ITEM 1. Business.
General
Datapoint Corporation, including its subsidiaries (hereinafter "Datapoint" or "the Company"), is principally engaged in the development, acquisition, marketing, servicing, and system integration of computer and communication products -- both hardware and software. These products and services are for integrated computer, telecommunication and video conferencing network systems. The Company is also actively engaged in the business of licensing its video conferencing technology and its dual protocol local area network ("LAN") technology.
Datapoint was reincorporated in Delaware in 1976 as the successor corporation to a Texas corporation. They were originally incorporated in 1968 as Computer Terminal Corporation and changed its name to Datapoint Corporation in 1972. Its principal executive offices are located at 4 rue d'Aguesseau 75008, Paris, France (telephone number - (33-1) 40 07 37 37) and at 8410 Datapoint Drive, San Antonio, Texas 78229-8500 (telephone number - (210)-593-7000).
Throughout the 1980's and the early 1990's, the Company's business was characterized by a significant decline in total revenue, recurring significant losses, and a reduction of the domestic workforce. This was primarily due to (1) a mass entry of competitors in the networking marketplace compounded by (2) a marketplace demand for "Open Systems" products and standard interfaces, both of which had a negative impact on the traditional networking and data processing components of the Datapoint business. The marketplace was forced into a sameness of design that lead to highly competitive pricing being the only significant product differentiator. These adverse effects were, in turn, worsened by the increasing availability of low-cost, off-the-shelf software applications packages written in a number of industry-standard programming languages. Between 1994 and 1996, the Company was able to maintain a consistent and slightly increasing revenue level while at the same time restructuring its operations mostly through significant workforce reductions worldwide. The aim was to reduce its cost base to support such revenue levels. At the end of 1996, the Company sold its European based Automotive Dealer Management Systems business ("EADS") to Kalamazoo Computer Group, plc, a public limited company organized under the laws of England ("Kalamazoo"), (as discussed more fully below), which was a principal reason for the decline in revenue from 1996 to 1997.
During fiscal years 1997 and 1996, the Company pursued and is continuing to pursue actions to provide cash infusions, including the sale of surplus real estate and/or selected assets of the Company in order to improve its financial condition. In this regard, on May 28, 1996, the Company entered into an agreement with Kalamazoo, providing for the sale by Datapoint to Kalamazoo of Datapoint's EADS for a purchase price of $33.0 million. During fiscal year 1997, the Company announced that consideration was being given to the potential sale of its telephony business. The Company subsequently decided not to pursue further negotiations with interested parties. The Company will continue to position itself as an integrated system provider of both telephonic and data transmission services, and as such, believes that its short term and long term prospects can be better maximized by retaining the telephony business.
Subsequent to year end, the Company entered into a contract to sell the three buildings it owns in San Antonio, Texas to a private unaffiliated group for approximately $3.1 million (net of mortgage obligations and closing costs). The sales contract provides for the leaseback by the Company of one of the buildings (approximately 40,000 square feet) for an initial lease term of five years. The sale of the buildings closed on October 27, 1997.
During the second quarter of 1997, the Company accepted 1,145,945 shares of its $1.00 Exchangeable Preferred Stock, having a liquidation preference $20 per share ("the $1.00 Preferred Stock"), which was tendered in its exchange offer (the "Exchange Offer") described in the proxy statement/prospectus delivered to the holders of the Company's common stock, par value $.25 per share (the "Common Stock"), and to the holders of $1.00 Preferred Stock. Under the terms of the exchange offer, each share of $1.00 Preferred Stock tendered was exchanged for 3.25 shares of Common Stock. The exchange offer expired December 10, 1996. The tendered shares approximated 61.34% of the total outstanding shares of $1.00 Preferred Stock immediately prior to the expiration of the exchange offer. For purposes of calculating net income applicable to common shareholders and related per share amounts, a gain on exchange and retirement of preferred stock has been added to net income or loss. This gain includes the excess of the carrying value of preferred stock accepted in the exchange over the fair value of the common stock issued. In addition, the gain includes accumulated dividends on the retired preferred stock. The effect of this gain on income before extraordinary items per common share was approximately $.23 for the year ended August 2, 1997.
Patents and Trademarks
Datapoint owns certain patents, copyrights, trademarks and trade secrets in both network and video conferencing technologies, which it considers valuable proprietary assets. The Company believes that in particular its video conferencing patents and multi-speed network processing patents and the related patents are of material importance to its business as a whole.
Video Conferencing Patents
Datapoint owns United States Patent Nos. 4,710,917 and 4,847,829 related to video teleconferencing technology. Datapoint has filed infringement actions against several companies. In 1995, the Company negotiated two settlements for such infringement for an aggregate of $1.0 million, and, in 1996, the Company entered into an agreement with NEC America, Inc. for the licensing of the `917 and `829 patents for an undisclosed amount. Several patent infringement suits are currently pending:
(1) Datapoint Corporation v. Compression Labs, Inc. No. 3:93-CV-2522-D (N.D. Texas); trial is scheduled for November 1997;
(2) Datapoint Corporation v. PictureTel Corporation, No. 3:93-CV-2381-D (N.D. Texas); trial is scheduled for early calendar year 1998.
(3) Datapoint Corporation v. Teleos Communications, Inc. No. 95-4455-AET (D.N.J.); this action is in the early stages of discovery; no trial date has been scheduled;
(4) Datapoint Corporation v. Videolan Technologies, Inc.; Videolan Technologies, Inc. v. Datapoint Corporation, No. 96 CV-604-H (W.D. Kentucky) et al; in these actions, Datapoint has asserted that Videolan has infringed the `917 and `829 patents. Videolan has asserted the following claims: antitrust, patent misuse, unfair competition, and seeks a declaratory judgment that the `917 and `829 patents and another Datapoint patent, No. 4,686,698, are not valid and are not infringed. These actions are in the early stages; no trial date has been set in either matter;
(5) Datapoint Corporation v. Intel Corp. No. 97-CV-2581 (N.D. Texas); this action was filed on October 21, 1997. In this action, Datapoint has asserted that Intel Corporation has infringed the '829 and '917 patents. To date, there has been no activity in this matter.
In addition, discussions and negotiations are taking place with certain companies to enter into mutually agreeable licensing arrangements.
In John Frassanito and David A. Monroe v. Datapoint Corp., No. H-95-812 (S.D. Tex) plaintiffs alleged that the Company usurped various patentable inventions and trade secrets in connection with the development of its MINX systems. They also asserted a cause of action for patent infringement, and a cause of action requiring Datapoint to assign certain MINX-related patents and other intellectual property. On August 16, 1996, the Court dismissed with prejudice plaintiffs' claims of patent infringement against Datapoint and dismissed without prejudice plaintiff's pendent State law claims and Datapoint's State law counter-claims for lack of subject matter jurisdiction. Plaintiffs in this action moved to intervene in the Picturetel and CLI actions. In September 1997, the Company announced that it had received a court order approving a confidential agreement between the parties resolving this matter without further proceedings.
Multi-speed Networking Patents
Datapoint is also the owner of United States Patent Nos. 5,008,879 and 5,077,732 related to Local Area Networks ("LAN"). The Company believes these patents cover most products introduced by various suppliers to the local area network industry and dominates certain types of dual-speed LAN Adaptor Products recently introduced by various industry leaders. Datapoint has asserted one or both of these patents in the United States District Court for the Eastern District of New York against a number of parties:
(1) Datapoint Corporation v. Standard Micro-Systems, Inc. and Intel Corporation, No. C.V.-96-1685;
(2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp., Accton Technologies Corp., Cabletron Systems, Inc., Bay Networks, Inc., Crosscom Corp. and Assante Technologies, Inc. No. CV 96 4534;
(3) Datapoint Corporation v. Dayna Communications, Inc., Sun Microsystems, Inc., Adaptec, Inc. International Business Machines Corp., Lantronix, SVEC America Computer Corporation, and Nbase Communications, No. CV 96 6334; and
(4) Datapoint Corporation v. Standard Microsystems Corp. and Intel Corp., individually, and as representatives of the class of all manufacturers, vendors and users of Fast Ethernet-compliant, dual protocol local-area network products, No. CV-96-03819.
These actions have been consolidated for discovery. No trial date has been set. In addition, discussions are taking place with certain companies which may include one or more of the above companies in an attempt to reach agreement on licensing arrangements.
The above actions represent the Company's continuing efforts to license and enforce its video conferencing and multi-speed networking patents through negotiations and/or litigation. The Company believes that these patents provide broad coverage in video conferencing and multi-speed networking technology and present the opportunity for further royalty bearing licenses. Such royalty bearing licenses and enforcement of its patents are a primary strategy of the Company's business to create long-term value for its stockholders.
Products
The Company provides communication solutions to the world through data, voice, and video integration. A complete line of products for data processing, video communications, and telecommunications is available.
The Company has enhanced its MINX video communications products which provide the capacity for large video networks and data conferencing features. A complete range of products is available from a fully interactive, broadcast-quality, full-motion video network which can accommodate over 3,000 local workstations to a single video station for a remote office. All of the video products are interoperable and provide functionality and picture quality that is unparalleled in the industry.
In 1994, consistent with the Company's patent licensing business, the Company began patent infringement suits against several defendants related to the Company's video conferencing patents and dual protocol local area network patents. The Company's patent enforcement policy includes the identification of video conferencing patents and dual protocol local area network products and applications which infringe the related patents and the execution of licensing agreements through a) normal commercial negotiations or b) pursuant to settlements of litigation brought against the patent infringers. The Company has been successful in asserting its U.S. video conferencing patents resulting in payments for licenses. On June 16, 1996, the Company entered into an agreement with NEC America, Inc. for the licensing of Datapoint's video conferencing patents. The Company is also taking steps through an industry-wide program to license and enforce its multi-speed networking patents through negotiations and/or litigation. Currently, four patent infringement suits are pending with respect to Datapoint's patents on its dual protocol local area networking technology. These patents cover certain ARCNET and Fast Ethernet products recently introduced by various suppliers to the local area network industry and dominates certain types of dual-speed LAN Adaptor Products recently introduced by various industry leaders. Such royalty bearing licenses and enforcement of its patents are a primary strategy of the Company's business to create long-term value for its stockholders.
The Company's Networking products are industry-standard. The file servers are based upon a scalable architecture using the Intel microprocessor. The multi-processor functionality is provided for the Company's highly sophisticated RMS network operating system. The same systems can be used for Windows NT, UNIX and other operating systems. The Company offers high-performance, Pentium PRO file servers. All systems support RAID disks and popular network protocols such as TCP/IP and NetBios.
The Company's networking products focus on linking file servers, workstations, terminals, printers, and other peripherals (such as modems) to the network. High-performance networking software and hardware components comprise the product offering and provide the ability to implement high-capacity, highly efficient networks composed of client/server and data communications devices. The networking solutions provide the capability of running MS-DOS, WINDOWS, WINDOWS NT, UNIX, and RMS simultaneously along with flexible choices of adapters such as ARCNET, ARCNETPLUS, Ethernet and FastEthernet. These capabilities provide customers the flexibility to design network architectures to meet their specific requirements.
Realizing that personal computers are the desktop workstation of choice, the Company offers PC-based hardware and software. A Microsoft Windows compliant terminal emulation package for the RMS environment which can be run on existing PCs is also provided.
The Company offers a complete set of telecommunications products and services to meet the requirements of large call centers, customer service organizations, and telemarketing firms. Power dialers to increase call efficiency for outbound communications applications, interactive voice response systems which allow customers to interrogate an organization's database with a simple telephone, and automatic call distribution systems that manage large volumes of incoming calls comprise the portfolio of telecommunications products. The Company has an agreement with Lucent to market their Definity line of automatic call distributors through several of the Company's European subsidiaries. The Company also has recently added Intelligent Call Exchange ("ICE") from Computer Talk Technology, Inc. ("CTT") to its product portfolio. This PC based call center is the first of a new generation of technology products addressing a much wider marketplace and takes advantage of the large base of skilled engineers the Company has throughout Europe. In addition, the Company markets the Electronic Data Gathering Expertise ("EDGE") telebusiness software from International Management Associates, Ltd., ("IMA") to enhance its call center capabilities and provide vertical market applications for industries throughout Europe. Telecommunications solutions are provided with the combined expertise in networking, data processing, and telecommunications products.
The supplier and value-added reseller relationships that the Company continues to develop, allow its customers worldwide to enhance their productivity with sensible, cost-effective computer-based networking, telephony and video communication solutions.
Markets
Customers
Datapoint sells generally to business and government customers, including the U.S. government, financial institutions, insurance companies, educational institutions, and manufacturers. During fiscal years 1995 through 1997, no one customer accounted for 10 percent or more of consolidated revenues.
Domestic
Datapoint markets its products in the United States through independent sales representatives who, on a commission basis, solicit orders for Datapoint's products; through value-added resellers, who purchase Datapoint's products for resale; original equipment manufacturers, who integrate Datapoint's products into their overall offerings; and through Datapoint's own end-user sales force. Independent sales representatives, value-added resellers, and original equipment manufacturers generally market Datapoint's products in conjunction with application software and other products developed and marketed by such firms.
International
Datapoint's products are marketed to end-users in over forty countries through a network of wholly-owned subsidiaries and independent distributors. Datapoint distributes its products internationally through wholly-owned sales and service operations in Belgium, France, Germany, Holland, Italy, New Zealand, Norway, Spain, Sweden, Switzerland and the United Kingdom and through authorized distributors worldwide. During fiscal year 1997, approximately 99 percent of Datapoint's international revenue was derived from customers in Western Europe.
Customer Service
In the United States, Datapoint has entered into an agreement with Decision Servcom, Inc. ("DSI"), whereby DSI would serve as the non-exclusive authorized service agent for Datapoint's proprietary data processing products. Maintenance of equipment outside the United States is provided by Datapoint's international subsidiaries and distributors. The maintenance operations of the Company's international subsidiaries produced 44 percent of total company revenues and 50 percent of total company gross profit for the fiscal year ended August 2, 1997.
Datapoint has entered into a subcontract with Kalamazoo to provide computer hardware and hardware maintenance service to Kalamazoo's European Automotive Dealer System network. Subsequent to year end, Kalamazoo has notified the Company that Kalamazoo's German subsidiary will no longer purchase its equipment requirements from the Company on an exclusive basis. The Kalamazoo subsidiary will, however, continue to market and purchase the Datapoint range of file servers and software on a non-exclusive basis.
Manufacturing, Raw Materials, and Supplies
The majority of Datapoint's products are purchased from third parties, who manufacture products meeting Datapoint's specifications. The products are then resold badged/unbadged within Datapoint configurations upon the completion of testing and packaging performed at the Company's facilities in San Antonio, Texas.
Datapoint seeks, and maintains where practical, multiple sources of supply for the products, components, and raw materials which it uses. However, certain products and components are purchased only from single sources, and Datapoint could experience manufacturing delays if such suppliers should fail to meet Datapoint's requirements. The delay of any components, whether for supply or quality reasons, can become critical to production flows. The Company's general experience has been good in terms of minimizing exposure; however, guarantees regarding possible future situations and rectifying actions that could arise cannot be made.
Research and Product Development
The technology involved in the design and operation of Datapoint's products is complex and subject to constant change. Accordingly, Datapoint is committed to a program of research and development which is oriented toward the development of new hardware and software products and the improvement and expansion of its existing products and services.
Datapoint incurred expense of $2.1 million, $2.7 million, and $4.3 million in the fiscal years ended August 2, 1997, July 27, 1996, and July 29, 1995, respectively, on research and development activities. Datapoint maintains its principal research and development facility in San Antonio, Texas.
Competition
Datapoint operates in the intensely competitive computer data processing, video conferencing and telephony industries. These industries are characterized by the frequent introduction of new products based upon technological advances. Datapoint competes, domestically and abroad, with a substantial number of companies, many of which are larger and have greater resources than Datapoint. Such companies, considered in the aggregate, compete in the entire line of products manufactured and marketed by Datapoint. These competitors differ somewhat depending on the market segment, customer and geographic area involved.
Competition in this market is based primarily on the relationship between price and performance; the ability to offer a variety of products and unique functional capabilities; the strength of sales, service and support organizations; upgradability, flexibility, and ease of use of products. The Company could be adversely affected if its competitors introduced technologically superior products or substantial price reductions.
Backlog
The backlog of firm orders for the sale or lease of the Company's products as of August 2, 1997 and July 27, 1996 was $9.6 million and $8.1 million, respectively. Calculations were based on then existing end-user purchase prices for products to be leased and gave effect to appropriate discounts for products to be sold. The backlog amounts are not necessarily indicative of the Company's future results, since an increasing amount of the Company's revenues are derived from orders obtained in the period of shipment. Furthermore, a portion of the Company's backlog may be cancelable at the customer's option, under certain conditions, without financial penalty. All orders included in the backlog at August 2, 1997, are currently scheduled for delivery during the subsequent 12 months. All orders are subject to the Company's ability to meet delivery commitments. The Company records only firm orders as backlog, and generally such orders are cancelable only by the Company. In the event that a new product is released, a customer is allowed to upgrade (i.e., cancel) an existing order and place a new order for the new product. This is done at the Company's discretion with no financial penalty to the customer.
Backlog is also not a reliable indicator of future results, as changes in product mix and costs may significantly impact reported results. Therefore, the Company believes that the backlog data is not meaningful to an understanding of the Company's business or future reported results.
Patents and Trademarks
Datapoint owns certain patents, copyrights, trademarks and trade secrets in both network and video conferencing technologies, which it considers valuable proprietary assets. The Company does not primarily rely on these rights to establish or protect its market position, but does view them as providing the Company a technological advantage in certain cases and does intend to fully exploit their value. The Company believes that its video conferencing patents and multi-speed network processing patents are of material importance to its business as a whole.
Video Conferencing Patents
Datapoint owns United States Patent Nos. 4,710,917 and 4,847,829 related to video teleconferencing technology. Datapoint has filed infringement actions against several companies. In 1995, the Company negotiated two settlements for such infringement for an aggregate of $1.0 million, and, in 1996, the Company entered into an agreement with NEC America, Inc. for the licensing of the `917 and `829 patents for an undisclosed amount. Several patent infringement suits are currently pending:
(1) Datapoint Corporation v. Compression Labs, Inc. No. 3:93-CV-2522-D (N.D. Texas); trial is scheduled for November 1997;
(2) Datapoint Corporation v. PictureTel Corporation, No. 3:93-CV-2381-D (N.D. Texas); trial is scheduled for early calendar year 1998;
(3) Datapoint Corporation v. Teleos Communications, Inc. No. 95-4455-AET (D.N.J.); this action is in the early stages of discovery; no trial date has been scheduled;
(4) Datapoint Corporation v. Videolan Technologies, Inc.; Videolan Technologies, Inc. v. Datapoint Corporation, No. 96 CV-604-H (W.D. Kentucky) et al; in these actions, Datapoint has asserted that Videolan has infringed the `917 and `829 patents. Videolan has asserted the following claims: antitrust, patent misuse, unfair competition, and seeks a declaratory judgment that the `917 and `829 patents and another Datapoint patent, No. 4,686,698, are not valid and are not infringed. These actions are in the early stages; no trial date has been set in either matter;
(5) Datapoint Corporation v. Intel Corp. No. 97-CV-2581 (N.D. Texas); this action was filed on October 21, 1997. In this action, Datapoint has asserted that Intel Corporation has infringed the '829 and '917 patents. To date, there has been no activity in this matter.
In addition, discussions and negotiations are taking place with certain companies to enter into mutually agreeable licensing arrangements.
In John Frassanito and David A. Monroe v. Datapoint Corp., No. H-95-812 (S.D. Tex) plaintiffs alleged that the Company usurped various patentable inventions and trade secrets in connection with the development of its MINX systems. They also asserted a cause of action for patent infringement, and a cause of action requiring Datapoint to assign certain MINX-related patents and other intellectual property. On August 16, 1996, the Court dismissed with prejudice plaintiffs' claims of patent infringement against Datapoint and dismissed without prejudice plaintiff's pendent State law claims and Datapoint's State law counter-claims for lack of subject matter jurisdiction. Plaintiffs in this action moved to intervene in the Picturetel and CLI actions. In September 1997, the Company announced that it had received a court order approving a confidential agreement between the parties resolving this matter without further proceedings.
Multi-speed Networking Patents
Datapoint is also the owner of United States Patent Nos. 5,008,879 and 5,077,732 related to Local Area Networks ("LAN"). The Company believes these patents cover most products introduced by various suppliers to the local area network industry and dominates certain types of dual-speed LAN Adaptor Products recently introduced by various industry leaders. Datapoint has asserted one or both of these patents in the United States District Court for the Eastern District of New York against a number of parties:
(1) Datapoint Corporation v. Standard Micro-Systems, Inc. and Intel Corporation, No. C.V.-96-1685;
(2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp., Accton Technologies Corp., Cabletron Systems, Inc., Bay Networks, Inc., Crosscom Corp. and Assante Technologies, Inc. No. CV 96 4534;
(3) Datapoint Corporation v. Dayna Communications, Inc., Sun Microsystems, Inc., Adaptec, Inc. International Business Machines Corp., Lantronix, SVEC America Computer Corporation, and Nbase Communications, No. CV 96 6334; and
(4) Datapoint Corporation v. Standard Microsystems Corp. and Intel Corp., individually, and as representatives of the class of all manufacturers, vendors and users of Fast Ethernet-compliant, dual protocol local-area network products, No. CV-96-03819.
These actions have been consolidated for discovery. No trial date has been set. In addition, discussions are taking place with certain companies which may include one or more of the above companies in an attempt to reach agreement on licensing arrangements.
The above actions represent the Company's continuing efforts to license and enforce its video conferencing and multi-speed networking patents through negotiations and/or litigation. The Company believes that these patents provide broad coverage in video conferencing and multi-speed networking technology and present the opportunity for further royalty bearing licenses. Such royalty bearing licenses and enforcement of its patents are a primary strategy of the Company's business to create long-term value for its stockholders.
The Company utilizes a number of trademarks, most importantly "DATAPOINT", "ARCNET" and "MINX". The Company registers or otherwise protects those trademarks it deems valuable to its business and anticipates no significant impairment of its ability to continue to use and protect its important trademarks. Datapoint, the "D" logo, ARC, ARCNET, RMS, MINX, and Resource Management System are trademarks of Datapoint Corporation registered in the U.S. Patent and Trademark office. Attached Resource Computer, ARCNETPLUS, and DATALAN are trademarks of the Company. (AT&T is a registered trademark of American Telephone and Telegraph. Ethernet is a registered trademark of Xerox Corporation. Intel is a registered trademark of Intel Corporation. Microsoft and MS-DOS are registered trademarks of Microsoft Corporation. UNIX is a registered trademark of UNIX System Laboratories, Inc.)
Employees
At August 2, 1997, the Company had 641 employees. The Company considers its relations with employees to be satisfactory.
Environmental Matters
Compliance with current federal, state, and local regulations relating to the protection of the environment has not had, and is not expected to have, a material effect upon the capital expenditures, earnings, or competitive position of Datapoint.
ITEM 2.
ITEM 2. Properties.
Datapoint's principal executive offices are located in Paris, France and in San Antonio, Texas. Datapoint believes that its plants and offices are generally well maintained, in good operating condition and are adequately equipped for their present use. Information regarding the principal plants and properties, excluding leases assigned or subleased, as of August 2, 1997, is as follows:
Approximate Facility Location Use Sq. Footage Owned or Leased Land Area
San Antonio, Texas Office 144,000 Owned; 12 acres (Subject to mortgage)* Gouda, Netherlands Office 52,000 Owned; 1 acre (Subject to mortgage) Paris, France Office 7,000 Leased; expires June 30, 1999
Additionally, at August 2, 1997, excluding leases assigned or subleased, the Company leased sales and service offices having an aggregate of 295,000 square feet in metropolitan areas throughout the world, pursuant to lease agreements which expire between 1997 and 2009. The aggregate annual rental of all of these sales and service offices is approximately $3.6 million and most of these leases are subject to rental increases under certain escalation provisions and renewals on similar terms.
*Subsequent to year end, the Company entered into a contract to sell the three buildings it owns in San Antonio, Texas to a private unaffiliated group for approximately $3.1 million (net of mortgage obligations and closing costs). The sales contract provides for the leaseback by the Company of one of the buildings (approximately 40,000 square feet) for an initial lease term of five years. The sale of the buildings closed on October 27, 1997.
ITEM 3.
ITEM 3. Legal Proceedings.
In John Frassanito and David A. Monroe v. Datapoint Corp., No. H-95-812 (S.D. Tex) plaintiffs alleged that the Company usurped various patentable inventions and trade secrets in connection with the development of its MINX systems. They also asserted a cause of action for patent infringement, and a cause of action requiring Datapoint to assign certain MINX-related patents and other intellectual property. On August 16, 1996, the Court dismissed with prejudice plaintiffs' claims of patent infringement against Datapoint and dismissed without prejudice plaintiff's pendent State law claims and Datapoint's State law counter-claims for lack of subject matter jurisdiction. Plaintiffs in this action moved to intervene in the Picturetel and CLI actions. In September 1997, the Company announced that it had received a court order approving a confidential agreement between the parties resolving this matter without further proceedings.
From time to time, the Company is a defendant in lawsuits generally incidental to its business. The Company is not currently aware of any such suit, which if decided adversely to the Company, would result in a material liability.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
ITEM 5.
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Datapoint Corporation common stock is traded on the New York Stock Exchange under the symbol "DPT". As of October 17, 1997, there were approximately 3,062 holders and 17,817,728 outstanding shares of Common Stock. The prices below represent the high and low prices for composite transactions for stock traded during the applicable period. The Company has not paid cash dividends to date on its common stock and has no present intention to pay cash dividends on its common stock in the near future.
Fiscal year High Low
1997 Q4 3.13 .94 Q3 1.13 .88 Q2 1.50 1.00 Q1 1.63 .94
High Low
1996 Q4 1.88 1.00 Q3 1.88 1.00 Q2 1.50 1.00 Q1 2.38 1.38
ITEM 6.
ITEM 6. Selected Financial Data.
Selected Financial Data Five-Year Comparison (Dollars in thousands, except per share data)
No cash dividends on common stock have been declared during the five-year period. Net income for 1996 includes a gain of $32.2 million resulting from a divestiture. See notes to Consolidated Financial Statements and Management Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Throughout 1997, the Company's main objectives to preserve and improve the Company's cash liquidity and financial position and to allow the Company to meet its future operating cash flow requirements were as follows:
1. Product marketing to maintain stabilized revenue levels, 2. Continued review and reduction of operating costs, 3. One-time cash infusions to meet operating requirements; and 4. The vigorous pursuit of patent royalties due from the licensing and enforcement of its video conferencing and multi- speed networking patents.
During 1997, the Company had net income of $2.4 million compared with net income of $19.3 million for the previous year. Included in the net income of $19.3 million for 1996 is a $32.2 million non-operating gain related to the sale of EADS in the fourth quarter of 1996.
Included in non-operating income for 1997 is $6.2 million related to transaction gains resulting from the strengthening U.S. dollar against foreign currencies. This compares to a gain of $0.7 million for the prior year. These gains on short term intercompany notes and international subsidiary U.S. dollar denominated cash are offset by a translation adjustment to Stockholders' Equity and therefore have no impact on the Company's consolidated financial position.
During 1997, the Company had total revenue of $142.1 million, a decrease of $37.4 million from the previous year. Approximately $17.5 million of the decrease is attributable to the loss of business (mostly service) resulting from the sale of EADS to Kalamazoo. Approximately $7.2 million was due to the unfavorable impact related to the strengthening U.S. dollar when compared with the same period in the prior year. The remainder was primarily due to a weaker sales performance in two of the Company's western European subsidiaries when compared to the previous year.
Operating expenses (research and development plus selling, general & administrative) for 1997 were $37.5 million, a decrease of $16.8 million from the $54.3 million recorded in 1996. Approximately $6.6 million of the decrease is attributable to the sale of EADS. Approximately $1.1 million is related to the effect of the strengthening U.S. dollar when compared with the same period a year ago, and the remainder due to cost cutting actions undertaken by the Company. The Company recorded restructuring charges of $2.4 million in 1997, compared with $0.3 million recorded in the prior year.
During 1997 and 1996, the Company repurchased approximately $2.9 million and $0.7 million, in face value, of its 8 7/8% convertible subordinated debentures. This resulted in an extraordinary gain of $1.2 million and $0.3 million, respectively.
During the second quarter of 1997, the Company accepted 1,145,945 shares of its $1.00 Exchangeable Preferred Stock, having a liquidation preference $20 per share ("the $1.00 Preferred Stock"), which was tendered in its exchange offer (the "exchange offer") described in the proxy statement/prospectus delivered to the holders of the Company's common stock, par value $.25 per share (the "Common Stock"), and to the holders of $1.00 Preferred Stock. Under the terms of the exchange offer, each share of $1.00 Preferred Stock tendered was exchanged for 3.25 shares of Common Stock. The exchange offer expired December 10, 1996. The tendered shares approximated 61.34% of the total outstanding shares of $1.00 Preferred Stock immediately prior to the expiration of the exchange offer. For purposes of calculating net income applicable to common shareholders and related per share amounts, a gain on exchange and retirement of preferred stock has been added to net income or loss. This gain includes the excess of the carrying value of preferred stock accepted in the exchange over the fair value of the common stock issued. In addition, the gain includes accumulated dividends on the retired preferred stock. The effect of this gain on income before extraordinary items per common share was approximately $.23 for the year ended August 2, 1997.
The Company's proposal to its stockholders to adopt an amendment to the Company's certificate of incorporation whereby all outstanding shares of its $1.00 Preferred Stock would be automatically converted into the right to receive 3.25 shares of Common Stock, did not receive the requisite vote required of the approval of holders. The proposal required approval by at least two-thirds of the outstanding shares of $1.00 Preferred Stock and a majority of the outstanding shares of Common Stock, and thus was not adopted.
The Company is continuing to pursue actions that will provide cash infusions, including the sale of surplus real estate and/or selected assets of the Company, in order to improve its financial position. The Company had previously announced that consideration was being given to the potential sale of its telephony business. Subsequently, the Company decided not to pursue further negotiations with interested parties. The Company will continue to position itself as an integrated system provider of both telephonic and data transmission services, and as such, believes that its short term and long term prospects can be better maximized by retaining the telephony business.
Subsequent to year end, the Company entered into a contract to sell the three buildings it owns in San Antonio, Texas to a private unaffiliated group for approximately $3.1 million (net of mortgage obligations and closing costs). The sales contract provides for the leaseback by the Company of one of the buildings (approximately 40,000 square feet) for an initial lease term of five years. The sale of the buildings closed on October 27, 1997.
Financial Condition and Liquidity
During 1997, the Company's net cash provided from operations was $2.6 million. Primarily, this was attributable to net income and strong accounts receivable collections, offset by payments of long-standing vendor obligations and other accrued liabilities, which include $2.6 million in payments for restructuring costs.
During 1997, net cash used in investing activities was $4.2 million. Included in this amount is $3.6 million of fixed asset purchases (primarily test equipment, spares, internally-used equipment and a subsidiary's building renovation).
Net cash used in financing activities was $3.8 million in 1997, primarily related to the net paydown of the Company's borrowings.
As of August 2, 1997, the Company had restricted cash of $0.2 million as compared to $0.9 million in the prior year. The 1997 and 1996 balances were restricted primarily to cover various lines of credits, reflected as payables to banks.
Accounts payable decreased to $12.2 million in 1997 from $20.3 million in 1996. Throughout the year, the Company continued to work with its accounts payable creditors to extend additional credit and credit terms, thus maintaining functional relationships with such creditors during 1997. The Company has no significant purchase commitments outstanding as of August 2, 1997.
The Company's cash and cash equivalents decreased $7.7 million to $15.5 million. The decrease in cash was chiefly a result of the revenue decline, payments of long-standing vendor obligations, and payment of other accrued liabilities including executive contractual bonuses. These were partially offset by continued strong collections of accounts receivables. The Company used $1.7 million to repurchase 8-7/8% convertible subordinated debentures with a face value of $2.9 million.
As of August 2, 1997, the Company has included in payables to banks an amount of $3.7 million payable to International Factors "De Factorij" B.V., a subsidiary of ABN-AMRO Bank of the Netherlands. The loan is secured by the building that the Company's Dutch subsidiary owns in the Netherlands, and by certain receivables of the Company's U.K. and Dutch subsidiaries.
The Company has available lines of credit from foreign banks to its foreign subsidiaries. The unused lines of credit at August 2, 1997, totaled $2.6 million after borrowings of $7.3 million.
The Company believes its available cash, cash equivalents and funds generated by operations will be sufficient to provide its working capital and cash requirements for fiscal 1998. In addition, management believes the Company will be able to discharge its obligations in the long term with cash generated from operations and other sources such as sale of selected assets and/or capital transactions.
During 1993, the Company settled a long standing patent-related legal action brought against it by Northern Telecom Inc. ("NTI"). Pursuant to this settlement, during 1994 and 1993, the Company paid NTI $1.0 million and $7.5 million, respectively. The Company also agreed to a ten-year note payable to NTI which required annual $1.0 million payments each December. As of June 24, 1996, the December 1994 and December 1995 installments were in arrears. From the proceeds of the sale of EADS, the Company paid NTI $2.2 million representing payment of these deferred payments plus accrued and unpaid interest. On July 1, 1996, the Company entered into an agreement with NTI pursuant to which Datapoint paid $5.05 million to NTI in full satisfaction of all amounts due and to be due. The prepayment agreement relieved the Company of its obligation to make the annual $1.0 million payments, as well as certain contingent payment obligations.
As a result of the Company's capital deficiency which existed at the end of 1994 and throughout 1995, 1996, and 1997, the Company determined not to pay the quarterly preferred dividend payments due to stockholders during the period of October 15, 1994 through October 15, 1997. On January 16, 1996, the Company announced that it was in arrears on its $1.00 preferred stock in an aggregate amount equal to six full quarterly dividends. As a result, each holder of $1.00 preferred stock has the right to exchange each such share (inclusive of all accrued and unpaid dividends) into two shares of the Company's common stock. Under this right of exchange, 28,300 shares of $1.00 preferred stock were converted to 56,600 shares of common stock during 1996. In addition, as a result of the dividend arrearages the number of directors constituting the Board of Directors of the Company was increased by two with the vote of the holders of the $1.00 preferred stock (not including those who have exchanged $1.00 preferred stock for the Company's common stock). These rights continue until such time as the arrearages have been paid in full.
At August 2, 1997, the Company had available federal tax net operating losses aggregating approximately $176.0 million, expiring in various amounts beginning in 2001. In the event that the Company's ability to utilize its net operating losses to reduce its federal tax liability with respect to current and future income becomes subject to limitation, the Company may be required to pay, sooner than it otherwise might have to, any amounts owing with respect to such federal tax liability, which would reduce the amount of cash otherwise available to the Company (see note 4 to Consolidated Financial Statements).
In December 1994, a lawsuit was brought against the Company involving the earlier sale of real estate by the Company. In April 1996, an adverse jury verdict was rendered against the Company and two of its executive officers. During the fourth quarter of 1996, a settlement was reached among the litigants. As such, the District Court entered a Judgment Non Obstante Veredicto (Judgment Notwithstanding the Verdict) that set aside the jury's findings against the Company and its two executive officers and set aside all damages. The $3.3 million settlement avoided considerable expense, including the business disruption of a protracted appeal and legal process, and had no material impact on the Company's then current cash position. The settlement included payment of funds from a non-working capital trust fund which were otherwise not available to the Company, issuance of a short term note, and shares of the Company's common stock.
Reorganization/Restructuring Costs (In thousands)
A rollforward of the restructuring accrual from July 30, 1994 through August 2, 1997 is as follows:
TOTAL Restructuring accrual as of July 30, 1994 $13,988 Fiscal 1995 additions 9,213 Fiscal 1995 asset write-offs (1,895) Fiscal 1995 payments (17,138) - ---------------------------------------------------------------- Restructuring accrual as of July 29, 1995 $4,168 Fiscal 1996 additions 263 Fiscal 1996 payments (3,776) - ---------------------------------------------------------------- Restructuring accrual as of July 27, 1996 $ 655 Fiscal 1997 additions 2,425 Fiscal 1997 payments (2,572) - ---------------------------------------------------------------- Restructuring accrual as of August 2, 1997 $508 ====
The projected payout of the restructuring accrual balance as of August 2, 1997, which relates almost entirely to unpaid employee termination costs, is as follows:
First quarter 1998 $ 203 Second quarter 1998 166 Third quarter 1998 34 Fourth quarter 1998 34 Beyond 71 - ----------------------------------------------------------- Restructuring accrual as of August 2, 1997 $ 508 =======
Restructuring charges are not recorded until specific employees are determined (and notified of termination) by management in accordance with its overall restructuring plan. Employee termination payments are generally paid out over a period of time rather than as one lump sum. Although a reasonable estimate of the amount of future termination costs cannot be made at this time, management expects to incur additional charges for terminations.
Results of Operations
The following is a summary of the Company's sources of revenue for each of fiscal 1997, 1996 and 1995:
(In thousands) 1997 1996 1995 ---- ---- ---- Sales: U.S. $4,241 $3,185 $5,728 Foreign 74,127 95,691 78,459 ------ ------ ------ 78,368 98,876 84,187
Service and other: U.S. 1,185 906 1,393 Foreign 62,568 79,759 89,321 ------ ------ ------ 63,753 80,665 90,714 ------ ------ ------
Total revenue $142,121 $179,541 $174,901 ======== ======== ========
1997 Compared to 1996
During 1997, the Company had total revenue of $142.1 million, a decrease of $37.4 million from the previous year. Approximately $17.5 million of the decrease is attributable to the loss of business (mostly service) resulting from the sale of EADS to Kalamazoo. Approximately $7.2 million was due to the unfavorable impact related to the strengthening U.S. dollar when compared with the same period in the prior year. The remainder was primarily due to a weaker sales performance in two of the Company's western European subsidiaries when compared to the previous year.
Gross profit margins during 1997 were 29.5% compared with 30.9% for 1996. The decrease was primarily due to high sales volume of a low margin commodity product in a Northern European subsidiary, a changing product mix toward lower margin, non-company sourced product and competitive pricing pressures worldwide.
Included in non-operating income for 1997 is $6.2 million related to transaction gains resulting from the strengthening U.S. dollar against foreign currencies, as compared to a gain of $0.7 million for the prior year. These gains, caused by the strengthening U.S. dollar against certain foreign currencies, relate to short term intercompany notes and international subsidiary U.S. dollar denominated cash.
Operating expenses (research and development plus selling, general & administrative) during 1997 declined 30.9% or $16.8 million from 1996 to $37.5 million. Approximately $6.6 million of the decrease is attributable to the sale of EADS. Approximately $1.1 million related to the effect of the strengthening U.S. dollar when compared with the same period a year ago, and the remainder due to cost cutting actions undertaken by the Company. The Company recorded restructuring charges of $2.4 million in 1997, compared with $0.3 million recorded in the prior year. Research and development expenses decreased from $2.7 million in 1996 to $2.1 million in 1997. Management expects research and development expenditures to remain relatively flat in 1998.
Non-operating results for 1996 include a gain of $32.2 million from the sale of the Company's European Automotive Dealer Management Systems business to Kalamazoo Computer Group, plc. and a $0.7 million in foreign currency exchange rate gains on certain of the Company's intercompany payables and receivables offset by a $3.3 million legal settlement.
1996 Compared to 1995
Total revenue increased by 2.7% to $179.5 million in 1996 from $174.9 million in 1995. The increase was primarily attributable to higher sales volume in certain of the Company's European subsidiaries offset by a declining maintenance revenue base in the European subsidiaries and a favorable impact of $2.2 million related to the weakening U.S. dollar when compared with the same period of the previous year.
Included in the $1.0 million operating income for 1996 is a $0.4 million inventory provision and a $2.7 million bonus accrual of which $2.1 million is related to contractual arrangements with three of the Company's executive officers. The bonus is based upon the pre-tax profitability of the Company.
Gross profit margins during 1996 were 30.9% compared with 32.9% for 1995. Excluding the additional inventory provisions recorded in 1996, the gross profit margins were 31.2%. The decrease was primarily due to the impact of a high sales volume of a low margin commodity product in a Northern European subsidiary, a changing product mix toward lower margin, non-company sourced product and competitive pricing pressures worldwide.
Operating expenses (research and development plus selling, general & administrative) during 1996 declined 18.4% or $12.3 million from 1995 to $54.3 million. The decline was a result of the continued cost-cutting actions taken over 1996 and 1995 which reduced costs of internal operations offset by an unfavorable impact of $0.5 million related to the weakening U.S. dollar when compared with the same period a year ago. Research and development expenses decreased from $4.3 million in 1995 to $2.7 million in 1996. Management expects research and development expenditures to remain relatively flat in 1997.
Non-operating results for 1996 include a gain of $32.2 million from the sale of the Company's European Automotive Dealer Management Systems business to Kalamazoo Computer Group, plc. and a $0.7 million in foreign currency exchange rate gains on certain of the Company's intercompany payables and receivables offset by a $3.3 million legal settlement. Non-operating results for 1995 include the $1.7 million gain on the sale of vacant land in San Antonio, Texas, $1.0 million from the favorable settlement of two patent infringement lawsuits, and $1.5 million in foreign exchange rate losses on the Company's intercompany payables and receivables.
Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results
This Annual Report on Form 10-K contains forward-looking statements about the business, financial condition and prospects of the Company. The actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including without limitation changes in product demand, the availability of products, changes in competition, economic conditions, new product development, various inventory risks due to changes in market conditions, changes in tax and other governmental rules and regulations applicable to the Company, and other risks indicated in the Company's filings with the Securities and Exchange Commission. These risks and uncertainties are beyond the ability of the Company to control, and in many cases, the Company cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. When used in this Annual Report on Form 10-K, the words "believes," "estimates," "plans," "expects," and "anticipates" and similar expressions as they relate to the Company or its management are intended to identify forward- looking statements.
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Ernst & Young LLP Independent Auditors 17
Consolidated Financial Statements
Consolidated Statements of Operations for the fiscal years 1997, 1996 and 1995 18
Consolidated Balance Sheets as of August 2, 1997 and July 27, 1996 19
Consolidated Statements of Cash Flows for the fiscal years 1997, 1996 and 1995 20
Consolidated Statements of Stockholders' Deficit for the fiscal years 1997, 1996 and 1995 21
Notes to Consolidated Financial Statements 22
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
The Board of Directors Datapoint Corporation
We have audited the accompanying consolidated balance sheets of Datapoint Corporation and subsidiaries (the Company) as of August 2, 1997 and July 27, 1996 and the related consolidated statements of operations, stockholders' deficit and cash flows for each of the three fiscal years in the period ended August 2, 1997. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at August 2, 1997 and July 27, 1996 and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended August 2, 1997 in conformity with generally accepted accounting principles. Also, in our opinion the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas October 3, 1997
CONSOLIDATED STATEMENTS OF OPERATIONS Datapoint Corporation and Subsidiaries Fiscal Years 1997, 1996 and 1995 (In thousands, except share and per share data)
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS Datapoint Corporation and Subsidiaries August 2, 1997 and July 27, 1996 (In thousands, except share data)
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Datapoint Corporation and Subsidiaries Fiscal Years 1997, 1996 and 1995 (In thousands)
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT Datapoint Corporation and Subsidiaries Fiscal Years 1997, 1996, and 1995 (In thousands)
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Datapoint Corporation and Subsidiaries August 2, 1997, July 27, 1996 and July 29, 1995 (Dollars in thousands, except share data)
1. Summary of Significant Accounting Policies
Liquidity
The Company believes its available cash, cash equivalents and funds generated by operations will be sufficient to provide its working capital and cash requirements for fiscal 1998. In addition, management believes the Company will be able to discharge its obligations in the long term with cash generated from operations and other sources such as sale of selected assets and capital transactions.
Fiscal Year
The Company utilizes a 52-53 week fiscal year. References to 1997, 1996 and 1995 are for the fiscal years ended August 2, 1997, July 27, 1996 and July 29, 1995.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated upon consolidation.
Cash and Cash Equivalents
Cash equivalents include short-term, highly-liquid investments with maturities of three months or less from date of acquisition and as a result the carrying value approximates fair value because of the short maturity of those instruments.
Inventories
Inventories are stated at the lower of standard cost (approximates first-in, first-out) or market (replacement cost as to raw materials and net realizable value as to work in process and finished products).
Fixed Assets
Fixed assets are carried at cost and depreciated for financial purposes using straight-line and accelerated methods at rates based on the economic lives of the assets, which are generally as follows:
Buildings and land improvements 5-30 years Machinery, equipment, furniture and fixtures 3-10 years Equipment leased to customers 4 years Field support spares 3 years
Major improvements that add to the productive capacity or extend the life of an asset are capitalized while repairs and maintenance are charged to expense as incurred.
In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The Company adopted Statement No. 121 in the first quarter of 1997. The adoption of the new impairment rules did not have a material impact on the Company's financial statements.
Debt
The carrying amount and the fair value of the Company's debt at August 2, 1997 are:
Carrying Fair Amount Value 8-7/8% convertible subordinated debentures $60,783 $41,332
The fair value of the Company's 8-7/8% convertible subordinated debentures is based on a quoted market price at August 1, 1997.
Translation of Foreign Currencies
Management has determined that all of the Company's foreign subsidiaries operate primarily in local currencies. All assets and liabilities of foreign subsidiaries are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date, while income and expense accounts are translated at average exchange rates during the year.
Reclassifications
Certain reclassifications to the financial statements for prior years have been made to conform to the 1997 presentation.
Revenue Recognition
Revenue is recognized in accordance with the following criteria:
o Sales revenue is generally recognized at the time of shipment provided that there are no significant vendor and post-contract support obligations and that collections of the resulting receivable are probable. If such obligations are present in the contract, revenue is not recognized until such time as the contractual obligations are met. o Software revenue is recognized when the program is shipped, or as the monthly license fees accrue, or over the terms of the support agreement. o Service revenue is recognized ratably over a contractual period or as services are provided. o Lease revenue is recognized on the operating method ratably over the term of the lease.
Income Taxes
The provision for income taxes is reduced by investment tax credits, which are recognized in the year the assets giving rise to the credits are placed in service (flow-through method) or when realized for income tax purposes, if later.
No tax provision has been made for the undistributed earnings of foreign subsidiaries as management expects these earnings to be reinvested indefinitely or received substantially free of additional tax.
Net Income (Loss) per Common Share
Net income (loss) per common share is based on the weighted average number of common shares outstanding during each year presented. The Company's common stock equivalents, which include convertible debt, were antidilutive in each year presented and therefore, were excluded from the computations. The 1997, 1996 and 1995 computations include the effect of dividends paid or accumulated on preferred stock of $1,009, $1,885, and $1,815, respectively. For 1996, convertible preferred stock has been included in the fully diluted calculation. The convertible preferred stock was antidilutive for 1997, and therefore, excluded from the fully diluted calculation. The FASB has recently issued SFAS No. 128, "Earnings per Share". The Company will adopt this new standard at the beginning of fiscal year 1998 and will not have a material impact on earnings per share.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
2. Reorganization/Restructuring Costs
1997 1996 1995 ---- ---- ----
Employee termination costs $2,425 $251 $6,842 Lease termination costs -- -- 296 Asset write-offs -- 12 2,075 - -------------------------------------------------------------------------- $2,425 $263 $9,213 ==========================================================================
The Company's 1997, 1996, and 1995 restructuring charges primarily have been driven by management's efforts to implement cost cutting measures in light of its overall plan to return to profitability. In addition, continued competitive pressures in the Company's industry and a slowdown of customer orders have influenced the level of restructuring charges. Employee termination costs during 1997 relate to forty terminated employees at several European subsidiaries. At August 2, 1997, accrued but unpaid restructuring costs were $508.
Restructuring charges are not recorded until specific employees are determined (and notified of termination) by management in accordance with its overall restructuring plan. Employee termination payments are generally paid out over a period of time rather than as one lump sum. Although a reasonable estimate of the amount of future termination costs cannot be made at this time, management expects to incur additional charges for terminations.
3. Non-operating Income (Expense) 1997 1996 1995 - ----------------------------------------------------------------------- Interest earned $526 $421 $959 Foreign currency gains (losses) 6,195 728 (1,480) Realized gain on sale of property -- -- 1,709 Litigation settlements -- (2,945) 1,000 Other (797) (95) (2,768) - ------------------------------------------------------------------------ $5,924 $(1,891) $(580) ========================================================================
Included in non-operating income for fiscal year 1997, is $6.2 million related to transaction gains resulting from the strengthening U.S. dollar against foreign currencies, as compared to a gain of $0.7 million during the same period a year ago. These gains on short term intercompany notes and international subsidiary U.S. dollar denominated cash are offset by a translation adjustment to Stockholders' Equity and therefore have no impact on the Company's consolidated financial position.
4. Income Taxes
The provision for taxes consisted of the following:
1997 1996 1995 - -------------------------------------------------------------------------------- Income (loss) before income taxes and extraordinary credit: U.S. $(3,262) $(771) $(22,305) Outside the U.S. 4,443 23,478 (5,839) - -------------------------------------------------------------------------------- $1,181 $22,707 $(28,144) ================================================================================
Provision for income taxes: U.S. federal: Current $-- $6 $53
Outside the U.S.: Current 554 2,266 229 Deferred (546) 1,420 (83) - -------------------------------------------------------------------------------- 8 3,686 146 - -------------------------------------------------------------------------------- Total provision $8 $3,692 $199 ================================================================================
The differences between the tax provision in the financial statements and the tax benefit computed at the U.S. federal statutory rates are:
1997 1996 1995 - ----------------------------------------------------------------------------- Income taxes (tax benefits) at statutory rate $413 $7,947 $(9,850) Increase in taxes resulting from: Benefit of U.S. tax loss not recognized 1,137 262 7,791 Foreign losses and other transactions on which a tax benefit could not be recognized 14 573 1,952 Effect of foreign tax refunds and U.S. tax associated with dividends paid -- 6 53 Effect of federal tax rate less than (greater than) foreign tax rates 152 (539) 364 Benefit of operating loss carryforwards (1,713) (4,566) (127) Other, net 5 9 16 - ----------------------------------------------------------------------------- Provision for income taxes $8 $3,692 $199 =============================================================================
The undistributed earnings, indefinitely reinvested in international business, of the Company's foreign subsidiaries aggregated approximately $31,000 at August 2, 1997. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable.
The primary components of deferred income tax assets and liabilities are as follows:
1997 1996 Deferred income tax assets: Property, plant and equipment $3,848 $7,794 Loss and credit carryforwards 72,035 71,519 Accrued restructuring costs 178 335 Other 6,328 8,956 - --------------------------------------------------------------------------- 82,389 88,604 Less: valuation allowance 78,971 86,411 - --------------------------------------------------------------------------- 3,418 2,193 Deferred income tax liabilities: Accrued retirement costs (441) (1,930) Foreign exchange gains (578) -- Other (672) (1,144) - --------------------------------------------------------------------------- (1,691) (3,074) Net deferred income tax asset (liability) $1,727 $(881) ============================================================================
At August 2, 1997, the net deferred income tax asset of $1,727 was presented in the balance sheet, based on tax jurisdiction, as deferred income tax assets of $3,418 and deferred income tax liabilities of $1,691. Realization of the Company's deferred tax assets is dependent on generating sufficient taxable income in certain taxing jurisdictions prior to the expiration of loss and credit carryforwards. Management believes that more likely than not, certain deferred tax assets will not be fully realized in the near future and has therefore provided a valuation allowance to reserve for those deferred tax assets not considered realizable.
At August 2, 1997, the Company had tax operating loss carryforwards approximating $176,000 and $20,000 for federal and foreign tax purposes, respectively, expiring in various amounts beginning in 2001 and 1997, respectively. Federal long-term capital loss carryforwards of $1,500 expire in various amounts beginning in 1998. Utilization of the ordinary and capital tax loss carryforwards is subject to limitation in the event of a more than 50% change in ownership of the Company.
The Company had unused investment, research, and alternative minimum tax credits for income tax purposes at August 2, 1997 of approximately $3,300 expiring at various dates through 2001 which may be used to offset future tax liabilities of the Company. Utilization of these credits is subject to limitation in the event of a more than 50% change in ownership of the Company.
5. Inventories 1997 1996
Finished and purchased products $2,742 $2,606 Work in process 1,077 389 Raw materials 143 731 - ------------------------------------------------------------------ $3,962 $3,726
6. Fixed Assets Accumulated Cost Depreciation Net
August 2, 1997 Property, plant and equipment: Buildings and land improvements $15,050 $10,799 $4,251 Machinery, equipment, furniture and fixtures 34,417 29,766 4,651 Land 1,237 -- 1,237 - -------------------------------------------------------------------------------- 50,704 40,565 10,139 Field support spares 12,626 11,001 1,625 Equipment leased to customers 3,243 3,243 -- - -------------------------------------------------------------------------------- $66,573 $54,809 $11,764 ================================================================================
July 27, 1996 Property, plant and equipment: Buildings and land improvements $17,093 $12,598 $4,495 Machinery, equipment, furniture and fixtures 91,553 84,946 6,607 Land 1,414 -- 1,414 - -------------------------------------------------------------------------------- 110,060 97,544 12,516 Field support spares 14,161 12,238 1,923 Equipment leased to customers 5,125 4,939 186 - -------------------------------------------------------------------------------- $129,346 $114,721 $14,625 ================================================================================
During fiscal year 1997, the Company disposed of fully depreciated and non-utilized fixed assets with an approximate cost and accumulated depreciation of $62.5 million.
Subsequent to year end, the Company entered into a contract to sell the three buildings it owns in San Antonio, Texas to a private unaffiliated group for approximately $3.1 million (net of mortgage obligations and closing costs). The sales contract provides for the leaseback by the Company of one of the buildings (approximately 40,000 square feet) for an initial lease term of five years. The sale of the buildings closed on October 27, 1997.
7. Lease Commitments
The Company leases certain facilities and equipment under various leases. Substantially all of the leases are classified as operating leases. Rental expense for operating leases for 1997, 1996 and 1995 was $5,933, $7,386, and $10,922, respectively. Most of the leases contain renewal options for various periods and require the Company to maintain the property. Certain leases contain provisions for periodic rate adjustments to reflect Consumer Price Index changes.
At August 2, 1997, future minimum lease payments for noncancelable leases totaled $15,728 and are payable as follows: 1998-$3,661; 1999-$3,177; 2000-$2,530; 2001-$2,250; 2002-$2,131 and $1,979 thereafter.
8. Payables to Bank
As of August 2, 1997, the Company had included in payables to banks an amount of $3,662 payable to International Factors "De Factorij" B.V., a subsidiary of ABN-AMRO Bank of the Netherlands. The loan is secured by the building that the Company's Dutch subsidiary owns in the Netherlands, and by certain receivables of the Company's U.K. and Dutch subsidiaries.
The weighted average interest rate for short term borrowings as of the fiscal year end was 7.7% , 9.0%, 10.1% for 1997, 1996, and 1995, respectively.
The Company has available lines of credit from foreign banks to its foreign subsidiaries. The unused lines of credit at August 2, 1997, totaled $2.6 million after borrowings of $7.3 million.
9. Accrued Expenses 1997 1996 - ------------------------------------------------------------------------
Salaries, commissions, bonuses and other benefits $7,528 $9,247 Taxes other than income taxes 4,612 11,161 Reorganization/restructuring costs 508 655 Other 7,547 8,193 - ------------------------------------------------------------------------ $20,195 $29,256
10. Long-Term Debt 1997 1996 - -------------------------------------------------------------------------
8-7/8% convertible subordinated debentures $60,783 $63,652 6.5% to 9.0% real estate notes 294 530 Other obligations 1,069 2,877 - ------------------------------------------------------------------------- 62,146 67,059 Less: current maturities of long-term debt 1,271 3,114 - ------------------------------------------------------------------------- $60,875 $63,945 =========================================================================
Interest on the 8-7/8% convertible subordinated debentures is payable semiannually on June 1 and December 1. The debentures are subordinated in right of payments to all senior indebtedness, as defined, and are convertible into common stock of the Company at any time prior to the close of business on June 1, 2006, unless previously redeemed. Each one thousand dollar principal amount debenture is convertible into 55.231 shares of common stock and, as of August 2, 1997, there were 3,357,106 shares reserved for possible issuance. The debentures are entitled to a mandatory sinking fund, which commenced June 1, 1991, of $5,000 annually. The Company, at its option, may increase the sinking fund payment to $10,000 and may also receive credit against mandatory sinking fund payments for debentures acquired through means other than the sinking fund. The Company has applied $35,000 in previous debenture retirements against the sinking fund requirements for 1991 through 1997. The Company also intends to apply previous debenture retirements of $4,217 through August 2, 1997, against the sinking fund requirements for 1998. The debentures are also redeemable at the option of the Company, in whole or in part, at any time at 100% of the principal amount together with accrued interest to the date of redemption. During fiscal 1997, the Company repurchased debentures with a total face value of $2,869, resulting in an extraordinary gain of $1,210, with no related income taxes. Subsequent to August 2, 1997, the Company repurchased debentures with a face value of $875 resulting in extraordinary gains of $174.
During fiscal 1993, the Company settled a long standing patent-related legal action brought against it by NTI. The Company agreed to a ten-year note payable to NTI which required annual $1,000 payments beginning in December 1993. The Company was also contingently obligated to make payments to NTI dependent upon the Company's future profitability. During 1995 and 1994, the Company incurred no liability to make such contingent payments as a result of the net losses incurred. On June 25, 1996, the Company paid NTI $2.2 million representing the two deferred principal payments on the secured debt which were due December 1994 and December 1995 and accrued and unpaid interest. Additionally, on July 1, 1996, the Company entered into a prepayment agreement with NTI pursuant to which the Company paid $5.05 million to NTI in full satisfaction of all amounts due and to be due under the note. The prepayment agreement fully relieves the Company of its obligation to make annual $1.0 million payments to NTI that commenced in December 1993 and of which seven payments remained to be made, as well as certain contingent payment obligations.
Aggregate scheduled maturities of long-term debt are as follows: 1998--$1,271; 1999--$5,875; 2000--$5,000; 2001--$5,000; 2002--$5,000, and $40,000 thereafter.
11. Stockholders' Deficit
Throughout 1997, the Company issued 29,042 shares from common stock held in treasury to participants in the U.S. 401(k) retirement and savings plan.
During 1997 fiscal year, the Board of Directors elected to make a corporate contribution to the Datapoint Corporation Supplemental Executive Retirement Plan of 92,500 shares of the Company's common stock.
The $1.00 preferred stock has a liquidation preference of $20.00 per share and cumulative dividends of $1.00 annually. On January 16, 1996, the Company announced that it was in arrears on its $1.00 preferred stock in an aggregate amount equal to six full quarterly dividends. As a result, each holder of $1.00 preferred stock has the right to exchange each such share (inclusive of all accrued and unpaid dividends) into two shares of the Company's common stock. Under this right of exchange, 28,300 shares of $1.00 preferred stock were converted to 56,600 shares of common stock during 1996. In addition, as a result of the dividend arrearages the number of directors constituting the Board of Directors of the Company was increased by two with the vote of the holders of the $1.00 preferred stock (not including those who have exchanged $1.00 preferred stock for the Company's common stock). These rights continue until such time as the arrearages have been paid in full. Dividends of $2,166 and $3,700 were accumulated and unpaid at August 2, 1997 and July 27, 1996, respectively.
During the second quarter of 1997, the Company accepted 1,145,945 shares of its $1.00 Exchangeable Preferred Stock, having a liquidation preference $20 per share ("the $1.00 Preferred Stock"), which was tendered in its exchange offer (the "exchange offer") described in the proxy statement/prospectus delivered to the holders of the Company's common stock, par value $.25 per share (the "Common Stock"), and to the holders of $1.00 Preferred Stock. Under the terms of the exchange offer, each share of $1.00 Preferred Stock tendered was exchanged for 3.25 shares of Common Stock. The exchange offer expired December 10, 1996. The tendered shares approximated 61.34% of the total outstanding shares of $1.00 Preferred Stock immediately prior to the expiration of the exchange offer. For purposes of calculating net income applicable to common shareholders and related per share amounts, a gain on exchange and retirement of preferred stock has been added to net income or loss. This gain includes the excess of the carrying value of preferred stock accepted in the exchange over the fair value of the common stock issued. In addition, the gain includes accumulated dividends on the retired preferred stock. The effect of this gain on income before extraordinary items per common share was approximately $.23 for the year ended August 2, 1997.
12. Stock Option Plans
At August 2, 1997, 4,578,404 shares were reserved for issuance in connection with the Company's stock option plans. Total options outstanding for all plans total 2,205,971 with a weighted average exercise price of $2.10.
Under the Company's employee stock option plans, officers and other key employees may be granted options to purchase common stock and related stock appreciation rights. Under the terms of these plans, options may be granted at no less than 75% of fair market value and expire no later than ten years from the date of grant. The Board may grant options exercisable in full or in installments, and has generally granted options at fair market value exercisable in two to four installments beginning one year from the date of grant. As of August 2, 1997 and July 27, 1996, options for 833,671 and 593,387 shares, respectively, under the employee plans were exercisable and no stock appreciation rights had been granted. Options outstanding as of August 2, 1997 have an average exercise price of $2.16 and expire during the period September 1997 through June 2007.
Employee Stock Option Plans Price Range Number of Shares of Shares Under Available under Option Option for Option Outstanding at July 30, 1994 $1.38-8.00 1,284,873 757,664 - ------------------------------------------------------------------------- Granted 2.69-3.94 557,000 (557,000) Exercised 1.38-1.63 (156,666) -- Canceled 1.63-7.38 (243,215) 243,215 Expired -- -- (18,049) - -------------------------------------------------------------------------- Outstanding at July 29, 1995 $1.38-8.00 1,441,992 425,830 - ------------------------------------------------------------------------- Granted 1.06-1.94 413,500 (413,500) Canceled 1.38-6.75 (667,321) 667,321 Expired -- -- (109,418) - -------------------------------------------------------------------------- Outstanding at July 27, 1996 $1.06-8.00 1,188,171 570,233 - ------------------------------------------------------------------------- Authorized -- -- 2,000,000 Granted $.94-1.44 1,022,800 (1,022,800) Exercised 1.38 (5,000) -- - ------------------------------------------------------------------------- Outstanding at August 2, 1997 $.94-8.00 2,205,971 1,547,433 ==========================================================================
On December 10, 1996, the stockholders approved a 1996 Director Stock Option Plan. The plan is similar to the Company's previous director stock option plans. The 1996 Director Plan provides for a one-time grant of an option to purchase, at fair market value as of the date of the grant, 25,000 shares of common stock to each director, and an additional 50,000 shares to the present and any newly elected Chairman of the Board. A maximum of 500,000 shares of common stock are reserved for the issuance of grants under the 1996 Director Plan, and the options, which vest immediately upon grant, expire five years from the date of grant. Total director options outstanding as of August 2, 1997 total 300,000 with a weighted average exercise price of $1.65 and expire during the period December 1998 through June 2002.
Director Stock Option Plans Price Range Number of Shares of Shares Under Available Under Option Option for Option Outstanding at July 30, 1994 $1.88-6.31 265,000 250,000 - ---------------------------------------------------------------------------- Canceled 2.50 (50,000) 50,000 - ---------------------------------------------------------------------------- Outstanding at July 29, 1995 $1.88-6.31 215,000 300,000 - ---------------------------------------------------------------------------- Expired 1.88 (25,000) -- - ---------------------------------------------------------------------------- Outstanding at July 27, 1996 $2.50-6.31 190,000 300,000 - ---------------------------------------------------------------------------- Authorized -- -- 500,000 Granted $1.19-1.63 275,000 (275,000) Expired $1.88-2.50 (165,000) -- - ---------------------------------------------------------------------------- Outstanding at August 2, 1997 $1.19-6.31 300,000 525,000 ============================================================================
The FASB has issued Statement No. 123, "Accounting for Stock-Based Compensation", ("SFAS No. 123") which requires either recognition or disclosure of a charge for the value of stock options granted. The Company adopted this statement in 1997 and has elected to continue to apply the provisions of Accounting Principles Board Opinion No. 25 and make the footnote disclosures required by SFAS No. 123.
Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost been determined based on the fair value of the options a the grant date for awards in 1997 and 1996, consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been the pro forma amounts indicated below:
(In thousands, except per share amounts) 1997 1996
Net income -- As reported $2,383 $19,342 -- Pro forma 2,046 19,265 Primary earnings per share -- As reported $.32 $1.30 -- Pro forma .30 1.30
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
1997 1996
Risk-free interest rate Employee stock option 6.20% 5.87% Board of director stock option 6.23% Expected dividend yield Employee stock option 0 0 Board of director stock option 0 Expected volatility Employee stock option .668 .668 Board of director stock option .668 Expected lives Employee stock option 6 6 Board of director stock option 3 Weighted average remaining contractual life Employee stock option 10 10 Board of director stock option 5
The weighted average fair value of options granted for the employee stock option plans in 1997 and 1996 was $.99 and $1.52, respectively and for the board of director options in 1997 was $1.23.
Summarized information about stock options outstanding as of August 2, 1997, is as follows:
Range of Exercise Prices $0.94-$1.94 $2.69-$4.94 $5.25-$8.00 - -------------------------------------------------------------------------------
Number of shares outstanding 1,658,300 503,671 344,000
Weighted average exercise price of shares outstanding $1.12 $2.77 $5.81
Weighted average remaining contractual life 8.1 years 8.3 years 5.6 years
Number of shares exercisable 412,500 377,171 344,000
Weighted average exercise price of shares exercisable $1.30 $2.79 $5.81
13. Information Relating to Business Segments and International Operations
Business Segment Information
The Company operates in one industry and is an international computer and communications systems marketer, manufacturer and developer. Additionally, the Company provides maintenance services on its products in the United States through a non-exclusive agreement with Decision Servcom, Inc. ("DSI") and services its products outside the United States through its international distributors and subsidiaries.
International Operations
The Company conducts the majority of its international marketing and service operations through its subsidiaries and, to a lesser extent, through various distributorship arrangements. For products manufactured domestically, the Company's policy is to transfer such products to and between affiliates at prices which reflect market conditions. Financial information on a geographic basis follows:
1997 1996 1995 - ------------------------------------------------------------------------------- Revenue - unaffiliated customers: United States - domestic $5,426 $4,090 $7,122 - export sales 2,088 3,529 3,899 Europe 133,845 170,806 162,146 Other international 762 1,116 1,734 - ------------------------------------------------------------------------------- Total revenue from unaffiliated customers 142,121 179,541 174,901
Revenue - intercompany: United States 2,450 4,572 6,390 Europe 81 105 427 Eliminations (2,531) (4,677) (6,817) ------------------------------------------------------------------------------- Total consolidated revenue $142,121 $179,541 $174,901 ===============================================================================
Operating income (loss): United States $(5,340) $(11,671) $(25,201) Europe 7,153 11,832 7,661 Other international 154 444 (979) Eliminations 66 412 287 - ---------------------------------------------------------------------------- Total operating income (loss) $2,033 $1,017 $(18,232) =============================================================================
Identifiable assets: United States $8,212 $16,471 $21,469 Europe 55,558 82,497 83,894 Other international 253 239 1,116 Eliminations (1,635) (5,389) (4,728) - -------------------------------------------------------------------------- Total identifiable assets $62,388 $93,818 $101,751 =========================================================================
14. Retirement Income Plans
Retirement expenses incurred by the Company were as follows:
1997 1996 1995 - -------------------------------------------------------------------- U.S.: Matching contributions $47 $55 $119
Outside the U.S.: Defined benefit plans 1,059 1,279 510 Other plans 730 970 675 - -------------------------------------------------------------------- 1,789 2,249 1,185 - --------------------------------------------------------------------
$1,836 $2,304 $1,304 ====================================================================
U.S. Plans
The Company adopted a 401(k) retirement and savings plan effective January 1988. The plan covers all full-time employees who have been employed for at least 12 months. The Company's retirement and savings plan contribution has been a 25% matching contribution for employee contributions up to 5% of each employee's compensation. At the Board's discretion, the Company may also contribute a profit sharing amount to the plan that is contingent upon the performance level of the Company at the net income line.
The Company maintains a Supplemental Executive Retirement Plan for certain executive employees selected by the Board of Directors. The plan provides for employee contributions of up to 10% of applicable compensation. In addition, at the Board's discretion, the Company may also make contributions on an annual, individual basis, allocated on a pro-rata basis according to participant's applicable compensation up to a maximum contribution of 15% of applicable compensation per employee. During the fiscal years ended August 2, 1997, July 27, 1996, and July 29, 1995, the Company approved the contribution of 92,500 shares of its common stock and 50,000 and 62,000 shares of its Preferred Stock, respectively, to the plan for credit to the accounts of various executive officers. The shares of preferred stock were converted into 364,000 shares of common stock on December 10, 1996, as a result of the exchange offer. Under the terms of the plan, benefits accrue to the various executive officers upon satisfaction of the plan's vesting criteria which is based upon length of employment with the Company.
Plans Outside the U.S.
Most of the Company's foreign subsidiaries provide retirement income plans which conform to the practice of the country in which they do business. The types of company-sponsored plans in use are defined benefit and defined contribution.
Five of the Company's subsidiaries, including the United Kingdom, utilize defined benefit plans with employee benefits generally being based on years of service and wages near retirement. The plans cover all full-time employees who have been employed for at least 12 months. Obligations under these plans are funded primarily through fixed rate of return investments, mostly insurance policies, except for Germany where reserves are established for the obligations. The United Kingdom's defined benefit plan was capped and was converted to a defined contribution plan in fiscal year 1993.
The Company's United Kingdom and New Zealand subsidiaries have defined contribution plans. The plans cover all full-time salaried employees who have been employed for at least 12 months and contributions are based upon a percentage of compensation. Obligations under this plan are funded primarily through deposits in pooled investments.
1997 1996 1995 - ----------------------------------------------------------------------
Defined benefit plans:
Service cost $417 $659 $998 Interest cost 2,255 2,219 1,931 Actual return on assets (2,950) (2,508) (887) Net amortization and deferral 1,337 909 (1,532) ----------------------------------------------------------------------
Net pension cost $1,059 $1,279 $510 ======================================================================
The funded plan status at August 2, 1997 and July 27, 1996 was:
1997 1996 Over- Under- Over- Under- funded funded funded funded Actuarial present value of:
Vested benefits -- $30,237 $22,533 $4,083
Accumulated benefit obligations -- $30,244 $22,912 $4,202
Projected benefit obligations -- $31,207 $23,861 $4,909
Plan assets at fair value -- $24,786 $24,476 $1,180
Plan assets in excess of (less than) projected benefit obligation -- (6,421) 615 (3,729) Unrecognized past service cost -- 233 -- -- Unrecognized net (gain) loss -- 6,788 4,676 (1,635) Unrecognized transition net loss -- 609 783 28 Minimum pension liability adjustment -- (6,698) -- --
Prepaid (accrued) pension cost -- $(5,489) $6,074 $(5,336)
Unrecognized gains and losses are amortized on a straight-line basis over five years.
Actuarial assumptions used to determine funded status for 1997 and 1996 varied between subsidiaries. Discount rates used to determine projected benefit obligations range from 4.5% to 7.6% in 1997 and from 5.0% to 9.0% in 1996. Rates of increase in future compensation levels range from 3.0% to 3.5% in both 1997 and 1996. The long-term rates of return on plan investments range from 4.5% to 10.0% in 1997 and from 5.0% to 10.0% in 1996.
15. Certain Relationships and Related Transactions
Director Agranoff is the Company's Vice President, General Counsel and Corporate Secretary , and a member of the law firm Pryor, Cashman, Sherman, & Flynn. During the fiscal years 1997, 1996, and 1995, Datapoint paid legal fees of $374, $485, and $51, respectively, to the law firm of Pryor, Cashman, Sherman, & Flynn, for legal services provided by attorneys other than Mr. Agranoff.
Director Thomas worked from August 1994 until May 1, 1995, as a special consultant for which he received compensation of $0.5 (five hundred dollars) per day payable in shares of common stock plus expenses. Subsequently, on May 5, 1995, in consideration of the additional work and responsibilities he had taken on for the Company as a special consultant, the Board of Directors approved a special compensation package for Director Thomas. From May 1, 1995, through July 31, 1995, he was paid at the rate of $0.5 (five hundred dollars) per day for his services, plus travel and housing expenses, plus additional compensation of a flat $2.0 (two thousand dollars) per week for expenses. On July 31, 1995, Director Thomas's consulting contract was extended until December 31, 1995, and then was to continue on a month-to-month basis to July 31, 1996. On December 5, 1995, Director Thomas was appointed to the position of Executive Vice President and Chief Operating Officer. Director Thomas was also entitled under the extended contract to participate in the Standard Health Benefit program until he was appointed Executive Vice President and Chief Operating Officer. At such time, he converted to the Executive Health Benefit program. During fiscal 1995, the Board also approved a one time special issuance of 45,000 shares of common stock of the Company to Director Thomas in recognition of his service to the Company. During the term Director Thomas acted as a special consultant he did not accrue or receive any regular Board or committee fees. Mr. Thomas was promoted to President on June 12, 1997, in addition to his position as Chief Operating Officer.
Director Ruffat had a consulting agreement from January 1994 through June 1995 under which he received a monthly compensation of $10. For 1996 and 1995 Director Ruffat was paid $50 and $80, respectively, for consulting services.
During fiscal 1997, the Company paid office rent and secretarial expenses of $73 to Canal Capital Corporation. Chief Executive Officer Edelman and Director Agranoff are Canal Capital Corporation board members, with Chief Executive Officer Edelman serving as Chairman of the Board.
16. Commitments and Contingencies
From time to time, the Company is a defendant in lawsuits generally incidental to its business. The Company is not currently aware of any such suit, which if decided adversely to the Company, would result in a material liability.
In 1994, the Company began patent infringement lawsuits against several defendants related to the Company's video conferencing patents and dual protocol local area networking patents. In 1995, the Company negotiated two settlements for an aggregate of $1.0 million and negotiated one settlement in 1996 for an undisclosed amount. Patent infringement suits against other defendants are pending. The aggregate amounts sought in these suits are substantial. However, no provision has been made in the accompanying financial statements for any possible gains or cash infusions resulting from favorable judgments in these suits.
In December 1994, a lawsuit was brought against the Company involving the earlier sale of real estate by the Company. In April 1996, an adverse jury verdict was rendered against the Company and two of its executive officers. During the fourth quarter of 1996, a settlement was reached among the litigants. As such, the District Court entered a Judgment Non Obstante Veredicto (Judgment Notwithstanding the Verdict) that set aside the jury's findings against the Company and its two executive officers and set aside all damages. The $3.3 million settlement avoided considerable expense, including the business disruption of a protracted appeal and legal process, and had no material impact on the Company's then current cash position. The settlement included payment of funds from a non-working capital trust fund which were otherwise not available to the Company, issuance of a short term note, and issuance of shares of the Company's common stock.
17. Divestitures
On May 28, 1996, the Company entered into an agreement with Kalamazoo Computer Group, plc, a public limited company organized under the laws of England ("Kalamazoo"), providing for the sale by Datapoint to Kalamazoo of Datapoint's European based Automotive Dealer Management Systems business ("EADS"), other than its United Kingdom operations, for a purchase price of $33.0 million.
As part of the agreement in connection with the sale of the EADS business, the Company agreed to continue to sell hardware to Kalamazoo at various discounts from its normal hardware prices and to continue to provide hardware service maintenance to Kalamazoo at a 15% discount from the Company's normal hardware service maintenance prices. The Company transferred to Kalamazoo all of its employees who were dedicated to the EADS business. The amounts below represent the operations of EADS sold to Kalamazoo plus the effect of discounts on the continuing EADS business which are included in the accompanying 1996 statement of operations.
Revenues $17,028 Costs and expenses 13,914
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not Applicable.
PART III
ITEM 10
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions and offices with the Company of the current directors and executive officers of the Company are set forth below. Director/ Age as of Officer Name Aug. 2, 1997 Position Since
A. B. Edelman 57 Director-Chairman of the Board and Chief Executive Officer 1985 B. D. Thomas 46 President , Chief Operating Officer and Director 1992 R. G. Conn 61 Vice President and Chief Financial Officer 1997 P. P. Krumb 55 Vice President, Special Assistant to the Chairman and Director 1994 G. N. Agranoff 50 Vice President, General Counsel, Corporate Secretary and Director 1994 I. J. Garfinkel 60 Director 1991 D. R. Kail 62 Director 1985 C. F. Robinson 51 Director 1996 D. M. M. Ruffat 61 Director 1993 R. D. Summer 64 Director 1996 R. Edmonds 52 Vice President, Technical Services 1996 W. Gevers 60 Vice President, OSN 1996 J. Perkins 49 Vice President, Development 1996
The principal occupations and business experience of each of the current directors and executive officers of the Company are described below.
ASHER B. EDELMAN, age 57, joined Datapoint's Board of Directors as its Chairman in March 1985, and has served in that capacity and as Chairman of its Executive Committee to the present date, and as Chief Executive Officer since February 1993. Mr. Edelman has served as General Partner of Asco Partners, a general partner of Edelman Securities Company L.P. since June 1984. Mr. Edelman is a director, Chairman of the Board and Chairman of the Executive Committee of Canal Capital Corporation, and is a General Partner and Manager of various investment partnerships and funds. The principal business address of Mr. Edelman is 19 rue de la Croix-d'or, 1204 Geneva, Switzerland.
BLAKE D. THOMAS, age 46, is currently the President and Chief Operating Officer of the Company. He is President of Blake D. Thomas, Inc., a corporation that until 1991 published The Thomas Report, an investment newspaper that specialized in evaluating stocks traded on the New York Stock Exchange, was General Partner of Mainsail Limited Partnership from 1990 until its dissolution in December 1992, has been since 1990 General Partner of Foresail Limited Partnership, which is engaged in the business of investing in listed securities; and has been since November 1991 President of Symba, Inc., which until April 1996 was the General Partner of Windward Limited Partnership. Windward was engaged in the business of investing in listed securities and was dissolved in April 1996. He has served as a director of Datapoint since 1992. He also served from August 1994 through December 1995 as a special consultant for the Board on Datapoint general management and business affairs. In December 1995 he assumed the position of Chief Operating Officer and in 1997 was appointed President, as well. The principal business address of Mr. Thomas is 4 rue d'Aguesseau 75008, Paris, France.
RONALD G. CONN, age 61, joined Datapoint as Vice President and Chief Financial Officer in June 1997. Mr. Conn most recently was with the architectural/engineering firm of Pellham-Phillips-Hagerman as chief executive officer for two years. Prior to that, he owned and operated a wood products manufacturing and retail sales business for 18 years, and was general manager of one of the most successful midwestern theme parks for seven years prior to that. The principal business address of Mr. Conn is 4 rue d'Aguesseau 75008, Paris, France.
PHILLIP P. KRUMB, age 55, is currently Vice President and Special Assistant to the Chairman. In addition, Mr. Krumb is the Company's Principal Accounting Officer until November 1, 1997. Mr. Krumb joined the Company in September 1994 and was Vice President and Chief Financial Officer from September 1994 to June 1997. Prior to joining the Company he was employed by IOMEGA Corporation for 7 years as Senior Vice President Finance and Chief Financial Officer. The principal business address of Mr. Krumb is 8410 Datapoint Drive, San Antonio, Texas 78229-8500.
GERALD N. AGRANOFF, age 50, is currently Vice President, General Counsel and Corporate Secretary of Datapoint. Mr. Agranoff has been a General Partner of Edelman Securities Company L.P. (formerly Arbitrage Securities Company) Plaza Securities Company for more than five years. Mr. Agranoff is a director of Bull Run Corporation, Atlantic Gulf Communities, The American Energy Group, Ltd., and Canal Capital Corporation. Mr. Agranoff has also been the General Counsel to Edelman Securities Company L.P. and Plaza Securities Company for more than five years. The principal business address of Mr. Agranoff is 8410 Datapoint Drive, San Antonio, Texas 78229-8500.
IRVING J. GARFINKEL, age 60, has been a General Partner of Asco Partners, a general partner of Edelman Securities Company L.P. (formerly Arbitrage Securities Company) for more than five years. Mr. Garfinkel also has been a General Partner and controller of Plaza Securities Company for more than the past five years. He has served as a director of Datapoint since 1991, and is Chairman of the Audit Committee and serves on the Compensation Committee. The principal business address of Mr. Garfinkel is 717 Fifth Avenue, 4th Floor, Suite 407, New York, New York 10022.
DANIEL R. KAIL, age 62, has been Managing Trustee of Management Assistance Inc. Liquidating Trust from January 1986 to December 31, 1996, and prior thereto had been a director, Executive Vice President and Chief Operating Officer since October 1984 of Management Assistance Inc., a computer manufacturing and servicing company. He also was a director and Executive Vice President of Canal Capital Corporation from 1987 until 1991. He has served as a director of Datapoint since 1985 and is Chairman of the Independent Committee and the Compensation Committee and a member of the Audit Committee. The principal business address of Mr. Kail is 105 North Avenue, Westport, Connecticut 06880.
CHARLES F. ROBINSON, age 51, has been General Partner of Anglo-American Financial since its inception in 1979. He is a Director and Senior Vice-President of Anglo-American Investor Services Corp. Anglo-American Financial was one of the first market makers in stripped bonds. Through its subsidiaries Anglo-American Financial has also acted as an options broker on the London Stock Exchange, an SEC registered Investment Advisor, and an NASD and SIPC broker-dealer selling fixed-income securities to financial institutions and individuals. He was a Chartered Accountant with Arthur Young in London where he was responsible for developing the firm's computer auditing procedures in the United Kingdom. Mr. Robinson obtained a Senior Optima in mathematics at Cambridge University and is a Fellow of the Institute of Chartered Accountants in England and Wales. The principal business address of Mr. Robinson is FSI/Anglo-American Financial, 675 Berkmar Court, Charlottesville, Virginia 22901.
DIDIER M. M. RUFFAT, age 61, is currently the Vice President of Digital Equipment Europe and the Managing Director of Digital Equipment France. He has served for 25 years in various capacities with France's BULL computer group, most recently as President and Chief Executive Officer of BULL Europe, and previously in senior executive positions in sales, marketing and finance. He has served as a director of Datapoint since December 1993 and is a member of the Compensation Committee. The principal business address of Mr. Ruffat is 8 rue de la Renaissance 92187, Antony Cedex, France.
ROBERT D. SUMMER, age 64, is currently President and Chief Executive Officer of Dimensional Media Associates, Inc. ("DMA"). Mr. Summer joined DMA after holding a series of high level positions in the music industry. As President and Chief Executive Officer, he guides DMA's transition from invention and product development to full operations, including the rollout of consumer, commercial and medical products. The company markets proprietary 3D optical technologies. Before joining DMA in 1995, Mr. Summer served as Executive Vice President, Sony Music Entertainment; and concurrently as President, Sony Entertainment European Community Affairs, representing the corporation's software interests to international government groups. He joined CBS Records International in 1986 as President and continued in that position through the company's acquisition by Sony in 1988. Mr. Summer joined CBS Records after nearly three decades with RCA Records, where he served in key executive posts including President, RCA/Ariola (now BMG); President, RCA Records; Vice President, RCA Records USA; Vice President, RCA Records International; and President, RCA Red Seal, the company's classical music division. Mr. Summer has served as Chairman of the Recording Industry Association of American (RIAA) and Vice President and member of The Board of Directors of the International Federation of the Phonographic Industry (IFPI) where he served a as key negotiator for the industry. He received his bachelor's degree in engineering from Carnegie Mellon University in 1955. The principal business address of Mr. Summer is Dimensional Media Associates, Inc., 22 West 19th Street, New York, New York 10011.
ROGER EDMONDS, age 52, was promoted to Vice President, Technical Services in February 1996. Mr. Edmonds joined the Company's United Kingdom subsidiary in 1972 as Project Leader, and has held various management positions within the Company. Mr. Edmonds is also currently Technical Director of the U.K. subsidiary. The principal business address of Mr. Edmonds is Datapoint House, 400 North Circular Road, London NW10 0JG.
WALTER GEVERS, age 60, was promoted to Vice President, OSN in March 1996. Mr. Gevers joined the Company as Managing Director, Datapoint Belgium in January 1983. Prior to joining the Company, Mr. Gevers was employed by SAIT Electronics, Datapoint's distributor in Belgium, for nineteen years as Sales Manager. The principal business address of Mr. Gevers is rue de la Fusee 100, 1130 Bruxelles, Belgium.
JOHN R. PERKINS, age 49, was promoted to Vice President, Development & Production in May 1996. Mr. Perkins joined the Company as Director, Engineering in 1981. Prior to joining the Company, Mr. Perkins was employed by General Electric Information Services Company as Market Planner. The principal business address of Mr. Perkins is 8410 Datapoint Drive, San Antonio, Texas 78229-8500.
There are no family relationships between any of the executive officers of the Company.
Audit, Compensation and Executive Committees
The Company has Audit, Compensation and Executive Committees of the Board of Directors. The Company does not have a Nominating Committee. The current members of the Audit Committee are Irving J. Garfinkel (Chairman), Daniel R. Kail and Charles F. Robinson. The current members of the Compensation Committee are Daniel R. Kail (Chairman), Didier M. M. Ruffat, Irving J. Garfinkel and Robert D. Summer. The members of the Executive Committee are Asher B. Edelman (Chairman) and Blake D. Thomas.
The Audit Committee annually recommends to the Board of Directors the independent auditors for the Company and its subsidiaries. They meet with the independent auditors concerning the audit; evaluate non-audit services and the financial statements and accounting developments that may affect the Company; meet with management concerning matters similar to those discussed with the outside auditors; and make reports and recommendations to the Board of Directors and the Company's management and independent auditors from time to time as it deems appropriate. The Committee met 5 times during the fiscal year ended August 2, 1997.
The Compensation Committee makes salary recommendations regarding senior management to the Board of Directors and administers the Company's Bonus and Stock Option Plan as described below. The Committee met 2 times during the fiscal year ended August 2, 1997.
Independent Committee
In connection with the aforementioned Exchange Offer, the Board created the Independent Committee, consisting of Director Daniel R. Kail, to consider the terms of the consideration to be offered in the Exchange Offer to the Holders of Preferred Stock. The terms of the Exchange Offer were approved by the Board of Directors upon the recommendation of the Independent Committee. Upon the consummation of the Exchange Offer, the Independent Committee was dissolved.
Meetings of the Board of Directors and Committees
The Board of Directors met 4 times during the fiscal year ended August 2, 1997. Each director attended at least 75% of the aggregate of (a) the total number of meetings of the Board of Directors (held during the period of his service) and (b) the total number of meetings held by all committees of the Board on which he served (during the period that he served).
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Datapoint believes that, during the fiscal year ended August 2, 1997, its officers and directors complied with all filing requirements under Section 16(a) of the Securities Exchange Act of 1934; except that executive officers Messrs. Edmonds, Gevers and Perkins failed to file Form 3 required by such Section.
ITEM 11
ITEM 11 EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors who are employees of Datapoint receive no additional compensation for serving on the Board of Directors or its committees. Each director who is not an employee of Datapoint receives fees as follows: Each non-employee director receives an annual fee of $15,000, payable in quarterly installments. Executive Committee members receive an additional $5,000 annual fee. Committee Chairmen receive an additional $2,000 annual fee. Board members serving on more than one committee receive an additional $1,000 annual fee. Each non-employee director also receives a fee of $750 for each Board meeting attended, $500 for each committee meeting attended and $500 for attendance at each meeting on Datapoint's business other than a Board of Directors or committee meeting. Each non-employee director is, at Datapoint's expense, provided with $50,000 of group term life insurance and $250,000 accidental death insurance. Each non-employee director has the option to purchase, at his own expense, coverage for himself and his dependents under Datapoint's group medical and dental insurance plan.
Datapoint maintains a retirement plan and a retirement medical care plan to cover non-employee Board members. Both plans presently are purely contractual rather than funded, and are self-insured except that retirees are required to participate in Medicare parts A and B. The retirement plan provides for a maximum annual benefit equal to a director's annual retainer in effect on the date of retirement. A partial benefit will be paid to directors with less than five years' service, and a full benefit will be paid to directors with five or more years of service. The benefit will be payable for the greater of ten years or life, and in the event a retiree should die within ten years of retirement, the remaining benefit will be paid to his estate. The retirement medical care plan affords non-employee directors, upon retirement, benefits and premiums equivalent to COBRA coverage available to certain former employees and/or dependents under Datapoint's group medical plan. Only directors elected to the Board prior to March 25, 1996 are eligible to participate in the retirement plan.
Director Thomas worked from August 1994 until May 1 1995 as a special consultant for which he received compensation of $500 per day payable in shares of common stock plus expenses. Subsequently, on May 5, 1995, in consideration of the additional work and responsibilities he had taken on for the Company as a special consultant, the Board of Directors approved a special compensation package for Director Thomas. From May 1, 1995, through July 31, 1995, he was paid at the rate of $500 per day for his services, plus travel and housing expenses, plus additional compensation of a flat $2,000 per week for expenses. On July 31, 1995, Director Thomas's consulting contract was extended until December 31, 1995 and then was to continue on a month-to-month basis to July 31, 1996. Upon the resignation of Doris Bencsik as President and Chief Operating Officer, Director Thomas was appointed on December 5, 1995 to the position of Executive Vice President and Chief Operating Officer. Director Thomas was also entitled under the extended contract to participate in the Standard Health Benefit program until he was appointed Executive Vice President and Chief Operating Officer. At such time, he converted to the Executive Health Benefit program. During fiscal 1995, the Board also approved a one time special issuance of 45,000 shares of common stock of the Company to Director Thomas in recognition of his service to the Company. During the term Director Thomas acted as a special consultant he did not accrue or receive any regular Board or committee fees. Mr. Thomas was promoted to President on June 12, 1997, in addition to his position as Chief Operating Officer.
Director Ruffat had a consulting agreement from January 1994 through June 1995 under which he received a monthly compensation of $10,000. For 1996 and 1995 Director Ruffat was paid $50,000 and $80,000, respectively, for consulting services.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
Datapoint's executive compensation program is based on three fundamental principles.
Datapoint must offer compensation opportunities sufficient to attract, retain and reward talented executives who are sufficiently capable of addressing the challenges of a worldwide business in a difficult industry.
Compensation should include a substantial component of pay-for-performance sufficiently related to the financial results of the Company and/or the executive's performance to financially motivate the executive's efforts to increase stockholder value. This may cause individual compensation amounts to change significantly from year to year.
Compensation should provide a direct link between the long-term interests of executives and stockholders. Through the use of stock-based incentives, the Compensation Committee focuses the attention of executives on managing the Company from the perspective of an owner with an equity stake.
For executive officers, compensation now consists primarily of base salary, a short-term performance incentive opportunity in the form of a variable cash bonus based on either the financial performance of the Company or of their area of responsibility, and a long-term incentive opportunity provided by stock options.
The committee also obtains ratification by the non-employee members of the Board on most aspects of compensation and long-term incentives for executive officers.
The remainder of this Report reviews the annual and long-term components of Datapoint's executive compensation program, along with the decisions made by the committee regarding fiscal year 1997 compensation for both the CEO and the other named executive officers.
Total Annual Compensation
Annual cash compensation consists of two components; a fixed base salary and a variable annual bonus opportunity. As an executive's level of responsibility increases, a larger portion of total annual pay is based on bonus and less on salary. Mr. Agranoff was the only named executive who received a salary increase during the past year, and Mr. Edelman's salary was last increased in December 1990. The Committee sets the base salary of executive officers based upon a subjective analysis of competitive salaries of equally qualified executives, occasionally confirmed by reference to general salary surveys; prior compensation of the individual or of previous holders of the position is also considered. Contractual minimum base salaries are customarily negotiated with the executives.
The short-term performance incentive bonus opportunity is established either as a percentage, unique for each individual, of a numerical corporate performance indicia, or as a target percentage of pay which is the amount that can be earned based upon assigned objectives being met. Performance is measured as a percent of attainment against these objectives. When performance exceeds objectives, an executive's incentive pay can exceed the target rate, and when it falls below, as was the case in fiscal years 1995 and 1994, individual incentive pay is reduced accordingly.
Messrs. Edelman's, Thomas's, Conn's, Agranoff's, and Krumb's bonuses are based on a contractually specified percentage of Datapoint's pre-tax profits, which are defined as net pre-tax earnings, excluding the excess over $10 million of the net of any extraordinary gains, due to debt repurchase or exchange, against all extraordinary losses. During fiscal year 1995, the Company incurred net losses and therefore no bonuses were paid in 1995 under these contractual arrangements. For the fiscal year 1996, an aggregate of approximately $2.1 million were paid under these contractual arrangements. For the fiscal year 1997, an aggregate of approximately $0.4 million was paid under these contractual arrangements.
The remainder of the named executives have been assigned bonus targets of a percentage of their base salary upon 100% achievement of individualized goals and objectives; a substantial portion of which are related to the financial performance of corporate functions relevant to their respective responsibilities.
Long Term Incentives
The committee believes that stock options appropriately link executive interests to the enhancement of stockholder value and utilizes them as its long-term incentive program; no additional long-term incentive programs are utilized. Stock options generally are granted at fair market value as of the date of grant, become exercisable over three years, and have a term of ten years. The stock options provide value to the recipients only when the price of Datapoint stock increases above the option grant price.
In 1997, the committee granted stock options to executive officers, as well as to other executives and selected key employees. In determining the size of the grant for Mr. Edelman and other named executive officers, the committee assessed the following factors: their potential by position and ability (i) to contribute to the creation of long-term stockholder value; (ii) to contribute to the successful execution of Datapoint's product line broadening strategy; and (iii) to implement Datapoint's cost reduction objectives; (iv) their relative levels of responsibility; and (v) the number of options they already held.
This report has been provided by the Compensation Committee.
Daniel R. Kail, Chairman Irving J. Garfinkel Didier M.M. Ruffat Robert D. Summer
Supplemental Executive Retirement Plan
The Company maintains a Supplemental Executive Retirement Plan for certain executive employees selected by the Board of Directors. The plan provides for employee contributions of up to 10% of applicable compensation. In addition, at the Board's discretion, the Company may also make contributions on an annual, individual basis, allocated on a pro-rata basis according to participant's applicable compensation up to a maximum contribution of 15% of applicable compensation per employee. During the fiscal years ended August 2, 1997, July 27, 1996, and July 29, 1995, the Company approved the contribution of 92,500 shares of its common stock and 50,000 and 62,000 shares of its Preferred Stock, respectively, to the plan for credit to the accounts of various executive officers. The 1997 contribution of 92,500 shares of common stock will be transferred to the plan in 1998. The shares of preferred stock were converted into 364,000 shares of common stock on December 10, 1996, as a result of the exchange offer. Under the terms of the plan, benefits accrue to the various executive officers upon satisfaction of the plan's vesting criteria which is based upon length of employment with the Company.
Summary Compensation Table
The following table sets forth certain information regarding all cash compensation paid or accrued for services rendered by the Company's five most highly compensated executive officers for the last three fiscal years.
Table Footnotes (1) Asher B. Edelman was named Chief Executive Officer in February 1993. (2) Represents contractual bonus based on the Company's net pre-tax earnings. (3) Represents payments incident to foreign assignment. (4) Effective in 1995, Mr. Edelman agreed to a 10% salary reduction as part of the Company's cost reduction plan. (5) Blake D. Thomas commenced employment with the Company in December of fiscal 1996 as Executive Vice President and Chief Operating Officer. On June 12, 1997, he was promoted to President in addition to Chief Operating Officer. (6) Phillip P. Krumb commenced employment with the Company in September of fiscal 1995 as Vice President and Chief Financial Officer. On June 12, 1997, the Company accepted his resignation as Chief Financial Officer, however, he remained a Vice President of the Company, and Special Assistant to the Chairman and was appointed to the Board of Directors (7) Represents auto allowance and company match of employee profit sharing plan. (8) Amount reflects partial year of employment. (9) Represents a one-time guaranteed bonus per terms of employment agreement. (10) Represents relocation, housing and auto allowance. (11) Gerald N. Agranoff commenced employment with the Company in October of fiscal 1995 as Vice President, General Counsel and Corporate Secretary. (12) Represents a performance bonus. (13) Represents auto allowance. (14) Represents vested portion of the Company's common stock contributions to the Supplemental Executive Retirement Plan on behalf of named employee. (15) Mr. Edmonds in previous years was not one of the top five compensated officers of the Company. (16) Excludes options granted as a member of the Company's Board of Directors.
Stock Option Grants in Last Fiscal Year (1)
The following table sets forth certain information regarding all stock option grants made to five of the Company's most highly compensated executive officers for the last fiscal year.
(1) No Stock Appreciation Rights (SARs) have ever been granted by Datapoint. (2) Each grant becomes exercisable in three equal annual installments commencing on the first anniversary date. The table excludes director options granted. (3) The dollar amounts under these columns are the result of calculations at the 5% and 10% rates required by the SEC and, therefore, are not intended to forecast possible future appreciation, if any, of the stock price. (4) These amounts represent the increase in the market value of Datapoint's outstanding shares (17.7 million) as of August 2, 1997, that would result from the same stock price assumptions used to show the potential realizable value for the named executives.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
The following table sets forth certain information regarding stock options exercised by the Company's five most highly compensated executive officers for the last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
Performance Graph
Set forth below is a line graph comparing the five-year cumulative total return for Datapoint common stock with the Dow Jones 65-Composite Average, a broad equity market index, and the Dow Jones computer systems index, excluding IBM.
Comparison of Five-Year Cumulative Total Return
The graph assumes $100 invested on August 1, 1992, in Datapoint common stock and each of the Dow Jones indexes, and that all dividends were reinvested. During the five-year period Datapoint did not pay any dividends on its common stock.
EMPLOYMENT AGREEMENTS
Effective April 25, 1990, Datapoint entered into a written employment agreement memorializing an existing understanding concerning the employment of Mr. Edelman as Chairman of the Board of Directors and the Executive Committee of Datapoint. The agreement, as amended, now provides for a base salary of $300,000, an annual bonus opportunity of 5% of the Company's net pre-tax earnings (excluding the excess over $10 million of the net of any extraordinary gains due to debt repurchase or exchange against all extraordinary losses) and payment of certain of his expenses, subject to limitations, including expenses relating to his presence at Datapoint's European offices. The amended agreement further provides for a lump-sum payment of two years salary and benefits plus one year of bonus at plan should Mr. Edelman's employment involuntarily terminate other than by death or disability, or for "cause" as strictly defined therein.
Effective October 1, 1994, Datapoint entered into an agreement with Mr. Agranoff providing for his employment as Vice President, General Counsel and Corporate Secretary. This agreement, as amended, now provides for a minimum annual base salary of $200,000 an annual bonus opportunity of 2% of the Company's net pre-tax earnings (excluding the excess over $10 million of the net of any extraordinary gains due to debt repurchase or exchange against all extraordinary losses), certain executive benefits, and continuation of base salary payments of up to $100,000, plus any performance bonus he may be entitled to, as well as a continuation of benefits for six months should Datapoint terminate his employment other than for cause.
Effective December 5, 1995, Datapoint entered into an agreement with Mr. Thomas providing for his employment as Executive Vice President and Chief Operating Officer at a minimum annual base salary of $250,000. The agreement provides for an annual bonus opportunity of 3% of the Company's net pre-tax earnings (excluding the excess over $10 million of the net of any extraordinary gains due to debt repurchase or exchange against all extraordinary losses), certain executive benefits, and continuation of base salary payments of up to $100,000, plus any performance bonus he may be entitled to, as well as a continuation of benefits for six months should Datapoint terminate his employment other than for cause. The agreement also provides for expatriate accommodations incident to foreign assignment. Mr. Thomas was promoted to President on June 12, 1997, in addition to his position as Chief Operating Officer.
Effective June 12, 1997, Datapoint entered into an agreement with Mr. Conn providing for his employment as Vice President and Chief Financial Officer at a minimum annual base salary of $175,000. The agreement provides for an annual bonus opportunity of 1% of the Company's net pre-tax earnings (excluding the excess over $10 million of the net of any extraordinary gains due to debt repurchase or exchange against all extraordinary losses), certain executive benefits, and continuation of base salary payments of up to $100,000, plus any performance bonus he may be entitled to, as well as a continuation of benefits for six months should Datapoint terminate his employment other than for cause. The agreement also provides for certain relocation accommodations and provides for expatriate accommodations incident to foreign assignment.
Effective September 19, 1994, Datapoint entered into an agreement with Mr. Krumb providing for his employment as Vice President and Chief Financial Officer at a minimum annual base salary of $175,000. The agreement provides for an annual bonus opportunity of 1% of the Company's net pre-tax earnings (excluding the excess over $10 million of the net of any extraordinary gains due to debt repurchase or exchange against all extraordinary losses), certain executive benefits, and continuation of base salary payments of up to $100,000, plus any performance bonus he may be entitled to, as well as a continuation of benefits for six months should Datapoint terminate his employment other than for cause. The agreement also provided for certain relocation accommodations which were terminated at the end of 1995. Effective June 12, 1997, Mr. Krumb resigned as Chief Financial Officer, but will remain a Vice President of the Company as Special Assistant to the Chairman. Effective November 8, 1997, Mr. Krumb will have a minimum annual base salary of $60,000. The agreement provides for an annual bonus opportunity equal to 1/4 of 1% of the Company's net pre-tax earnings (excluding the excess over $10 million of the net of any extraordinary gains due to debt repurchase or exchange against all extraordinary losses), and certain executive benefits.
ITEM 12
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners. The following persons are known to the Company to be beneficial owners of more than five percent (5%) of the Company's securities as defined under Exchange Act Rule 13(d)(3).
Common Stock Preferred Stock Beneficially Beneficially Percent Name and Address Owned Owned of Class
Asher B. Edelman (1) (See Table under c/o Datapoint Corporation Security Ownership 717 Fifth Avenue of Management (1) New York, NY 10222
Lloyd I. Miller (2) 47,900 (2) 6.6% (2)
(1) Mr. Edelman is part of a "group" as that term is used in Exchange Act Section 13(d)(3). See subsection (b) below for detailed description as to the amount and nature of beneficial ownership by the members of the group.
(2) Mr. Miller filed an original Schedule 13D on February 7, 1997, reporting 47,900 Preferred shares, 28,600 of which are owned by LIM, Inc., a Florida corporation of which he is sole shareholder, and 19,300 of which are owned by Trust C under a September 20, 1983 Amended and Restated Trust Agreement for which Trust Mr. Miller serves as Investment Advisor. Mr. Miller reported a percentage ownership of 7.53%, but that percentage, based upon currently outstanding Preferred shares of 721,976 as of October 17, is now 6.6%.
(b) Security Ownership of Management
The following table sets forth certain information regarding the beneficial ownership of the Common Stock, Preferred Stock and Convertible Debentures by each director, by each of the executive officers named in the table, and by the directors and executive officers as a group as of October 15, 1997.
* Indicates less than 1% ownership as a percent of the outstanding class(12) **The percent of the outstanding class is 2.0% (12)
(1) Information relating to beneficial ownership is based upon ownership information furnished by each person using "beneficial ownership" definitions set forth in Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under those rules, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power", which includes the power to vote or to direct the voting of such security, or "investment power", which includes the power to dispose or to direct the disposition of such security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership (such as by exercise of options) within 60 days. Under such rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may disclaim any beneficial interest. Except as otherwise indicated in other table footnotes, the indicated directors and executive officers possessed sole voting and investment power with respect to all shares of Common Stock and Preferred Stock attributed.
(2) The Company's $1.00 Preferred Stock ("Preferred Stock") is a non-voting class of security. Each share may be exchanged, at the option of the holder, for two (2) shares of Common Stock so long as six (6) quarters of accrued dividends remain outstanding and unpaid.
(3) The Company's 8-7/8 Convertible Subordinated Debentures Due June 1, 2006 ("Convertible Debentures") is a non-voting class of security. Each one thousand dollar ($1,000.00) principal amount may be exchanged, at the option of the holder, into 55.231 shares of Common Stock.
(4) The tabulation includes shares of Common Stock which may be deemed to be beneficially owned by such persons by reason of stock options currently exercisable or which may become exercisable within sixty (60) days after that date. The number of shares deemed to be beneficially owned by reason of such options is: Mr. Edelman, 221,667; Mr. Agranoff, 91,667; Mr. Thomas, 75,000; Mr. Krumb, 91,667; Mr. Ruffat, 50,000; Mr. Summer, 25,000; Mr. Garfinkel, 25,000; Mr. Kail, 25,000; Mr. Robinson, 25,000; Mr. Edmonds, 23,333; Mr. Gevers, 63,333; Mr. Perkins 13,333; and all officers and directors as a group, 705,000.
(5) Gerald N. Agranoff, Asher B. Edelman and Irving Garfinkel are Trustees of the Datapoint Corporation Supplemental Executive Retirement Plan (the "Datapoint Plan") which owns 443,731 Common shares of which 131,647 will be transferred in the first quarter of fiscal year 1998. In the above tabulation, such shares have been excluded within each party's Common shares listing and the listing for the directors and executive officers as a group. Messrs. Agranoff, Edelman and Garfinkel each disclaim beneficial ownership of these shares except to the extent of pecuniary interests in such shares with which each party may currently be vested under the Plan. Mr. Edelman has a current vested interest in 145,288 shares under the Datapoint Plan which have been excluded. Mr. Agranoff is currently vested with 10,701 Common shares under the Datapoint Plan. Mr. Garfinkel has no current vested interest under the Datapoint Plan. Mr. Krumb is vested with 9,283 Common shares and Mr. Perkins with 4,344 Common shares under the Datapoint Plan which have not been included in their listed beneficial ownership.
(6) Mr. Edelman's listed beneficial ownership of 3,115,990 shares of Common Stock is explained in detail in this paragraph, and is based upon his beneficial ownership reported on Schedule 13D. Mr. Edelman reports beneficial ownership jointly, as a group, with the following named persons or entities. Those whose shares have been included within Mr. Edelman's listed total are reported as beneficially owned pursuant to Rule 13d-3 by Mr. Edelman. As the controlling general partner of each of Plaza Securities Company, A.B. Edelman Limited Partnership and Citas Partners (which is the sole general partner of Felicitas Partners, L.P.), Mr. Edelman may be deemed to own beneficially the 441,348, 944,383 and 6,290 shares held, respectively, by each of such entities for purposes of Rule 13d-3 under the Exchange Act, and these shares are included in the listed ownership. Also included are the 361,267 shares owned by Canal Capital Corporation ("Canal"), in which company Mr. Edelman and various persons and entities with which he is affiliated own interests. By virtue of investment management agreements between A. B. Edelman Management Company Inc. and Canal, A. B. Edelman Management Company Inc. has the authority to purchase, sell and trade in securities on behalf of Canal. A. B. Edelman Management Company Inc. therefore may be deemed to be the beneficial owner of the 361,267 shares owned by Canal. Mr. Edelman is the sole stockholder of A. B. Edelman Management Company Inc. and these shares are included. A. B. Edelman Management Company, Inc. is also the sole general partner of Edelman Value Partners, L.P. which currently owns 297,175 shares of Common Stock which are included. Also included are the 201,460 shares owned by Mr. Edelman's spouse Maria Regina M. Edelman, 5,000 shares held by Mr. Edelman in a Keough account, 21,000 shares beneficially owned by Mr. Edelman's daughters in accounts for which he is the custodian, and 616,400 shares owned by Edelman Value Fund, Ltd., for which Mr. Edelman serves as the sole investment manager. Also included are Mr. Edelman's presently exercisable options to purchase 221,667 shares. As a Trustee of the Canal Capital Corporation Retirement Plan ("Canal Plan") which owns 128,681 shares and the Datapoint Plan described above which owns 364,000 shares, Mr. Edelman may be deemed to own beneficially, and share voting and investment power over the shares owned by each such Plan, which are excluded. Also excluded from the listed ownership are 54,907 shares beneficially owned by Mr. Edelman's daughters in accounts for which their mother, Penelope C. Edelman, is the custodian and the 53,703 shares owned directly by Penelope C. Edelman. Mr. Edelman disclaims beneficial ownership of these excluded shares. Although disclaimed and excluded for purposes of Rule 13d-3, certain of the disclaimed and excluded shares are nevertheless reported by Mr. Edelman as beneficially owned on his Form 4's pursuant to the rules promulgated under Section 16 of the Exchange Act. Mr. Edelman's beneficial ownership total does not include the additional Common Stock which would be acquired upon the conversion of the Preferred Stock and the Convertible Debentures as described below. Upon such exchange, Mr. Edelman's listed beneficial ownership would increase to 3,152,178 and his percentage of the outstanding class would be 17.7%. This percentage upon exchange is the listed percentage above pursuant to Rule 13d-3(d)(1).
Mr. Edelman's listed beneficial ownership of 14,200 shares of Preferred Stock is based upon the 5,100 Preferred shares owned by Edelman Value Partners, L.P., and the 9,100 Preferred shares owned by Edelman Value Fund, Ltd. Mr. Edelman disclaims beneficial ownership of the Edelman Value Fund, Ltd. shares. If exchanged for Common Stock, Mr. Edelman's Common Stock beneficial ownership total listed above would increase by 28,400 shares.
Mr. Edelman's listed beneficial ownership of $141,000.00 of Convertible Debentures is based upon the $44,000.00 of Convertible Debentures owned by Edelman Value Partners, L.P. and the $97,000.00 of Convertible Debentures owned by Edelman Value Fund, Ltd. Mr. Edelman disclaims beneficial ownership of the Edelman Value Fund, Ltd. Convertible Debentures. If exchanged for Common Stock, Mr. Edelman's Common Stock beneficial ownership total listed above would increase by 7,788 shares.
(7) Messrs. Agranoff and Garfinkel are general partners of Plaza Securities Company, which owns 441,348 shares of Common Stock. Each disclaims beneficial ownership of these shares which are excluded in each party's listing in the beneficial ownership table above due to the sole voting and dispositive powers attributed to Mr. Edelman in his Schedule 13D. Mr. Agranoff is also a director of Canal which owns 361,267 shares. Mr. Agranoff disclaims beneficial ownership of these shares and they are excluded from his beneficial ownership listing due to the sole voting and dispositive powers attributed to Mr. Edelman.
(8) Mr. Krumb owns 3,000 Common shares directly in addition to the 91,667 shares represented by exercisable options.
(9) Mr. Robinson owns 3,000 Preferred shares and $47,000.00 in Convertible Debentures directly in addition to the 25,000 shares represented by exercisable options.
(10) Mr. Summer owns 2,300 Common shares directly in addition to the 25,000 shares represented by exercisable options.
(11) Mr. Thomas owns 119,397 Common shares directly in addition to the 75,000 shares represented by exercisable options. Mr. Thomas is also attributed beneficial ownership of 16,500 Common shares owned by Foresail Limited Partnership as its sole general partner.
(12) The percentage of the outstanding class calculations are based upon 17,817,728 Common shares, 721,961 Preferred shares and $59,908,000 Convertible Debentures outstanding as of October 17, 1997. For purposes of calculating Mr. Edelman's and Mr. Robinson's percentages of Common shares under Rule 13d-3(d)(1), the common shares underlying their respective Preferred Stock and their respective Convertible Debentures upon exchange are added to the outstanding share total as if the exchange has occurred.
ITEM 13
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Edelman (the Company's current Chairman of the Board and Chief Executive Officer), and Messrs. Agranoff and Kail (currently directors), and former Company director Dwight D. Sutherland were also directors of Intelogic Trace, Inc., ("Intelogic"), a wholly-owned subsidiary of Datapoint and its computer hardware maintenance division in the U.S., comprising four of Intelogic's six directors, when Intelogic filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court, Western District of Texas, San Antonio Division, Case No. 94-52172-C-11 on August 5, 1994. Intelogic emerged from bankruptcy pursuant to approval of a modified first amended plan of reorganization on November 28, 1994. The above named directors resigned from Intelogic on December 8, 1994. On March 16, 1995, Intelogic again filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court, Western District of Texas, San Antonio Division, Case No. 95-50753-LMC-11. During that proceeding, substantially all of Intelogic's operating assets were sold to a third party on April 5, 1995. Intelogic is effectively no longer in business.
The above named directors received compensation and/or benefits from Intelogic prior to their resignations. Also, these directors and former director may be deemed to have beneficially owned approximately 15% of Intelogic's common stock as of July 30, 1994. In addition, they had options to purchase shares of Intelogic common stock equal in the aggregate to approximately 1% of the amount then outstanding. The overlap of directors does not give rise to a reportable compensation committee interlock.
Director Agranoff had provided various tax, legal and real estate consulting services prior to serving as Vice President, General Counsel and Corporate Secretary for the Company. During the fiscal years 1997, 1996, and 1995, Datapoint paid legal fees of $374, $485, and $51, respectively, to the law firm of Pryor, Cashman, Sherman, & Flynn, for legal services provided by attorneys other than Mr. Agranoff.
Director Thomas worked from August 1994 until May 1, 1995 as a special consultant for which he received compensation of $500 per day payable in shares of common stock plus expenses. Subsequently, on May 5, 1995, in consideration of the additional work and responsibilities he had taken on for the Company as a special consultant, the Board of Directors approved a special compensation package for Director Thomas. From May 1, 1995, through July 31, 1995, he was paid at the rate of $500 per day for his services, plus travel and housing expenses, plus additional compensation of a flat $2,000 per week for expenses. On July 31, 1995, Director Thomas's consulting contract was extended until December 31, 1995 and then was to continue on a month-to-month basis to July 31, 1996. Upon the resignation of Doris Bencsik as President and Chief Operating Officer, Director Thomas was appointed on December 5, 1995 to the position of Executive Vice President and Chief Operating Officer. Director Thomas was also entitled under the extended contract to participate in the Standard Health Benefit program until he was appointed Executive Vice President and Chief Operating Officer. At such time, he converted to the Executive Health Benefit program. During fiscal 1995, the Board also approved a one time special issuance of 45,000 shares of common stock of the Company to Director Thomas in recognition of his service to the Company. During the term Director Thomas acted as a special consultant, he did not accrue or receive any regular Board or committee fees. Mr. Thomas was promoted to President on June 12, 1997, in addition to his position as Chief Operating Officer.
Director Ruffat had a consulting agreement from January 1994 through June 1995 under which he received a monthly compensation of $10,000. For 1996 and 1995, Director Ruffat was paid $50,000 and $80,000, respectively, for consulting services.
PART IV
ITEM 14.
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)1 Financial Statements
The consolidated financial statements listed in the accompanying index to the financial statements are filed as part of this report.
(a)2 Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted since they are either not applicable or the required information is shown in the Company's financial statements or notes thereto. Individual financial statements of the Company are omitted because the Company is primarily an operating company and all subsidiaries included in the Consolidated Financial Statements being filed, in the aggregate, do not have minority equity interest and/or indebtedness to any person other than the Company or its consolidated subsidiaries in amounts which together exceed 5% of the total consolidated assets as shown by the most recent year-end Consolidated Balance Sheet.
(a)3 Exhibits
The exhibits listed on the accompanying index to exhibits are filed as part of this report.
(b) The Company filed a Form 8-KA on August 15, 1996 with regard to its divestiture of EADS.
INDEX TO EXHIBITS
Sequentially Exhibit Numbered Number Description of Exhibits Pages
(3)(a) Certificate of Incorporation of Datapoint Corporation, as amended (filed as Exhibit (3)(a) to the Company's Annual Report on Form 10K for the year ended July 31, 1993, and incorporated herein by reference).
(3)(b) Bylaws of Datapoint Corporation, as amended (filed as Exhibit (3)(b) to the Company's Annual Report on Form 10-K for the year ended August 1, 1992, and incorporated herein by reference).
(4)(a) Debenture holder Notice of Adjustment to Conversion Rate, dated July 11, 1985, under Indenture dated as of June 1, 1981, between Datapoint Corporation and Continental Illinois National Bank and Trust Company of Chicago, as Trustee, providing for 8-7/8% Convertible Subordinated Debentures Due 2006 (filed as Exhibit (4)(a) to the Company's Annual Report on Form 10-K for the year ended July 27, 1985 and said Indenture filed as Exhibit 4 to the Company's Registration Statement on Form S-16 (No. 2-72395), each incorporated herein by reference).
(4)(b) Certificate of Designation, Preferences, Rights and Limitations of Series of $1.00 Preferred Stock (filed as Exhibit (4)(e) to the Company's Registration Statement on Form S-4 dated April 30, 1992 and incorporated herein by reference).
(10)(a) 1983 Employee Stock Option Plan (filed as Exhibit (4)(a)(4) to the Company's Registration Statement on Form S-8 dated November 9, 1983 and incorporated herein by reference).
(10)(b) 1985 Director Stock Option Plan (filed as Exhibit (10)(i) to the Company's Annual Report on Form 10-K for the year ended August 1, 1987 and incorporated herein by reference).
(10)(c) 1986 Employee Stock Option Plan (filed as Exhibit (10)(h) to the Company's Annual Report on Form 10-K for the year ended August 1, 1987 and incorporated herein by reference).
(10)(d) 1991 Director Stock Option Plan (filed as Exhibit (10)(b)(2) to Amendment No. 1 dated February 6, 1992 to the Company's Registration Statement on Form S-4 (Registration No. 33-44097) and incorporated herein by reference).
(10)(e) 1992 Employee Stock Option Plan (filed as Exhibit (4)(a)(4) to the Company's Registration Statement on Form S-8 dated January 19, 1993 and incorporated herein by reference).
(10)(f) Agreement for Transfer of Assets and Liabilities in Exchange for Stock, dated as of June 28, 1985, between the Company and Intelogic Trace, Inc. (filed as Exhibit (10)(a) to the Company's Current Report on Form 8-K dated July 28, 1985 and incorporated herein by reference).
(10)(g) Master Maintenance Agreement, dated as of June 28, 1985, between the Company and Intelogic Trace, Inc. (filed as Exhibit (10)(b) to the Company's Current Report on Form 8-K dated July 28, 1985 and incorporated herein by reference).
(10)(h) Maintenance Agreement regarding open systems products between the Company and Intelogic Trace, Inc., (filed as Exhibit (10)(g) to the Company's Annual Report on Form 10-K for the year ended August 1, 1992, and incorporated herein by reference).
INDEX TO EXHIBITS
Sequentially Exhibit Numbered Number Description of Exhibits Pages
(10)(i) Agreement between the Company and Arbitrage Securities Company, as amended (filed as Exhibit (10)(f) to the Company's Annual Report on Form 10-K for the year ended July 29, 1989 and incorporated herein by reference).
(10)(j) Indemnity Agreements with Officers and Directors (filed as Exhibit (10)(f) to the Company's Annual Report on Form 10-K for the year ended August 1, 1987 and incorporated herein by reference).
(10)(k) First Amendment to Indemnification Agreement with certain Officers and Directors. (filed as Exhibit (10)(h) to the Company's Annual Report on Form 10-K for the year ended July 28, 1990 and incorporated herein by reference).
(10)(l) Second Amendment to Employment Agreement with A. B. Edelman (said amendment filed as Exhibit (10)(h)(3) to the Company's Registration Statement on Form S-4 dated April 30, 1992), amending Employment Agreement dated January 9, 1991 (said agreement filed as Exhibit (10)(j) to the Company's Annual Report on Form 10-K for the year ended July 28, 1990), as amended by Amendment No. 1 dated December 1, 1990 (said amendment filed as Exhibit (10)(i) to the Company's Annual Report on Form 10-K for the year ended July 27, 1991), each of which are incorporated herein by reference.
(10)(m) Employment Agreement with D. Berger (filed as Exhibit (10)(m) to the Company's Annual report on Form 10-K for the Year ended July 31, 1993 and incorporated herein by reference).
(10)(n) Employment Agreement with J. Berger (filed as Exhibit (10)(l) to the company's Annual Report on Form 10-K for the year ended August 1, 1992 and incorporated herein by reference).
(10)(o) Employment Agreement with K. L. Thrower (filed as Exhibit(10)(o) to the company's Annual Report on Form 10-K for the year ended August 1, 1992 and incorporated herein by reference).
(10)(p) First Amendment to the Grantor Trust Agreement dated June 18, 1991. (filed as exhibit (10)(n) to the Company's Annual Report on Form 10-K for the year ended July 27, 1991 and incorporated herein by reference).
(10)(q) Manufacturing facilities Agreement of Lease between the Company and Willis and Cox Associates dated June 21, 1991 (filed as Exhibit (10)(q) to the Company's Annual Report on Form 10-K for the year ended August 1, 1992 and incorporated herein by reference).
(10)(r) Employment Agreement with D. Bencsik (filed as exhibit (10)(r) to the Company's Annual Report on the Form 10-K for the year ended July 30, 1994 and incorporated herein by reference).
(10)(s) Employment Agreement with G. Agranoff and Amendment No. 1 to Employment Agreement (filed as Exhibit (10) (s) to Amendment No. 2 to the Company's Registration Statement on Form S-4 filed on September 27, 1996 and incorporated herein by reference).
(10)(t) Employment Agreement with B. Thomas (filed as Exhibit (10) (t) to Amendment No. 2 to the Company's Registration Statement on Form S-4 filed on September 27, 1996 and incorporated herein by reference).
INDEX TO EXHIBITS
Sequentially Exhibit Numbered Number Description of Exhibits Pages
(10)(u) Employment Agreement with P. Krumb (filed as Exhibit (10) (u) to Amendment No. 2 to the Company's Registration Statement on Form S-4 filed on September 27, 1996 and incorporated herein by reference).
(10)(v) Settlement Agreement with NTI (filed as Exhibit (10) (v) to Amendment No. 2 to the Company's Registration Statement on Form S-4 filed on September 27, 1996 and incorporated herein by reference).
(10)(w) Umbrella Acquisition Agreement between Kalamazoo and Datapoint (filed as Exhibit 2 to the Company's Current Report on Form 8-K dated June 25, 1996 and incorporated herein by reference).
(10)(x) Form of Agreement for sale of assets of Datapoint Group Vendor and Kalamazoo (filed as Exhibit 3 to the Company's Current Report on Form 8-K dated June 25, 1996 and incorporated herein by reference).
(10)(y) Agreement for sale of DARTS Software (filed as Exhibit 4 to the Company's Current Report on Form 8-K dated June 25, 1996 and incorporated herein by reference).
(10)(z) 1996 Director Stock Option Plan (filed as Annex D to Amendment No. 3 dated October 31, 1996 to the Company's Registration Statement on Form S-4 (Registration No. 333-9627) and incorporated herein by reference).
(10)(aa) 1996 Employee Stock Option Plan (filed as Annex E to Amendment No. 3 dated October 31, 1996 to the Company's Registration Statement on Form S-4 (Registration No. 333-9627) and incorporated herein by reference).
(10)(bb) Employment Agreement with R. Conn.
(10)(cc) Employment Agreement with R. Edmonds.
(10)(dd) Employment Agreement with J. Perkins.
(10)(ee) Amendment No. 2 to Employment Agreement with G. Agranoff.
(10)(ff) Amendment No. 1 to Summary of Modified Employment Agreement - with P. Krumb.
(23) Consent of Independent Auditors.
(27) Article 5, Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATAPOINT CORPORATION (Registrant)
BY: /s/ Phillip P.Krumb Asher B. Edelman Chief Executive Officer and Chairman of The Board By Phillip P. Krumb, Attorney In Fact
DATED: October 30, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Phillip P. Krumb Vice President and Phillip P. Krumb Special Assistant to the Chairman October 30, 1997 (Principal Accounting Officer)
Phillip P. Krumb, pursuant to powers of attorney which are being filed with this report, has signed below as attorney-in-fact for the following directors of the Registrant:
Gerald N. Agranoff Charles F. Robinson Irving Garfinkel Daniel Kail Robert D. Summer Ronald G. Conn Blake D. Thomas
Mr. Didier M.M. Ruffat, a director, was unavailable for signature at the time of the filing.
/s/ Phillip P. Krumb October 30, 1997 Phillip P. Krumb
Schedule II
DATAPOINT CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves (In thousands)
(a) Transfers to and from other balance sheet reserve accounts. (b) Accounts written-off net of recoveries, other expense accounts and translation adjustments.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration statements and related prospectuses of our report dated October 3, 1997, with respect to the consolidated financial statements and schedule of the Company included in this Annual Report on Form 10-K for the year ended August 2, 1997: Registration Statement No. 2-60374 on Form S-8, Registration Statement No. 2-87765 on Form S-8, Registration Statement No. 33-19328 on Form S-8, Registration Statement No. 33-19427 on Form S-8, and Registration Statement No. 33-57102 on Form S-8.
Ernst & Young LLP
Dallas, Texas October 27, 1997
EXHIBIT (10)(bb) EMPLOYMENT AGREEMENT
This Agreement ("Agreement"), shall govern the employment of Ron Conn ("Officer") as Vice President and Chief Financial Officer of Datapoint Corporation ("Datapoint"), a Delaware Corporation with a principal place of business at 8410 Datapoint Drive, San Antonio, Texas 78229-8500 and 4, rue d'Aguesseau, 75008 Paris, France. This Agreement shall be for employment effective 9 June 1997.
1. POSITION. The parties agree that the Officer is employed as Vice President and Chief Financial Officer of Datapoint. Officer shall report to the Chairman and shall devote such time and attention to the duties of Vice President and Chief Financial Officer as the Chairman shall direct.
2. TERM. The term of the Officer's employment shall be indefinite, subject to the provisions on termination set forth elsewhere herein.
3. SALARY. Officer's salary shall be a minimum of one hundred & seventy-five thousand U.S. Dollars (US$175,000) per year, payable biweekly in arrears.
4. BONUS. Commencing with the fiscal year starting 1 August 1997, Officer shall be entitled to an annual bonus payable at the close of each of Datapoint's fiscal years in an amount to be calculated as follows:
Datapoint's net pre-tax earnings, excluding the excess over $10,000,000 of the net of any extraordinary gains due to debt repurchase or exchange against all extraordinary losses time one percent (1%).
5. STOCK OPTIONS. Officer shall be recommended to the Compensation Committee of Datapoint for a stock option grant of 50,000 shares of Datapoint Common Stock at fair market value. This option will vest in three (3) equal annual installments, exercisable over a period of three years.
6. BENEFITS. Officer shall be entitled to standard employee benefits plus the following benefits:
a) Participation in the Executive Medical Plan by Officer and family at no cost to Officer. b) Group term life insurance under the U.S. Executive Life plan as it may be amended from time to time. c) In Paris, the use of a Datapoint supplied automobile including the payment of insurance, maintenance, gas, oil, etc. d) The housing allowance - Datapoint will pay Paris housing costs in full until such time as Ron Conn has sold his residence in the United States. After selling his home in the United States Ron Conn will pay $750 per month to Datapoint. Paris housing lease and costs are subject to approval in advance by Blake Thomas, President. e) Payment of reasonable relocation expenses to Paris, subject to prior approval by President and Chief Operating Officer, after receipt of three (3) bids. f) Upon termination by whichever party, Datapoint will repatriate Officer and family to U.S. at no cost to Officer. g) Datapoint payment/reimbursement of reasonable personal tax and financial planning and preparation fees, capped at $1,500 annually. h) Datapoint pays one trip per year for Officer's wife back to the United States.
7. TERMINATION.
7.1 BY OFFICER. Officer may terminate his employment at his own behest upon ninety days written notice to Datapoint without any termination liability of either party to the other, other than Datapoint's obligation to pay Officer any earned but unpaid salary and bonus or reasonable unreimbursed business expenses, and any rights of Officer under any stock option and/or indemnity agreements between Datapoint and Officer.
7.2 BY DATAPOINT.The termination of Officer's employment at the behest of Datapoint at any time, other than for cause, shall require Datapoint to pay Officer the sum of U.S. $100,000. This amount shall be paid in biweekly installments equal to the payroll payments previously made to Officer prior to such termination, with the last such payment being in whatever amount is required to complete Datapoint's obligation to Officer. Officer shall also be entitled to a six (6) month employee (not Executive) medical benefit continuations, plus any performance bonus to which he might be entitled to under the provision of Section 4 hereof. Datapoint shall further remain liable to Officer for any earned but unpaid salary or reasonable unreimbursed business expenses, and any rights of Officer under any stock and/or indemnity agreements between Datapoint and Officer. This amount shall be reduced by any termination payments and/or benefits required to be separately paid to Officer by law.
8. SUCCESSORS IN INTEREST. This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, and shall also bind and inure to the benefit of any successor of Datapoint by merger or consolidation or any purchaser or assignee of all or substantially all of its assets, but neither this Agreement nor any rights or benefits hereunder may otherwise be assigned by either party hereto.
9. INVALID PROVISION. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law.
10. VENUE. The parties agree that any controversy or claim arising out of or relating to this Agreement, or any dispute arising out of the interpretation or application of this Agreement, which the parties hereto are unable to resolve, shall be resolved by the courts of competent jurisdiction of Bexar County, Texas.
11. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of Texas applicable to agreements made and to be performed entirely in Texas.
12. ENTlRE AGREEMENT. This Agreement shall constitute the entire agreement between the parties superseding all prior agreements, and may not be modified, amended or waived except by written agreement signed by both parties hereto.
IN WITNESS of their intention to be bound, the parties hereto set their signatures.
DATAPOINT CORPORATION Ron CONN
Blake THOMAS, Ron CONN President & Chief Operating Officer
Date: Date:
EXHIBIT (10)(cc) EMPLOYMENT AGREEMENT
This Agreement ("Agreement"), shall govern the employment of Roger Edmonds ("Officer") as Vice President of Technical Services of Datapoint Corporation ("Datapoint"), a Delaware Corporation with a principal place of business at 8410 Datapoint Drive, San Antonio, Texas 78229-8500 and 4, rue d'Aguesseau, 75008 Paris, France. This Agreement shall be for employment effective February 1, 1996.
1. POSITION. The parties agree that the Officer is employed as Vice President of Technical Services of Datapoint. Officer shall report to the Executive Vice President and Chief Operating Officer and shall devote such time and attention to the duties of Technical Services as the Executive Vice President and Chief Operating Officer shall direct.
2. TERM. The term of the Officer's employment shall be indefinite, subject to the provisions on termination set forth elsewhere herein.
3. SALARY. Officer's salary shall be a minimum of 84,000 Pounds Sterling per year, payable in line with the normal administration of Datapoint (U.K.) Ltd. payroll.
4. BONUS. Officer shall be entitled to an annual performance bonus opportunity based upon a target amount of not less than thirty percent (30%) of his base salary and specific qualification criteria to be set by Datapoint. Officer shall be eligible to a pro-rated portion of this bonus for fiscal year 1996 provided he remains in the employ of Datapoint through the close of that year. Officer shall not be eligible for this bonus for any fiscal year which is not completed prior to termination of his employment.
5. STOCK OPTIONS. Officer shall be entitled to participate fully in any subsequent general grant of stock options to an extent commensurate with the seniority of his position and his performance.
6. BENEFITS. Officer shall be continued on the Datapoint (U.K.) Ltd. Executive Benefit system to the extent that, and for so long as, this may remain reasonably feasible; to the extent not reasonably feasible, reasonably equivalent benefits, at the time, shall be provided.
7. TERMINATION.
7.1 BY OFFICER. Officer may terminate his employment at his own behest upon ninety days written notice to Datapoint without any termination liability of either party to the other, other than Datapoint's obligation to pay Officer any earned but unpaid salary and bonus or reasonable unreimbursed business expenses, and any rights of Officer under any stock option and/or indemnity agreements between Datapoint and Officer.
7.2 BY DATAPOINT. The termination of Officer's employment at the behest of Datapoint at any time, other than for cause, shall require Datapoint to pay Officer the sum of (6) months salary and continuance of benefits. This amount shall be paid in line with normal administration of Datapoint (U.K.) Ltd. payroll previously made to Officer prior to such termination, with the last such payment being in whatever amount is required to complete Datapoint's obligation to Officer; and will be the total payable and not this amount on top of any amounts payable under U.K. law. Officer shall also be entitled to six (6) months continuation of Datapoint (U.K.) Ltd. Executive Benefits as normally provided for under U.K. law and Datapoint (U.K.) Ltd. procedures, plus any performance bonus to which he might be entitled to under the provision of Section 4 hereof. Datapoint shall further remain liable to Officer for any earned but unpaid salary or reasonable unreimbursed business expenses, and any rights of Officer under any stock and/or indemnity agreement between Datapoint and Officer. This amount shall be reduced by any termination payments and/or benefits required to be separately paid to Officer by law.
8. SUCCESSORS IN INTEREST. This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, and shall also bind and inure to the benefit of any successor of Datapoint by merger or consolidation or any purchaser or assignee of all or substantially all of its assets, but neither this Agreement nor any rights or benefits hereunder may otherwise be assigned by either party hereto.
9. INVALID PROVISION. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law.
10. VENUE. The parties agree that any controversy or claim arising out of or relating to this Agreement, or any dispute arising out of the interpretation or application of this Agreement, which the parties hereto are unable to resolve, shall be resolved by the courts of competent jurisdiction of Bexar County, Texas.
11. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of Texas applicable to agreements made and to be performed entirely in Texas.
12. ENTlRE AGREEMENT. This Agreement shall constitute the entire agreement between the parties superseding all prior agreements, and may not be modified, amended or waived except by written agreement signed by both parties hereto.
IN WITNESS of their intention to be bound, the parties hereto set their signatures.
DATAPOINT CORPORATION Roger EDMONDS
Blake THOMAS, Executive Vice President Roger EDMONDS and Chief Operating Officer
Date: March 25, 1996 Date:
EXHIBIT (10)(dd) EMPLOYMENT AGREEMENT
This Agreement ("Agreement"), shall govern the employment of John R. Perkins ("Officer") as Vice President of Development and Production of Datapoint Corporation ("Datapoint"), a Delaware Corporation with a principal place of business at 8410 Datapoint Drive, San Antonio, Texas 78229-8500 and 4, rue d'Aguesseau, 75008 Paris, France. This Agreement shall be for employment effective May 1996.
1. POSITION. The parties agree that the Officer is employed as Vice President of Development and Production of Datapoint. Officer shall report to the Executive Vice President and Chief Operating Officer and shall devote such time and attention to the duties of Development and Production as the Executive Vice President and Chief Operating Officer shall direct.
2. TERM. The term of the Officer's employment shall be indefinite, subject to the provisions on termination set forth elsewhere herein.
3. SALARY. Officer's salary shall be a minimum of $125,000 (one hundred and twenty-five thousand U.S. Dollars) per year, payable in line with the normal administration of Datapoint San Antonio payroll.
4. BONUS. Officer shall be entitled to an annual performance bonus opportunity based upon a target amount of not less than thirty percent (30%) of his base salary and specific qualification criteria to be set by Datapoint in writing. In the event that specific qualification criteria has not been set and agreed to in writing for any fiscal year, Officer shall not be entitled to a performance bonus. Officer shall not be eligible for this bonus for any fiscal year which is not completed prior to termination of his employment.
5. STOCK OPTIONS. Subject to approval by the Compensation Committee of the Board of Directors in their sole discretion, Officer shall be entitled to participate fully in any subsequent general grant of stock options to an extent commensurate with the seniority of his position and his performance.
6. BENEFITS. Officer shall be entitled to standard Datapoint San Antonio employee benefits plus the following benefits:
a) Participation in the Executive Medical Plan by Officer and family at no cost to Officer. b) Group term life insurance under the U.S. Executive Life plan as it may be amended from time to time.
7. TERMINATION.
7.1 BY OFFICER. Officer may terminate his employment at his own behest upon ninety days written notice to Datapoint without any termination liability of either party to the other, other than Datapoint's obligation to pay Officer any earned but unpaid salary and bonus or reasonable unreimbursed business expenses, and any rights of Officer under any stock option and/or indemnity agreements between Datapoint and Officer.
7.2 BY DATAPOINT. The termination of Officer's employment at the behest of Datapoint at any time, other than for cause, shall require Datapoint to pay Officer the sum of (6) months salary and continuance of benefits. This amount shall be paid in biweekly installments equal to the payroll payments previously made to Officer prior to such termination, with the last such payment being in whatever amount is required to complete Datapoint's obligation to Officer. Officer shall also be entitled to a six (6) month employee (not Executive) medical benefit continuations, plus any performance bonus to which he might be entitled to under the provision of Section 4 hereof. Datapoint shall further remain liable to Officer for any earned but unpaid salary or reasonable unreimbursed business expenses, and any rights of Officer under any stock and/or indemnity agreements between Datapoint and Officer. This amount shall be reduced by any termination payments and/or benefits required to be separately paid to Officer by law.
8. SUCCESSORS IN INTEREST. This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, and shall also bind and inure to the benefit of any successor of Datapoint by merger or consolidation or any purchaser or assignee of all or substantially all of its assets, but neither this Agreement nor any rights or benefits hereunder may otherwise be assigned by either party hereto.
9. INVALID PROVISION. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law.
10. VENUE. The parties agree that any controversy or claim arising out of or relating to this Agreement, or any dispute arising out of the interpretation or application of this Agreement, which the parties hereto are unable to resolve, shall be resolved by the courts of competent jurisdiction of Bexar County, Texas.
11. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of Texas applicable to agreements made and to be performed entirely in Texas.
12. ENTlRE AGREEMENT. This Agreement shall constitute the entire agreement between the parties superseding all prior agreements, and may not be modified, amended or waived except by written agreement signed by both parties hereto.
IN WITNESS of their intention to be bound, the parties hereto set their signatures.
DATAPOINT CORPORATION John R. PERKINS
Blake THOMAS, Executive Vice President and John R. PERKINS Chief Operating Officer
Date: Date: January 6, 1997
EXHIBIT (10)(ee)
AMENDMENT #2 TO EMPLOYMENT AGREEMENT
This amendment is made as of the 7th day of October, 1997, by and between GERALD N. AGRANOFF and DATAPOINT CORPORATION, located at 8410 Datapoint Drive, San Antonio, Texas 78229-8500 ("Datapoint"), to modify the prior agreement among the parties dated September 13, 1994 ("Agreement").
1. Performance Bonus: Section 4 of the Agreement is deleted and replaced as follows:
"Officer shall immediately be entitled to an annual bonus payable at the close of each of Datapoint's fiscal years in an amount to be calculated as follows:
'Datapoint's net pre-tax earnings, excluding the excess over $10,000,000, of the net of any extraordinary gains due to debt repurchase or exchange against all extraordinary losses, times two percent (2%).'
DATAPOINT CORPORATION
_______________________________________ _________________________ Gerald N. Agranoff Asher B. Edelman,
Chairman
EXHIBIT (10)(ff) SUMMARY OF MODIFIED EMPLOYMENT AGREEMENT
On June 12, 1997, the Company's Board of Directors modified Mr. Phillip P. Krumb's employment agreement due to his resignation as Chief Financial Officer. Mr. Krumb will remain as a Vice President and Special Assistant to the Chairman. While his modified employment agreement has not yet been reduced to writing, the modified compensation terms are as follows:
Annual salary $60,000 Fixed benefits including executive medical plan $ 8,040 Executive perquisites $ 4,000 Bonus equal to 1/4 of 1% of net pretax profits