SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 14, 1996
Spectrum Information Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-15596 75-1940923
(State or other (Commission I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation or
organization
2700 Westchester Avenue, Purchase, New York 10577
(Address of principal executive offices)
Registrant's telephone number, including area code (914) 251-1800
(Former name or former address, if changed since last report)
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Item 3. Bankruptcy or Receivership
On August 14, 1996, the United States Bankruptcy Court of
the Eastern District of New York entered an order confirming the
Third Amended Consolidated Plan of Reorganization, as amended,
proposed by Spectrum Information Technologies, Inc. and Spectrum
Cellular (the "Plan"). Consummation of the Plan and its Effective
Date remain contingent upon District Court approval of the Class
Action Settlement (See Plan Contingencies).
A copy of the Plan is incorporated by reference herein.
The Plan
Some of the statements in this report regarding
consummation of the Plan are not historical facts and may be
considered "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. Consummation of the
Plan is contingent upon final District Court approval of the
Class Action Settlement (as defined below). If the District Court
does not approve the Class Action Settlement and the Plan is not
consummated, alternatives include: (a) continuation of the
pending Chapter 11 cases; (b) alternative plans of
reorganization; or (c) liquidation of Debtors under Chapter 7 or
Chapter 11 of the Bankruptcy Code. A discussion of the Company's
operating risks is included in the Company's most recent Annual
Report on Form 10-K.
The Plan, if consummated, will settle all material
litigation now pending and provide all general unsecured
creditors with 100% of the value of their claims plus 6% interest
per annum from the filing date thereon. The Company has
segregated approximately $3.5 million for the payment of general
unsecured claims, the priority non-tax claim and the Company's
cash contribution to the settlement of the class action lawsuits.
To date, the Company has reconciled the majority of the general
unsecured creditor claims, with interest, in the amount of
approximately $2.6 million. Several outstanding claims remain
that the Company is attempting to reconcile before the effective
date of the Plan (the "Effective Date"). The Company does not
believe that the reconciliation of such claims will have a
material effect on the reserve established for payment to
unsecured creditors. The Plan also provides for the payment of
approximately $264,000 on the Effective Date to the holder of the
one priority nontax claim filed against Spectrum. The Plan will
also settle all of the class action lawsuits filed against the
Company by the payment of $250,000 by the Company (the "Class
Action Settlement") and the delivery of approximately 45% of the
equity ownership in reorganized Spectrum to a trustee to be
distributed to the members of the class. Under the terms of the
Plan, existing shareholders will be substantially diluted but
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should obtain the majority of the 45% equity ownership in
reorganized Spectrum set aside for such shareholders and certain
creditors. This should hold true based on Spectrum's current
market value even after the issuance of $300,000 of stock to the
Chapter 7 trustee of Computer Bay in connection with the recent
settlement of his claim. Holders of allowed administrative claims
(as agreed upon or ordered by the Bankruptcy Court) will be paid
in full under the Plan. The Company intends to seek a waiver of
accrued professional fees that to date have been held back by the
Bankruptcy Court. There can be no assurance, however, that the
Company will be successful in obtaining such waiver.
The Company will amend its certificate of incorporation and
by-laws on the Effective Date. The Amended Certificate contains
certain provisions affecting the rights of shareholders,
corporate governance, and the transferability of Class A
Preferred Stock and Reorganized Spectrum Common Stock (as defined
below). Under the amended certificate of incorporation, the
authorized capital stock of the Company shall be comprised of (i)
10 million shares of reorganized Spectrum common stock
("Reorganized Spectrum Common Stock"), (ii) 1.5 million shares of
Class A preferred stock reserved for issuance in connection with
the Class Action Settlement ("Class A Preferred Stock") and (iii)
2 million shares of preferred stock ("Preferred Stock"). A
description of the amount of shares that will be issued within
each class is set forth below.
Issued and outstanding shares of the Company's common stock
will be canceled on the Effective Date and replaced with one (1)
share of Reorganized Spectrum Common Stock for each seventy-five
(75) shares of existing common stock. The Company currently has
authorized 110 million shares of common stock, of which
approximately 76.7 million are issued and outstanding. Therefore,
approximately 1 million shares of Reorganized Spectrum Common
Stock will be issued to existing shareholders on the Effective
Date. An additional $300,000 of Reorganized Spectrum Common Stock
will be issued to the Computer Bay trustee in connection with the
settlement of his claim (collectively, the Reorganized Spectrum
Common Stock issued to existing shareholders and the Computer Bay
trustee is defined as "Distributable Common Stock").
Stock options issued under the Company's existing stock option
plans will also be reverse split at a 75 to 1 ratio and the
exercise price adjusted accordingly.
Pursuant to the Class Action Settlement, the Company will
issue a number of shares of Class A Preferred Stock equal to the
number of shares of Distributable Common Stock. The Class A
Preferred Stock is convertible to Reorganized Spectrum Common
Stock at any time within two years of its date of issuance and
automatically converts to Reorganized Spectrum Common Stock at
the expiration of two years.
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As part of a bonus or success fee to employees, officers
and all non-executive directors for confirming a plan of
reorganization, the Company will also issue Reorganized Spectrum
Common stock pursuant to the two incentive compensation programs
described in the Plan, the Spectrum 1996 Stock Incentive Plan and
the Spectrum 1996 Incentive Deferral Plan, which collectively
authorize the issuance of an aggregate number of shares of
Reorganized Spectrum Common Stock equal to one-ninth (1/9) of the
aggregate number of shares of Distributable Common Stock and
Class A Preferred Stock (i.e., 10% of the reorganized equity
ownership) to directors, officers and employees of the Company on
the Effective Date. Except for 300 shares of Reorganized Spectrum
Common Stock that will be distributed to directors on the
Effective Date, the distribution of stock to directors, officers
and employees pursuant to such incentive programs shall be
distributed in three equal installments. The first installment
shall be distributed during the three day period commencing three
days after Reorganized Spectrum files its Quarterly Report on
Form 10-Q for its fiscal quarter ending June 30, 1997; the second
installment shall be distributed during the three day period
commencing three days after Reorganized Spectrum files its
Quarterly Report on Form 10-Q for its fiscal quarter ending
December 31, 1997; and the third installment shall be distributed
during the three day period commencing three days after
Reorganized Spectrum files its Quarterly Report on Form 10-Q for
its fiscal quarter ending June 30, 1998. Under the Stock
Incentive Plan, employees, officers and directors will also be
eligible to receive future grants of performance based incentive
awards with respect to an aggregate number of shares equal to an
additional one-ninth (1/9) of the aggregate number of shares of
Distributable Common Stock and Class A Preferred Stock. Also, on
the Effective Date, the Company will distribute a $300,000
success bonus among all employees.
Consummation of the Plan does not contemplate issuance of
the remainder of the 10 million authorized shares of Reorganized
Spectrum Common Stock, the remainder of the 1.5 million shares of
Class A Preferred Stock, or the 2 million shares of authorized
preferred stock. The details of the Plan, the proposed
recapitalization, and copies of the certificate of incorporation
and by-laws are set forth in detail in the Plan and associated
Disclosure Statement, which the Company filed with the SEC on its
Current Report on Form 8-K dated as of March 26, 1996.
Plan Contingencies
On July 21, 1995, The Home Insurance Company of Illinois
("The Home"), the Company's former directors' and officers'
primary insurance carrier, commenced an adversary proceeding (the
"Home Action") in the Company's bankruptcy proceeding. The
Honorable Frederick Block, United States District Judge of the
District Court, subsequently withdrew the reference with respect
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to the Home Action such that the litigation is now pending before
him. The Home sought to rescind a renewal of a directors' and
officers' liability and company reimbursement policy issued in
June 1993 to the Company for the benefit of its directors and
officers (the "Renewal Policy") and alleged certain material
misrepresentations and/or omissions in the application for the
Renewal Policy. The Home also sought a declaration that coverage
is not afforded under the Renewal Policy for the claims made
against the policy by the Company and certain of its officers and
directors.
In addition to the primary policy, the Company obtained
three excess policies for the insurance year at issue in the Home
Action. Two of the excess carriers, the Agricultural Excess and
Surplus Insurance Company ("AESIC") and The Aetna Casualty and
Surety Company ("Aetna") have intervened in the Home Action.
AESIC has agreed to be bound by any final judicial resolution
regarding The Home (a similar agreement was previously reached
with the third excess carrier) and is no longer actively
participating in the Home Action. The District Court heard the
trial in the Home Action on February 28 and 29, 1996 and issued a
decision on July 15, 1996.
On July 15, 1996, the District Court ruled against the
insurance carriers in their attempt to rescind the directors' and
officers' insurance policies at issue in the Home Action. The
Court also ruled that any losses in the Class Action Suits
related to Spectrum's February 1994 restatement of earnings would
be covered by the policies at issue. The Court concluded that it
could not decide, based on the record before it, whether the
policies at issue would cover claims in the Class Action Suits
related to alleged insider trading by certain of the Company's
former officers and alleged misstatements regarding John
Sculley's employment with the Company. Home and Aetna have
informed the Company that they intend to appeal certain aspects
of the decision.
Notwithstanding this intended appeal, the parties to the
Class Action Suits and the insurance carriers have tentatively
reached an agreement to implement the Class Action Settlement.
Under this agreement, each insurance carrier has agreed to
contribute the full coverage available under its disputed
insurance policy, up to $6 million, if they are unsuccessful in
the appeal. This agreement to implement the Class Action
Settlement remains subject to the completion and execution of a
definitive agreement. The Class Action Settlement also remains
contingent upon several factors, including completion and
execution of a definitive agreement, consummation of the Plan and
District Court approval.
The Plan will be consummated after District Court approval
of the Class Action Settlement becomes final. The District Court
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has scheduled a hearing on this proceeding for November 25, 1996.
Financial Information
The following unaudited balance sheet is reported on a
historical basis. The Company has not adopted "Fresh-Start
Accounting" as defined in AICPA Statement of Position "SOP" No.
90-7 because there is a material unsatisfied condition precedent
to the consummation of the Plan. Following consummation of the
Plan, the Company will adopt the "Fresh-Start" accounting rules
if both of the following criteria as defined in the SOP are met:
a. The reorganization value of the assets of the emerging
entity immediately before the date of consummation is
less than the total of all postpetition liabilities
and allowed claims; and
b. The holders of existing voting shares immediately
before consummation receive less than 50% of the voting
shares of the emerging entity.
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Spectrum Information Technologies, Inc. and Subsidiaries
(Debtors in Possession)
Consolidated Balance Sheets
(Amounts in thousands)
Assets July 31, 1996
(Unaudited)
Current assets:
Cash and cash equivalents $10,929
Marketable securities 789
Accounts receivable (net of allowance
for doubtful accounts of $80) 745
Prepaid expenses and other current assets 491
-------
Total current assets 12,954
-------
Furniture, fixtures and equipment 471
-------
471
Less - accumulated depreciation (255)
-------
Net property and equipment 216
-------
Intangible assets, net 351
-------
Total assets $13,521
=======
6
<PAGE>
Spectrum Information Technologies, Inc. and Subsidiaries
(Debtors in Possession)
Consolidated Balance Sheets
(Amounts in thousands)
Liabilities and Stockholders' Equity July 31, 1996
(Unaudited)
Current Liabilities
Accounts payable $ 2,910
Accrued liabilities 578
-------
Total current liabilities 3,488
-------
Liabilities subject to compromise:
Accounts payable and accrued liabilities 1,455
Reserve for litigation 4,719
Reserve for restructuring 1,972
Net liabilities of discontinued operations 531
Other liabilities 185
-------
Total liabilities subject to compromise 8,862
-------
Total liabilities 12,350
-------
Commitments and contingencies
Stockholders' Equity:
Common stock, $.001 par value,
110,000 shares authorized, 76,675
issued, respectively 77
Paid-in capital 63,961
Accumulated deficit (62,404)
-------
1,634
Treasury stock, 100 shares at cost (300)
Unrealized loss on marketable securities (163)
-------
Total stockholders' equity 1,171
-------
Total liabilities and stockholders' equity $13,521
=======
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<PAGE>
Item 7. Financial Statements and Exhibits.
(b) The following documents are filed as part of this Current
Report on Form 8-K:
1. Consolidated Balance Sheet is filed as a part of this
report in Item 3.
(c) Exhibits.
Exhibit No. Description
2 Plan of Reorganization Proposed by Spectrum
Information Technologies, Inc. and Spectrum
Cellular Corporation, dated as of March 18,
1996 was previously filed as an exhibit to
the Company's Current Report on Form 8-K
filed March 26 1996, and incorporated herein
by reference.
27 Financial Data Schedule
99 Amendment to Plan of Reorganization Proposed
by Spectrum Information Technologies, Inc.
and Spectrum Cellular Corporation, dated as
of March 18, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereto duly authorized.
Dated: August 26, 1996
SPECTRUM INFORMATION TECHNOLOGIES, INC.
By /s/ Donald J. Amoruso
-----------------------------------
Donald J. Amoruso
President, Chief Executive Officer and
Chairman of the Board of Directors
By /s/ Barry J. Hintze
-----------------------------------
Barry J. Hintze
Controller and
Principal Accounting Officer
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EXHIBIT INDEX
Exhibit No. Description
2 Plan of Reorganization Proposed by Spectrum
Information Technologies, Inc. and Spectrum
Cellular Corporation, dated as of March 18,
1996 was previously filed as an exhibit to
the Company's Current Report on Form 8-K
filed March 26 1996, and incorporated herein
by reference.
27 Financial Data Schedule
99 Amendment to Plan of Reorganization Proposed
by Spectrum Information Technologies, Inc. and
Spectrum Cellular Corporation, dated as of
March 18, 1996.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPECTRUM
INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES (DEBTORS IN POSSESSION)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 10,929
<SECURITIES> 789
<RECEIVABLES> 825
<ALLOWANCES> 80
<INVENTORY> 0
<CURRENT-ASSETS> 12,954
<PP&E> 471
<DEPRECIATION> 255
<TOTAL-ASSETS> 13,521
<CURRENT-LIABILITIES> 3,488
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 1,171
<TOTAL-LIABILITY-AND-EQUITY> 13,521
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
Return Date: August 14, 1996
Time: 11:00 a.m.
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
- ---------------------------------------X Chapter 11 Case Nos.
195 10690 260
In re : 195 10693 260
SPECTRUM INFORMATION :
TECHNOLOGIES, INC.,
and SPECTRUM :
CELLULAR CORPORATION (Substantively
Consolidated), :
Debtors.
:
- ---------------------------------------X
NOTICE RESPECTING AMENDMENT
OF THIRD AMENDED PLAN OF REORGANIZATION
---------------------------------------
PLEASE TAKE NOTICE that in accordance with sections
VII(B) and XII(A) of the third amended consolidated plan of
reorganization (the "Plan") proposed by Spectrum Information
Technologies, Inc. ("Spectrum") and Spectrum Cellular Corporation
("Cellular," and collectively with Spectrum, the "Debtors") the
Debtors will seek confirmation of the Plan with the following
modifications:
1. Section VII(A)(2) is amended to make entry of
a final order of the District Court granting the Class
Action Settlement Motion (as defined in the Plan) a
condition precedent to consummation of the Plan, rather than
a condition precedent to confirmation of the Plan.
<PAGE>
2. Section VII(A)(3) is modified so that to the
extent that it makes entry of a final order in the Home
Action Litigation a condition precedent to confirmation,
such condition is waived.
Dated: New York, New York
August 8, 1996
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ George Weisz
------------------------
George Weisz (GW-7120)
A Member of the Firm
One Liberty Plaza
New York, New York 10006
(212) 225-2000
Attorneys for Debtors and
Debtors in Possession
Spectrum Information
Technologies, Inc. et al.
-- ---
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