SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
FOR THE FISCAL YEAR ENDED JULY 31, 1994
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _________ to _________.
COMMISSION FILE NUMBER 1-8948
INTELOGIC TRACE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
New York 74-2368260
(STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
Turtle Creek Tower I
P. O. Box 400044, San Antonio, Texas 78229-8415
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
210-593-5700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
11.99% Subordinated debentures due 1996 New York Stock Exchange
Common Stock ($.01 par value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. /X/
The aggregate market value of the shares of Common Stock of the
Registrant held by non-affiliates as of October 17, 1994 was $2,864,962
which value, solely for the purposes of this calculation, excludes shares
held by the Registrant's executive officers and directors based on the
closing price of the stock as reported on the New York Stock Exchange.
As of October 17, 1994, there were 12,490,782 shares of the Registrant's
Common Stock outstanding (excluding treasury shares).
1
INTELOGIC TRACE, INC.
INDEX TO FORM 10-K
Page No.
PART I --------
Item 1. Business................................. 3
Item 2. Properties............................... 8
Item 3. Legal Proceedings........................ 9
Item 4. Submission of Matters to a Vote of
Security Holders....................... 10
PART II
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters.... 11
Item 6. Selected Financial Data.................. 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 13
Item 8. Financial Statements and Supplementary
Data .................................. 20
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................. 43
PART III
Item 10. Directors and Executive Officers of the
Registrant............................. 44
Item 11. Executive Compensation................... 46
Item 12. Security Ownership of Certain Beneficial
Owners and Management ................. 57
Item 13. Certain Relationships and Related
Transactions........................... 59
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K................ 62
2
PART I
ITEM 1. BUSINESS
GENERAL
Intelogic Trace, Inc. ("I T" or the "Company"), is an independent,
nationwide provider of computer and telecommunications maintenance and
support services. The Company was founded in 1968 and operated as the
domestic Customer Service Division of Datapoint Corporation. In July 1985,
Datapoint distributed all of the Company's common stock to the Datapoint
shareholders and created the independent service Company, I T. From its
inception, the Company has expanded its services and support capabilities
through internal development and acquisitions. The Company's service
programs utilize the Company's field force and technical headquarters
support functions to develop customized service solutions for customers.
These solutions include the installation and maintenance of hardware and
software, upgrade services, help services, help desk, network support,
project management services, remote diagnostic and repair capabilities and
database management systems. In 1994, I T added programs for the
installation, service, and support of telecommunications devices and
telephone debit card dispensers. Today, I T is working with potential
customers to develop service solutions for the users of PCs, minicomputers,
kiosks, call directors, ACD switches, and assorted telecommunications
devices and other electronic equipment.
REORGANIZATION UNDER CHAPTER 11
During Spring 1994, the Company experienced an increased reliance on
borrowed funds to satisfy working capital requirements, principally as a
result of continued erosion in operating performance. The Company engaged
Buccino & Associates, Inc. ("Buccino"), a nationally recognized company
which specializes in consulting with financially troubled businesses to
review cash flows, liquidity concerns, and provide recommendations to
establish both immediate and long-term improvements in cash flow,
profitability, asset management, and capital structure. Liquidity
pressures continued to increase and the Company determined that the
aggregate borrowing availability under its revolving credit agreement would
not be sufficient to meet the Company's obligations on a current basis.
The Company's liquidity shortfall was compounded by the semi-annual
interest payment due July 15, 1994, of $3.0 million on the $49.9 million in
principal amount of 11.99% Subordinated Debentures due 1996 (the
"Debentures"). In addition to ongoing discussions with its lender, during
late June and early July 1994, the Company held discussions with the
holders of a majority of principal amount of Debentures (the "Principal
Debentureholders") regarding a potential restructuring of that obligation.
On July 15, 1994, the Company filed a Current Report on Form 8-K disclosing
that it was negotiating with its Principal Debentureholders and that it
would not make the interest payment on the Debentures. On July 21, 1994,
the Indenture Trustee for the Debentures issued its notice of default.
Pursuant to the terms of the Indenture, a failure to make the semi-annual
interest payment within the thirty-day grace period allowed by the
Indenture would cause an Event of Default to have occurred. Due
principally to increasing pressures on available capital, the nonpayment of
a promissory note due to the Company and potential terminations of certain
leases, licenses, and contracts due to financial defaults, the Board of
Directors reached the conclusion that the protection of the Bankruptcy Code
was necessary in order to consummate the restructuring of the Debentures
and the revolving financing agreement.
3
On August 5, 1994, the Company filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code
("Chapter 11") in the United States Bankruptcy Court for the Western
District of Texas, San Antonio Division (the "Court"). As a result of
discussions with its Principal Debentureholders, contemporaneously with
filing the petition, the Company filed a Plan of Reorganization setting
forth the terms of a proposed restructuring. Under Chapter 11, enforcement
of certain claims in existence prior to the filing of the petitions are
stayed, while the Company continues operations in the ordinary course of
business as debtor-in-possession.
On October 4, 1994, the Court approved the Company's Disclosure Statement
to the Company's Plan of Reorganization (the "Disclosure Statement"). The
Disclosure Statement, as modified and amended, describes the Plan of
Reorganization (the "Plan") proposed by the Company. The Plan has been
submitted to a vote of creditors, security holders and parties in interest,
and a hearing on confirmation of the Plan has been scheduled by the Court
for November 22, 1994. If confirmed, the Plan would, among other things,
cause the following to occur on the effective date of the Plan (the
"Effective Date"): (1) administrative and tax claims would be paid in
full; (2) a new series of preferred stock would be issued to holders of
unsecured claims; (3) a four-for-one reverse split of the common stock
would be consummated, with existing common shareholders retaining
approximately 25% of the Company's common stock outstanding after the
Effective Date, and holders of unsecured claims receiving 75% of the shares
of common stock outstanding after the Effective Date. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this filing. The terms of the Plan are subject to
acceptance by the parties to the Plan and confirmation by the Court;
therefore, the ultimate impact of the bankruptcy on the Company's results
of operations and financial position cannot presently be determined.
MARKETS & SERVICES
COMPUTER HARDWARE MAINTENANCE AND SUPPORT
The Company's services include preventive/remedial maintenance and basic
installation. This is the Company's core business and accounts for 95% of
the Company's service revenues during fiscal 1994. Customers include end-
users, manufacturers/resellers, and business partners.
The Company normally provides these services on an "on-call" basis either
pursuant to a contract of a specified term and coverage ("Service
Agreement") or on a time and materials ("T&M") basis. During fiscal year
1994, approximately 78% of the Company's revenue was generated from service
provided pursuant to Service Agreements. I T has these agreements with
end-users, major equipment manufacturers, and value-added resellers (VARs).
In addition, I T is an Authorized Service Provider for a number of
manufacturers, including AST, Datapoint, Magna, PAJ Electronics, Inc., and
Teknekron Infoswitch Corporation.
On-site repair service is initiated by a customer telephoning the Company's
Customer Support Center, which then dispatches a Customer Engineer from the
customer's service area to answer the call. The Customer Engineer
diagnoses the source of the problem and repairs or replaces the
malfunctioning component. The Company has expanded its on-site maintenance
business to respond to customers with many types of computer equipment from
a wide variety of vendors and now maintains approximately 2,000 different
products from over 150 vendors.
The Company also has a limited "carry-in" or "mail-in" business. The
Company maintains repair
4
facilities at selected district offices and in San Antonio, Texas to
perform maintenance for selected products.
TELECOMMUNICATIONS HARDWARE INSTALLATION, MAINTENANCE, AND SUPPORT
Traditional services provided in this market include installation, warranty
repair, preventive and remedial maintenance, system upgrades, moves, and
systems integration. Typically, this telecommunications market is served
by distributors or resellers who provide service and support on a local or
regional basis.
In 1994, I T developed new capabilities to provide customized service
solutions for the installation, service, and support of certain
telecommunications equipment. These programs include order entry,
scheduling, programming, remote diagnostic and repair capabilities, and
management database systems.
The foundation of these new services is an interactive communications
network system which administers the programs. This system allows orders
to be entered electronically and coordinates the installation activities.
The system communicates with installers via radio frequency devices and
provides the I T installer with the ability to communicate with the on-line
system with minimal human intervention.
The network also provides remote verification, diagnostic, and repair
capabilities for such equipment. I T performs monthly auto-polling during
the customer's off hours to verify the integrity of the installed equipment
and activity of the devices. If it detects an error in the equipment's
programming, the system notifies an I T technician on the "Help Desk" and
the technician can remotely interrogate the "ailing" device. The
technician frequently can repair and restore the device to proper operation
without the need for an on-site visit.
Another capability of the program is the "Call Home Sick" feature involving
such equipment. A device which begins to experience problems can go off-
line (enter into a by-pass mode with no disruption to telephone service)
and call the system in San Antonio. The technician can typically resolve
the problem remotely by interactively communicating with the device. If
this is not possible, the Help Desk technician can dispatch an I T customer
engineer to repair the device.
Other capabilities of the program include the creation of management
databases to track revenues generated by the dialers and maintain records
of the location and configuration of installed dialers.
During 1994, the Company capitalized on these new capabilities and entered
into an agreement with a telecommunications company to install and maintain
Dialers. This new activity accounted for $3.4 million of the Company's
1994 revenues.
5
OTHER EQUIPMENT
The Company's new capabilities provide opportunities for the installation,
service, and support of other electronic devices and equipment. These
include debit card dispensers and kiosk equipment similar to the units
which allow customers to create their own individual greeting cards.
MARKETING
The Company markets its services in the following ways:
* Through a national sales force, the Company pursues
multi-vendor installation, service, and support agreements
with end-users of computer, telecommunications and other
electronic equipment.
* The Company enters into agreements with leading
manufacturers to provide authorized service to their
end-users during both the warranty and post-warranty period.
* Agreements are established with value-added dealers,
distributors and systems integrators ("resellers") to market
the Company's services as a part of the reseller's total
product offering.
* The Company enters into subcontracting agreements to perform
services for other vendors, typically
a seller of equipment, where the seller serves as the
general contractor for all maintenance services.
* Solicitation agreements are established with independent
sales organizations, dealers and distributors which receive
a commission for obtaining service agreements for the
Company.
END-USER AGREEMENTS
Service Agreements with end-users normally have an initial term of one year
and continue thereafter until terminated by either the customer or the
Company upon 90-days prior written notice. After the first year, the
Company may increase or decrease maintenance prices upon 90-days prior
written notice to the customer. End-user agreements address the particular
service needs of the end-users, and therefore, each contract is unique to
individual requirements.
Service is also provided on a "time and materials" basis to those customers
who request services outside the terms of the Service Agreement. In such
instances, the customer typically is charged for labor and materials used
in making the required repairs, at predetermined labor rates and at the
Company's established prices for parts.
MANUFACTURER AGREEMENTS
Agreements with manufacturers usually call for the Company to provide
installation and database maintenance service to an end-user during the
manufacturer's warranty period, normally 90 days to three years from the
date of purchase. These agreements typically provide that the Company will
be compensated by the manufacturer either by receiving a fee for all units
shipped by the manufacturer or on a per incident basis.
6
The Company's agreements with manufacturers are generally for a term of
three years, and continue thereafter until terminated upon one year's
notice by either party, and provide that the Company will be an authorized
third-party maintainer for the manufacturer during the term of the
agreement. In addition, the Company receives favorable terms for the
supply, purchase and repair of spare parts, training and support equipment.
Under the terms of its agreement with Datapoint, the Company is the
exclusive service agent for Datapoint equipment throughout the United
States. The agreement with Datapoint, dated June 29, 1985, provides for an
exclusive relationship with the Company until terminated by either party,
notice of which termination must be given 180 days prior to the anniversary
of the execution of the agreement, to be effective six years thereafter.
Following termination, the Company would have a non-exclusive relationship
with Datapoint. As of the date of this document, neither party has issued
any such notice. During fiscal years 1994, 1993 and 1992, 13%, 17%, and
24% of the Company's maintenance service revenue was derived from servicing
Datapoint products. See Note 4 to the consolidated financial statements
included elsewhere in this filing.
RESELLER AGREEMENTS
The Company provides services at end-user sites pursuant to agreements with
resellers of the Company's services, whereby the resellers subcontract the
performance of services to the Company. The resellers receive a discount
from the Company's published or established prices based upon volume
commitments and achievements. The resellers are responsible for payment for
all services rendered by the Company to the end-user and are required to
perform certain services which lower the Company's cost of providing
maintenance services. Agreements with resellers are normally for an initial
term of three years, terminable thereafter by either party upon 90-days
written notice. Reseller agreements typically provide that the Company is
the sole third-party maintainer for the selected products of the reseller
during the term of the agreement.
SUBCONTRACTING AGREEMENTS
The Company provides services at end-user sites pursuant to subcontracting
agreements with other vendors, typically a seller of equipment acting as
the general contractor for all maintenance services at a site, regardless
of equipment manufacturer. The vendors are responsible for payment for all
services rendered by the Company to the end-user. The Company has
established subcontractor relationships with IBM, Digital Equipment
Corporation, and C&L Communications.
SOLICITATION AGREEMENTS
Pursuant to the Company's agreements with independent sales organizations,
dealers and distributors, the Company is obligated to pay such
organizations a commission for the first year of installation and
maintenance revenue received by the Company as a result of such solicitor
providing the Company with a Service Agreement between the end-user and the
Company.
7
CUSTOMERS
Providing service at end-user sites pursuant to subcontract agreements with
other vendors and agreements with resellers is a meaningful source of the
Company's revenue. The three most significant of these relationships (IBM,
MCI, and EDS) accounted for approximately 14%, 5%, and 4%, respectively, of
the Company's 1994 service revenue.
COMPETITION
The Company competes nationwide principally with service companies which
furnish service nationally on a multi-vendor basis; with many companies
which furnish multi-vendor service only on a local or regional basis; and
with computer manufacturers and distributors which have their own service
organizations.
Management believes that the Company competes with other multi-vendor
service organizations based on coverage, technical competence, customer
satisfaction, responsiveness, total service offering, and the
effectiveness of maintenance and support services and the price at which
such services are offered. In addition, the Company believes that its
independence and its ability to provide a full range of services gives it a
competitive advantage over pure maintenance companies and allows it to
compete with other large national service companies.
SPARE PARTS
The Company maintains an on-hand supply of spare parts to be utilized as
replacement parts in servicing its customers. As is the practice in the
service industry, a significant quantity of parts is required in order to
facilitate prompt repair service. Spare parts are obtained from
manufacturers or other reliable sources with which the Company has
maintenance and spare parts agreements. Spare parts also are obtained
pursuant to purchase contracts with vendors and are obtained through open
market purchases. In 1995, the Company plans to outsource this business.
As a result of this plan, the Company has commenced negotiations to sell
the majority of its field support spares to various third parties. Based
on estimates received by a prospective buyer, field support spares have
been written down by $17.3 million to their estimated realizable value of
$2.6 million. It is expected that the sale of the field support spares
will occur in 1995.
EMPLOYEES
At July 31, 1994, the Company had 726 employees. With the exception of
four employees with the Company's Canadian subsidiary, Intelogic Trace
Canada ("I T Canada"), all remaining employees of the Company are not
covered by any collective bargaining agreements and the Company has never
experienced a strike or work stoppage. The Company considers its relations
with its employees to be good.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at Turtle Creek Tower
I, San Antonio, Texas. The Company leases its executive offices and other
office and warehouse facilities throughout the United States.
8
ITEM 3. LEGAL PROCEEDINGS
The Company filed a Voluntary Petition on August 5, 1994, under Chapter 11
of the United States Bankruptcy Court. The Company, as debtor-in-
possession, continues to operate and manage its affairs. A Disclosure
Statement to the Plan of Reorganization of the Company has been approved by
the Court, and is an exhibit to this filing. A Confirmation Hearing for
the Company's proposed Plan has been set for November 22, 1994. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Two shareholders of the Company have filed lawsuits against the Company and
its Board of Directors demanding that the Company seek damages from its
Board of Directors with respect to the Company's 1990 purchases of the
stock of the Company and Datapoint. A committee of the Board of Directors
was appointed to consider the demands raised in each case. The committee
retained independent counsel to review the matters raised in the lawsuits
and determined that it was not in the best interest of either the Company
or its shareholders to accept either demand and, accordingly, instructed
counsel to seek the dismissal of both lawsuits. In January 1992, a motion
for summary judgment on behalf of the Company and the Board of Directors
was denied in the lawsuit pending in the New York State Court and is
currently on appeal. A similar motion, involving only the Company's
purchase of its own stock, was denied, with leave to renew after the appeal
in the New York State Court action is decided. The second case is pending
in the United States District Court for the Southern District of New York.
This action charged a violation of the proxy laws and breach of fiduciary
duties with respect to several actions by the Board, including the purchase
of the Company's own stock. In June 1993, another shareholder commenced a
derivative action against certain members of the Company's Board of
Directors and Datapoint. Because this latest action is substantially
similar to one of the previously filed suits, the plaintiffs in the latest
action have filed a motion to dismiss their complaint without prejudice.
On May 13, 1994, the Company announced that although it and the Board of
Directors expressly disclaim and deny any liability or wrongdoing with
respect to the allegations, a settlement had been reached in order to avoid
the additional expense, burden, inconvenience and distraction of continued
litigation. Pursuant to the settlement agreement, which is subject to
Bankruptcy and District Court approval, the Company will receive $2.4
million less attorney's fees and expenses (not to exceed $800,000) awarded
by the Court. In addition, the Company has agreed to form a committee of
the Board to address and approve certain matters relating to the Company's
current and prospective investments. The cash portion of the settlement is
fully covered by the Company's director and officer liability insurance but
may be offset in whole or in part by future director and officer liability
insurance premium increases. The Honorable Leonard B. Sand, United States
District Judge for the Southern District of New York, has held a hearing
concerning the fairness of the proposed settlement. However, no opinion
has yet been issued. Judge Sand has referred the case to the Court for
further adjudication consistent with bankruptcy law. Due to the current
uncertainty as to any recovery the Company has not recorded any receivable.
On October 4, 1994, certain Debentureholders filed an adversary proceeding
in the Court against the Company alleging securities law violations and
certain other common law causes of action. The litigation relates to the
Company's purchases of securities, including Datapoint Stock and related
actions. The plaintiffs in the adversary proceeding seek monetary damages,
attorney's fees, and costs of suit. Any allowed claims against the Company
may be subordinated to the claims of secured and unsecured creditors.
9
The Internal Revenue Service ("IRS") has issued assessment letters relating
to the consolidated federal income tax returns of the Company for the years
1986 through 1992. The IRS letters propose assessments totaling $31.0
million in additional taxes plus interest. The assessment primarily
involves the industry-wide issue of the appropriate method for cost
recovery of spare parts. A recent case on the same issue was decided in
the taxpayer's favor by the United States Tax Court, but is being appealed
by the IRS. If the decision was followed by courts with jurisdiction over
the Company, the remaining proposed assessment would be approximately $2.5
million in additional taxes plus interest. The Company strongly disagrees
with the proposed adjustments and has filed a protest, appealing each of
the adjustments in the IRS report. During 1994, the Company negotiated a
settlement with the IRS and on October 3, 1994 the IRS appeals officer
provided the Company a settlement document indicating a refund of
approximately $1.0 million net of interest costs. The IRS settlement
document is subject to approval by the Joint Committee of Congress and
therefore, the ultimate outcome cannot presently be determined. No
receivable has been recorded for any possible refund.
The Company is a party to various legal proceedings in the ordinary course
of business. The Company believes, based upon the advice of legal counsel
responsible for the review of such matters, that there is no proceeding
either threatened or pending against the Company that could result in a
materially adverse effect on the business or the financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Company's common stock is traded on the composite tape on the New York
Stock Exchange under the symbol IT. The following table sets forth the
high and low sales prices on the composite tape for the New York Stock
Exchange for the periods indicated.
HIGH LOW
------- --------
August 1, 1994 - October 17, 1994 ............... $ 11/16 $ 1/4
FISCAL QUARTER ENDED
1994
October 31, 1993 ................................. 2 7/8 1 7/8
January 31, 1994 ................................. 4 1/8 2 7/8
April 30, 1994 ................................... 3 5/8 1 1/2
July 31, 1994 .................................... 1 1/2 7/16
1993
October 31, 1992 ................................. 3/4 1/2
January 31, 1993 ................................. 1 1/8 3/8
April 30, 1993 ................................... 1 1/8 11/16
July 31, 1993 .................................... 2 3/8 13/16
As of October 17, 1994, there were 3,425 holders of record of the Company's
common stock.
The Company has not paid cash dividends to date and has no present
intention to pay cash dividends on its common stock in the future.
Restrictive provisions of the 11.99% Subordinated Debentures due 1996 limit
the payment of cash dividends and other distributions on capital stock, as
well as the acquisition or retirement, by the Company, of its capital
stock.
As a condition precedent to consummation of the Plan, the Company will be
required to enter into a Registration Rights Agreement (the "Registration
Rights Agreement") with certain principal holders of Debentures (the
"Principal Holders") on or prior to the Effective Date of the Plan. Under
the Registration Rights Agreement, the Company will be required, among
other things, to cause to be filed with the Securities and Exchange
Commission within thirty days of the Effective Date a registration
statement covering the shares of stock issued to Principal Holders in
connection with the Plan, with respect to the resale of such securities by
the Principal Holders from time to time.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenue .................................... $ 72,555 $ 88,172 $ 103,647 $ 105,500 $ 107,726
Earnings (Loss) from Operations .................. (27,278) 4,031 (6,568) (7,083) 3,038
Loss from Continuing Operations .................. (34,388) (3,431) (15,658) (13,108) (26,962)
Earnings (Loss) from
Discontinued Operations ....................... 505 -- (1,622) (5,452) (132)
Extraordinary Items .............................. -- 2,547<F1> 416<F2> 5,246<F3> 7,396<F4>
Net Loss ......................................... (33,883) (884) (16,864) (13,314) (19,698)
Net Loss Less Preferred
Stock Dividends ............................... (34,671) (1,528) (17,409) (13,668) (19,698)
Loss per Share:
Continuing operations ....................... (2.85) (.34) (1.36) (1.13) (2.14)
Net loss less preferred stock dividends ..... (2.81) (.13) (1.46) (1.15) (1.56)
BALANCE SHEET DATA:
Total Assets ..................................... $ 15,569 $ 44,461 $ 58,744 $ 74,039 $ 86,774
Long-Term Debt ................................... --<F5> 49,924 56,930 56,930 63,356
Redeemable Preferred Stock ....................... 4,691 3,903 3,259 2,714 --
Shareholders' Deficit ............................ (73,529) (39,249) (35,335) (17,973) (4,359)
<FN>
<F1> Gains from the repurchase of $7.0 million of the Company's 11.99%
Subordinated Debentures at a discount. See Note 8 of the Notes to
Consolidated Financial Statements included elsewhere in this
filing.
<F2> The Company's pro-rata share of Datapoint Corporation's
extraordinary gains for 1992. See Note 4 of the Notes to
Consolidated Financial Statements included elsewhere in this
filing.
<F3> Gains from the repurchase of $6.4 million of the Company's 11.99%
Subordinated Debentures at a discount and the Company's share of
Datapoint Corporation's extraordinary gains for 1991. See Notes 4
and 8 of the Notes to Consolidated Financial Statements included
elsewhere in this filing.
<F4> Gains from the repurchase of $21.6 million of the Company's 11.99%
Subordinated Debentures at a discount and the Company's share of
Datapoint Corporation's extraordinary items for 1990. See Notes 4
and 8 of the Notes to Consolidated Financial Statements included
elsewhere in this filing.
<F5> $49.9 million of 11.99% Subordinated Debentures has been classified
as liabilities subject to compromise at July 31, 1994.
</FN>
</TABLE>
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(YEARS REFERRED TO ARE FISCAL YEARS)
OVERVIEW
During Spring 1994, the Company experienced an increased reliance on
borrowed funds to satisfy working capital requirements, principally as a
result of continued erosion in operating performance. The Company engaged
Buccino to review cash flows, financial needs, liquidity concerns, and
provide recommendations to establish both immediate and long-term
improvements in cash flow, profitability, asset management, and capital
structure. Liquidity pressures continued to increase and the Company
determined that the aggregate borrowing availability under its revolving
credit agreement would not be sufficient to meet the Company's obligations
on a current basis. The Company's liquidity shortfall was compounded by
the semi-annual interest payment due July 15, 1994, of $3.0 million on the
$49.9 million in principal amount of Debentures. In addition to ongoing
discussions with its lender, during late June and early July 1994, the
Company held discussions with the Principal Debentureholders regarding a
potential restructuring of that obligation. On July 15, 1994, the Company
filed a Current Report on Form 8-K disclosing that it was negotiating with
its Principal Debentureholders and that it would not make the interest
payment on the Debentures. On July 21, 1994, the Indenture Trustee for the
Debentures issued its Notice of Default and Notice of Conditional Holders'
Meeting. Pursuant to the terms of the Indenture, a failure to make the
semi-annual interest payment within the thirty-day grace period allowed by
the Indenture would cause an Event of Default to have occurred. A meeting
of the holders of Debentures was scheduled for August 23, 1994, to discuss
the situation. In the interim, discussions continued with both the
Principal Debentureholders and Foothill Capital Corporation ("Foothill"),
the Company's primary lender. Due to increasing pressures on available
capital, including but not limited to the non-payment of a $750,000
promissory note to the Company and potential terminations of certain
leases, licenses, and contracts due to financial defaults, the Board of
Directors reached the conclusion that the protection of the Bankruptcy Code
was necessary in order to consummate the restructuring of the Debenture
obligations and the revolving financing facility.
Accordingly, on August 5, 1994, the Company initiated a Chapter 11 Case
under the Bankruptcy Code. Since the commencement of the Chapter 11 Case,
the Company has continued to conduct business in the ordinary course under
the protection of the Bankruptcy Code. The Company's financial condition
and results of operations will be affected by the ultimate terms of any
reorganization plan. A Disclosure Statement to the proposed Plan has been
approved by the Court. The case is pending as Cause No. 94-52172C in the
United States Bankruptcy Court for the Western District of Texas. The
Disclosure Statement, as modified and amended, describes the Plan proposed
by the Company after negotiations with creditors. The Plan has been
submitted to a vote of creditors, security holders and parties in interest,
and a hearing on confirmation of the Plan has been scheduled by the Court
for November 22, 1994. If confirmed, the Plan would, among other things,
cause the following to occur on the Effective Date: (1) administrative and
tax claims would be paid in full; (2) a new series of preferred stock would
be issued to holders of unsecured claims; (3) a four-for-one reverse split
of the common stock would be consummated, with existing common shareholders
retaining approximately 25% of the Company's common stock outstanding after
the Effective Date, and holders of unsecured claims receiving 75% of the
shares of common stock outstanding after the Effective Date.
13
Because of uncertainty regarding the outcome of the Chapter 11 Bankruptcy
Case and the effect of any bankruptcy reorganization plan on the interests
of the Company's creditors and securityholders, the ultimate impact of the
Chapter 11 Bankruptcy Case on the Company's results of operations and
financial position cannot presently be determined. The Company is also
unable to predict the value, if any, to be realized by securityholders in a
bankruptcy case whether or not a successful reorganization is achieved.
For this reason, any investment in the Company's common stock should be
considered speculative.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course
of business. However, as a result of the Chapter 11 filing and
circumstances relating to this event, such continuity of operations and
realization of assets and liquidation of liabilities are subject to
uncertainty. Further, the Plan will materially change the amounts reported
in the consolidated financial statements, which do not give effect to any
adjustments to the carrying value of assets or amounts of liabilities that
might be necessary as a consequence of the Plan. The appropriateness of
using the going concern basis is dependent upon, among other things, the
confirmation of the Plan, the ability to comply with debtor-in-possession
financing agreements, generation of sufficient cash from operations and
financing sources to meet obligations, and achievement of satisfactory
levels of future operating profit.
DEBTOR-IN-POSSESSION FINANCING
On September 16, 1994, the Court entered an order approving a debtor-in-
possession credit agreement (the "DIP Facility"). The DIP Facility
consists of an extension and modification of the previously existing credit
agreement with Foothill, the terms of which are described in Note 8 to the
consolidated financial statements. Borrowings under the DIP Facility bear
interest at the prime rate plus 4.5 percent, are payable monthly in
arrears, and are secured by a lien on substantially all of the assets of
the Company. Under the terms of the DIP Facility, the Company is not
authorized to use the collateral (i) upon an event of non-compliance with
the Bankruptcy Court order approving the DIP Facility, (ii) after December
31, 1994, unless extended by mutual agreement of the Company and Foothill,
or (iii) after entry of an order by the Court confirming a plan of
reorganization of the Company.
In September, the Company determined that it would require $1.3 million
post-petition credit in addition to the DIP Facility to provide additional
working capital for continued operations. Under approval of the Court, the
Company obtained this additional credit from Fidelity Capital and Income
Fund ("Fidelity"), a Principal Debentureholder, at an annual interest rate
of 15% and pursuant to the terms and conditions as further described under
Item 13 of this Report.
Although no assurance can be made, management believes the Company can
generate sufficient cash from operations and from existing financing
sources to meet its obligations on a current basis during the pendency of
the Case.
EXIT FINANCING
The Company is engaging in various negotiations to obtain an Exit Financing
Facility in order to provide for expected post-confirmation working capital
needs. Management anticipates that the
14
Exit Financing Facility would consist primarily of a $7.0 million
revolving loan primarily secured by senior liens on inventory,
receivables, and equipment. The Company has engaged in discussions
with financial institutions other than Foothill and Fidelity
regarding the provision of an Exit Financing Facility and have not
received favorable indications of interest from such institutions.
As a result, management has determined to pursue a commitment from,
and has commenced negotiations with Foothill and Fidelity for an
Exit Financing Facility. The terms of the Plan require the Company
to secure a firm commitment for a post-confirmation revolving
financing facility acceptable to the holders of a majority in
principal amount of the Debentures. Although management believes
that the Company can obtain a satisfactory exit financing facility,
no assurance can be made that an appropriate exit financing
facility will be obtained.
CONFIRMATION OF THE PLAN OF REORGANIZATION
There can be no assurance that the Plan will be confirmed. If the Plan is
not confirmed, the Company or any other party-in-interest could attempt to
formulate a different plan. Such a plan might involve a reorganization or
an orderly liquidation of the Company's assets. As substantially all of
the material assets of the Company are subject to liens of the Company's
debtor-in-possession lender, management believes a liquidation would result
in little, if any, distribution to Company shareholders. Further, if the
Plan is consummated after December 31, 1994, the Company would be required
to utilize its tax attributes, principally its net operating losses, to
offset the cancellations of debt income, due to changes in U.S. tax law
effective December 31, 1994 that repeal the stock-for-debt exception relied
upon by the Company for the issuance of common stock under the Plan.
REORGANIZATION ACCOUNTING ISSUES
In November 1990, the American Institute of Certified Public Accountants
issued SOP 90-7. Pursuant to the guidance provide by SOP 90-7, the Company
will adopt "fresh start" reporting as of the Effective Date. Under "fresh
start" reporting, the reorganization value of the entity is allocated to
the entity's assets. If any portion of the reorganization value cannot be
attributed to specific tangible or identifiable intangible assets of the
emerging entity, such amounts are to be reported as "reorganization value
in excess of amounts allocable to identifiable intangible assets" and
amortized over a period of years, generally substantially less than forty
years. As a result of adopting "fresh start" reporting upon emerging from
Chapter 11 status, the Company's consolidated financial statements will not
be comparable with those prepared before the Plan is confirmed, including
the historical consolidated financial statements included herein.
In addition to "fresh start" reporting, SOP 90-7 provides guidance for
financial reporting by entities that have filed petition with the Court and
expect to reorganize under Chapter 11. The Company followed these
guidelines in the accompanying July 31, 1994 consolidated financial
statements. Pursuant to SOP 90-7, prepetition liabilities are reported on
the basis of the expected amount of such allowed claims, as opposed to the
amounts for which those allowed claims may be settled. Under the Plan, if
accepted by the parties and confirmed by the Court, those claims will be
settled at amounts substantially less than their allowed amounts.
15
As of July 31, 1994, prepetition liabilities subject to compromise consist
of the following (in thousands):
11.99% Subordinated Debentures due 1996 ....................... $49,924
Accounts payable .............................................. 6,521
Accrued interest payable ...................................... 3,242
Contribution payable to pension plan .......................... 2,417
Other liabilities ............................................. 148
-------
$62,252
=======
The Plan also provides that the $10 Redeemable Preferred Stock issued by
the Company, all of which is owned by Datapoint, will be canceled and no
distributions will be made on account of this stock. The $10 Redeemable
Preferred Stock has been returned to the Company and the common stock in
the trust has been distributed to the Company (300,000 shares) and
Datapoint (2.4 million shares).
RESULTS OF OPERATIONS
1994 VS. 1993
Net loss increased from $884,000 in 1993 to $33.9 million in 1994. This
net loss increase of $33.0 million was due primarily to a decline in
revenues of $15.6 million and an increase in reorganization and
restructuring charges of $17.5 million.
REVENUE
Total revenue for 1994 declined $15.6 million (17.7%) primarily due to
cancellations of service contracts of $28.2 million outpacing new sales of
$18.0 million. Additionally, $5.4 million was due to a decline in revenue
from servicing Datapoint-manufactured products. This was due primarily to
the continued decline of the Datapoint customer base.
Management believes that the decline in revenue during 1994 is attributable
to a variety of factors including the price of service offerings, new
product warranty offerings and an increased level of competition in the
market for service-related products. These factors are expected to
continue into 1995 and as a result, revenues are expected to continue to
decline during 1995.
COST OF REVENUE
Total cost of revenue decreased $2.3 million in 1994 compared to 1993;
however, the revenue decline outpaced efforts to reduce expenses.
OPERATING EXPENSES
Operating expenses increased $18.0 million due primarily to the
reorganization and restructuring charges incurred in the writedown of field
support spares. During 1994, the Company began negotiations to sell the
majority of its field support spares to various third parties. Based on
estimates received by a prospective buyer, field support spares have been
written down by $17.3 million to their estimated fair market value.
Management expects that the sale of the field support spares will occur in
1995.
16
At the beginning of June 1994, the Company began implementing cost
reduction programs designed to reduce fixed and variable expenses,
including:
* Restructure and reduce staff.
* Arrange for the sale of field support spare parts inventories,
repair operations, and the logistics function to generate annual
expense savings and eliminate the majority of the Company's
depreciation expense.
* Terminate and renegotiate facilities leases to generate additional
expense reductions.
Management expects to begin realizing the benefits of these cost savings in
fiscal year 1995.
INTEREST EXPENSE
Interest expense increased $234,000 in 1994 compared to 1993 due to the
increase in the average borrowings under the Company's credit line. The
Company expects interest expense to decline during 1995 assuming the
proposed Plan is confirmed by the Court.
FEDERAL AND STATE INCOME TAX BENEFIT
The tax benefit of $1.2 million was the result of the change in the
valuation allowance associated with the tax refunds previously received.
1993 VS. 1992
At the beginning of 1993, the Company instituted an across-the-board salary
reduction averaging 6%. This reduction reduced expenses for the year by
$4.0 million. Overall, costs and expenses declined $26.1 million when
compared to 1992.
In October 1992, the Company moved to a new decentralized organization,
with responsibility for profitability and service satisfaction closer to
the customer. This geographic "business unit" structure combines service
and sales into one organization reporting to a General Manager.
REVENUE
Total revenue for 1993 of $88.2 million decreased $15.5 million (14.9%)
from 1992 primarily due to expirations and cancellations of service
contracts throughout the year exceeding new business generated during the
period, resulting in lower service revenue for 1993. New business
additions were below prior year levels due to a smaller yet more productive
sales force combined with a move away from marginal sales opportunities.
Revenue from servicing Datapoint products declined by $8.7 million
representing 56.1% of the total revenue decline. Canadian revenue
decreased from $4.5 million in 1992 to $3.3 million in 1993 representing
7.5% of the total revenue decline.
COST OF REVENUE
Cost of revenue decreased $17.3 million (20.8%) from 1992 to 1993.
Reductions in salaries and wages related to cost of service totaled $9.1
million representing 53.0% of this decline. Reductions in board repair
expense and material and freight totaled $1.5 million or 8.7% of the
17
total decrease. Canadian cost of service declined by $1.8 million.
GROSS PROFIT
Despite the above mentioned revenue decline, gross profit of $22.4 million
(25.4%) increased by $1.8 million from the previous year which reported
gross profit of $20.6 million (19.8%). The Company benefited from
reductions in personnel expense, board repair, and material and freight.
OPERATING EXPENSES
Selling, General & Administrative ("SG&A") expenses of $17.9 million for
1993 decreased $6.8 million (27.6%) from 1992. Further reductions of
management layers and across-the-board wage reductions enacted at the start
of the current fiscal year contributed $3.7 million of this improvement.
The cost of streamlining the Logistics and SG&A functions are shown in
other operating expenses for 1993 and 1992. These charges of $457,000 and
$2.4 million, respectively, primarily represent severance and facility
closing costs. Canadian operating expenses declined by $1.4 million (56%)
from 1992.
INTEREST EXPENSE
Interest expense decreased $251,000 in 1993 as compared to 1992. During
the year, the Company repurchased $7.0 million face value of its
outstanding Debentures for $4.4 million, recognizing extraordinary gains of
$2.5 million. Short-term borrowings under the Foothill credit line carried
an interest rate of prime plus 3 7/8% and averaged $5.9 million in 1993
compared to an average balance of $528,000 in 1992. The balance at July
31, 1993, of $4.4 million, however, was down $2.5 million from year-end
1992.
EQUITY IN INCOME (LOSS) OF AFFILIATE
As of July 31, 1993 and 1992, the Company's investment in Datapoint had
zero carrying value. Note 3 to the Company's consolidated financial
statements provides a complete discussion of this investment.
18
FEDERAL AND STATE INCOME TAXES
During the second quarter of 1992, the Company ceased recording income tax
benefits on losses because realization of further tax benefits is
contingent upon income in future periods.
DISCONTINUED OPERATIONS
The results of the Company's hardware sales and leasing and application
software sales businesses, for all periods presented, have been shown
separately because of the sale of substantially all of the assets of those
operations effective July 1992.
In 1992 the Company reflected a loss of $1.6 million from discontinued
operations related to the sale of substantially all of the assets of those
businesses.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE NO.
----
<S> <C>
Report of Independent Auditors ...................................................... 21
Consolidated Statements of Financial Position at July 31, 1994 and 1993 ............. 22
Consolidated Statements of Operations for each of the Years Ended
July 31, 1994, 1993 and 1992 ..................................................... 23
Consolidated Statements of Cash Flows for each of the
Years Ended July 31, 1994, 1993 and 1992 ......................................... 24
Consolidated Statements of Shareholders' Deficit for each of the
Years Ended July 31, 1994, 1993, and 1992 ........................................ 25
Notes to Consolidated Financial Statements .......................................... 26
Schedule V - Leasehold Improvements and Equipment and Field Support
Spares for each of the Years Ended July 31, 1994, 1993 and 1992 .................. 68
Schedule VI - Accumulated Depreciation of Leasehold Improvements
and Equipment and Field Support Spares for each of the Years
Ended July 31, 1994, 1993 and 1992 ............................................... 69
Schedule VIII - Valuation and Qualifying Accounts and Reserves
for each of the Years Ended July 31, 1994, 1993 and 1992 ......................... 70
Schedule IX - Short Term Borrowings for each of the Years
Ended July 31, 1994, 1993 and 1992 ............................................... 71
Schedule X - Supplementary Income Statement Information for each
of the Years Ended July 31, 1994, 1993 and 1992 .................................. 72
</TABLE>
20
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Intelogic Trace, Inc.
We have audited the accompanying consolidated statements of financial
position of Intelogic Trace, Inc. as of July 31, 1994 and 1993, and the
related consolidated statements of operations, cash flows and shareholders'
deficit for each of the three years in the period ended July 31, 1994. Our
audits also included the financial statement schedules listed in the Index
at Item 14(a). These consolidated financial statements and schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Intelogic Trace, Inc. at July 31, 1994 and 1993 and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended July 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that Intelogic Trace, Inc. will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements on August 5,
1994, Intelogic Trace, Inc. has filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. This
event and circumstances relating to this event, including the Company's
losses, accumulated deficit and leveraged capital structure, raise
substantial doubt about its ability to continue as a going concern.
Continuation of the Company as a going concern and realization of its
assets and liquidation of its liabilities are dependent upon, among other
things, the confirmation of a plan of reorganization and the Company's
ability to generate sufficient cash from operations and obtain financing
sources to meet its obligations. As a result of the reorganization
proceedings, the Company may sell or otherwise realize assets and liquidate
or settle liabilities for amounts other than those reflected in the
consolidated financial statements. Further, the confirmation of a plan of
reorganization could materially change the amounts currently recorded in
the consolidated financial statements. If no reorganization plan is
approved, it is possible that the Company's assets could be liquidated.
The consolidated financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
As discussed in Note 16 to the consolidated financial statements, the
Internal Revenue Service issued assessments for additional taxes for the
years 1986 through 1992 which the Company disagreed with, and accordingly,
filed a protest appealing each assessment. During 1994, the Company
negotiated a settlement with the Internal Revenue Service indicating a
refund of approximately $1 million. The settlement is subject to approval
by the Joint Committee of Congress and, therefore, the ultimate outcome
cannot presently be determined. Accordingly, no amounts have been recorded
in the consolidated financial statements for any outcome that may result
from these assessments and settlement negotiations.
ERNST & YOUNG LLP
San Antonio, Texas
October 14, 1994, except for Note 2,
Paragraph 8 as to which the date is
November 9, 1994
21
<PAGE>
INTELOGIC TRACE, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share data)
<TABLE>
<CAPTION>
JULY 31,
---------------------------
ASSETS 1994 1993
-------- --------
<S> <C> <C>
Current Assets
Cash and temporary investments ........................................................... $ 605 $ 1,626
Marketable securities, net of valuation allowance of
$2,693 in 1994 and 1993 ............................................................... -- --
Accounts receivable, net of valuation allowance of
$2,880 in 1994 and $3,342 in 1993 ..................................................... 7,192 8,728
Net assets of discontinued operations .................................................... 200 320
Other current assets ..................................................................... 1,624 2,070
-------- --------
Total Current Assets .................................................................. 9,621 12,744
Leasehold Improvements and Equipment, net .................................................... 1,213 2,076
Field Support Spares, net .................................................................... 2,625 26,788
Intangible Assets, net of accumulated amortization
of $4,490 in 1994 and $4,141 in 1993 ..................................................... 1,864 2,213
Other Assets ................................................................................. 246 640
-------- --------
Total Assets .......................................................................... $ 15,569 $ 44,461
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities Not Subject to Compromise
Accounts payable ......................................................................... $ 1,571 $ 3,689
Accrued expenses ......................................................................... 2,534 5,900
Short-term borrowings .................................................................... 7,919 4,377
Deferred revenue ......................................................................... 9,690 12,170
Other current liabilities ................................................................ -- 254
-------- --------
Total Current Liabilities ............................................................. 21,714 26,390
Liabilities Subject to Compromise ............................................................ 62,252 --
11.99% Subordinated Debentures Due 1996 ...................................................... -- 49,924
Deferred Income Taxes and Other Liabilities .................................................. 441 1,632
Deferred Pension Liability ................................................................... -- 1,861
Commitments and Contingencies (Note 14)
$10.00 Redeemable Preferred Stock: 65,000 shares authorized; 46,301 and
40,571 shares issued and outstanding at July 31, 1994 and 1993,
respectively, $100 per share mandatory redemption value .................................. 4,691 3,903
Shareholders' Deficit
Preferred stock ($.01 par; 20,000,000 shares authorized) ................................. -- --
Common stock ($.01 par; 40,000,000 shares authorized;
19,908,398 shares issued) ............................................................. 199 199
Additional paid-in capital ............................................................... 51,508 55,003
Retained deficit ......................................................................... (69,695) (35,024)
Foreign currency translation adjustment .................................................. 28 54
Less common stock in treasury - at cost (7,240,210 shares in 1994 and
7,812,495 shares in 1993) ............................................................ (53,152) (56,919)
Retirement valuation reserve ............................................................. (2,417) (2,562)
-------- --------
Total Shareholders' Deficit ........................................................... (73,529) (39,249)
-------- --------
Total Liabilities and Shareholders' Deficit ........................................ $ 15,569 $ 44,461
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
INTELOGIC TRACE, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JULY 31,
---------------------------------------------
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Revenue
Service ................................................................ $ 71,388 $ 86,727 $ 101,346
Sales .................................................................. 1,167 1,445 2,301
-------- -------- ---------
Total Revenue ..................................................... 72,555 88,172 103,647
Cost of Revenue
Service ................................................................ 61,215 65,226 81,252
Sales .................................................................. 2,329 579 1,825
-------- -------- ---------
Total Cost of Revenue ............................................. 63,544 65,805 83,077
-------- -------- ---------
Gross Profit ...................................................... 9,011 22,367 20,570
Operating Expenses
Selling, general and administrative expenses ........................... 18,659 17,879 24,689
Restructuring charges:
Write down of field support spares .................................. 17,253 -- --
Other restructuring charges ......................................... 377 457 2,449
-------- -------- ---------
Total Operating Expenses .......................................... 36,289 18,336 27,138
-------- -------- ---------
Earnings (Loss) From Operations ................................... (27,278) 4,031 (6,568)
Other Expenses
Reorganization charges - bankruptcy .................................... 340 -- --
Interest expense ....................................................... 7,096 6,862 7,113
Equity in loss of affiliate ............................................ -- -- 1,876
Other, net ............................................................. 865 600 256
-------- -------- ---------
Loss From Continuing Operations
Before Income Taxes ............................................. (35,579) (3,431) (15,813)
Federal and State Income Tax Benefit ........................................ 1,191 -- 155
-------- -------- ---------
Loss From Continuing Operations ................................... (34,388) (3,431) (15,658)
Discontinued Operations
Loss from operations (net of tax benefits of $33) ...................... -- -- (63)
Earnings (Loss) on disposal (net of tax benefits of $1,082
for 1992) ............................................................ 505 -- (1,559)
-------- -------- ---------
Earnings (Loss) from Discontinued Operations ...................... 505 -- (1,622)
-------- -------- ---------
Loss Before Extraordinary Items ................................... (33,883) (3,431) (17,280)
Extraordinary Items ......................................................... -- 2,547 416
-------- -------- ---------
Net Loss .......................................................... $(33,883) $ (884) $ (16,864)
======== ======== =========
Net Loss Less Preferred Stock Dividends ..................................... $(34,671) $ (1,528) $ (17,409)
======== ======== =========
Earnings (Loss) per Common Share
Continuing operations .................................................. $ (2.85) $ (.34) $ (1.36)
Discontinued operations ................................................ .04 -- (.14)
Extraordinary items .................................................... -- .21 .04
-------- -------- ---------
Net Loss Less Preferred Stock Dividends Per Share .................. $ (2.81) $ (.13) $ (1.46)
======== ======== =========
Weighted Average Common Shares Outstanding .................................. 12,343 11,994 11,939
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
INTELOGIC TRACE, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JULY 31,
--------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Operating Activities
Net loss ................................................................... $(33,883) $ (884) $(16,864)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss from discontinued operations ..................................... 323 -- 1,622
Depreciation and amortization ......................................... 11,543 12,150 15,208
Provision for doubtful accounts ....................................... 1,650 335 912
Write down of field support spares .................................... 17,253 -- --
Net loss from investment in affiliate ................................. -- -- 1,460
Extraordinary gain from debenture repurchases ......................... -- (2,547) --
Realized loss - securities ............................................ -- -- 4,116
Unrealized gain - securities .......................................... -- -- (4,059)
Foreign currency valuation (gains) losses ............................. (26) 67 79
Deferred income tax benefit ........................................... (1,191) -- (537)
Other ................................................................. 2,848 2,489 1,544
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable ................................................... (114) (1,143) 2,009
Other current assets .................................................. 446 830 265
Accounts payable and accrued expenses ................................. 4,443 (5,095) (2,485)
Deferred revenue ...................................................... (2,480) (359) (118)
Other current liabilities ............................................. 283 (33) 90
-------- -------- --------
Net Cash Provided by Operating Activities ........................... 1,095 5,810 3,242
Investing Activities
Purchase of field support spares and other fixed assets .................... (6,078) (8,482) (12,860)
Sale of equity and debt securities ......................................... -- -- 396
Proceeds from sale of discontinued operations .............................. -- 6,049 --
Other, net ................................................................. 272 1,359 1,292
-------- -------- --------
Net Cash Used in Investing Activities .............................. (5,806) (1,074) (11,172)
Financing Activities
Short-term borrowings (repayments) ......................................... 3,542 (2,536) 5,644
Repurchase of subordinated debentures ...................................... -- (4,459) --
Other ...................................................................... 148 -- (1,072)
-------- --------
Net Cash Provided by (Used in) Financing Activities ................ 3,690 (6,995) 4,572
-------- -------- --------
Net Decrease in Cash and Temporary Investments ............................... (1,021) (2,259) (3,358)
Cash and Temporary Investments, beginning of year ............................ 1,626 3,885 7,243
-------- -------- --------
Cash and Temporary Investments, end of year .................................. $ 605 $ 1,626 $ 3,885
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
INTELOGIC TRACE, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(In thousands, except share data)
<TABLE>
<CAPTION>
FOREIGN NET
ADDITIONAL CURRENCY RETIREMENT SHAREHOLDERS'
COMMON PAID-IN RETAINED TRANSLATION TREASURY VALUATION EQUITY
STOCK CAPITAL DEFICIT ADJUSTMENT STOCK RESERVE (DEFICIT)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JULY 27, 1991 $199 $ 56,592 $(16,087) $ 54 $(58,731) $ -- $(17,973)
Net loss -- -- (16,864) -- -- -- (16,864)
Preferred dividends -- -- (545) -- -- -- (545)
Matching contribution
to 401(k) plan -- (769) -- -- 837 -- 68
Foreign currency
translation
adjustment -- -- -- (21) -- -- (21)
-------------------------------------------------------------------------------------------
BALANCE JULY 31, 1992 199 55,823 (33,496) 33 (57,894) -- (35,335)
Net loss -- -- (884) -- -- -- (884)
Preferred dividends -- -- (644) -- -- -- (644)
Matching contribution
to 401(k) plan -- (820) -- -- 975 -- 155
Retirement valuation
reserve -- -- -- -- -- (2,562) (2,562)
Foreign currency
translation
adjustment -- -- -- 21 -- -- 21
---------------------------------------------------------------------------------------------
BALANCE JULY 31, 1993 199 55,003 (35,024) 54 (56,919) (2,562) (39,249)
Net loss -- -- (33,883) -- -- -- (33,883)
Preferred dividends -- -- (788) -- -- -- (788)
Matching contribution
to 401(k) plan -- 167 -- -- 105 -- 272
Retirement valuation
reserve -- -- -- -- -- 145 145
Stock options exercised -- (3,662) -- -- 3,662 -- --
Foreign currency
translation
adjustment -- -- -- (26) -- -- (26)
--------------------------------------------------------------------------------------------------------
BALANCE JULY 31, 1994 $199 $ 51,508 $(69,695) $ 28 $(53,152) $(2,417) $(73,529)
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
25
INTELOGIC TRACE, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Intelogic
Trace, Inc. and its wholly owned subsidiaries (the "Company"). Investments
in affiliated companies owned 20% or more are accounted for on the equity
method. All significant intercompany transactions and balances have been
eliminated.
MARKETABLE SECURITIES
Marketable equity securities are stated at the lower of aggregate cost or
market and other marketable securities are stated at cost. Net realized
gains/losses represent cash received less the cost of the securities sold,
which includes commissions and investment management fees, if any. The cost
of securities sold is based on the first-in, first-out method.
PROPERTY
Leasehold improvements and equipment are carried at cost and depreciated
using straight-line and accelerated methods over the estimated useful lives
of the assets, which are generally as follows:
Leasehold improvements 5 years
Computer equipment 4 - 5 years
Other machinery, equipment, furniture, and fixtures 3 - 10 years
Repair and maintenance costs are expensed as incurred. Gains or losses on
dispositions are included in earnings.
FIELD SUPPORT SPARES
Field support spares are carried at lower of cost or net realizable value
and depreciated using the straight-line method over an estimated useful
life of 5 years.
Other significant policies used by the Company in accounting for spares are
as follows:
* Repair costs of spares are accrued and expensed when the need for
repair is identified.
* Other costs associated with maintaining spares are expensed when
incurred.
INTANGIBLE ASSETS
Intangible assets include the excess of cost over net tangible assets of
businesses acquired by purchase. Goodwill arising from these acquisitions
is being amortized on a straight-line basis over 40 years. Excess costs
associated with the purchase of service contracts are being amortized on a
26
straight-line basis over five years.
REVENUE RECOGNITION
SERVICE REVENUE The majority of the Company's revenues are generated under
contractual arrangements. These arrangements are billed in advance on a
periodic basis. Contract service revenue is recognized ratably over the
contractual period or as services are provided. Amounts billed in excess
of amounts recognized are recorded as deferred revenue. Warranty service
revenue is recognized ratably over the warranty period beginning in the
month shipped. Revenue from services rendered on a "time and materials"
basis is recognized in the period the work is performed.
SALES REVENUE Revenue from equipment sales and the related cost of sales
are recognized when title to the equipment passes. Component repair
revenue and related costs are recognized upon completion of the repair.
EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
shares outstanding during the period, after giving effect for preferred
stock dividends. Because operations resulted in a loss, common stock
equivalents were not considered in the computation as their effect would be
anti-dilutive.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when
purchased to be temporary investments.
2. PETITION FOR RELIEF UNDER CHAPTER 11
During Spring 1994, the Company experienced an increased reliance on
borrowed funds to satisfy working capital requirements, principally as a
result of a continued erosion in operating performance. The Company
engaged a company which specializes in consulting with financially troubled
businesses to review cash flows, liquidity concerns, and provide
recommendations to establish both immediate and long-term improvements in
cash flow, profitability, asset management, and capital structure.
Liquidity pressures continued to increase and the Company determined that
the aggregate borrowing availability under its revolving credit agreement
would not be sufficient to meet the Company's obligations on a current
basis. The Company's liquidity shortfall was compounded by the semi-annual
interest payment due July 15, 1994 of $3.0 million on the $49.9 million in
principal amount of 11.99% Subordinated Debentures due 1996 (the
"Debentures"). In addition to ongoing discussions with its lender, during
late June and early July 1994, the Company held discussions with the
holders of a majority in principal amount of Debentures (the "Principal
Debentureholders") regarding a potential restructuring of that obligation.
On July 15, 1994, the Company filed a Current Report on Form 8-K disclosing
that it was negotiating with its Principal Debentureholders and that it
would not make the interest payment on the Debentures. On July 21, 1994,
the Indenture Trustee for the Debentures issued its notice of default.
Pursuant to the terms of the Indenture, a failure to make the semi-annual
interest payment within the thirty-day grace period allowed by the
Indenture would cause an Event of Default to have occurred. Due
principally to increasing pressures on available capital,
27
the nonpayment of a promissory note to the Company and potential
terminations of certain leases, licenses, and contracts due to financial
defaults, the Company reached the conclusion that the protection of the
Bankruptcy Code was necessary in order to consummate the restructuring of
the Debentures and the revolving financing agreement.
On August 5, 1994, the Company filed a voluntary petition for
reorganization under Chapter 11. As a result of discussions with its
Principal Debentureholders, contemporaneously with filing the petition, the
Company filed a Plan of Reorganization setting forth the terms of the
proposed restructuring. Under Chapter 11, enforcement of certain claims in
existence prior to the filing of the petitions are stayed, while the
Company continues operations in the ordinary course of business as debtor-
in-possession. These claims are reflected in the consolidated financial
statements as of July 31, 1994, as "liabilities subject to compromise."
Additional claims may arise subsequent to the petition date resulting from
the rejection of executory contracts and/or leases and determination of the
Court of allowed claims for contingencies and other disputed amounts.
On October 4, 1994, the Court approved the Company's Disclosure Statement.
The Disclosure Statement, as modified and amended, describes the Plan
proposed by the Company. The Plan has been submitted to a vote of
creditors, security holders and parties in interest, and a hearing on
confirmation of the Plan has been scheduled by the Court for November 22,
1994. If confirmed, the Plan would, among other things, cause the
following to occur on the Effective Date of the Plan: (1) administrative
and tax claims would be paid in full; (2) a new series of Preferred Stock
would be issued to holders of unsecured claims; (3) a four-for-one reverse
split of the common stock would be consummated, with existing common
shareholders retaining approximately 25% of the Company's common stock
outstanding after the Effective Date, and holders of unsecured claims
receiving 75% of the shares of common stock outstanding after the
Effective Date.
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course
of business. However, as a result of the Chapter 11 filing and
circumstances relating to this event, such continuity of operations and
realization of assets and liquidation of liabilities are subject to
uncertainty. While under the protection of Chapter 11, the Company may
sell or otherwise dispose of assets and liquidate or settle liabilities for
amounts other than those reflected in the consolidated financial
statements. Further, the Plan will materially change the amounts reported
in the consolidated financial statements, which do not give effect to any
adjustments to the carrying value of assets or amounts of liabilities that
might be necessary as a consequence of the Plan. The appropriateness of
using the going concern basis is dependent upon, among other things, the
confirmation of the Plan, the ability to comply with debtor-in-possession
financing agreements, generation of sufficient cash from operations and
financing sources to meet obligations, and achievement of satisfactory
levels of future operating profit.
In November 1990, the American Institute of Certified Public Accountants
issued Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Pursuant to the
guidance provide by SOP 90-7, the Company will adopt "fresh start"
reporting as of the effective date of the Plan. Under "fresh start"
reporting, the reorganization value of the entity is allocated to the
entity's assets. If any portion of the reorganization value cannot be
attributed to specific tangible or identifiable intangible assets of the
emerging entity, such amounts are to be reported as "reorganization value
in excess of amounts allocable to identifiable intangible assets" and
amortized over a period of years, generally
28
substantially less than forty years. As a result of adopting "fresh start"
reporting upon emerging from Chapter 11 status, the Company's consolidated
financial statements will not be comparable with those prepared before the
Plan is confirmed, including the historical consolidated financial
statements included herein.
In addition to fresh start reporting, SOP 90-7 provides guidance for
financial reporting by entities that have filed petition with the Court and
expect to reorganize under Chapter 11. The Company followed these
guidelines in the accompanying July 31, 1994 consolidated financial
statements. Pursuant to SOP 90-7, prepetition liabilities are reported on
the basis of the expected amount of such allowed claims, as opposed to the
amounts for which those allowed claims may be settled. Under the Plan, if
accepted by the parties and confirmed by the Court, those claims will be
settled at amounts substantially less than their allowed amounts.
As of July 31, 1994, prepetition liabilities subject to compromise consist
of the following (in thousands):
11.99% Subordinated Debentures due 1996 $49,924
Accounts payable 6,521
Accrued interest payable 3,242
Contribution payable to pension plan 2,417
Other liabilities 148
-------
$62,252
=======
The Plan provides that the Company must negotiate a settlement with the
Pension Benefit Guaranty Corporation (the "PBGC") on terms acceptable to
the holders of a majority of the Debentureholders, provided however, that
if no settlement is reached, the allowed unsecured claim shall be treated
as an unsecured claim subject to compromise. Subsequent to July 31, 1994,
the Company notified the PBGC of its intent to terminate its pension plan
effective December 31, 1994. A Bankruptcy Court hearing was held on
November 9, 1994, at which the Honorable Leif Clark found that a distress
termination of the retirement income plan was appropriate and so ordered.
The Plan also provides that the $10 Redeemable Preferred Stock issued by
the Company, all of which is owned by Datapoint, will be canceled and no
distributions will be made on account of this stock (see Note 3). The $10
Redeemable Preferred Stock has been returned to the Company and the common
stock in the trust has been distributed to the Company (300,000 shares) and
Datapoint (2.4 million shares).
The Company has requested approval from the Court to pay or otherwise honor
certain of its prepetition obligations, including certain wages, salaries
and related benefits of employees, claims for certain limited contributions
to an employee benefit plan, and claims up to $900 per creditor arising
from the deposit of money for certain services, claims of vendors to
contracts under which the Company has posted a bond. The Plan provides
that unsecured claims (other than subordinated Debentureholders) of $5,000
or less, which will be entitled to receive the lesser of a payment of cash
equal to 50% of such claim or such creditors pro rata share of $650,000.
The Company's short-term borrowings under a revolving financing agreement
is a secured claim. Under the Plan, the Company is responsible for either
renegotiating the revolving financing agreement or finding a lender that
will satisfy the creditor's claim.
29
Under the terms of the Plan, each holder of an unsecured claim not
specifically classified in another class will receive, after the Effective
Date of the Plan, a pro rata share of a new series of preferred stock and
new common stock. The new series of preferred stock will consist of
1,133,333 shares, subject to increase based upon unsecured claims other
than the Debentureholders in excess of $5 million, and will have an
aggregate liquidation preference of at least $17 million. The new common
stock will constitute 75% of the total outstanding common stock of the
Company after the Effective Date.
The above terms are subject to acceptance by the parties to the Plan and
confirmation by the Court; therefore, the ultimate impact of the
bankruptcy on the Company's results of operations and financial position
cannot presently be determined.
3. ACQUISITIONS
In 1990 the Company acquired all of the outstanding stock of Datapoint
Canada, Inc., a wholly owned subsidiary of Datapoint. Datapoint Canada,
subsequently renamed I T Canada, sells and services computer hardware
throughout Canada, primarily products marketed by Datapoint and Teknekron
Infoswitch Corp. The transaction was accounted for as a purchase. The
purchase price of $2.8 million consisted of $300,000 in cash and 25,000
shares of Intelogic Trace $10 Redeemable Preferred Stock ("Preferred
Stock"). In addition, the Company issued to Datapoint a five-year option
("Option") to repurchase substantially all of the Company's holdings of
Datapoint's common and preferred stock.
The Preferred Stock is subject to optional redemption by the Company
through November 9, 1994, at $87.50 per share; after November 9, 1994, at
$100 per share; and to mandatory redemption on November 9, 1995, at $100
per share. The carrying value of the Preferred Stock has been increased by
periodic accretion of the difference between the fair value at issuance and
the mandatory redemption value.
The Preferred Stock accumulates dividends annually at a rate of $10 per
share if paid in cash or $18 per share if paid in additional shares of
Preferred Stock. The Preferred Stock is cumulative and has no voting
rights. The Preferred Stock has a liquidation preference of $100 per share
plus dividends in arrears to the date of such liquidation. To date, an
additional 21,301 shares of Preferred Stock have been issued in payment of
dividends.
The Option allows Datapoint to purchase, from the Company, up to 2.7
million shares of Datapoint common stock for $.75 per share and up to
85,000 shares of Datapoint preferred stock for $1.375 per share, payable in
cash or by delivery of shares of Preferred Stock if permissible under the
terms of the Company's agreements. Datapoint exercised its option on the
85,000 shares of Datapoint preferred stock in 1992. The remaining
Datapoint common stock shares subject to the Option will be held in a
Grantor Trust until exercised or upon expiration of the Option on November
9, 1995.
Subsequent to July 31, 1994, the Company and Datapoint mutually agreed to a
division of the corpus in the Grantor Trust in lieu of the above Option.
Pursuant to this agreement, the Company and Datapoint sought Bankruptcy
Court approval to have the trustee of the Grantor Trust transfer and
distribute 2.4 million shares of Datapoint Common Stock held in the Grantor
Trust to Datapoint, and transfer and distribute the remaining 300,000
shares of Datapoint Common Stock to the Company, and to terminate the
Option and the Grantor Trust. The Court approved the
30
agreement on September 9, 1994. In connection with the division of the
corpus in the Grantor Trust, the $10 Redeemable Preferred Stock will be
canceled subsequent to July 31, 1994. The $10 Redeemable Preferred Stock
has been returned to the Company and the common stock in the trust has been
distributed to the Company (300,000 shares) and Datapoint (2.4 million
shares).
Financial information of I T Canada is summarized as follows:
1994 1993 1992
--------------------------
(In thousands)
Revenue $1,890 $3,668 $5,122
Loss from operations (861) (286) (2,205)
Net Loss (1,447) (281) (1,998)
Identifiable assets 146 1,950 1,947
I T Canada ceased its operations effective September 30, 1994.
4. INVESTMENT IN AFFILIATE
In 1989, the Company purchased an aggregate of 2,545,600 shares of
Datapoint common stock which, combined with shares already owned, increased
the Company's holdings to 2,743,385 shares, or approximately 27% of
Datapoint's outstanding common stock.
In 1992, Datapoint issued additional shares of common stock and a new class
of preferred stock in exchange for its then outstanding preferred stock.
The issuance of the additional common stock diluted the Company's holdings
to approximately 20% of Datapoint's outstanding common stock.
The Company's share of Datapoint's fiscal 1992 consolidated results were
based on 27% of Datapoint's 1992 consolidated net earnings through the
third quarter and 20% of Datapoint's results in the fourth quarter. For
1992, the Company's share of Datapoint's losses exceeded its recorded
investment, therefore, a loss was recognized in 1992 equal to the beginning
of year investment balance of $1.5 million.
The Company's recorded investment balance currently equals zero. The
Company's share of Datapoint's future earnings will have to exceed $21.4
million before the Company can again reflect results on this investment.
See Note 3 for a description regarding an agreement between the Company and
Datapoint which reduced the Company's holdings in Datapoint common stock to
343,385 shares subsequent to July 31, 1994.
31
Financial information for Datapoint as of July 31, 1994, 1993, and August
1, 1992, and for the years then ended is summarized below. Datapoint uses
a 52- or 53-week fiscal year ending on the last Saturday in July.
1994 1993 1992
---------------------------------
(In thousands)
Total Revenue .............................. $ 172,936 $ 208,344 $ 255,243
Gross Profit ............................... 65,565 86,149 101,877
Loss before Extraordinary Items ............ (94,765) (11,859) (10,409)
Net Loss ................................... (93,425) (11,260) (8,756)
Net Loss Applicable to Common Stockholders . (95,209) (13,044) (16,357)
Current Assets ............................. 79,915 94,169 121,991
Total Assets ............................... 127,434 202,275 248,813
Current Liabilities ........................ 98,202 74,759 90,581
Total Liabilities .......................... 178,195 155,254 173,978
Stockholders' Equity (Deficit) ............. (50,761) 47,021 74,835
5. PROPERTY
The Company's property consists of the following:
1994 1993
-------------------
(In thousands)
Leasehold Improvements and Equipment (at cost):
Leasehold improvements ............................... $ 4,459 $ 4,442
Computer equipment ................................... 19,434 19,498
Other machinery, equipment, furniture and fixtures ... 6,994 7,429
-------- --------
30,887 31,369
Less: Accumulated Depreciation ........................... (29,674) (29,293)
-------- --------
Net Leasehold Improvements and Equipment ................. $ 1,213 $ 2,076
======== ========
Field Support Spares (at cost) ........................... $ 35,775 $ 63,891
Less: Accumulated Depreciation ........................... (33,150) (37,103)
-------- --------
Net Field Support Spares ................................. $ 2,625 $ 26,788
======== ========
See Note 12 for a discussion of the Company's intent to sell its field
support spares in 1995.
6. DISCONTINUED OPERATIONS
During 1992, the Company sold substantially all of the assets of its
computer hardware sales and leasing and application software businesses.
These businesses represented the entire operations of the Systems Group.
The total sales price, including assumed liabilities, was $26.1 million,
which, after satisfaction of existing financing related to the lease base,
resulted in $8.1 million to be paid to the Company, subject to the transfer
of leases under the provision of the sales agreement, as amended. The
remainder of the net receivable is due, with interest from the closing
date, as leases are confirmed
32
under the provisions of the sales agreement, as amended.
For all periods presented, the operating results of the businesses sold
have been shown as discontinued operations. Summary operating results for
each of the periods is as follows:
1994 1993 1992
------------------------
(In thousands)
Revenue $ - $ - $ 27,927
Loss before taxes and loss on disposal - - (96)
Net Loss - - (1,622)
7. ACCRUED EXPENSES
Accrued expenses include $1.8 million and $3.7 million for salaries and
employee benefits at July 31, 1994 and 1993, respectively and $250,000 for
accrued interest at July 31, 1993.
8. DEBT
11.99% SUBORDINATED DEBENTURES
On July 29, 1986, the Company issued $100 million of 11.99% Subordinated
Debentures due July 15, 1996. Interest is payable January 15 and July 15 of
each year. The Debentures are redeemable at the option of the Company at
any time, at prices ranging from 102.67% of the principal amount in 1994 to
100% of the principal amount in 1995 and thereafter. Restrictive
provisions of the Debentures limit the payment of cash dividends and other
distributions on capital stock as well as the acquisition or retirement, by
the Company, of its capital stock. On July 15, 1994, the Company failed to
make the semi-annual interest payment which constituted a default under
terms of the Subordinated Debentures Indenture. As of August 14, 1994, an
event of default existed for failure to remedy this default within the 30-
day grace period. As a result of the Company's filing on August 5, 1994,
of a voluntary petition for reorganization under Chapter 11, the Debentures
are classified as "liabilities subject to compromise" at July 31, 1994.
Prior to 1991, the Company purchased $43.1 million face value of the
Debentures. During 1993, the Company purchased $7.0 million face value of
the Debentures and recognized extraordinary gains, after tax, of $2.5
million. No Debentures were purchased in 1992 or 1994.
SHORT-TERM BORROWINGS
In June 1991 the Company entered into a revolving financing agreement.
Loan proceeds may be used to repurchase the Company's outstanding
Debentures and up to $9.0 million may be used for general corporate
purposes. Under an amendment to the agreement, the Company's borrowings
under this facility are limited to the lesser of: (1) fifteen percent of
annualized service maintenance revenue, (2) cash collections for the prior
50-day period, or (3) an amount equal to the sum of 70% of eligible
accounts receivable plus 20% of eligible net field support spares or $2.0
million, whichever is less. Borrowings are secured by the Company's
accounts receivable, field support spares, leasehold improvements and
equipment. Outstanding borrowings accrue interest at 4 1/2 percentage
points above the prime rate. The Company is required to pay a commitment
fee of 1/2 of 1 percent per annum on the average daily unborrowed amounts.
In
33
addition, the Company is required to pay an annual commitment fee equal
to 3/8 of 1 percent of the committed amount and a fee of 11/2% of the face
value of all Debentures repurchased by the Company during the term of the
financing agreement, with a minimum fee of $150,000. The agreement expires
December 31, 1995, at which time all outstanding borrowings are due. The
agreement contains restrictive covenants which, among other things, require
the Company to maintain certain financial ratios. At July 31, 1994, the
Company is not in compliance with the financial covenants of the revolving
financing agreement. At July 31, 1994 and 1993, $7.9 million and $4.4
million, respectively, were outstanding under this agreement.
Subsequent to July 31, 1994, the Company consummated a loan agreement with
Fidelity, its Principal Debentureholder. Pursuant to this agreement, the
Company received an additional $1.3 million in working capital in order to
satisfy certain loan covenants of the revolving financing agreement. The
Principal Debentureholder received a junior lien on all of the Company's
assets subject to the revolving financing agreement. The Principal
Debentureholder also received a senior lien on the Company's field support
spares, the Company's potential refund from the IRS; the 300,000 shares of
Datapoint Common Stock to be distributed to the Company under the
arrangement with Datapoint described in Note 3; and certain marketable
securities held by the Company with priority over the liens of the
revolving financing agreement. The Company has agreed to sell its
Datapoint Common Stock and such marketable securities and remit all
proceeds of such sales to the Debentureholder.
Interest paid was $3.5 million, $6.7 million, and $6.8 million for the
years ended July 31, 1994, 1993, and 1992, respectively.
9. INCOME TAXES
Effective August 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." Under Statement No. 109, the liability
method is used in accounting for income taxes. Under this method, deferred
tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities (temporary
differences) and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. Prior to
the adoption of Statement No. 109, income tax expense was determined using
the deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements
and tax returns and were measured at the tax rate in effect in the year the
difference originated.
As permitted by Statement No. 109, the Company has elected not to restate
the consolidated financial statements of any prior years. The effect of
the change on pretax income from continuing operations for the years ended
July 31, 1994 and 1993 was not material.
34
Significant components of the Company's deferred tax assets and liabilities
as of July 31, 1994 are as follows:
DEFERRED TAX ASSETS:
Field Support Spares Obsolescence ........................... $ 4,883
Bad Debt Reserve ............................................ 255
Accrued Expenses ............................................ 390
Equity in Subsidiary Loss Carryforwards ..................... 5,791
Loss on Marketable Securities ............................... 601
Net Operating Loss .......................................... 10,200
Miscellaneous ............................................... 341
--------
Total Deferred Tax Assets .............................. 22,461
Valuation Allowance for Deferred Tax Assets ............ (18,710)
--------
Net Deferred Tax Assets ................................ 3,751
DEFERRED TAX LIABILITIES:
Depreciation ................................................ 3,580
Deferred State Income Tax Liability ......................... 287
Miscellaneous ............................................... 325
--------
Total Deferred Tax Liabilities ......................... 4,192
--------
Net Deferred Tax Liabilities ........................... $ 441
========
Income tax benefits from continuing operations were composed of the
following:
LIABILITY DEFERRED DEFERRED
METHOD METHOD METHOD
1994 1993 1992
----------------------------
Current: ..................................... $ - $ - $ -
Federal ...................................... - - -
State ..................................... - - -
----------------------------
Total Current ......................... - - -
============================
Deferred:
Federal ................................... (1,191) - -
State ..................................... -- - (155)
Total Deferred ........................ (1,191) - (155)
============================
Total Income Tax Benefit .............. $(1,191) $ - $(155)
============================
35
The differences between the actual benefit from continuing operations in
the financial statements and the expected benefit computed at the United
States federal statutory tax rate of 35% are as follows:
1994 1993 1992
---------------------------------
Expected Tax Benefit ...................... $(12,017) $(1,166) $(5,376)
Capital Loss Carryforward ................. - (41) -
Financial Reporting Loss Carryforward ..... - 1,207 5,126
Change in Valuation Allowance ............. 10,734 - -
Other ..................................... 92 - 95
---------------------------------
Total Income Tax Benefit ............. $ (1,191) $ 0 $ (155)
=================================
The tax benefit of $1.2 million in 1994 was the result of the change in the
valuation allowance associated with tax refunds previously received.
At July 31, 1994, the Company had a net operating loss carryforward of
$29.0 million for U.S. income tax purposes that expires in years 2005
through 2009. At June 30, 1994, I T Canada had a net operating loss
carryforward for Canadian tax purposes of approximately $7 million expiring
in various amounts beginning in 1996. For financial reporting purposes, a
valuation allowance of $18.7 million has been recognized to offset the
deferred tax asset principally related to the carryforwards and the field
support spares.
Based on the discussions in Note 2 relating to the bankruptcy filing, if
the Court accepts the plan of reorganization, the net operating loss
carryforward may be reduced as a result of possible income tax positions
that will be available to the Company in 1995. Any future benefits
realized from preconfirmation net operation loss carryforwards will first
reduce any reorganization value in excess of amounts allocable to
identifiable intangible assets and other intangible assets until exhausted
and thereafter be reported as a direct addition to additional paid-in
capital.
10. CAPITAL STOCK AND STOCK OPTION PLANS
In addition to the common and redeemable preferred stock disclosed in the
Consolidated Statements of Financial Position, the Company is authorized to
issue 20 million shares of preferred stock with a par value of $.01 per
share. No such preferred shares were outstanding on July 31, 1994 or 1993.
Under the terms of two approved stock option plans, an aggregate of 798,034
shares of the Company's common stock are reserved and available for
issuance under such plans as described below:
* Employee stock option plan - Employees may be granted options to
purchase common stock and related stock appreciation rights. Under the
terms of this plan, options may be granted at no less than 75% of the
fair market value of the shares on the date of the grant, and expire
no later than ten years and one day after the date of the grant. The
Board of Directors may grant options exercisable in full or in
installments, and will determine the date after which the options may
be exercised in whole or in part.
* Director stock option plan - Members of the Board of Directors may be
granted options to purchase common stock at the fair market value at
the date of grant. The options may be
36
exercised at any time after the date of grant and will expire ten
years and one day from the date of grant. Each current Director has
received, and each newly elected Director, at the time of election,
will be entitled to receive, an option for 25,000 shares. The
outstanding options granted to current Directors elected prior to 1987
have been increased to reflect the 10% common stock dividend paid in
June 1986.
The changes in the number of common shares under option for the years 1994
and 1993 are summarized as follows:
NUMBER
DESCRIPTION PRICE PER SHARE OF SHARES
- - ----------- -------------------------------
OUTSTANDING AT JULY 31, 1992 . . . . . . $ .53 to $ 15.05 1,874,288
Granted . . . . . . . . . . . . . . . . . $ .37 to $ 2.37 1,708,059
Canceled . . . . . . . . . . . . . . . . $ .42 to $ 14.03 (1,113,836)
Exercised . . . . . . . . . . . . . . . . $ .42 to $ 1.06 (27,333)
---------
OUTSTANDING AT JULY 31, 1993 . . . . . . $ .37 to $ 15.06 2,441,178
Granted . . . . . . . . . . . . . . . . . $ .55 to $ 3.94 1,928,707
Canceled . . . . . . . . . . . . . . . . $ .42 to $ 13.98 (863,974)
Exercised . . . . . . . . . . . . . . . . $ .42 to $ 3.38 (398,333)
---------
OUTSTANDING AT JULY 31, 1994 . . . . . . $ .37 to $ 15.06 3,107,578
=========
EXERCISABLE AT JULY 31, 1994. . . . . . . $ .37 to $ 15.06 1,162,402
=========
AVAILABLE FOR GRANT AT JULY 31, 1994 . . 798,034
=========
All common shares under option which are beneficially owned by one of the
Company's Directors and member of the Office of the President will be
canceled as of the effective date of the Plan.
The Company established an Employee Stock Purchase Plan in 1992.
Participants in this plan may purchase shares monthly, at the market price,
through payroll deductions. Common stock for the plan will be purchased on
the open market.
11. LEASES
The Company leases certain facilities and equipment under various operating
leases. Most of the leases contain renewal options for varying periods and
require the Company to provide maintenance of the property. Certain leases
contain provisions for periodic rate adjustments to reflect Consumer Price
Index changes.
Rent expense under these leases for 1994, 1993 and 1992 was $3.9 million,
$4.1 million, and $5.5 million, respectively.
37
The future minimum rental commitments as of July 31, 1994, for all
noncancellable leases are as follows (in thousands):
1995......................... $1,915
1996......................... 1,643
1997......................... 1,263
1998......................... 997
1999......................... 807
In connection with filing for Chapter 11 protection, the Company has
obtained approval of the Court to reject real property leases at closed
locations. The above schedule of minimum rental commitments has not been
modified for such renegotiations subsequent to July 31, 1994.
12. RESTRUCTURING CHARGES
In 1994, the Company began negotiations to sell the majority of its field
support spares to various third parties. Based on estimates received by
the prospective buyer, field support spares have been written-down by $17.3
million to their estimated realizable value. It is expected that the sale
of the field support spares will occur in 1995. During 1994, 1993, and
1992, the Company recorded other restructuring charges of $377,000,
$457,000, and $2.4 million, respectively, representing primarily severance
and facility closing costs.
13. BENEFIT PLANS
The Company has a defined benefit pension plan. The benefits are based on
years of service and the employee's average compensation for the five
highest compensation years during the ten consecutive years preceding
retirement or termination. The cost of the plan is actuarially determined,
including amortization of the unrecognized actuarial net obligation over a
15-year period, and is funded annually based on the minimum amount that can
be deducted for federal income tax purposes.
On October 28, 1991, the Retirement Income Plan was frozen. The
curtailment of the plan limits future retirement income payments to only
those employees participating in the plan on that date. The future
payments to those employees will be based on their salary and service as of
October 28, 1991. See Note 2.
The following table sets forth the plan's funded status and accrued pension
cost at July 31, 1994 and 1993:
38
Actuarial present value of accumulated benefit obligations:
1994 1993
-----------------
(In thousands)
Vested ................................................... $ 6,822 $ 6,055
Non-vested ............................................... 247 381
------- -------
7,069 6,436
======= =======
Projected benefit obligation for service rendered to date .. (7,069) (6,436)
Plan assets at fair value .................................. 4,652 3,874
------- -------
Projected benefit obligation in excess of plan assets -
Accrued pension cost ..................................... $(2,417) $(2,562)
======= =======
Net pension cost included the following components:
1994 1993 1992
-----------------------
(In thousands)
Service costs-benefits earned during the period ..... $ -- $ -- $ 96
Interest cost on projected benefit obligation ....... 528 339 373
Actual return on plan assets ........................ (10) (42) (83)
Net amortization and deferral ....................... 64 (193) (238)
----- ----- -----
Net periodic pension cost ....................... $ 582 $ 104 $ 148
===== ===== =====
During 1993, due to the decline in interest rates the plan adopted a lower
weighted average discount rate in determining the actuarial present value
of its projected benefit obligation and assumed a lower expected long-term
rate of return on its assets. This, coupled with the use of updated
mortality tables, caused the projected benefit obligation for service
rendered to date, which benefits were frozen at the time the Company
curtailed the pension plan, to increase to an amount in excess of the fair
value of the plan's assets. A valuation reserve, representing the excess
of the projected benefit obligation over the fair value of the plan's
assets has been established by a charge to the Company's shareholders'
equity. This excess liability will be funded over time as actuarial
computations of pension cost and funding requirements are determined.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation at July 31, 1994 and 1993
was 8%. No rate of increase in future compensation levels was assumed for
1994 and 1993 due to the curtailed status of the plan. The expected
long-term rate of return on assets was 8% for 1994 and 1993, and 9.5% for
1992. At July 31, 1994, the plan's assets consisted of cash and
investments in money market funds.
Upon the suspension of the Retirement Income Plan, a 401(k) savings plan
covering substantially all employees was established. Under that plan the
Company matches a portion of an employee's contribution. Treasury stock
was used for the Company's matching portion. The amounts charged to
expense for the years ended July 31, 1994, 1993, and 1992 were $272,000,
$155,000, and $68,000, respectively.
39
14. CONTINGENCIES
The Company filed a Voluntary Petition on August 5, 1994 under Chapter 11
of the United States Bankruptcy Court. The Company, as debtor-in-
possession, continues to operate and manage its affairs. A Disclosure
Statement to the Plan of Reorganization of the Company has been approved by
the Court. A Confirmation Hearing for the Company's proposed Plan has been
set for November 22, 1994. See Note 2 for further discussion.
Two shareholders of the Company have filed lawsuits against the Company and
its Board of Directors demanding that the Company seek damages from its
Board of Directors with respect to the Company's 1990 purchases of the
stock of the Company and Datapoint. A committee of the Board of Directors
was appointed to consider the demands raised in each case. The committee
retained independent counsel to review the matters raised in the lawsuits
and determined that it was not in the best interest of either the Company
or its shareholders to accept either demand and, accordingly, instructed
counsel to seek the dismissal of both lawsuits. In January 1992, a motion
for summary judgment on behalf of the Company and the Board of Directors
was denied in the lawsuit pending in the New York State Court and is
currently on appeal. A similar motion, involving only the Company's
purchase of its own stock, was denied with leave to renew after the appeal
in the New York State Court action is decided. The second case is pending
in the United States District Court for the Southern District of New York.
This action charged a violation of the proxy laws and breach of fiduciary
duties with respect to several actions by the Board, including the purchase
of the Company's own stock. In June 1993, another shareholder commenced a
derivative action against certain members of the Company's Board of
Directors and Datapoint. Because this latest action is substantially
similar to one of the previously filed suits, the plaintiffs in the latest
action have filed a motion to dismiss their complaint without prejudice.
On May 13, 1994, the Company announced that although it and the Board of
Directors expressly disclaim and deny any liability or wrongdoing with
respect to the allegations, a settlement had been reached in order to avoid
the additional expense, burden, inconvenience and distraction of continued
litigation. Pursuant to the settlement agreement, which is subject to
Bankruptcy and District Court approval, the Company will receive $2.4
million less attorney's fees and expenses (not to exceed $800,000) awarded
by the Court. In addition, the Company has agreed to form a committee of
the Board to address and approve certain matters relating to the Company's
current and prospective investments. The cash portion of the settlement is
fully covered by the Company's director and officer liability insurance but
may be offset in whole or in part by future director and officer liability
insurance premium increases. A United States District Judge for the
Southern District of New York has held a hearing concerning the fairness of
the proposed settlement. However, no opinion has yet been issued. The
Judge has referred the case to the Bankruptcy Court for further
adjudication consistent with bankruptcy laws. Due to the current
uncertainty as to any recovery, the Company has not recorded any
receivable.
On October 4, 1994, certain Debentureholders filed an adversary proceeding
in the Court against the Company alleging securities law violations and
certain other common law causes of action. The litigation relates to the
Company's purchases of securities, including Datapoint Stock and related
actions. The plaintiffs in the adversary proceeding seek monetary damages,
attorney's fees, and costs of suit. Any allowed claims against the Company
may be subordinated to the claims of secured and unsecured creditors.
The Internal Revenue Service ("IRS") has issued assessment letters relating
to the consolidated
40
federal income tax returns of the Company for the years 1986 through 1992.
The IRS letters propose assessments totaling $31.0 million in additional
taxes plus interest. The assessment primarily involves the industry-wide
issue of the appropriate method for cost recovery of spare parts. A recent
case on the same issue was decided in the taxpayer's favor by the United
States Tax Court, but is being appealed by the IRS. If the decision was
followed by courts with jurisdiction over the Company, the remaining
proposed assessment would be approximately $2.5 million in additional taxes
plus interest. The Company strongly disagrees with the proposed
adjustments and has filed a protest, appealing each of the adjustments in
the IRS report. During 1994, the Company negotiated a settlement with the
IRS and on October 3, 1994 the IRS appeals officer provided the Company a
settlement document indicating a refund of approximately $1.0 million net
of interest costs. The IRS settlement document is subject to approval by
the Joint Committee of Congress and therefore, the ultimate outcome cannot
presently be determined. No receivable has been recorded for any possible
refund.
The Company is a party to various legal proceedings in the ordinary course
of business. The Company believes, based upon the advice of legal counsel
responsible for the review of such matters, that there is no proceeding
either threatened or pending against the Company that could result in a
materially adverse effect on the business or the financial condition of the
Company.
15. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
As of October 17, 1994, the Company beneficially owned approximately 2.5%
of Datapoint's outstanding common stock. The Company's Chairman of the
Board and three other directors are also members of Datapoint's eight-
person Board of Directors. Mr. Agranoff, a member of the Company's and
Datapoint's Board of Directors, became General Counsel of Datapoint in
September 1994. Such relationships may result in conflicts of interest as
a result of the loyalties owed by the same persons acting as corporate
fiduciaries for two different companies may have adverse interests. Mr.
Agranoff reports no direct ownership of Datapoint stock and disclaims
ownership of 274,766 shares owned by Plaza Securities Company of which he
is a general partner.
All transactions between the Company and Datapoint have been pursuant to an
agreement between the parties and relate to the ordinary business
operations of the Company. Pursuant to the agreement, the Company is
charged by Datapoint for equipment and field support spares, royalties, and
repairs, and Datapoint is charged by the Company for services and sales.
Investments in marketable securities include securities of companies
affiliated with the Company by virtue of certain common directors. The
aggregate cost of such securities at July 31, 1994 and 1993 was $2.7
million. Included in accounts receivable at July 31, 1994 is $103,000 due
from employees.
41
<PAGE>
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is an unaudited summary of quarterly financial information
for 1994 and 1993:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
OCTOBER JANUARY 31 APRIL 30 JULY 31
------- ---------- -------- -------
<S> <C> <C> <C> <C>
1994
Revenue ....................................................... $ 20,102 $ 18,798 $ 16,984 $ 16,671
Loss from Operations .......................................... (850) (647) (4,152) (21,629)<F6>
Loss from Continuing Operations ............................... (1,393) (2,493) (6,030) (24,472)
Net Loss ...................................................... (565) (2,493) (6,030) (24,795)
Net Loss Less Preferred Stock Dividends ....................... (744) (2,685) (6,244) (24,998)
Earnings (Loss) per Common Share<F7>
Loss from continuing operations ........................... (.13) (.22) (.52) (1.97)
Earnings (loss) from discontinued operations .............. .07 -- -- (.03)
------- ------- ------- -------
Net loss less preferred stock dividends
per common share ....................................... (.06) (.22) (.52) (2.00)
1993
Revenue ....................................................... $ 23,762 $ 22,464 $ 20,738 $ 21,208
Earnings from Operations ...................................... 275 1,071<F8> 1,3278 1,358
Loss from Continuing Operations ............................... (1,686) (916) (447) (382)
Extraordinary Items ........................................... 1,997 691 -- (141)
Net Earnings (Loss) ........................................... 311 (225) (447) (523)
Net Earnings (Loss) Less Preferred Stock Dividends ............ 161 (382) (611) (696)
Earnings (Loss) per Common Share<F7>
Loss from continuing operations ............................. (.15) (.08) (.04) (.05)
Extraordinary items ......................................... .16 .05 -- (.01)
------- ------- ------- -------
Net loss less preferred stock dividends
per common share ......................................... .01 (.03) (.04) (.06)
<FN>
<F6> Reflects restructuring and reorganization charges of $18.0 million
in the fourth quarter.
<F7> The sum of the quarterly per share amounts do not necessarily equal
the annual amount reported, as per share amounts are computed
independently for each quarter and the full year based on
respective weighted average common shares outstanding.
<F8> Reflects restructuring charges of $213,000 in the second quarter
and $244,000 in the third quarter.
</FN>
</TABLE>
42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth certain information regarding the directors and
executive officers of the Company as of October 17, 1994. All executive
officers serve at the discretion of the Board of Directors.
NAME AGE OFFICE
------ --- ------
Asher B. Edelman 54 Chairman of the Board; Director;
Office of the President
Mark S. Helwege 43 Director; Office of the President;
Chief Executive Officer
Gerald N. Agranoff 47 Director
Leon Botstein 47 Director
Daniel R. Kail 59 Director
Michael E. Schultz 59 Director; Executive Vice President-
Special Projects
Philip D. Freeman 46 Senior Vice President; General Counsel;
Secretary
ASHER B. EDELMAN was elected to the Office of the President in 1991 and
has been a Director of the Company since 1985. Mr. Edelman has been
General Partner of Plaza Securities Company, an investment partnership,
since July 1979; General Partner of Asco Partners, a general partner of
Arbitrage Securities Company, a broker/dealer, since July 1984; and General
Partner of Arbitrage Securities Company, from January 1977 until June 1984.
Mr. Edelman is a Director, Chairman of the Board, and Chairman of the
Executive Committee of Datapoint Corporation ("Datapoint"), and a Director,
Chairman of the Board and Chairman of the Executive Committee of Canal
Capital Corporation ("Canal Capital"). Since February 1985, Canran Corp., a
corporation controlled by Mr. Edelman and of which he is a Director and
President, has been a General Partner of Canal-Randolph Limited Partnership
(which is the successor liquidating partnership to Canal-Randolph
Corporation).
MARK S. HELWEGE was elected to the Office of the President and Chief
Executive Officer in May 1994. He was elected as a Director of the Company
in June 1994. Previously, Mr. Helwege served as Executive Vice President -
Sales and Operations, with the additional responsibility for IT Canada
from January 1992 to May 1994. From August 1991 to December 1991 Mr.
Helwege served as Senior Vice President, Sales and Operations. Previously,
Mr. Helwege was the Company's National Sales Manager from 1986 to 1988,
Vice President, Sales from 1988 to 1989, and Area Vice President, Eastern
Area Sales and Operations from 1989 to 1991.
GERALD N. AGRANOFF was elected as a Director of the Company in 1991. Mr.
Agranoff was General Partner, Asco Partners (the General Partner of
Arbitrage Securities Company ("Arbitrage Securities") from July 1984
through December 1991; a General Partner of Arbitrage Securities, a
broker/dealer, and of Plaza Securities Company ("Plaza"), an investment
partnership for more than five years; Trustee, Management Assistance Inc.
Liquidating Trust ("Management Assistance Trust") since February, 1986;
General Counsel to Plaza and Arbitrage Securities for more than five years;
Director of Bull Run Corporation since December 1990; Director of Datapoint
Corporation since 1991; Director of Canal Capital Corporation since 1984
and the General Counsel of Datapoint, effective September 1994.
44
LEON BOTSTEIN was elected as a Director of the Company in 1985. Dr.
Botstein has been President of Bard College for more than five years and is
also a Director of Interferon Sciences, Inc.
DANIEL R. KAIL was elected a Director as of the date of the distribution of
the outstanding shares of the Company's Common Stock by Datapoint (July 28,
1985). Mr. Kail has been Managing Trustee, since January 1986, of
Management Assistance Inc. Liquidating Trust, and prior thereto, since
October 1984, had been Executive Vice President, Chief Operating Officer
and a Director of Management Assistance Inc. ("MAI"), a computer
manufacturing and servicing company. He was also Executive Vice President
and Director of Canal Capital Corporation from November 1987 through 1991.
Mr. Kail is also a Director of Datapoint.
MICHAEL E. SCHULTZ was elected Executive Vice President - Special Projects
in 1992. Mr. Schultz was elected a Director as of the date of the
distribution of the outstanding shares of the Company's Common Stock by
Datapoint (July 28, 1985). Mr. Schultz has been a partner in the law firm
of Ehrenkranz, Ehrenkranz & Schultz for more than five years. Mr. Schultz
serves as a Director and President of Canal Capital. Effective October
31, 1994, Mr. Schultz ceased to be an executive officer of the Company.
PHILIP D. FREEMAN has been employed as Vice President and General Counsel
since the Spin-off and in September 1985 was elected Secretary. In 1989,
Mr. Freeman was elected Senior Vice President. Mr. Freeman is also the
Director of the Human Resources and Facilities functions of the Company.
45
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table sets forth information for the three years ended July
31, 1994, concerning the compensation of the Company's chief executive
officer and its four next most highly compensated executive officers (the
"Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------
LONG -TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------------- -------------
OTHER
ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL COMPENSATION SARS COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($)(d) GRANTED ($)(e)
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asher B. Edelman 1994 169,200 0 31,263 (b) 100,000 572 (e)
Chairman, Member 1993 169,200 80,620 53,757 (c) 2,701 390 (f)
Office of the 1992 150,000 0 -- 300,000
President
Mark S. Helwege 1994 148,338 0 -- 315,000 1,788 (e)
Director, Member 1993 137,387 45,000 -- 12,101 1,014 (f)
Office of the 1992 140,000 16,560 -- 69,100
President, Chief
Executive Officer
Philip D. Freeman 1994 141,606 0 -- 140,000 2,530 (e)
Senior Vice 1993 134,872 25,000 -- 12,101 1,699 (f)
President General 1992 140,000 0 -- 62,222
Counsel and
Secretary
Michael E. Schultz 1994 150,010 0 -- 100,000 3,303 (e)
Director, Executive 1993 109,696 80,620 -- 200,000 0 (f)
Vice President- 1992 N/A N/A(a) -- N/A N/A
Special Projects
<FN>
(a) Mr. Schultz became an executive officer on November 2, 1992. Prior
to that date, Mr. Schultz received compensation for his services as
a Director of the Company as described in "Compensation of
Directors." Mr. Schultz ceased to be executive officer of the
Company effective October 31, 1994.
(b) Mr. Edelman's other annual compensation for fiscal year 1994
includes $25,263 paid under the Executive Medical Plan and $6,000
for preparation of his U.S. federal income tax return. Other annual
compensation for the other Named Executive Officers was not greater
than the lesser of $50,000 or 10% of the total of annual salary and
bonus reported for such officer during fiscal year 1994.
(c) Mr. Edelman's other annual compensation for fiscal year 1993
includes $48,757 paid under the Executive Medical Plan and $5,000
for preparation of his U.S. federal income tax return. Other annual
compensation for the other Named Executive Officers was not greater
than the lesser of $50,000 or 10% of the total of annual salary and
bonus reported for such officer during fiscal year 1993.
(d) As permitted by Securities and Exchange Commission transition
rules, information in these columns is provided for fiscal years
1994 and 1993 only.
(e) Other compensation for fiscal year 1994 includes $410, $1,183,
$1,041 and $0 for Messrs. Edelman,
46
Helwege, Freeman and Schultz, respectively, for the Company's
matching contributions to the executives' accounts in the Company's
401(k) retirement plan. Other compensation also includes $162,
$605, $1,489 and $3,303 for Messrs. Edelman, Helwege, Freeman and
Schultz, respectively, for life insurance premiums paid by the
Company on the officers behalf.
(f) Other compensation for fiscal year 1993 includes $390, $550, $516
and $0 for Messrs. Edelman, Helwege, Freeman and Schultz,
respectively, for the Company's matching contributions to the
executives' accounts in the Company's 401(k) retirement plan. Other
compensation also includes $0, $464, $1,183 and $0 for Messrs.
Edelman, Helwege, Freeman and Schultz, respectively, for life
insurance premiums paid by the Company on the officers behalf.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement, dated as of July 1, 1991,
with Mr. Asher B. Edelman pursuant to which Mr. Edelman was appointed a
member of the Company's Office of the President. In addition, Mr. Edelman
continues to serve as Chairman of the Board. The agreement has a three-
year term. Mr. Edelman's agreement will be renewed automatically for
successive three-year periods if not terminated. The agreement provided
for an initial annual base salary of $150,000. Mr. Edelman's annual salary
was increased to $180,000 starting on July 1, 1992, in accordance with the
agreement. The agreement also provides that Mr. Edelman will be entitled
to executive officer-level perquisites and benefits.
Under the provisions of the First Amendment made as of July 10, 1992, Mr.
Edelman was entitled to receive an annual bonus payable as follows:
(A) for the Company's 1993 fiscal year, if at least $3 million of
operating income has been achieved, the bonus payment will be 2%
of the greater of (x) operating income or (y) net income before
taxes; provided that, if the Company's business plan, for such
fiscal year, with respect to net income before taxes is met, then
the bonus payment will be 3% of the greater of (x) operating
income or (y) net income before taxes (without any threshold
requirement); and
(B) for the Company's 1994 fiscal year and thereafter, the bonus
payment will be 3% of net income before taxes; provided, however,
that, if the Company's business plan for the relevant fiscal year
with respect to net income before taxes is met, then the bonus
payment for such fiscal year will be 4% of net income before
taxes.
The effect of this First Amendment was to delay the effective dates of
these provisions, as set forth in the original agreement, for one
additional year.
Mr. Edelman is entitled to receive a lump-sum severance payment equal to
(i) two-years' salary, and (ii) an amount equal to the bonus he would have
received through the end of the fiscal year in which the termination occurs
and twelve months thereafter assuming the Company's business plan had been
met for such periods, in the event of the involuntary termination of his
employment other than for "cause" or in the event Mr. Edelman's contract is
not renewed or if a majority of the directors on the Board are not
"continuing directors" and Mr. Edelman resigns within sixty days after the
occurrence of such event.
In connection with the agreement, on September 24, 1991, the options
previously granted to Mr. Edelman were canceled and he was granted 200,000
new options under the Company's 1985 Employee Stock Option Plan at an
exercise price of $0.5625 per share (the market value on the date of grant)
such options vesting ratably over 4 years.
47
Under the terms of a Second Amendment made as of July 31, 1992, Mr. Edelman
consented to a six percent (6%) reduction in base salary. The agreement
also provides that the aforementioned reduction shall not apply to any
severance payment to be made under the Agreement.
As of November 2, 1992, the Company entered into an employment agreement
with Michael E. Schultz providing for a term of one (1) year which is
terminable thereafter upon six (6) months prior written notice. Mr.
Schultz' bonus provision is the same as provided to Mr. Edelman. Mr.
Schultz is required to devote a minimum of fifty (50) days at the Company's
premises during each one (1) year period. Mr. Schultz is permitted to
continue to perform services for the law firm of Ehrenkranz, Ehrenkranz and
Schultz and Canal Capital Corporation. Mr. Schultz does not have any
severance provision in his contract. Mr. Schultz received his monthly
salary through October 31, 1994 pursuant to court order and shall receive
no other payments. Mr. Schultz is required to relinquish and waive any
claims he might have with respect to his employment agreement with the
Company. Mr. Schultz ceased to be an executive officer of the Company
effective October 31, 1994.
Messrs. Helwege and Freeman have entered into employment agreements with
the Company which provide for an initial term of one year and which
automatically renew for successive annual periods after their respective
anniversaries. Unless either Officer's employment is terminated for
defined causes, the Officer is entitled to a continuance of his base salary
and perquisites for eighteen and twelve months, respectively, from the date
of termination plus a pro rata amount based upon his last preceding bonus
and a lump sum payment, respectively, of $20,000 and $10,000 on the date of
termination.
Subsequent to the end of the 1994 fiscal year, a Modified First Amended
Chapter 11 Plan ("Plan") was submitted to a vote of the Company's creditors
which calls for the assumption of modified employment agreements with Mark
S. Helwege and Philip D. Freeman as of the date of confirmation of the
Plan. The modified agreements contain a revised bonus compensation plan
and a revised stock option plan, and provide for a release of any claims
against the Company, except for indemnification and as may be set forth in
the modified agreements.
The Plan also provides for the assumption of a modified agreement with Mr.
Edelman, effective as of the date of confirmation, which provides only for
a severance benefit payable over 24 months in equal monthly payments of
$15,000, totaling $360,000 and for a release of claims except for
indemnification and as may be set forth in the modified agreement.
DIRECTORS' COMPENSATION
Directors who are employees of the Company receive no additional
compensation for serving on the Board of Directors or its committees, other
than pursuant to the 1985 Director Stock Option Plan discussed below. Each
director who is not an employee of the Company receives an annual fee of
$15,000 for serving on the Board which is paid quarterly in arrears, $1,000
for serving on a committee (other than the Executive Committee), $5,000 for
serving on the Executive Committee and an additional $2,000 if he serves as
chairman of a committee. Each non-employee director receives a fee of $750
for each Board of Directors meeting attended and $500 for each committee
meeting attended. Directors are reimbursed for expenses incurred in
attending Board of Directors and committee meetings, including those for
travel, food and lodging. The Board of Directors
48
voluntarily reduced the aforementioned fees by six (6%) percent for
services to be performed during the 1993 fiscal year effective August 1,
1992. The Board of Directors has not rescinded the reduction.
Each non-employee director is provided, at the Company's expense, $50,000
of group term life insurance and $250,000 of accidental death insurance.
STOCK OPTIONS FOR DIRECTORS
The 1985 Director Stock Option Plan (the "Director Plan") provides for the
issuance of a maximum of 550,000 shares of the Company's Common Stock
(which may be authorized and unissued or treasury shares) pursuant to the
exercise of stock options granted under the Director Plan to directors of
the Company.
Each director of the Company is eligible to receive options under the
Director Plan, whether or not he is an employee of the Company. Each
current director has received, and each newly elected director at the time
of his election will receive, an option for 25,000 shares of Common Stock.
Each Chairman at the time of his election shall be entitled to receive an
option to purchase 50,000 shares of Common Stock in addition to those
otherwise granted for services as a director. The director stock options
of the current chairman have been canceled as more fully described below.
The outstanding options granted to current directors elected prior to
fiscal year 1987 have been increased to reflect the 10% Common Stock
dividend paid to holders of record on June 9, 1986. An amendment to the
Director Stock Option Plan to reprice options held by each director and the
Chairman of the Board as of September 23, 1988 was approved by the
shareholders on December 6, 1988. The revised option price per share was
$4.07. As of July 31, 1993, options for 132,500 shares were outstanding
with an average per share exercise price of $3.53. Expiration dates of
these options range from July 28, 1995 to April 11, 2001.
Only non-incentive stock options may be granted under the Director Plan.
The option price per share, except for those affected by the Director Plan
amendment, equals the fair market value of a share of Common Stock on the
date of grant. The exercise price of a stock option may be paid in cash,
shares of Common Stock (subject to such conditions as may be set by the
Compensation Committee referred to below) or a combination of cash and
stock. Options may be exercised at any time after the date of grant. A
stock option may not be granted which expires more than ten years and one
day from the date of grant.
The Director Plan is administered by the Management Compensation and Stock
Option Committee of the Board of Directors (the "Compensation Committee"),
which sets the terms and conditions of the stock option agreements, subject
to the provisions of the Director Plan. However, the Compensation Committee
has no discretion either to determine which directors receive options or to
set the number of shares subject to such options.
49
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has the following committees, the
membership and principal responsibilities of which are below.
EXECUTIVE COMMITTEE
Members: Asher B. Edelman (Chairman), Daniel R. Kail and Michael E.
Schultz
Between meetings of the Board of Directors, the Executive Committee has all
powers which may be lawfully delegated to it under New York law. In
general, the Executive Committee may supervise the management of all
business of the Company except for matters which, by law, specifically
require the action of the Board of Directors or of the shareholders.
Actions taken by the Executive Committee are reported to the Board of
Directors at its next meeting. During the 1994 fiscal year, the Executive
Committee held no meetings.
AUDIT COMMITTEE
Members: Daniel R. Kail (Chairman), Gerald N. Agranoff, and Michael E.
Schultz
The Audit Committee, which held two meetings during the 1994 fiscal year,
reviews the scope and results of the audit by the independent auditors and
the adequacy of the Company's system of internal accounting controls and
procedures, proposes the appointment of the independent auditors subject to
approval of the Board of Directors and ratification by the shareholders,
and approves the fees paid for services rendered by such auditors.
MANAGEMENT COMPENSATION AND STOCK OPTION COMMITTEE
Members: Daniel R. Kail (Chairman) and Gerald N. Agranoff.
The Management Compensation and Stock Option Committee reviews and makes
recommendations with respect to the Company's various compensation
programs. This Committee administers the Company's 1985 Employee Stock
Option Plan, providing for the grant of stock options and stock
appreciation rights, and designates the employees to participate in these
and certain other benefit plans of the Company. This Committee also
reviews and approves the remuneration of all officers of the Company and
the terms of any employment contracts with officers. During the 1994
fiscal year, the Committee held three meetings.
SPECIAL LITIGATION COMMITTEE
Members: Leon Botstein (Chairman), Daniel R. Kail and Michael E. Schultz
The Special Litigation Committee was appointed to consider the demand
brought by two shareholders in separate lawsuits against the Company and
its Board of Directors. During the 1994 fiscal year, the Committee had no
meetings.
50
The Board of Directors does not have a standing nominating committee or a
committee performing similar functions.
RETIREMENT INCOME PLAN
A defined benefit pension plan is maintained by the Company, solely at its
cost, for its officers and employees. On September 24, 1991, the Company's
Board of Directors approved the curtailment of the Retirement Income Plan.
Effective October 28, 1991, the accrual of defined benefits for all
employees' future service was eliminated. No additional participants have
been added to the Retirement Income Plan after the date of the Plan's
curtailment. A hearing was held on November 9, 1994, at which the
Honorable Leif Clark found that a distress termination of the retirement
income plan was appropriate and so ordered.
The annual pension to which a participant is entitled at normal retirement
age (65) is based on the average of his covered compensation for the five
plan years prior to the Plan's curtailment. Covered compensation includes
salary as reported in the Summary Compensation Table.
The estimated annual benefit payable to Mr. Edelman, Mr. Helwege and Mr.
Freeman under the Retirement Income Plan is $4,608, $5,207 and $10,937,
respectively, assuming they remain in the Company's employ and retire at
the normal retirement age of 65. None of the other Named Executive
Officers were qualified to receive benefits under the Retirement Income
Plan prior to its curtailment in 1991.
Estimated credited years of service for each of the participating Named
Executive Officers is: Mr. Edelman, 7 years; Mr. Helwege, 6 years; and Mr.
Freeman, 10 years.
INTELOGIC TRACE, INC. 401(K) RETIREMENT SAVINGS PLAN
On September 24, 1991, the Company's Board of Directors approved the
implementation of the 401(k) Plan pursuant to Sections 401(a) and 401(k) of
the Internal Revenue Code of 1986, as amended. The effective starting date
of the 401(k) Plan was January 1, 1992. This 401(k) Plan covers
substantially all employees and executive officers. Participants in the
401(k) Plan may authorize the Company to make salary deferral contributions
limited to the lesser of $8,994 or 15% of total pay. Amounts in the
compensation table include such amounts deferred. Such contributions are
forwarded to a trustee for investment into one or more of the five pre-
established investment funds as the employee may choose. The Company
matches 15% of the employee's contribution up to 4% of the employee's
compensation. The Company's match is in the form of Intelogic Trace common
stock valued at the closing price on the date of the contribution, and
vests according to a five-year graded schedule. Increases and decreases in
the value of the stock accrue to the employee but the employee has no
voting rights. Upon leaving the 401(k) Plan, the participant receives the
cash value of shares held in his or her behalf.
Withdrawals of contributions, earnings and vested matching funds in the
401(k) Plan may be made in the event of hardship or attainment of age 59-
1/2 under the provisions of Section 401(k). Other distributions may occur
following separation from service or the occurrence of a permanent
disability. In addition, loans to a participant from his or her Section
401(k) fund are available.
51
During fiscal 1994, the dollar value of the Company's matching
contributions to the 401(k) Plan accounts of Messrs. Edelman, Helwege,
Freeman and Schultz were $410, $1,183, $1,041 and $0, respectively.
52
<PAGE>
STOCK OPTIONS AND SARS GRANTED IN LAST FISCAL YEAR
The following table sets forth information concerning stock options and
stock appreciation rights granted during the fiscal year ended July 31,
1994, to the Named Executive Officers.
OPTION/SAR GRANTS FOR FISCAL YEAR
The following table sets forth information concerning stock options and
stock appreciation rights granted during the fiscal year ended July 31,
1994, to the Named Executive Officers.
OPTION/SAR GRANTS FOR FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
- - -------------------------------------------------------------------------------- AT ASSUMED ANNUAL
% OF TOTAL RATES OF
OPTIONS STOCK PRICE
GRANTED TO EXERCISE APPRECIATION FOR
NO. EMPLOYEES OR BASE OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------------
NAME GRANTED YEAR ($/SH) DATE 0%($) 5%($) 10%($)
- - ----------- ------------ -------- --------- ---------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
A. Edelman 100,000(a) 5.2% $ 2.95630 9/23/98 $0 $ 152,316 $ 417,649
M. Helwege 40,000(b) 2.1% $ 2.68750 9/23/03 $0 $ 67,606 $ 171,327
25,000(c) 1.3% $ 0.93750 5/31/04 $0 $ 14,740 $ 37,353
250,000(d) 13.0% $ 0.78125 6/15/04 $0 $ 122,831 $ 311,278
P. Freeman 40,000(b) 2.1% $ 2.68750 9/23/03 $0 $ 67,606 $ 171,327
100,000(d) 5.2% $ 0.78125 6/15/04 $0 $ 49,132 $ 124,511
M. Schultz 100,000(b) 5.2% $ 2.68750 9/23/03 $0 $ 169,015 $ 428,318
</TABLE>
(a) Options granted under the 1985 Employee Stock Option Plan. These options
vest ratably over two years. The term of the options is five years.
(b) Options granted under the 1985 Employee Stock Option Plan. These options
vest ratably over three years. The term of the options is ten years.
(c) Options granted under the 1985 Director Stock Option Plan. These options
vested on May 31, 1994, the date of grant. The term of the options is ten
years.
(d) Options granted under the 1985 Employee Stock Option Plan. These options
vest ratably over eighteen months. The term of the options is ten years.
53
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table sets forth information concerning stock options and
SARs exercised during the fiscal year ended July 31, 1994, and the fiscal
year-end value of unexercised options and SARs for the Named Executive
Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END OPTIONS AT FY-END
(#) ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- - ---------------------------------------------------------------------------
A. Edelman 0 $ 0 152,701/ $19,383/
250,000 $18,750
M. Helwege 20,101 $63,920 137,450/ $ 0/
269,550 $ 1,875
P. Freeman 6,101 $18,795 92,390/ $ 0/
153,610 $ 0
M. Schultz 0 $ 0 77,500/ $10,935/
250,000 $32,805
(1) Computed based upon the difference between the fair market value
and aggregate exercise price at July 31, 1994.
LONG-TERM INCENTIVE PLAN
The Company does not maintain any long-term incentive plan under which
awards were granted or paid during 1994.
54
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION PHILOSOPHY
The Compensation Committee of the Company's Board of Directors administers
the Company's executive compensation program. Each of the members of the
Compensation Committee are non-employee directors.
Each year the Compensation Committee reviews the compensation of the
Company's executive officers. Total compensation consists of three (3)
elements: (i) base compensation set at levels commensurate with the
responsibility attendant to such position; (ii) annual bonus, determined
either by a formula or pre-set goals thereby linking pay to performance;
and (iii) long-term compensation as established by stock option grants.
The Compensation Committee believes that stock-based performance
arrangements and bonuses directly based upon the Company's results aligns
the interests of management with the interests of the Company's
shareholders which ultimately results in increased shareholder value. The
Named Executive Officers and other employees received stock option grants
during the 1994 fiscal year following an assessment by the Committee of
various factors such as personnel's contribution to the long-term growth
prospects for the Company and the necessity of retention of key personnel.
No bonuses were paid in 1994. The Committee is of the opinion that stock
options offer incentives to the Company's personnel to build for the future
and encourage management to take actions which will provide the
shareholders and such personnel with the opportunity for long-term benefits
even though such actions might adversely impact such personnel's short-term
earnings potential.
OFFICE OF THE PRESIDENT-CHIEF EXECUTIVE OFFICER
In July 1991, the Board of Directors established the Office of the
President. The incumbents in this position are Messrs. Edelman and
Helwege. During the Company's 1994 fiscal year, Mr. Helwege assumed the
role of Chief Executive Officer. The Compensation Committee determined that
Mr. Helwege's compensation should be tied directly to the performance of
the Company and therefore, under his contract with the Company, he received
an increase in base salary plus an additional grant of stock options.
COMPENSATION COMMITTEE
Daniel R. Kail, Chairman
Gerald N. Agranoff
55
STOCK PRICE PERFORMANCE
The following graph depicts the Company's stock price performance relative
to the performance of the Standard & Poor Composite Index and a Peer Group
Index of 25 companies.
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
Cumulative Total Return
----------------------------------------
7/89 7/90 7/91 7/92 7/93 7/94 97471IT
--- --- --- --- --- --- --------
Intelogic Trace Inc IT 100 42 21 25 75 25 10/17/94
PEER GROUP PPEER1 100 75 82 80 89 125 974UIT
S & P 500 I500 100 106 120 135 147 155 97477500
The graph above assumes an investment of $100 in the Company's Common
Stock, the Standard & Poor 500 Composite Index and the Peer Group Index on
July 31, 1989, and assumes the reinvestment of all dividends. The Company
has not paid cash dividends on its Common Stock. Note that the Company's
Common Stock price performance on the graph above is not necessarily
indicative of future stock price performance.
SECTION 16(A) REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission and the New York Stock Exchange initial
reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and
greater than ten-percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the two-year period ended July 31, 1994, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with by all
reporting persons. Participants in the 401(k) Plan may be deemed to have
beneficial ownership; however, no voting rights or shares are acquired by
the participant.
56
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table furnishes information concerning all persons known to
the Company, other than directors or officers, who beneficially own 5% or
more of the voting stock of the Company as of July 31, 1994:
NAME AND ADDRESS OF SHARES OF COMMON STOCK PERCENTAGE OF COMMON
BENEFICIAL OWNER BENEFICIALLY OWNED STOCK BENEFICIALLY OWNED
- - --------------------------------------------------------------------------------
Shufro Rose & Ehrman (1) 3,040,047 24.3%
63 Wall Street
New York, NY 10005
Asher B. Edelman(2) 1,928,757 15.2%
717 Fifth Avenue
New York, NY 10022
(1) As reported by such holder in a Schedule 13G as of February 14,
1994, filed with the Securities and Exchange Commission.
(2) Includes shares for which Mr. Edelman had the right to acquire
beneficial ownership within sixty days through exercise of stock
options. Mr. Edelman held options covering 200,000 shares under the
1985 Employee Stock Option Plan which are exercisable in annual
increments of 50,000 commencing on September 24, 1992. Mr. Edelman
received a grant of 100,000 stock options under the 1985 Employee
Stock Option Plan on July 10, 1992 which vests ratably over four
(4) years commencing on July 10, 1993. A grant of 2,701 immediately
vested options was made to Mr. Edelman under the 1985 Employee
Stock Option Plan when a corporate wide wage decrease was made
effective August 4, 1992 on the basis of one option for each four
dollar reduction in compensation. On September 23, 1993, Mr.
Edelman was granted an option for 100,000 shares under the 1985
Employee Stock Option Plan vesting in three annual increments
commencing September 23, 1994. All of these options will be
canceled as of the Effective Date.
57
SECURITIES OWNED BY MANAGEMENT
The following table sets forth certain information as of October 17, 1994,
with respect to the beneficial ownership of the Company's Common Stock with
respect to all persons who are directors, each of the executives named in
the Summary Compensation Table and by all directors and officers as of the
most practicable date. Unless otherwise indicated, the percentage of stock
owned constitutes less than one percent of the outstanding Common Stock and
the beneficial ownership for each person consists of sole voting and sole
investment power.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
NO. OF COMMON SHARES
BENEFICIALLY PERCENT OF CLASS
NAME OWNED OF COMMON STOCK
- - -----------------------------------------------------------------------------
Asher B. Edelman (e) 1,928,757(a)(b)(c) 15.2%
Mark S. Helwege (e) 158,366 1.3%
Gerald N. Agranoff (e) 25,000(b)
Leon Botstein (e) 27,500
Daniel R. Kail (e) 28,600(b)
Michael E. Schultz (e) 167,333(b)(d) 1.3%
Philip D. Freeman (e) 108,060
All directors and executive
Officers as a group (7 persons)(e) 2,443,616 18.5%
(a) Mr. Edelman, as controlling General Partner of Citas Partners, the
General Partner of Felicitas Partners, L.P. ("Felicitas") may be
deemed to be the beneficial owner of the 1,963 shares of Common
Stock held by Felicitas. As the sole holder of beneficial interests
in A.B. Edelman Limited Partnership ("Edelman Limited
Partnership"), Mr. Edelman may be deemed to be the beneficial owner
of the 854,952 shares of the Common Stock held by Edelman Limited
Partnership. As the sole stockholder of Aile Blanche, Inc. ("Aile
Blanche"), Mr. Edelman may be deemed to be beneficial owner of the
11,100 shares of Common Stock held by Aile Blanche. Mr. Edelman
also may be deemed to be the beneficial owner of the 149,300 shares
of Common Stock held by his wife. Mr. Edelman, as custodian for
three accounts benefiting Mr. Edelman's children, may be deemed to
be the beneficial owner of 51,840 shares of Common Stock. The total
reported herein for Mr. Edelman excludes (i) 71,600 shares of
Common Stock held in three accounts of which Mr. Edelman's former
wife is custodian, for the benefit of Mr. Edelman's three children,
(ii) 149,300 held by Mr. Edelman's wife, and (iii) 51,840 shares
owned by custodial accounts for Mr. Edelman's children.
(b) Each of Messrs. Edelman, Agranoff and Schultz is a Director of
Canal Capital Corporation ("Canal Capital") and each of Messrs.
Edelman, Agranoff and Kail is a Director of Datapoint Corporation
("Datapoint"). Canal Capital holds 454,260 shares of Common Stock
of the Company and Datapoint holds 292,920 shares. Discretionary
power with respect to investments by Canal Capital and Datapoint is
held by A. B. Edelman Management Company Inc. ("Edelman
Management") as investment manager for both Canal Capital and
Datapoint. Mr. Edelman is the sole stockholder and officer and
Director of Edelman Management. All of Canal Capital's and
Datapoint's shares have been included in the number of shares
reported by Mr. Edelman only.
(c) Excludes 37,000, 15,000 and 175,745 shares of Common Stock owned by
the Canal Capital Corporation Retirement Plan (the "Canal Capital
Plan"), the Intelogic Trace Retirement Income Plan (the "Intelogic
Trace Plan") and the Intelogic Trace 401(k) Retirement Savings Plan
(the "401(k) Plan") more fully described below, respectively. Mr.
Edelman serves as trustee of the Canal Capital Plan, and Messrs.
Edelman, Agranoff, Kail and Schultz serve as trustees of the 401(k)
Plan. Messrs. Edelman, Agranoff, Kail, and Schultz resigned as
trustees of both the Intelogic Trace Plan and the 401K Plan as of
September 29, 1994.
(d) Excludes 421,257 shares of Common Stock held in three trusts, of
which Mr. Schultz is trustee, for benefit of Mr. Edelman's three
children.
58
(e) The following table set forth the detail of amounts held by each of
the directors and Named Executive Officers of the Company:
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY OPTIONS EXERCISABLE
NAME OWNED WITHIN 60 DAYS TOTAL
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asher B. Edelman 1,692,723 236,034 1,928,757
Mark S. Helwege 2,583 155,783 158,366
Gerald N. Agranoff - 25,000 25,000
Leon Botstein - 27,500 27,500
Daniel R. Kail 1,100 27,500 28,600
Michael E. Schultz 6,500 160,833 167,333
Philip D. Freeman 2,337 105,723 108,060
All directors & executives of the
Company as a group (7 persons) 1,705,243 738,373 2,443,616
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of October 17, 1994, the Company beneficially owns approximately 2.5% of
Datapoint's outstanding common stock. The Company's Chairman of the Board
and three other directors are also members of Datapoint's eight-person
Board of Directors. Mr. Agranoff, a member of the Company's and
Datapoint's Board of Directors, became General Counsel of Datapoint in
September 1994. Such relationships may result in conflicts of interest as
a result of the loyalties owed by the same persons acting as corporate
fiduciaries for two different companies may have adverse interests. Mr.
Agranoff reports no direct ownership of Datapoint stock and disclaims
ownership of 248,995 shares owned by Plaza Securities Company of which he
is a general partner.
All transactions between the Company and Datapoint have been pursuant to an
agreement between the parties and relate to the ordinary business
operations of the Company. The agreement with Datapoint, dated June 29,
1985, provides for an exclusive relationship with the Company until
terminated by either party, notice of which termination must be given 180
days prior to the anniversary of the execution of the agreement, to be
effective six years thereafter. Pursuant to the agreement, the Company is
charged by Datapoint for equipment and field support spares, royalties, and
repairs, and Datapoint is charged by the Company for services and sales.
Following termination, the Company would have a non-exclusive relationship
with Datapoint. As of the date of this document, neither party has issued
any such notice. During fiscal years 1994, 1993 and 1992, 13%, 17%, and
24% of the Company's maintenance service revenue was derived from servicing
Datapoint products. See Note 4 to the consolidated financial statements
included elsewhere in this filing.
On August 5, 1986, the Company entered into an agreement with Arbitrage
Securities Company whereby Arbitrage Securities Company provides investment
management and financial advisory services to the Company. On October 24,
1988, Arbitrage Securities Company assigned all of its rights, interest,
and obligations under the agreement to A.B. Edelman Management Company,
Inc. Each calendar quarter the Company is obligated to pay an investment
management fee equal to 25% of any realized gains from transactions in the
Company's portfolio less realized and net
59
unrealized losses in securities positions for such calendar quarter.
Realized losses in excess of realized gains in any quarter are carried over
to subsequent quarters. Since 1988, no investment management fees have
been paid under this agreement.
As of July 31, 1994, Company held investments in marketable securities of
certain companies affiliated to the Company by virtue of certain common
directors, including 234,440 shares of common stock of Canal Capital (the
"Canal Stock"). On September 30, 1994, the Company sold the Canal Stock in
a private transaction, with court approval, at a price of $.50 per share.
On April 11, 1991, Mr. Edelman and certain affiliates settled an action
brought by the SEC alleging failure to promptly amend a Schedule 13D in
connections with purchases of the common stock of Datapoint Corporation by
the Company and others on September 11 and 12, 1989. Without admitting or
denying the allegations of the SEC's complaint, the defendants consented to
the entry of a judgment enjoining them from violating Section 13(d) of the
Securities Exchange Act of 1934 and Rule 13d-2 thereunder and requiring
disgorgement of savings alleged to have been achieved as a result of the
failure promptly to amend the Schedule 13(d). The Board of Directors
approved indemnification of Mr. Edelman, in accordance with the by-laws of
the Company, for a pro rata portion of the disgorged amount and legal fees
incurred with respect to the SEC's allegations, which amounted to $380,037.
On November 9, 1990, the Company acquired all of the outstanding stock of
Datapoint Canada, Inc., a wholly owned subsidiary of Datapoint. Datapoint
Canada, Inc. is no longer active and the Company is in the process of
winding up its affairs. The purchase price of $2.8 million consisted of
$300,000 in cash and 25,000 shares of the Company's $10 Redeemable
Preferred Stock ("Preferred Stock"). In addition, the Company issued to
Datapoint a five-year option to purchase substantially all of the Company's
holdings of Datapoint's common and preferred stock (the "Datapoint
Option"). The Company entered into a Grantor Trust Agreement to establish
a Grantor Trust to hold the Datapoint Common Stock subject to the Datapoint
Option. In 1992, Datapoint exercised the Option with respect to the
Datapoint preferred stock for the agreed upon price of $1.375 per share or
$116,875. None of the Datapoint Option pertaining to the common stock of
Datapoint was exercised in 1994 or 1993. Through September 30, 1994, an
additional 21,301 shares of Preferred Stock of the Company have been issued
in payment of dividends on the Preferred Stock.
After July 31, 1994, the Company and Datapoint mutually agreed to a
division of the corpus in the Grantor Trust and cancellation of the
Datapoint Option. Pursuant to this agreement, the Company and Datapoint
sought Bankruptcy Court approval to (i) have the trustee of the Grantor
Trust transfer and distribute 2.4 million shares of Datapoint Common Stock
held in the Grantor Trust to Datapoint, and transfer and distribute the
remaining 300,000 shares of Datapoint Common Stock to the Company, and (ii)
to terminate the Datapoint Option and the Grantor Trust Agreement. An
order of the Bankruptcy Court authorizing these matters was entered
September 9, 1994.
On September 27, 1994, the Company consummated a loan transaction with
Fidelity. Pursuant to the Loan Agreement, the Company received an
additional $1.3 million in working capital in order to satisfy certain loan
covenants with Foothill. Fidelity received a first-lien security interest
in, among other things, the 300,000 shares of Datapoint Common Stock
distributed to the Company under the arrangement with Datapoint described
in the preceding paragraph, and a first-lien security interest in the
shares of Canal Stock. Pursuant to the loan agreement, the Company has
60
commenced the sale of its Datapoint Common Stock and Canal Capital Stock
and will continue to remit all proceeds of such sales to Fidelity. As of
the date of this filing, the Company has remitted $223,000 to Fidelity from
such sales.
Investments in marketable securities include securities of companies
affiliated with the Company by virtue of certain common directors. The
aggregate cost of such securities at July 31, 1994 and 1993 was $2.7
million with no determinable market value. Included in accounts receivable
at July 31, 1994 is $103,000 due from employees.
61
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) CERTAIN DOCUMENTS FILED AS PART OF THE FORM 10-K
1. AND 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and financial statement
schedules are set forth in Item 8 of the Form 10-K Annual Report.
Financial statement schedules not included in this Form 10-K Annual Report
have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
PAGE NO.
--------
Report of Independent Auditors . . . . . . . . . . . . . . . . . . 21
Consolidated Statements of Financial Position
at July 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Operations for each of the three years
in the period ended July 31, 1994 . . . . . . . . . . . . . . . 23
Consolidated Statements of Cash Flows for each of the three years
in the period ended July 31, 1994 . . . . . . . . . . . . . . . 24
Consolidated Statements of Shareholders' Deficit for each
of the three years in the period ended July 31, 1994 . . . . . 25
Notes to Consolidated Financial Statements . . . . . . . . . . . . 26
Schedule V - Leasehold Improvements and Equipment and Field
Support Spares . . . . . . . . . . . . . . . . . . . . . . . . 68
Schedule VI - Accumulated Depreciation of Leasehold Improvements
and Equipment and Field Support Spares , . . . . . . . . . . . . 69
Schedule VIII - Valuation and Qualifying Accounts and Reserves. . . 70
Schedule IX - Short Term Borrowings . . . . . . . . . . . . . . . . 71
Schedule X - Supplementary Income Statement Information . . . . . . 72
3. EXHIBITS
3.1- Certificate of Incorporation (filed as Exhibit 3.1 to the
Company's Registration Statement on Form 10 filed with the
Commission on July 3, 1985, (the "Form 10") and incorporated herein
by reference).
3.2- Certificate of Amendment of the Certificate of Incorporation
(filed as Exhibit 3.1 to Amendment No. 2 to the Form 10 ("Form 10,
Amendment No. 2") filed with the Commission on October 24, 1985 and
incorporated herein by reference).
3.3- By-laws of the Company, as amended (filed as Exhibit 3.2 to Form
10, Amendment No. 2 and incorporated herein by reference). 62
3.4- Certificate of Amendment of the Certificate of Incorporation,
dated November 8, 1990 (filed as Exhibit 3(d) to the 1990 Form 10-K
and incorporated herein by reference).
4.1- Form of 11.99% Subordinated Debenture due July 15, 1996 (filed as
Exhibit 4(a) to the Company's Registration Statement on Form S-1
filed with the Commission on July 22, 1986 (the "Form S-1") and
incorporated herein by reference).
4.2- Form of Indenture between the Company and Manufacturers Hanover
Trust Company, as Trustee, relating to the Debentures registered
(filed as Exhibit 4(b) to the Form S-1 and incorporated herein by
reference).
4.3- Indenture dated October 1, 1985 between the Company and the
Manufacturers Hanover Trust Company, as Trustee, relating to the
14 1/2% Subordinated Notes Due 1995 (filed as Exhibit (c) to Amendment
No. 2 on Form 8 to the Company's Registration Statement on Form 8-A
filed with the Commission on September 19, 1985 and incorporated
herein by reference).
4.4- Article Fourth of the Certificate of Incorporation of the Company
(included in Exhibit 3.2).
10.1- Agreement for Transfer of Assets and Liabilities in Exchange for
Stock, dated June 29, 1985, between Datapoint and the Company
(filed as Exhibit 10.1 to the Form 10 and incorporated herein by
reference).
10.2- Master Maintenance Agreement, dated June 28, 1985, between
Datapoint and the Company (filed as Exhibit 10.2 to the Form 10 and
incorporated herein by reference).
10.3- Assignment and License, dated as of June 29, 1985, between the
Company and Datapoint (filed as Exhibit 10.3 to the Form 10 and
incorporated herein by reference).
10.4- Datapoint License Agreement, dated as of June 29, 1985, between
the Company and Datapoint (filed as Exhibit 10.4 to the Form 10 and
incorporated herein by reference).
10.5- I T License Agreement, dated as of June 29, 1985, between the
Company and Datapoint (filed as Exhibit 10.5 to the Form 10 and
incorporated herein by reference).
*10.6- Employment Agreement, dated January 27, 1986, between Philip
D. Freeman and the Company (filed as Exhibit 10(j) to the Form S-1
and incorporated herein by reference).
*10.7- 1985 Directors Stock Option Plan (filed as Exhibit 10.10 to
the Form 10 and incorporated herein by reference). 63
*10.8- 1985 Employee Stock Option Plan (filed as Exhibit 10.11 to
the Form 10 and incorporated herein by reference).
*10.9- Retirement Income Plan (filed as Exhibit 10.12 to the Form
10 and incorporated herein by reference).
*10.10- Executive Benefit Plan (filed as Exhibit 10.14 to the Form
10 and incorporated herein by reference).
10.11- Directors' and Officers' Liability Insurance Policy (filed as
Exhibit 10(s) to the Form S-1 and incorporated herein by
reference).
10.12- TexCom Purchase Agreement, dated November 25, 1987, between the
Company and TexCom, Inc. (filed as Exhibit C(2) to the Form 8-K
filed with the Commission on December 9, 1987 and incorporated
herein by reference).
*10.13- Amendment to the 1985 Directors Stock Option Plan (filed as
Exhibit 10(o) to the 1989 Form 10-K and incorporated herein by
reference).
10.14- First Amendment to the TexCom Purchase Agreement, dated June 20,
1989, between the Company and TexCom, Inc. (filed as Exhibit 10(v)
to the 1989 Form 10-K and incorporated herein by reference).
10.15- Acquisition Agreement, dated November 9, 1990, between Datapoint
and the Company (filed as Exhibit 10(v) to the 1990 Form 10-K and
incorporated herein by reference).
10.16- Option Agreement, dated November 9, 1990, between Datapoint and the
Company (filed as Exhibit 10(w) to the 1990 Form 10-K and
incorporated herein by reference).
*10.17- Employment Agreement, dated July 1, 1991, between Asher B.
Edelman and the Company (filed as Exhibit 10(s) to the 1991 Form
10-K and incorporated herein by reference).
*10.18- Intelogic Trace, Inc. 401(k) Retirement Savings Plan (filed
as Exhibit 10.22 to the 1992 Form 10-K and incorporated herein by
reference).
10.19- Purchase Agreement, dated June 23, 1992, between Gemini Systems
Leasing Corp., Intelogic Trace TexCom Group, Inc. and The Lockwood
Association, Inc. (filed as Exhibit 10.23 to the 1992 Form 10-K and
incorporated herein by reference).
10.20- First Amendment to Purchase Agreement, dated June 23, 1992, between
Gemini Systems Leasing Corp., Intelogic Trace TexCom Group, Inc.
and The Lockwood Association, Inc. (filed as Exhibit 10.24 to the
1992 Form 10-K and incorporated herein by reference).
*10.21- First Amendment to the Employment agreement, dated July 1,
1991, between
64
Asher B. Edelman and the Company (filed as Exhibit 10.29 to the 1992
Form 10-K and incorporated herein by reference).
*10.22- Second Amendment to the Employment Agreement, dated July 1,
1991, between Asher B. Edelman and the Company (filed as Exhibit
10.35 to the 1992 Form 10-K and incorporated herein by reference).
*10.23- First Amendment to the Employment Agreement, dated July 28,
1991, between Mark S. Helwege and the Company (filed as Exhibit
10.36 to the 1992 Form 10-K and incorporated herein by reference).
*10.24- Employment Agreement, dated August 1, 1993, between Martin
J. Landon and the Company (filed as Exhibit 10.37 to the 1993 Form
10-K and incorporated herein by reference).
*10.25- Employment Agreement, dated October 26, 1992, between John
Alexander Wilder and the Company (filed as Exhibit 10.38 to the
1993 Form 10-K and incorporated herein by reference).
*10.26- Employment Agreement, dated November 2, 1992, between
Michael E. Schultz and the Company (filed as Exhibit 10.39 to the
1993 Form 10-K and incorporated herein by reference).
*10.27- Second Amendment to the Employment Agreement, dated July 28,
1991, between Mark S. Helwege and the Company.
*10.28- Second Amendment to the Employment Agreement dated January
27, 1986, between Philip D. Freeman and the Company.
10.29- Agreement, dated September 27, 1994, between the Company and
Datapoint Corporation.
10.30- Final Order Authorizing Use of Cash Collateral, Post-Petition
Financing, and Grant of Security Interests (describing
debtor-in-possession Financing Facility between the Company and
Foothill Capital Corporation) dated September 16, 1994.
10.31- Final Order (1) Authorizing the Debtor to Incur Secured Priority
Administrative Indebtedness Pursuant to Section 364 (c) of the
Bankruptcy Code, (2) Granting Security Interests, (3) Approving
Agreement Related to the Foregoing and (4) Granting Other Relief
(describing the loan agreement between Fidelity Capital and Income
Fund and the Company) dated November 8, 1994.
65
11 - Computation of Earnings Per Share.
21 - Subsidiaries of the Registrant.
23 - Consent of Ernst & Young LLP.
25 - Powers of Attorney.
99 - Modified First Amended Plan of Reorganization of the Company, dated
October 12, 1994.
*Management compensatory plan or arrangement.
66
(B) REPORTS ON FORM 8-K:
During the quarter ended July 31, 1994, the Company filed the following
current reports on Form 8-K:
DATE FILED DESCRIPTION
- - ------------ -----------
May 16, 1994 Form 8-K reported the settlement of two shareholders
derivative lawsuits brought against certain of the
Company's present and former directors (see Note 16 to
the consolidated financial statements included elsewhere
in this filing).
May 24, 1994 Form 8-K announced that Mark S. Helwege had been named
Chief Executive Officer and a Member of the Office of
the President. Additionally, it reported the
resignation of J. Alec Wilder as Chief Operating Officer
and a Member of the Office of the President.
June 8, 1994 Form 8-K announced the resignation of Dwight D.
Sutherland as a director and the appointment of Mark S.
Helwege, Chief Executive Officer and Member, Office of
the President, as director.
July 15, 1994 Form 8-K reported that the Company is engaged in
discussions with its largest bondholders to explore the
restructuring of the Company's debt.
67
<PAGE>
SCHEDULE V
INTELOGIC TRACE, INC. AND SUBSIDIARY
LEASEHOLD IMPROVEMENTS AND EQUIPMENT AND FIELD SUPPORT SPARES
(In thousands)
<TABLE>
<CAPTION>
BALANCE
AT BALANCE
BEGINNING OTHER<F9> AT END
CLASSIFICATION OF YEAR ADDITIONS RETIREMENTS CHANGES OF YEAR
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JULY 31, 1994
Leasehold improvements and equipment:
Leasehold improvements .......................... $ 4,442 $ 30 $ (13) $- $ 4,459
Computer equipment .............................. 19,498 246 (310) -- 19,434
Other machinery, equipment, furniture
and fixtures .................................. 7,429 38 (473) -- 6,994
------- -------- -------- -------- -------
$31,369 $ 314 $ (796) $- $30,887
======= ======== ======== ======== =======
Field support spares .............................. $63,891 $ 5,764 $(14,140) $(19,740) $35,775
======= ======== ======== ======== =======
JULY 31, 1993
Leasehold improvements and equipment:
Leasehold improvements .......................... $ 4,427 $ 15 $- $- $ 4,442
Computer equipment .............................. 19,364 134 -- -- 19,498
Other machinery, equipment, furniture
and fixtures .................................. 7,389 40 -- -- 7,429
------- -------- -------- -------- -------
$31,180 $ 189 $- $- $31,369
======= ======== ======== ======== =======
Field support spares .............................. $89,602 $ 8,293 $(31,928) $ (2,076) $63,891
======= ======== ======== ======== =======
JULY 31, 1992
Leasehold improvements and equipment
Leasehold improvements .......................... $ 4,299 $ 159 $ (18) $ (13) $ 4,427
Computer Equipment .............................. 19,432 281 -- (349) 19,364
Other machinery, equipment, furniture
and fixtures .................................. 7,196 200 (7) -- 7,389
------- -------- -------- -------- -------
$30,927 640 (25) (362) $31,180
======= ======== ======== ======== =======
Field support spares .............................. $85,392 $ 12,220 $ (7,159) $ (851) $89,602
======= ======== ======== ======== =======
<FN>
<F9> "Other Changes" represents transfers to and from inventory and
other classifications and a write down of field support spares to
net realizable value in 1994.
</FN>
</TABLE>
68
<PAGE>
SCHEDULE VI
INTELOGIC TRACE, INC. AND SUBSIDIARY
ACCUMULATED DEPRECIATION OF LEASEHOLD IMPROVEMENTS AND
EQUIPMENT AND FIELD SUPPORT SPARES
(In thousands)
<TABLE>
<CAPTION>
BALANCE
AT CHARGED TO BALANCE
BEGINNING PROFIT OTHER<F10> AT END
CLASSIFICATION OF YEAR AND LOSS RETIREMENT CHANGE OF YEAR
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JULY 31, 1994
Leasehold improvements and equipment:
Leasehold improvements ............................................ $ 4,126 $ 135 $ -- $ -- $ 4,261
Computer equipment 18,240 580 (71) -- 18,749
Other machinery, equipment, furniture
and fixtures .................................................... 6,927 292 (555) -- 6,664
------- -------- -------- ------- -------
$29,293 $ 1,007 $ (626) $ -- $29,674
======= ======== ======== ======= =======
Field support spares .................................................. $37,103 $ 10,187 $(14,140) $ -- $33,150
======= ======== ======== ======= =======
JULY 31, 1993
Leasehold improvements and equipment:
Leasehold improvements ............................................ $ 3,942 $ 184 $ -- $ -- $ 4,126
Computer equipment 17,744 496 -- -- 18,240
Other machinery, equipment, furniture
and fixtures .................................................... 6,279 648 -- -- 6,927
------- -------- ------- ------ -------
$27,965 $ 1,328 $ -- $ -- $29,293
======= ======== ======= ======== =======
Field support spares .................................................. $58,940 $ 10,039 $(31,928) $ 52 $37,103
======= ======== ======== ======== =======
JULY 31, 1992
Leasehold improvements and equipment:
Leasehold improvements ............................................ $ 3,766 $ 216 $ (36) $ (4) $ 3,942
Computer equipment ................................................ 16,710 1,062 -- (28) 17,744
Other machinery, equipment, furniture
and fixtures .................................................... 5,837 447 (5) -- 6,279
------- -------- -------- -------- -------
$26,313 $ 1,725 $ (41) $ (32) $27,965
======= ======== ======== ======== =======
Field support spares .................................................. $53,631 $ 12,468 $ (7,159) -- $58,940
======= ======== ======== ======== =======
<FN>
<F10> "Other Changes" represents transfers to and from inventory and
other classifications.
</FN>
</TABLE>
69
<PAGE>
SCHEDULE VIII
INTELOGIC TRACE, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT --------------------------- BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
CLASSIFICATION OF YEAR EXPENSES<F11> REVENUE<F12> DEDUCTIONS OF YEAR
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE DEDUCTED FROM ASSETS FOR
DOUBTFUL ACCOUNTS RECEIVABLE:
YEAR ENDED JULY 31, 1994 $3,342 $1,650 $(1,171) $(941)<F13> $2,880
====== ====== ======= ===== ======
YEAR ENDED JULY 31, 1993 $3,353 $335 $237 $(583)<F13> $3,342
====== ====== ======= ===== ======
YEAR ENDED JULY 31, 1992 $2,437 $912 $54 $(750)<F13> $3,353
====== ==== ====== ===== ======
VALUATION ALLOWANCE FOR DEFERRED TAX
ASSETS:
YEAR ENDED JULY 31, 1994 $ - $ - $ - $ 18,710<F14> $18,710
===== ===== ===== ========= =======
YEAR ENDED JULY 31, 1993 $ - $ - $ - $ - $ -
===== ===== ===== ========= =======
YEAR ENDED JULY 31, 1992 $ - $ - $ - $ - $ -
===== ===== ===== ========= ========
<FN>
<F11> Provision for bad debt.
<F12> Provision for billing adjustments.
<F13> Amounts written off net of recoveries.
<F14> Valuation allowance recognized to offset deferred tax asset.
<FN>
</TABLE>
70
<PAGE>
SCHEDULE IX
INTELOGIC TRACE, INC. AND SUBSIDIARY
SHORT TERM BORROWINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
WEIGHTED MAXIMUM AVERAGE AMOUNT WEIGHTED
BALANCE AVERAGE AMOUNT OUTSTANDING AVERAGE
CATEGORY OF AGGREGATE AT END INTEREST OUTSTANDING DURING INTEREST RATE
SHORT TERM BORROWINGS OF YEAR RATE DURING PERIOD PERIOD<F15> DURING PERIOD<F16>
<S> <C> <C> <C> <C> <C>
1994:
PAYABLE TO BANK .............. $7,919 9.3% $10,080 $6,033 10.3%
====== ==== ======= ====== =====
1993:
PAYABLE TO BANK ............ $4,377 9.9% $9,730 $5,889 8.8%
====== ==== ======= ====== =====
1992:
PAYABLE TO BANK ............ $6,913 9.9% $6,913 $528 10.7%
====== ==== ======= ====== =====
<FN>
<F15> Average amounts outstanding during the year were determined based
on the daily amounts outstanding. The weighted average interest
rate during the year was computed by dividing actual interest
expense for the year by average short term borrowings during the
year.
<F16> Amounts are secured by accounts receivable, field support spares
and equipment.
</FN>
</TABLE>
71
SCHEDULE X
INTELOGIC TRACE, INC. AND SUBSIDIARY
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
YEARS ENDED JULY 31,
--------------------------------------------
1994 1993 1992
--------------------------------------------
MAINTENANCE AND REPAIRS $ 9,506 $ 7,433 $10,101
======= ======= =======
The majority of maintenance and repairs expenses relate to the repair of
field support spares. Amounts for depreciation, amortization, taxes other
than payroll and income taxes, royalties and advertising are not presented,
as such amounts are either less than 1% of total revenue or have been
disclosed in the consolidated financial statements.
72
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.
INTELOGIC TRACE, INC.
(REGISTRANT)
DATED: NOVEMBER 14, 1994
BY: MIKE R. ELLIS
MIKE R. ELLIS
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE CAPACITY DATE
--------- -------- ----
* DIRECTOR, CHAIRMAN OF THE NOVEMBER 14, 1994
(ASHER B. EDELMAN) BOARD OF DIRECTORS, OFFICE
OF THE PRESIDENT
* DIRECTOR NOVEMBER 14, 1994
(GERALD N. AGRANOFF)
* DIRECTOR NOVEMBER 14, 1994
(LEON BOTSTEIN)
* DIRECTOR, OFFICE OF THE PRESIDENT, NOVEMBER 14, 1994
(MARK S. HELWEGE) AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
* DIRECTOR NOVEMBER 14, 1994
(DANIEL R. KAIL)
* DIRECTOR NOVEMBER 14, 1994
(MICHAEL E. SCHULTZ)
*BY MIKE R. ELLIS, VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
ATTORNEY-IN-FACT.
73
EXHIBIT 10.27
SECOND AMENDMENT
This Second Amendment to the Agreement of July 28, 1991 (the
("Agreement") is made as of June 1, 1994 by and between Intelogic
Trace, Inc. and Mark S. Helwege ("Executive").
The parties agree as follows:
1. As of June 1, 1994, Executive's bi-weekly salary shall be
increased to $6,346.15 and shall thereafter be increased to
$7,692.30 per bi-weekly period upon the earlier of (i) I T
generating a net profit before taxes in any quarter, or (ii)
as of the closing date if I T is sold.
2. For the 1995 fiscal year, Executive shall be eligible to
receive performance bonus incentives in accordance with the
following based upon I T's earnings from operations:
$ 0 - $ 5.0 Million .75% of such earnings
$ 5+ - $10.0 Million 1.50% of such earnings
$10+ Million 2.00% of such earnings
This bonus is to be calculated and paid quarterly on a year-
to-date basis at the .75% rate, less prior period payments.
The bonus for annual performance above $5 million will be
calculated and paid within thirty (30) days after the close
of the fiscal year. All bonuses are considered earned when
paid.
3. The Executive Medical Plan applicable to Executive is hereby
increased to $15,000 per annum.
4. Executive shall be entitled to four (4) weeks of vacation
per year.
5. Executive shall be entitled to tax preparation assistance.
6. Paragraph 10.a. of the Agreement is hereby amended to
provide for a severance period of thirty-nine (39)
consecutive bi-weekly pay periods, commencing on the date of
termination of Executive's employment, plus $20,000 as a
lump-sum on such date of termination plus a bonus of a pro
rata amount based upon Executive's last preceding Management
Incentive Compensation award.
7. The Board of Directors may also consider the granting of a
discretionary bonus to Executive if Executive is employed by
I T on the date such sale is consummated.
8. The terms of the Agreement and this Second Agreement shall
be binding upon any successor company.
9. Except as expressly provided herein, the terms and
conditions of the Agreement shall remain in full force and
effect.
INTELOGIC TRACE, INC. EXECUTIVE
By: ASHER B. EDELMAN MARK S. HELWEGE
Asher B. Edelman Mark S. Helwege
Chairman
EXHIBIT 10.28
SECOND AMENDMENT
This Second Amendment to the Agreement of January 27, 1986 (the
("Agreement") is made as of June 1, 1994 by and between Intelogic Trace,
Inc. and Philip D. Freeman ("Executive").
The parties agree as follows:
1. Executive shall be entitled to a lump-sum payment of $10,000 upon
the termination of Executive's employment.
2. For the 1995 fiscal year, Executive shall be eligible to receive
performance bonus incentives in accordance with the following
based upon I T's earnings from operations:
$ 0 - $5.0 Million .25% of such earnings
$ 5+ - $ 10 Million .50% of such earnings
$10+ .75% of such earnings
This bonus is to be calculated and paid quarterly on a year-to-
date basis at the .25% rate, less prior period payments. The
bonus for annual performance above $5 million will be calculated
and paid within thirty (30) days of the close of the fiscal year.
All bonuses are considered earned when paid and are subject to a
maximum payment of $40,000.
3. The terms of the Agreement and this Second Amendment shall be
binding on any successor company.
4. Except as expressly provided herein, the terms and conditions of
the Agreement shall remain in full force and effect.
INTELOGIC TRACE, INC.
By: ASHER B. EDELMAN PHILIP D. FREEMAN
Asher B. Edelman Philip D. Freeman
Chairman
EXHIBIT 10.29
AGREEMENT
This Agreement (hereinafter "Agreement") is made by and between INTELOGIC
TRACE, INC. ("I T") a New York corporation having its principal offices in San
Antonio, Texas and DATAPOINT CORPORATION ("DPT") a Delaware corporation having
its principal offices in San Antonio, Texas.
WITNESSETH:
WHEREAS, I T and DPT entered into an Acquisition Agreement (the "Acquisition
Agreement") as of November 9, 1990 concerning the purchase by I T of all of the
shares of stock of Datapoint Canada Inc., a Canadian corporation, and
WHEREAS, pursuant to the Acquisition Agreement, I T and DPT entered into an
Option Agreement (the "Option Agreement") as of November 9, 1990, and
WHEREAS, pursuant to the Acquisition Agreement, I T entered into a Grantor Trust
Agreement with Peter M. Bren (the "Trustee") as of May 6, 1991, (the "Grantor
Trust Agreement"), and
WHEREAS, on August 5, 1994, I T filed a Voluntary Petition in Bankruptcy in the
United States Bankruptcy Court for the Western District of Texas, San Antonio
Division, Case No. 94-52172-C (the "Bankruptcy Case"), and
WHEREAS, I T and DPT have mutually agreed to a division of the CORPUS in the
trust in lieu of the provisions of the Option Agreement; and
WHEREAS, I T and DPT desire to terminate the Option Agreement and have I T
terminate the Grantor Trust Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
1. I T and DPT hereby agree that appropriate motions shall be filed by I T in
the bankruptcy Case to cause the Trustee to promptly transfer and
distribute 2,400,000 shares of the Datapoint Common Stock held by the
Trustee pursuant to the Grantor Trust Agreement to DPT and transfer and
distribute 300,000 shares of the Datapoint Common Stock held by the Trustee
pursuant to the Grantor Trust Agreement to I T.
2. I T and DPT hereby agree that once the Bankruptcy Court orders the
aforementioned distribution of Datapoint Common Stock and such stock is
distributed, the Option Agreement and the Grantor Trust Agreement shall be
deemed terminated by mutual consent and be of no further force or effect.
3. I T and DPT agree that I T shall pay all costs and expenses required to
effect the provisions of this Agreement.
IN WITNESS WHEREOF, authorized representatives of the parties hereto have
executed this Agreement as of the last date written below.
INTELOGIC TRACE, INC. DATAPOINT CORPORATION
By: MARK S. HELWEGE By: DORIS BENCSIK
Mark S. Helwege Name: Doris Bencsik
President & CEO Title: President
Date: September 27, 1994 Date: September 27, 1994
EXHIBIT 10.30
UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
In re:
INTELOGIC TRACE, INC.,
Debtor. Case No. 94-52172-C
Chapter 11
FINAL ORDER AUTHORIZING LIMITED USE OF CASH COLLATERAL, POST-PETITION
FINANCING AND GRANT OF SECURITY INTERESTS
Came on for consideration the motion of Intelogic Trace, Inc.
(hereinafter referred to in its capacity as debtor and debtor in
possession, "Debtor"), as debtor in possession, for the entry of a final
order authorizing (i) post-petition financing, (ii) the limited use of
Foothill Capital Corporation's Cash Collateral (as defined hereinafter),
subject to the terms and conditions set forth herein and for purposes
specified herein; and (iii) the granting of security interests, liens and
superiority claims to Foothill Capital Corporation (hereinafter "Foothill")
as more fully set forth herein. Based on the representations of the
parties and the evidence adduced,
The Court finds:
A. On August 5, 1994, the Debtor filed with this Court a petition
(the "Petition") for reorganization under Chapter 11 of the Bankruptcy Code
(the "Code"). The Debtor has retained possession of its assets and is
authorized to continue the operation and management of its business as
debtor in possession.
B. The Debtor is one of North America's largest independent support
organizations for end users, manufacturers, and resellers of computer and
telecommunications equipment. The Debtor provides technical support and on-
site services and specializes in support for local area networks, WANG
computing systems, microcomputers and peripherals.
C. Pursuant to a General Loan and Security Agreement dated as of
June 20, 1991, as amended from time to time, between Foothill and the
Debtor (hereinafter, the "Loan Agreement," as attached to the Interim
Order), Foothill made loans and advances to the Debtor in an approximate
principal amount as of the filing of the Petition of $8,764,904.85 (such
loans, advances, and obligations of Debtor, whether contingent, liquidated,
or otherwise, to pay or reimburse Foothill as a result of or in connection
with any expenses incurred, and any other such indebtedness to Foothill and
all Obligations (as defined in the Loan Agreement), including, without
limitation, the principal thereof, interest thereon, and costs and expenses
owing in connection therewith shall hereinafter be referred to collectively
as the "Pre-Petition Indebtedness"). To secure the Pre-Petition
Indebtedness, the Debtor granted to Foothill liens and security interests
in virtually all of Debtor's personal property of every kind and nature,
wherever located, then owned or thereafter acquired or arising, including,
but not limited to all Accounts, Equipment, Inventory, and General
Intangibles (all as defined in the Loan Agreement) of the Debtor and the
proceeds and products of all of the foregoing (all of the foregoing
collateral generally described above together with all of the proceeds and
products thereof shall be referred to herein collectively as the "Pre-
Petition Collateral").
D. An immediate need exists for the Debtor to use Cash Collateral
and to obtain funds in order to meet its payroll and payroll expenses, to
obtain required goods and services, and to provide working capital for its
ongoing operations.
E. The Debtor is unable to obtain the required funds in the form of
unsecured credit or unsecured debt, a claim arising from which would be
allowable under Section 503(b)(1) of the Code as an administrative expense
pursuant to Section 364(a) or (b) of the Code. As substantially all of the
Debtor's assets are subject to the liens and security interests of
Foothill, the Debtor cannot, except in the manner provided in this final
order, provide adequate protection for Foothill's Pre-Petition Collateral.
F. The terms of the post-petition financing arrangement contemplated
by this final order have been negotiated in good faith by the Debtor and
Foothill. Foothill has indicated a willingness to consent and agree to the
Debtor's use of Foothill's Cash Collateral (as defined hereinafter) upon
the terms and provisions and subject to the conditions set forth in this
final order. Foothill also has indicated a willingness to extend
additional financing to the Debtor upon the assurance by this Court that
Foothill's security interests and liens granted pursuant to this final
order will not be affected by any subsequent modification or reversal of
this final order, as provided in Section 364(e) of the Code, which shall be
deemed to be applicable to the post-petition financing arrangement
contemplated by this final order.
G. No creditors' committee has yet been appointed in this case
pursuant to Section 1102 of the Code.
H. Notice of the motion requesting the relief granted herein has
been given to the twenty (20) largest unsecured creditors of the Debtor and
the United States Trustee. Such notice constitutes sufficient notice under
Bankruptcy Rule 4001 and no other notice need be given.
I. Good cause has been shown for the entry of this final order.
Among other things, entry of this final order will minimize disruption of
the Debtor's business and operations and permit it to meet payroll and
payroll expenses. The terms of the borrowings authorized hereby are fair
and reasonable under the circumstances.
Therefore, it is ordered that:
1. AUTHORITY TO USE CASH COLLATERAL AND TO INCUR POST-PETITION
INDEBTEDNESS. Subject to the condition subsequent that the Debtor must
obtain the funds from the Fidelity Loan, as defined below, on or before
September 23, 1994, the Debtor is authorized pursuant to Section
363(c)(2)(A) of the Code to use cash collateral (as defined in Section
363(a) of the Code) (the "Cash Collateral") and to incur Post Petition
Indebtedness (defined below) pursuant to Section 364: (i) so long as
Sections 5.1, 5.2, 5.3, 5.4, 5.5, 5.6, 5.7, 5.8, 5.13, and 5.14 of the Loan
Agreement are and remain true and correct in all material respects and the
Debtor is in compliance therewith in all material respects, as the case may
be; and (ii) for the purposes specified in decretal paragraph 3 of this
final order. The Total Indebtedness to Foothill shall not exceed the
lesser of (x) $7,000,000 or (y) the least of (1) an amount equal to 70% of
the amount of Eligible Accounts as defined in the Loan Agreement, (2) an
amount equal to the Debtor's cash collections for the prior 50 day period
[based upon the average daily collections during the preceding three
months], or (3) the Adjusted Service Value (as defined in the Loan
Agreement), PLUS an amount equal to the Permitted Overadvance. The Total
Indebtedness is defined as the sum of Pre-Petition Indebtedness and the
Cash Collateral Claim (as hereinafter defined). The Permitted Overadvance
is defined as an amount never to exceed the amount shown on "Remaining
Avail/Overline" line in the budget attached as Exhibit "A" plus 10%. The
Permitted Overadvance shall never exceed the amount of $4,000,000 except
for the weeks ended October 21, October 28, November 18, and November 25,
1994 in which case the Permitted Overadvance shall not exceed $4,380,000,
$4,562,000, $4,298,000 and $4,766,000, respectively. Foothill shall
continue to make loans and advances pursuant to the Loan Agreement as
modified by and pursuant to this final order. The Post-Petition
Indebtedness shall be defined as Foothill's claims arising out of any
outstanding balance, in excess of the Pre-Petition Indebtedness, under the
Loan Agreement resulting from advances made pursuant to this final order.
The claim arising from the use of Cash Collateral and Post-Petition
Indebtedness shall sometimes be referred to herein as the "Cash Collateral
Claim," which claim shall be in an amount equal to the aggregate amount of
Cash Collateral expended, disbursed or otherwise used in any manner
whatsoever, including by the Debtor's possession thereof, plus the amount
of the Post-Petition Indebtedness, less the payments, credits and
applications made pursuant to decretal paragraph 5 of this final order.
2. ADEQUATE PROTECTION. In order to adequately protect Foothill for
any loans or advances made in excess of the initial Pre-Petition
Indebtedness and the Debtor's use of Cash Collateral and to secure the Cash
Collateral Claim, the Interest Claim (as defined hereinafter), and the
Debtor's other obligations to Foothill hereunder, including the Debtor's
payment obligation described in decretal paragraph 14 hereof, this Court
authorizes the following:
(a) Foothill is hereby granted a valid and perfected first
priority lien and security interest in all presently owned or hereafter
acquired personal property and assets of Debtor, of any kind or nature,
wherever located, now owned or hereafter acquired or arising, and all
accessions, additions, modifications, substitutions, replacements,
renewals, proceeds and products thereof, including, without limitation, all
goods (including, without limitation, equipment and inventory), accounts
(including all accounts receivables, notes receivable and other debt
instruments), contract rights, operating rights, rights to the payment of
money including tax refund claims, insurance proceeds, chattel paper,
documents, instruments, general intangibles, books and records
(collectively, the "DIP Collateral"), subject only to valid prior and
perfected liens and security interests, if any, existing in the DIP
Collateral at the time of the filing of the Petition, or as provided in the
Fidelity Loan, and the lien and security interest granted in this clause
shall secure the Pre-Petition Indebtedness, the Cash Collateral Claim, the
Interest Claim, and the Debtor's other obligations to Foothill hereunder
under paragraph 14;
(b) Interest shall accrue on the amount of (i) the Cash Collateral
Claim (from and after the date any and all Cash Collateral is advanced to
the Debtor) and (ii) the Pre-Petition Indebtedness (subject to further
order of the Court) at the lesser of (A) the maximum non-usurious rate of
interest permitted from time to time under applicable law (the "Maximum
Rate"), or (B) the sum of the rate of interest announced from time to time
by Bank of America, N.T. and S.A. at its San Francisco office, or its
successor entity, as its reference rate plus 4.5% per annum (the "Reference
Rate") (calculated on the basis of a 360 day year for the actual number of
days elapsed), and the interest shall be an administrative expense which
shall be payable in accordance with the terms of this final order but no
later than the Termination Date (such claim, shall be referred to herein as
the "Interest Claim"); and
(c) To the extent, if any, that such first priority liens and
security interests are inadequate to secure fully the Cash Collateral Claim
together with the Interest Claim (such deficiency shall be referred to
herein as the "Cash Collateral Deficiency"), the Cash Collateral Deficiency
shall be entitled to a superpriority as provided in decretal paragraph 10
of this final order. Any change in the Reference Rate shall become
effective as of the beginning of the day during which such change in the
Reference Rate occurs. As further adequate protection for the Cash
Collateral Claim and the Interest Claim, Foothill is granted liens and
security interests in the Pre-Petition Collateral pari passu with the liens
and security interests in favor of the Pre-Petition Indebtedness.
3. PERMITTED USES OF CASH COLLATERAL. Unless Foothill shall agree
otherwise in writing, the Debtor shall use the Cash Collateral solely to
pay the amounts owing for payroll and payroll expense, to pay for
inventories and services, and to pay other permitted purposes pursuant to
the budget submitted to Foothill and attached hereto as Exhibit "A."
4. PAYMENT OF ADMINISTRATION EXPENSES. Foothill's Cash Collateral
and the DIP Collateral shall not, directly or indirectly, be used to pay
administration expenses of the Debtor (or any entity) except for those
operating expenses (including professional fees) that are set forth in the
Debtor's budget attached as Exhibit "A."
5. COLLATERAL OF PROCEEDS OR PAYMENTS. The Debtor is authorized and
directed to immediately remit to Foothill, or its designee, as received,
all payments or proceeds constituting proceeds of the Cash Collateral, the
Pre-Petition Collateral or the DIP Collateral that may be advanced to the
Debtor subject to the terms, provisions and conditions of this final order,
and pursuant to paragraph 2 of this final order. Such payments and
proceeds received shall be applied by Foothill first to the Pre-Petition
Indebtedness, and second to the Cash Collateral Claim and the Interest
Claim (and the Pre-Petition Indebtedness, the Cash Collateral Claim or the
Interest Claim, as the case may be, shall be provisionally reduced by the
amounts so applied); PROVIDED, HOWEVER, that these applications shall be
for the purpose of applying various formulas in the Loan Agreement, shall
not change the character or nature of the Pre-Petition Indebtedness for the
purpose of treating that claim under a chapter 11 plan, and shall be
subject to final allowance by the Court. For purposes of this final order,
and subject to the same limitations set forth in the preceding sentence,
payments or proceeds of Pre-Petition Collateral or DIP Collateral applied
against Pre-Petition Indebtedness shall be applied, first to accrued but
unpaid interest and other charges, including, without limitation,
reasonable attorney's fees and expenses, and second to principal. Nothing
contained in this final order to the contrary shall change the legal nature
or character (or the right to accrue or receive interest on) the amount of
the initial Pre-Petition Indebtedness, provided, however, that the
foregoing shall not apply to (x) the Post-Petition Indebtedness and (y) the
Cash Collateral Deficiency. Foothill is authorized to deduct the interest
and its fees and expenses as set forth herein. In addition to the
foregoing, if at any time the amount of the Cash Collateral Claim and
Interest Claim owed to Foothill is greater than the dollar or percentage
limitations set forth in decretal paragraph 1 above, the Debtor shall
immediately pay to Foothill an amount sufficient to reduce the Cash
Collateral Claim and Interest Claim to an amount no greater than any such
dollar or percentage limitation.
6. COLLECTION OF PROCEEDS OR PAYMENTS OTHER THAN IN THE ORDINARY
COURSE OF BUSINESS. Subject to the terms of the Fidelity Loan, as defined
below, any and all payments or proceeds realized upon the sale,
liquidation, collection or disposition of Pre-Petition Collateral or the
DIP Collateral (other than the collections of the Debtor's pre-petition and
post-petition accounts receivable arising out of Debtor's sale of goods or
provision of services in the ordinary course of business), including, but
not limited to, any income tax refund and/or the net proceeds from the sale
of Datapoint, Inc. stock shall be remitted to Foothill free and clear of
any claim, charge, assessment or other liability including, without
limitation, any such claim or charge arising out of or based on, directly
or indirectly, Section 506(c) or 552(b) of the Code, other than a lien
specifically placed on those assets by court order pursuant to the terms of
the Fidelity Loan.
7. MODIFICATION OF AUTOMATIC STAY. The automatic stay extant under
Section 362(a) of the Code shall be, and it hereby is, modified to the
extent necessary to permit Foothill or its designee to receive, collect and
apply payments and proceeds in respect of the Pre-Petition Collateral and
the DIP Collateral in accordance with the terms and provisions of this
final order.
8. TERMINATION DATE. Notwithstanding anything herein, the Debtor
shall no longer be authorized to use Cash Collateral or DIP Collateral
pursuant to this final order upon the earliest to occur of any of the
following events (the date of any such event shall be referred to as the
"Termination Date"):
(i) non-compliance by the Debtor with any of the terms and
provisions of this final order unless Foothill elects to continue
its consent to the use of Cash Collateral or DIP Collateral;
(ii) entry of an order by the Bankruptcy Court converting or
dismissing the Debtor's chapter 11 case;
(iii) the reversal, vacatur, stay, amendment,
supplementation or other modification of this final order in a
manner which shall, in the sole opinion of Foothill, materially
and adversely affect the rights of Foothill hereunder or shall
materially and adversely affect the priority of any or all of
Foothill's security interests, liens or claims;
(iv) December 31, 1994, unless extended by mutual agreement
of the Debtor and Foothill; or
(v) entry of an order by the Bankruptcy Court confirming a
plan of reorganization.
Notwithstanding anything herein, all of the rights, remedies, benefits
and protections provided to Foothill under this final order shall survive
the Termination Date.
9. REMEDIES. If it shall be necessary for Foothill, at any time, to
exercise its rights and remedies hereunder or under applicable law in order
to effect repayment of the Cash Collateral Claim or the Interest Claim, or
any other amounts due hereunder, Foothill shall have the right, upon
application to and further order of this Court, to exercise such rights and
remedies as to all or such part of the Pre-Petition Collateral and the DIP
Collateral, as the case may be, as Foothill shall, in its sole discretion,
elect. Foothill shall be entitled to apply the payments or proceeds of the
Pre-Petition Collateral and the DIP Collateral in accordance with the
provisions of this final order.
10. SUPERPRIORITY CLAIM. The Post-Petition Indebtedness shall have
priority in accordance with the provisions of Section 364(c)(1) of the Code
over all administrative expenses of the kind specified in Sections 503(b)
or 507(b) of the Bankruptcy Code. The Cash Collateral Deficiency shall
have priority in accordance with Section 507(b) over all administrative
expenses of the kind specified in Sections 503(b) and 507(b) of the
Bankruptcy Code.
11. PROHIBITION AGAINST ADDITIONAL SECURED DEBT. Except pursuant to
the terms of the Fidelity Loan, the Debtor is enjoined and prohibited from,
at any time during its chapter 11 case, seeking Court authorization to
grant mortgages, security interests or liens senior or pari-passu to
Foothill in the Pre-Petition Collateral, the DIP Collateral or any portion
thereof to other parties pursuant to Section 364(c) or Section 364(d) of
the Code unless (i) Post-Petition Indebtedness and (ii) the amount of any
diminution in the collateral coverage are paid in full. Such diminution in
collateral coverage being defined as the difference between the amount of
the overadvance on August 4, 1994 and on the date the Court grants an order
pursuant to Section 364(c) or Section 364(d) as described above. Foothill
shall retain all its rights to object to such financing proposal. The
Debtor is enjoined and prohibited from at any time from using the Cash
Collateral or the DIP Collateral except as expressly provided by this final
order or further order of the Court.
12. OTHER DOCUMENTS REQUIRED. The Debtor shall execute and deliver
to Foothill all such loan agreements, financing statements, instruments,
stock and other documents as Foothill may request to evidence, confirm,
validate or perfect the security interests and liens granted pursuant
hereto.
13. INSPECTION AND ACCESS. The Debtor shall permit representatives,
agents and/or employees of Foothill to have reasonable access to such
entity's premises and its records during normal business hours and shall
cooperate, consult with, and provide to such persons all such information
as they may reasonably request.
14. PAYMENT OF FEES AND REIMBURSEMENT OF COSTS. The Debtor shall
promptly reimburse Foothill for all reasonable costs and expenses incurred
by it in connection with (i) the negotiation and administration of the post-
petition financing facility implemented by this final order, (ii) the
preparation of this final order, the Interim Order entered on August 5,
1994, and any other related documentation, (iii) the preservation and
protection of their rights under this final order and any other related
documentation, and (iv) the collection of the Cash Collateral Claim and the
Interest Claim, and all other amounts due hereunder, including, without
limitation, all filing and recording fees and reasonable attorneys' fees
incurred in connection with each of the foregoing. These amounts will be
subject to final allowance by the Court. All security interests and liens
granted or created herein to secure repayment of the Cash Collateral Claim
and the Interest Claim pursuant to this final order shall be, and they
hereby are, deemed perfected, and no further notice, filing or other act
shall be required to effect such perfection; PROVIDED, HOWEVER, if Foothill
shall, in its sole discretion, choose to file such financing statements,
notices of liens and security interests and other similar documents, all
such financing statements or similar instruments shall be deemed to have
been filed or recorded at the time and on the date of entry of this final
order.
15. SUCCESSORS AND ASSIGNS. The provisions of this final order shall
be binding upon and inure to the benefit of Foothill and the Debtor and
their respective successors and assigns (including any trustee hereinafter
appointed for the estate of the Debtor).
16. NOTICE. The Debtor shall promptly mail copies of this final
order to its 20 largest unsecured creditors and all of its secured
creditors of record and, after appointment thereof (if any), to its
creditors' committee. The Court acknowledges its findings set forth in
paragraph F above and orders, in accordance with Section 364(e) of the
Code, in the event that any or all of the provisions of this final order
relating to the Post-Petition Indebtedness are hereafter modified, amended
or vacated, by a subsequent order of this or any other Court, such
modification, amendment or vacation shall not affect the validity and
enforceability of any security interest or lien or the perfection or
priority authorized or created hereby in connection with the Post-Petition
Indebtedness.
17. NO WAIVER. Notwithstanding anything herein, the entry of this
final order is without prejudice to, and does not constitute a waiver of,
expressly or impliedly, or otherwise impair, (x) any of the rights of
Foothill under the Code or under non-bankruptcy law, including, without
limitation, the right of Foothill to (i) request additional adequate
protection of its interests in the Pre-Petition Collateral or the DIP
Collateral or relief from or modification of the automatic stay extant
under Section 362 of the Code, (ii) request conversion of the Debtor's
chapter 11 case to chapter 7, and (iii) propose a chapter 11 plan or plans
or (y) otherwise affect any of the rights, claims or privileges (whether
legal, equitable or otherwise) of Foothill.
18. FIDELITY LOAN. The Fidelity Loan shall be defined as the loan of
up to $1.3 million to be extended by Fidelity Income and Capital Funds
("Fidelity") to the Debtor, pursuant to an order of this Court (the
"Fidelity Order") to be secured by a first lien on the Debtor's stock in
Datapoint Corporation, the Debtor's stock in Canal Street Corporation, the
Debtor's IRS tax refund, and the Debtor's inventory, and a junior loan on
all of the Debtor's other assets, all as more fully set forth in the
Fidelity Order.
Done in San Antonio, Texas on _______ day of ____________, 1994.
United States Bankruptcy Judge
AGREED:
INTELOGIC TRACE, INC., DEBTOR
AND DEBTOR-IN-POSSESSION, by Its Attorney
______________________________
FOOTHILL CAPITAL CORPORATION, by Its Attorney
FIDELITY INCOME AND CAPITAL FUND, by Its Attorney
EXHIBIT 10.31
THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
IN RE: BANKRUPTCY CASE
INTELOGIC TRACE INC., NO. 94-52172-C-11
DEBTOR. (CHAPTER 11)
FINAL ORDER (1) AUTHORIZING THE DEBTOR TO INCUR SECURED PRIORITY
ADMINISTRATIVE INDEBTEDNESS PURSUANT TO SECTION 364(C) OF THE BANKRUPTCY
CODE, (2) GRANTING SECURITY INTERESTS, (3) APPROVING AGREEMENT RELATED TO
THE FOREGOING AND (4) GRANTING OTHER RELIEF
On September 16, 1994, this Court considered the Motion Regarding
Incurrence of Secured Priority Administrative Indebtedness Pursuant to
Section 364(c) of the Bankruptcy Code, Granting Security Interests,
Approving Agreement Related to the Foregoing, and Other Relief (the
"Financing Motion") filed by Intelogic Trace, Inc. (the "Debtor"). After
reviewing the Financing Motion and having heard the testimony presented and
the arguments of counsel to the Debtor, Fidelity Capital & Income Fund
("Fidelity"), and such other parties in interest as reflected in the record
of the interim hearing on the Financing Motion on September 16, 1994, this
Court entered the Interim Order (1) Authorizing the Debtor to Incur Secured
Priority Administrative Indebtedness Pursuant to Section 364(c) of the
Bankruptcy Code, (2) Granting Security Interests, (3) Approving Agreement
Related to the Foregoing and (4) Granting Other Relief, dated September 16,
1994 (the "Interim Order"). Pursuant
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to the Interim Order, this Court set a final hearing on the Financing
Motion for October 4, 1994. After further reviewing the Financing Motion,
the Interim Order, the testimony presented, and the arguments of counsel to
the Debtor, Fidelity Capital & Income Fund ("Fidelity"), and such other
parties in interest as reflected in the record of the final hearing on the
Financing Motion on October 4, 1994, this Court makes the following
FINDINGS OF FACT:
1. On August 5, 1994 (the "Petition Date"), the Debtor filed a
voluntary petition for relief under chapter 11, title 11, United States
Code (the "Bankruptcy Code"). Pursuant to sections 1107 and 1108 of the
Bankruptcy Code, the Debtor has retained possession of its assets and is
authorized to continue the operation and management of their business.
2. No Unsecured Creditors' Committee has been formed by the United
States Trustee.
3. The Debtor has provided actual notice of the terms of the
Financing Motion, to the United States Trustee, the Internal Revenue
Service, the largest unsecured creditors of the Debtor as listed pursuant
to Rule 1007(d), and all counsel of record. Such notice is appropriate and
adequate under the circumstances set forth herein and presented to this
Court; consequently, adequate notice and opportunity for a hearing has been
given in accordance with the provisions of sections 102, 105, 361, 362,
363, and 364 of the Bankruptcy Code and Rules 2002 and 4001 of the
Bankruptcy Rules.
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4. The Debtor is one of North America's largest independent support
organizations for end users, manufacturers, and resellers of computer and
telecommunications equipment. The Debtor provides technical support and on-
site services and specializes in support for local area networks, WANG
computing systems, microcomputers and peripherals.
5. A need exists for the Debtor to obtain funds in order to continue
operation of its business. Without such funds, the Debtor will not have
sufficient funds to meet its operating expenses in the ordinary course of
business. Failure to provide such financing could lead to disruption to a
major portion of the Debtor's business and a loss of the going concern
value. The relief sought in the Financing Motion is necessary to the
Debtor, its creditors, and other parties in interest.
6. In order to continue the operation of the Debtor's business and
to preserve the value of its assets, the Debtor requires the post-petition
credit to be extended by Fidelity to the Debtor, in the form of a credit
facility in the amount of $1.3 million, bearing interest at the annual rate
of 15% (payable monthly), the proceeds of which will provide working
capital needs. This loan facility is hereafter referred to as the "Post-
Petition Credit." As provided in the DIP Financing Documents (as defined
herein), the Debtor will execute documents, including security agreements
and other collateral documents to secure the Debtor's obligations, deemed
necessary by Fidelity. Without all of the credit described above, there is
a substantial risk that the value of the Debtor's assets will immediately
and substantially diminish, and that the Debtor will have no reasonable
prospect of continuing to operate as a
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going concern, preserving the value of its assets, or effecting a
reorganization in these cases, and that the Debtor would suffer immediate
and irreparable injury. All amounts lent or credit to be extended by
Fidelity pursuant to this Order are sometimes referred to as the "Fidelity
Post-Petition Indebtedness." The Fidelity Post-Petition Indebtedness is to
be governed by the terms of this Order and the DIP Financing Documents (as
defined herein).
7. The Debtor has been unable, pursuant to 11 U.S.C.
364(a), (b) or (c), despite substantial effort, to obtain unsecured credit
or to obtain secured debtor-in-possession financing on terms equal to or
more beneficial than those provided herein and as provided in the DIP
Financing Documents. Representatives of the Debtor have sought to obtain
credit from other sources. Neither Foothill Capital Corporation
("Foothill"), nor any other lender, is willing to extend new credit on the
basis of administrative expense priority, on the basis of priority over any
or all administrative expenses of the kind specified in sections 503(b) and
507(b) of the Bankruptcy Code, or on the basis of a lien on unencumbered
property, or a lien junior to existing liens, or a lien equal to existing
liens, on terms as favorable to the Debtor as those extended by Fidelity.
8. Due to the nature of the Debtor's business, without the Fidelity
Post-Petition Indebtedness, trade credit is restricted due to the filing of
the chapter 11 cases.
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9. Fidelity has indicated a willingness to extend credit and other
financial accommodations to the Debtor only upon the terms and conditions
set forth in this Order.
10. The terms of the Post-Petition Indebtedness sought by the Debtor
are for reasonably equivalent value and fair consideration. The agreements
and arrangements sought to be entered into have been negotiated at arm's
length, are fair and reasonable under the circumstances, and have been
entered into in good faith.
11. To secure repayment of the Post-Petition Indebtedness, the Debtor
has agreed to grant to Fidelity (a) a junior lien on all of the Debtor's
assets, subject to the existing lien of Foothill and (with respect to
accounts receivable) Fidelity has agreed to a standstill until Foothill is
paid in full, and (b) a senior lien on and security interest in inventory,
the Debtor's IRS tax refund, and all stock owned by the Debtor in Datapoint
Corporation and Canal Capital Corporation, with priority over the existing
lien of Foothill (together, the "DIP Collateral").
12. Except for such valid, perfected, enforceable and non-avoidable
liens and security interests of Foothill as may have existed as of the
Petition Date, or pursuant to specific order of this Court in, to, or
against the Debtor's property or as provided by Court order ("Existing
Liens"), there is no party with a security interest or lien in the property
of the Debtor's estate, including the DIP Collateral.
13. All conclusions of law which are, or which could be deemed to be,
findings of fact are hereby incorporated as findings of fact.
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14. The Court, having reviewed the Financing Motion and the evidence
presented at the preliminary and final hearings, having heard the
statements of counsel, and being otherwise fully advised of the premises,
makes the following CONCLUSIONS OF LAW:
15. Consideration of the Financing Motion constitutes a core
proceeding as defined in 28 U.S.C. S 157(b)(2)(A), (D), (G), (K), (M) and
(0). Fidelity is entitled to the benefits of the provisions of section
364(e) of the Bankruptcy Code.
16. Good cause has been shown for the entry of this Order. Among other
things, entry of this Order will minimize disruption of the Debtor's
existing business, will increase the possibility for successful
reorganization of the Debtor, and is in the best interests of the Debtor,
its creditors, and other parties in interest.
17. The Post-Petition indebtedness is being extended by the Lender in
good faith, as contemplated by section 364(e) of the Bankruptcy Code.
18. The Debtor has provided adequate notice under the circumstances
pursuant to Bankruptcy Rule 4001 of the hearing to consider entry of this
Order to all persons who are entitled to receive such notice.
19. Good cause has been shown for the entry of this Order. The entry
of this Order is in the best interests of the Debtor, its creditors, and
its estates. The terms of this Order, including the terms of the Post-
Petition Credit, the DIP Financing Documents, and the security interests,
liens, rights, and priorities granted hereunder, are fair under the
circumstances.
20. This Order is immediately valid and fully effective upon its
entry.
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21. Based upon the foregoing Findings of Fact and Conclusions of Law,
which are fully incorporated by reference into this Order as set forth
below,
IT IS ORDERED THAT:
1. The paragraphs contained in the preamble to this Order are
incorporated herein by this reference and the Debtor, Foothill and Fidelity
consent to the entry of this Order.
2. The Debtor is hereby authorized to incur the Post-Petition
Indebtedness and seek other financial accommodations from Fidelity in
accordance with the provisions of this Order and the DIP Financing
Documents (as defined herein).
3. Immediately upon the issuance of this Order, the Debtor is
authorized to borrow up to $1.3 million under the terms of the DIP
Financing Documents (as defined herein) to be executed and delivered by the
Debtor to Fidelity. The Debtor is further authorized, empowered, and
directed to execute and deliver any and all necessary documents or
amendments to documents to ratify the DIP Financing Documents (as defined
herein) or, where necessary, to modify, clarify or amend the DIP Financing
Documents to conform to this Order or otherwise make nonmaterial changes to
the DIP Financing Documents. The Promissory Note and the Pledge and
Security Agreement attached hereto as Exhibits A and B respectively, and
incorporated by reference herein, together with the other instruments and
documents executed in connection therewith, are hereinafter referred to as
the "DIP Financing Documents." The specific language contained in Exhibits
A and B hereto, particularly regarding the description of the assets
subject to Fidelity's security
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interest, controls over the more general language contained in this Order.
The Debtor is authorized, empowered, and directed to execute such other
documents and agreements and to take all necessary actions to complete and
effectuate the financing directed by this Order.
4. The Debtor shall make debt payments on the outstanding amount of
the Post-Petition Indebtedness as set forth in the DIP Financing Documents.
5. Fidelity shall make the Post-Petition Credit available if, and only
if, the Debtor (i) has complied with the terms of this Order; and (ii) has
complied with the terms of the DIP Financing Documents.
6. Any diminution in value of the DIP Collateral that causes all or
any part of the Post-Petition Indebtedness to become unsecured (the
"Collateral Diminution") shall be and hereby is (a) deemed a claim entitled
to the priority granted pursuant to section 507(b) of the Bankruptcy Code,
and (b) deemed part of the amount which must be paid to Fidelity in order
to adequately protect its interest in the DIP Collateral (the "Adequate
Protection Amount").
7. Fidelity's security interests in the DIP Collateral shall be (a)
junior to the Existing Liens of Foothill on the DIP Collateral, (b) except
that they will be senior to all Existing Liens on the inventory, tax
refund, Datapoint stock, and the Canal Capital stock, including the
Existing Liens (if any) of Foothill. Fidelity's security interests in the
DIP Collateral shall at all times be senior to the rights of Debtor or its
successors-in-interest, including, without limitation, any chapter 11
trustee appointed in any of this chapter 11 case or any trustee in a case
under
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chapter 7 of the Bankruptcy Code into which this chapter 11
case may be converted. Fidelity shall not be obligated to accept title to
any portion of its DIP Collateral in payment of the Post-Petition
Indebtedness or the Adequate Protection Amount in lieu of payment in cash
or cash equivalents, nor shall Fidelity be obligated to accept payment in
cash or cash equivalents that is encumbered by the interest of any party
other than Fidelity. Foothill and Fidelity shall assert no right of
marshalling to compel each other to proceed first against any assets as to
which either believes the other has greater potential equity.
8. In addition to the liens and security interests granted pursuant to
section 364(c), all Post-Petition Indebtedness and the Adequate Protection
Amount shall have priority pursuant to the provisions of section 364(c)(1)
of the Bankruptcy Code to the extent permitted by law over all
administrative and priority expenses incurred in this chapter 11 or any
subsequent chapter 7 case, including, without limitation, expenses of the
kind specified in sections 503(b), 507(a), and 507(b) of the Bankruptcy
Code, subject to the payment of professional fees and expenses and the
statutory fees of the United States Trustee and shall at all times be
senior to the rights of the Debtor, its creditors, or the successors-in-
interest of the Debtor or its creditors, including, without limitation, any
superseding trustee in this chapter 11 case or any trustee in a case under
chapter 7 of the Bankruptcy Code into which this case may be converted.
9. The Debtor shall incur no post-petition obligations for borrowed
money pursuant to section 364(c) and (d) of the Bankruptcy Code and shall
grant no post-petition liens or superpriority claims, other than to
Fidelity, unless provided for
-9-
under the DIP Financing Documents, or under the Final Cash Collateral
Order entered by this Court with respect to Foothill or unless mutually
agreed by Fidelity and the Debtor.
10. No costs or expenses of administration or other obligations which
have been or may be incurred in these proceedings, any conversion of this
case pursuant to section 1112 of the Bankruptcy Code, or in any other case
or proceeding related hereto, and no priority claims, other than the
Existing Liens of Foothill Capital Corporation, are or shall be prior to or
on a parity with the claims of Fidelity against the Debtor arising out of
the Post-Petition Indebtedness and the Adequate Protection Amount, or with
the security interests and liens of Fidelity upon the DIP Collateral, and
no such costs, expenses of administration, or other obligations shall be
imposed or assessed against Fidelity, its claims, or its DIP Collateral. No
costs shall be assessed or attributed to Fidelity or its DIP Collateral
pursuant to the provisions of section 506(c) of the Bankruptcy Code, or
otherwise.
11. All agreements, security interests, mortgages, deeds of trust, and
liens contemplated or granted by this Order are effective, perfected, and
enforceable as of the commencement of this chapter 11 case without further
filing or recording by Fidelity in compliance with any state or federal
law. Fidelity shall not be required to file financing statements or other
documents in any jurisdiction or take any other actions in order to perfect
its security interests and liens granted under or pursuant to this order.
If Fidelity, in its sole discretion, chooses to file any financing
statements, deeds of trust, mortgages, or other documents to otherwise
confirm perfection of such
-10-
security interests and liens, all such documents shall be deemed to have
been filed or recorded at the time and on the Petition Date. However, the
failure of the Debtor to execute any such documentation, or the failure of
Fidelity otherwise to attach or perfect its security interest in the DIP
Collateral under state or federal law, shall in no way affect the validity,
perfection, or priority of the security interests, mortgages, and liens
granted to Fidelity by this Order or otherwise. Fidelity is authorized to
file this Order in lieu of any financing statement or other document which
may otherwise be specified by applicable law, to reflect the above security
interests and liens, and all recording officers are directed to accept this
Order for filing.
12. The terms and conditions of this Order relating to liens and
priorities shall be binding upon the Debtor, its creditors, and all other
parties in interest, and all successors in interest thereof, including,
without limitation, any chapter 11 trustee that may be appointed in this
chapter 11 case or any trustee in a case under chapter 7 of the Bankruptcy
Code into which this chapter 11 case may be converted. This binding effect
is an integral part of this financing transaction.
13. In addition to any notice required under applicable law, the
Debtor shall transmit to Fidelity by telecopy or overnight mail a copy of
any pleading, notice, or other document filed by the Debtor in this chapter
11 case, not later than the next business day following the filing of such
pleading, notice, or other document.
14. The terms and conditions of this Order relating to liens and
priorities cannot be materially modified or changed by any plan or plans of
reorganization
-11-
relating to the Debtor, whether or not proposed by the Debtor, without
the consent of Fidelity.
15. The automatic stay presently in effect in this case pursuant to
section 362 of the Bankruptcy Code is modified with respect to Fidelity,
(a) to the extent necessary to execute and render effective the DIP
Financing Documents to be executed in connection with the transactions
approved by this Order, and (b) to permit Fidelity to enforce against the
Debtor such provisions of the DIP Financing Documents as are necessary to
carry out the provisions of this Order SAVE and EXCEPT that Fidelity may
not exercise any rights arising out of a default, except upon further
application to and order by this Court. The Debtor is authorized and
directed to do and perform all acts, to make, execute and deliver all
instruments and documents (including, without limitation, the execution of
additional security agreements, mortgages and financial statements), to pay
fees which may be required pursuant to the terms of this Order, including,
without limitation, (x) the execution and performance of the DIP Financing
Documents and (y) the payments to Fidelity of the fees and amounts provided
for in this Order and the and the DIP Financing Documents including,
without limitation, reasonable attorneys' fees and disbursements incurred
in transactions giving rise to the Post-Petition Credit and the preparation
of the DIP Financing Documents.
16. Philip D. Freeman is hereby designated by this Court as authorized
signatory for the Debtor for purposes of handling and disbursing all funds
and
-12-
executing all documents in connection with the financing arrangements
described herein.
17. Fidelity may petition this Court for such additional protection as
it may reasonably require with respect to continued financing of the Debtor
or otherwise. Except as otherwise specifically provided herein, Fidelity
shall retain all rights available pursuant to the Bankruptcy Code or any
other applicable law including, without limitation, Fidelity's right for
the purpose of protecting its rights in the DIP Collateral and its rights
under the DIP Financing Documents, to seek additional restrictions upon the
Debtor's activities or use of proceeds of the Post-Petition Credit, to seek
termination or modification of this Order, or to seek termination or
modification of the automatic stay pursuant to section 362 of the
Bankruptcy Code.
18. Any subsequent stay, modification, or vacation of this Order shall
not affect the validity of any debt owed by the Debtor to Fidelity incurred
pursuant to this Order or otherwise, nor shall any such stay, modification,
or vacation affect the validity, enforceability, or perfection of any
security interest, mortgage, lien, or priority in connection therewith.
Notwithstanding any such stay, modification, or vacation of this Order, all
rights of the Debtor and Fidelity up to and including the date of such
stay, modification, or vacation of this Order shall be governed in all
respects by the original provisions of this Order and the security
agreements, deeds of trust, mortgages, and collateral mortgages between
Debtor and Fidelity, and Fidelity shall be entitled to all the rights,
privileges, and benefits, including the security interests, mortgages,
liens, and priorities granted herein.
-13-
19. In making decisions to advance monies or extend financial
accommodations of any nature under this Order or the DIP Financing
Documents, in administering the Debtor's use of any advances, loans,
issuance of letters of credit, or financial accommodations of any sort
under this Order or the DIP Financing Documents, or in taking any other
action related to or in connection with any of the forgoing, Fidelity shall
have no liability to any third party, and shall not be deemed to be in
control of the operations of the Debtor, or to be acting as a "responsible
person" or "owner or operator" with respect to the operation or management
of the Debtor (as such terms or any similar terms, are used in the United
States Comprehensive Environmental Response, Compensation and Liability
Act, as amended or any similar federal or state statute).
20. The Post-Petition Credit will immediately cease and terminate
without further notice, and the Post-Petition Indebtedness, together with
any then outstanding interest, fees, costs, expenses, or other amounts
payable in connection therewith shall be immediately due and payable
without further notice, upon the earliest to
a. December 31, 1994;
b. The occurrence of a violation of the terms of this Order or the
occurrence and continuation of an Event of Default under the Promissory
Note attached hereto as Exhibit A, under the Pledge and Security Agreement
attached hereto as Exhibit B, under the DIP Financing Documents, or under
the Final Cash Collateral entered by this Court with respect to Foothill;
or
-14-
c. The Effective Date of any plan of reorganization in this Chapter 11
case.
21. The Post-Petition Indebtedness, and any advances, borrowings or
extension of credit thereunder by Fidelity to the Debtor shall be
conditioned upon the observance and performance by the Debtor of the terms,
conditions, covenants, and agreements specified in the DIP Financing
Documents and this Order. Agreements by Fidelity to lend money or extend
credit or other financial accommodations to the Debtor, to forebear from
exercising remedies contained herein or the DIP Financing Documents, may be
terminated by Fidelity according to the terms of this Order or the DIP
Financing Documents; PROVIDED, HOWEVER, that the obligations and rights of
Fidelity and the Debtor with respect to all transactions which have
occurred prior to such termination by Fidelity shall remain unimpaired and
unaffected by any such termination and shall survive any such termination.
22. If, for any reason, any or all of the provisions of this Order are
hereafter modified, vacated or stayed, including by subsequent order of
this or any other Court, then in such event: (a) Fidelity shall be under no
obligation to provide loans, extension of credit, or financial
accommodations hereunder or under the DIP Financing Documents; and (b) the
then outstanding Post-Petition Indebtedness, together with all interest,
fees, costs, expenses, and charges of any nature which may have accrued in
connection therewith, shall be due and payable at the office of Fidelity in
Boston Massachusetts, on the tenth (10th) day thereafter; all without
notice, demand, motion, or any other action by Fidelity.
-15-
23. If this chapter 11 case is dismissed, superseded, or consolidated,
neither the entry of this Order nor the dismissal of the case shall affect
Fidelity's rights under the DIP Financing Documents, and all of Fidelity's
rights and remedies thereunder shall be and remain in full force and
effect. Furthermore, notwithstanding any such dismissal, suppression, or
consolidation, all of the terms and conditions of this Order including the
security interests and liens granted hereunder shall remain in full force
and effect.
24. This Order shall not operate to modify, alter, impair, affect,
abrogate, amend, restrict, or nullify any rights of Fidelity with respect
to any entity other than the Debtor, nor to release, alter, impair, affect,
or abrogate any debts, claims, demands, actions, and causes of action in
law and equity, whether known or unknown, which Fidelity may have as to any
entity other than the Debtor.
25. The Debtor has determined, in the exercise of its independent
business judgment, to enter into and comply with the terms of this Order
and the DIP Financing Documents. The Debtor has covenanted that, to the
extent required or reasonably requested by Fidelity, it will obtain all
necessary approvals to enter into the DIP Financing Documents including,
without limitation, approvals from its board of directors.
26. The Debtor has waived any right it may have to seek ex parte
relief from this Court with respect to Fidelity.
27. In consideration of the loans and other financial accommodations
made by Fidelity pursuant to this Order, the Debtor is hereby authorized
without further
-16-
order of this Court to reimburse Fidelity for all filing and recording
fees and the reasonable attorneys' fees incurred by Fidelity in connection
with the Post-Petition Indebtedness and all matters related thereto.
DATED: San Antonio, Texas
October __, 1994
UNITED STATES BANKRUPTCY JUDGE
-17-
APPROVED AS TO FORM AND SUBSTANCE:
WEIL, GOTSHAL & MANGES
700 Louisiana, Suite 1600
Houston, Texas 77002
(713) 546-5000
(713) 224-9511 (FAX)
By: _________________________
Wendy K. Laubach
Texas State Bar No. 119878000
ATTORNEYS FOR FIDELITY
CAPITAL & INCOME FUND
COX & SMITH INCORPORATED
112 East Pecan, Suite 1800
San Antonio, Texas 78205
(210) 554-5500
(210) 226-8395 (FAX)
By: _________________________
Deborah D. Williamson
Texas State Bar No. 21617500
Patrick L. Huffstickler
Texas State Bar No. 10199250
ATTORNEYS FOR INTELOGlC TRACE, INC.
BRACEWELL & PATTERSON, L.L.P.
2900 South Tower, Pennzoil Place
Houston, Texas 77002
By: _________________________
ATTORNEYS FOR FOOTHILL CAPITAL CORPORATION
-18-
EXHIBIT 11
INTELOGIC TRACE, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1994 JULY 31, 1993 JULY 27, 1992
<S> <C> <C> <C>
Common and common equivalent share:
Weighted average shares outstanding .................. 12,342,776 11,994,248 11,938,787
Net effect of dilutive stock options
Based on treasury stock method
using average market price* ........................ -- -- --
---------- ---------- ----------
Total shares .................................... 12,342,776 11,994,248 11,938,787
========== ========== ==========
Net loss, less preferred stock dividends ............ $(34,671) $(1,528) $(17,409)
========== ========== ==========
Per share amount ..................................... $(2.81) $(.13) $(1.46)
========== ========== ==========
</TABLE>
* The net dilutive effect of stock options is not considered because
the effect would be to increase shares outstanding, which, in loss
years, reduces the loss per share and is therefore antidilutive.
74
EXHIBIT 21
INTELOGIC TRACE INC. AND SUBSIDIARIES
INTELOGIC TRACE,INC. (NY)
INTELOGIC TRACE CANADA INC. (CN)
INTELOGIC TRACE SYSTEMS GROUP INC. (DE)
TLA, INC. (TX)
ITTG, INC. (TX)
INTELOGIC TRACE MARION GROUP OF PUERTO RICO, INC. (NJ)
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-1808 and No. 33-1806) pertaining to the 1985 Employee
Stock Option Plan and the 1985 Directors Stock Option Plan of Intelogic
Trace, Inc. of our report dated October 14, 1994, except for Note 2
Paragraph 8 as to which the date is November 9, 1994, with respect to the
consolidated financial statements and schedules of Intelogic Trace, Inc.
included in this Annual Report (Form 10-K) for the year ended July 31,
1994.
ERNST & YOUNG LLP
San Antonio, Texas
November 10, 1994
EXHIBIT 25
POWER OF ATTORNEY
We, the undersigned officers and/or directors of Intelogic Trace, Inc.,
hereby severally constitute and appoint Asher B. Edelman, Mark S. Helwege and
Mike R. Ellis and each of them, our true and lawful attorneys with full power
to each of them to sign for us and in our names in the capacities indicated
below, the Annual Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-K filed herewith and any and all amendments to
said Annual Report, and generally to do all such things in our names and on
our behalf in our capacities as officers and/or directors to enable Intelogic
Trace, Inc. to comply with the provisions of the Securities Exchange Act of
1934 and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney(s) to said Annual Report and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons in
the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
ASHER B. EDELMAN Director, Chairman of November 10, 1994
(Asher B. Edelman) the Board of Directors,
Office of the President
____________________ Director, Office of November __, 1994
(Mark S. Helwege) the President, Chief
Executive Officer
____________________ Vice President and November __, 1994
(Mike R. Ellis) Chief Financial Officer
(Principal Financial and
Accounting Officer)
____________________ Director November __, 1994
(Gerald N. Agranoff)
____________________ Director November __, 1994
(Leon Botstein)
____________________ Director November __, 1994
(Daniel R. Kail)
____________________ Director November __, 1994
(Michael E. Schultz)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JULY 31, 1994 AND THE INCOME STATEMENT FOR THE YEAR ENDED
JULY 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-END> JUL-31-1994
<CASH> 605
<SECURITIES> 0
<RECEIVABLES> 10,072
<ALLOWANCES> 2,880
<INVENTORY> 0
<CURRENT-ASSETS> 9,621
<PP&E> 66,662
<DEPRECIATION> 62,824
<TOTAL-ASSETS> 15,569
<CURRENT-LIABILITIES> 21,714
<BONDS> 0
<COMMON> 199
4,691
0
<OTHER-SE> (73,728)
<TOTAL-LIABILITY-AND-EQUITY> 15,569
<SALES> 1,167
<TOTAL-REVENUES> 72,555
<CGS> 2,329
<TOTAL-COSTS> 99,833
<OTHER-EXPENSES> 1,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,096
<INCOME-PRETAX> (35,579)
<INCOME-TAX> 1,191
<INCOME-CONTINUING> (34,388)
<DISCONTINUED> 505
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,883)
<EPS-PRIMARY> (2.81)
<EPS-DILUTED> (2.81)
</TABLE>
EXHIBIT 99
CHAPTER 11 PLAN OF INTELOGIC TRACE, INC.
UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
IN RE: CHAPTER 11 CASE NO. 94-52172C
INTELOGIC TRACE, INC.,
DEBTOR.
MODIFIED FIRST AMENDED CHAPTER 11 PLAN
OF INTELOGIC TRACE, INC.
October 12, 1994
San Antonio, Texas
COX & SMITH INCORPORATED
Deborah D. Williamson
112 East Pecan Street, Suite 1800
San Antonio, Texas 78205
(210) 554-5500
ATTORNEYS FOR DEBTOR
1
<PAGE>
TABLE OF CONTENTS
ARTICLE I Definitions and Interpretation........................... 2
ARTICLE II Provisions For Payment of Administrative
and Priority Tax Claims.................................. 10
2.1 Administrative Claims.................................... 10
2.2 Priority Tax Claims...................................... 11
ARTICLE III Classifications of Claims................................ 12
3.1 Class 1.................................................. 12
3.2 Class 2.................................................. 12
3.3 Class 3.................................................. 12
3.4 Class 4.................................................. 12
3.5 Class 5.................................................. 12
3.6 Class 6.................................................. 12
3.7 Class 7.................................................. 12
3.8 Class 8.................................................. 12
ARTICLE IV Identification of Impaired Classes of Claims and Equity
Interests................................................ 12
4.1 Unimpaired Classes of Claims............................. 12
4.2 Impaired Classes of Claims and Equity Interests.......... 12
4.3 Impairment Controversies................................. 12
ARTICLE V Provisions for Treatment of Classified Claims and
Interests .............................................. 13
5.1 Class 1 - Priority Non-Tax Claims........................ 13
5.2 Class 2 - Working Capital Facility....................... 13
5.3 Class 3- Completion Bond Claims.......................... 13
5.4 Class 4 - Convenience Claims............................. 13
5.5 Class 5 - PBGC Claim..................................... 14
5.6 Class 6 - Other Unsecured Claims......................... 14
5.7 Class 7 - Old Preferred Stock............................ 14
5.8 Class 8 - Old Common Stock............................... 14
ARTICLE VI Acceptance or Rejection of Plan and Elections on Ballots. 14
6.1 Classes Entitled to Vote................................. 14
6.2 Class Acceptance Requirement............................. 15
6.3 Unsecured Claim Reduction Election....................... 15
ARTICLE VII Means for Implementation of Plan of Reorganization....... 15
7.1 Cash Payments on the Effective Date...................... 15
7.2 Contested Claim Reserve.................................. 15
7.3 New Preferred Stock...................................... 15
7.4 New Common Stock......................................... 16
7.5 Restated Charter......................................... 16
7.6 Board of Directors....................................... 17
7.7 Record Date for Holders of Note Claims................... 17
7.8 Cancellation of Note Claims.............................. 17
7.9 Surrender of Instruments Representing Note Claims........ 17
7.10 Distribution of New Preferred Stock and New Common Stock. 18
7.11 Means of Cash Payment.................................... 18
7.12 Delivery of Distributions................................ 18
7.13 Distributions from Contested Claim Reserve............... 19
7.14 Allocation of Distributions.............................. 19
7.15 Time Bar to Cash Payments................................ 19
7.16 Vesting of Assets........................................ 20
7.17 Effectuating Documents................................... 20
7.18 Avoidance Actions........................................ 20
7.19 Allowance of Note Claims................................. 20
7.20 Indemnity Insurance...................................... 20
ARTICLE VIII Conditions to Consummation of Plan ..................... 21
8.1 Release of Datapoint Option.............................. 21
8.2 Exit Financing........................................... 21
8.3 Resales of New Preferred Stock and New Common Stock...... 22
ARTICLE IX Treatment of Executory Contracts and Unexpired Leases.... 22
9.1 Rejected if not Assumed.................................. 22
9.2 Bar to Rejection Damages................................. 22
9.3 Employee Agreements...................................... 22
9.4 Assumption of Specified Contracts........................ 23
9.5 Claims Relating to Directors............................. 23
ARTICLE X Procedures for Resolving and Treating Contested Claims... 24
10.1 Objection Deadline....................................... 24
10.2 Prosecution of Objections................................ 24
10.3 No Distributions Pending Allowance....................... 24
10.4 Time for Filing Administrative Claims.................... 24
10.5 Time for Filing Reimbursement Claims..................... 24
ARTICLE XI Creditor's Committee and Counsel......................... 24
11.1 Dissolution of the Creditors' Committee.................. 24
ARTICLE XII Miscellaneous Provisions................................. 25
12.1 Compliance with Tax Requirements......................... 25
12.2 Compliance with All Applicable Laws...................... 25
12.3 Setoffs.................................................. 25
12.4 Maintenance of Causes of Action.......................... 25
12.5 Request for Cramdown under Section 1129(b) of the
Bankruptcy Code...................................................... 25
ARTICLE XIII Consummation of Plan ................................... 26
13.1 Retention of Jurisdiction................................ 26
13.2 Modification of Plan..................................... 27
EXHIBITS
Exhibit A List of Completion Bond Claims
Exhibit B Option Release Agreement
Exhibit C Registration Rights Agreement
Exhibit D Restated Charter
Exhibit E Modified Employee Agreement with Mark S. Helwege
Exhibit F Modified Employee Agreement with Philip D. Freeman
MODIFIED FIRST AMENDED CHAPTER 11 PLAN
OF INTELOGIC TRACE, INC.
Intelogic Trace, Inc. (the "Debtor"), proposes the following plan
of reorganization.
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 "ADMINISTRATIVE CLAIM" shall mean a Claim or portion of a Claim
that is a cost or expense of administration of the Chapter 11 Case allowed
under section 503(b) or 507(b) of the Bankruptcy Code that is entitled to
priority under section 507(a)(1) of the Bankruptcy Code, including, without
limitation, (a) any actual and necessary costs and expenses of preserving
the estate of the Debtor, (b) any actual and necessary costs and expenses
of operating the business of the Debtor, (c) any indebtedness or
obligations incurred or assumed by the Debtor in connection with the
conduct of its business or for the acquisition or lease of property or the
rendition of services, (d) any allowances of compensation and reimbursement
of expenses to the extent allowed by Final Order under section 330 of the
Bankruptcy Code, whether arising before or after the Effective Date, (e)
any fees or charges assessed against the estate of the Debtor under section
1930, chapter 123, title 28, United States Code, and (f) the Fidelity and
First Boston Expenses.
1.2 "ALLOWED," when used with respect to a Claim, shall mean (a) a
claim against the Debtor, proof of which was filed on or before the date
designated by the Bankruptcy Court as the last date for filing that
category of proof of Claim, as to which no Objection has been interposed;
or (b) if no proof of Claim was filed, a Claim that has been or hereafter
is listed by the Debtor as liquidated in amount and not disputed or
contingent, as to which no Objection has been interposed; or (c) a Claim as
to which any Objection has been interposed, to the extent the Objection has
been upheld by Final Order of the Bankruptcy Court.
1.3 "ASSUMED CONTRACTS" shall mean all contacts of the Debtor in the
following categories:
(i) Service Agreements with end users, major equipment manufacturers,
and value added resellers;
2
(ii) Authorized Service Provider Agreements with manufacturers;
(iii) Maintenance Spare Parts Agreements;
(iv) Subcontracting Arrangements with manufacturers;
(v) Solicitation and Commission Agreements with independent sales
organizations, dealers, and distributors; and
(vi) "Service Orders", which includes master maintenance agreements
and maintenance reseller agreements, but only for the labor portion
of such arrangements.
1.4 "AVOIDANCE ACTION" shall mean a cause of action assertable by
the Debtor or its successors pursuant to sections 542, 543, 544, 545, 547,
548, 549, 550, or 553 of the Bankruptcy Code.
1.5 "BANKRUPTCY CODE" shall mean title I of the Bankruptcy Reform
Act of 1978, as amended, and codified at title 11 of the United States
Code, as applicable to the Chapter 11 Case and as in effect as of the date
hereof or as hereafter amended.
1.6 "BANKRUPTCY COURT" shall mean the Bankruptcy Court unit of the
United States District Court for the Western District of Texas, San Antonio
Division, or such other court having jurisdiction over all or any part of
the Chapter 11 Case.
1.7 "BANKRUPTCY RULES" shall mean the Federal Rules of Bankruptcy
Procedure, as promulgated by the United States Supreme Court pursuant to 28
U.S.C. Section 2075 and, to the extent not inconsistent therewith, the
local rules of the Bankruptcy Court, as amended from time to time.
1.8 "BUSINESS DAY" shall mean any day other than a Saturday, a
Sunday, or a day on which commercial banks in the City of New York, State
of New York, are required or authorized to close.
1.9 "CASH" shall mean and include U.S. currency on hand, U.S.
currency on deposit in any bank account, and cash equivalents including,
but not limited, to any check or other similar negotiable instrument
denominated in U.S. currency, shares in any money market or similar fund
that are actively traded on any established securities market located
within the United States, commercial paper having a maturity of 90 days or
less and denominated in U.S.
3
currency, and any obligation of the United States of America (or any agency
or instrumentality thereof) denominated in U.S. currency.
1.10 "CHAPTER 11 CASE" shall mean the case commenced by the Debtor
under the Bankruptcy Code by a voluntary chapter 11 petition filed on the
Petition Date.
1.11 "CLAIM" shall mean any right to payment from the Debtor,
whether or not the right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, contested, uncontested, legal,
equitable, secured, or unsecured; or any right to an equitable remedy for
breach of performance if the breach gives rise to a right of payment from
the Debtor, whether or not the right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, contested, uncontested,
secured, or unsecured.
1.12 "CLASS" shall mean a category or group of holders of Claims or
Equity Interests as designated pursuant to Article III of this Plan.
1.13 "COMPLETION BOND CLAIMS" shall mean the Claims of vendors or
other parties to contracts with the Debtor under which the Debtor has
posted a bond securing the completion of its obligations, as set forth on
Exhibit "A" to this Plan.
1.14 "CONFIRMATION DATE" shall mean the date of entry of the
Confirmation Order.
1.15 "CONFIRMATION ORDER" shall mean the order of the Bankruptcy
Court confirming this Plan.
1.16 "CONTESTED CLAIM" shall mean a Claim against the Debtor, as to
which an Objection to all or any part of the Claim has been interposed.
1.17 "CONTESTED CLAIM AMOUNT," with respect to any Contested Claim,
shall mean the asserted amount of a Claim that was filed on or before the
date designated by the Bankruptcy Court as the last date for filing that
category of proof of Claim, which is a Contested Claim, and which has not
been Allowed or Disallowed before the Effective Date.
1.18 "CONTESTED CLAIM RESERVE" shall mean the account maintained by
the Reorganized Debtor for the benefit of holders of Contested Claims,
containing Cash, New Preferred Stock, or New Common Stock, as appropriate,
4
in amounts necessary to reserve for the distributions allocable to the
Contested Claims until they are Allowed or Disallowed.
1.19 "CONVENIENCE CLAIM" shall mean an Allowed Unsecured Claim
(other than Note Claims) of $5,000 or less; PROVIDED, HOWEVER, that all
Allowed Unsecured Claims of one holder (other than Note Claims held by that
holder) shall be aggregated for determining this limit.
1.20 "CREDITOR" shall mean the holder of a Claim.
1.21 "CREDITORS' COMMITTEE" shall mean the Official Unsecured
Creditors' Committee, if any, appointed in the Chapter 11 Case pursuant to
section 1102 of the Bankruptcy Code, as reconstituted from time to time
pursuant to order of the Bankruptcy Court or determination of the United
States Trustee for the Western District of Texas.
1.22 "DATAPOINT" shall mean Datapoint Corporation, a Delaware
corporation.
1.23 "DATAPOINT COMMON STOCK" shall mean the 2,700,000 shares of
the common stock of Datapoint, $0.25 per share, held in trust for the
benefit of the Debtor.
1.24 "DATAPOINT OPTION" shall mean the option granted by the
Datapoint Option Agreement.
1.25 "DATAPOINT OPTION AGREEMENT" shall mean that certain Option
Agreement dated November 9, 1990, between the Debtor and Datapoint.
1.26 "DEBTOR" shall mean Intelogic Trace, Inc., a New York
corporation.
1.27 "DEBTOR IN POSSESSION" shall mean the Debtor in its capacity
as debtor-in-possession under section 1101(1) of the Bankruptcy Code.
1.28 "DEFICIENCY AMOUNT" shall mean the amount by which the total
amount of a Secured Claim exceeds the value of the collateral securing the
Claim as of the date the determination is made.
1.29 "DISALLOWED," when used with respect to all or any part of a
Claim, shall mean the status of that portion of a Claim that is Contested,
upon entry of a Final Order by the Bankruptcy Court upholding the
Objection.
5
1.30 "DISCLOSURE STATEMENT" shall mean the Disclosure Statement
filed under Bankruptcy Code section 1125 in support of this Plan.
1.31 "DISTRIBUTION DATE" when used with respect to each Claim,
shall mean the later of the Effective Date, or the date upon which the
Claim becomes an Allowed Claim.
1.32 "EFFECTIVE DATE" shall mean the later of (a) the first
Business Day on which no stay of the Confirmation Order is in effect and
that is ten (10) days (as calculated in accordance with Bankruptcy Rule
9006(a)) after the Confirmation Date and (b) the date on which each of the
conditions precedent set forth in Article VIII of this Plan have been
either satisfied or waived in writing by the holders of a majority in
amount of the Note Claims.
1.33 "EMPLOYEE AGREEMENT" shall mean an employment contract between
the Debtor and any of its employees as of either the Petition Date or the
Effective Date.
1.34 "EXIT FINANCING PROVIDER" shall mean the entity that enters
into an agreement with the Debtor to provide a loan facility pursuant to
Section 8.2 of this Plan.
1.35 "FINAL ORDER" shall mean an order or judgment of the
Bankruptcy Court or any other court or adjudicative body, as to which the
time to appeal or seek rehearing or petition for certiorari shall have
expired or which order or judgment shall no longer be subject to appeal,
rehearing or certiorari proceeding and with respect to which no appeal,
motion for rehearing or certiorari proceeding or stay shall then be
pending.
1.36 "FIDELITY" shall mean Fidelity Capital & Income Fund, a
Massachusetts business trust.
1.37 "FIRST BOSTON" shall mean CS First Boston Asset
Management Company.
1.38 "FIDELITY AND FIRST BOSTON EXPENSES" shall mean the fees or
expenses of Fidelity and First Boston (including fees and expenses of
professionals rendering services on their behalf) incurred in connection
with the negotiation, documentation, implementation, and consummation of
the transactions contemplated by this Plan in such amounts as determined
and awarded by Final Order of the Bankruptcy Court, to the extent not
satisfied by the Debtor as of the Effective Date by a payment not subject
to reversal, modification, or avoidance for any reason.
6
1.39 "FOOTHILL" shall mean Foothill Capital Corporation, a
California corporation.
1.40 "INDEMNIFICATION CLAIMS" shall mean the Claims of the Debtor's
present and former directors and officers arising out of the Debtor's
Indemnification Obligations.
1.41 "INDEMNIFICATION OBLIGATIONS" shall mean the obligations of
the Debtor to indemnify its present and former directors and officers
pursuant to any provisions of the Debtor's charter, its by-laws, and/or
applicable state law to the extent such obligations are Allowed Claims.
1.42 "INDEMNIFICATION POLICIES" shall mean the insurance policy or
policies obtained by the Debtor to cover its Indemnification Obligations.
1.43 "INDENTURE" shall mean that certain Indenture dated July 15,
1986, between the Debtor and Manufacturers Hanover Trust Company, as
trustee, governing the Debtor's 11.99% Subordinated Debentures due July 15,
1996.
1.44 "INDENTURE TRUSTEE" shall mean Chemical Banking Corporation,
as successor by merger to Manufacturers Hanover Trust Company, the trustee
under the Indenture.
1.45 "IT CANADA" shall mean IT Canada Inc., a Canadian corporation,
all of whose 1,000 issued and outstanding shares of common stock, zero par
value per share, and 1,785 issued and outstanding shares of preferred
stock, zero par value per share, are owned by the Debtor.
1.46 "LIEN" shall mean any lien, charge, encumbrance, or interest
in or against property to secure payment of a debt or enforcement of an
obligation.
1.47 "NEW PREFERRED STOCK" shall mean the shares of 10% Preferred
Stock, with a liquidation preference per share equal to $15 plus accrued
dividends, to be issued by the Reorganized Debtor on the Effective Date,
having the rights, powers, privileges, and preferences more fully set forth
in the Restated Charter.
1.48 "NEW COMMON STOCK" shall mean the additional shares of common
stock, $0.01 par value per share, issued by the Reorganized Debtor on the
Effective Date.
7
1.49 "NOTE CLAIM" shall mean an Unsecured Claim arising out of the
Indenture, including any accrued but unpaid interest owing thereunder.
1.50 "OLD COMMON STOCK" shall mean the shares of common stock,
$0.01 par value per share, issued by the Debtor and outstanding prior to
the Effective Date.
1.51 "OLD PREFERRED STOCK" shall mean the $10 Redeemable Preferred
Stock issued by the Debtor, all of which is owned by Datapoint.
1.52 "OBJECTION" shall mean an objection to the allowance of a
Claim interposed within the applicable period of limitation fixed by this
Plan, the Bankruptcy Code, the Bankruptcy Rules, or the Bankruptcy Court.
1.53 "OPTION RELEASE AGREEMENT" shall mean the Option Release
Agreement between the Debtor and Datapoint in substantially the form
attached to this Plan as Exhibit "B", which shall effectuate the provisions
of Section 8.1 of this Plan.
1.54 "PERSON" shall mean an individual, corporation, partnership,
joint venture, trust, estate, unincorporated association, unincorporated
organization, governmental entity or unit or political subdivision thereof,
or any other entity.
1.55 "PBGC" shall mean the Pension Benefit Guaranty
Corporation.
1.56 "PBGC CLAIM " shall mean the Claim of the PBGC against the
Debtor.
1.57 "PETITION DATE" shall mean August 5, 1994.
1.58 "PLAN" shall mean this chapter 11 plan for the Debtor, as it
may be modified from time to time, and all exhibits and schedules thereto.
1.59 "PLAN BALLOT DEADLINE" shall mean the date fixed by the
Bankruptcy Court by which the ballot that accompanies this Plan as validly
executed by the holder of an Allowed Claim must be received by the Debtor
or its solicitation agent, which date is set forth in the Disclosure
Statement.
1.60 "PLAN DOCUMENTS" shall mean Exhibits "A" through "G" to this
Plan, which Exhibits will be filed in the Bankruptcy Court not later than
the conclusion of the hearing on confirmation of this Plan, unless
specifically provided otherwise in this Plan.
8
1.61 "PRIORITY NON-TAX CLAIM" shall mean a Claim entitled to
priority pursuant to section 507(a)(3), 507(a)(4), or 507(a)(6) of the
Bankruptcy Code.
1.62 "PRIORITY TAX CLAIM" shall mean a Claim entitled to priority
pursuant to section 507(a)(7) of the Bankruptcy Code.
1.63 "PRO RATA" shall mean the proportion that the amount of a
Claim in a particular Class bears to the aggregate amount of all Claims in
the Class.
1.64 "REGISTRATION RIGHTS AGREEMENT" shall mean the agreement in
substantially the form attached to this Plan as Exhibit "C".
1.65 "RELEASE" shall mean the release of Claims against officers
and directors of the Debtor required to be executed and returned by holders
of shares of Old Common Stock to avoid cancellation of such shares, as
described in Section 7.4 of this Plan.
1.66 "REORGANIZED DEBTOR" shall mean the Debtor from and after the
Effective Date.
1.67 "RESTATED CHARTER" shall mean the amended and restated
certificate of incorporation of the Reorganized Debtor in substantially the
form attached as Exhibit "D" to this Plan, which shall be in form and
substance satisfactory to the holders of a majority in amount of the Note
Claims.
1.68 "SECURED CLAIM" shall mean any Claim secured by a valid,
perfected, and enforceable Lien on or against property of a Debtor, but
only to the extent of the value of the collateral securing the Claim.
1.69 "SHAREHOLDER DERIVATIVE ACTION" shall mean any action brought
by shareholders of the Debtor against the Debtor and its Board of Directors
demanding that the Debtor seek damages from its Board of Directors.
1.70 "SHELF REGISTRATION STATEMENT" shall mean a registration
statement relating to resales of the New Common Stock and the New Preferred
Stock filed by the Debtor with the Securities and Exchange Commission under
Rule 415 promulgated under the Securities Act of 1933.
1.71 "SUBORDINATED CLAIM" shall mean a Claim for damages arising
from the purchase or sale of a security that would have been included in
Class 6, whether such security is currently or formerly held by the holder
of such Claim.
9
1.72 "TAX CODE" shall mean the Internal Revenue Code of 1986, as
amended, or corresponding provisions of any subsequent federal revenue act.
1.73 "TAX RETURN" shall mean any consolidated federal income tax
return filed by the Debtor or the Reorganized Debtor.
1.74 "TRANSFER AGENT" shall mean the person designated by the
Debtor to distribute New Preferred Stock and New Common Stock under this
Plan and to keep the registry of the holders thereof from and after the
Effective Date.
1.75 "UNSECURED CLAIM" shall mean a Claim, other than an
Administrative Claim, a Priority Tax Claim, a Priority Non-Tax Claim, a
Secured Claim, or a Convenience Claim, including any Unsecured Claim
awarded to the PBGC in settlement or satisfaction of all or any part of the
PBGC Claim.
1.76 "WORKING CAPITAL FACILITY" shall mean the General Loan and
Security Agreement entered into as of June 20, 1991, between Foothill and
the Debtor.
1.77 INTERPRETATION. Unless otherwise specified, all section,
article, and exhibit references in this Plan are to the respective section
in, article of, or exhibit to, this Plan, as the same may be amended,
waived, or modified from time to time. The exhibits annexed to this Plan
and each of the Plan Documents is incorporated into and is a part of this
Plan as if fully set forth in this Plan. The headings in this Plan are for
convenience of reference only and shall not limit or otherwise affect the
provisions hereof. Words denoting the singular number shall include the
plural number and vice versa, and words denoting one gender shall include
the other gender.
ARTICLE II
PROVISIONS FOR PAYMENT
OF ADMINISTRATIVE AND PRIORITY TAX CLAIMS
2.1 ADMINISTRATIVE CLAIMS.
(a) Except as set forth in subsection (b) below, each
Administrative Claim shall be paid in full in Cash on the Effective Date;
PROVIDED, HOWEVER, that Allowed Administrative Claims representing
obligations incurred in the ordinary course of business or otherwise
assumed by the Debtor pursuant to this Plan shall be paid or performed by
the Debtor in accordance with the terms
10
and conditions of each agreement relating thereto and consistent with past
practice. The Debtor consents to the compensation and reimbursement of the
Fidelity and First Boston Expenses and acknowledges that Fidelity and First
Boston have made and will continue to make a "substantial contribution" to
the Chapter 11 Case as that term is used in section 503(b) of the
Bankruptcy Code. The Indenture Trustee shall receive no payment of fees or
expenses accrued under the Trust Indenture through the Effective Date
except as specifically authorized by the Bankruptcy Court upon proper
application. All professional fees and expenses of the Indenture Trustee,
whether sought pursuant to Section 2.1(b) of the Plan or pursuant to the
Trust Indenture, shall be subject to a determination of reasonableness by
the Bankruptcy Court in accordance with 11 U.S.C. Section 1129(a)(4). The
Debtor, the Reorganized Debtor, or any party in interest shall have the
right to object to any such request filed by the Indenture Trustee.
(b) COMPENSATION AND REIMBURSEMENT. All holders of
Administrative Claims that are awarded compensation or reimbursement of
expenses by the Bankruptcy Court under sections 503(b)(2), 503(b)(3),
503(b)(4) or 503(b)(5) of the Bankruptcy Code shall be paid in Cash in full
in such amounts as are allowed by the Bankruptcy Court, (a) upon the later
of (i) the Effective Date and (ii) the date upon which the Bankruptcy Court
enters an order with respect to any Administrative Claim or (b) upon such
other terms as the holder of the Administrative Claim may accept.
2.2 PRIORITY TAX CLAIMS.
(a) Except as set forth in subsection (b) below, each holder
of an Allowed Priority Tax Claim shall receive at the option of the Debtor
(i) the amount of the holder's Allowed Claim in one Cash payment on the
Distribution Date or (ii) the amount of the holder's Allowed Claim, with
interest thereon, as the Bankruptcy Code requires, in equal annual Cash
payments on each anniversary of the Distribution Date, until the last
anniversary of the Distribution Date that precedes the sixth anniversary of
the date of assessment of the Allowed Claim.
(b) A Priority Tax Claim that is a Contested Claim shall
neither receive any distribution on the Effective Date nor be discharged by
the confirmation of this Plan, but instead shall be resolved by the Debtor
via litigation or other means appropriate to the character of the Priority
Tax Claim and satisfied by the Reorganized Debtor upon its resolution.
11
ARTICLE III
CLASSIFICATION OF CLAIMS
Claims and Equity Interests in the Debtor are classified as follows:
3.1 CLASS 1. Class 1 shall contain all Priority Non-Tax Claims.
3.2 CLASS 2. Class 2 shall contain the claim of Foothill arising
out of the Working Capital Facility.
3.3 CLASS 3. Class 3 shall contain all Completion Bond Claims.
3.4 CLASS 4. Class 4 shall contain all Convenience Claims.
3.5 CLASS 5. Class 5 shall contain the PBGC Claim.
3.6 CLASS 6. Class 6 shall contain all Unsecured Claims not
specifically classified in other Classes.
3.7 CLASS 7. Class 7 shall contain the Old Preferred Stock.
3.8 CLASS 8. Class 8 shall contain the Old Common Stock.
ARTICLE IV
IDENTIFICATION OF IMPAIRED CLASSES OF
CLAIMS AND EQUITY INTERESTS
4.1 UNIMPAIRED CLASSES OF CLAIMS. Classes 1 and 3 are not impaired
under this Plan.
4.2 IMPAIRED CLASSES OF CLAIMS AND EQUITY INTERESTS. With the
exception of the unimpaired Classes specified in Section 4.1 of this Plan,
all Classes of Claims and all Equity Interests are impaired under this
Plan.
4.3 IMPAIRMENT CONTROVERSIES. If a controversy arises as to whether
any Class of Claims or Equity Interests is impaired under this Plan, the
Bankruptcy Court shall, after notice and a hearing, determine the
controversy.
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ARTICLE V
PROVISIONS FOR TREATMENT OF
CLASSIFIED CLAIMS AND INTERESTS
5.1 CLASS 1 - PRIORITY NON-TAX CLAIMS. Each holder of an Allowed
Priority Non-Tax Claim shall receive the amount of its Allowed Claim in one
Cash payment on the Distribution Date. The Pro Rata share of Cash allocable
to holders of Priority Non-Tax Claims that are Contested Claims shall be
distributed to the Contested Claim Reserve pursuant to Sections 7.2 and 7.3
of this Plan.
5.2 CLASS 2 - WORKING CAPITAL FACILITY. The Secured Claim of
Foothill arising out of the Working Capital Facility shall be satisfied by
the Exit Financing Provider, which shall succeed to the interest of
Foothill's Secured Claim. The terms and conditions on which the Exit
Financing Provider shall satisfy Foothill's Secured Claim shall be
negotiated and disclosed to the Bankruptcy Court not later than ten (10)
days prior to the date set for hearing of confirmation of this Plan and
shall be such as to be satisfactory in form and substance to the holders of
a majority in amount of the Note Claims. Any Deficiency Amount arising on
account of the Secured Claim of Foothill shall be deemed zero and shall
receive no distribution under this Plan as an Unsecured Claim or otherwise,
other than as set forth above.
5.3 CLASS 3 - COMPLETION BOND CLAIMS. The Completion Bond
Claims shall be unimpaired.
5.4 CLASS 4 - CONVENIENCE CLAIMS.
(a) DISTRIBUTIONS. On the Distribution Date, each holder of
an Allowed Convenience Claim shall receive a payment in Cash equal to the
lesser of (i) 50% of its Allowed Convenience Claim or (ii) its pro rata
share of $650,000. A payment of Cash equal to the same percentage of each
Convenience Claim that is a Contested Claim shall be distributed to the
Contested Claim Reserve pursuant to Sections 7.2 and 7.3 of this Plan.
(b) TIME AND MANNER OF ELECTION. Any holder of an Allowed
Unsecured Claim other than a Note Claim that desires treatment of its Claim
as a Convenience Claim in accordance with Section 6.3 of this Plan shall
make the election on the ballot to be provided to holders of Unsecured
Claims and return the ballot before the Plan Ballot Deadline. Any election
made after the Plan
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Ballot Deadline shall not be binding unless the Plan Ballot Deadline is
expressly waived in writing by the Debtor.
5.5 CLASS 5 - PBGC CLAIM. The PBGC Claim shall be satisfied by
settlement with the PBGC on terms and conditions agreed to between the
Debtor and holders of a majority in amount of the Note Claims; provided,
however, that if no settlement is reached, the Allowed Unsecured Claims of
the PBGC shall be treated as a Class 6 Claim.
5.6 CLASS 6 - OTHER UNSECURED CLAIMS. As soon as practicable after
the Effective Date, but in no event more than twenty (20) Business Days
thereafter, each holder of an Allowed Unsecured Claim shall receive
pursuant to the provisions of Article VII of this Plan its Pro Rata share
of the New Preferred Stock and New Common Stock issued under this Plan. The
Pro Rata share of New Preferred Stock and New Common Stock allocable to
holders of Unsecured Claims that are Contested Claims shall be distributed
to the Contested Claim Reserve pursuant to Sections 7.2 and 7.3 of this
Plan.
5.7 CLASS 7 - OLD PREFERRED STOCK. No distributions shall
be made on account of the Old Preferred Stock. All of the Old
Preferred Stock shall be cancelled as of the Effective Date.
5.8 CLASS 8 - OLD COMMON STOCK. The existing holders of Old Common
Stock who execute and return the Release as described in Section 7.4 of
this Plan shall retain their Old Common Stock under this Plan, subject to
the four-for-one reverse stock split provided for in the Restated Charter,
and then subject to dilution by the issuance of the New Common Stock under
this Plan and potentially subject to dilution by Allowed Subordinated
Claims. All other shares of Old Common Stock shall be cancelled as of the
Effective Date. All options to purchase Old Common Stock or New Common
Stock in the Debtor shall be cancelled as of the Effective Date.
ARTICLE VI
ACCEPTANCE OR REJECTION OF PLAN
AND ELECTIONS ON BALLOTS
6.1 CLASSES ENTITLED TO VOTE. Each impaired Class of Claims shall
be entitled to vote separately to accept or reject this Plan. Any
unimpaired Class of Claims shall not be entitled to vote to accept or
reject this Plan.
14
6.2 CLASS ACCEPTANCE REQUIREMENT. Whether a Class of Claims
or Equity Interests has accepted this Plan shall be determined in
accordance with section 1126 of the Bankruptcy Code.
6.3 UNSECURED CLAIM REDUCTION ELECTION. By voting to accept this
Plan, and marking the ballot in the space provided for electing the
treatment, the holder of an Allowed Unsecured Claim other than a Note Claim
may elect to reduce the amount of the holder's Allowed Claim to $5,000 and
receive treatment as an Allowed Convenience Claim having a value of $5,000
on the terms provided in this Plan. Such an election shall constitute a
waiver of the amount of the Allowed Unsecured Claim in excess of $5,000,
and the holder of the Allowed Claim shall be deemed to release the Debtor
from any and all liability for the excess amount. The holder of an Allowed
Convenience Claim that elects to reduce the amount of its Allowed Claim
shall be deemed the holder of an Allowed Convenience Claim for
classification, voting, or other purposes under this Plan.
ARTICLE VII
MEANS FOR IMPLEMENTATION OF
PLAN OF REORGANIZATION
7.1 CASH PAYMENTS ON THE EFFECTIVE DATE. Payments of Cash
to holders of Administrative Claims, Priority Tax Claims, Priority
Non-Tax Claims, and Convenience Claims as set forth in Article V shall
be made on the Effective Date.
7.2 CONTESTED CLAIM RESERVE. As soon as practicable after the
Effective Date, but in no event more than twenty (20) Business Days
thereafter, the Contested Claim Reserve shall be established and funded
with an amount of Cash, New Preferred Stock, and New Common Stock allocable
to the Pro Rata share of each Contested Claim Amount in relation to the
total Claims in any Class.
7.3 NEW PREFERRED STOCK. A total of 1,133,333 shares of New
Preferred Stock shall be issued as soon as practicable after the Effective
Date, but in no event more than twenty (20) Business Days thereafter;
PROVIDED, HOWEVER, that if the aggregate Unsecured Claims other than the
Note Claims exceed $5 million, the total number of shares of New Preferred
Stock to be issued shall be increased such that the aggregate liquidation
preference is increased by 80% of the amount by which the aggregate
Unsecured Claims other than Note Claims exceed $5 million; and PROVIDED,
FURTHER, that if holders of
15
the Note Claims elect to serve as the Exit Financing Providers as provided
in Section 8.2 of this Plan, additional shares of New Preferred Stock shall
be issued to them as provided in that section. The New Preferred Stock
shall be delivered to the Transfer Agent for further distribution pro rata
to the holders of Unsecured Claims. The New Preferred Stock shall have the
rights, powers, privileges, and preferences set forth in the Restated
Charter; PROVIDED, HOWEVER, that if any person or group (as those terms are
defined in Rule 13d promulgated under the Securities Exchange Act of 1934,
as amended) shall become the owner (whether pursuant to a stock purchase,
merger, consolidation, other business combination, or otherwise) of a
majority of the outstanding common stock of the Debtor after the Petition
Date and before the issuance of the New Preferred Stock, then the holders
of the New Preferred Stock shall have the right to cause the Reorganized
Debtor to redeem the New Preferred Stock in accordance with Section 3(c) of
the Restated Charter immediately upon issuance of the New Preferred Stock.
The New Preferred Stock shall bear no restrictive legends of any kind.
7.4 NEW COMMON STOCK. As soon as practicable after the Effective
Date, but in no event more than ten (10) Business Days thereafter, the
Debtor shall effectuate a reverse split of Old Common Stock as set forth in
the Restated Charter. A number of shares of New Common Stock equal to three
(3) times the number of shares of Old Common Stock outstanding after the
reverse split shall then be issued pro rata to the holders of Unsecured
Claims. The New Common Stock shall be of the same class as the Old Common
Stock and have the same rights, powers, and privileges pertaining thereto.
The New Common Stock shall be delivered to the Transfer Agent for further
distribution pro rata to the holders of Unsecured Claims. Holders of Old
Common Stock shall receive a form of Release of Claims releasing all claims
they may have against the Debtor and its current and former officers and
members of the Board of Directors of the Debtor for acts, omissions, or
conduct arising out of or related to the business of the Debtor or the
Chapter 11 Case (the "Release"). The Debtor shall not cancel the shares of
Old Common Stock held by Holders of Old Common Stock who execute the
Release and return it to the Debtor within thirty (30) days of receipt
pursuant to the instructions set forth on the Release; however, all other
shares of Old Common Stock shall be cancelled. The Debtor shall use its
best efforts to establish and/or maintain the listing of the New Common
Stock and the Old Common Stock on the New York Stock Exchange. The New
Common Stock shall bear no restrictive legends of any kind.
7.5 RESTATED CHARTER. On the Effective Date, the Debtor's
corporate charter shall be amended as provided in the Restated Charter.
16
7.6 BOARD OF DIRECTORS. The Board of Directors of the Reorganized
Debtor shall be reconstituted on the Effective Date in a manner consistent
with the Restated Charter and acceptable to the holders of a majority in
amount of the Note Claims.
7.7 RECORD DATE FOR HOLDERS OF NOTE CLAIMS. The record date for
purposes of distributing New Preferred Stock and New Common Stock to
holders of Unsecured Claims under this Plan shall be the close of business
on the Effective Date.
7.8 CANCELLATION OF NOTE CLAIMS. As of the Distribution Date, the
instruments that previously evidenced ownership of the Note Claims and the
rights of the holders of the Note Claims shall be canceled and shall be
null and void, the holders thereof shall have no further rights thereunder,
and the instruments shall evidence no rights except the right to receive
the distributions provided herein.
7.9 SURRENDER OF INSTRUMENTS REPRESENTING NOTE CLAIMS.
(a) No holder of a Note Claim shall be entitled to
distributions from under this Plan, unless and until the holder either
(i) has first surrendered or caused to be surrendered
to the Transfer Agent the original instruments evidencing the Note
Claim held by it or,
(ii) if the instruments have been lost, destroyed, stolen or
mutilated, has first executed and delivered to the Transfer Agent an
affidavit of loss and indemnity with respect thereto in form customarily
utilized for such purposes that is reasonably satisfactory to the
Reorganized Debtor and, if requested by the Reorganized Debtor, has first
furnished a bond in form, substance, and amount reasonably satisfactory to
the Reorganized Debtor; PROVIDED, HOWEVER, that no affidavit of loss and
indemnity shall be required in respect of Note Claims held by any
institutional investor whose stockholders' equity or net assets exceed $100
million.
(b) In accordance with section 1143 of the Bankruptcy Code,
any holder of a Note Claim that fails to surrender its instruments or
deliver an affidavit of loss and indemnity as provided herein within five
(5) years from and after the Distribution Date shall be deemed to have
forfeited all rights and claims and shall not participate in any
distribution on account of the Note Claims hereunder.
17
(c) Upon the expiration of the five (5) year period
referenced in subsection (b) above, all Note Claims shall be voided; any
New Preferred Stock or New Common Stock then held by the Reorganized Debtor
and available for distribution in respect of the Note Claims shall be
distributed Pro Rata to the members of the Class 6 other than the holders
of Note Claims referenced in subsection (b) above.
7.10 DISTRIBUTION OF NEW PREFERRED STOCK AND NEW COMMON STOCK.
(a) New Preferred Stock and New Common Stock shall be
distributed to holders of Unsecured Claims other than Note Claims as soon
as practicable after the Effective Date, but in no event more than twenty
(20) Business Days thereafter.
(b) New Preferred Stock and New Common Stock shall be
distributed to holders of Note Claims as soon as practicable after the
surrender or delivery of the original instruments evidencing the applicable
Note claim or an affidavit of loss and indemnity and the furnishing of any
bond requested by the Debtor, as provided in Section 7.9 of this Plan.
(c) Each holder of New Preferred Stock and New Common Stock
shall have recorded in the books of the Reorganized Debtor in exchange for
its Unsecured Claim or Old Common Stock, as the case may be, the number of
New Preferred Stock or New Common Stock to which it is entitled.
7.11 MEANS OF CASH PAYMENT. Cash payments made pursuant to this
Plan shall be in United States funds, by check drawn on a domestic bank, or
by wire transfer from a domestic bank.
7.12 DELIVERY OF DISTRIBUTIONS.
(a) Distributions and deliveries to holders of Allowed
Claims and Equity Interests shall be made at the addresses set forth on the
proofs of claim or proofs of interest filed by the holders (or at the last
known addresses of the holders if no proof of claim or proof of interest is
filed or if the Debtor has been notified of a change of address), or in the
case of holders of Allowed Note Claims, shall be made at the addresses
contained in the records of the Debtor.
(b) If any holder's distribution is returned as
undeliverable, no further distributions to the holder shall be made unless
and until the Debtor or the Transfer Agent, as the case may be, is notified
of the holder's then current address, at which time all missed
distributions shall be made to the holder without interest.
18
(c) Amounts in respect of undeliverable distributions made
by the Debtor or the Transfer Agent shall be returned to the Debtor or the
Transfer Agent, as the case may be, until the distributions are claimed.
(d) All claims for undeliverable distributions shall be made
on or before the fifth anniversary of the Distribution Date, after which
time all unclaimed property shall be treated under section 347(b) of the
Bankruptcy Code, and then all Claims against the Debtor or the Reorganized
Debtor shall be discharged and forever barred.
7.13 DISTRIBUTIONS FROM CONTESTED CLAIM RESERVE. All Cash,
New Preferred Stock, and New Common Stock held in the Contested Claim
Reserve shall be distributed as follows.
(a) On the date that all or part of any Contested Claim is
Allowed, the Reorganized Debtor shall withdraw from the Contested Claim
Reserve an amount of Cash, or a number of shares of New Preferred Stock and
New Common Stock, allocable to the portion of the Contested Claim that has
been Allowed.
(b) On the date that all or part of any Contested Claim is
Disallowed, any New Preferred Stock and New Common Stock corresponding to
the Disallowed portion shall be cancelled, and any Cash corresponding to
the Disallowed portion shall be released from the Contested Claim Reserve
and retained by the Reorganized Debtor.
7.14 ALLOCATION OF DISTRIBUTIONS. All consideration distributed
under the Plan to a holder of an Allowed Note Claim shall be allocated
first to the principal balance of the Allowed Note Claim and then, to the
extent the consideration exceeds the amount of that principal balance,
shall be allocated next to the accrued but unpaid interest that is included
in the Allowed Note Claim.
7.15 TIME BAR TO CASH PAYMENTS.
(a) Checks issued by the Reorganized Debtor in respect of
Administrative Claims, Priority Non-Tax Claims, Priority Tax Claims, and
Convenience Claims shall be null and void if not cashed within ninety days
of the date of issuance thereof.
19
(b) Requests for reissuance of any check shall be made
directly to the Reorganized Debtor by the holder of the Allowed Claim with
respect to which the check originally was issued.
(c) Any Claim in respect of such a voided check shall be
made on or before the later of the fifth anniversary of the Distribution
Date or ninety days after the date of issuance of the check, after which
time all Claims in respect of void checks shall be discharged and forever
barred, and the funds or distributions shall be distributed pro rata to
holders of Unsecured Claims unless the Reorganized Debtor elects to deposit
them with the clerk of the Bankruptcy Court under section 347 of the
Bankruptcy Code because the expense of redistribution is impracticable.
7.16 VESTING OF ASSETS. As of the Effective Date, all property of
the Debtor shall vest in the Reorganized Debtor free and clear of all
Claims and Equity Interests, except as specifically provided in this Plan.
7.17 EFFECTUATING DOCUMENTS. Prior to the conclusion of the
Confirmation Hearing, the Debtor shall file the Plan Documents with the
Bankruptcy Court.
7.18 AVOIDANCE ACTIONS. Avoidance Actions belonging to the
Debtor shall vest in the Reorganized Debtor and be retained and
litigated thereby as deemed appropriate by the Reorganized Debtor.
7.19 ALLOWANCE OF NOTE CLAIMS. The entry of the Confirmation Order
shall be deemed a finding and determination by this Court that each of the
Note Claims which is not a Subordinated Claim is an Allowed Claim that is
not subject to any counterclaim, offset, right of recoupment, or other
reduction or alteration.
7.20 INDEMNITY INSURANCE. The Debtor shall use its best efforts to
maintain its Indemnification Policies from and after the Effective Date, to
the extent available at a reasonable cost, to cover Indemnification
Obligations arising on, after, or before the Effective Date. The Debtor's
officers and directors shall have no Claims against the Debtor for
Indemnification Obligations arising on or before the Effective Date, but
instead shall be restricted to their rights to assert claims under the
Indemnification Policies; PROVIDED, HOWEVER, that Indemnification Claims
arising out of indemnifiable liability in connection with any Shareholder
Derivative Action shall constitute an Administrative Claim against the
Debtor; provided further, however, that recovery under any such
Administrative Claim shall be limited to (a) the proceeds of the
Indemnification Policies received by the Debtor and (b) any recovery
obtained by the Debtor as a result of any Shareholder Derivative Action.
Therefore, the cost of any
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Indemnification Claim shall be borne either by Debtor's Indemnification
Policies or by the Debtor's applying any recovery from shareholder
derivative litigation to cancel the associated Indemnification Obligation.
In the event the Debtor does not maintain the Indemnification
Policies, the Debtor shall institute an escrow arrangement to fund the
Indemnification Obligations, which shall be funded in an amount to be
agreed upon by the Debtor and the holders of a majority in amount of the
Note Claims, solely from the proceeds, if any, from the Shareholder
Derivative Action.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF PLAN
8.1 RELEASE OF DATAPOINT OPTION. It shall be a condition to the
consummation of this Plan on the Effective Date that the Option Release
Agreement shall have been approved by the Bankruptcy Court and executed and
delivered to the Debtor on or before the Effective Date. If the Option
Release Agreement has not been approved by the Bankruptcy Court by the
Confirmation Date, entry of the Confirmation Order shall constitute the
Bankruptcy Court's approval of the Option Release Agreement. Under the
Option Release Agreement, on the Effective Date, the Debtor shall transfer
2,400,000 shares of the Datapoint Common Stock to Datapoint, in exchange
for which Datapoint shall transfer to the Debtor all of the Old Preferred
Stock owned by Datapoint and release all of its rights thereunder. In
addition, Datapoint shall release the Datapoint Option and any other rights
under the Datapoint Option Agreement, and there shall be no further
restrictions on the Debtor's right and power to sell or issue the remaining
300,000 shares of the Datapoint Common Stock to any person.
8.2 EXIT FINANCING. It shall be a condition to the consummation of
this Plan on the Effective Date that the Debtor shall have obtained a firm
commitment for a working capital facility from the Exit Financing Provider
on terms and conditions satisfactory to the holders of a majority in amount
of the Note Claims; PROVIDED, HOWEVER, that if no firm commitment has been
obtained from an Exit Financing Provider by the Effective Date, the holders
of a majority in amount of the Note Claims shall have the option, but not
the obligation, to extend to the Debtor a working capital facility of up to
$10 million, on terms and conditions no less favorable to the holders of
Note Claims extending the facility than those that were offered by the
Debtor to other potential Exit Financing Providers, in addition to which,
the holders of Note Claims extending the working capital facility shall be
entitled to a loan commitment fee equal to 5% of the
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principal amount advanced, payable in the form of additional New Preferred
Stock.
8.3 RESALES OF NEW PREFERRED STOCK AND NEW COMMON STOCK. Entry of
the Confirmation Order shall constitute a finding and determination by the
Bankruptcy Court that the issuance of the New Preferred Stock and New
Common Stock under this Plan is entitled to exemption from the securities
laws under Bankruptcy Code section 1145. It shall be a condition to the
consummation of this plan that the Debtor shall have executed and delivered
the Registration Rights Agreement to the holders of a majority in amount of
the Note Claims.
ARTICLE IX
TREATMENT OF
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
9.1 REJECTED IF NOT ASSUMED. This Plan shall be deemed to
constitute and incorporate a motion by the Debtor to reject all executory
contracts and unexpired leases to which the Debtor is a party or is
otherwise bound, except for the contracts and leases that (a) have been
assumed or rejected pursuant to an order of the Bankruptcy Court, (b) are
specifically treated otherwise in this Plan, or (c) are the subject of a
motion to assume that is pending before the Bankruptcy Court on the
Confirmation Date. The Confirmation Order shall represent and reflect an
order of the Bankruptcy Court approving the assumptions or rejections as of
the Confirmation Date, unless otherwise provided in this Section 9.1.
9.2 BAR TO REJECTION DAMAGES. If the rejection of an executory
contract or unexpired lease by the Debtor results in damages to the other
party or parties to the contracts or leases, a Claim for the damages, if
not evidenced by a filed proof of claim as of the Effective Date, shall be
forever barred and shall not be enforceable against the Debtor, its
successors, or its properties unless a proof of claim is filed with the
Bankruptcy Court and served upon the Debtor or the Reorganized Debtor by
thirty days after entry of the Confirmation Order or by such earlier date
as may be fixed by an order of the Bankruptcy Court authorizing rejection
of the contract or lease.
9.3 EMPLOYEE AGREEMENTS. Each Employee Agreement shall be rejected,
and any claim for damages for the breach or termination under the Employee
Agreement shall be treated as an Unsecured Claim subject to any applicable
limitations under the Bankruptcy Code, except as follows:
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(a) The Reorganized Debtor shall assume modified Employee
Agreements as of the Confirmation Date with Mark S. Helwege and Philip D.
Freeman in substantially the forms attached to this Plan as Exhibits "E"
and "F", which must be in a form and of a substance satisfactory to the
holders of a majority in amount of the Note Claims. These modified
agreements shall reflect no material modifications other than a revised
bonus compensation plan and a revised stock option plan, to provide for
release of any claims against the Debtor under this Plan or otherwise. Mr.
Helwege and Mr. Freeman shall have no Claim against the Debtor except as
specifically set forth in the modified Employee Agreements, other than any
claim they may have by virtue of any indemnification rights. The Debtor
shall also release any claims and causes of action against Mr. Helwege
and/or Mr. Freeman.
(b) The Reorganized Debtor shall assume a modified Employee
Agreement as of the Confirmation Date with Asher B. Edelman which must be
in a form and of a substance satisfactory to the holders of a majority in
amount of the Note Claims. This modified agreement shall provide only for a
severance benefit payable over 24 months in equal monthly installments of
$15,000, for a total of $360,000; and for release of any claims against the
Debtor under this Plan or otherwise. Mr. Edelman shall have no Claim
against the Debtor except as specifically set forth in the modified
Employee Agreement, other than any claim he may have by virtue of any
indemnification rights. The Debtor shall also release any claims and causes
of action against Mr. Edelman.
9.4 ASSUMPTION OF SPECIFIED CONTRACTS. Entry of the Confirmation
Order shall constitute authorization of the Bankruptcy Court to the Debtor to
assume the Assumed Contracts.
9.5 CLAIMS RELATING TO DIRECTORS. At their election and except as
otherwise provided herein, members of the Board of Directors may enter into
mutual release(s) with the Debtor, releasing any and all claims and/or
causes of action, save and except any claim by a member of the Board of
Directors by virtue of any indemnification right.
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ARTICLE X
PROCEDURES FOR RESOLVING AND TREATING
CONTESTED CLAIMS
10.1 OBJECTION DEADLINE. As soon as practicable, but in no event
later than ninety (90) days following the Effective Date, the Reorganized
Debtor shall file Objections to Claims with the Bankruptcy Court and serve
copies of the Objections upon the holders of each of the Claims to which
Objections are made. This Section 10.1 shall not limit the Reorganized
Debtor's right to object to Claims, if any, filed or amended more than
ninety (90) days after the Effective Date.
10.2 PROSECUTION OF OBJECTIONS. The Reorganized Debtor shall
litigate to judgment, settle, or withdraw Objections to Contested Claims.
10.3 NO DISTRIBUTIONS PENDING ALLOWANCE. Notwithstanding any other
provision of this Plan, no payments or distributions shall be made to the
holder of a Contested Claim to which an Objection has been interposed
unless and until the Contested Claim has been Allowed.
10.4 TIME FOR FILING ADMINISTRATIVE CLAIMS. Administrative
Claims against the Debtor must be filed no later than thirty (30) days
after the Effective Date.
10.5 TIME FOR FILING OF REIMBURSEMENT CLAIMS. Claims seeking
reimbursement and/or approval of fees and expenses incurred by Foothill or
any other holder of a Secured Claim must be filed no later than thirty (30)
days after the Effective Date.
ARTICLE XI
CREDITORS' COMMITTEE AND COUNSEL
11.1 DISSOLUTION OF THE CREDITORS' COMMITTEE. Any Creditors'
Committee shall be dissolved as of the Effective Date.
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ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 COMPLIANCE WITH TAX REQUIREMENTS. In connection with this
Plan, the Reorganized Debtor shall comply with all withholding and
reporting requirements imposed by federal, state, local, and foreign taxing
authorities and all distributions hereunder shall be subject to the
withholding and reporting requirements.
12.2 COMPLIANCE WITH ALL APPLICABLE LAWS. If notified by any
governmental authority that it is in violation of any applicable law, rule,
regulation, or order of the governmental authority relating to its
business, the Reorganized Debtor shall comply with the law, rule,
regulation, or order; PROVIDED, HOWEVER, that nothing contained herein
shall require such compliance if the legality or applicability of the
requirement is being contested in good faith in appropriate proceedings
and, if appropriate, for which an adequate reserve has been set aside on
the books of the Reorganized Debtor.
12.3 SETOFFS. Except as otherwise provided in this Plan, the
Reorganized Debtor may, but shall not be required to, set off against any
Claim and the payments or other distributions to be made pursuant to this
Plan in respect of the Claim, claims of any nature whatsoever the estate
may have against the holder of the Claim, but neither the failure to do so
nor the allowance of any Claim hereunder shall constitute a waiver or
release by the Reorganized Debtor of any Claim that the estate may have
against the holder; PROVIDED, HOWEVER, the Reorganized Debtor will not seek
to set off any obligation that is not yet due.
12.4 MAINTENANCE OF CAUSES OF ACTION. From and after the Effective
Date, the Reorganized Debtor may litigate any Avoidance Action or any other
causes of action, rights to payments, or claims that belong to the estate,
that may be pending on the Effective Date or instituted by the Reorganized
Debtor after the Effective Date.
12.5 REQUEST FOR CRAMDOWN UNDER SECTION 1129(B) OF THE BANKRUPTCY
CODE. This Plan shall be deemed a request for cramdown under section
1129(b) of the Bankruptcy Code of any other Class or Classes entitled to
vote that do not accept this Plan under section 1126 of the Bankruptcy
Code.
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ARTICLE XIII
CONSUMMATION OF PLAN
13.1 RETENTION OF JURISDICTION. The Bankruptcy Court shall retain
and have exclusive jurisdiction over the Chapter 11 Case for the following
purposes, except to the extent the Bankruptcy Court elects to retain
concurrent jurisdiction or decides to relinquish jurisdiction:
(a) To determine any and all required applications for
allowances of compensation and reimbursement of expenses and any other fees
and expenses authorized to be paid or reimbursed under the Bankruptcy Code
or this Plan;
(b) To determine any applications pending on the Effective
Date for the rejection or assumption of executory contracts or unexpired
leases or for the assumption and assignment, as the case may be, of
executory contracts or unexpired leases to which the Debtor is a party or
with respect to which the Debtor may be liable, and to hear and determine,
and if need be to liquidate, any and all claims arising therefrom;
(c) To determine any and all applications, adversary
proceedings, and contested or litigated matters that may be pending on
the Effective Date;
(d) To consider any modifications of this Plan, remedy any
defect or omission or reconcile any inconsistency in any order of the
Bankruptcy Court, including the Confirmation Order, to the extent
authorized by the Bankruptcy Code;
(e) To determine all controversies, suits, and disputes that
may arise in connection with the interpretation, enforcement, or
consummation of this Plan or any person's obligations under this Plan;
(f) To issue such orders in aid of execution of this
Plan to the extent authorized by section 1142 of the Bankruptcy Code;
and
(g) To determine such other matters as may be set forth in
the Confirmation Order or which may arise in connection with this Plan or
the Confirmation Order.
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13.2 MODIFICATION OF PLAN. Modifications of this Plan (including
the Plan Documents) may be proposed in writing by the Debtor at any time
before confirmation, provided that the Plan, as modified, (a) is in form
and substance satisfactory to holders of a majority in amount of the Note
Claims, and (b) meets the requirements of sections 1122 and 1123 of the
Bankruptcy Code, and the Debtor shall have complied with section 1125 of
the Bankruptcy Code. This Plan may be modified at any time after
confirmation and before its substantial consummation, provided that the
Plan, as modified, meets the requirements of sections 1122 and 1123 of the
Bankruptcy Code and the Bankruptcy Court, after notice and a hearing,
confirms the Plan, as modified, under section 1129 of the Bankruptcy Code,
and the circumstances warrant the modification. A holder of a Claim or
Equity Interest that has accepted or rejected this Plan shall be deemed to
have accepted or rejected this Plan as modified, unless, within the time
fixed by the Bankruptcy Court, the holder changes its previous acceptance
or rejection.
Dated: San Antonio, Texas
October 12, 1994
Respectfully submitted,
INTELOGIC TRACE, INC., Debtor
By: PHILIP D. FREEMAN,
Senior Vice President,
General Counsel and Secretary
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