A group of investors tentatively has agreed to lend ATV Systems nearly $20 million, a move designed to spare the debt-plagued company from filing for bankruptcy, company officials said Tuesday.
Philip Gomez, board chairman of the Santa Ana computer maker, said the agreement, if signed, would give ATV enough money to retire its long-standing debts and renew the company's cash-starved product development activities.
However, completion of the agreement with the unidentified investor group hinges on the company's ability to persuade several of its creditors to accept reduced payments on ATV's outstanding bills. ATV has proposed cutting the bills, currently totaling $8 million, by at least 25%.
Although the company has received no assurances that the creditors will accept those terms, Gomez said their other choices aren't particularly attractive, given ATV's precarious financial position.
"The other alternative is that the creditors would get nothing if we have to file for Chapter 11" (under the U.S. Bankruptcy Code), he explained. "So the concessions aren't substantial when compared with the alternatives."
In addition to the $8 million owed its suppliers, ATV has outstanding bank loans and notes that add another $8.8 million to its debt. Under bankruptcy rules, those secured debts would be paid first from whatever assets the company may have. According to its most recent financial statement, ATV currently has liabilities of $25 million and assets of just $8 million.
Gomez said ATV officials had been meeting individually with the affected creditors, primarily suppliers, to explain the company's problems. No creditors' committee has been formed.
The loan hangs on ATV's ability to reduce its debt, Gomez explained, because the investors are concerned that the company have enough money after debts are repaid for developing new products and marketing its current line of computers.
Despite the obstacles to approval, Gomez said he expected the agreement to become final within 60 days. The agreement calls for the investors to receive convertible debentures redeemable over the next 10 years. Within a month of the signing, ATV would begin receiving the cash it has so desperately needed for the last 18 months.
ATV, created in 1981 to supply counter-top and accounting computers to the restaurant industry, ran into severe problems last year after overextending itself in a diversification move. The buying spree caused the company to lose $30 million on revenues of $52.2 million in its 1984 fiscal year, ended March 30, 1984.
During the last year, the company has been trimmed to cut expenses. Money-losing subsidiaries were shed, and 75% of the work force, once numbering 1,280 employees, was laid off.
As a result, ATV started turning a modest profit. In the first nine months of the current fiscal year, the company has posted profits of $877,000 on revenues of $25.8 million.
Nevertheless, the profits have been insufficient to pay off the debts or allow any spending for new products.
Among the $25 million in liabilities, Gomez said, are bank loans of $3.8 million, payroll withholding taxes to the Internal Revenue Service of $2.3 million and debentures worth $5 million. Gomez said that although those creditors are unlikely to accept reduced payments, suppliers are prime candidates for the company's proposal because they will profit if the company survives its current brush with bankruptcy.
"Crying over the past isn't going to do these companies or us any good," Gomez said. "Our creditors can be their own salvation and the salvation for this company too."