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June 19, 1990

BANKRUPT KAYPRO CORP IS NOT PRO KAY AS IT FIGHTS FOUNDER ANDREW KAY FOR CONTROL

By CBR Staff Writer

Kaypro Corp may be little more than a corpse these days, but a bitter battle is being fought over the bones of the one high-flying personal computer manufacturer between the new management and the company’s founder, way back in 1953, Andrew Kay. The new management, led by president Roy Salisbury has fired Kay as an employee of the company, although he remains non-executive chairman and a director. The current situation is that all employees have been laid off because there is no cash to pay them, but some are staying on in the hope that something will turn up. Meantime in a filing with the US Securities & Exchange Commission, Salisbury reports that on March 28, 1990, company bankruptcy counsel received a three-item memo from the Office of the US Trustee, which asked for specific assurances that the Kay family was not and would not be involved in daily operations of the company and that they had not and would not remove assets from the premises after the filing of the company’s Chapter 11 petition, and that failure to comply could be cause for the trustees office to move for conversion from a Chapter 11 proceeding to a Chapter 7 liquidation. The new team has tried to comply but complains that in trying to get company cars back from the Kay family, a struggle for control of the company has erupted, with Andrew Kay attempting to remove the new management from control of the company. The new team believes that Kay has taken steps to undermine the success of the recovery plan, allegedly attempting to subvert negotiations with vendors, and has attempted to gain control of Kaypro Europe BV, an important corporate asset. Kay, it says, is now attempting to depose current management by calling a meeting to approve the appointment of a fifth board member sympathetic to him for today. The current management reckons the notice is defective and that any actions of the board taken at such meeting will be without legal force or effect. The team says that while it believes that the company can be successfully restructured under its plan, but only so long as Kay and other family members have no involvement whatsoever in the operations of the company.

Trustee to oversee the activities

To bring an end to the current infighting and to implement its goal, management has requested the appointment of a trustee to oversee the activities of whoever manages the company. But it has other things to worry about: it has also had a request for documents from the enforcement branch of the Los Angeles Regional Office of the US Securities and Exchange Commission seeking financial and corporate records of the company for the years ended September 1989 and 1988 because it is concerned with the accounting methods and policies employed by the former management. The new team believes that previous management’s practices and policies with respect to accounting matters for the years in question could be viewed by the Commission as constituting criminal violations of the federal securities laws. The new management has been unable to complete the company’s annual report due to its unfamiliarity with the operations for the year ended September 1989 and the auditors have said that they are unable to express an opinion as to the company’s financial statements for that year because of serious deficiencies in the accounting records, lack of audited statements for the foreign subsidiary and inability independently to confirm certain company accounts payable, accounts receivable and notes payable. As a result of all this, Kaypro has lost its NASDAQ listing. Furthermore, it warns shareholders and anyone that might be interested in buying the shares that there are, in all likelihood, no current records that accurately reflect the company’s financial condition in conformity with generally accepted accounting principles and that a result, management believes that anyone that currently buys or sells Kaypro’s securities are, to the extent that they rely on currently existing financial reports in connection with such purchases or sales, not in possession of reliable fina

ncial information on which to base them.

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