UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 3, 2005
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SCAN-OPTICS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 000-05265 06-0851857
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
169 Progress Drive, Manchester, CT 06040
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 645-7878
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement.
On August 5, 2005, Scan-Optics, Inc. entered into and closed a
Foreclosure Agreement with its secured lender, SO Acquisition, LLC (as the
assignee of ZOHAR II 2005-1, Limited, ZOHAR CDO 2003-1, Limited under the Credit
Agreement described in Item 2.04 below) and Patriarch Partners Agency Services,
LLC as agent to the lender ("Foreclosure Agreement"). One of the company's prior
lenders under the Credit Agreement, ARK CLO 2000-1 Limited, is also the majority
holder of common stock of Scan-Optics, Inc. and the sole holder of its 4% Series
I Cumulative Redeemable Preferred Stock.
The Foreclosure Agreement provides for Scan-Optics, Inc. transferring
substantially all of its assets to SO Acquisition, LLC in consideration of the
company being released from its obligations under the Third Amended and Restated
Credit Agreement, dated March 30, 2004 among Scan-Optics, Inc. as borrower,
Scan-Optics Limited, Scan-Optics (Canada), Ltd., ARK CLO 2000-1 Limited, ZOHAR
II 2005-1, Limited, ZOHAR CDO 2003-1, Limited and Patriarch Partners Agency
Services, LLC as agent to the lenders, as amended by the First Amendment thereto
date June 27, 2005 ("Credit Agreement"). The existing principal amount
outstanding under the Credit Agreement at the time of closing of the Foreclosure
Agreement was $14,310,000 exclusive of interest and other charges. The
Foreclosure Agreement provides that the company retains certain limited assets
and that the lender assumes certain liabilities of the company, including but
not limited to, certain accrued obligations with respect to current employees
and certain trade payables. The lender will also assume certain employee benefit
plans of the company and certain of its insurance policies. Under the
Foreclosure Agreement, the company was permitted to obtain extended directors
and officers insurance, and the lender agreed to assume or fund the defense of
actions brought against the company after the closing. In connection with the
closing under the Foreclosure Agreement (i) the company delivered a general
assignment and bill of sale to the lender, (ii) the company delivered to the
lender a list of signatories to its bank accounts, (iii) the company delivered
to the lender the resolutions of the board of directors authorizing the company
to enter into the Foreclosure Agreement and related transactions, (iv) the
company received a fairness opinion from Parker Benjamin, Inc. with respect to
the proposed transfer of assets, (v) the company's majority holder of common
stock and sole holder of preferred stock, ARK CLO 2000-1, Limited, delivered
written consents and waivers to the company, and (vii) the company delivered a
wind down budget to the lender which the lender agrees to fund as requested by
the company. Pursuant to the agreement the company releases ARK CLO 2000-1,
Limited with respect to claims related to the foreclosure agreement transactions
and other matters. In addition, at the closing the company terminated the
employment of all of its employees as of that time, and pursuant to the terms of
the Foreclosure Agreement those employees are to be hired by SO Acquisition,
LLC, the newly-formed entity that will hold the assets of Scan-Optics and
operate the business formerly conducted by Scan-Optics.
Following the closing of the Foreclosure Agreement, Scan-Optics, Inc.
has ceased doing business and is expected to be dissolved at an appropriate time
in accordance with the applicable provisions of the Delaware General Corporation
Law. Following the closing of the Foreclosure Agreement, the board of directors
has voted to dissolve the company, subject to requisite stockholder approval and
following compliance with SEC regulations requiring the filing of an
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information statement with respect to such approval. The company does not
believe that there will be any residual value left to the holders of common
stock of the company following the closing of the Foreclosure Agreement and any
winding-down of the company's affairs.
The foregoing description is qualified in its entirety with reference
to the copy of the Foreclosure Agreement attached as Exhibit 10.1.
Item 2.01 Completion of Acquisition or Disposition of Assets
See the description in Item 1.01 above regarding the company's transfer
of substantially all of its assets to its secured creditor pursuant to the
Foreclosure Agreement.
Item 2.04 Triggering Events that Accelerate or Increase a Direct
Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant.
On August 3, 2005, Scan-Optics, Inc. received a notice of default from
its secured lender, SO Acquisition, LLC under the Third Amended and Restated
Credit Agreement, dated March 30, 2004 among Scan-Optics, Inc. as borrower,
Scan-Optics Limited, Scan-Optics (Canada), the lenders party thereto and
Patriarch Partners Agency Services, LLC as agent to the lenders, as amended by
the First Amendment thereto date June 27, 2005 (the "Credit Agreement").
The notice of default states that Scan-Optics, Inc. has failed to repay
when due certain amounts due under Section 2.9 of the Credit Agreement, and that
it failed at the end of the company's second fiscal quarter ending June 30, 2005
to observe certain financial covenants in the Credit Agreement regarding
Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization
under Section 6.2(c) of the Credit Agreement. The notice of default accelerated
all of the company's indebtedness under the Credit Agreement, and all of the
approximately $14,310,000 plus accrued interest outstanding and other charges
under the Credit Agreement became immediately due and owing.
Item 5.02 Departure of Directors or Principal Officers; Election of
Directors; Appointment of Principal Officers.
(b) Pursuant to the terms of the Foreclosure Agreement described in
Item 1.01 above, all of the principal officers of Scan-Optics, Inc., Paul M.
Yantus, Peter H. Stelling, Joseph P. Crouch and Richard C. Goyette ceased to be
employees of the company effective at close of business on August 5, 2005.
(c) On August 5, 2005, following the resignation of Paul M. Yantus as
President of the company, effective at close of business on August 5, 2005, the
board of directors elected Scott Schooley to serve as president of the company.
Mr. Schooley, age 49, is Chairman of the Board of Directors of the company, and
is the President and Managing Member of Woodside Capital Management, LLC
("Woodside") an entity created to purchase distressed senior secured loans. Mr.
Schooley is also a member of the Governing Board of Woodside and beneficially
owns more that 5% of Woodside Capital Management, LLC, Woodside Funding
Management, LLC and Woodside Opportunity Partners, LLC. Mr. Schooley was
formerly the President of
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Blackstone Cable, an entity he created to purchase distressed cable television
loans and cable television systems. In such capacity, he managed loan purchases,
receivership and bankruptcy proceedings, acquisitions, transfers of ownership
and operations of cable television assets. Prior to the creation of Woodside and
Blackstone Cable, he was a partner in the law firm of Bingham Dana, LLP
(currently Bingham McCutchen), where he represented lenders and borrowers in a
variety of financing, bankruptcy and corporate transactions. Mr. Schooley is a
director of Petry Media Corp., and a director and a member of the compensation
committee of FPM, LLC.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in
Fiscal Year
On August 5, 2005, the company's majority holder of common stock and
sole holder of its preferred stock, ARK CLO 2000-1, Limited consented amending
the company's certificate of incorporation to permit the board of directors to
consist of one director, and the company expects to file such an amendment
following requisite stockholder approval and compliance with SEC regulations
requiring the filing of an information statement with respect to such consent.
Item 8.01 Other Events.
The company has been notified by the American Arbitration Association
that James C. Mavel has filed a demand for arbitration under an Employment
Agreement, effective as of December 31, 1996, between the company and Mr. Mavel.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits
10.1 Foreclosure Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SCAN-OPTICS, INC.
By: /s/ Peter H. Stelling
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Name: Peter H. Stelling
Title: Chief Financial Officer,
Vice President, Secretary and
Treasurer
Date: August 5, 2005
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