of new software and operating equipment,
which will be capitalized. The remaining $0.2 million relates to the
repair/replacement of hardware and software and will be expensed as incurred.
The Company believes that it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Company has not yet
fully completed all necessary phases of the Year 2000 program. In the event that
the Company does not complete all phases, there could be circumstances in which
the Company would be unable to automatically accept customer orders, ship
products, invoice customers or collect payments. In these events, the Company
would resort to a previously identified list of problem solving priorities,
revert to some previous or manual operation and/or rely on previously identified
outsourcing or incremental staffing opportunities.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also materially adversely affect the Company. The Company could be
subject to litigation for computer system product failure, such as, equipment
shutdown, or failure to properly date business records. The amount of potential
liability or lost revenue cannot be reasonable estimated at this time.
The Company plans to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources, and
other factors. Estimates on the status of completion and the expected completion
dates are based on costs incurred to date compared to total expected costs.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
NEW EUROPEAN CURRENCY
In January 1999, certain European countries are scheduled to introduce a new
currency unit called the `euro'. In conjunction with the preparation for the
year 2000, the Company is also modifying and/or adapting systems designed to
properly handle the euro. The Company's subsidiaries will formally begin
reporting in euro currency starting with the August 1999 results (FY 2000).
While Datapoint will more than likely be required to deal with euro transactions
prior to that time, the activity will primarily be done manually. The costs
required to be able to accommodate the euro are combined with costs of becoming
year 2000 compliant, and therefore not easily identifiable. However, they are
not considered to be so significant so as to have a material effect on the
Company's business. The projected costs and completion dates for the euro
project are based upon management's best estimates. Actual results could differ
materially from these estimates.
<PAGE>
NEW ACCOUNTING STANDARDS
Comprehensive Income. In June 1997, the Financial Accounting Standards
Board ("FASB") issued Statement No. 130, Reporting Comprehensive Income.
Statement No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. Comprehensive income is net income,
plus certain other items that are recorded directly to stockholders' equity. The
only such item currently applicable to the Company is foreign currency
translation adjustments and minimum pension liability adjustments. The
Statement, which is required to be adopted by the Company in fiscal 1999, is not
expected to materially change the Company's financial reporting or disclosures.
Segments. In June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Statement changes the way
public companies report segment information in annual financial statements and
also requires companies to report selected segment information in interim
financial statements to shareholders. The Company will adopt this new Statement
in the first quarter of fiscal 1999; however, this new pronouncement will not
change reported net financial results.
Software Revenue Recognition. In October 1997, the Accounting Standards
Executive Committee issued Statement of Position 97-2 (SOP 97-2). SOP 97-2 sets
forth guidelines for recognition of revenue for software sales. This SOP which
is required to be adopted by the Company in fiscal 1999 is not expected to
materially change the Company's financial reporting.
Market Risk Sensitive Instruments
Management has determined that all of the Company's foreign subsidiaries
operate primarily in local currencies which represent the functional currencies
of the subsidiaries. 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. As such, the Company's operating results are affected by
fluctuations in the value of the U.S. dollar as compared to currencies in
European countries, as a result of the sales of its products and services in
these foreign markets. A hypothetical, uniform 10% strengthening of the dollar
relative to the currencies in which the Company's sales were denominated would
have resulted in a decrease to gross profit of approximately $3.3 million for
the year ending August 2, 1998. This calculation assumes that each exchange rate
would have changed in the same direction relative to the U.S. dollar. In
addition to the direct effects of changes in exchange rates, which are a changed
dollar value of the resulting sales, changes in exchange rates also affect the
volume of sales or the foreign currency sales price as competitors' products
become more or less attractive. The Company's sensitivity analysis of the
effects in foreign currency exchange rates does not factor in a potential change
in sales levels or local currency prices.
<PAGE>
In addition, the Company has cash and intercompany receivables and payables
which are denominated in various functional currencies of the subsidiaries and
parent. At August 1, 1998, the result of a uniform 10% strengthening of the
dollar relative to the currencies in which the Company's intercompany balances
are denominated would result in $ 3.7 million of foreign currency transaction
losses that would be reported as a translation adjustment to stockholders'
deficit.
The Company's long term debt consists entirely of 8 7/8% convertible
subordinated debentures. As of August 1, 1998, the carrying amount of these
debentures was $58,115, with a fair value of $32,980, after consideration of
repurchases through August 1, 1998. The following table presents the aggregate
maturities and carrying amount of the debt principal.
Principal Amount by Expected Maturity
Fixed Interest Rate (8 7/8%)
1999 2000 2001 2002 2003 Thereafter Total
Long Term Debt
Fixed Rate $3.1 $5.0 $5.0 $5.0 $5.0 $35.0 $58.1
Cautionary Statement Regarding Risks and Uncertainties That May Affect
Future Results
This Annual Report on Form 10-K 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 Annual Report on Form 10-K, 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.
<PAGE>
ITEM 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Ernst & Young LLP
Independent Auditors 17
Consolidated Financial Statements
Consolidated Statements of Operations for the fiscal
years 1998, 1997 and 1996 18
Consolidated Balance Sheets as of August 1, 1998
and August 2, 1997 19
Consolidated Statements of Cash Flows for the fiscal
years 1998, 1997 and 1996 20
Consolidated Statements of Stockholders' Deficit for the fiscal
years 1998, 1997 and 1996 21
Notes to Consolidated Financial Statements 22
<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 August 1, 1998, and August 2,
1997 and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three fiscal years in the period ended
August 1, 1998. Our audits also included the financial statement schedule listed
in the index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at August 1, 1998, and August 2, 1997 and the consolidated results of
its operations and its cash flows for each of the three fiscal years in the
period ended August 1, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas
October 26, 1998
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries Fiscal Years 1998, 1997 and 1996
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Sales $88,924 $78,368 $98,876
Service and other 62,521 63,753 80,665
- -------------------------------------------------------------------------------------------------------------------
Total revenue 151,445 142,121 179,541
Operating costs and expenses:
Cost of sales 70,029 58,060 72,483
Cost of service and other 40,480 42,120 51,524
Research and development 2,466 2,146 2,661
Selling, general and administrative 33,300 35,337 51,593
Reorganization/restructuring costs 96 2,425 263
- -------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 146,371 140,088 178,524
- -------------------------------------------------------------------------------------------------------------------
Operating income 5,074 2,033 1,017
Non-operating income (expense):
Interest expense (6,148) (6,776) (8,619)
Realized gain on sale of European based
Auto Dealer Systems -- -- 32,200
Other, net 1,195 5,924 (1,891)
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes
and extraordinary credit 121 1,181 22,707
Income taxes 1,345 8 3,692
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary credit (1,224) 1,173 19,015
Extraordinary credit-debt extinguishment 555 1,210 327
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $(669) $2,383 $19,342
===================================================================================================================
Net income (loss), adjusted for preferred stock dividends paid or
accumulated plus gain on exchange and retirement of preferred
stock - Net Income (loss) applicable to common $(1,391) $5,184 $17,457
===================================================================================================================
Basic earnings (loss) per common share:
Income (loss) before extraordinary credit $ (.11) $.01 $1.28
Gain on the exchange and retirement of preferred stock -- .24 --
Extraordinary credit-debt extinguishment .03 .07 .02
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $(.08) $.32 $1.30
===================================================================================================================
Diluted earnings (loss) per common share:
Income (loss) before extraordinary credit $ (.11) $.01 $1.11
Gain on the exchange and retirement of preferred stock -- .24 --
Extraordinary credit-debt extinguishment .03 .07 .02
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $(.08) $.32 $1.13
===================================================================================================================
Average common shares outstanding:
Basic 17,967,924 16,109,774 13,455,878
Diluted 17,967,924 16,337,163 17,193,091
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries August 1, 1998 and August 2, 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $12,101 $15,490
Restricted cash and cash equivalents 352 154
Accounts receivable, net of allowance for doubtful
accounts of $1,305 and $1,654, respectively 32,138 22,731
Inventories 2,957 3,962
Prepaid expenses and other current assets 3,259 3,003
- ----------------------------------------------------------------------------------------------------------
Total current assets 50,807 45,340
Fixed assets, net 9,468 11,764
Other assets, net 6,541 5,284
- ----------------------------------------------------------------------------------------------------------
$66,816 $62,388
==========================================================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Payables to banks $7,902 $7,346
Current maturities of long-term debt -- 601
Accounts payable 17,341 12,209
Accrued expenses 22,592 20,865
Deferred revenue 11,643 11,386
Income taxes payable 1,898 1,272
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 61,376 53,679
Long-term debt, exclusive of current maturities 58,115 60,875
Other liabilities 11,762 11,918
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $1.00 par value. Shares authorized 10,000,000; shares
issued and outstanding 721,976 in 1998 and 721,976 in 1997 (aggregate
liquidation preference, including dividends in arrears,
$17,327 in 1998 and $16,605 in 1997). 722 722
Common stock of $0.25 par value. Shares authorized 40,000,000; shares
issued 20,991,217, including treasury shares of
2,951,909 in 1998 and 3,203,102 in 1997. 5,248 5,248
Other capital 212,655 212,655
Pension liability adjustment (6,084) (4,488)
Foreign currency translation adjustment 6,242 4,613
Retained deficit (278,655) (276,202)
Treasury stock, at cost (4,565) (6,632)
- -----------------------------------------------------------------------------------------------------------
Total stockholders' deficit (64,437) (64,084)
- -----------------------------------------------------------------------------------------------------------
$66,816 $62,388
==========================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries Fiscal Years 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(669) $2,383 $19,342
Adjustments to reconcile net income (loss) to net cash
provided from (used in) operating activities:
Depreciation and amortization 3,785 5,861 6,969
Provision for losses (recoveries) on accounts receivable 33 (164) 170
Realized gain on sale of property (1,205) -- --
Realized gain on sale of EADS -- -- (32,200)
Gain on debt extinguishment (555) (1,210) (327)
Deferred income taxes 836 (546) 1,420
Changes in assets and liabilities:
(Increase) Decrease in receivables (7,515) 5,792 1,467
(Increase) decrease in inventory 1,139 (969) 5,436
Increase (Decrease) in accounts payable and accrued expenses 2,359 (14,472) (6,503)
Increase (Decrease) in other liabilities and deferred credits (470) 5,496 2,482
Use of restricted funds held in trust -- -- 3,018
Other, net (11) 449 21
--------------------------------------------------------------------------------------------------------
Net cash provided from (used in) operating activities (2,273) 2,620 1,295
Cash flows from investing activities:
Payments for fixed assets (2,354) (3,580) (3,725)
Proceeds from the sale of EADS -- -- 29,450
Proceeds from disposition of fixed assets 3,200 -- 278
Other, net 108 (612) (217)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided from (used in) investing activities 954 (4,192) 25,786
Cash flows from financing activities:
Payments on borrowings (84,939) (18,272) (44,963)
Proceeds from borrowings 82,637 13,799 31,383
Restricted cash for letters of credit (198) 710 1,685
- --------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (2,500) (3,763) (11,895)
Effect of foreign currency translation on cash 430 (2,359) (495)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,389) (7,694) 14,691
Cash and cash equivalents at beginning of year 15,490 23,184 8,493
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $12,101 $15,490 $23,184
==============================================================================================================
Cash payments for:
Interest $6,188 $6,823 $8,625
Income taxes 807 891 514
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Datapoint Corporation and Subsidiaries Fiscal Years 1998, 1997, and 1996
(In thousands)
<TABLE>
<CAPTION>
Foreign
$1.00 Currency
Common Preferred Paid In Translation Retained Treasury
Stock Stock Capital Adjustment Deficit Stock Other Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at July 29, 1995 $ 5,248 $ 1,846 $212,630 $13,004 $(261,742) $(45,102) $ -- $(74,116)
Net income -- -- -- -- 19,342 -- -- 19,342
Foreign currency translation
adjustment -- -- -- (1,437) -- -- -- (1,437)
Employment separation -- -- -- -- (2,082) 2,413 -- 331
Executive retirement contribution -- -- -- -- (1,031) 1,238 -- 207
Preferred Stock conversion -- (28) -- -- (439) 467 -- --
Common issued to 401(k) plan -- -- -- -- (1,181) 1,366 -- 185
Other -- 50 25 -- (1,093) 1,304 -- 286
Balance at July 27, 1996 $ 5,248 $ 1,868 $212,655 $11,567 $(248,226) $(38,314) $ -- $(55,202)
Net income -- -- -- -- 2,383 -- -- 2,383
Foreign currency translation
adjustment -- -- -- (6,954) -- -- -- (6,954)
Pension liability adjustment -- -- -- -- -- -- (4,488) (4,488)
Preferred Stock conversion -- (1,146) -- -- (29,582) 30,728 -- --
Common issued to 401(k) plan -- -- -- -- (213) 241 -- 28
Other -- -- -- -- (564) 713 -- 149
Balance at August 2, 1997 $ 5,248 $ 722 $212,655 $4,613 $(276,202) $ (6,632) $(4,488) $(64,084)
Net loss -- -- -- -- (669) -- -- (669)
Foreign currency translation
adjustment -- -- -- 1,629 -- -- -- 1,629
Pension liability adjustment -- -- -- -- -- -- (1,596) (1,596)
Stock options exercised (1,078) 1,312 234
Common issued to 401(k) plan -- -- -- -- (59) 84 -- 25
Executive retirement contribution -- -- (658) 658 --
Other -- -- -- -- 11 13 -- 24
Balance at August 1, 1998 $ 5,248 $ 722 $212,655 $6,242 $(278,655) $ (4,565) $(6,084) $(64,437)
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Datapoint Corporation and Subsidiaries August 1, 1998, August 2, 1997
and July 27, 1996
(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 1999. In addition, management believes the Company will
be able to discharge its obligations in the near term with cash generated from
operations and other sources such as sale of selected assets and capital
transactions.
Fiscal Year
The Company utilizes a 52-53 week fiscal year. References to 1998, 1997 and
1996 are for the fiscal years ended August 1, 1998, August 2, 1997 and July 27,
1996.
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.
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.
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).
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:
Buildings and land improvements 5-30 years
Machinery, equipment, furniture and fixtures 3-10 years
Equipment leased to customers 4 years
Field support spares 3 years
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.
<PAGE>
Risk Concentration
Financial instruments which potentially subject the Company to concentrations of
credit risk are accounts receivable. Concentrations of credit risk with respect
to the receivables are limited due to the large number of customers in the
Company's customer base and their dispersion across industries. The Company
primarily sells to customers in Europe within, but not limited to, the banking,
automotive, government, libraries, and telecommunications industries. The
Company maintains an allowance for losses based upon the expected collectibility
of accounts receivable.
Debt
The carrying amount and the fair value of the Company's debt at August 1, 1998
are:
Estimated
Carrying Amount Fair Value
8-7/8% convertible subordinated debentures $58,115 $32,980
The fair value of the Company's 8-7/8% convertible subordinated debentures is
based on a quoted market price at July 31, 1998.
Translation of Foreign Currencies
Management has determined that all of the Company's foreign subsidiaries operate
primarily in local currencies which represent the functional currencies of the
subsidiaries. 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 1998 presentation.
Revenue Recognition
Revenue is recognized in accordance with the following criteria:
o 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.
o Software revenue is recognized when the program is shipped, or as the
monthly license fees accrue, or over the terms of the support
agreement.
o Service revenue is recognized ratably over a contractual period or as
services are provided.
o Lease revenue is recognized on the operating method ratably over the
term of the lease.
Income Taxes
The Company accounts for income taxes under the liability method in
accordance with FASB Statement No. 109.
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.
<PAGE>
Net Income (Loss) per Common Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which became
effective for the Company's financial statements beginning with the period
ending January 31, 1998. Statement 128 replaced the previously reported primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements. The Company adopted this new standard during the second quarter of
fiscal year 1998. The 1998, 1997 and 1996 computations include the effect of
dividends paid or accumulated on preferred stock of $722, $1,009, and $1,885,
respectively.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Income Shares EPS Income Shares EPS Income Shares EPS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before extraordinary
credit $(1,224) $1,173 $19,015
Preferred stock dividends
accumulated (722) (1,009) (1,885)
Gain on the exchange and
retirement of preferred stock -- 3,810 --
Extraordinary credit 555 1,210 327 __
- ------------------------------------------------------------------------------------------------------------
Basic EPS $(1,391) 17,968 $(.08) $5,184 16,110 $.32 $17,457 13,456 $1.30
- -------------------------------------------------------------------------------------------------------------
Dilutives:
Stock Options -- -- -- 227 1
Convertible preferred stock -- -- -- -- 1,885 3,736 __
----------------------------------------------------------------------------------------------------------
Diluted EPS $(1,391) 17,968 $(.08) $5,184 16,337 $.32 $19,342 17,193 $1.13
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The EPS computations for fiscal years 1998, 1997 and 1996 exclude the
following shares for stock options and convertible debentures because their
effect would have been antidilutive:
1998 1997 1996
---- ---- ----
Stock options 3,711 1,183 1,762
Convertible preferred stock 1,444 1,444 --
Convertible debentures 3,210 3,357 3,516
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
1998 1997 1996
- ------------------------------------------------------------------------
Employee termination costs $96 $2,425 $251
Asset write-offs -- -- 12
- ------------------------------------------------------------------------
$96 $2,425 $263
========================================================================
The Company's 1998, 1997, and 1996 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. At August 1, 1998, accrued but
unpaid restructuring costs were $182.
Restructuring charges are not recorded until specific employees are determined
(and notified of termination) by management in accordance with its overall
restructuring plan. Employee termination payments are generally paid out over a
period of time rather than as one lump sum.
<PAGE>
3. Non-operating Income (Expense)
1998 1997 1996
- --------------------------------------------------------------------------
Interest earned $518 $526 $421
Foreign currency gains (losses) (104) 6,195 728
Litigation settlements -- -- (2,945)
Gain on the sale of buildings 1,205 -- --
Other (424) (797) (95)
- ---------------------------------------------------------------------------
$1,195 $5,924 $(1,891)
===========================================================================
During fiscal year 1998, management reassessed the characteristics of its
intercompany notes with international subsidiaries (payable by the U.S. parent)
and determined that a substantial portion were long-term in nature and not
payable in the foreseeable future. As a result, during fiscal year 1998,
transaction gains of $57 thousand relating to these loans are included as a
foreign currency adjustment to Stockholders' Deficit, which in prior years,
would have been included in non-operating income and expense. During fiscal year
1997, a transaction gain of approximately $6.2 million was included in
non-operating income but was offset by translation adjustment to Stockholders'
Deficit.
4. Income Taxes
The provision for taxes consisted of the following:
1998 1997 1996
- -------------------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary credit:
U.S. $(5,655) $(3,262) $(771)
Outside the U.S. 5,776 4,443 23,478
- -------------------------------------------------------------------------------
$121 $1,181 $22,707
===============================================================================
Provision for income taxes:
U.S. federal:
Current $-- $-- $6
Outside the U.S.:
Current 509 554 2,266
Deferred 836 (546) 1,420
- -------------------------------------------------------------------------------
1,345 8 3,686
- -------------------------------------------------------------------------------
Total provision $1,345 $8 $3,692
===============================================================================
The differences between the tax provision in the financial statements and
the tax benefit computed at the U.S. federal statutory rates are:
<PAGE>
1998 1997 1996
- ---------------------------------------------------------------------------
Income taxes at statutory rate $42 $413 $7,947
Increase in taxes resulting from:
Benefit of U.S. tax loss not recognized 2,057 1,137 262
Foreign losses and other transactions on
which a tax benefit could not be recognized 33 14 573
Effect of foreign tax refunds and U.S. tax
associated with dividends paid -- -- 6
Effect of federal tax rate less than
(greater than) foreign tax rates 190 152 (539)
Benefit of operating loss carryforwards (979) (1,713) (4,566)
Other, net 2 5 9
- ---------------------------------------------------------------------------
Provision for income taxes $1,345 $8 $3,692
===========================================================================
The undistributed earnings, indefinitely reinvested in international business,
of the Company's foreign subsidiaries aggregated approximately $32,000 at August
1, 1998. 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:
1998 1997
Deferred income tax assets:
Property, plant and equipment $1,769 $3,848
Loss and credit carryforwards 74,641 72,035
Accrued restructuring costs 64 178
Other 4,071 6,328
- ---------------------------------------------------------------------------
80,545 82,389
Less: valuation allowance 76,854 78,971
- ---------------------------------------------------------------------------
3,691 3,418
Deferred income tax liabilities:
Accrued retirement costs (461) (441)
Foreign exchange gains (837) (578)
Other (716) (672)
- ---------------------------------------------------------------------------
(2,014) (1,691)
Net deferred income tax asset $1,677 $1,727
===========================================================================
At August 1, 1998, the net deferred income tax asset of $1,677 was presented in
the balance sheet, based on tax jurisdiction, as other assets of $3,691 and
other liabilities of $2,014. Realization of the Company's deferred tax assets is
dependent on generating sufficient taxable income in certain taxing
jurisdictions prior to the expiration of loss and credit carryforwards.
Management believes that more likely than not, certain deferred tax assets will
not be fully realized in the near future and has therefore provided a valuation
allowance to reserve for those deferred tax assets not considered realizable.
<PAGE>
At August 1, 1998, the Company had tax operating loss carryforwards
approximating $184,000 and $17,000 for U.S.federal and foreign tax purposes,
respectively, expiring in various amounts beginning in 2001 and 1999,
respectively. U.S. Federal long-term capital loss carryforwards of $362 expire
in various amounts beginning in 2000. 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 August 1, 1998 of approximately $3,000 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
1998 1997
Finished and purchased products $1,911 $2,742
Work in process 972 1,077
Raw materials 74 143
- ------------------------------------------------------------------
$2,957 $3,962
6. Fixed Assets
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation Net
<S> <C> <C> <C>
August 1, 1998
Property, plant and equipment:
Buildings and land improvements $11,723 $7,433 $4,290
Machinery, equipment, furniture and fixtures 21,821 18,558 3,263
------------------------------------------------------------------------------------
33,544 25,991 7,553
Field support spares 12,360 10,463 1,897
Equipment leased to customers 383 365 18
- ----------------------------------------------------------------------------------------
$46,287 $36,819 $9,468
========================================================================================
August 2, 1997
Property, plant and equipment:
Buildings and land improvements $15,050 $10,799 $4,251
Machinery, equipment, furniture and fixtures 34,417 29,766 4,651
Land 1,237 -- 1,237
- ----------------------------------------------------------------------------------------
50,704 40,565 10,139
Field support spares 12,626 11,001 1,625
Equipment leased to customers 3,243 3,243 --
- ----------------------------------------------------------------------------------------
$66,573 $54,809 $11,764
========================================================================================
</TABLE>
<PAGE>
In addition, on October 27, 1997, the Company sold the three buildings it owned
in San Antonio, Texas to a private unaffiliated group for approximately $3.2
million (net of mortgage obligations and closing costs). The sales contract
provided for the leaseback by the Company of one of the buildings (approximately
38,000 square feet) for an initial lease term of five years.
During fiscal year 1997, the Company disposed of fully depreciated and
non-utilized fixed assets with an approximate cost and accumulated depreciation
of $62.5 million.
Subsequent to year-end, the Company signed a letter of intent to sell the
building it owns in Gouda, Netherlands to a private unaffiliated group for
approximately $2.2 million (net of mortgage obligations and closing costs). The
sales contract provides for the leaseback by the Company of approximately 18,000
square feet for an initial lease term of five years and approximately 12,000
square feet for an initial lease term of one year. The Company closed on the
sale of the building on October 26, 1998.
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 1998, 1997 and 1996 was $4,419, $5,933, and
$7,386, 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 August 1, 1998, future minimum lease payments for all noncancelable
leases totaled $16,900 and are payable as follows: 1999-$3,822; 2000-$3,434;
2001-$2,532; 2002-$2,094; 2003-$1,824 and $3,194 thereafter.
8. Payables to Bank
As of August 1, 1998, the Company had included in payables to banks an amount of
$1,906 and $1,747, payable by the Dutch and U.K. subsidiaries, respectively, to
International Factors "De Factorij" B.V., a subsidiary of ABN-AMRO Bank of the
Netherlands. The Dutch loan was secured by the building that the Company's Dutch
subsidiary owned in the Netherlands, and by certain receivables of the Dutch
subsidiary. Subsequent to year-end, the Company sold the Dutch building (as
described above) and from the proceeds paid the $1,906 Dutch subsidiary
obligation. The U.K. loan is secured by certain receivables of the U.K.
subsidiary.
The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The unused lines of credit at August 1, 1998, totaled $7.1 million
after borrowings of $7.9 million. The availability of the unused lines of
credit is subject to certain collateral restrictions.The weighted average
interest rate for these short term borrowings as of the fiscal year end
was 7.2% , 7.7%, 9.0% for 1998, 1997, and 1996, respectively.
9. Accrued Expenses
1998 1997
- ----------------------------------------------------------------------------
Salaries, commissions, bonuses and other benefits $11,955 $7,528
Taxes other than income taxes 4,147 4,612
Reorganization/restructuring costs 182 508
Other 6,308 8,217
- ----------------------------------------------------------------------------
$22,592 $20,865
<PAGE>
10. Long-Term Debt
1998 1997
- ----------------------------------------------------------------------------
8-7/8% convertible subordinated debentures $58,115 $60,783
6.5% to 9.0% real estate notes -- 294
Other obligations -- 399
58,115 61,476
Less: current maturities of long-term debt -- 601
- ----------------------------------------------------------------------------
$58,115 $60,875
============================================================================
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 August 1,
1998, there were 3,209,750 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 $40,000 in previous debenture retirements against the
sinking fund requirements for 1991 through 1998. The Company also intends to
apply previous debenture retirements of $1,885 through August 1, 1998, against
the sinking fund requirements for 1999. 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 1998, the Company repurchased debentures with a total face value
of $2,668, resulting in an extraordinary gain of $555, with no related income
taxes. Subsequent to August 1, 1998, the Company repurchased debentures with a
face value of $2,434 resulting in extraordinary gains of $1,284 as of October 7,
1998.
Aggregate scheduled maturities, after consideration of repurchases through
August 1, 1998, of long-term debt are as follows: 1999--$3,115; 2000--$5,000;
2001--$5,000; 2002--$5,000; 2003--$5,000, and $35,000 thereafter.
<PAGE>
11. Stockholders' Deficit
Throughout 1998, employees of the Company exercised 158,931 options for
shares of common stock. Additionally, the Company issued 10,031 shares from
common stock held in treasury to participants in the U.S. 401(k) retirement and
savings plan.
The $1.00 preferred stock has a liquidation preference of $20.00 per share and
cumulative dividends of $1.00 annually. 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. In
addition, as a result of the dividend arrearages the number of directors
constituting the Board of Directors of the Company was increased by two with the
vote of the holders of the $1.00 preferred stock (not including those who have
exchanged $1.00 preferred stock for the Company's common stock). These rights
continue until such time as the arrearages have been paid in full. Dividends of
$2,888 and $2,166 were accumulated and unpaid at August 1, 1998 and August 2,
1997, respectively.
During the second quarter of 1997, the Company accepted 1,145,945 shares of its
$1.00 Exchangeable Preferred Stock, having a liquidation preference $20 per
share ("the $1.00 Preferred Stock"), which was tendered in its exchange offer
(the "exchange offer") described in the proxy statement/prospectus delivered to
the holders of the Company's common stock, par value $.25 per share (the "Common
Stock"), and to the holders of $1.00 Preferred Stock. Under the terms of the
exchange offer, each share of $1.00 Preferred Stock tendered was exchanged for
3.25 shares of Common Stock. The exchange offer expired December 10, 1996. The
tendered shares approximated 61.34% of the total outstanding shares of $1.00
Preferred Stock immediately prior to the expiration of the exchange offer. For
purposes of calculating net income applicable to common shareholders in 1997 and
related per share amounts, a gain of $3,810 on exchange and retirement of
preferred stock was added to net income. This gain includes the excess of the
carrying value of preferred stock accepted in the exchange over the fair value
of the common stock issued. In addition, the gain includes accumulated dividends
on the retired preferred stock.
12. Stock Option Plans
At August 1, 1998, 5,594,473 shares were reserved for issuance in
connection with the Company's employee stock option plans. Total options
outstanding for these plans total 3,411,169.
On January 28, 1998, the stockholders approved a 1997 Employee Stock Option
Plan. The plan is similar to the Company's previous employee stock option plans.
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. In the
event of a change of control in the Company, all stock options would fully vest.
As of August 1, 1998 and August 2, 1997, options for 1,083,067 and 833,671
shares, respectively, under the employee plans were exercisable and no stock
appreciation rights had been granted. Options outstanding as of August 1, 1998
have an average exercise price of $2.85 and expire during the period September
2001 through March 2008.
<PAGE>
Employee Stock Option Plans
Price Range Number of Shares
of Shares Under Available
Under Option Option for Option
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
- ----------------------------------------------------------------------------
Authorized -- -- 2,000,000
Granted $.94-1.44 1,022,800 (1,022,800)
Exercised 1.38 (5,000) --
- ----------------------------------------------------------------------------
Outstanding at August 2, 1997 $.94-8.00 2,205,971 1,547,433
- ----------------------------------------------------------------------------
Authorized -- -- 2,000,000
Granted $2.56-4.00 1,718,300 (1,718,300)
Exercised .94-2.69 (158,931) --
Canceled .94-8.00 (354,171) 354,171
- ----------------------------------------------------------------------------
Outstanding at August 1, 1998 $.94-7.25 3,411,169 2,183,304
============================================================================
On December 10, 1996, the stockholders approved a 1996 Director Stock Option
Plan. The plan is similar to the Company's previous director stock option plans.
The 1996 Director Plan 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. A maximum of 500,000 shares of common stock are
reserved for the issuance of grants under the 1996 Director Plan, and the
options, which vest immediately upon grant, expire five years from the date of
grant. Total director options outstanding as of August 1, 1998, total 300,000
with a weighted average exercise price of $1.65 and expire during the period
December 1998 through June 2002. No stock option grants were made to directors
in 1998.
<PAGE>
Director Stock Option Plans
Price Range Number of Shares
of Shares Under Available
Under Option Option for Option
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
- -----------------------------------------------------------------------------
Authorized -- -- 500,000
Granted $1.19-1.63 275,000 (275,000)
Expired $1.88-2.50 (165,000) --
- -----------------------------------------------------------------------------
Outstanding at August 2, 1997 $1.19-6.31 300,000 525,000
- -----------------------------------------------------------------------------
Authorized -- -- --
Granted -- -- --
Expired -- -- --
- -----------------------------------------------------------------------------
Outstanding at August 1, 1998 $1.19-6.31 300,000 525,000
- -----------------------------------------------------------------------------
The FASB has issued Statement No. 123, "Accounting for Stock-Based
Compensation", ("SFAS No. 123") which requires either recognition or disclosure
of a charge for the value of stock options granted. The Company adopted this
statement in 1997 and has elected to continue to apply the provisions of
Accounting Principles Board Opinion No. 25 and make the footnote disclosures
required by SFAS No. 123.
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost been determined based on the fair value of the
options at the grant date for awards in 1998, 1997 and 1996 consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been the pro forma amounts indicated below. Because options vest over
several years and additional grants are expected, the effects of the
calculations below are not likely to be representative of similar future
calculations:
<PAGE>
(In thousands, except per share amounts)
1998 1997 1996
------------------------
Net income (loss)--As reported $(669) $2,383 $19,342
--Pro forma (1,395) 2,046 19,265
Basic earnings (loss) per share--As reported $(.08) $.32 $1.30
--Pro forma (.12) .30 $1.30
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
1998 1997 1996
Risk-free interest rate
Employee stock option 5.85% 6.20% 5.87%
Board of director stock option -- 6.23% --
Expected dividend yield
Employee stock option 0 0 0
Board of director stock option -- 0 --
Expected volatility
Employee stock option .653 .668 .668
Board of director stock option -- .668 --
Expected lives
Employee stock option 6 6 6
Board of director stock option -- 3 --
Weighted average remaining contractual life
Employee stock option 10 10 10
Board of director stock option -- 5 --
The weighted average fair value of options granted for the employee stock
option plans in 1998, 1997 and 1996 was $1.84, $.99, and $1.52, respectively and
for the board of director options in 1997 was $1.23.
Summarized information about stock options outstanding as of August 1, 1998, is
as follows:
Range of Exercise Prices $0.94-$1.94 $2.56-$4.94 $5.25-$7.25
- ------------------------------------------------------------------------------
Number of shares outstanding 1,347,369 2,122,300 241,500
Weighted average exercise price
of shares outstanding $1.38 $3.55 $5.75
Weighted average remaining
contractual life 7.0 years 8.9 years 4.6 years
Number of shares exercisable 719,566 422,000 241,500
Weighted average exercise
price of shares exercisable $1.18 $2.77 $5.75
<PAGE>
13. Information Relating to Business Segments and International Operations
Business Segment Information
The Company operates in one industry and is an international computer and
communications systems marketer, manufacturer and developer. Additionally, the
Company provides maintenance services on its products in the United States
through a non-exclusive agreement with Decision Servcom, Inc. ("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:
1998 1997 1996
- ------------------------------------------------------------------------------
Revenue - unaffiliated customers:
United States - domestic $4,305 $5,426 $4,090
- export sales 3,157 2,088 3,529
Europe 143,471 133,845 170,806
Other international 512 762 1,116
- ------------------------------------------------------------------------------
Total revenue from unaffiliated customers 151,445 142,121 179,541
Revenue - intercompany:
United States 1,219 2,450 4,572
Europe 56 81 105
Eliminations (1,275) (2,531) (4,677)
------------------------------------------------------------------------------
Total consolidated revenue $151,445 $142,121 $179,541
==============================================================================
Operating income (loss):
United States $(7,343) $(5,340) $(11,671)
Europe 12,582 7,153 11,832
Other international 154 154 444
Eliminations (319) 66 412
- ------------------------------------------------------------------------------
Total operating income $5,074 $2,033 $1,017
==============================================================================
Identifiable assets:
United States $5,648 $8,212 $16,471
Europe 61,542 55,558 82,497
Other international 119 253 239
Eliminations (493) (1,635) (5,389)
- -------------------------------------------------------------------------------
Total identifiable assets $66,816 $62,388 $93,818
==============================================================================
<PAGE>
14. Retirement Income Plans
Retirement expenses incurred by the Company were as follows:
1998 1997 1996
- -------------------------------------------------------------------------
U.S.:
Matching contributions $51 $47 $55
Outside the U.S.:
Defined benefit plans 2,047 1,059 1,279
Other plans 712 730 970
- -------------------------------------------------------------------------
2,759 1,789 2,249
- -------------------------------------------------------------------------
$2,810 $1,836 $2,304
=========================================================================
U.S. Plans
The Company has adopted a 401(k) retirement and savings plan which 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.
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. For the fiscal year ended August 1, 1998, the Company
did not make a contribution, however for the fiscal years ended August 2, 1997,
and July 27, 1996, the Company approved the contribution of 92,500 shares of its
common stock and 50,000 shares of its Preferred Stock, respectively, to the plan
for credit to the accounts of various executive officers. The shares of
preferred stock were converted into 162,500 shares of common stock on December
10, 1996, as a result of the exchange offer. 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, mostly insurance
policies, except for Germany where reserves are established for the obligations.
The Trustees of the Company's United Kingdom subsidiary's defined benefit
pension plan have implemented an investment strategy which includes an
investment of approximately $6.7 million in the Edelman Value Fund, Ltd., a
related party, as of August 1, 1998. The United Kingdom's defined benefit plan
was capped and was converted to a defined contribution plan in fiscal year 1993.
<PAGE>
The Company's United Kingdom subsidiary has a defined contribution plan. The
plan covers 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.
1998 1997 1996
- -------------------------------------------------------------------------
Defined benefit plans:
Service cost $275 $417 $659
Interest cost 2,325 2,255 2,219
Actual return on assets (2,388) (2,950) (2,508)
Net amortization and deferral 1,835 1,337 909
------------------------------------------------------------------------
Net pension cost $2,047 $1,059 $1,279
=========================================================================
The funded plan status at August 1, 1998 and August 2, 1997 was as follows (all
plans were underfunded):
1998 1997
- -----------------------------------------------------------------------------
Actuarial present value of:
Vested benefits $34,690 $30,237
Accumulated benefit obligations $34,690 $30,244
Projected benefit obligations $35,671 $31,207
Plan assets at fair value $25,154 $24,786
- -----------------------------------------------------------------------------
Plan assets in excess of (less than) projected
benefit obligation (10,517) (6,421)
Unrecognized past service cost 334 233
Unrecognized net (gain) loss 8,986 6,788
Unrecognized transition net loss 599 609
Minimum pension liability adjustment (9,230) (6,698)
- ------------------------------------------------------------------------------
Accrued pension cost $(9,828) $(5,489)
===============================================================================
Unrecognized gains and losses are amortized on a straight-line basis over five
years.
Actuarial assumptions used to determine funded status for 1998, 1997 and 1996
varied between subsidiaries. Discount rates used to determine projected benefit
obligations range from 4.5% to 7.6% in both 1998 and 1997 and from 5.0% to 9.0%
in 1996. Rates of increase in future compensation levels were 3% in 1998 and
ranged from 3.0% to 3.5% in both 1997 and 1996. The long-term rates of return on
plan investments range from 4.5% to 8.0% in 1998, from 4.5% to 10.0% in 1997,
and from 5.0% to 10.0% in 1996.
<PAGE>
15. Certain Relationships and Related Transactions
Director Agranoff is the Company's Vice President, General Counsel and Corporate
Secretary, and a member of the law firm Pryor, Cashman, Sherman, & Flynn. During
the fiscal years 1998, 1997, and 1996, Datapoint paid legal fees of $0, $374,
and $485, respectively, to the law firm of Pryor, Cashman, Sherman, & Flynn, for
legal services provided by attorneys other than Mr. Agranoff.
During fiscal year 1998 and 1997, the Company paid office rent and secretarial
expenses of $69 and $73, respectively, 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.
The Trustees of the Company's United Kingdom subsidiary's defined benefit
pension plan have implemented an investment strategy which includes an
investment of approximately $6.7 million in the Edelman Value Fund, Ltd., a
related party, as of August 1, 1998.
On June 29, 1998, the Company had signed a letter of intent, which subsequently
expired on August 20, 1998, to acquire Dimensional Media Associates ("DMA"). Mr.
Robert D. Summer is the president of DMA and a board member of Datapoint. In
addition to the letter, Datapoint advanced DMA $200. This advance is secured by
a promissory note, payment of which has been guaranteed by a principal of DMA.
16. Contingencies
From time to time, the Company is a defendant in lawsuits generally incidental
to its business. The Company is not currently aware of any such suit, which if
decided adversely to the Company, would result in a material liability in
relation to the financial position and results of operations.
17. Divestitures
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"), 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. The Company transferred to Kalamazoo all of its
employees who were dedicated to the EADS business.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
<PAGE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions and offices with the Company of the current
directors and executive officers of the Company are set forth below.
Director/
Age as of Officer
Name Aug. 1, 1998 Position Since
A. B. Edelman 58 Director-Chairman of the Board
and Chief Executive Officer 1985
B. D. Thomas 47 President , Chief Operating Officer
and Director 1992
R. G. Conn 62 Vice President and
Chief Financial Officer 1997
P. P. Krumb 56 Vice President, Special Assistant
to the Chairman and Director 1994
G. N. Agranoff 51 Vice President, General Counsel,
Corporate Secretary and Director 1994
and Director
I. J. Garfinkel 61 Director 1991
D. R. Kail 63 Director 1985
C. F. Robinson 52 Director 1996
D. M. M. Ruffat 62 Director 1993
R. D. Summer 65 Director 1996
R. Edmonds 53 Vice President, Technical Services 1996
W. Gevers 61 Vice President, OSN 1996
J. R. Perkins 50 Vice President, Development 1996
The principal occupations and business experience of each of the current
directors and executive officers of the Company are described below.
ASHER B. EDELMAN, age 58, 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 L.P. since June 1984. Mr. Edelman
is a director, Chairman of the Board and Chairman of the Executive Committee of
Canal Capital Corporation, and is a General Partner and Manager of various
investment partnerships and funds. The principal business address of Mr. Edelman
is Ch. Pecholettaz 9, 1066 EPALINGES, Switzerland.
BLAKE D. THOMAS, age 47, is currently the President and Chief Operating
Officer of the Company. 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
1996 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. He also served
from August 1994 through December 1995 as a special consultant for the Board on
Datapoint general management and business affairs. In December 1995 he assumed
the position of Chief Operating Officer and in 1997 was appointed President, as
well. The principal business address of Mr. Thomas is 4 rue d'Aguesseau 75008,
Paris, France.
<PAGE>
RONALD G. CONN, age 62, joined Datapoint as Vice President and Chief
Financial Officer in June 1997. Mr. Conn most recently was with the
architectural/engineering firm of Pellham-Phillips-Hagerman as chief executive
officer for two years. Prior to that, he owned and operated a wood products
manufacturing and retail sales business for 18 years, and was general manager of
one of the most successful midwestern theme parks for seven years prior to that.
The principal business address of Mr. Conn is 4 rue d'Aguesseau 75008, Paris,
France.
PHILLIP P. KRUMB, age 56, is currently Vice President and Special Assistant
to the Chairman. Mr. Krumb joined the Company in September 1994 and was Vice
President and Chief Financial Officer from September 1994 to June 1997. 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.
GERALD N. AGRANOFF, age 51, is currently Vice President, General Counsel
and Corporate Secretary of Datapoint. Mr. Agranoff is a General Partner of Asco
Partners, the General Partner of Edelman Securities Company L.P. (formerly
Arbitrage Securities Company) and a General Partner of Plaza Securities Company.
He has been affiliated with these companies for more than five years. Mr.
Agranoff is a director of Bull Run Corporation, Atlantic Gulf Communities, The
American Energy Group, Ltd., and Canal Capital Corporation, and AgriFoods
International, Inc. Mr. Agranoff has also been the General Counsel to Edelman
Securities Company L.P. and Plaza Securities Company for more than five years.
The principal business address of Mr. Agranoff is 8410 Datapoint Drive, San
Antonio, Texas 78229-8500.
IRVING J. GARFINKEL, age 61, has been a General Partner of Asco Partners, a
general partner of Edelman Securities Company L.P. (formerly Arbitrage
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 is 717 Fifth Avenue, 4th Floor,
Suite 407, New York, New York 10022.
DANIEL R. KAIL, age 63, has been Managing Trustee of Management Assistance
Inc. Liquidating Trust from January 1986 to December 31, 1996, 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 Compensation Committee and a member
of the Audit Committee. The principal business address of Mr. Kail is 105 North
Avenue, Westport, Connecticut 06880.
CHARLES F. ROBINSON, age 52, 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. The principal business address of Mr. Robinson is
FSI/Anglo-American Financial, 675 Berkmar Court, Charlottesville, Virginia
22901.
<PAGE>
DIDIER M. M. RUFFAT, age 62, was most recently 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 37, rue
de Chezy, 92200 Neuilly, S/Seine, FRANCE.
ROBERT D. SUMMER, age 65, 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. The
principal business address of Mr. Summer is Dimensional Media Associates, Inc.,
22 West 19th Street, New York, New York 10011.
ROGER EDMONDS, age 53, 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 principal business address of Mr. Edmonds is Datapoint House,
400 North Circular Road, London NW10 0JG.
WALTER GEVERS, age 61, 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 R. PERKINS, age 50, was promoted to Vice President, Development &
Production 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.
There are no family relationships between any of the executive officers of
the Company.
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), Daniel R.
Kail and Charles F. Robinson. The current members of the Compensation Committee
are Daniel R. Kail (Chairman), Didier M. M. Ruffat, Irving J. Garfinkel and
Robert D. Summer. 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 the
independent auditors for the Company and its subsidiaries. They meet with the
independent auditors concerning the audit; evaluate non-audit services and the
financial statements and accounting developments that may affect the Company;
meet with management concerning matters similar to those discussed with the
outside auditors; and make 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 6 times during the fiscal year ended August
1, 1998.
<PAGE>
The Compensation Committee makes salary recommendations regarding senior
management to the Board of Directors and administers the Company's Bonus and
Stock Option Plan as described below. The Committee met 2 times during the
fiscal year ended August 1, 1998.
Meetings of the Board of Directors and Committees
The Board of Directors met 3 times during the fiscal year ended August 1, 1998.
Each director attended at least 75% of the aggregate of (a) the total number of
meetings of the Board of Directors (held during the period of his service) and
(b) the total number of meetings held by all committees of the Board on which he
served (during the period that he served).
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Datapoint believes that, during the fiscal year ended August 1, 1998, its
officers and directors complied with all filing requirements under Section 16(a)
of the Securities Exchange Act of 1934
ITEM 11 EXECUTIVE COMPENSATION
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 receive an additional
$1,000 annual fee for each committee they serve on plus an additional $1,000
annual fee for serving on more than one committee. 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 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 eligible to participate in the retirement
plan.
<PAGE>
EXECUTIVE COMPENSATION
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 interests of executives and stockholders. Through the
use of stock-based incentives, the Compensation Committee focuses the attention
of executives on managing the Company from the perspective of an owner with an
equity stake.
For executive officers, compensation now consists primarily of base salary, a
short-term performance incentive opportunity in the form of a variable cash
bonus based on either the financial performance of the Company or of their area
of responsibility, and a long-term incentive opportunity provided by stock
options.
The committee also obtains ratification by the non-employee members of the Board
on most aspects of compensation and long-term incentives for executive officers.
The remainder of this 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 1998 compensation for both the CEO and the other
named executive officers.
<PAGE>
Total Annual Compensation
Annual cash compensation consists of two components; a fixed base salary and a
variable annual bonus opportunity. As an executive's level of responsibility
increases, a larger portion of total annual pay is based on bonus and less on
salary. None of the named executives received a salary change during the past
year, and Mr. Edelman's salary was last increased in December 1990. The
Committee sets 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, Thomas's, Conn's, Agranoff's, and Krumb's bonuses are 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 1998, the Company incurred net
losses and therefore no bonuses were paid in 1998 under these contractual
arrangements. For fiscal years 1997 and 1996, an aggregate of approximately $0.4
and $2.1 million, respectively, were paid under these contractual arrangements.
The remainder of the named executives have been assigned bonus targets of a
percentage of their base salary 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 1998, 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 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
Robert D. Summer
<PAGE>
Supplemental Executive Retirement Plan
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 year ended August 1, 1998, the
Company did not make a contribution, however, for the fiscal years ended August
2, 1997 and July 27, 1996, the Company approved the contribution of 92,500
shares of its common stock and 50,000 shares of its Preferred Stock,
respectively, to the plan for credit to the accounts of various executive
officers. The shares of preferred stock were converted into 162,500 shares of
common stock on December 10, 1996, as a result of the exchange offer. 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.
<PAGE>
Summary Compensation Table
The following table sets forth certain information regarding all cash
compensation paid or accrued for services rendered by the Company's five most
highly compensated executive officers for the last three fiscal years
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term
----------------------------------------------
Name and Other Compensation All
--------------------
Principal Fiscal Annual Stock Options Other
Position Year Salary Bonus Compensation Granted (#)(12) Compensation
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asher B. Edelman (1) 1998 $300,534 - $110,987 (3) 225,000 -
Chairman of the Board and 1997 300,534 $196,126 (2) 134,613 (3) 60,000 $30,000 (10)
Chief Executive Officer 1996 299,956 1,152,918 (2) 148,752 (3) 40,000 17,952 (10)
Blake D. Thomas (4) 1998 $250,000 - $51,354 (3) 180,000 -
President and 1997 250,000 $117,676 (2) 56,178 (3) 50,000 -
Chief Operating Officer 1996 145,166(6) 691,751 (2) 0 100,000 -
Ronald G. Conn (5) 1998 $175,000 - $30,602 (3) 25,000 -
Chief Financial Officer 1997 20,254(6) - - 50,000 -
1996 - - - - -
Gerald N. Agranoff (7) 1998 $200,000 - $ 7,200 (9) 180,000 -
Vice President, General 1997 200,000 $ 78,450 (2) 7,200 (9) 50,000 $4,000 (10)
Counsel and Corp. Secretary 1996 172,481 400,000 (8) 7,200 (9) - -
Roger Edmonds (11) 1998 $138,020 $ 41,406 (8) - 37,500 -
Vice President, Technical 1997 136,735 41,021 (8) - 25,000 -
Services 1996 - - - - -
</TABLE>
Table Footnotes
(1) Asher B. Edelman was named Chief Executive Officer in February 1993.
(2) Represents contractual bonus based on the Company's net pre-tax earnings.
(3) Represents payments incident to foreign assignment.
(4) Blake D. Thomas commenced employment with the Company in December of
fiscal 1996 as Executive Vice President and Chief Operating Officer.
On June 12, 1997, he was promoted to President in addition to
Chief Operating Officer.
(5) Ronald G. Conn commenced employment with the Company in June of fiscal
1997 as Chief Financial Officer.
(6) Amount reflects partial year of employment.
(7) Gerald N.Agranoff commenced employment with the Company in October of
fiscal 1995 as Vice President, General Counsel and Corporate Secretary.
(8) Represents a performance bonus.
(9) Represents auto allowance.
(10) Represents vested portion of the Company's common stock contributions
to the Supplemental Executive Retirement Plan on behalf of named
employee.
(11) Mr. Edmonds in previous years was not one of the top five compensated
officers of the Company.
(12) Excludes options granted as a member of the Company's Board of Directors.
<PAGE>
Stock Option Grants in Last Fiscal Year (1)
The following table sets forth certain information regarding all stock option
grants made to five of the Company's most highly compensated executive officers
for the last fiscal year.
<TABLE>
<CAPTION>
-------------------------------------------------------
Options Granted in Fiscal 1998
-------------------------------------------------------
% of Total
-----------------------------
Options Potential Gain at Assumed
Number of Granted to Exercise Annual Rates of Stock Price
Options Employees in Price Expiration Appreciation for Option Term (3)
------------------------------------------------------------------------------------
Name Granted (2) Fiscal Year Per Share Date 5% 10%
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asher B. Edelman 150,000 8.77% 4 10/7/07 $377,337 $956,245
Asher B. Edelman 75,000 4.38% 2.5625 3/4/08 $120,866 $306,297
Blake D. Thomas 120,000 7.01% 4 10/7/07 $301,870 $764,996
Blake D. Thomas 60,000 3.51% 2.5625 3/4/08 $96,693 $245,038
Ronald G. Conn 25,000 1.46% 2.5625 3/4/08 $40,289 $102,099
Gerald N. Agranoff 120,000 7.01% 4 10/7/07 $301,870 $764,996
Gerald N. Agranoff 60,000 3.51% 2.5625 3/4/08 $96,693 $245,038
Roger Edmonds 25,000 1.46% 4 10/7/07 $62,890 $159,374
Roger Edmonds 12,500 0.73% 2.5625 3/4/08 $20,144 $51,050
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Gain for all stockholders at assumed annual rates of stock
price appreciation $14,181,038 $35,937,504
</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.
(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 (18.0 million) as of August 1, 1998, that would result
from the same stock price assumptions used to show the potential realizable
value for the named executives.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth certain information regarding stock options
exercised by the Company's five most highly compensated executive officers for
the last fiscal year.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Number of Unexercised In-the-Money Options
Acquired on Value Options at August 1, 1998 at August 1, 1998
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asher B. Edelman 0 0 221,667 278,333 $10,312 $11,248
Blake D. Thomas 0 0 108,334 246,666 $17,187 $15,623
Ronald G. Conn 0 0 16,667 33,333 $0 $0
Gerald N. Agranoff 0 0 91,667 213,333 $6,249 $9,373
Roger Edmonds 0 0 23,333 54,167 $2,343 $4,687
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Performance Table
Set forth below is a table 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.
<TABLE>
<CAPTION>
DATAPOINT CORPORATION
STOCK PRICE ANALYSIS
- ----------------------------------------------------------------------------------------------------
Year Datapoint Common Stock Dow Jones Computer Dow Jones 65-Computer
systems index (w/o IBM) Composite average
actual YE Base YE actual YE Base YE actual YE Base YE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FY 98 1.25 17.86 1,201.56 810.39 2,786.06 173.10
FY 97 2.25 32.14 971.17 655.00 2,538.86 157.74
FY 96 1.13 16.07 477.75 322.22 1,746.32 108.50
FY 95 1.50 21.43 460.48 310.57 1,577.65 98.02
FY 94 3.75 53.57 181.90 122.68 1,635.12 101.59
FY 93 7.00 100.00 148.27 100.00 1,609.55 100.00
</TABLE>
The table assumes $100 invested on August 1, 1993, 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 the Executive Committee of Datapoint.
The agreement, as amended, now provides for a base salary of $300,000, an annual
bonus opportunity of 5% of the Company's net pre-tax earnings (excluding the
excess over $10 million of the net of any extraordinary gains due to debt
repurchase or exchange against all extraordinary losses) and payment of certain
of his expenses, subject to limitations, including expenses relating to his
presence at Datapoint's European offices. The amended agreement further provides
for a lump-sum payment of two years salary and benefits plus one year of bonus
at plan should Mr. Edelman's employment involuntarily terminate other than by
death or disability, or for "cause" as strictly defined therein.
<PAGE>
Effective October 1, 1994, Datapoint entered into an agreement with Mr. Agranoff
providing for his employment as Vice President, General Counsel and Corporate
Secretary. This agreement, as amended, now provides for a minimum annual base
salary of $200,000, an annual bonus opportunity of 2% 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.
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. Mr. Thomas was promoted to President on June 12, 1997, in
addition to his position as Chief Operating Officer.
Effective June 12, 1997, Datapoint entered into an agreement with Mr. Conn
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 and 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 provided 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 provided for certain relocation accommodations which were
terminated at the end of 1995. Effective June 12, 1997, Mr. Krumb resigned as
Chief Financial Officer, but remained as a Vice President of the Company and
Special Assistant to the Chairman. Effective November 8, 1997, Mr. Krumb's
annual base salary was $60,000. For the period September 1, 1998 through
December 31, 1998, Mr. Krumb's salary was adjusted to an annual base salary of
$120,000 due to the extra time and effort that Mr. Krumb is devoting to the
Company's special projects and business. The agreement provides for an annual
bonus opportunity equal to 1/4 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), and certain
executive benefits.
<PAGE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners. The following persons
are known to the Company to be beneficial owners of more than five percent (5%)
of the Company's securities as defined under Exchange Act Rule 13(d)(3).
<TABLE>
<CAPTION>
Preferred Stock
Common Stock Beneficially Percent
Name and Address Beneficially Owned Owned of Class
<S> <C> <C> <C>
Asher B. Edelman (1) (See Table under Security
c/o Datapoint Corporation Ownership of Management)(1)
717 Fifth Avenue
New York, NY 10222
Lloyd I. Miller (2) 47,900 (2) 6.6% (2)
</TABLE>
(1) Mr. Edelman is part of a "group" as that term is used in Exchange Act
Section 13(d)(3). See subsection (b) below for detailed description as to the
amount and nature of beneficial ownership by the members of the group.
(2) Mr. Miller filed an original Schedule 13D on February 7, 1997, reporting
47,900 Preferred shares, 28,600 of which are owned by LIM, Inc., a Florida
corporation of which he is sole shareholder, and 19,300 of which are owned by
Trust C under a September 20, 1983 Amended and Restated Trust Agreement for
which Trust Mr. Miller serves as Investment Advisor. Mr. Miller reported a
percentage ownership of 7.53%, but that percentage, based upon currently
outstanding Preferred shares of 721,976 as of October 13, is now 6.6%.
<PAGE>
(b) Security Ownership of Management
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock, Preferred Stock and Convertible Debentures by
each director, by each of the executive officers named in the table, and by the
directors and executive officers as a group as of October 13, 1998.
<TABLE>
<CAPTION>
Convertible
Common Stock Preferred Stock Debentures
Beneficially Percent Beneficially Beneficially
Name of Officer/Director Owned (1) of Class(13) Owned(2) Owned(3)
- ------------------------- ----------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Gerald N. Agranoff (O&D) 148,333(4)(5)(7) * - 0 - - 0 -
Ronald G. Conn (O) 16,667(4) * - 0 - - 0 -
Asher B. Edelman (O&D) 3,685,238(4)(5)(6)(13) 20.5% 14,200** $141,000*
Roger Edmonds (O) 40,000(4) * - 0 - - 0 -
Irving J. Garfinkel (D) 25,000(4)(5)(7) * - 0 - - 0 -
Walter Gevers (O) 85,000(4) * - 0 - - 0 -
Daniel R. Kail (D) 25,000(4) * - 0 - - 0 -
Phillip P. Krumb (O&D) 121,333(4)(8) * - 0 - - 0 -
John Perkins (O) 30,294(4)(9) * - 0 - - 0 -
Charles F. Robinson (D) 25,000(4)(10)(13) * 3,000*(10) $47,000*(10)
Didier Ruffat (D) 50,000(4) * - 0 - - 0 -
Robert D. Summer (D) 32,300(4)(11) * - 0 - - 0 -
Blake D. Thomas (O&D) 318,847(4)(12)(13) 1.8% - 0 - - 0 -
Executive Officers and
Directors of Datapoint as
a group (13 persons) 4,603,012 25.5%
</TABLE>
* Indicates less than 1% ownership as a percent of the outstanding class(13)
**The percent of the outstanding class is 2.0% (13)
(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.
<PAGE>
(2) The Company's $1.00 Preferred Stock ("Preferred Stock") is a non-voting
class of security. Each share may be exchanged, at the option of the
holder, for two (2) shares of Common Stock so long as six (6) quarters
of accrued dividends remain outstanding and unpaid.
(3) The Company's 8-7/8 Convertible Subordinated Debentures Due June 1,
2006 ("Convertible Debentures") is a non-voting class of security. Each
one thousand dollar ($1,000.00) principal amount may be exchanged, at
the option of the holder, into 55.231 shares of Common Stock.
(4) 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, 305,000; Mr. Agranoff,
148,333; Mr. Thomas, 165,000; Mr. Conn, 16,667; Mr. Krumb, 108,333; Mr.
Ruffat, 50,000; Mr. Summer, 25,000; Mr. Garfinkel, 25,000; Mr. Kail,
25,000; Mr. Robinson, 25,000; Mr. Edmonds, 40,000; Mr. Gevers, 85,000;
Mr. Perkins 30,000; and all officers and directors as a group,
1,048,333.
(5) Gerald N. Agranoff, Asher B. Edelman and Irving Garfinkel are Trustees
of the Datapoint Corporation Supplemental Executive Retirement Plan
(the "Datapoint Plan") which owns 316,435 Common shares. In the above
tabulation, such shares have been excluded within each party's Common
shares listing and the listing for the directors and executive officers
as a group. Messrs. Agranoff, Edelman and Garfinkel 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
under the Plan. Mr. Edelman has a current vested interest in 145,288
shares under the Datapoint Plan which have been excluded. Mr. Agranoff
is currently vested with 10,701 Common shares under the Datapoint Plan.
Mr. Garfinkel has no current vested interest under the Datapoint Plan.
Mr. Krumb is vested with 9,283 Common shares and Mr. Perkins with 4,344
Common shares under the Datapoint Plan which have not been included in
their listed beneficial ownership.
<PAGE>
(6) Mr. Edelman's listed beneficial ownership of 3,685,238 shares of Common
Stock is explained in detail in this paragraph, and is based upon his
beneficial ownership reported on Schedule 13D. Mr. Edelman reports
beneficial ownership jointly, as a group, with the following named
persons or entities. Those whose shares have been included within Mr.
Edelman's listed total are reported as beneficially owned pursuant to
Rule 13d-3 by Mr. Edelman. 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 441,348,
994,383 and 6,290 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 361,267 shares
owned by Canal Capital Corporation ("Canal"), in which company 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 361,267
shares owned by Canal. Mr. 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 449,175 shares of
Common Stock which are included. Also included are the 201,460 shares
owned by Mr. Edelman's spouse Maria Regina M. Edelman, 5,000 shares
held by Mr. Edelman in a Keough account, 21,000 shares beneficially
owned by Mr. Edelman's daughters in accounts for which he is the
custodian, and 858,900 shares owned by Edelman Value Fund, Ltd., for
which Mr. Edelman serves as the sole investment manager. Also included
are Mr. Edelman's presently exercisable options to purchase 305,000
shares. Also included are the 41,415 shares owned by Edelman Family
Partners, L.P. for which Mr. Edelman serves as a general partner. As a
Trustee of the Canal Capital Corporation Retirement Plan ("Canal Plan")
which owns 121,181 shares and the Datapoint Plan described above which
owns 316,435 shares, Mr. Edelman may be deemed to own beneficially, and
share voting and investment power over the shares owned by each such
Plan, which are excluded. Also excluded from the listed ownership are
54,007 shares beneficially owned by Mr. Edelman's daughters in accounts
for which their mother, Penelope C. Edelman, is the custodian and the
17,204 shares owned directly by Penelope C. Edelman. Mr. Edelman
disclaims beneficial ownership of these excluded shares. Although
disclaimed and excluded for purposes of Rule 13d-3, certain of the
disclaimed and excluded shares are nevertheless reported by Mr. Edelman
as beneficially owned on his Form 4's pursuant to the rules promulgated
under Section 16 of the Exchange Act. Mr. Edelman's beneficial
ownership total does not include the additional Common Stock which
would be acquired upon the conversion of the Preferred Stock and the
Convertible Debentures as described below. Upon such exchange, Mr.
Edelman's listed beneficial ownership would increase to 3,686,638 and
his percentage of the outstanding class would be 20.5%. This percentage
upon exchange is the listed percentage above pursuant to
Rule 13d-3(d)(1).
<PAGE>
Mr. Edelman's listed beneficial ownership of 14,200 shares of Preferred
Stock is based upon the 5,100 Preferred shares owned by Edelman Value Partners,
L.P., and the 9,100 Preferred shares owned by Edelman Value Fund, Ltd. Mr.
Edelman disclaims beneficial ownership of the Edelman Value Fund, Ltd. shares.
If exchanged for Common Stock, Mr. Edelman's Common Stock beneficial ownership
total listed above would increase by 28,400 shares.
Mr. Edelman's listed beneficial ownership of $141,000.00 of Convertible
Debentures is based upon the $44,000.00 of Convertible Debentures owned by
Edelman Value Partners, L.P. and the $97,000.00 of Convertible Debentures owned
by Edelman Value Fund, Ltd. Mr. Edelman disclaims beneficial ownership of the
Edelman Value Fund, Ltd. Convertible Debentures. If exchanged for Common Stock,
Mr. Edelman's Common Stock beneficial ownership total listed above would
increase by 7,788 shares.
(7) Messrs. Agranoff and Garfinkel are general partners of Plaza Securities
Company, which owns 441,348 shares of Common Stock. Each disclaims
beneficial ownership of these shares which are excluded in each party's
listing in the beneficial ownership table above due to the sole voting
and dispositive powers attributed to Mr. Edelman in his Schedule 13D.
Mr. Agranoff is also a director of Canal which owns 361,267 shares. Mr.
Agranoff disclaims beneficial ownership of these shares and they are
excluded from his beneficial ownership listing due to the sole voting
and dispositive powers attributed to Mr. Edelman.
(8) Mr. Krumb owns 13,000 Common shares directly in addition to the 108,333
shares represented by exercisable options.
(9) Mr. Perkins owns 294 Common shares directly in addition to the 30,000
shares represented by exercisable options.
(10) Mr. Robinson owns 3,000 Preferred shares and $47,000.00 in Convertible
Debentures directly in addition to the 25,000 shares represented by
exercisable options. These Preferred shares and Convertible Debentures,
if converted to Common Stock, represent 8,596 Common shares and would
increase Mr. Robinson's total listed above to 33,596 shares.
(11) Mr. Summer owns 7,300 Common shares directly in addition to the 25,000
shares represented by exercisable options.
(12) Mr. Thomas owns 135,447 Common shares directly in addition to the
165,000 shares represented by exercisable options. Mr. Thomas is also
attributed beneficial ownership of 16,500 Common shares owned by
Foresail Limited Partnership as its sole general partner and 1,900
Common shares held in Mr. Thomas' self-employed pension plan.
(13) The percentage of the outstanding class calculations are based upon
18,158,572 Common shares, 721,976 Preferred shares and $55,681,000
Convertible Debentures outstanding as of October 13, 1998. For purposes
of calculating Mr. Edelman's and Mr. Robinson's percentages of Common
shares under Rule 13d-3(d)(1), as well as the percentage of officers
and directors as a group, the common shares underlying their respective
Preferred Stock and their respective Convertible Debentures upon
exchange are added to the outstanding share total as if the exchange
has occurred.
<PAGE>
ITEM 13 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 the fiscal years 1998, 1997, and 1996,
Datapoint paid legal fees of $0, $374, and $485, respectively, to the law firm
of Pryor, Cashman, Sherman, & Flynn, for legal services provided by attorneys
other than Mr. Agranoff.
During fiscal year 1998 and 1997, the Company paid office rent and secretarial
expenses of $69 and $73, respectively, 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.
The Trustees of the Company's United Kingdom subsidiary's defined benefit
pension plan have implemented an investment strategy which includes an
investment of approximately $6.7 million in the Edelman Value Fund, Ltd., a
related party, as of August 1, 1998.
On June 29, 1998, the Company had signed a letter of intent, which subsequently
expired on August 20, 1998, to acquire Dimensional Media Associates ("DMA"). Mr.
Robert D. Summer is the president of DMA and a board member of Datapoint. In
addition to the letter, Datapoint advanced DMA $200. This advance is secured by
a promissory note, payment of which has been guaranteed by a principal of DMA.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)1 Financial Statements
The consolidated financial statements listed in the accompanying index to
the financial statements are filed as part of this report.
<PAGE>
(a)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 all
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.
(a)3 Exhibits
The exhibits listed on the accompanying index to exhibits are filed as
part of this report.
(b) The Company did not file any Reports on Form 8-K during the quarter
ended August 1, 1998.
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
(3)(a) Certificate of Incorporation of Datapoint Corporation, as
amended (filed as Exhibit (3)(a) to the Company's Annual
Report on Form 10K 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 July 11, 1985, under Indenture dated as of June 1, 1981,
between Datapoint Corporation and Continental Illinois
National 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-16 (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) 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 1, 1987 and incorporated herein by reference).
<PAGE>
(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).
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
(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).
<PAGE>
(10)(n) Employment Agreement with J. Berger (filed as Exhibit (10)(l)
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).
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
(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).
(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).
(10)(z) 1996 Director Stock Option Plan (filed as Annex D to
Amendment No. 3 dated October 31, 1996 to the Company's
Registration Statement on Form S-4 (Registration No. 333-9627)
and incorporated herein by reference).
(10)(aa) 1996 Employee Stock Option Plan (filed as Annex E to
Amendment No. 3 dated October 31, 1996 to the Company's
Registration Statement on Form S-4 (Registration No. 333-9627)
and incorporated herein by reference).
(10)(bb) Employment Agreement with R. Conn.
(10)(cc) Employment Agreement with R. Edmonds.
(10)(dd) Employment Agreement with J. Perkins.
(10)(ee) Amendment No. 2 to Employment Agreement with G. Agranoff.
<PAGE>
(10)(ff) Amendment No. 1 to Summary of Modified Employment
Agreement - with P. Krumb.
(10)(gg) 1997 Employee Stock Option Plan (filed as Annex A to the
Company's Definitive Proxy Statement on Schedule 14(a)
dated December 23, 1997, and incorporated herein by
reference).
(23) Consent of Independent Auditors.
(27) Article 5, Financial Data Schedule.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATAPOINT CORPORATION
(Registrant)
BY: /s/ Ronald G. Conn
Asher B. Edelman
Chief Executive Officer and
Chairman of The Board
By Ronald G. Conn, Attorney In Fact
DATED: October 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Ronald G. Conn Chief Financial Officer October 30, 1998
- -------------------------------
Ronald G. Conn (Principal Accounting Officer)
Ronald G. Conn, pursuant to powers of attorney which are being filed with this
report, has signed below as attorney-in-fact for the following directors of the
Registrant:
Gerald N. Agranoff Charles F. Robinson
Irving Garfinkel Daniel Kail
Robert D. Summer Phillip P. Krumb
Blake D. Thomas Didier M.M. Ruffat
/s/ Ronald G. Conn October 30, 1998
- ----------------------------------------------
Ronald G. Conn
<PAGE>
Schedule II
DATAPOINT CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(In thousands)
<TABLE>
<CAPTION>
(a) (b)
Balance Charged Charged
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 August 1, 1998 $1,654 $33 $179 $(561) $1,305
Year ended August 2, 1997 $2,791 $(164) $(18) $(955) $1,654
Year ended July 27, 1996 $3,012 $170 $(102) $(289) $2,791
</TABLE>
(a) Transfers to and from other balance sheet reserve accounts.
(b) Accounts written-off net of recoveries, other expense accounts and
translation adjustments.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements and related prospectuses of our report dated October 26, 1998, with
respect to the consolidated financial statements and schedule of Datapoint
Corporation included in this Annual Report on Form 10-K for the year ended
August 1, 1998: Registration Statement No. 2-60374 on Form S-8, Registration
Statement No. 2-87765 on Form S-8, Registration Statement No. 33-19328 on Form
S-8, Registration Statement No. 33-19427 on Form S-8, and Registration Statement
No. 33-57102 on Form S-8, Registration Statement No. 333-53265 on Form S-8, and
Registration Statement No. 333-53267 on Form S-8.
Ernst & Young LLP
Dallas, Texas
October 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
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<CIK> 0000205239
<NAME> Datapoint Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-01-1998
<PERIOD-START> AUG-03-1997
<PERIOD-END> AUG-01-1998
<CASH> 12,453
<SECURITIES> 0
<RECEIVABLES> 32,138
<ALLOWANCES> 1,305
<INVENTORY> 2,957
<CURRENT-ASSETS> 50,807
<PP&E> 46,286
<DEPRECIATION> 36,818
<TOTAL-ASSETS> 66,816
<CURRENT-LIABILITIES> 61,376
<BONDS> 58,115
0
722
<COMMON> 5,248
<OTHER-SE> (58,467)
<TOTAL-LIABILITY-AND-EQUITY> 66,816
<SALES> 88,924
<TOTAL-REVENUES> 151,445
<CGS> 110,509
<TOTAL-COSTS> 146,371
<OTHER-EXPENSES> (1,195)
<LOSS-PROVISION> 33
<INTEREST-EXPENSE> 6,148
<INCOME-PRETAX> 121
<INCOME-TAX> 1,345
<INCOME-CONTINUING> (1,224)
<DISCONTINUED> 0
<EXTRAORDINARY> 555
<CHANGES> 0
<NET-INCOME> (669)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
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