<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended January 24, 1999
----------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from ________to_________
Commission File Number 0-8567
-------
Datametrics Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3545701
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
25B Hanover Road
Florham Park, New Jersey 07932
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(973) 377-3900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock. $.01 Par Value--17,172,879 shares as of February 26, 1999
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DATAMETRICS CORPORATION
Index to Form 10-QSB
Page No.
- --------------------------------------------------------------------------------
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets
as of January 24, 1999 and
October 25, 1998 3
Consolidated Statements of
Operations for the Three Months
Ended January 24, 1999 and
January 25, 1998 4
Consolidated Condensed Statements
Of Cash Flows for the Three Months
Ended January 24, 1999 and
January 25, 1998 5
Notes to Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II - Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and uses of proceeds 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of matters to a vote of 12
security holders
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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DATAMETRICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
CONSOLIDATED DATAMETRICS CORPORATION
BALANCE SHEETS
(In thousands, except for share data) January 24, 1999 October 25, 1998
- ------------------------------------- -------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $275 $228
Accounts receivable, net 2,287 1,979
Inventory, net 4,421 4,140
Prepaid expenses and other current assets 10 55
------------------------ -----------------------
Total current assets 6,993 6,402
Property and Equipment, at Cost:
Land 420 420
Building 1,042 1,042
Machinery and equipment 3,312 3,312
Furniture, fixtures & computer equipment 2,562 2,562
Leasehold improvements 71 71
------------------------ -----------------------
7,407 7,407
Accumulated depreciation and amortization (5,221) (5,100)
------------------------ -----------------------
Net property and equipment 2,186 2,307
Inventoried parts 3,200 3,200
Other Assets 762 810
------------------------ -----------------------
$13,141 $12,719
======================= ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit ---- $1,669
Current maturities of long-term debt 1,852 1,871
Accounts payable 1,024 1,034
Accrued commissions and payroll 182 225
Accrued warranty 30 30
Other accrued expenses 393 440
Other accrued liabilities 1,225 ----
------------------------ -----------------------
Total current liabilities 4,706 5,269
Long-Term Debt, Less current maturities 3,896 2,696
Loan Payable 746 746
------------------------ -----------------------
Total liabilities 9,348 8,771
Commitments and Contingencies
Stockholders Equity
Common stock, $.01 par value--40,000,000 shares
authorized; 17,172,879 shares issued and
outstanding in 1999 (14,722,629 in 1998) 172 156
Additional paid-in capital 39,455 37,910
Accumulated deficit (35,834) (34,058)
------------------------ -----------------------
Total stockholders' equity 3,793 4,008
------------------------ -----------------------
$13,141 $12,719
======================= ======================
</TABLE>
See accompanying notes.
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DATAMETRICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED DATAMETRICS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months For The Three Months
Ended Ended
January 24, 1999 January 25, 1998
(In thousands, except per share data)
- ------------------------------------- =================================================================================
<S> <C> <C>
SALES $1,586 $1,525
Cost of sales 1,084 1,588
Research & development 62 136
Selling, general & administrative 867 1,026
Lease settlement expense 1,225
----------------------------- -----------------------
Loss (1,652) (1,225)
Interest expense, net 124 87
----------------------------- -----------------------
Loss before provision for income taxes (1,776) (1,312)
Provision for income taxes ---- ----
----------------------------- -----------------------
Net loss (1,776) ($1,312)
============================= =======================
Loss per share of common stock:
Basic and diluted net loss (0.11) ($0.08)
============================= =======================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic and diluted 16,578 15,031
</TABLE>
See accompanying notes.
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DATAMETRICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DATAMETRICS CORPORATION
CASH FLOWS STATEMENT
(Unaudited)
For The Three Month Period
(In thousands)(Brackets denote cash outflows) January 24, 1999 January 25, 1998
- --------------------------------------------- -----------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (1,776) (1,312)
Adjustments:
Depreciation and amortization 121 152
Loss on assets - -
Changes in assets and liabilities
Accounts receivable (308) 1,377
Inventory (281) (792)
Prepaid expenses and other current assets 45 2
Other Assets 48 16
Accounts payable (10) (504)
Accrued commission and payroll (43) (125)
Other accrued expenses (1,178) (43)
Advance and progress payments from customers - (63)
Other long-term liabilities - 12
------------------------- --------------------------
Net cash used in operating activities (1,026) (1,280)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment - (922)
------------------------- --------------------------
Net cash used in investing activities - (922)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit 426 3,358
Payments on revolving line of credit (2,095) (3,131)
Redemption of Series B Preferred Stock - -
Payment on capitalized lease obligations (17) (6)
Borrowings on long-term debt 3,450 899
Payments on long-term debt - (85)
Exchange of 7% Convertible Debentures (1,750)
Exchange of Senior Subordinated Debentures (500)
Proceeds from the issuance of common stock and warrants 1,559 2,002
------------------------- --------------------------
Net cash used in financing activities 1,073 3,037
------------------------- --------------------------
Net increase in cash and cash equivalents 47 835
Cash and cash equivalents at the beginning of the period 228 200
------------------------- --------------------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $275 $1,035
========================= ==========================
Cash paid during the period for:
Interest $37 $132
Income Taxes - -
</TABLE>
See accompanying notes.
5
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DATAMETRICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 24,1999
(Unaudited)
1. The consolidated financial statements include the accounts of Datametrics
Corporation and its wholly-owned subsidiaries (collectively, the "Company").
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission for the requirements of the Quarterly Report on Form
10-QSB. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the statements and
notes thereto included in the Company's latest Annual Report on Form 10-K for
the fiscal year ended October 25, 1998 as filed with the Securities and Exchange
Commission.
The information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary to present a
fair statement of the results of operations for the interim periods. Much of
the Company's business is longer term and involves varying development,
production, and delivery schedules. Accordingly, results of a particular quarter
or quarter-to-quarter comparisons of recorded sales and profits may not be
indicative of future operating results, including results for the fiscal year
ending October 31, 1999.
2. INVENTORIES Stockroom inventories consist primarily of materials used by the
Company for existing and anticipated contracts and materials and finished
assemblies which are held to satisfy spare parts requirements of the Company's
customers. Those parts not expected to be sold within one year are classified
as a non-current asset. The Company does not amortize its non-current
inventory, rather the Company evaluates all inventory for obsolescence on a
periodic basis and records estimated reserves.
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Inventories as of January 24, 1999 consist of the following:
Inventories of parts and sub-assemblies $11,184,000
Contracts in progress 1,065,000
Finished goods 200,000
-----------
12,449,000
Less non current inventories 3,200,000
Less reserve for obsolescence 4,828,000
-----------
$ 4,421,000
-----------
3. SUBSEQUENT EVENTS In April 1998, the Owner of the Woodland Hills, CA,
premises formerly occupied by the Company sued for the balance of all rent due
through the end of the extant lease plus damages of approximately $1,000,000.
The Company relocated from such premises after the Owner had ignored repeated
notifications of unsafe structural conditions as cited by Los Angeles County
building inspectors.
On March 2, 1999, the Court signed a judgment in the suit in favor of the Owner,
which judgment has been settled and will be satisfied pursuant to a Mutual
Release and Settlement Agreement with the Owner. Under the terms of the
Agreement, the Company will pay $850,000 in cash and 150,000 shares of Common
Stock to the Owner. The Company has agreed to register the shares, and under
certain circumstances, the Company will issue additional shares to the extent
that the market price of the Company's Common Stock falls below certain levels.
The Company also has the right to repurchase the shares under certain
circumstances.
On March 10, 1999, the Company sold $250,000 of Bridge Notes to certain
investors, including two directors. The Bridge Notes have a maturity of 60 days
and pay interest at the rate of 10% per annum. In connection with the Bridge
Notes, the Company also issued warrants to purchase a total of 50,000 shares of
the Company's Common Stock with an exercise price equal to $1.375 per share.
The Bridge Notes are intended to provide temporary working capital until a more
permanent source of financing is arranged.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Month Period Ended January 24, 1999 Compared
--------------------------------------------------
To Three Month Period Ended January 25, 1998
--------------------------------------------
Sales for the three month period ended January 24, 1999 were $1,586,000 an
increase of $61,000 or 4%, compared with sales of $1,525,410 in the same period
in the prior fiscal year. Sales of defense and defense related products
decreased $598,000, while other sales increased $659,000. The decrease in
defense and defense related sales for the three months ended January 24, 1999 is
attributable to lower than anticipated orders from the Department of Defense and
prime contractors.
Cost of sales for the first three months of fiscal 1999 was $1,084,000 (68% of
sales), a decrease of $479,720 or 30%, compared with $1,584,000 (104% of sales)
for the same period in the prior fiscal year. Cost of sales is down from the
same period in the prior fiscal year due to lower direct labor costs in the
Company's Florida manufacturing operation compared to the Company's former
manufacturing operation in California.
Research and development expenses were $62,000 for the three month period ended
January 24, 1999, a decrease of $74,000 or 54%, compared with $136,000 for the
same period in the prior year. The decrease is due to lower development costs
associated with the Company's new family of industrial printers.
Selling, general and administrative ("SG&A") expenses for the three month period
ended January 24, 1999 were $867,000 (55% of sales) a
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decrease of $159,000, or 15%, compared with $1,026,000 (67% of sales) for the
same period in the prior fiscal year. The decrease is due to lower
administrative and support staff expenses throughout the company. The
Settlement Agreement with the Owner of the Woodland Hills, CA, property was
$1,225,000.
The agreement to settle the Company's lease obligation to its former California
landlord for cash and stock resulted in a charge of $1,225,000.
Net interest expense amounted to $124,000 for the three month period ended
January 24, 1999 compared with net interest expense of $87,000 for the same
period in the prior year. This increase is due to higher outstanding
borrowings.
The net loss for the three month period ended January 24, 1999 amounted to
$1,776,000 an increase of $464,000, compared with a net loss of $(1,312,000)
for the same period in the prior year.
Management has determined that, based on the Company's historical losses from
recurring operations, the Company will not recognize its net deferred tax assets
at January 24, 1999. Ultimate recognition of these tax assets is dependent, to
some extent, on future revenue levels and margins. It is the intention of
management to assess the appropriate level for the valuation allowance each
quarter.
The contract process in which products are offered for sale is generally set
before costs are incurred, and prices are based on estimates of the costs, which
include the anticipated impact of inflation.
The Company's backlog of funded orders not yet recognized as revenue at January
24, 1999 was approximately $4,604,000. Most of the January 24, 1999 backlog is
expected to be delivered during the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a revolving line of credit agreement (the "Credit Agreement")
with a bank, collateralized by substantially all of the Company's assets. The
Company was in default on December 30, 1998 when the outstanding balance of
approximately $1.7 million was paid in full. The Company no longer has a line
of credit with the bank.
The Company's working capital and current ratios at January 24, 1999 and at the
end of fiscal years 1998, 1997 and 1996 were $2,287,000, $3,570,000, $2,239,000
and $3,187,000 and 1.4, 1.6, 1.3 and 1.3, respectively.
Management believes that the Company must make approximately $400,000 of capital
expenditures (including capitalized leases) during the
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remainder of fiscal 1999. The Company's other principal commitments for fiscal
year 1999 include principal and interest payments on loans and subordinated debt
and payments in settlement of litigation.
Management is attempting to finance the capital expenditure requirements and
other commitments from the issuance of stock, subordinated debt, capital leases,
commercial loans or other sources of working capital.
The Company utilizes various computer software packages as tools in running its
accounting operations. Management plans to replace the current Western Data
Systems software with a software package better suited to support its current
and future business needs. The approach includes: an assessment of internal
programs and equipment; communication with major customers and vendors with
respect to the state of readiness of their systems; an evaluation of facility
related issues and the development of a contingency plan. This approach is
designed to maintain an uninterrupted supply of goods and services to/from the
Company. The Company is incorporating to the Y2K computer programming language
into its choice of an appropriate software package. The Company does not
believe the investment required for its mainframe and critical hardware
equipment to be Y2K compliant will be significant.
The Company is in a continuous process of communicating with its major customers
and suppliers. This contact is designed to determine systems compatibility and
compliance. The Company has been assured by its major suppliers that there will
be no disruption in the delivery of goods and services. The Company believes
that adequate resources are available for the supply of its raw materials and
facility related equipment will be operational.
The Company continues to assess the risks associated with program failures and
will develop a formal contingency plan with its business partners to address the
specific risks. The failure to correct a material Y2K problem could result in
an interruption in normal business activity. The Company's plan is expected to
significantly reduce the risk associated with the Y2K issue. However, due to
the inherent uncertainty of the Y2K issue and dependence on third-party
compliance, no assurance can be given that potential Y2K failures will not
adversely effect the Company's operations, liquidity and financial position.
Forward Looking Statements-Cautionary Factors
Except for the historical information and statements contained in this report,
the matters set forth in this report are "forward looking statements" that
involve uncertainties and risks, some of which are discussed at appropriate
points in this report and the Company's other SEC filings, including the fact
that the Company is engaged in supplying equipment and services to U.S.
government defense programs which are subject to special risks, including
dependence on government appropriations, contract termination without cause,
contract renegotiation and the intense competition for available defense
business.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is, from time to time, the subject of litigation, claims and
assessments arising out of matters occurring during the normal operation of the
Company's business. In the opinion of management, the liability, if any, under
such current litigation, claims and assessments would not materially affect the
financial position or the results of the operations of the Company except as
disclosed herein.
Four former officers of the Company (the "Former Officers"), whose employment
relationships with the Company terminated in part as a result of the Company's
restructuring in October 1996, sought severance benefits from the Company. On
January 13, 1997, three of the Former Officers sued the Company in the Superior
Court of the State of California for Los Angeles County, in order to enforce
payment of severance benefits under certain agreements, each dated as of October
7, 1996, between each Former Officer and the Company (collectively, the
"Severance Agreements"). The fourth Former Officer sued the Company in response
to the Company's cross-complaint. The Former Officers sought damages from the
Company based upon the Severance Agreements and an alleged implied promise not
to terminate
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the employment of the Former Officers with the Company without good cause.
On September 28, 1998, a California trial court upheld the enforcability of the
Former Officer's severance agreements and the Officer's requested entry of a
judgment in the approximate amount of $1,200,000 plus interest and costs. The
Company has appealed the judgment. The Company has obtained a written guarantee
from a holder of a significant amount of the Company's debt securities
guaranteeing payment of the judgment, should the Company lose on appeal. If the
holder pays the guaranty, the Company has agreed to issue such holder 7%
convertible debentures with a two year maturity in an amount equal to the amount
so paid, which debentures will be convertible into shares of common stock of the
Company at the lower of $2.00 per share or 75% of the closing sale price on the
date of payment. The Company is unable to estimate the results of its appeal and
at January 24, 1999 nothing has been accrued for in the consolidated financial
statements related to this litigation.
In April 1998, the Owner of the Woodland Hills, CA, premises formerly occupied
by the Company sued for the balance of all rent due through the end of the
extant lease agreement plus damages of approximately $1,000,000. The Company
relocated from such premises after the Owner had ignored repeated notifications
of unsafe structural conditions as cited by Los Angeles County building
inspectors.
On March 2, 1999, the Court signed a judgment in the suit in favor of the Owner,
which judgment has been settled and will be satisfied pursuant to a Mutual
Release and Settlement Agreement with the Owner. Under the terms of the
Agreement, the Company will pay $850,000 in cash and 150,000 shares of Common
Stock to the Owner. The Company has agreed to register the shares, and under
certain circumstances, the Company will issue additional shares of Common Stock
to the extent that the market price of the Company's Common Stock falls below
certain levels. The Company also has the right to repurchase the shares under
certain circumstances.
Item 2. Changes in securities and uses of proceeds.
None
Item 3 Defaults upon Senior Securities
The Company remains in default of approximately $1.35 million in principal
amount of Senior Secured Subordinated Notes. The Company is currently
attempting to negotiate a settlement on the remaining amounts outstanding by way
of either issuance of new notes or repayment of the amounts owed with a
combination of equity securities and cash during fiscal 1999.
Item 4. Submission of matters to a vote of security holders.
None
Item 5. Other Information
On December 30, 1998, the Company placed approximately $3.45 million of 10%
Subordinated Notes due 2000 (the "Subordinated Notes") and
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$1.55 million in shares of the Company's Common Stock. The Subordinated Notes,
which are unsecured and callable under certain conditions, provide for the
Company to issue 5-year warrants exercisable into the Company's Common Stock at
a price of $1.50 per share.
As part of the offering, investors holding $1.75 million of the Company's
Convertible Debentures issued in July and September of 1998 exchanged their
holdings for new Subordinated Notes. In addition, holders of $500,000 of the
Company's Senior Subordinated Debentures also exchanged their debentures for the
new Subordinated Notes. The net proceeds of approximately $2.75 million was
used for debt retirement and working capital purposes.
On March 10, 1999, the Company sold $250,000 of Bridge Notes to certain
investors, including two directors. The Bridge Notes have a maturity of 60 days
and pay interest at the rate of 10% per annum. In connection with the Bridge
Notes, the Company also issued warrants to purchase a total of 50,000 shares of
the Company's Common Stock with an exercise price equal to $1.375 per share.
The Bridge Notes are intended to provide temporary working capital until a more
permanent source of financing is arranged.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
Exhibit 27 Financial Data Schedule
Exhibit 10.12 Mutual Release and Settlement Agreement
(b) Reports on Form 8-K
None
11
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Form 10-QSB to be signed on its behalf by its
duly authorized representatives.
DATAMETRICS CORPORATION
-----------------------
(Registrant)
Dated: March 10, 1999 /s/ DANIEL P. GINNS
-------------------------- ---------------------------
Daniel P. Ginns
Chief Executive Officer
Dated: March 10, 1999 /s/ WILLIAM B. PANDOS
-------------------------- ---------------------------
William B. Pandos
Principal Financial Officer
12
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Exhibit 10.12
MUTUAL RELEASE AND SETTLEMENT AGREEMENT
---------------------------------------
This Mutual Release and Settlement Agreement (the "Agreement") is being
entered into as of March 9, 1999 by The Manufacturers Life Insurance Company
(U.S.A.), a Michigan corporation ("ManuLife") and Datametrics Corporation, a
Delaware corporation ("Datametrics").
WHEREAS, ManuLife has brought civil action BC 190 120 (the "Action") in Los
Angeles Superior Court, Los Angeles, California (the "Court") against
Datametrics;
WHEREAS, the Court has granted summary judgment (the "Judgment") to
ManuLife in such Action;
WHEREAS, ManuLife and Datametrics wish to avoid the time and expense of
appealing the Judgment and otherwise litigating issues between them and wish to
settle and compromise all issues related to the Action and all other disputes
between them;
NOW, THEREFORE, in consideration of the promises and conditions set forth
herein, the sufficiency of which is hereby expressly acknowledged, ManuLife and
Datametrics intending to be legally bound, hereby agree as follows:
I. Definitions
-----------
For purposes of this Agreement, the following terms shall have the
following meanings:
1. "ManuLife" shall mean The Manufacturers Life Insurance Company (U.S.A.)
and its predecessors, successors, current and former subsidiaries, affiliates,
officers, directors, partners, representative agents, employees and any other
legal representatives.
2. "Datametrics" shall mean Datametrics Corporation and its predecessors,
successors, current and former parents, subsidiaries, affiliates, trustees,
officers, directors, representatives, agents, employees and any other legal
representatives.
3. "Parties" means ManuLife and Datametrics.
II. Settlement Payment
------------------
1. Cash. Datametrics shall pay the sum of eight-hundred fifty thousand
----
dollars ($850,000) in cash to ManuLife. Such payment shall be made by
federal funds
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wire transfer payable as set forth in a notice in writing from ManuLife to
Datametrics and shall be made not later than the close of business on the
forty-fifth (45th) day following the execution hereof.
2. Common Stock. Datametrics shall issue to ManuLife 150,000 shares of
------------
the Common Stock of Datametrics (the "Shares"), such Shares to be issued not
later than the close of business on the forty-fifth (45th) day following the
execution hereof.
3. Conditional, Limited Extension. The due dates set forth in Sections
------------------------------
II.1 and II.2 above may be extended by Datametrics upon written notice to
ManuLife for one fifteen (15) day period, so long as such notice is accompanied
by the payment of an additional $50,000.
III. Provisions Regarding the Shares
-------------------------------
1. Securities Representation. ManuLife hereby represents and warrants
-------------------------
that it is an "accredited investor," as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Act") and has the knowledge and experience in business and financial matters to
evaluate the risks and merits of acquiring the Shares and any Additional Shares
(as defined below) and that it is acquiring Shares and any Additional Shares
for investment and not for resale or for the purpose of effecting a distribution
thereof. ManuLife acknowledges and agrees that the Shares and any Additional
Shares have not been registered under the Act and may not be sold or offered for
sale except pursuant to a registration statement under the Act or an exemption
from the registration requirements thereof.
2. Registration Rights. Datametrics shall use its best efforts to
-------------------
register the Shares under the Act within forty-five (45) days after the date
such Shares are issued. If Datametrics shall fail to so register the Shares,
then ManuLife shall have the right to register the Shares, with Datametrics full
cooperation and at Datametrics' cost.
3. Price Guarantee. If, upon the expiration of eighteen (18) months from
---------------
the date of issue of the Shares to ManuLife (the "Assessment Date"), the average
of the highest closing bid prices of Datametrics Common Stock on any three (3)
trading days in the first six months of such eighteen (18) month period, plus
six (6) trading days in the second six (6) months, plus six (6) trading days in
the final six (6) months has not equaled or exceeded $2.50 per share, then
Datametrics shall be obligated to pay to
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ManuLife the "Price Guarantee Amount" (as described below) not later than on the
tenth (10th) day after such Assessment Date, and in the form permitted
hereunder. Except as provided in the last sentence of this paragraph 3, the
"Price Guarantee Amount" shall mean (x) the amount by which the Market Price of
Shares on the Assessment Date is less than $2.50 per share, multiplied by (y)
-------------
150,000, less (z) any sales proceeds in excess of $2.50 received by ManuLife
----
from the sale (including any short sale or indirect sale) of any share of the
Common Stock of Datametrics during the period from the execution hereof through
the Assessment Date. The Price Guarantee Amount shall be payable at Datametrics'
option either by the payment of cash, or by the issuance of additional shares of
Common Stock of Datametrics ("Additional Shares") with an aggregate value
(determined as of the Assessment Date) equal to the Price Guarantee Amount. For
purposes hereof, "Market Price" shall mean the average closing bid and asked
price for Datametrics Common Stock on the five (5) trading days immediately
preceding (but not including) the Assessment Date (or, in the case of paragraphs
4 and 5 below, the date of the ManuLife Notice or the Repurchase Notice, as the
case may be). Unless otherwise consented to by Datametrics, if prior to the
Assessment Date, ManuLife shall sell more than the greater of (x) 9,000 shares
----------
of Datametrics Common Stock in one calendar month, or (y) 27,000 shares in any
period of ninety (90) consecutive days, then the number "150,000" referred to
above shall be reduced by the excess number of shares so sold.
4. Right of First Refusal. If ManuLife desires to sell any of the Shares
----------------------
at any time prior to the Assessment Date, it shall provide notice (the "ManuLife
Notice") in writing to Datametrics of its desire to sell. Datametrics (or its
designee) shall then have an option to repurchase any or all of such Shares at
the Market Price, determined as of the date of the ManuLife Notice, by notice in
writing to ManuLife sent within two (2) business days after Datametrics' receipt
of the ManuLife Notice. The closing of such repurchase shall occur within ten
(10) days after the date of the ManuLife Notice, and the purchase price for the
Shares shall be payable in cash against delivery of the certificates for the
Shares to be repurchased duly endorsed for transfer or accompanied by duly
endorsed stock powers. If Datametrics (or its designee) does not elect to
repurchase such Shares pursuant to this paragraph 4, ManuLife shall be free to
sell such Shares.
3
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5. Repurchase Option. At any time on or before the Assessment Date,
-----------------
Datametrics (or its designee) shall have the option, exercisable by notice in
writing to ManuLife (the "Repurchase Notice"), to repurchase any or all Shares
then held by ManuLife for a purchase price equal to ten percent (10%) in excess
of the Market Price of the Shares to be repurchased (but not less than $2.50 per
Share), determined as of the date of the Repurchase Notice. The closing of such
repurchase shall occur within ten (10) days after the date of the Repurchase
Notice. At such closing, Datametrics (or its designee) shall pay the purchase
price for the Shares to be purchased in cash against delivery of the
certificates for the Shares to be repurchased duly endorsed for transfer or
accompanied by duly endorsed stock powers.
6. The provisions of this Section III shall expire upon any transfer of
the Shares by ManuLife not inconsistent with the provisions of this Agreement.
IV. Conduct of Litigation.
---------------------
1. ManuLife hereby agrees not to file, serve or cause to be served a
Notice of Entry of Judgment or to take any action to commence the time to appeal
the Judgment to run or the time to file a Motion to vacate the Judgment to run.
2. ManuLife hereby agrees that, as between ManuLife and Datametrics, all
relevant time periods in regard to the filing of motions, requests for relief,
notices of appeal, writs and other executory, procedural or appellate relief
with respect to the Judgment shall be stayed or tolled during the periods set
forth in Section II and/or during the term hereof, provided that the parties may
make the filings set forth on Schedule A attached hereto and which shall be
----------
necessary for each party to preserve its rights pending the completion of the
settlement herein provided for.
3. contemporaneously with receipt of the payments referred to in Section
II above, ManuLife shall file with the clerk of the Court a notice or other
evidence of the satisfaction of the Judgment and such other motions or documents
as will fully and effectively terminate any and all claims ManuLife may have in
the Judgment, or on account of the matters with respect to which the Judgment
arose.
V. Standstill and Mutual Release by the Parties
--------------------------------------------
1. ManuLife hereby agrees not to execute on the Judgment or otherwise
seek to enforce the Judgment or any rights granted thereby or to pursue any
remedies against
4
<PAGE>
Datametrics or any of its assets unless and until this Agreement has been
terminated by ManuLife pursuant to Section VII below.
2. The Parties hereby fully and forever release, acquit and discharge
each other from any and all claims, demands, damages, actions, rights of action
and liabilities of whatever kind or nature, in law or equity, which any of them
have, ever had, or might have had, whether known or unknown, from the beginning
of time to the date of this Agreement.
3. The Parties acknowledge that this Mutual Release does not constitute
an admission of liability by either Party.
4. Notwithstanding the provisions of this Mutual Release, it is expressly
understood that the Parties are not releasing each other from any obligation
they have agreed to undertake pursuant to this Agreement.
VI. Default
-------
1. In the event of any material breach by Datametrics of Section II
hereof (which shall include any failure by Datametrics to strictly follow the
time constraints thereof), ManuLife shall be entitled to cancel this Agreement,
and the Mutual Release and all other provisions of this Settlement Agreement
shall be deemed to be null and void, including, but not limited to, permitting
ManuLife to take any and all steps necessary to pursue and enforce its Judgment.
2. A Party shall be in default under this Agreement if any other material
breach remains uncured for ten (10) days.
VII. Miscellaneous Provisions
------------------------
1. This Agreement supersedes any and all prior oral or written agreements
between the Parties and shall take effect as an instrument under seal.
2. This Agreement sets forth the entire agreement between the Parties and
may not be modified except by a writing signed by all of the Parties.
3. The Parties hereby acknowledge that they have each read this Agreement
carefully, that they have been afforded sufficient time to understand the terms
and effects of it, that they, in fact, fully understand all of the terms and
effects of it, that they have been advised to consult legal counsel, and in fact
have consulted legal counsel prior to
5
<PAGE>
signing this Agreement, and that they are voluntarily entering into and
executing this Agreement.
4. The Parties represent and warrant as to themselves that they have the
power and authority to enter into this Agreement and that the execution,
delivery and performance of this Agreement (including, in the case of
Datametrics, the issue of the Shares and any Additional Shares) has been duly
authorized by all necessary action.
5. The covenants, agreements, terms, provisions and conditions contained
in this Agreement shall be binding and inure to the benefit of the Parties and
their respective successors and assigns.
6. This Agreement may be executed in one or more counterparts, and
together these counterparts shall be construed as one agreement.
7. Each of the Parties shall execute two originals of this Agreement and
provide one of the originals to the other Party.
8. This Agreement may be executed and transmitted by facsimile, and such
"facsimile execution" shall be treated by the Parties as an original and legally
binding for all purposes. An original of any "facsimile execution" shall be
served upon the other Parties' counsel within seven (7) business days of the
date of execution by that party.
9. Any provision hereof which is invalid or unenforceable shall be
ineffective solely to the extent of such invalidity or unenforceability, without
affecting in any way the remaining provisions of this Agreement which shall be
valid and enforceable to the fullest extent permitted by law.
10. Datametrics hereby consents to a stipulation of the amount of actual
attorneys fees and court costs incurred by counsel for ManuLife incurred in the
prosecution of the Action to be filed with the Court in an amount not to exceed
$100,000. Such stipulation is solely for the purpose of establishing the amount
of such fees and costs, and shall not otherwise serve to obligate Datametrics in
any way for payment of such amounts (other than as such amounts may be approved
and added to the Judgment, and such Judgment is not satisfied pursuant to the
terms hereof.)
11. (a) If a civil action is brought to enforce the terms of this
Agreement, the prevailing party shall be entitled, in addition to compensatory
damages, the costs, expenses, and/or fees (including, but not limited to,
reasonable attorney's fees and court
6
<PAGE>
costs) incurred in connection with the prosecution or defense of such civil
action or otherwise to enforce the provisions hereof.
(b) In the event that Datametrics shall fail to pay the Price
Guarantee Amount, or any portion thereof, due, and when due, under Section
III(3) hereof, them, in addition to the attorneys fees and costs provided for
above, ManuLife shall be entitled, as liquidated damages for such breach, to an
amount which shall equal the greater of (x) two times (2 x) the unpaid Price
Guarantee Amount, or (y) One Hundred Thousand Dollars ($100,000), and further
provided that Datametrics shall, and does hereby consent, to ManuLife's
decision, if so elected by ManuLife, to arbitrate any dispute relating to such
alleged breach, before the American Arbitration Association, Los Angeles,
California, the decision of which shall be final, binding and non-appealable, in
any court, and in any jurisdiction whatsoever.
12. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to its conflicts of
laws provisions, and each party consents and submits to the exclusive
jurisdiction of the California state courts located in Los Angeles, California
in connection with any proceeding arising out of this Agreement.
[The rest of this page intentionally left blank]
7
<PAGE>
IN WITNESS HEREOF, the parties hereto have executed this Mutual Release and
Settlement Agreement as a sealed instrument.
THE MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.) DATAMETRICS CORPORATION
By: __________________________ By: ______________________
Name: Name:
Title: Title:
8
<PAGE>
Schedule A
----------
1. Datametrics Motion to Vacate Judgment and for new trial.
2. Datametrics Motion to Appeal Judgment.
3. Datemetrics Writ of Supersedeas.
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS OF DATAMETRICS CORPORATION AS OF
AND FOR THE THREE MONTH PERIOD ENDED JANUARY 24, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-24-1999
<CASH> 275
<SECURITIES> 0
<RECEIVABLES> 2,287
<ALLOWANCES> 0
<INVENTORY> 4,421
<CURRENT-ASSETS> 6,993
<PP&E> 7,407
<DEPRECIATION> 5,221
<TOTAL-ASSETS> 13,141
<CURRENT-LIABILITIES> 4,706
<BONDS> 0
0
0
<COMMON> 172
<OTHER-SE> 39,455
<TOTAL-LIABILITY-AND-EQUITY> 13,141
<SALES> 1,586
<TOTAL-REVENUES> 1,586
<CGS> 1,084
<TOTAL-COSTS> 1,084
<OTHER-EXPENSES> 2,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124
<INCOME-PRETAX> (1,776)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,776)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,776)
<EPS-PRIMARY> ($.11)
<EPS-DILUTED> ($.11)
</TABLE>
