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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
July 23, 1998
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Date of Report (Date of earliest event reported)
Digital Lightwave, Inc.
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(Exact name of Registrant as Specific in Charter)
Delaware 000-21669 95-4313013
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(State or Other Juris. (Commission (IRS Employer
of Incorporation File Number) Identification No.)
601 Cleveland Street, Fifth Floor
Clearwater, Florida 33775
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(Address of Principal (Zip Code)
Executive Offices)
(813) 442-6677
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(Registrant's telephone number,
including area code)
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ITEM 5. OTHER EVENTS.
On July 23, 1998, the Company entered into a memorandum of understanding
(the "MOU") with respect to the proposed settlement of the consolidated class
actions pending in the United States District Court for the Middle District of
Florida (the "Settlement") against the Company and certain other defendants.
The MOU sets forth an agreement in principal with respect to the full and final
resolution of all claims (the "Settled Claims"), including Federal statutory
and common law claims as well as all derivative and any unasserted claims,
against the Company and the other defendants in the case (the "Released
Parties"). Pursuant to the terms of the MOU, in exchange for the full and final
release of the of the Release Parties, the Company will pay $4.25 million in
cash, which payment will be primarily funded by the Company's directors' and
officers' liability insurance policy, and issue 1.8 million shares of freely
tradeable common stock of the Company ("Common Stock"). The settlement is
subject to the negotiation of a Stipulation of Settlement containing customary
provisions and approval by the Company's Board of Directors and its primary
insurance carrier. The Settlement is also subject to approval by the court
presiding over the pending litigation and entry of a final Judgement of
Dismissal of the Settled Claims.
The Company has also signed a non-binding letter of intent (the "LOI") with
respect to the private placement of up to $15.5 million of convertible
securities to be issued by the Company. VantagePoint Communications Partners,
L.P. and an affiliate will be the initial investors ("VantagePoint"). The LOI
provides that the private placement will consist of two tranches, with a first
tranche of $10.0 million (the "Initial Tranche") and a second tranche of up to
$5.5 million (the "Final Tranche"). The Final Tranche is subject to further
agreement by the parties.
Upon the closing of the Initial Tranche the Company will issue secured
convertible debt (the "Interim Debt") in the face amount of $10 million. The
Interim Debt will have a one year term and will bear interest at the Applicable
Federal Rate for a one year security which is currently estimated at 5.5% per
year. The Interim Debt will automatically convert into shares of a newly
designated class of preferred stock (the "Preferred Stock") with an aggregate
liquidation preference of $10.0 million on the earlier of: (i) the effective
date of the Settlement on terms substantially
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the same as those outlined in the MOU; or (ii) the election of the holders of
the Interim Debt. The Final Tranche will involve the issuance of additional
shares of Preferred Stock with an aggregate liquidation preference equal to its
issue price.
The Preferred Stock issued upon conversion of the Interim Debt or in
connection with the closing of the Final Tranche will be automatically converted
into shares of Common Stock: (i) if the trading price of the Company's Common
Stock exceeds three times the conversion price for the Preferred Stock (the
"Conversion Price"); (ii) if the Company completes a public offering of at least
$20 million of Common Stock at a price which exceeds three times the Conversion
Price; or (iii) on December 31, 2001. The Conversion Price for the Initial
Tranche shall equal the average closing price for the Common Stock for the 25
trading days from June 18 through July 23, 1998 reduced by 20%. The Conversion
Price for the Final Tranche, will be determined based upon the closing price of
the Common Stock for the 25 trading days prior to the closing of the Final
Tranche reduced by 20%. The Preferred Stock will not accrue dividends and will
have voting rights on an as-if converted basis.
In connection with a closing of the proposed financing, Dr. Bryan Zwan,
the Chief Executive Officer of the Company, would agree to vote his shares of
Common Stock in favor of Mr. William Jefferson Marshall, a managing partner of
VantagePoint, to continue to serve as a director of the Company for such period
of time that VantagePoint owns all of the issued and outstanding Interim Debt,
Preferred Stock, or retains at least 10 percent of the Company's Common Stock
and share equivalents outstanding. The closing of the Initial Tranche is
subject to the negotiation and execution of a definitive agreement between the
Company and VantagePoint, the rendering of a fairness opinion to the
independent directors of the Company and certain other customary closing
conditions.
On July 28, 1998 the registrant issued the press release regarding, among
other items, the MOU and LOI and is attached hereto as Exhibit 99.1.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
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<S> <C>
99.1 Press Release of Digital Lightwave, Inc. dated July 28, 1998.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DIGITAL LIGHTWAVE, INC.
Date: July 31, 1998 By:/s/ Steven Grant
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Steven Grant
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description Page
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<S> <C> <C>
99.1 Press Release of Digital Lightwave, Inc.
dated July 28, 1998.
</TABLE>
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EXHIBIT 99.1
Contact:
Steven Grant, Chief Financial Officer
William Rooney, Corporate Communications Director
(813) 442-6677
http://www.lightwave.com
FOR IMMEDIATE RELEASE
DIGITAL LIGHTWAVE REPORTS SECOND-QUARTER 1998 RESULTS
Also Announces Agreements for Settlement of Securities Litigation
And $15.5M Private Financing
CLEARWATER, Fla., July 28, 1998--Digital Lightwave, Inc. (NASDAQ:DIGL)--a
supplier of Lightwave Management(TM) products for advanced, high-speed
telecommunications networks--today reported its financial results for the second
quarter ended June 30, 1998, as well as an agreement to settle the stockholder
class action lawsuits filed against it in 1998. The company also announced a
private placement of secured convertible debentures that is expected to raise up
to $15.5 million.
FINANCIAL RESULTS
Sales for the second quarter of 1998 were $3.5 million, up 35 percent
from $2.6 million for the second quarter of 1997. For second-quarter 1998, the
company took a one-time special charge of $8.5 million, which is related
primarily to the issuance of 1.8 million shares of common stock as part of the
legal settlement. Excluding the effect of this charge, the second-quarter net
loss was $6.1 million, or a loss of $0.23 per share, compared with a net loss of
$0.6 million, or a loss of $0.02 per share, for the year-earlier quarter.
Including the effect of this charge, the second-quarter 1998 net loss was $14.6
million, or a loss of $0.55 per share.
First-half 1998 sales were $8.9 million, compared with the $4.1 million
reported for the comparable period of 1997. Excluding the effect of the one-time
special charge for the second quarter, the net loss for the first six months of
1998 was $10.6 million, or a loss of $0.40 per share, compared with a net loss
of $1.9 million, or a loss of $0.07 per
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share, for the first half of 1997. Including the effect of this charge, the net
loss for the first half of 1998 was $19.1 million, or a loss of $0.72 per share.
"While our sales for the first half of 1998 nearly matched revenues for
all of 1997, second-quarter sales were lower than anticipated," said Dr. Bryan
J. Zwan, chairman, president and chief executive officer of Digital
Lightwave(TM). "However, we are encouraged by the current tone and pace of the
business, and we are excited about refocusing exclusively on our operations. In
addition, we are taking steps to reduce the level of our operating expenses
moving forward."
Zwan continued, "Highlights of the second quarter included the
Supercomm '98 trade show in Atlanta, where we introduced both our
next-generation product for remote, software-controlled network monitoring and
testing--the Remote Access Agent(TM)--and our OC-48 protocol testing option for
the Network Information Computer(TM). Customer response to these new products
was promising. Another second-quarter highlight was our passing of the
certification audit for the International Organization for Standardization to
certify Digital Lightwave under the ISO 9001 quality system. This certification
will be key to the globalization of our business in the coming years."
During the second quarter, Digital Lightwave added several new
customers, including Qualcomm, Telus, Premisys and Electric Lightwave. Existing
accounts taking product deliveries included GTE, MCI, WorldCom, Tellabs and
Qwest Communications International.
LEGAL SETTLEMENT
Digital Lightwave also announced today the execution of a memorandum of
understanding for the settlement of class action complaints filed against it in
U.S. District Court for alleged violations of federal securities laws. These
complaints were filed between January and April 1998.
The settlement, which is subject to court approval, consists of $4.25
million in cash, to be paid to plaintiffs primarily by a claim on the company's
directors and officers liability insurance policy, and no more than 1.8 million
shares of common stock.
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PRIVATE PLACEMENT
In other company news, Digital Lightwave announced an agreement for a
private placement of secured convertible debentures worth up to $15.5 million.
The company plans to use the net proceeds of the placement to fund working
capital and for general corporate purposes. VantagePoint Communications
Partners, L.P. and its affiliate will be the investors. William Jefferson
Marshall, a managing partner of VantagePoint, has served on the Digital
Lightwave board of directors since the company's initial public offering in
February 1997.
The initial $10-million tranche of the financing is expected to close
in August 1998, subject to a definitive agreement between the two parties, the
rendering of a fairness opinion to the independent directors and other closing
conditions.
SUMMARY
"We're pleased to be able to accomplish the legal settlement and the
private placement at this point in time," Zwan concluded. "With the right
management team in place, improved operating controls, strong products in the
pipeline and a blue-chip customer base, we're now positioned to capitalize on
emerging opportunities in the fiber optic telecommunications network markets
both in the U.S. and overseas."
THE COMPANY
Digital Lightwave serves the growing lightwave communications
market--high-speed telecommunications networks based on fiber optic technology.
The company's products include portable Network Information Computers, which
provide analysis and testing of SONET, ATM and T-Carrier networks and
transmission equipment, and Remote Access Agents for unattended,
software-controlled, performance monitoring and management of broadband
networks. Digital Lightwave's customers include companies that develop and
deploy advanced voice, data and multimedia networks. The company is
headquartered in Clearwater, Fla., and can be located on the Internet at
http://www.lightwave.com.
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Except for the historical statements made herein, this news release contains
certain forward-looking statements that may involve a number of risks and
uncertainties. Factors that could cause actual results or events to differ
materially from these forward-looking statements include: market acceptance of
the company's products; delays in product development and delivery schedules;
interoperability of the company's products; continued market growth; rapid
technological changes; competitive factors; the settlement of securities
litigation against the company; the closing of the convertible debt offering;
general business conditions; and other factors described in the company's
filings with the Securities and Exchange Commission (SEC), including the Annual
Report on Form 10-K dated April 15, 1998 and Quarterly Report on Form 10-Q dated
May 15, 1998. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date hereof. The company
assumes no obligation to update information contained in this release.
EDITOR'S NOTE: Digital Lightwave(TM), Lightwave Management(TM), Remote Access
Agent(TM) and Network Information Computer(TM) are trademarks of Digital
Lightwave, Inc., for which application has been made.
--FINANCIAL STATEMENTS ATTACHED--
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DIGITAL LIGHTWAVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per-share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Sales $ 3,517 $ 2,601 $ 8,949 $ 4,099
Cost of goods sold 1,334 795 3,437 1,362
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Gross profit 2,183 1,806 5,512 2,737
Operating expenses:
Engineering and development 3,692 948 7,001 1,826
Sales and marketing 3,094 1,179 5,037 2,058
General and administrative 1,644 795 3,542 1,574
Reorganization charges -- -- 1,018 --
Litigation settlement 8,500 -- 8,500 --
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Total operating expenses 16,930 2,922 25,098 5,458
Operating loss (14,747) (1,116) (19,586) (2,721)
Other income 167 539 446 832
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Loss before income tax (14,580) (577) (19,140) (1,889)
Provision for income taxes -- -- -- --
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Net loss $ (14,580) $ (577) $ (19,140) $ (1,889)
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Per share of common stock:
Net loss per share $ (0.55) $ (0.02) $ (0.72) $ (0.07)
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding 26,461,151 26,177,777 26,452,601 25,429,833
============ ============ ============ ============
</TABLE>
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DIGITAL LIGHTWAVE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,068 $ 24,031
Accounts receivable, net 4,992 4,780
Inventories 9,206 8,120
Prepaid expenses and other
current assets 1,093 481
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Total current assets 25,359 37,412
Property and equipment, net 7,651 6,785
Other assets 207 164
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TOTAL ASSETS $ 33,217 $ 44,361
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 4,257 $ 4,917
Accrued settlement charges 8,500 --
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Total current liabilities 12,757 4,917
Long-term liabilities 55 25
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TOTAL LIABILITIES 12,812 4,942
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Stockholders' equity:
Preferred stock -- --
Common stock 3 3
Additional paid-in capital 55,327 55,201
Accumulated deficit (34,925) (15,785)
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Total stockholders' equity 20,405 39,419
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Total liabilities and
stockholders' equity $ 33,217 $ 44,361
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</TABLE>
