SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Act of 1934
Date of Report (Date of earliest event reported) March 31, 1997
Spectrum Information Technologies
(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 5 - Other Events
Consummation of the Company's Plan of Reorganization
In March 1996, the United States Bankruptcy Court for
the Eastern District of New York approved the Third Amended
Disclosure Statement (the "Disclosure Statement") with respect to
the Third Amended Consolidated Plan of Reorganization (the
"Plan") proposed by Spectrum Information Technologies, Inc. and
Spectrum Cellular Corporation (collectively, the "Company") dated
as of March 18, 1996 finding the Disclosure Statement adequate
for distribution and vote by interested parties. As contemplated
by the Plan, the bankruptcy estates of Spectrum Information
Technologies, Inc. and Spectrum Cellular Corporation were
substantively consolidated. On August 14, 1996, the Bankruptcy
Court entered an order confirming the Plan, as amended. The
effective date of the Plan was March 31, 1997 (the "Effective
Date"). Total cash distribution for unsecured claims, class
action claims, administrative claims and priority claims in
connection with consummation of the Plan are expected to be
approximately $3.9 million, as described in more detail below. A
few outstanding claims remaining that the Company is attempting
to reconcile. The Company does not believe the reconciliation of
such claims will result in additional material payments to
creditors.
The Bankruptcy Court set April 22, 1996 as the
deadline for voting on the Plan. Each class entitled to vote on
the Plan accepted the Plan. Over 97% of Spectrum's voting
unsecured creditors, representing over 99% of the total dollar
amount voted, voted to accept the Plan. Under the Bankruptcy
Code, a class accepts a plan if two-thirds in amount and a
majority in number of the holders of claims voting cast ballots
in favor of acceptance. Holders of Spectrum's common stock
representing approximately 27,600,000 shares returned ballots,
with over 95% of those shares voted in favor of confirmation. A
class of equity interests is deemed to have accepted a plan if
the plan is accepted by holders of at least two-thirds of the
allowed interests that have voted on the plan.
The Plan provided all administrative creditors with
full payment (unless a lesser amount was agreed upon or ordered
by the Bankruptcy Court), settled all material litigation pending
against the Company and proivded all general unsecured creditors
with 100% of the value of their claims plus 6% interest per annum
from the bankruptcy filing date thereon. It also settled the
class action lawsuits of approximately $676,000,000 filed against
the Company by the payment of $250,000 and the delivery of
approximately 45% of the equity ownership in Spectrum to a
trustee to be distributed to the members of the class. Although
existing Spectrum shareholders were substantially diluted under
the terms of the Plan, such shareholders are expected to obtain the
majority of the 45% equity ownership in Spectrum set aside for
existing shareholders and certain creditors. This should hold
true 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 and after the issuance of approximately
$112,000 of stock to the Company's former financial advisor in
connection with the settlement of its administrative claim. These
stock distributions are expected to occur approximately one month
following the Effective Date. The Plan also called for
management, employees and non-executive directors of the Company
participating in developing the Plan to receive the remaining 10%
ownership.
The Company amended 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 settlement of the Class Action that was filed against the
Company in 1993 ("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
existing common stock were 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 previously had authorized 100 million shares of common
stock, of which approximately 76.7 million had been issued and
were outstanding on the Effective Date. Therefore, approximately
1 million shares of Reorganized Spectrum Common Stock were 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
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issued to existing shareholders and the Computer Bay trustee
is defined as "Distributable Common Stock"). The Company will
also issue approximately $112,000 of stock to the Company's
former financial advisor in connection with the settlement of its
administrative claim. The stock will be issued to the Computer
Bay trustee and the Company's former financial advisor
approximately one month after the Effective Date. Stock options
issued under the Company's previously existing stock option plans
will also be reverse split at a seventy-five (75) to one (1)
ratio and repriced accordingly (i.e., a $1.00 exercise price will
be adjusted to a $75.00 exercise price).
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.
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 Spectrum
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
non-executive 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
semi-annual installments following the Effective Date. 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, as set forth in the Plan, the Company awarded a $300,000
success bonus for distribution among all employees involved in
the development and implementation of the Plan.
The details of the Plan, the recapitalization, and the
Company's 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.
The Company's amended certificate of incorporation is contained
in the Company's Registration Statement on Form S-8 dated March
31, 1997.
This report contains statements that are
"forward-looking," including those concerning the expected equity
ownership of existing shareholders. The amount of Reorganized
Common Stock that the Company is required to issue to the
Computer Bay trustee and Spectrum's former financial advisor will
be based upon the per share trading price of Reorganized Spectrum
Common Stock on the date of such issuance. The equity ownership
of existing shareholders will be further diluted upon the
issuance of such shares. The extent of that dilution is not known
at this time and is subject to the fluctuations in the
price of Reorganized Spectrum Common Stock. Spectrum's quarterly
and annual reports as filed with the Securities and Exchange
Commission discuss other risk factors associated with the
Company.
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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, thereunto duly
authorized.
Dated: April 8, 1997
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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