<PAGE>
AM Communications, Inc.
100 Commerce Boulevard
Quakertown, PA 18951-2237
215-538-8700
July 16, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: File No. 0-9856
Dear Sir or Madam:
Included in this transmittal is AM Communications, Inc.'s Form 10-KSB for the
year ended April 3, 1999.
The financial reports included in this 10-KSB do not reflect a change from the
preceding year in any accounting principles or practices or in the method of
application of those principles or practices.
Sincerely,
AM COMMUNICATIONS, INC.
Patricia A. Eynon
Corporate Secretary
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended April 3, 1999
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from to ___________ to ___________
Commission File Number: 0-9856
AM COMMUNICATIONS, INC.
-----------------------
(Name of small business issuer in its charter)
Delaware 23-1922958
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Commerce Blvd, Quakertown, Pennsylvania 18951-2237
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (215) 538-8700
--------------
Securities Registered Under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
on Which Registered
None
- ---------------------------------------------------- ----------------------
Securities Registered Under Section 12(g) of the Act:
Common Stock, $.10 Par Value
----------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B which is not contained in this form, and no disclosure
will be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.[X]
Issuer's revenues for fiscal year ended April 3, 1999 were $9,069,000.
On July 2, 1999, the aggregate market value of Registrant's outstanding
voting (Common) Stock held by non-affiliates, was approximately $7,456,385
(based on the average between the bid and the asked prices of such stock on that
date).
On July 2, 1999 there were 31,112,296 shares of the Registrant's Common
Stock, par value $.10 per share, outstanding.
<PAGE>
PART I
Item 1. Description of Business
Overview
AM Communications, Inc. (the "Company", "AM"), a Delaware corporation,
designs, manufactures and markets network monitoring systems, which include
hardware and software, to the broadband communications market, primarily for
cable TV (CATV) systems. AM has applied its technical strengths in RF
communications, microprocessor controlled circuits and application software to
produce a proprietary system that allows CATV operators to monitor the
performance and operation of the complete broadband transmission network,
thereby enhancing network reliability and optimizing performance. The Company's
principal activity from its formation in 1974 to 1989 was the construction of
cable TV systems, which was discontinued in 1989. The Company's current products
have been the result of a diversification strategy undertaken during the late
1980's.
In response to a significant loss of revenues during fiscal 1999 (see Item
6, Management's Discussion and Analysis of Operations), the Company undertook
several major strategic actions during the third and fourth quarters of fiscal
1999 which are summarized as follows:
o On November 2, 1998, the Company entered into a Services Agreement with
Javad (Jay) K. Hassan pursuant to which Mr. Hassan (i) was appointed to
the Company's Board of Directors and elected to serve as its Chairman
of the Board, (ii) agreed to assume the duties and responsibilities
described therein, and (iii) was granted an option to purchase 5
million shares of the Company's common stock, at a per share exercise
price equal to $0.156 (the fair market value of the stock on the date
the option was granted). Mr. Hassan also assumed voting control over
14,391,837 shares of the Company's common stock owned by the Company's
principal shareholder, Alvin Hoffman.
o On the same date, the Company entered into a strategic development and
manufacturing agreement with Network Systems & Technologies (P) Ltd.
(NeST). Mr. Hassan is the founder, CEO, and majority owner of NeST.
NeST is a U.S. headquartered technology services company with
operations in Japan, the Middle East, Europe, and the United States.
Technical staff is located primarily in India. The Company has the
option to pay for NeST development services either in cash or through
the issuance of warrants. The Company issued 4,170,806 warrants to
purchase AM Common Stock, at an exercise price of $.01 per share, in
payment for $670,000 of NeST services from November 1998 through April
3, 1999. These warrants are presently exercisable and expire in five
years.
o The Company reduced its headcount at its Quakertown facility. The
reduction in staff was more than offset by an expanded design and
manufacturing staff provided by NeST in India.
2
<PAGE>
Products
The Company's network monitoring systems are computer-controlled devices,
which monitor the condition and performance of cable TV and broadband
telecommunications systems. A monitoring system includes system software
installed on a PC, master control units located at the "head-end" control
center, and transponders located in the field. The transponder devices are
placed generally within equipment which transmits or powers the CATV signals in
a network and continuously monitor such functions as signal levels and
temperature and instantaneously report any problems, thus enabling the operator
of the system to pinpoint trouble spots and avoid or minimize system downtime.
The system software is installed on an IBM compatible PC at the central
monitoring location. The PC is connected to one or more Master Control Units
(MCU) typically located in the head-end of a monitored system. The MCU serves as
a real-time "polling engine" for the software system and communicates with
remote monitors called "transponders" via a dedicated RF frequency on the
monitored broadband system. The MCU processes the PC's request for information,
communicates that request to the appropriate transponders, and distills the
response into a form that the PC will accept. The transponders are data
collection and control devices located in remote transmission equipment (line
amplifiers, power supplies, etc.) which can communicate with the MCU.
The Company also provides performance monitoring products designed to
assist cable TV operators in collecting and analyzing the data associated with
the mandated FCC system proof of performance tests and to assess operating
characteristics of the system at remote points. Performance monitoring units can
make frequency response measurements from 40 MHz through 1 GHz, measure RF
levels against alarm limits, analyze noise, distortion, and hum, and measure
channel frequencies. They also perform real-time spectrum analysis and system
sweep measures, with the results displayed in high-resolution color graphics.
Current cable TV and broadband telecommunications systems are experiencing
significant change. The cable TV industry is undergoing a trend toward
consolidation as larger operators purchase systems from smaller operators. Cable
TV operators are also developing plans to expand their revenue base by offering
telephony services and other alternative video and multimedia services such as
Internet access, video on demand, home shopping, interactive data services,
distance learning, home monitoring, etc. The U.S. telephone (telco) industry has
entered selected markets for video services using various technologies
including HFC, wireless and existing telco infrastructure by building new
communications networks capable of providing voice, video, and data services.
The recent telecommunications legislation has further increased the competitive
environment among service providers.
The communications network conceived to be able to handle the range of
voice, video and data being planned has been termed the "information
superhighway". Both CATV operators and telephone providers desiring to provide
video services recognize a need to upgrade their existing communications
networks to provide two-way transmission and receipt of services in the near
future in order to deliver the wide range of services planned. Status and
performance monitoring products, as provided by the Company, have become a
critical component to improve operating efficiencies and insure the reliability
of the new communications networks. In response to this, the Company
significantly increased its development expenditures beginning in fiscal 1997
and in fiscal 1998, and introduced the OmniStat(TM) System, an advanced status
monitoring system for broadband networks. The OmniStat(TM) System represents the
second generation of monitoring technology built on the Company's legacy
technical monitoring system platform.
3
<PAGE>
OmniStat(TM) is a total integrated system comprised of hardware and
software products designed to address the evolving need for standards based
network management architectures and consists of 4 product categories:
1. Plant Equipment Monitoring Devices - These 'transponder' units are
installed inside monitored plant equipment, such as optic-electronic nodes,
RF amplifiers, power supplies, and end-of-line monitors. The transponders
measure and monitor various parameters and report the data back to a
central software monitoring system.
2. Monitoring Control Units - These units are installed in the headend and/or
hub locations. They manage the data communications between the plant
transponders and the software monitoring system.
3. Headend Monitoring Devices - Telemetry Application Monitor (TAM) is a
modular rack unit device housed in the headend. It can be equipped with a
wide range of plug-in application modules.
4. Network Monitoring Software System - This system communicates with the
headend monitoring control units. It collects and processes information
sent back by transponders in the field.
Plant Equipment Monitoring Devices
The OmniStat Management System incorporates an advanced set of plant
transponders based on AM's FlexStat(TM) platform. The FlexStat platform provides
the following benefits:
o Frequency agile RF modems
o Downloadable firmware
o User defined alarm limits
o Real-time measurement display
o Remote control of network equipment
o Automatic RF return levels
Transponders are available for most every major brand and type of network
distribution equipment including amplifiers, power supplies, and optical nodes.
The Company currently has over 40 different transponders and continues to design
new devices. Amplifier transponders monitor amplifier internal currents,
voltages, signal levels, and temperature and perform certain control functions.
Power supply transponders monitor and control the status of standby power packs
and provide notice of local power failures, state of batteries, input and output
voltages, output current demand, and enclosure temperature and monitor the RF
levels of the system monitoring communications channels. Fiber node transponders
monitor and control the operation of the fiber optic node equipment and measure
the optical power received by the node, as well as the power supply voltages,
currents, and temperature within the node. Node monitors also allow remote
control of the possible operational modes of the node.
4
<PAGE>
Monitoring Control Units
The OmniStat(TM) Headend Monitoring Control Unit (MCU) is a real-time data
manager that is capable of managing thousands of transponder equipped devices in
the outside plant as well as in the headend. Its key features include:
o Large capacity (over 10,000 transponders)
o Fast polling and alarm processing
o Automatic new transponder detection
o Multi-protocol capability
o Robust communications with error correction
o Scalable hardware and software architecture
o Network capable
o Downloadable software
o Frequency agile
The MCU has been designed as a scalable unit. It supports multiple
intelligent plug-in RF protocol cards with the master processor on the backplane
of the MCU managing these protocol cards. This hardware modularity makes it
possible to configure the MCU as a cost-effective solution for small to medium
sized networks or as a robust, powerful solution for large networks. The Company
commenced shipment of the OmniMCU during the first quarter of fiscal 1998.
Headend Monitoring Devices
A modern HFC headend facility contains different types and brands of
headend equipment, including optical transmitters, optical receivers,
modulators, and other transmission elements. The manufacturers of these headend
elements often incorporate telemetry interfaces to allow an external manager to
monitor and control their equipment. However, no compatibility standards exist
for these interfaces, and so every manufacturer has developed their own unique
electrical interface as well as proprietary data communication protocols.
The Company's Telemetry Application Monitor (TAM) is a modular rack unit,
which can be equipped with a wide range of application modules to enable
monitoring and control of headend transmission equipment. Serial Application
Modules (SAM) are pre-programmed TAM plug-ins that monitor and manage a specific
brand and type of headend equipment.
The Company also markets its Scanning Ingress Monitor System (SIMS). The
SIMS module is a TAM based product, which monitors and analyzes the return RF
spectrum from specific node areas. The Company continues to identify new types
of plug-in monitoring modules for modulators, switching equipment, and other
headend systems and will undertake new development efforts when market
opportunities warrant such.
Network Monitoring Software System
The OmniVU(TM) monitoring software is a multi-user, multi-tasking system
that runs under either Windows 95 or Windows NT. Features include Topologer, a
schematic-based display node that allows a user to view the status of regions,
systems, head-ends and distribution networks. The system is designed
specifically to address new market requirements for integrated, enterprise-wide
network management systems and allows users to interface OmniVU(TM) to operation
support systems and other third party software applications. The Company
commenced shipment of its initial release of OmniVU(TM) in April 1996.
5
<PAGE>
During fiscal 1999, the Company determined that its OmniVU software
platform needed to be upgraded to improve its competitive features and
performance. In conjunction with a new strategic development relationship with
NeST, the Company undertook a substantial development program, which resulted in
the introduction in the first quarter of fiscal 2000 of the new Omni2000
software platform. The Omni2000 product has been designed as a modular software
platform based upon Windows NT and standard Microsoft interfaces, and employs
standard Microsoft development practices. This modular platform provides
benefits such as easier and more efficient maintenance, improved stability, and
ease of building optional modules for increased features and functionality
including independent third-party add-on products. The Company introduced this
product during the first quarter of fiscal 2000 and expects to be delivering
this product during the third quarter of fiscal 2000.
The Company's strategy has been to form close working relationships with
the major OEM CATV network suppliers and to develop customized monitors which
meet the specific requirements, including size and performance characteristics,
for each type of network equipment offered. The Company's system is generally
inter-operable with most cable network distribution and transmission equipment.
The Company believes it has the broadest monitoring product line in the
monitoring industry. OmniStat solutions are available for virtually every major
brand of transmission equipment, including:
o ADC o Harmonic
o Alpha Technologies o Kathrein
o Antec o Lectro (Exide Electronics)
o Augat (Thomas & Betts) o Philips Broadband Networks
o Fuba Communication Systems o Power Guard
o General Instrument o Scientific-Atlanta
In addition, several of the major network equipment suppliers have entered
into OEM agreements with AM to private label the AM product. The Company
currently has OEM agreements or provides OEM private label products to: General
Instrument, Scientific-Atlanta and Philips Broadband Systems.
Quick STAT Plant Management System
AM has leveraged the modularity of the OmniSTAT platform to develop a
cost-effective solution for monitoring small to medium size systems known as
"QuickSTAT." QuickSTAT is a pre-packaged, economical hardware and software
solution built into a client server PC station. The system components include:
o A single pre-configured PC client/server station
o Omni2000(TM) network monitoring software
o OmniAlert(TM) alarm paging software
o OmniComm(TM) cable system interface card
o QuickTest(TM) embedded test transponder
The Company introduced the QuickStat system in the first quarter of fiscal
2000.
There are several communications delivery technologies which can be
utilized in building the "information superhighway" communications network,
including hybrid fiber/coax (HFC), fiber-to-the curb (FTTC), Digital Subscriber
Loop (DSL), wireless and others. HFC technology is being utilized most
extensively by the CATV providers due to its economics and proven architecture
and also has been recently chosen by several telephone providers as the
technology used to build their video delivery systems. The Company's current
products are substantially focused in HFC architecture systems. Should the
industry adopt other competing architectures, the Company's revenue
opportunities for its existing products could be adversely affected.
6
<PAGE>
The Company's business is not subject to marked seasonal fluctuation.
Major Customers
- ---------------
The Company's revenues in fiscal 1999 included three customers who
individually contributed 29%, 22% and 13% of the total revenues, respectively.
In fiscal 1998, three customers contributed individually greater than 10% of
revenues as follows: 34%, 18% and 12%, respectively. As the purchase of the
Company's products generally is associated with a customer's capital upgrade or
expansion program, contribution levels of individual customers can be subject to
wide fluctuations.
There is no assurance that any of such customers will be the source of
significant revenues to the Company during the next fiscal year and the loss of
a single customer could have a material adverse effect on the Company's
operating results and financial condition. As disclosed in Item 6, "Management's
Discussion and Analysis of Operations", the Company experienced a substantial
drop in revenues during fiscal 1999 as a result of the cessation of two
customers' capital upgrade programs involving the Company's products.
Backlog
- -------
At April 3, 1999, the Company's backlog of orders totaled $1.9 million as
compared with a backlog of $2.7 million as of March 28, 1998. All orders in the
backlog are expected to ship during fiscal 2000. As further described in Item 6,
"Management's Discussion and Analysis of Operations", the Company was impacted
by the loss of revenues from two major customers and was further limited in its
ability to replace these revenues with new customers as it was undertaking a
major upgrade to its technology software platform which was not completed until
the first quarter of fiscal 2000.
Marketing and Markets
- ---------------------
The Company sells its products directly to end user customers through its
OEM (original equipment manufacturer) relationships, through its direct sales
force, and through independent sales representatives in selected international
markets. The Company recently reorganized its sales and marketing organization,
which included the addition and replacement of direct sales and technical
support staff. Promotional advertising and trade show participation also play a
key role in increasing customer awareness and establishing brand recognition.
Direct end user accounts are typically large cable television systems where
considerable time and technical support are necessary to complete a sale and
ensure proper installation and customer satisfaction. The complex nature of the
Company's products necessitates close on-going marketing and technical
engineering support for its direct end users, OEM partners, and representatives.
This is accomplished, when possible, through telephone support, but during
initial product demonstration, installation and subsequent after sale support,
on site support by the Company's technical personnel is frequently required.
7
<PAGE>
The Company's marketing activity is also directed towards establishing
strategic OEM relationships in which the OEM customer will purchase private
label versions of the Company's products and include them as part of an
integrated package to the OEMs' customers. The OEM strategy allows the Company
to greatly expand its selling presence, particularly in the international
markets. The Company also utilizes its OEM relationships to assist in defining
new products. Direct end user customers and sales representatives generated 37%
of the Company's sales, and OEM partnerships generated 63% of sales during
fiscal 1999 compared to 47% and 53%, respectively in fiscal 1998.
Manufacturing and Supplies
- --------------------------
The Company purchases parts, components and subassemblies (some of which
are designed by the Company) necessary for its products from various suppliers,
primarily in the United States. These materials are then assembled by the
Company, or third party vendors, into finished products which often are
integrated with standard peripherals. The Company develops the proprietary
hardware used to control various network systems, as well as the software for
such systems. The Company's operations also include extensive testing of its
systems and components. During fiscal 1998, the Company received ISO 9001
certification and was re-certified in fiscal 1999.
The Company generally has multiple sources of supply for the various
component parts, which it purchases. However, shortages or delayed deliveries of
certain components are possible and could have an adverse effect on the
Company's business. During fiscal 1999, three vendors accounted for over 10% of
the Company's purchases of component parts as follows: 16%, 12% and 11%.
As part of the association with the NeST organization, the Company has also
entered into a manufacturing support arrangement in which a substantial portion
of the Company's products will be manufactured using a NeST associated operation
in India. During the 4th quarter of fiscal 1999, a transition program was
initiated which included transfer of equipment, inventory and product
documentation and initial quantities of selected products were sourced from the
India operation. The Company is in the process of completing this transfer
during the first two quarters of fiscal 2000. The Company expects that once
completed, the India based operation will result in reduced cost of
manufacturing its products. The Company continues to provide production
management, purchasing and technical support from its Quakertown facility.
Product Development
- -------------------
Certain areas of the Company's business involve complex systems, software,
and electronics technology, which can undergo rapid technological change. The
Company's ability to compete successfully in these areas will depend upon the
continued refining and enhancing of its existing products and its development of
new products.
During fiscal 1999, the Company entered into a strategic development and
manufacturing relationship with NeST Technologies, under which NeST provides a
substantial portion of the Company's engineering and manufacturing requirements.
The Company, using NeST resources, undertook a substantial program to upgrade
its software platform during fiscal 1999. The new product, Omni2000, was
introduced in the first quarter of fiscal 2000.
8
<PAGE>
The Company also has several new performance monitoring products and
transponders under development which it believes are critical for improving its
competitive position. The Company expects these products to be released during
fiscal 2000.
The Company currently maintains OEM (original equipment manufacturer)
agreements with or provides private label versions of its products to General
Instrument (GI), Scientific-Atlanta (SA) and Philips Broadband Networks
(Philips). Under these agreements, the Company generally designs customer
specific versions of its monitoring products and allows OEMs to purchase private
label versions of these products for resale. Development is undertaken pursuant
to an agreement which may include funding of a portion of the development costs
by the OEM. Revenue from custom development efforts specific to OEMs is
recognized as contractual milestones are achieved. In certain instances, the
Company may market the OEM specific products directly and pay the OEM a royalty.
The OEM agreements do not require the purchase of any minimum quantity of
product. The OEMs generally have rights to access the technology and manufacture
the products provided by AM should AM default on the agreements.
The Company continues to work towards establishing new OEM relationships as
well as expanding existing relationships. Revenues from OEMs for research and
development totaled $275,000 and $290,000 in fiscal 1999 and 1998, respectively.
The Company's research and development costs totaled $4.2 million in fiscal
1999 and $3.9 million in fiscal 1998.
Competition
- -----------
The diversity of a provider's product lines, including compatibility with
OEM distribution equipment, product features, software, equipment reliability,
price, technical support and warranty terms, is the major competitive factor in
the CATV network monitoring market. The network systems monitoring market is
intensely competitive and the Company must continue to invest significant
amounts in technology development to maintain or increase its market position.
The Company substantially increased its spending in research and development and
marketing beginning in fiscal 1997 and maintained this through fiscal 1999.
However, the Company continued to identify product development needs in excess
of its available development resources, which negatively impacted its
competitive position. The Company's strategic development relationship with
NeST, established during the third quarter of fiscal 1999, is expected to
significantly expand the Company's technical resources to enable it to respond
more quickly to market requirements.
The Company's major competitor for its monitoring system is Cheetah
Technologies (formally Superior Electronics), a Florida-based company which has
greater financial, marketing, and technical resources than the Company. The
Company also competes with other OEM suppliers who continue to market their own
lines of monitoring products.
The Company's family of status monitoring products is designed to be
compatible with many brands of amplifiers and power supplies. This has enabled
the Company to form business relationships with OEM suppliers who otherwise
would have been competitors but who chose to replace their status monitoring
equipment with a product developed by the Company.
9
<PAGE>
There can be no assurance that either existing or new competitors will not
develop products or provide services that are more advanced than the Company's
products or services or achieve greater market acceptance. Cable Labs, a CATV
industry standards setting group, along with various OEM equipment and status
monitoring providers and CATV operators, have formulated a committee to work to
establish technical standards for status monitoring systems. The goal is to
develop a set of public domain protocols for transponders and headend
controllers so that monitoring products made by any manufacturer will work
together within the same network. The Company expects that its OmniStat(TM)
family of products will be field upgradeable, when these standards are
finalized. However, the development of standards for status monitoring could
result in additional competitors offering monitoring solutions or downward
pressure on pricing and margins.
Warranties
- ----------
The Company warrants its products against defects in materials and
workmanship for up to five years for its performance/status monitoring products.
Warranties on these products are on a repair or replacement policy.
Patent Protection
- -----------------
It is the Company's policy to seek patents on significant products and
systems where possible and to take other measures to protect proprietary
information concerning its products and systems. The Company holds several
patents relating to its status monitoring products.
Government Regulation
- ---------------------
The Company's manufacturing activities are not subject to any significant
direct governmental regulations other than those generally applicable to
manufacturers.
Employees
- ---------
As of July 2, 1999, the Company had 50 full-time employees including 6 in
administration, 10 in marketing and sales, 17 in engineering, and 17 in
manufacturing. Through the NeST strategic relationship, the Company has
approximately 50 NeST design staff members working on AM programs. In addition,
the Company utilizes contract employees and temporary employees to meet peak
production demands or special project needs.
Related Party Transactions
- --------------------------
As described above, the Company undertook several strategic actions during
fiscal 1999 which included; (a) the election of Javad Hassan as Chairman, (b)
the issuance of a five million share option, (c) the execution of a voting trust
agreement between the Company's majority shareholder which provides Mr. Hassan
with voting control and participation in equity appreciation over 14,391,837
shares of the Company's Common Stock and, (d) entering into a strategic
development and manufacturing agreement with NeST. Mr. Hassan is the founder,
majority shareholder and CEO of NeST. Under the terms of its manufacturing
Agreement with NeST, the Company elected to issue NeST warrants to purchase
4,170,806 shares of the Company's common Stock at an exercise price of $.01 per
share in payment of $670,000 of NeST development services for the period from
November 1998 through March 1999.
10
<PAGE>
In April 1999, AM agreed to provide certain administrative and
manufacturing support services and provide office space to NeST and several
other entities associated with Mr. Hassan's non-AM business ventures. AM is to
receive a fee of $142,000 per quarter for such services. Should the level of
services exceed planned levels, the parties will negotiate an increase in the
quarterly fee.
In June 1999, the Company entered into an agreement with its chairman,
Javad K. Hassan, whereby Mr. Hassan will provide a $500,000 line of credit to
the Company, with interest payable at 10%. Payment of all outstanding borrowings
and interest is due by December 31, 2000.
Item 2. Description of Property.
The Company's office and production operations are located in Quakertown,
PA in a 40,000 sq. ft. modern, leased facility. The Company's lease expires on
January 31, 2002.
Item 3. Legal Matters.
There are no pending or, to the Company's knowledge, threatened legal
actions, to which the Company is a party.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on February 19, 1999.
At such meeting, the following directors were elected:
<TABLE>
<CAPTION>
Abstentions
Number of Votes and Broker
For Against Non-Votes
--------------------------------------------------------------------------------
<S> <C> <C> <C>
R. Barry Borden 26,417,376 497,473 120,027
Javad K. Hassan 26,896,947 18,002 119,927
Alvin Hoffman 26,410,946 503,903 120,027
Hal Krisbergh 26,914,399 450 120,027
Keith D. Schneck 26,109,576 804,973 120,327
Lemuel Tarshis 26,914,499 350 120,027
</TABLE>
In addition to the election of the foregoing directors, the shareholders of
the Company approved the adoption of a new stock option plan to be designated
the "AM Communications, Inc. 1999 Stock Option Plan," at the meeting. The
following is a tabulation of the votes cast at the meeting on such proposal:
Number of Votes
---------------
For Against Abstain
------------------------------------------------
19,798,840 1,427,877 230,662
11
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholders Matters.
The Company's Common Stock is quoted on the OTC Bulletin Board of the NASD,
Inc. under the symbol "AMCM." The following table sets forth the closing high
and low bid information as supplied by NASD market makers for each quarter
within the Company's last two fiscal years. These bid quotations reflect
inter-dealer prices, without retail mark-ups, mark-downs or commissions and do
not necessarily represent actual transactions.
Bid Quotations
--------------
Fiscal Quarter High Low
- -------------- ---- ---
1999
----
First Quarter 5/8 7/32
Second Quarter .328 .109
Third Quarter 3/16 1/8
Fourth Quarter 3/16 1/8
1998
----
First Quarter 9/16 3/8
Second Quarter 3/4 3/8
Third Quarter 9/16 7/16
Fourth Quarter 11/16 7/16
As of July 2, 1999 there were approximately 948 holders of record of the
Company's Common Stock.
The Company has never declared nor paid any dividends on its Common Stock.
The Board of Directors currently intends to retain any earnings for use in the
Company's business, and does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.
Recent Sales of Unregistered Securities
- ---------------------------------------
On November 2, 1998, the Company entered into a Services Agreement with
Javad (Jay) K. Hassan (the "Services Agreement"). Pursuant to the terms of the
Services Agreement, the Company granted an option to Mr. Hassan to acquire
5,000,000 shares of the Company's Common Stock, at a per share exercise price of
$0.156 (which was equal to the fair market value of the Company's common stock
on the date the option was granted). The option is first exercisable on February
19, 1999, and expires on February 19, 2009. The option was issued by the Company
in exchange for certain advisory and consulting services to be provided by Mr.
Hassan to the Company. The option was issued by the Company to Mr. Hassan in
reliance upon the exemption from registration provided for in Section 4(2) of
the Securities Act of 1933, as amended, as a transaction not involving any
public offering.
<PAGE>
On November 2, 1998, the Company also entered into a Strategic Development
and Manufacturing Agreement with NeST. Mr. Hassan is the founder, majority
shareholder and CEO of NeST. Under the terms of such Manufacturing Agreement,
the Company on April 3, 1999 issued NeST warrants to purchase 4,170,806 share of
the Company's Common Stock, at an exercise price of $0.01 per share, as payment
for $670,000 in development services provided by NeST to the Company for the
period from November 1998 through April 3, 1999. The warrants entitle the
holder(s) thereof to purchase an aggregate of 4,170,806 shares of the Company's
common stock, subject to the application of certain anti-dilution provisions set
forth in the warrants, on or before April 3, 2004.
The warrants were issued by the Company to NeST in reliance upon the
exemption from registration provided for in Section 4(2) of the Securities Act
of 1933, as amended, as a transaction not involving any public offering. The
warrants were issued to NeST as compensation for services provided by NeST to
the Company. No offer of the warrants was made by the Company to any other
person or entity.
Item 6. Management's Discussion and Analysis of Operations
The following discussion contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements represent the Company's present expectations or beliefs concerning
future events. The Company cautions that such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or anticipated results. Potential risks and
uncertainties include, without limitation, the impact of economic conditions
generally; the competitive nature of the CATV network monitoring market; the
Company's ability to enhance its existing products and develop and introduce new
products which keep pace with technological developments in the marketplace; and
market demand.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing elsewhere in this
Form 10-KSB.
Overview
The Company is a provider of high technology system level products for the
broadband communications industry, primarily for CATV monitoring and control
systems. During fiscal 1999, the Company experienced a significant downturn in
its business, primarily due to the cessation of programs involving two major
customers, which contributed approximately 50% of revenues in fiscal 1998. In
addition, the Company undertook a substantial development program to upgrade its
software and certain hardware products, which were introduced in the 1st quarter
of fiscal 2000. These products include complete new system platforms for the
Company's Omni2000 software, Scanning Ingress Monitoring Systems, and QuickSTAT.
Also during fiscal 1999, the Company undertook several major organizational
changes including entering into a strategic development and manufacturing
relationship with NeST, under which NeST provides a substantial portion of the
Company's engineering and manufacturing requirements. The Company also elected a
new Chairman, Mr. Javad Hassan, who also is the Chairman, CEO and majority
shareholder of NeST. Through certain contractual agreements associated with Mr.
Hassan becoming Chairman, he also controls the voting of 14,391,837 shares of
the Company's Common Stock presently owned by the Company's majority
shareholder, Alvin Hoffman.
13
<PAGE>
As a result of the actions, which occurred during fiscal 1999, the Company
incurred a substantial operating loss which was financed by a reduction in
working capital and borrowings under the Company's line of credit. The costs
associated with the NeST technology development efforts are payable, at the
Company's option, either in cash or warrants. The Company elected to pay a total
of $670,000 of NeST costs incurred through April 3, 1999 by issuing a total of
4,170,806 warrants to NeST exercisable at $.01 per share.
The Company believes the actions taken during fiscal 1999 significantly
improve the Company's ability to compete and the Company is presently
undertaking an aggressive marketing and sales effort to re-establish its market
position and return to profitability.
Results of Operations
Fiscal 1999 vs. 1998
Fiscal 1999 Fiscal 1998
----------- -----------
Revenues 100.0% 100.0%
Cost of Sales 61.6 55.2
Selling, General and Administrative 30.0 15.5
Research and Development 46.2 23.4
---- -----
Operating Income (Loss) (37.8) 5.9
Other Income (Expense) (.3) (.2)
---- -----
Income (Loss) Before Income Taxes (38.1) 5.7
Income Tax Provision (.3) (.2)
---- -----
Net Income (Loss) (38.4)% 5.5%
===== =====
Revenues
Revenues for the fiscal year ended April 3, 1999 were $9.1 million,
representing a 46% decrease compared to fiscal 1998 revenues. Revenues for the
fiscal year ended March 28, 1998 were $16.9 million, representing a 68% increase
compared to fiscal 1997 revenues of $10.5 million. The decrease in revenues in
fiscal 1999 was due to the cessation of programs involving two major customers
which totaled approximately $8 million of revenues during the Company's 1998
fiscal year. The Company was limited in its ability to replace these revenues
with new customers as it was undertaking a major upgrade to its technology
software platform which was not completed until the first quarter of fiscal
2000.
OEM revenues were 63% of total revenues in fiscal 1999 compared to 53% in
fiscal 1998. The Company maintains key strategic OEM relationships with General
Instrument, Philips and Scientific-Atlanta.
The Company's revenues in fiscal 1999 included three customers who
individually contributed 27%, 18% and 15% of the total revenues, respectively.
In fiscal 1998, three customers contributed individually greater than 10% of
revenues as follows: 34%, 18% and 12%, respectively. The customer representing
27% and 12% for the years 1999 and 1998, respectively was the only customer
common in both years. As the purchase of the Company's products generally is
associated with a customer's capital upgrade or expansion program, contribution
levels of individual customers can be subject to wide fluctuations.
14
<PAGE>
Development and software revenues totaled $1.1 million and $1.2 million in
fiscal 1999 and 1998, respectively. Development revenues primarily relate to OEM
development efforts which are recognized when defined milestones are reached,
the timing of which may be different from when the related development expenses
were incurred. The related development costs are reported as research and
development expense. All software development costs are charged to research and
development when incurred.
Cost of Sales
Costs of sales include manufacturing costs of the Company's hardware
products. Cost of sales represented 62% of revenues in fiscal 1999 compared to
55% in fiscal 1998. The Company's margins are generally dependent on product mix
and customer mix, with sales to OEM customers generally having a lower profit
margin. Cost of sales increased as a percentage of revenues in fiscal 1999 due
to increased material component costs related to lower volumes of purchases,
increased overhead due to lower volume of manufacturing levels and increased
reserves for inventory due to the transition to India based manufacturing.
Selling, General and Administrative
Selling, general and administrative (S, G&A) expenses were approximately
$2.7 million in fiscal 1999, and $2.6 in fiscal 1998. The Company expects S, G,
& A expenses to remain at approximately the same levels during fiscal 2000.
Research and Development
Research and development expense totaled $4.2 million for fiscal 1999
compared to $3.9 million in fiscal 1998. The Company continued to spend a
significant amount on research and development during fiscal 1999 which included
expenditures relating to the Company's major development efforts to upgrade its
software products and the transition to development resources in NeST. The
Company expects the research and development levels will decline in fiscal 2000
due to the transition to more cost effective NeST technical resources.
Operating Income (Loss)
The Company experienced a substantial operating loss for fiscal 1999, due
to the reduced revenue levels as described above. The Company reduced its annual
operating costs, primarily through staff reductions at its Quakertown facility.
Such cost reductions have been offset in part by spending related to the NeST
technical resources as well as continued internal spending to fund critical
research and development efforts.
The Company achieved profitability in fiscal 1998 due to increased revenue
levels while limiting increases in operating expenses, primarily research and
development.
Income Taxes
Due to the significant net operating loss carry-forward, the Company pays
minimum income taxes which include state income taxes and federal income taxes,
based on an "alternative minimum tax" calculation.
15
<PAGE>
Industry Factors
The cable and broadband communications industry is undergoing significant
change as cable television (CATV) operators continue to expand and consolidate
their operations. Operators are also implementing new interactive services such
as video on demand, Internet access and telephony. In addition, competition for
video services has increased with new entrants, including telephone and
satellite providers. This has resulted in existing CATV operators planning to
expand and upgrade their distribution infrastructures and new providers planning
to construct new distribution systems capable of providing a mix of services.
There continues to be many unresolved issues and uncertainties impacting this
convergence of CATV and telecommunications industries, including governmental
regulations, competing distribution technologies, and significant capital costs.
Demand for CATV monitoring products has increased as monitoring of cable
distribution systems has become an important factor in increasing operating
efficiency and reliability. As previously noted, the Company's operations were
adversely impacted in fiscal 1999 by the combined impact of reduced revenues and
the need to upgrade its software products. The Company's operations are subject
to the timing and success of new product introductions and the scheduling of
orders by customers. The Company also continues to identify product development
needs in excess of its available development resources, which in the past has
negatively impacted its competitive position. The Company believes its strategic
relationship with NeST will allow the Company to become more responsive to
market requirements.
Liquidity and Capital Resources
- -------------------------------
In fiscal 1999, the Company consumed net cash of $686,000 compared to
generating cash of $90,000 in fiscal 1998.
The Company financed its operating loss in fiscal 1999 through reductions
in cash, accounts receivables and inventory, an increase in accounts payables,
drawdowns on its line of credit and the payment of NeST development expenses
through the issuance of warrants.
During fiscal 1999, the Company received a $150,000 technology improvement
fund loan from the Ben Franklin Technology Center of Southeastern Pennsylvania.
The loan is for the initial phase development of the Company's OmniVU 2000
software package. The loan principal is payable in quarterly installments of
$7,500 over the next five years. Interest is payable quarterly, contingent on
the commercial success of the product, in an amount equal to 3% of the product
sales for the immediately preceding quarter until a cumulative amount equal to
50% of the loan has been repaid.
The Company's line of credit is limited to $750,000 of which $625,000 was
outstanding at April 3, 1999. Borrowings under the line are based on 80% of the
value of qualified accounts receivable. Under the terms of the agreement, all
the Company's assets are pledged and interest is payable at 1 1/2% above prime
(increased to 2% effective July 31, 1999). As a result of the losses incurred
for fiscal 1999, the Company was in technical default on several financial
covenants under the line of credit agreement. Subsequent to year-end, the
Company received from the bank a waiver of the default and also an extension of
the line through July 31, 2000.
16
<PAGE>
In June 1999, the Company entered into an agreement with its chairman,
Javad K. Hassan, whereby Mr. Hassan will provide a $500,000 line of credit to
the Company, with interest payable at 10%. Payment of all outstanding borrowings
and interest is due by December 31, 2000.
Under the terms of the NeST Development Agreement, the Company has the
option to pay for NeST development services either in cash or by the issuance of
warrants to purchase AM Common Stock. The Company issued 4,170,806 warrants to
purchase common stock at an exercise price of $.01 per share as payment for
$670,000 owed NeST for services performed from November 1998 through April 3,
1999.
The Company has undertaken several restructuring actions during fiscal 1999
and during the first quarter of fiscal 2000, which are designed to reduce
operating cash expenses. The Company expects to continue to utilize the NeST
technology resources in India for a substantial portion of its development
efforts, which is expected to allow the Company to reduce its overall expenses
for research and development and provide flexibility in payment of services
through the issuance of warrants or payment in cash, at the Company's option.
During the last quarter of fiscal 1999, the Company began the transfer of a
substantial portion of its manufacturing operations to a NeST associated company
located in India. The use of NeST manufacturing operations is anticipated to
reduce the Company's manufacturing costs and overhead structure. The Company
will continue to manage and provide technical support to the NeST manufacturing
operations from its facility in Quakertown.
During the first quarter of fiscal 2000, the Company agreed to provide
certain administrative and manufacturing support services and provide office
space to NeST and several other entities associated with Mr. Hassan's non-AM
business ventures. The Company is to receive a fee of $142,000 per quarter for
such services. Should the level of services exceed planned levels, the parties
will negotiate an increase in the quarterly fee.
As previously described, the Company was required to undertake a
significant upgrade to its software products during fiscal 1999 which impacted
its ability to attract new customers and increase revenues sufficient to cover
the operating costs of the business. The new software product platform has been
introduced in the first quarter of fiscal 2000 and the Company has re-focused
its marketing efforts in an attempt to expand the revenue base.
The Company believes its present operating structure has reduced its cash
operating requirements to a level, which can be supported under the present
revenue levels. It is the Company's goal to increase revenue levels through
successful marketing of its upgraded product offerings during fiscal 2000.
During the first quarter of fiscal 2000, the Company has expanded its marketing
efforts by replacing and adding additional sales and technical support staff and
launched an aggressive marketing program. The Company believes that existing
cash, available lending lines and the ability to pay for NeST development
services in cash or warrants, will provide sufficient liquidity to support
operations through the next fiscal year. However, should operating losses
continue beyond levels which can be supported, the Company would expect to
implement further actions to reduce expenses or raise additional capital to
enable continued execution of its strategy. There can be no assurance that
additional capital could be raised under acceptable terms.
17
<PAGE>
Capital expenditures totaled $77,000 in fiscal 1999 and $329,000 in fiscal
1998 which included capital leases, computers, manufacturing assembly and test
equipment and facility related improvements and fixtures.
Impact of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company adopted this statement effective March
29, 1998 and has no components of other comprehensive income to report.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 established standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
shareholders. It also established standards for related disclosure about
products and services, geographic areas, and major customers. The Company
adopted the disclosure prescribed by SFAS 131 in its 1999 Annual Report as
required.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employer's Disclosures about Pensions and Other
Post-retirement Benefits" ("SFAS 132"). This statement revises employers'
disclosures about pension and other post-retirement benefit plans but does not
change the measurement or recognition of those plans. It standardizes the
disclosure requirements, eliminates unnecessary disclosures and requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis. SFAS 132 supersedes the
disclosure requirements of Statement of Financial Accounting Standards ("SFAS")
No. 87, "Employers' Accounting for Pensions" and SFAS No. 106, "Employers'
Accounting for Post-retirement Benefits Other Than Pensions." The Company
adopted this statement in its 1999 Annual Report as required.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company adopted
this statement in its 1999 Annual Report as required.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruption of operations, including among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
18
<PAGE>
The Company has undertaken a review of all internal systems and products
and have replaced or modified any non-compliant software and hardware with new
compliant systems. As a result, the Company believes that it has minimal
exposure to contingencies related to the Year 2000 Issue for the products it has
sold and its financial and accounting systems. The Company has expended
approximately $10,000 in external costs to date on such efforts and believes any
additional amounts in the future to be minimal.
The Company has engaged in formal communication with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue. Based on the information received from such parties, the Company believes
that most of its suppliers are addressing any issues associated with their Year
2000 plans. There can be no guarantee that the systems of other companies on
which the Company's systems rely or interface with will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company.
19
<PAGE>
Item 7. Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
AM Communications, Inc.
Quakertown, Pennsylvania
We have audited the accompanying balance sheets of AM Communications, Inc. as of
April 3, 1999 and March 28, 1998 and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AM Communications, Inc. as of
March 28, 1998 and March 29, 1997 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
KPMG LLP
Philadelphia, Pennsylvania
June 30, 1999
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AM Communications, Inc.
We have audited the accompanying balance sheets of AM Communications, Inc. as of
April 3, 1999 and March 28, 1998 and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AM Communications, Inc. as of
April 3, 1999 and March 28, 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
Allentown, Pennsylvania
June 30, 1999
21
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
Fiscal Year Ended
April 3, March 28,
1999 1998
------------ ------------
Revenues $ 9,069,000 $16,854,000
Costs and Expenses:
Cost of Sales 5,587,000 9,303,000
Selling, General and Administrative 2,716,000 2,611,000
Research and Development 4,192,000 3,937,000
------------ ------------
Operating Income (Loss) (3,426,000) 1,003,000
Other Income (Expense) (26,000) (36,000)
------------- -------------
Income (Loss) Before Income Taxes $(3,452,000) 967,000
Income Tax Provision 28,000 30,000
------------ ------------
Net Income (Loss) $(3,480,000) $ 937,000
============= ============
Basic Net Income (Loss) Per Share $ (0.11) $ 0.03
============= ============
Diluted Net Income (Loss) Per Share $ (0.11) $ 0.03
============= ============
Shares Used in Computation of Basic
Net Income (Loss) Per Share 31,072,296 31,053,000
============ ============
Shares Used in Computation of
Diluted Net Income (Loss) Per Share 31,072,296 33,902,000
============ ============
See Notes to Financial Statements
22
<PAGE>
AM COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
April 3, March 28,
ASSETS 1999 1998
------------- -----------
<S> <C> <C>
Current Assets:
Cash $ 24,000 $ 710,000
Accounts Receivable, Net of Reserves
of $221,000 - 1999 and $32,000 - 1998 1,489,000 1,851,000
Due From Affiliate 42,000 ---
Inventory 1,218,000 2,073,000
Prepaid Expenses and Other 43,000 63,000
------------ -----------
Total Current Assets 2,816,000 4,697,000
Equipment and Fixtures, Net 396,000 734,000
Other Assets 16,000 19,000
------------ -----------
Total Assets $ 3,228,000 $ 5,450,000
============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Capital Lease Obligations $ 38,000 $ 108,000
Current Portion of Notes Payable 30,000 ---
Bank Line of Credit 625,000 ---
Accounts Payable 1,163,000 991,000
Advances --- 194,000
Accrued Expenses 889,000 987,000
------------ -----------
Total Current Liabilities 2,745,000 2,280,000
------------ -----------
Capital Lease Obligations - Long Term --- 39,000
Notes Payable - Long Term 120,000 ---
Senior Convertible Redeemable Preferred Stock,
$100 Par Value, Authorized 1,000,000 Shares;
Issued and Outstanding 25,825 Shares in 1999
and 1998 2,583,000 2,583,000
------------ -----------
Commitments and Contingencies (Notes 7 and 12)
Stockholders' Equity:
Common Stock, $.10 Par Value, Authorized
50,000,000 Shares in 1999 and 40,000,000 in 1998;
Issued and Outstanding 31,072,296 Shares in 1999
and 1998 3,107,000 3,107,000
Capital in Excess of Par 31,981,000 31,269,000
Accumulated Deficit (37,308,000) (33,828,000)
------------ -----------
Stockholders' Equity (Deficit) (2,220,000) 548,000
------------ -----------
Total Liabilities and Stockholders' Equity $ 3,228,000 $ 5,450,000
============ ===========
</TABLE>
See Notes to Financial Statements
23
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital
------------ in Excess Accumulated
Shares Amount of Par Deficit
------ ------ ------ -------
<S> <C> <C> <C> <C>
Balance, March 29, 1997 31,042,296 $3,104,000 $31,264,000 $(34,765,000)
========== ========== =========== ============
Exercise of Incentive Stock Options 30,000 3,000 5,000 ---
Net Income for Year Ended
March 28, 1998 --- --- --- 937,000
---------- ---------- ----------- ------------
Balance, March 28, 1998 31,072,296 $3,107,000 $31,269,000 $(33,828,000)
========== ========== =========== ============
Issuance of Warrants --- --- 712,000 ---
Net Loss for Year Ended
April 3, 1999 --- --- --- (3,480,000)
Balance, April 3, 1999 31,072,296 $3,107,000 $31,981,000 $(37,308,000)
========== ========== =========== ============
</TABLE>
See Notes to Financial Statements
24
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
April 3, March 28,
1999 1998
------------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $(3,480,000) $ 937,000
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided By (Used In) Operating Activities:
Warrants issued to NeST for services 670,000 ---
Depreciation and Amortization 431,000 590,000
Changes in Assets and Liabilities Which
Provided (Used) Cash:
Accounts Receivable 362,000 (691,000)
Due from Affiliate (42,000) ---
Inventory 855,000 33,000
Prepaid Expenses and Other 7,000 6,000
Accounts Payable 172,000 (681,000)
Advances (194,000) 17,000
Accrued and Other Expenses (98,000) 335,000
------------ ------------
Net Cash Provided By (Used In) Operating Activities (1,317,000) 546,000
Cash Flows From Investing Activities:
Purchase of Equipment and Intangible Assets (77,000) (329,000)
------------ ------------
Net Cash Used In Investing Activities (77,000) (329,000)
Cash Flows from Financing Activities:
Proceeds from Borrowings Under Bank Line of Credit 625,000 612,000
Repayment of Borrowings Under Bank Line of Credit --- (612,000)
Proceeds from Note Payable 150,000 ---
Borrowings from Principal Stockholder --- 200,000
Repayments from Principal Stockholder --- (200,000)
Exercise of Stock Options --- 8,000
Issuance of Warrants 42,000 ---
Payments Under Capital Lease Obligations (109,000) (135,000)
------------ ------------
Net Cash Provided By (Used In) Financing Activities 708,000 (127,000)
Net Increase (Decrease) In Cash (686,000) 90,000
Cash:
Beginning 710,000 620,000
------------ ------------
Ending $ 24,000 $ 710,000
============ ============
Interest Paid $ 33,000 $ 41,000
============ ============
Income Taxes Paid (Refunded) $ 27,000 $ (17,000)
============ =============
</TABLE>
See Notes to Financial Statements
25
<PAGE>
AM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies:
Description of Business
AM Communications, Inc. (the "Company", "AM"), a Delaware Corporation,
designs, manufactures and markets network monitoring systems which include
hardware and software to the broadband communications markets, primarily for
cable TV systems.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to the end of March.
The fiscal years ending April 3, 1999 and March 28, 1998 included 53 weeks and
52 weeks, respectively.
Revenue Recognition
AM Communications, Inc. (the "Company") derives its revenues principally
from sales of its products to the cable TV industry. As is customary in the
industry, the Company's sales are made pursuant to individual purchase orders
and are recognized upon the shipment of the product. Revenue from custom
development efforts is recognized as contractual milestones are achieved.
Inventory
Manufacturing inventory which comprises raw materials, work-in-process and
finished goods is valued at the lower of cost (first-in, first-out method) or
market.
Equipment and Fixtures
Equipment and fixtures are stated at cost. Depreciation is provided over
the estimated useful lives of the related assets using the straight-line method.
Intangibles
Intangibles include goodwill and the costs associated with the acquisition
of patents and fees for the successful defense of patents. Patents are being
provided on a straight-line basis, over their estimated useful lives of five
years. Costs related to unsuccessful patents or patents relating to products no
longer manufactured are written off. As of April 3, 1999 all goodwill has been
fully amortized.
Deferred Software Development Costs
Costs incurred for the successful production of computer software that is
used as an integral part of certain of the Company's products are not
capitalized until technological feasibility has been established for the
software, and all research and development activities for the software and for
the other components of the product have been completed. Deferred software
development costs consist of direct salaries, related payroll costs and other
direct costs. Amortization, on a product-by-product basis, commences upon the
product's general release to customers and occurs over a period of three years
as a function
26
<PAGE>
of estimated product life. Amortization of deferred software development costs
charged to research and development expense was $50,000 for the year ended March
28, 1998. Other research and development costs are expensed currently. None of
the Company's software development efforts in fiscal 1999 or 1998 met the
requirements for capitalization.
Income Taxes
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes".
Use of Estimates
The management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) was adopted by the Company in April 1996
and the Company continued to account for such items using the intrinsic value
method as outlined under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, (APB 25) with pro forma disclosures of net income
and net income per share as if the fair value method applied, as discussed in
Note 10.
Income (Loss) Per Common Share
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share."
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
Note 2. Inventory:
April 3, March 28,
1999 1998
-------------- --------------
Raw Material $ 1,940,000 $ 2,171,000
Work-in-Process 595,000 937,000
Finished Goods 183,000 180,000
-------------- --------------
2,718,000 3,288,000
Inventory Reserve (1,500,000) (1,215,000)
-------------- --------------
Net Inventory $ 1,218,000 $ 2,073,000
=============== ==============
The Company evaluates the inventory reserve annually to reflect product
line transitions which have resulted from new product development. The reserve
represents management's estimate of excess inventory not usable in new product
generations.
27
<PAGE>
Note 3. Equipment and Fixtures:
Estimated April 3, March 28,
Useful Lives 1999 1998
------------ --------- ---------
Equipment 3-5 yrs. $ 3,957,000 $3,881,000
Furniture and Fixtures 3-5 yrs. 314,000 314,000
Leasehold Improvements 5 yrs. 126,000 126,000
------------- ----------
4,397,000 4,321,000
Accumulated Depreciation & Amortization (4,001,000) (3,587,000)
------------- ----------
$ 396,000 $ 734,000
============= ==========
Note 4. Related Party Transactions:
Under separate consulting agreements, Lemuel A. Tarshis and R. Barry Borden
Directors of the Company, were paid $24,000 and $17,800, respectively, during
fiscal 1998.
In June 1997, the Company received a $200,000 short-term loan, with
interest payable at 8%, from its principal stockholder, Alvin Hoffman, to
support inventory requirements related to the Company's increased sales backlog.
This loan was repaid in September, 1997. In July 1998, the Company received a
$250,000 commitment from its primary shareholder, Alvin Hoffman, to provide
working capital through July 1999 at 10% interest and payment of outstanding
borrowings due by September 30, 1999. No amounts were utilized under this
commitment.
In November 1999, the Company entered into a strategic development and
manufacturing agreement with Network Systems and Technologies, Ltd. (NeST). Mr.
Jay Hassan, The Company's chairman is also the founder, CEO, and majority owner
of NeST. See note 10 and note 14.
Note 5. Accrued Expenses:
Accrued expenses consist of the following items:
April 3, March 28,
1999 1998
------------- -------------
Accrued Compensation $ 341,000 $ 462,000
Accrued Rent 180,000 180,000
Accrued Real Estate Taxes 41,000 29,000
Warranty Reserve 203,000 203,000
Accrued Taxes 2,000 32,000
Accrued Professional Fees 63,000 60,000
Other 59,000 21,000
------------- -------------
$ 889,000 $ 987,000
============= =============
Note 6. Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109.
28
<PAGE>
The provision (benefit) for income taxes consisted of:
Fiscal 1999 Fiscal 1998
----------- -----------
Current Income Taxes $ 28,000 $ 30,000
Deferred Income Taxes (1,464,000) (85,000)
Change in Valuation Allowance 1,464,000 85,000
----------- -----------
Net $ 28,000 $ 30,000
=========== ===========
A reconciliation between the provision for income taxes, computed by
applying the statutory federal income tax rate of 34% to income before income
taxes and the actual provision for income taxes follows:
Fiscal 1999 Fiscal 1998
----------- -----------
Federal Income Tax Provision (Benefit) at
Statutory Rate $(1,174,000) $ 329,000
State Income Taxes, Net of Federal Benefit (185,000) 9,000
Research and Development Credits (75,000) (50,000)
Non-deductible Amounts 4,000 3,000
Change in Valuation Allowance 1,464,000 85,000
Utilization of NOL Carryforward --- (346,000)
Other (6,000) ---
----------- -----------
Income Tax Provision $ 28,000 $ 30,000
=========== ===========
The components of the net deferred tax asset as of April 3, 1999 and
March 28, 1998 were as follows:
April 3, March 28,
1999 1998
------------- -------------
Deferred Tax Items:
Inventory $ 609,000 $ 493,000
Accrued Expenses and Reserves 379,000 155,000
Net Operating Loss Carryforwards 8,811,000 7,761,000
Tax Credit Carryforwards 822,000 748,000
Valuation Allowance (10,621,000) (9,157,000)
------------- -------------
Net Deferred Tax Assets $ --- $ ---
============= =============
During fiscal 1997, the Company evaluated the carrying value of the
deferred tax asset which was established in fiscal 1995, and determined, after
consideration of that year's loss, that this asset should be fully reserved.
Accordingly, income tax expense of $936,000 was recognized in fiscal 1997 to
fully reserve this asset.
The Company has total net operating loss carryforwards available to offset
future taxable income of approximately $26 million expiring at various times
from 2000 to 2014. Due to certain statutory limitations under the Internal
Revenue Code, a portion of such carryforwards may expire unutilized.
Note 7. Operating Leases:
The Company leases its facility under a lease expiring in January 2002. The
Company also leases certain equipment under short term leases. Rental expense
charged to operations for fiscal years 1999 and 1998 was $288,000 and $302,000,
respectively.
29
<PAGE>
Future minimum lease commitments under the Company's facility lease are:
2000 $ 300,000
2001 350,000
2002 322,000
-------------
$ 972,000
=============
Note 8. Obligations Under Capital Leases:
The Company has capital lease agreements for machinery and equipment as
follows:
April 3, March 28,
1999 1998
------------- -------------
Capitalized cost $ 482,000 $ 482,000
Accumulated amortization (451,000) (350,000)
------------- -------------
$ 31,000 $ 132,000
============= =============
Amortization expense on assets capitalized under capital lease obligations
is included in depreciation and amortization. The lease agreements are secured
by the leased property.
Future minimum lease payments under capital leases for the following fiscal
years, together with the present value of the net minimum lease payments as of
April 3, 1999, are:
2000 39,000
--------
Total minimum lease payments 39,000
Less amount representing interest 1,000
--------
Present value of net minimum lease payments 38,000
Less current maturities (38,000)
--------
Capital lease obligations - long term $ ---
========
Note 9. Business, Major Customers, and Credit Risk:
The Company operates in one business segment which manufactures and
supplies products and services to the broadband telecommunications and the cable
TV industries. The majority of the Company's revenues and accounts receivable
relate to customers in these industries.
The Company's revenues in fiscal 1999 included three customers who
individually contributed 27%, 18% and 15% of the total revenues, respectively.
In fiscal 1998, three customers contributed individually greater than 10% of
revenues as follows: 34%, 18% and 12%, respectively. The customer representing
27% and 12% for the years 1999 and 1998, respectively was the only customer
common in both years.
Note 10. Capital Stock:
The Company has a stock option plan (the "1999 Plan") for its employees
which was approved by the stockholders in February, 1999. Under this 1999 Plan,
either non-qualified options or incentive stock options may be granted to
purchase shares of the Company's stock at a price not less than its fair market
value on the date of the grant. Options become exercisable one-third per year
commencing one year after the date of grant and terminating after 10 years. The
aggregate maximum number of shares for which options may be issued under the
1999 Plan is 10,000,000.
30
<PAGE>
The Company has previously adopted a 1982 Stock Option Plan and a 1991
Stock Option Plan. Options to acquire 487,000 shares and 4,570,000 shares of the
Company's Common Stock are outstanding under the 1982 Stock Option Plan and the
1991 Stock Option Plan, respectively, and expire 10 years after the date of
grant. No additional options may be granted under either Plan.
The following summary shows the aggregate stock option activity expressed
in shares for the 1982, 1991, and 1999 Plans:
Fiscal Years Ended
April 3, March 28,
1999 1998
------------- -------------
Outstanding at Beginning of Year 6,325,333 5,696,833
Granted 7,583,000 1,368,000
Terminated (1,903,000) (213,000)
Expired (20,000) (496,500)
Exercised --- (30,000)
------------ -----------
Outstanding at End of Year 11,955,333 6,325,333
============ ===========
Available for Grant 3,102,000 372,667
============ ===========
Exercisable at End of Year 3,919,309 4,211,249
============ ===========
Price Range of Options Outstanding at March 28, 1998 - $0.125 - $0.175
(Weighted Average -$0.1553)
In fiscal year 1999, the Company modified the terms of all previously
issued and outstanding options and repriced the exercise price using the then
current market price of $0.15 per share.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan. Accordingly, no compensation cost has been recognized.
Had compensation cost for the Company's Plan been determined consistent with
FASB Statement No. 123, the Company's net income and income per share would have
been increased to the pro forma amounts indicated below:
Fiscal Years Ended
April 3, March 28,
1999 1998
------------- ------------
Net income (loss) as reported As reported $ (3,480,000) $ 937,000
Pro forma $ (3,980,000) $ 490,000
Basic earnings (loss) per share As reported $ (0.11) $ 0.03
Pro forma $ (0.13) $ 0.02
Diluted earnings (loss) per share As reported $ (0.11) 0.03
Pro forma $ (0.13) 0.01
31
<PAGE>
The per share weighted-average fair value of stock options granted during
fiscal years 1999 and 1998 was $.12 and $.12, respectively, on the date of grant
calculated using the Black Scholes option-pricing model with the following
weighted-average assumptions:
Fiscal Years Ended
April 3, March 28,
1999 1998
------------- ------------
Expected Life (Years) 5.0 5.0
Risk-Free Interest Rate 6.0% 6.0%
Volatility 50.0% 50.0%
Dividend Yield 0.0% 0.0%
At April 3, 1999, the following warrants to purchase the Company's common
stock were outstanding:
Issued in Expiration Exercise Number of
Fiscal Year Date Price Shares
----------- ---------- -------- ---------
1996 July 1, 2004 $1.00 1,500,000
1999 April 3, 2004 $0.01 4,170,806
In July 1996, the Company issued warrants to purchase 1,500,000 shares of
common stock at $1.00 per share in return for $300,000 cash. These warrants
become exercisable at the rate of 500,000 shares per year commencing July 1,
1997 and expire five years after they become exercisable.
Under the terms of the Strategic Development and Manufacturing Agreement
with NeST Technologies, Inc., the Company elected, in April 1999, to issue
warrants to purchase 4,170,806 shares of the Company's common stock at an
exercise price of $.01 per share in payment of $670,000 of NeST development
services for the period of November 1998 through April 3 1999.
Net Income/(Loss) Per Share
The following is a reconciliation of the numerator and denominators of the
basic and diluted EPS computations at April 3, 1999 and March 28, 1998.
1999 1998
------------- -----------
Net Income (Loss) $ (3,480,000) $ (937,000)
Basic Shares 31,072,296 31,053,000
Convertible Preferred Stock and
Dilutive Options --- 2,849,000
------------- ----------
Diluted Shares 31,072,296 33,902,000
Net Income (Loss) Per Common Share
Basic (0.11) 0.03
Diluted (0.11) 0.03
In 1999, options to purchase common stock were not included in the
computation of diluted EPS because they would be anti-dulutive to the net loss.
32
<PAGE>
Note 11. Redeemable Preferred Stock and Debt
Alvin Hoffman, the Company's majority stockholder and a director, owns the
25,825 shares of Senior Convertible Redeemable Preferred Stock which is
convertible into Common Stock at 100 shares of Common Stock for each share of
Senior Convertible Redeemable Preferred Stock held. Such stock is redeemable at
the Company's option under certain circumstances should the holder not elect to
convert. In addition, upon the occurrence of certain events (e.g. - sale of the
Company, merger, bankruptcy), the Company may be required by the holder of any
shares of the Senior Convertible Redeemable Preferred Stock, to redeem, either
in whole or in part, shares of this Senior Convertible Redeemable Preferred
Stock at a price of $100 per share, which such redeemable shares shall then be
retired and not reissued.
In addition to the Senior Convertible Redeemable Preferred Stock, the
Company has authorized 974,175 additional shares of Preferred Stock, $.10 par
value, none of which are outstanding as of April 3, 1999.
Note 12. Commitments and Contingencies
None.
Note 13. Working Capital Line of Credit
The Company maintains a working capital line of credit from a commercial
bank to provide up to $750,000 based on 80% of the value of qualified accounts
receivable. Under terms of the agreement, all the Company's assets are pledged
and interest is payable at 1 1/2% (2% after July 31, 1999) above prime.
As a result of the financial loss for fiscal 1999, the Company was in
technical default on several financial convenents under the line of credit
agreement. Subsequent to year-end, the Company received from the bank a waiver
of the default and also an extension of the line through July 31, 2000.
Note 14. Subsequent Events
In June 1999, the Company entered into an agreement with its chairman,
Javad K. Hassan, whereby Mr. Hassan will provide a $500,000 line of credit to
the Company, with interest payable at 10%. Payment of all outstanding borrowings
and interest is due by December 31, 2000.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
33
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Listed below are the directors and executive officers of the Company:
Name Age Position
- ---- --- --------
Javad K. Hassan (1) (2) 58 Chairman
Keith D. Schneck 44 President, Chief Executive Officer,
Chief Financial Officer and Director
Michael L. Quelly 45 Vice President, Engineering
Joseph D. Rocci 51 Vice President, Product Technology
Harry J. Tankin 47 Vice President, Sales and Marketing
R. Barry Borden (1) 59 Director
Alvin Hoffman 70 Director
Lemuel A. Tarshis, Ph.D. (2) 58 Director
(1) Member of Compensation and Stock Option Committee of the Board.
(2) Member of Audit Committee of the Board.
All directors and officers of the Company are elected for a term of one
year at the Annual Meeting of Stockholders and the subsequent Board of Directors
meeting, respectively, to serve in their office for the next succeeding year and
until their successors are duly elected and qualified.
Mr. Hassan joined the Company in November 1998 as Chairman of the Board.
Prior to joining the Company, Mr. Hassan held senior level positions at AMP,
Inc. from 1988 until he was named President of AMP Communications Systems
Business, a division of AMP, Inc., in 1995. He previously had a 20 year career
at IBM, starting in 1968 as an engineer, and subsequently promoted to head of
the IBM East Fishkill semiconductor facility and of IBM's Tape Drive Division.
He was instrumental in forming a printed wiring board joint venture company,
AMP-AKZO Corporation, of which he has been chairman since its formation in 1990.
Mr. Hassan is the founder and principal shareholder of Network Systems &
Technologies Ltd. (NeST), a provider of software and system solutions and
electronic manufacturing resources located in India. He currently serves as
Chairman of the Electronic Development Commission for the Government of Kerala
in India.
Keith D. Schneck joined the Company in April 1995 as President and Chief
Financial Officer and became a Director in June 1995. Since January 1998, he has
served as Chief Executive Officer. He held senior management positions at
Integrated Circuit Systems, Inc. including Chief Operating Officer and Senior
Vice President, Finance from 1987 until he joined the Company.
Michael L. Quelly joined the Company in 1982. He has served as Vice
President, Engineering from September 1989 to the present, except for the period
October 1990 through March 1995 when he also was Executive Vice President.
Joseph D. Rocci joined the Company in October 1983 as Director of
Engineering. He served as Vice President, Product Operations of the Company from
1988 to 1989 at which time he was appointed Vice President of Product
Technology.
Harry J. Tankin joined the Company in February 1999 as Vice President,
Sales and Marketing. From 1984 until he joined the Company, he held marketing
and business development positions, including Director of Marketing, at General
Instrument Corporation.
34
<PAGE>
R. Barry Borden has been a director of the Company since October 1996. Mr.
Borden is President of Nettech Systems, Inc. of Princeton New Jersey. He
previously has held executive level positions with other high technology
companies including Mergent International, Cricket Software, Inc., Franklin
Computer Corporation and Delta Data Systems. Mr. Borden is also a director of
Matterhorn Growth Fund, and Chairman of Scangraphics, a publicly held company.
Alvin Hoffman was appointed a director of the Company in March 1995. He has
been a private investor and a registered broker with Makefield Securities in
Boca Raton, Florida since 1982.
Lemuel A. Tarshis was elected director of the Company in October 1996. Dr.
Tarshis is a private consultant since 1992. He also is a director and research
professor at Stevens Institute of Technology since 1991. Dr. Tarshis held vice
president positions with General Instrument Corporation from 1986 to 1990.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 (a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of its
common stock, to file reports of ownership and changes in ownership of the
Common Stock with the Securities and Exchange Commission. The Company believes
that during the fiscal year of the Company ended on April 3, 1999, all filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were timely satisfied.
Item 10. Executive Compensation
The following tables set forth certain information concerning (a) the cash
remuneration paid by the Company during each of the last three fiscal years to
the Company's Chief Executive Officer and to each executive officer of the
Company whose cash compensation exceeded $100,000 per annum during any such
year, and (b) stock options granted during the last three fiscal years to each
such individual.
Summary Compensation Table
Annual and Long Term Compensation
Name & Principal Fiscal Stock Options Other
Position Year Salary Awarded Compensation
- -------------------------------------------------------------------------------
Keith D. Schneck 1999 $ 138,000 1,350,000 (1) $ 4,529 (3)
President and CEO 1998 133,000 450,000 (2) 7,982
1997 116,000 400,000 2,876
- -------------------------------------------------------------------------------
Robert J. Vogel * 1999 $ 24,000 --- $ 750 (4)
Vice President, Strategic 1998 107,000 300,000 (2) 5,578
Development 1997 89,000 250,000 1,395
- -------------------------------------------------------------------------------
* Mr. Vogel resigned as an officer and an employee of the Company on May 8,
1998.
(1) Includes 850,000 shares of repriced stock options previously issued in
fiscal years 1997 and 1996. See paragraphs below.
(2) Repriced stock options previously issued in fiscal year 1996. See
paragraphs below.
(3) Represents $403, $403 and $291 in group life insurance premiums paid by the
Company in fiscal 1999, 1998 and 1997, respectively, and $4,125, $7,579 and
$2,576 in matching contributions under the Company's 401(k) plan paid by
the Company in fiscal 1999, 1998, and 1997, respectively.
35
<PAGE>
(4) Represents $34, $403 and $259 in group life insurance premiums paid by the
Company in fiscal 1999, 1998 and 1997, respectively, and $717, $5,175 and
$1,136 in matching contributions under the Company 401(k) plan paid by the
Company in fiscal 1999, 1998 and 1997, respectively.
Other than the salary and bonus described herein, the Company did not pay
either the executive officers named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in excess of 10% of such executive
officer's salary and bonus during fiscal 1999, 1998, and 1997. The above
compensation does not include certain insurance and other personal benefits, the
total value of which does not exceed, as to any named officer, the lesser of
$50,000 or 10% of such person's cash compensation.
All of the Company's group life, health, hospitalization or medical
reimbursement plans, if any, do not discriminate in scope, terms, or operation
in favor of the executive officers or directors of the Company and are generally
available to all salaried employees.
The Company has a stock option plan (the "1999 Plan") for its employees,
directors, and other persons responsible for significant contributions to the
Company's business. Under this 1999 Plan, which was approved by the stockholders
in February, 1999, either non-qualified options or incentive stock options may
be granted to purchase shares of the Company's stock at a price not less than
its fair market value on the date of the grant. Options become exercisable
one-third per year commencing one year after the date of grant and terminating
after 10 years. The aggregate maximum number of shares for which options may be
issued under the 1999 Plan is 10,000,000.
During fiscal 1999 and fiscal 1998, the Compensation and Stock Option
Committee determined that the goals of the Company's 1991 Incentive Stock Option
Plan and the Company's 1982 Incentive Stock Option Plan (the "Plans") to provide
equity incentives for employees, executive officers, and directors of the
Company would not be achieved with a significant number of options with exercise
prices substantially above the fair market value, of the Company's Common Stock
and therefore that it was in the interests of the Company and the stockholders
to reprice those options.
The following table sets forth options granted to the Company's CEO during
fiscal 1999:
<TABLE>
<CAPTION>
% of Total
No. of Securities Options Granted Exercise
Fiscal Underlying Options to Employees Price Expiration
Year Granted in Fiscal Year ($/Share) Date
------ ------------------ --------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Keith D. Schneck 1999 500,000 7% $.156 4/01/09
</TABLE>
The following table sets forth certain information pertaining to the stock
options held by the individuals named in the Summary Cash Compensation Table:
<TABLE>
<CAPTION>
Fiscal 1999 Year End Option Values
Number of Value of
Unexercised Options In-the-Money Options
At Fiscal Year End at April 3, 1999(1)
-------------------- ----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Keith D. Schneck 716,666 633,334 $27,233 $21,067
Robert J. Vogel (2) --- --- --- ---
</TABLE>
(1) Value is based upon the closing price of the stock on April 3, 1999, less
the exercise price.
(2) Mr. Vogel resigned as an officer and an employee of the Company on May 8,
1998.
36
<PAGE>
There were no stock options or stock appreciation rights exercised by Mr.
Schneck or Mr. Vogel during the last fiscal year. The Company does not maintain
any long term incentive plans for its officers.
Directors who are not officers or employees of the Company are paid $500
for each Board of Directors meeting and Committee meeting attended. In addition
to the standard director fees, each director was granted options to purchase
50,000 shares at an exercise price of $0.156 on April 1, 1999. These options
were fully vested as of the date of grant. In addition, Javad K. Hassan received
an option grant on February 19, 1999 to purchase 5,000,000 shares exercisable
equally over a three year period at an exercise price of $0.156 in accordance
with a Services Agreement with the Company. All the options granted to Mr.
Hassan became fully vested as part of the negotiated terms of a $500,000 line of
credit commitment from Mr. Hassan to the Company in June 1999.
The Company does not have any employment contracts or arrangements with any
of its executive officers.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The table below sets forth certain information as of July 2, 1999 with
respect to each person and entity known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of the Company's common stock,
each director of the Company and each executive officer listed in the cash
compensation table who owns shares of common stock, and all officers and
directors of the Company as a group.
Beneficial Ownership
Beneficial Owner (1) (2) Amount Percentage of Class(9)
- ------------------------- ------ ----------------------
Javad K. Hassan 23,562,643(3) 58.6%
Alvin Hoffman 18,147,337(4) 53.7%
Keith D. Schneck 816,666(5) 2.6%
R. Barry Borden 160,000(6) *
Lemuel A. Tarshis 150,000(7) *
All Directors and Executive
Officers as a Group (8 Persons) 29,526,819(8) 66.0%
* Less than one percent.
(1) To the best of the Company's knowledge, all shares of stock are owned
beneficially, and sole voting and investment power is held with respect thereto,
by the persons and entities named, except as otherwise noted. Share amounts
include additional shares issuable pursuant to options or warrants held by such
owners which are exercisable or may become exercisable within 60 days of the
date hereof.
(2) The address of all beneficial owners is c/o AM Communications, Inc.,
100 Commerce Boulevard, Quakertown, PA 18951-2237.
(3) Includes a) 14,391,837 shares of the Common Stock deposited pursuant to
the Voting Trust and Share Price Participation Agreement between Mr. Hoffman and
Mr. Hassan, as the Voting Trustee, b) 5,000,000 shares issuable pursuant to
stock options and c) 4,170,806 shares issuable pursuant to the NeST warrants
issued for services rendered.
37
<PAGE>
(4) The information concerning the beneficial ownership of Mr. Hoffman is
based, in part, upon information furnished by Mr. Hoffman to the Company. The
beneficial ownership indicated represents (i) 25,825 shares of Senior
Convertible Preferred Stock convertible into 2,582,500 shares of Common Stock,
(ii) 100,000 shares issuable pursuant to stock options, (iii) 1,073,000 shares
of Common Stock currently owned by Mr. Hoffman's wife, and (iv) 14,391,837
shares of Common Stock of the Company which the Hoffman Trust beneficially owns
but over which Javad K. Hassan, as Voting Trustee, exercises all voting rights.
Mr. Hoffman disclaims beneficial ownership of the shares set forth in (iii)
above.
(5) Includes 716,666 shares issuable pursuant to stock options.
(6) Includes 150,000 shares issuable pursuant to stock options.
(7) Includes 150,000 shares issuable pursuant to stock options
(8) Includes (i) an aggregate of 14,391,837 shares of Common Stock
beneficially owned by the Hoffman Trust but over which Javad K. Hassan, as
Voting Trustee, exercises all voting rights, (ii) 25,825 shares of Senior
Convertible Preferred Stock convertible into 2,582,500 shares of Common Stock,
(iii) 1,073,000 shares of Common Stock currently owned by Mr. Hoffman's wife as
to which Mr. Hoffman disclaims beneficial ownership, (iv) 1,918,330 shares of
Common Stock which may be acquired upon the exercise of outstanding options (v)
9,170,806 options and warrants held by Mr. Hassan and NeST and (vi) 390,346
shares of Common Stock held by other officers and directors.
(9) The percentages have been calculated on the basis of treating as
outstanding, for a particular holder, all shares of the Common Stock outstanding
on said date and all shares of the Common Stock issuable to such holder in the
event of exercise or conversion of outstanding options, warrants and convertible
securities owned by such holder at said date which are exercisable or
convertible within 60 days of such date.
All outstanding shares of the Company's Senior Convertible Redeemable
Preferred Stock as of July 2, 1999 are owned by Alvin Hoffman.
On November 2, 1998, the Alvin Hoffman Revocable Trust UAD 2/28/86 entered
into a Voting Trust and Share Price Participation Agreement dated November 2,
19998 (the "Voting Trust"), with Javad (Jay) K. Hassan as voting trustee (the
"Voting Trustee"), and pursuant thereto deposited with the Voting Trustee
14,391,837 shares of the common stock of the Company. Pursuant to the terms of
the voting Trust, the Voting Trustee is entitled, for the five year term of the
Voting Trust, to exercise all voting rights with respect to such shares.
Accordingly, the Company believes that, while Alvin Hoffman, the settlor of the
Alvin Hoffman Revocable Trust UAD 2.28.86, remains a beneficial owner of such
shares, the transfer of voting rights with respect to such shares resulted in a
change in control of the Company from Mr. Hoffman to Mr. Hassan.
Neither Mr. Hoffman nor the Alvin Hoffman Revocable Trust UAD 2/28/86
received any consideration for the above-described transfer of voting rights.
Item 12. Certain Relationships and Related Transactions
In June 1997, the Company received a $200,000 short-term loan, with
interest payable at 8%, from its principal stockholder, Alvin Hoffman, to
support inventory requirements related to the Company's increased sales backlog.
This loan was repaid in September,
38
<PAGE>
1997. In July 1998, the Company received a $250,000 commitment from its primary
shareholder, Alvin Hoffman, to provide working capital through July 1999 at 10%
interest and payment of outstanding borrowings due by September 30, 1999. No
amounts were borrowed under this commitment as of June 30, 1999.
On November 2, 1998, Javad (Jay) K. Hassan entered into a Services
Agreement with the Company pursuant to which Mr. Hassan (i) was appointed to the
Company's Board of Directors and elected to serve as its Chairman of the Board,
(ii) agreed to assume the duties and responsibilities described therein, and
(iii) was granted an option to acquire 5,000,000 shares of the Company's Common
Stock, at a per share exercise price of $0.156 which was equal to the fair
market value of the stock on the date of grant.
On the same date, Network Systems and Technologies (P) Ltd. ("NeST"), an
affiliate of Mr. Hassan which is located in Trivandrum, India, entered into a
Consulting Services Agreement with the Company. Pursuant to this Agreement, NeST
will provide technical engineering services to the Company, including without
limitation hardware and software design. The Company has the option of paying
for such services either in cash or in warrants to purchase shares of the
Company's Common Stock. In April 1999, the Company issued 4,170,806 warrants at
$.01 per share in payment of $670,000 due NeST for development services during
fiscal 1999.
In June 1999, the Company entered into an agreement with its chairman,
Javad K. Hassan, whereby Mr. Hassan will provide a $500,000 line of credit to
the Company, with interest payable at 10%. Payment of all outstanding borrowings
and interest is due by December 31, 2000.
During the first quarter of fiscal 2000, the Company agreed to provide
certain administrative and manufacturing support services and provide office
space to NeST and several other entities associated with Mr. Hassan's non-AM
business ventures. The Company is to receive a fee of $142,000 per quarter for
such services. Should the level of services exceed planned levels, the parties
will negotiate an increase in the quarterly fee.
Item 13. Exhibits and Reports on Form 8-K
(a) (1) Exhibits
See end of exhibit list for footnote references indicated by
asterisks.
*3-a. (3.1) Restated Certificate of Incorporation of Registrant.
*3-b. (3.2) Amended By-Laws of Registrant.
*4-a. (4.1) Specimen of Common Stock Certificate, par value $.10 per
share.
4-b (4.2) Warrant issued to NeST.
9-a Voting Trust and Share Participation Agreement (Exhibit 9.1)
**10-a. 1991 Incentive Stock Option Plan.
***10-b. Joint Development Agreement between AM Communications and
Scientific-Atlanta dated May 1996.
39
<PAGE>
***10-c. Distribution Agreement and Manufacturing License dated
June 14, 1996.
***10-d. Registration Rights Agreement dated June 17, 1996.
***10-e. Warrant Agreement dated June 17, 1996.
10-f. 1999 Stock Option Plan.
10-g. Line of Credit Commitment Letter with Progress Bank dated
June 29, 1999.
****10-h. Services Agreement between the Company and Jay Hassan
(Exhibit 10.1)
****10-i. Consulting Services Agreement between the Company and NeST.
(Exhibit 10.2)
11. Computation of Per Share Earnings for fiscal years ended
April 3, 1999 and March 28, 1998.
23. Independent Auditors' Consent dated July 16, 1999.
27. Financial Data Schedule
* Incorporated by reference to the Exhibit with the number
indicated parenthetically in Registrant's Registration
Statement on Form S-1, File No. 33-10163.
** Incorporated by reference to the Exhibit number indicated
in Registrant's Annual Report on Form 10-K for the fiscal year
ended March 28, 1992.
*** Incorporated by reference to the Exhibit number indicated
in Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 30, 1996.
**** Incorporated by reference to the Exhibit number indicated
in Registrant's Report on Form 8-K dated November 9, 1998.
(b) No reports on Form 8-K were filed for the last quarter of the period covered
by this report on Form 10-KSB.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AM COMMUNICATIONS, INC.
(Registrant)
/s/ Keith D. Schneck
--------------------------------
By: Keith D. Schneck
President, Chief Financial Officer and
Chief Executive Officer
Date: July 9, 1999
40
<PAGE>
In accordance with the Securities Exchange Act, this report has been signed
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
/s/ Javad K. Hassan
- ----------------------------- /s/ Keith D. Schneck
Javad K. Hassan -----------------------------------
Chairman of the Board Keith D. Schneck
July 9, 1999 President, Chief Financial Officer, Date:
- ----------------------------- Chief Executive Officer and Director
Date: July 9, 1999
-------------------------------------
/s/ R. Barry Borden /s/ Alvin Hoffman
- ----------------------------- ------------------------------------------
R. Barry Borden Alvin Hoffman
Director Director
Date: July 9, 1999 Date: July 9, 1999
----------------------- -------------------------------------
/s/ Lemuel A. Tarshis
- -----------------------------
Lemuel A. Tarshis
Director
Date: July 9, 1999
-----------------------
41
<PAGE>
EXHIBITS INDEX
See end of exhibit list for footnote references indicated by
asterisks.
*3-a. (3.1) Restated Certificate of Incorporation of Registrant.
*3-b. (3.2) Amended By-Laws of Registrant.
*4-a. (4.1) Specimen of Common Stock Certificate, par value $.10 per
share.
4-b (4.2) Warrant issued to NeST.
9-a Voting Trust and Share Participation Agreement (Exhibit 9.1)
**10-a. 1991 Incentive Stock Option Plan.
***10-b. Joint Development Agreement between AM Communications and
Scientific-Atlanta dated May 1996.
***10-c. Distribution Agreement and Manufacturing License dated
June 14, 1996.
***10-d. Registration Rights Agreement dated June 17, 1996.
***10-e. Warrant Agreement dated June 17, 1996.
10-f. 1999 Stock Option Plan.
10-g. Line of Credit Commitment Letter with Progress Bank dated
June 29, 1999.
****10-h. Services Agreement between the Company and Jay Hassan
(Exhibit 10.1)
****10-i. Consulting Services Agreement between the Company and NeST.
(Exhibit 10.2)
11. Computation of Per Share Earnings for fiscal years ended
April 3, 1999 and March 28, 1998.
23. Independent Auditors' Consent dated July 16, 1999.
27. Financial Data Schedule
* Incorporated by reference to the Exhibit with the number
indicated parenthetically in Registrant's Registration
Statement on Form S-1, File No. 33-10163.
** Incorporated by reference to the Exhibit number indicated
in Registrant's Annual Report on Form 10-K for the fiscal year
ended March 28, 1992.
*** Incorporated by reference to the Exhibit number indicated
in Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 30, 1996.
**** Incorporated by reference to the Exhibit number indicated
in Registrant's Report on Form 8-K dated November 9, 1998.
<PAGE>
[LOGO] AM Communications
100 Commerce Drive
Quakertown, PA 18951
(215) 538-8700 fax (215) 538-8779
Memo: AM Warrants issued to NeST for amounts due from AM related to Development
Services
Period of Services - Nov 1998 to April 3, 1999
Summary of hours incurred and cost based on contract per attached summary sheet.
The parties agree that such summary represents the total amount owed to NeST for
all services performed through April 3, 1999.
AM has chosen to pay for services valued at $670,000 by issuing warrants with an
exercise price of $.01 per share. Using the average AM stock price per month
when services were performed yields a total number of warrants to be issued of
4,170,806.
Terms of Warrant: As defined in the NeST/AM development Agreement
This agreement shall serve as the official document for the issuance of the
warrants.
Agreed:
AM Communications NeST
By: /s/ Keith Schneck By: /s/ Jay Hassan
------------------ ---------------------
Date: 6/24/99 Date: 6/28/99
---------------- --------------------
<PAGE>
VOTING TRUST AND SHARE PRICE PARTICIPATION AGREEMENT
THIS VOTING TRUST AGREEMENT is made and entered into this 2nd day of
Nov. 1998, by and among ALVIN HOFFMAN, REVOCABLE TRUST UAD 2/28/86, (hereinafter
referred to as the "Stockholder"), as stockholder of AM COMMUNICATIONS, INC., a
Delaware corporation (the "Corporation" herein) and JAY HASSAN, as Voting
Trustee (hereinafter referred to as the "Trustee"). This Agreement is made with
reference to the following facts:
A. The undersigned Stockholder is the holder of record of
14,391,837 shares of the issued and outstanding shares of the
common stock of the Corporation.
B. The undersigned Stockholder desires to enter into this
Agreement in order to assure continuity and stability in the
policies of the Corporation and the good management of the
affairs of the Corporation.
C. The Trustee above named has consented to act under this
Agreement for the purposes herein provided.
D. The parties hereto acknowledge that the Trustee, in his
respective individual capacity, for the foreseeable future
intends to be Chairman of the Board of Directors of the
Corporation.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements hereinafter set forth, the parties hereto agree as follows:
1. THE TRUSTEE. JAY HASSAN is hereby appointed as Trustee for the
purposes set forth in and with the powers granted to him by this Agreement, and
he accepts such appointment and agrees to act as a Trustee hereunder. It is
expressly agreed that the Trustee has an interest in the common stock of the
Corporation, and the Trustee intends to be Chairman of the Board of Directors of
the Corporation.
2. ASSIGNMENT OF STOCK TO THE TRUSTEE. The Stockholder hereby
transfers, assigns and delivers to and deposits with the Trustee that number of
the shares of the common stock (the "Stock") of the Corporation now owned or
held by him which is specified on Exhibit "A". attached hereto and incorporated
herein by this reference. The Stockholder agrees to deliver to the Trustee
immediately upon the execution hereof the certificates evidencing such shares of
the Stock as are set forth opposite the name of the Stockholder in Exhibit "A"
hereto. All of the certificates evidencing such shares of the Stock shall be
properly endorsed for transfer to the Trustee. The Stockholder agrees to execute
and deliver to the Trustee such additional assignments or other instruments as
may be necessary or required by the Trustee to confirm and make effective such
transfer, assignment, delivery and deposit. All of such shares shall be held
Exhibits 9-a
<PAGE>
by the Trustee in trust for the uses and purposes herein set forth, and such
shares hereinafter sometime will be referred to as the "Trust Shares".
3. ISSUANCE OF STOCK CERTIFICATES TO THE TRUSTEE. All certificates of
stock transferred to the Trustee shall be surrendered and canceled and new
certificates therefor shall be issued to the Trustee, and the registration upon
the certificates so issued shall state, and an entry and registration shall be
made in the proper books of the Corporation, as follows: "JAY HASSAN, AS VOTING
TRUSTEE UNDER THAT CERTAIN VOTING TRUST AGREEMENT AND SHARE PRICE PARTICIPATION
AGREEMENT DATED NOVEMBER 2, 1998, BY AND BETWEEN ALVIN HOFFMAN, REVOCABLE
TRUSTEE UAD 2/28/86 AND JAY HASSAN".
4. ISSUANCE OF TRUST CERTIFICATES TO STOCKHOLDER. The Trustee shall
issue and deliver to the Stockholder a trust certificate for the number of
shares of the Stock transferred, assigned and delivered to and deposited with
the Trustee as herein provided. The trust certificates to be issued hereunder
shall be substantially in the form of the trust certificate attached hereto as
Exhibit "B", which is incorporated herein by reference.
5. POWERS OF THE TRUSTEE.
5.01. Acts. During the existence of the voting trust created hereby,
the Trustee shall possess and in his discretion shall be entitled to exercise
all rights and powers of the absolute owner of the Stock, including without
limiting the generality of the foregoing, the rights and powers to vote the
Trust Shares and to assent to or dissent from any corporate or shareholder
action of any kind whatsoever, whenever such vote, assent or dissent is required
or permitted by law or otherwise, including the election of directors, amendment
or repeal of the Articles of Incorporation and Bylaws of the Corporation, or any
proposed increase, decrease or change in the classification of the capital stock
of the Corporation or any proposed dissolution and liquidation or merger or
consolidation of the Corporation into or with another corporation or
corporations, or any sale, lease, transfer, conveyance, mortgage or encumbrance
of all or any substantial part of the property of the Corporation; and no such
right or power shall be vested in or be exercised by any other person as a
stockholder beneficially owning any of the Trust Shares or holding or owning any
trust certificate issued hereunder by virtue of the issuance or ownership of any
such trust certificate. The above notwithstanding, except as provided in
paragraph 11 hereof, the Trustee shall not at any time sell, transfer, pledge,
hypothecate or in any other manner dispose of all or any part of the Trust
Shares.
5.02. Authority. In voting shares of stock or in otherwise assenting
or dissenting to any matter pursuant to his authority hereunder, or in
performing any act in respect of the control or management of the Corporation or
its affairs, as a holder(s) of stock deposited hereunder, the Trustee shall
exercise his best judgment in the interests of the Corporation to the end that
its affairs shall be properly managed. Except as otherwise expressly provided
herein, the Trustee may and shall act without the vote, assent or dissent, or
opinion of the holders of the trust
2
Exhibits 9-a
<PAGE>
certificates hereunder. The Trustee may vote or act by a nominee, agent,
attorney in fact or proxy who may be appointed in writing or by telegram,
radiogram, or cable, and the vote or act of such nominee, agent, attorney in
fact or proxy shall be as effective as the vote or act of the Trustee appointing
such person. The Trustee shall have the same liability for the acts and defaults
of any nominee, agent, attorney in fact or proxy representing him to the same
extent as if the acts or defaults were the personal acts of the Trustee.
6. THE TRUSTEE MAY BE INTERESTED PERSONALLY. The Trustee may serve as
director, officer and employee of the Corporation, and may vote or cause votes
to be cast in favor of his own election, appointment or employment as such
director, officer or employee.
7. COMPENSATION OF THE TRUSTEE. The Trustee shall not be entitled to
any compensation for his services as Trustee hereunder.
8. RESIGNATION, DEATH OR INCAPACITY OF THE TRUSTEE. The Trustee may
resign and discharge himself from all further duties hereunder at any time by
written notice and upon each of the then record owners of trust certificates at
least thirty (30) day prior to the date on which such resignation is intended to
become effective, which date shall be specified in such notice, unless such
resignation is accepted by all such record owners of trust certificates as of an
earlier date.
The legal incapacity of the Trustee shall constitute the resignation
and discharge of such Trustee from all further duties and obligations hereunder.
Upon the resignation and discharge of the Trustee as provided in this
paragraph, this Agreement and the voting trust created hereby shall terminate.
9. LIABILITY OF THE TRUSTEES. The Trustee shall not be liable for any
error of judgment nor for any act of commission or omission, nor for any mistake
of law or fact, nor for anything which he may do or refrain from doing in good
faith,. nor generally shall he have any accountability hereunder, except for his
own willful misconduct or gross negligence.
10. TRANSACTIONS BY TRUST CERTIFICATE OWNERS. Except as provided in
paragraph 11, no holder of any trust certificate or of any beneficial interest
hereunder shall have the right nor shall he attempt to sell, transfer, pledge,
hypothecate or in any manner dispose of any of the Trust Shares except in
connection with the sale, transfer, pledge or hypothecation of an interest in
trust certificates, and any attempted or purported sale, transfer,
hypothecation, foreclosure, or other disposition of any Trust Shares, except as
aforesaid, shall be null and vold.
3
Exhibits 9-a
<PAGE>
11. TRANSACTIONS BY HOFFMAN. Subject to the Trustee's 30 day right to
purchase described in this paragraph, Hoffman shall have the absolute right to
cause the sale, transfer, pledge or hypothecation ("Sale") of all or any portion
of the Trust Shares by giving 30 days written notice to the Trustee, which
notice shall contain the purchase price and other terms of the Sale of said
Trust Shares, at the sole discretion of Hoffman, with full rights conveyed to
him under that certain Agreement to Restructure Indebtedness dated March 31,
1994, by and between Hoffman and the Corporation, and subject only to any
restrictions imposed by the Securities Act of 1933, as amended, or any similar
Federal statute, and the rules and regulations of the Securities and Exchange
Commission issued under such Act, as they each may, from time to time, be in
effect. Within 30 days of receipt of said notice, the Trustee shall either:
a) purchase the Trust Shares from Hoffman at the price
set forth by Hoffman in such notice, less fifty
percent (50%) of the price per share in excess of
ten cents ($.10) per share for each Trust Share
offered for sale; or
b) effect the Sale of said Trust Shares in accordance
with and upon the terms of the notice, and the
Trustee shall execute all such documents and papers,
and do all such things, as is necessary to effect
the Sale of said Trust Shares as provided in the
notice and to effect the termination of the voting
trust provided for herein as to such Trust Shares.
12. DISTRIBUTION OF PROCEEDS OF SALE. The Trustee shall direct that all
proceeds of any Sale effected pursuant to paragraph 11 hereof shall be paid by
the purchaser of said Trust Shares directly to Hoffman or the holder of any
trust certificate relating thereto, and, to the extent that any such proceeds
shall come into the possession of the Trustee, the Trustee shall immediately
turn over all such proceeds to Hoffman or the holder of any trust certificate
relating thereto. During the term of this Agreement, in the event that the
proceeds of any such Sale represent a purchase price for the Trust Shares which
exceeds Ten Cents ($.10) per Trust Share, Hoffman or the holder of any trust
certificate relating thereto shall pay to the Trustee, for each Trust Share so
sold, fifty percent (50%) of the difference between the amount of Ten Cents
($.10) per Trust Share and the amount actually paid for each Trust Share which
exceeds Ten Cents ($.10).
13. TRUSTEE TO RECEIVE AND DISTRIBUTE DIVIDENDS. During the continuance
of this voting trust, the Trustee shall receive all cash dividends paid upon the
Trust Shares, and within a reasonable time after the receipt thereof shall pay
such dividends to the record owners of trust certificates then outstanding in
accordance with their several interests hereunder as represented by the trust
certificates held by them respectively. Any and all shares of the Stock
received by the Trustee during the continuance of this trust as a dividend or
distribution payable in the Stock of the Corporation or upon any split-up or
subdivision of the Stock shall be held by the Trustee as part of the principal
or corpus of the trust estate and not as income. Upon receipt by the Trustee of
any such common stock they shall issue to the then record owners of
4
Exhibits 9-a
<PAGE>
trust certificates additional trust certificates representing such additional
shares of common stock in accordance with their several interests hereunder as
represented by trust certificates held by them respectively. During the
continuance of this voting trust the Trustee shall receive all dividends payable
in property or payable in any manner whatsoever other than in cash or in common
stock of the Corporation and shall distribute such dividends in the same manner
as hereinabove provided in this paragraph with respect to cash dividends.
14. SUBSCRIPTION RIGHTS. If at any time while the Trustee (as Trustee)
is holder(s) of the legal title to any of the Stock pursuant to this Agreement,
the Stockholder becomes entitled to subscribe for new or additional shares of
the Stock, or to purchase shares of the Stock, the Trustee shall not be
obligated to exercise such right except in the following manner and to the
following extent. The record owner of any trust certificate who is a party to
this Agreement may request the Trustee in writing to exercise such right to the
extent to which the owner of such certificate would have been entitled to
subscribe or purchase as the holder of the shares of stock represented by such
trust certificate, and concurrently shall pay to the Trustee the full amount of
money necessary to be paid at such time for the shares to be subscribed for or
purchased as aforesaid. If any deferred payments are to be made at a later date,
the record owner of such certificate shall also make the required payments, as
and when so required, to the Trustee. Upon receiving such request and payment or
down payment, as applicable, the Trustee shall subscribe and pay for such
Shares, the certificates for which shall be issued to him as Trustee hereunder,
and thereupon said Shares shall be added to and shall become a part of the Trust
Shares, and the Trustee shall issue to the trust certificate owner upon whose
request such Shares have been subscribed for a trust certificate representing
such Shares.
15. EVIDENCE OF OWNERSHIP OF CERTIFICATES. The Trustee, at any time and
for all purposes whatsoever, may deem and treat the then registered or record
owner of any trust certificate as the absolute owner thereof and of the entire
right, title and interest represented thereby, and the Trustee shall not be
affected by any notice to the contrary.
16. LOST OR DESTROYED TRUST CERTIFICATES. In case any trust
certificates should become mutilated or defaced or should become lost, stolen or
destroyed, the Trustee, in his discretion, may execute in exchange for and upon
cancellation of the mutilated or defaced certificate, or in lieu or and in
substitution therefor if lost, stolen or destroyed, a new certificate of like
tenor and representing the same number of shares as the mutilated. defaced.
lost. stolen or destroyed trust certificate. The applicant for such replacement
or substitution shall furnish to the Trustee evidence satisfactory to him of the
ownership of such original trust certificate and of the loss, theft, defacement,
mutilation or destruction thereof and shall pay all charges and expenses,
including counsel fees, of the Trustee in connection with the investigation and
with the replacement thereof. The applicant also shall furnish to the Trustee
such indemnity as in the Trustee' sole discretion they may require.
5
Exhibits 9-a
<PAGE>
17. FILING OF COPY OF AGREEMENT WITH THE CORPORATION. Prior to
effecting the provisions of paragraph 3 hereof, an executed copy of this
Agreement shall be filed in the registered office of the Corporation in the
State of Delaware, which copy shall be open to the inspection of any stockholder
of the Corporation or any beneficiary of the trust provided for in this
Agreement daily during business hours.
18. DISSOLUTION OF THE CORPORATION. In the event of the total or
partial liquidation or dissolution of the Corporation, whether voluntary or
involuntary, the monies, securities, proceeds, rights or property received by
the Trustee in respect of the Shares deposited under this Agreement shall be
distributed among the record owners of the trust certificates issued in respect
of such Shares in proportion to their interests, less the deductions as
hereinbefore provided.
19. TERMINATION AND IRREVOCABILITY OF TRUST. This Agreement and the
voting trust hereby created shall terminate upon the first to occur of (1) the
death or legal incapacity of the Trustee; (ii) the resignation of the Trustee as
Chairman of the Board of Directors of the Corporation; (iii) the removal by the
Corporation of the Trustee as Chairman of the Board of Directors of the
Corporation; or (iv) a termination for cause of the Services Agreement between
Trustee and the Corporation. Subject to the foregoing and the provisions of
paragraphs 11 and 21 hereof, this voting trust is expressly declared to be
irrevocable.
20. EFFECT OF TERMINATION. Upon the termination of this Agreement and
the voting trust created hereby, in any manner provided for herein, the Trustee,
upon the surrender to him of the outstanding trust certificates, shall
immediately deliver the Trust Shares to the then record owners of the trust
certificates at the time issued and outstanding hereunder in proportion to their
respective interests by causing new share certificates to be issued and
delivered to said record owners.
21. AMENDMENT OF AGREEMENT. This Agreement may be amended in any part
at any time only by the unanimous consent, in writing, of the Trustee and the
owners of all of the trust certificates then outstanding. Such written consent
shall be filed with the Corporation and with each record owner of trust
certificates issued pursuant to the provisions hereof. Unless the written
consent specifies a definite date as of which it is to take effect, it shall
take effect when filed with the Corporation.
22. EFFECT OF PARTIAL INVALIDITY. If any one or more provisions of this
Agreement should be or become contrary to law, then such provisions only shall
be null and void and shall be deemed separable from the remaining provisions
hereof; and its or their invalidity shall not in any way affect the validity of
this Agreement as a whole or of any other provision or portion thereof, provided
however, that the Agreement as thereby modified continues to provide the parties
with the essential benefits bargained for. In the event the Agreement as so
modified does not provide such benefits, the Agreement shall be deemed rescinded
or terminated upon such (grounds as a court of competent jurisdiction may deem
equitable.
6
Exhibits 9-2
<PAGE>
23. MISCELLANEOUS.
23.01. Effect of Testamentary Disposition of Inheritance. Any person
acquiring any Trust Share or trust certificate by testamentary disposition,
inheritance, order of court or otherwise, shall take such Trust Share or trust
certificate subject to each and all of the provisions of this Agreement, and
each such provision shall be applicable to each Trust Share or trust certificate
to the same effect as though the person so receiving it had been a party to this
Agreement and had signed the same.
23.02. Service of Notice Upon Trust Certificate Holders. Any notice or
demand of any kind hereunder which any person may be required or may desire to
serve upon the owner of any trust certificate may be served by personal service
or by mailing the same addressed to such owner of a trust certificate at the
address last registered to him with the Trustee, or if no such address has been
registered, then addressed to such owner of a trust certificate at the principal
office of the Corporation.
23.03. Service of Notice Upon Trustee. Any notice or demand of any kind
hereunder which any person may be required or may desire to serve upon the
Trustee may be served by personal service on the Trustee or by mailing the same
addressed to the Trustee at the principal office of the Corporation.
23.04. Method of Service. All such notices or demands may be delivered
by courier or other means of personal service, by registered or certified mail
or by telecopy. Any such notice or demand so delivered by registered or
certified mail or courier shall be deposited in the United States mail, or in
the case of courier, deposited with the courier, with postage thereon fully
prepaid. Service of any such notice or demand so made shall be deemed complete
on the day of actual delivery thereof as shown by the addressee's registry,
certification receipt or other evidence of receipt. The Trustee may, from time
to time by notice in writing served upon the other parties hereto, designate a
different mailing address or a different or additional person to which all such
notices or demands thereafter are to be addressed.
23.05. Agreement May Be Executed in Counterparts. This Agreement may be
signed in any number of counterparts with the same force and effect as though
all of the parties hereto had signed one instrument. However, it shall not be
deemed to have been fully executed and shall have no effect whatsoever until the
Trustee and the Stockholder whose stock is listed upon Exhibit "A" hereto shall
have each signed one or more counterparts.
23.06. Persons Bound. This Agreement shall inure to the benefit of and
bind, as the case may require, the parties hereto and their respective heirs,
executors, administrator, successors and assigns, and each person to whom any
trust certificate is issued, transferred, assigned or hypothecated shall take
the same subject to each and all of the terms and conditions hereof and of such
trust certificate, and by his acceptance of such trust certificate shall be
bound
7
Exhibits 9-a
<PAGE>
by this Agreement and by the provisions of such trust certificate in the same
manner and to the same extent as though he had signed this Agreement as one of
the parties hereto.
23.07. Entire Agreement. This Agreement, in conjunction with those
additional references made herein, is intended to embody the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes any and all negotiations, prior discussions, or prior
agreements and understandings.
23.08. Paragraph Headings. The headings of the several paragraphs of
this Agreement are inserted solely for convenience of reference, and are not a
part of any are not intended to govern or aid in the construction of any of the
terms or provisions thereof.
23.09. Attorneys' Fees. If any party, hereto shall bring an action
against any other by reason of the breach of any covenant, provision or
condition hereof, or otherwise arising out of this Agreement, the unsuccessful
party shall pay to the prevailing party all attorneys' fees and costs actually
incurred by the prevailing party, in addition to any other relief to which it
may be entitled.
23.10. Applicable Law and Venue. This Agreement is to be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania.
Any suit brought hereon shall be brought in the state or federal courts of the
Commonwealth of Pennsylvania, the parties hereto hereby waiving any claim or
defense that such forum is not convenient or proper. Each party agrees that any
such court shall have in personam jurisdiction over it and consents to service
of process in any manner authorized by Pennsylvania law.
EXECUTED at by the parties hereto on the day and year first above
written.
"Stockholder"
ALVIN HOFFMAN REVOCABLE TRUST
/s/ Alvin Hoffman
- ------------------------ -----------------------------
ALVIN HOFFMAN, TRUSTEE
"Trustee"
/s/ Jay Hassan
- ------------------------ -----------------------------
JAY HASSAN
8
Exhibits 9-a
<PAGE>
EXHIBIT A
LIST OF SHARES TRANSFERRED TO VOTING TRUST
LIST SETTING FORTH THE TOTAL NUMBER OF SHARES OF COMMON STOCK OF THE
CORPORATION TO BE TRANSFERRED, ASSIGNED, DELIVERED AND DEPOSITED BY THE
STOCKHOLDER TO AND WITH THE TRUSTEE
-------------------------
Stockholder Number of Shares
- ----------- ----------------
ALVIN HOFFMAN
REVOCABLE TRUST UAD 2/28/86 14,391,837
Exhibits 9-a
<PAGE>
EXHIBIT B
TRUST CERTIFICATE
14,391,837 SHARES OF THE COMMON STOCK OF AM COMMUNICATIONS, INC.
THIS CERTIFIES that there have been deposited with the undersigned, Jay
Hassan, as "Trustee" under that certain "Voting Trust Agreement" with respect to
the common stock of AM Communications, Inc., a Delaware corporation (hereinafter
called the "Corporation"), dated November 2, 1998 by and between the Trustee and
the certain stockholder of the Corporation named therein, certificates for the
number of shares of the common stock of the Corporation set forth on this Trust
Certificate, and that Alvin Hoffman, Revocable Trust UAD 2/28/86 or its
registered assigns, upon the termination of the Voting Trust Agreement, and
subject always to the terms, provisions and conditions thereof and of this Trust
Certificate, will be entitled to receive from the Trustee such shares of common
stock of the Corporation. Such shares of common stock are held by the Trustee
subject to and upon the terms, conditions, restrictions and trusts set forth in
the Voting Trust Agreement, and this Trust Certificate is issued pursuant
thereto.
The holder of this Trust Certificate takes the same subject to each of
the terms, conditions, restrictions and trusts of the Voting Trust Agreement,
and by acceptance of this Trust Certificate agrees to be bound thereby, with
like effect as if the Voting Trust Agreement had been signed by him in person,
and he is entitled to all of the benefits specified therein arising from the
ownership of said shares deposited with the Trustee as provided therein. A copy
of the Voting Trust Agreement is on file in the office of the Corporation,
reference to which is hereby made for further particulars.
All rights to vote and otherwise represent said shares of stock are
vested in and shall be exercised by the Trustee in accordance with the
provisions of the Voting Trust Agreement and no right to vote or otherwise
represent any of said shares of stock shall pass to the holder hereof by virtue
of the issuance or ownership of this Trust Certificate.
The provisions of this Trust Certificate are intended to be and shall
be given the effect of a contract among all present and future owners of trust
certificates issued under the Voting Trust Agreement, and with the Trustee and
the stockholders who are parties to the Voting Trust Agreement.
The Trustee shall receive all dividends and distributions with respect
to the shares of stock evidenced by this Trust Certificate and shall hold or pay
the same as provided in the Voting Trust Agreement.
This Trust Certificate is transferable only by the registered holder
hereof, in person or by attorney duly authorized, as set forth in the register
which shall be kept for that purpose by the Trustee, and then only upon
compliance with the provisions of the Voting Trust Agreement and of this Trust
Certificate and upon the surrender to the Trustee of this Trust Certificate
properly
Exhibits 9-a
<PAGE>
endorsed; and until so transferred the Trustee may treat the then registered
holder hereof as the owner hereof for all purposes whatsoever.
Upon the termination of the voting trust, the Trustee will, upon
endorsement and surrender of this Trust Certificate to them, assign and deliver
to the registered holder hereof a share certificate representing a like number
of said shares, less said holder's proportionate share of all costs, expenses
and charges as provided by the Voting Trust Agreement.
DATED:_______________
/s/ Jay Hassan
--------------------
Trustee
ASSIGNMENT OF RIGHTS AND INTERESTS OF HOLDER UNDER VOTING TRUST
FOR VALUE RECEIVED Alvin Hoffman, Revocable Trust UAD 2/28/86 hereby
sells, assigns and transfers the attached Trust Certificate and all rights and
interests represented thereby and subject to each and all of the terms and
conditions of the Voting Trust Agreement mentioned herein to _________________
and hereby constitutes and appoints Jay Hassan attorney to transfer this
certificate on the books of the Trustee mentioned herein with full power of
substitution in the premises.
DATED:___________________
/s/ Alvin Hoffman
--------------------
Trustee
In the presence of:
_________________________
Exhibits 9-a
<PAGE>
VOTING TRUST AND SHARE PRICE PARTICIPATION AGREEMENT
THIS VOTING TRUST AGREEMENT is made and entered into this 2nd day of
Nov. 1998, by and among ALVIN HOFFMAN, REVOCABLE TRUST UAD 2/28/86, (hereinafter
referred to as the "Stockholder"), as stockholder of AM COMMUNICATIONS, INC., a
Delaware corporation (the "Corporation" herein) and JAY HASSAN, as Voting
Trustee (hereinafter referred to as the "Trustee"). This Agreement is made with
reference to the following facts:
A. The undersigned Stockholder is the holder of record of
14,391,837 shares of the issued and outstanding shares of the
common stock of the Corporation.
B. The undersigned Stockholder desires to enter into this
Agreement in order to assure continuity and stability in the
policies of the Corporation and the good management of the
affairs of the Corporation.
C. The Trustee above named has consented to act under this
Agreement for the purposes herein provided.
D. The parties hereto acknowledge that the Trustee, in his
respective individual capacity, for the foreseeable future
intends to be Chairman of the Board of Directors of the
Corporation.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements hereinafter set forth, the parties hereto agree as follows:
1. THE TRUSTEE. JAY HASSAN is hereby appointed as Trustee for the
purposes set forth in and with the powers granted to him by this Agreement, and
he accepts such appointment and agrees to act as a Trustee hereunder. It is
expressly agreed that the Trustee has an interest in the common stock of the
Corporation, and the Trustee intends to be Chairman of the Board of Directors of
the Corporation.
2. ASSIGNMENT OF STOCK TO THE TRUSTEE. The Stockholder hereby
transfers, assigns and delivers to and deposits with the Trustee that number of
the shares of the common stock (the "Stock") of the Corporation now owned or
held by him which is specified on Exhibit "A", attached hereto and incorporated
herein by this reference. The Stockholder agrees to deliver to the Trustee
immediately upon the execution hereof the certificates evidencing such shares of
the Stock as are set forth opposite the name of the Stockholder in Exhibit "A"
hereto. All of the certificates evidencing such shares of the Stock shall be
properly endorsed for transfer to the Trustee. The Stockholder agrees to execute
and deliver to the Trustee such additional assignments or other instruments as
may be necessary or required by the Trustee to confirm and make effective such
transfer, assignment, delivery and deposit. All of such shares shall be held
Exhibits 9-a
<PAGE>
by the Trustee in trust for the uses and purposes herein set forth, and such
shares hereinafter sometime will be referred to as the "Trust Shares".
3. ISSUANCE OF STOCK CERTIFICATES TO THE TRUSTEE. All certificates of
stock transferred to the Trustee shall be surrendered and canceled and new
certificates therefor shall be issued to the Trustee, and the registration upon
the certificates so issued shall state, and an entry and registration shall be
made in the proper books of the Corporation, as follows: "JAY HASSAN, AS VOTING
TRUSTEE UNDER THAT CERTAIN VOTING TRUST AGREEMENT AND SHARE PRICE PARTICIPATION
AGREEMENT DATED NOVEMBER 2, 1998, BY AND BETWEEN ALVIN HOFFMAN, REVOCABLE
TRUSTEE UAD 2/28/86 AND JAY HASSAN".
4. ISSUANCE OF TRUST CERTIFICATES TO STOCKHOLDER. The Trustee shall
issue and deliver to the Stockholder a trust certificate for the number of
shares of the Stock transferred, assigned and delivered to and deposited with
the Trustee as herein provided. The trust certificates to be issued hereunder
shall be substantially in the form of the trust certificate attached hereto as
Exhibit "B", which is incorporated herein by reference.
5. POWERS OF THE TRUSTEE.
5.01. Acts. During the existence of the voting trust created hereby,
the Trustee shall possess and in his discretion shall be entitled to exercise
all rights and powers of the absolute owner of the Stock, including without
limiting the generality of the foregoing, the rights and powers to vote the
Trust Shares and to assent to or dissent from any corporate or shareholder
action of any kind whatsoever, whenever such vote, assent or dissent is required
or permitted by law or otherwise, including the election of directors, amendment
or repeal of the Articles of Incorporation and Bylaws of the Corporation, or any
proposed increase, decrease or change in the classification of the capital stock
of the Corporation or any proposed dissolution and liquidation or merger or
consolidation of the Corporation into or with another corporation or
corporations, or any sale, lease, transfer, conveyance, mortgage or encumbrance
of all or any substantial part of the property of the Corporation; and no such
right or power shall be vested in or be exercised by any other person as a
stockholder beneficially owning any of the Trust Shares or holding or owning any
trust certificate issued hereunder by virtue of the issuance or ownership of any
such trust certificate. The above notwithstanding, except as provided in
paragraph 11 hereof, the Trustee shall not at any time sell, transfer, pledge,
hypothecate or in any other manner dispose of all or any part of the Trust
Shares.
5.02. Authority. In voting shares of stock or in otherwise assenting
or dissenting to any matter pursuant to his authority hereunder, or in
performing any act in respect of the control or management of the Corporation or
its affairs, as a holder(s) of stock deposited hereunder, the Trustee shall
exercise his best judgment in the interests of the Corporation to the end that
its affairs shall be properly managed. Except as otherwise expressly provided
herein, the Trustee may and shall act without the vote, assent or dissent, or
opinion of the holders of the trust
2
Exhibits 9-a
<PAGE>
certificates hereunder. The Trustee may vote or act by a nominee, agent,
attorney in fact or proxy who may be appointed in writing or by telegram,
radiogram, or cable, and the vote or act of such nominee, agent, attorney in
fact or proxy shall be as effective as the vote or act of the Trustee appointing
such person. The Trustee shall have the same liability for the acts and defaults
of any nominee, agent, attorney in fact or proxy representing him to the same
extent as if the acts or defaults were the personal acts of the Trustee.
6. THE TRUSTEE MAY BE INTERESTED PERSONALLY. The Trustee may serve as
director, officer and employee of the Corporation, and may vote or cause votes
to be cast in favor of his own election, appointment or employment as such
director, officer or employee.
7. COMPENSATION OF THE TRUSTEE. The Trustee shall not be entitled to
any compensation for his services as Trustee hereunder.
8. RESIGNATION, DEATH OR INCAPACITY OF THE TRUSTEE. The Trustee may
resign and discharge himself from all further duties hereunder at any time by
written notice and upon each of the then record owners of trust certificates at
least thirty (30) day prior to the date on which such resignation is intended to
become effective, which date shall be specified in such notice, unless such
resignation is accepted by all such record owners of trust certificates as of an
earlier date.
The legal incapacity of the Trustee shall constitute the resignation
and discharge of such Trustee from all further duties and obligations hereunder.
Upon the resignation and discharge of the Trustee as provided in this
paragraph, this Agreement and the voting trust created hereby shall terminate.
9. LIABILITY OF THE TRUSTEES. The Trustee shall not be liable for any
error of judgment nor for any act of commission or omission, nor for any mistake
of law or fact, nor for anything which he may do or refrain from doing in good
faith, nor generally shall he have any accountability hereunder, except for his
own willful misconduct or gross negligence.
10. TRANSACTIONS BY TRUST CERTIFICATE OWNERS. Except as provided in
paragraph 11, no holder of any trust certificate or of any beneficial interest
hereunder shall have the right nor shall he attempt to sell, transfer, pledge,
hypothecate or in any manner dispose of any of the Trust Shares except in
connection with the sale, transfer, pledge or hypothecation of an interest in
trust certificates, and any attempted or purported sale, transfer,
hypothecation, foreclosure, or other disposition of any Trust Shares, except as
aforesaid, shall be null and void.
3
Exhibits 9-a
<PAGE>
11. TRANSACTIONS BY HOFFMAN. Subject to the Trustee's 30 day right to
purchase described in this paragraph, Hoffman shall have the absolute right to
cause the sale, transfer, pledge or hypothecation ("Sale") of all or any portion
of the Trust Shares by giving 30 days written notice to the Trustee, which
notice shall contain the purchase price and other terms of the Sale of said
Trust Shares, at the sole discretion of Hoffman, with full rights conveyed to
him under that certain Agreement to Restructure Indebtedness dated March 31,
1994, by and between Hoffman and the Corporation, and subject only to any
restrictions imposed by the Securities Act of 1933, as amended, or any similar
Federal statute, and the rules and regulations of the Securities and Exchange
Commission issued under such Act, as they each may, from time to time, be in
effect. Within 30 days of receipt of said notice, the Trustee shall either:
a) purchase the Trust Shares from Hoffman at the price
set forth by Hoffman in such notice, less fifty
percent (50%) of the price per share in excess of
ten cents ($.10) per share for each Trust Share
offered for sale; or
b) effect the Sale of said Trust Shares in accordance
with and upon the terms of the notice, and the
Trustee shall execute all such documents and papers,
and do all such things, as is necessary to effect
the Sale of said Trust Shares as provided in the
notice and to effect the termination of the voting
trust provided for herein as to such Trust Shares.
12. DISTRIBUTION OF PROCEEDS OF SALE. The Trustee shall direct that all
proceeds of any Sale effected pursuant to paragraph 11 hereof shall be paid by
the purchaser of said Trust Shares directly to Hoffman or the holder of any
trust certificate relating thereto, and, to the extent that any such proceeds
shall come into the possession of the Trustee, the Trustee shall immediately
turn over all such proceeds to Hoffman or the holder of any trust certificate
relating thereto. During the term of this Agreement, in the event that the
proceeds of any such Sale represent a purchase price for the Trust Shares which
exceeds Ten Cents ($.10) per Trust Share, Hoffman or the holder of any trust
certificate relating thereto shall pay to the Trustee, for each Trust Share so
sold, fifty percent (50%) of the difference between the amount of Ten Cents
($.10) per Trust Share and the amount actually paid for each Trust Share which
exceeds Ten Cents ($.10).
13. TRUSTEE TO RECEIVE AND DISTRIBUTE DIVIDENDS. During the continuance
of this voting trust, the Trustee shall receive all cash dividends paid upon the
Trust Shares, and within a reasonable time after the receipt thereof shall pay
such dividends to the record owners of trust certificates then outstanding in
accordance with their several interests hereunder as represented by the trust
certificates held by them respectively. Any and all shares of the Stock received
by the Trustee during the continuance of this trust as a dividend or
distribution payable in the Stock of the Corporation or upon any split-up or
subdivision of the Stock shall be held by the Trustee as part of the principal
or corpus of the trust estate and not as income. Upon receipt by the Trustee of
any such common stock they shall issue to the then record owners of
4
Exhibits 9-a
<PAGE>
trust certificates additional trust certificates representing such additional
shares of common stock in accordance with their several interests hereunder as
represented by trust certificates held by them respectively. During the
continuance of this voting trust the Trustee shall receive all dividends payable
in property or payable in any manner whatsoever other than in cash or in common
stock of the Corporation and shall distribute such dividends in the same manner
as hereinabove provided in this paragraph with respect to cash dividends.
14. SUBSCRIPTION RIGHTS. If at any time while the Trustee (as Trustee)
is holder(s) of the legal title to any of the Stock pursuant to this Agreement,
the Stockholder becomes entitled to subscribe for new or additional shares of
the Stock, or to purchase shares of the Stock, the Trustee shall not be
obligated to exercise such right except in the following manner and to the
following extent. The record owner of any trust certificate who is a party to
this Agreement may request the Trustee in writing to exercise such right to the
extent to which the owner of such certificate would have been entitled to
subscribe or purchase as the holder of the shares of stock represented by such
trust certificate, and concurrently shall pay to the Trustee the full amount of
money necessary to be paid at such time for the shares to be subscribed for or
purchased as aforesaid. If any deferred payments are to be made at a later date,
the record owner of such certificate shall also make the required payments, as
and when so required, to the Trustee. Upon receiving such request and payment or
down payment, as applicable, the Trustee shall subscribe and pay for such
Shares, the certificates for which shall be issued to him as Trustee hereunder,
and thereupon said Shares shall be added to and shall become a part of the Trust
Shares, and the Trustee shall issue to the trust certificate owner upon whose
request such Shares have been subscribed for a trust certificate representing
such Shares.
15. EVIDENCE OF OWNERSHIP OF CERTIFICATES. The Trustee, at any time and
for all purposes whatsoever, may deem and treat the then registered or record
owner of any trust certificate as the absolute owner thereof and of the entire
right, title and interest represented thereby, and the Trustee shall not be
affected by any notice to the contrary.
16. LOST OR DESTROYED TRUST CERTIFICATES. In case any trust
certificates should become mutilated or defaced or should become lost, stolen or
destroyed, the Trustee, in his discretion, may execute in exchange for and upon
cancellation of the mutilated or defaced certificate, or in lieu or and in
substitution therefor if lost, stolen or destroyed, a new certificate of like
tenor and representing the same number of shares as the mutilated, defaced,
lost, stolen or destroyed trust certificate. The applicant for such replacement
or substitution shall furnish to the Trustee evidence satisfactory to him of the
ownership of such original trust certificate and of the loss, theft, defacement,
mutilation or destruction thereof and shall pay all charges and expenses,
including counsel fees, of the Trustee in connection with the investigation and
with the replacement thereof. The applicant also shall furnish to the Trustee
such indemnity as in the Trustee' sole discretion they may require.
5
Exhibits 9-a
<PAGE>
17. FILING OF COPY OF AGREEMENT WITH THE CORPORATION. Prior to
effecting the provisions of paragraph 3 hereof, an executed copy of this
Agreement shall be filed in the registered office of the Corporation in the
State of Delaware, which copy shall be open to the inspection of any stockholder
of the Corporation or any beneficiary of the trust provided for in this
Agreement daily during business hours.
18. DISSOLUTION OF THE CORPORATION. In the event of the total or
partial liquidation or dissolution of the Corporation, whether voluntary or
involuntary, the monies, securities, proceeds, rights or property received by
the Trustee in respect of the Shares deposited under this Agreement shall be
distributed among the record owners of the trust certificates issued in respect
of such Shares in proportion to their interests, less the deductions as
hereinbefore provided.
19. TERMINATION AND IRREVOCABILITY OF TRUST. This Agreement and the
voting trust hereby created shall terminate upon the first to occur of (i) the
death or legal incapacity of the Trustee; (ii) the resignation of the Trustee as
Chairman of the Board of Directors of the Corporation; (iii) the removal by the
Corporation of the Trustee as Chairman of the Board of Directors of the
Corporation; or (iv) a termination for cause of the Services Agreement between
Trustee and the Corporation. Subject to the foregoing and the provisions of
paragraphs 11 and 21 hereof, this voting trust is expressly declared to be
irrevocable.
20. EFFECT OF TERMINATION. Upon the termination of this Agreement and
the voting trust created hereby, in any manner provided for herein, the Trustee,
upon the surrender to him of the outstanding trust certificates, shall
immediately deliver the Trust Shares to the then record owners of the trust
certificates at the time issued and outstanding hereunder in proportion to their
respective interests by causing new share certificates to be issued and
delivered to said record owners.
21. AMENDMENT OF AGREEMENT. This Agreement may be amended in any part
at any time only by the unanimous consent, in writing, of the Trustee and the
owners of all of the trust certificates then outstanding. Such written consent
shall be filed with the Corporation and with each record owner of trust
certificates issued pursuant to the provisions hereof. Unless the written
consent specifies a definite date as of which it is to take effect, it shall
take effect when filed with the Corporation.
22. EFFECT OF PARTIAL INVALIDITY. If any one or more provisions of this
Agreement should be or become contrary to law, then such provisions only shall
be null and void and shall be deemed separable from the remaining provisions
hereof; and its or their invalidity shall not in any way affect the validity of
this Agreement as a whole or of any other provision or portion thereof; provided
however, that the Agreement as thereby modified continues to provide the parties
with the essential benefits bargained for. In the event the Agreement as so
modified does not provide such benefits, the Agreement shall be deemed rescinded
or terminated upon such grounds as a court of competent jurisdiction may deem
equitable.
6
Exhibits 9-a
<PAGE>
23. MISCELLANEOUS.
23.01. Effect of Testamentary Disposition of Inheritance. Any person
acquiring any Trust Share or trust certificate by testamentary disposition,
inheritance, order of court or otherwise, shall take such Trust Share or trust
certificate subject to each and all of the provisions of this Agreement, and
each such provision shall be applicable to each Trust Share or trust certificate
to the same effect as though the person so receiving it had been a party to this
Agreement and had signed the same.
23.02. Service of Notice Upon Trust Certificate Holders. Any notice or
demand of any kind hereunder which any person may be required or may desire to
serve upon the owner of any trust certificate may be served by personal service
or by mailing the same addressed to such owner of a trust certificate at the
address last registered to him with the Trustee, or if no such address has been
registered, then addressed to such owner of a trust certificate at the principal
office of the Corporation.
23.03. Service of Notice Upon Trustee. Any notice or demand of any kind
hereunder which any person may be required or may desire to serve upon the
Trustee may be served by personal service on the Trustee or by mailing the same
addressed to the Trustee at the principal office of the Corporation.
23.04. Method of Service. All such notices or demands may be delivered
by courier or other means of personal service, by registered or certified mail
or by telecopy. Any such notice or demand so delivered by registered or
certified mail or courier shall be deposited in the United States mail, or in
the case of courier, deposited with the courier, with postage thereon fully
prepaid. Service of any such notice or demand so made shall be deemed complete
on the day of actual delivery thereof as shown by the addressee's registry,
certification receipt or other evidence of receipt. The Trustee may, from time
to time by notice in writing served upon the other parties hereto, designate a
different mailing address or a different or additional person to which all such
notices or demands thereafter are to be addressed.
23.05. Agreement May Be Executed in Counterpart. This Agreement may be
signed in any number of counterparts with the same force and effect as though
all of the parties hereto had signed one instrument. However, it shall not be
deemed to have been fully executed and shall have no effect whatsoever until the
Trustee and the Stockholder whose stock is listed upon Exhibit "A" hereto shall
have each signed one or more counterparts.
23.06. Persons Bound. This Agreement shall inure to the benefit of and
bind, as the case may require, the parties hereto and their respective heirs,
executors, administrator, successors and assigns, and each person to whom any
trust certificate is issued, transferred, assigned or hypothecated shall take
the same subject to each and all of the terms and conditions hereof and of such
trust certificate, and by his acceptance of such trust certificate shall be
bound
7
Exhibits 9-a
<PAGE>
by this Agreement and by the provisions of such trust certificate in the same
manner and to the same extent as though he had signed this Agreement as one of
the parties hereto.
23.07. Entire Agreement. This Agreement, in conjunction with those
additional references made herein, is intended to embody the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes any and all negotiations, prior discussions, or prior
agreements and understandings.
23.08. Paragraph Headings. The headings of the several paragraphs of
this Agreement are inserted solely for convenience of reference, and are not a
part of any are not intended to govern or aid in the construction of any of the
terms or provisions thereof.
23.09. Attorneys' Fees. If any party hereto shall bring an action
against any other by reason of the breach of any covenant, provision or
condition hereof, or otherwise arising out of this Agreement, the unsuccessful
party shall pay to the prevailing party all attorneys' fees and costs actually
incurred by the prevailing party, in addition to any other relief to which it
may be entitled.
23.10. Applicable Law and Venue. This Agreement is to be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania.
Any suit brought hereon shall be brought in the state or federal courts of the
Commonwealth of Pennsylvania, the parties hereto hereby waiving any claim or
defense that such forum is not convenient or proper. Each party agrees that any
such court shall have in personam jurisdiction over it and consents to service
of process in any manner authorized by Pennsylvania law.
EXECUTED at by the parties hereto on the day and year first above
written.
"Stockholder"
ALVIN HOFFMAN REVOCABLE TRUST
/s/ Alvin Hoffman
- ----------------------- -----------------------------
ALVIN HOFFMAN, TRUSTEE
"Trustee"
/s/ Jay Hassan
-----------------------------
JAY HASSAN
8
Exhibits 9-a
<PAGE>
EXHIBIT B
TRUST CERTIFICATE
14,391,837 SHARES OF THE COMMON STOCK OF AM COMMUNICATIONS, INC.
THIS CERTIFIES that there have been deposited with the undersigned, Jay
Hassan, as "Trustee" under that certain "Voting Trust Agreement" with respect to
the common stock of AM Communications, Inc., a Delaware corporation (hereinafter
called the "Corporation"), dated November 2, 1998 by and between the Trustee and
the certain stockholder of the Corporation named therein, certificates for the
number of shares of the common stock of the Corporation set forth on this Trust
Certificate, and that Alvin Hoffman, Revocable Trust UAD 2/28/86 or its
registered assigns, upon the termination of the Voting Trust Agreement, and
subject always to the terms, provisions and conditions thereof and of this Trust
Certificate, will be entitled to receive from the Trustee such shares of common
stock of the Corporation. Such shares of common stock are held by the Trustee
subject to and upon the terms, conditions, restrictions and trusts set forth in
the Voting Trust Agreement, and this Trust Certificate is issued pursuant
thereto.
The holder of this Trust Certificate takes the same subject to each of
the terms, conditions, restrictions and trusts of the Voting Trust Agreement,
and by acceptance of this Trust Certificate agrees to be bound thereby, with
like effect as if the Voting Trust Agreement had been signed by him in person,
and he is entitled to all of the benefits specified therein arising from the
ownership of said shares deposited with the Trustee as provided therein. A copy
of the Voting Trust Agreement is on file in the office of the Corporation,
reference to which is hereby made for further particulars.
All rights to vote and otherwise represent said shares of stock are
vested in and shall be exercised by the Trustee in accordance with the
provisions of the Voting Trust Agreement and no right to vote or otherwise
represent any of said shares of stock shall pass to the holder hereof by virtue
of the issuance or ownership of this Trust Certificate.
The provisions of this Trust Certificate are intended to be and shall
be given the effect of a contract among all present and future owners of trust
certificates issued under the Voting Trust Agreement, and with the Trustee and
the stockholders who are parties to the Voting Trust Agreement.
The Trustee shall receive all dividends and distributions with respect
to the shares of stock evidenced by this Trust Certificate and shall hold or
pay the same as provided in the Voting Trust Agreement.
This Trust Certificate is transferable only by the registered holder
hereof, in person or by attorney duly authorized, as set forth in the register
which shall be kept for that purpose by the Trustee, and then only upon
compliance with the provisions of the Voting Trust Agreement and of this Trust
Certificate and upon the surrender to the Trustee of this Trust Certificate
properly
Exhibits 9-a
<PAGE>
endorsed; and until so transferred the Trustee may treat the then registered
holder hereof as the owner hereof for all purposes whatsoever.
Upon the termination of the voting trust, the Trustee will, upon
endorsement and surrender of this Trust Certificate to them, assign and deliver
to the registered holder hereof a share certificate representing a like number
of said shares, less said holder's proportionate share of all costs, expenses
and charges as provided by the Voting Trust Agreement.
DATED: /s/ Keith Schneck
------------ --------------------------
Trustee
ASSIGNMENT OF RIGHTS AND INTERESTS OF HOLDER UNDER VOTING TRUST
FOR VALUE RECEIVED Alvin Hoffman, Revocable Trust UAD 2/28/86 hereby
sells, assigns and transfers the attached Trust Certificate and all rights and
interests represented thereby and subject to each and all of the terms and
conditions of the Voting Trust Agreement mentioned herein to _________________
____________________________________ and hereby constitutes and appoints Jay
Hassan attorney to transfer this certificate on the books of the Trustee
mentioned therein with full power of substitution in the premises.
DATED:_______________
/s/ Alvin Hoffman
-------------------------
In the presence of:
_____________________
Exhibits 9-a
<PAGE>
EXHIBIT A
LIST OF SHARES TRANSFERRED TO VOTING TRUST
LIST SETTING FORTH THE TOTAL NUMBER OF SHARES OF COMMON STOCK OF THE
CORPORATION TO BE TRANSFERRED, ASSIGNED, DELIVERED AND DEPOSITED BY THE
STOCKHOLDER TO AND WITH THE TRUSTEE
---------------------
Stockholder Number of Shares
- ----------- ----------------
ALVIN HOFFMAN
REVOCABLE TRUST UAD 2/28/86 14,391,837
Exhibits 9-a
<PAGE>
AM COMMUNICATIONS, INC.
1999 STOCK OPTION PLAN
1. Purpose
The purpose of the 1999 Stock Option Plan (referred to herein as the
"Plan") of AM Communications, Inc. (the "Company") is to provide a means by
which certain employees and directors of, and others providing services to or
having a relationship with, the Company and its subsidiaries (as such term is
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code")) may be given an opportunity to purchase common stock of the Company
("Common Stock"). The Plan is intended to promote the interests of the Company
by encouraging stock ownership on the part of such individuals, by enabling the
Company and its subsidiaries to secure and retain the services of highly
qualified persons, and by providing such individuals with an additional
incentive to advance the success of the Company and its subsidiaries.
2. Administration
The Plan shall be administered by a Committee consisting of not less
than two directors (the "Committee") to be appointed from time to time by the
Board of Directors. Membership on the Committee shall in any event be limited to
those members of the Board who are "Non-Employee Directors" as defined in the
regulations promulgated by the Securities Exchange Commission pursuant to
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Committee shall have the power to select optionees, to establish the
number of shares and other terms applicable to each such option, to construe the
provisions of the Plan, and to adopt rules and regulations governing the
administration of the Plan. All power and authority granted hereunder to the
Committee may, at the discretion of the Board of Directors, be exercised by the
Board. The members of the Board of Directors or the Committee shall not be
liable for any action or determination made in good faith with respect to the
Plan or to any option granted pursuant thereto.
3. Eligibility
The persons who shall be eligible to participate in this Plan and
receive options hereunder shall be the Company's directors and such employees
and other individuals who provide services to or otherwise have a relationship
with the Company or its subsidiaries as the Committee shall from time to time
determine to be key individuals to the success of the Company.
Exhibits 10-f
<PAGE>
4. Allotment of Shares
A maximum of Ten Million (10,000,000) authorized but unissued shares
of the Common Stock, $0.10 par value, of the Company will be allotted to the
Plan. Shares that by reason of the expiration of an option or otherwise are no
longer subject to purchase pursuant to an option granted under the Plan may be
re-optioned under the Plan.
5. Effective Date and Term of Plan
The effective date of the Plan is the date on which it is approved by
the affirmative vote of shareholders owning a majority of the Common Stock of
the Company. The Plan shall terminate on the tenth anniversary of its effective
date, but the Board of Directors may terminate the Plan at any time prior
thereto. Termination of the Plan shall not alter or impair, without the consent
of the optionee, any of the rights or obligations of any option theretofore
granted under the Plan.
6. Terms and Conditions
A. All Options
Stock options granted pursuant to this Plan shall be evidenced
by agreements in such form as the Committee shall from time to time approve.
Nothing in this Plan or any option granted hereunder shall govern the employment
rights and duties between the optionee and the Company or subsidiary. Neither
this Plan, nor any grant or exercise pursuant thereto, shall constitute an
employment agreement among such parties. The following shall also apply to all
options granted under the Plan:
(i) Option Price
The option price per share for each stock option
shall be determined by the Committee, consistent with the
provisions of this Plan.
(ii) Time of Exercise of Option
Except as otherwise set forth herein, the Committee
shall establish the option period and time or times within
the option period when the stock option may be exercised in
whole or in such parts as may be specified from time to time
by the Committee. No option shall be exercisable until after
the expiration of six months from the date of grant. With
respect to an optionee whose employment with the Company is
about to terminate (for whatever reason), the Committee may
in its discretion accelerate the time or times when any
particular stock option held by said optionee may be so
exercised so that such time or times are earlier than those
2
Exhibits 10-f
<PAGE>
originally provided in said option. In all cases exercise of
a stock option granted to an employee shall be subject to the
provisions of Section 6A(v).
(iii) Payment and Manner of Exercise
The entire option price shall be paid at the time
the option is exercised. To the extent that the right to
purchase shares has accrued hereunder, options may be
exercised from time to time by written notice to the Company
stating the full number of shares with respect to which the
option is being exercised and the time of delivery thereof,
in accordance with such administrative procedures as may from
time to time be specified by the Committee. Such notice of
exercise shall be accompanied by full payment for the shares
by: (1) certified or official bank check or the equivalent
thereof acceptable to Company; (2) by tendering to the
Company shares of Common Stock, or requesting the Company to
accept shares to be acquired by exercising the option, having
an aggregate fair market value, determined by the Company at
the date of payment, equal to the option price; or (3) any
combination of the foregoing. Upon exercise, the Company
shall deliver to the optionee (or other person entitled to
exercise the option), at the principal office of the Company,
or such other place as shall be mutually agreed upon, a
certificate or certificates for such shares; provided,
however, that the time of delivery may be postponed by the
Company for such periods as may be required for it with
reasonable diligence to comply with any requirements of law;
and provided further that in the event the Common Stock
issuable upon exercise is not registered under the Securities
Act of 1933 (the "Act"), then the Company may require that
the registered owner deliver an investment representation in
form acceptable to the Company and its counsel and the
Company will place a legend on the certificate for such
Common Stock restricting the transfer of same. There shall be
no obligation or duty for the Company to register under the
Act at any time the Common Stock issuable upon exercise of
the options. If the optionee (or other person entitled to
exercise the option) fails to accept delivery, the optionee's
payment shall be returned and the right to exercise the
option with respect to such undelivered shares shall be
terminated.
(iv) Non-Transferability of Option
An option by its terms shall not be transferable by
the optionee otherwise than by will or by the laws of
descent and distribution.
(v) Rights after Termination of Employment
In the event of termination of employment due to any
cause other than death or disability, rights to exercise the
stock option shall terminate three months following cessation
of employment. In the event of termination of employment due
to disability (within the meaning of Section 22(e)(3) of the
Code) or death, such
3
Exhibits 10-f
<PAGE>
optionee or executor, administrator or devisee of an
optionee, shall have the right to exercise such option (to
the extent otherwise exercisable) at any time within one year
after cessation of employment by reason of such disability or
death.
(vi) Effect of Termination of Directorship
An option granted to a director shall not be
affected solely due to the fact that the holder ceases, for
whatever reason, to serve on the Board of Directors.
(vii) Adjustment in Event of Recapitalization of the
Company
In the event of a reorganization, recapitalization,
stock split, stock dividend, combination of shares, merger,
consolidation, rights offering, or any other change in the
corporate structure or shares of the Company, the Board of
Directors shall make such adjustment as it may deem equitably
required, in the number and kind of shares authorized by and
for the Plan, in the number and kind of shares covered by the
options granted, and in the option price.
(viii) Change in Control
Notwithstanding any other provision of this Plan, if
there is a Change in Control of the Company, all then
outstanding stock options shall immediately become
exercisable. For purposes of this Section (viii), a "Change
in Control" shall be deemed to have occurred in the event of
a change in control of the Company which would be required to
be reported in response to Item 1 of Form 8-K promulgated
under the Exchange Act; provided that a Change in Control
shall in no event be deemed to have occurred for the purposes
hereof solely due to the grant of voting rights (including by
the entering into of a voting trust), or the termination or
modification of such grant of voting rights, by any
individual who, at the time of adoption of this Plan, owns in
excess of 30% of the Common Stock of the Company.
B. Non-Qualified Stock Options
The Committee may, in its discretion, grant options under the
Plan which, in whole or in part, do not qualify as incentive stock options under
Section 422 of the Code ("Non-Qualifying Options"). The terms and conditions of
the Non-Qualifying Options shall be governed by Section 6A above.
C. Incentive Stock Options
The Committee may, in its discretion, grant options under the
Plan which qualify, in whole or in part, as incentive stock options under
Section 422 of the Code. In addition to the terms
4
Exhibits 10-f
<PAGE>
and conditions set forth in Section 6A above, the following terms and conditions
shall govern any incentive stock option issued under the Plan:
(i) Maximum Fair Market Value of Incentive Stock Options
No optionee may have incentive stock options which
become exercisable for the first time in any calendar year
(under all incentive stock option plans of the Company and
its subsidiary corporations) with an aggregate fair market
value (determined as of the time such option is granted) in
excess of One Hundred Thousand Dollars ($100,000).
(ii) Option Price
The option price per share for each incentive stock
option shall be 100% of the fair market value of the Common
Stock on the date the option is granted; except, in the case
of the grant to an optionee who owns Common Stock of the
Company possessing more than 10% of the total combined voting
power of all classes of stock of the Company or its
subsidiaries, the option price of such option shall be at
least 110% of the fair market value of the Common Stock on
the date the option is granted. The fair market value shall
be determined as prescribed by the Code and regulations
promulgated thereunder.
(iii) Period of Option
Each incentive option shall expire ten years from
the date it is granted or at the end of such shorter period
as may be designated by the Committee on the date of grant;
except, in the case of the grant of an incentive stock option
to an optionee who owns Common Stock of the Company
possessing more than 10% of the total combined voting power
of all classes of stock of the Company or its subsidiaries,
such option shall not be exercisable after the expiration of
five years from the date it is granted.
(iv) Eligible Participants
Incentive stock options may be issued only to
employees of the Company or its parent or subsidiary
corporation or corporations.
7. Amendment of Plan
The Board, within its discretion, shall have authority to amend the
Plan and the terms of any option issued hereunder; provided, that no such action
of the Board of Directors, without the approval of the Shareholders of the
Company, shall:
5
Exhibits 10-f
<PAGE>
(a) materially increase the benefits accruing to optionees
under the Plan;
(b) increase the number of securities which may be issued
under the Plan; or
(c) materially modify the requirements as to eligibility for
participation under the Plan.
6
Exhibits 10-f
<PAGE>
SERVICES AGREEMENT
AGREEMENT dated as of October 22, 1998 between AM COMMUNICATIONS, INC.,
a Delaware corporation (the "Company"), and JAY HASSAN (the "Executive").
WHEREAS, the Company and the Executive desire that the Executive serve
as Chairman of the Board of Directors of the Company, on the terms hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
Definitions
The following terms, when utilized herein, shall have the meanings
indicated:
Board: The term "Board" means the Company's Board of Directors.
Permanent Disability: The term "Permanent Disability" refers to the
Executive being unable, for a period of 120 continuous days, to perform his
customary duties hereunder due to his physical or mental incapacity. A
determination of Permanent Disability by a physician designated by the Company
will be conclusive and binding on the parties.
ARTICLE II
Retention: Services
2.1 Engagement. The Board will promptly take all necessary action to
cause the Executive to be appointed to the Board and to be elected to serve as
the Chairman of the Board. While the Executive will not be employed by the
Company, but will instead be a non-employee member of the Board, he will be
actively and extensively involved in the business, management and affairs of the
Company. Executive hereby accepts such engagement and agrees to devote
substantial working time and his best efforts to the Company's business and
affairs. During the term hereof, the Executive shall not engage in or be
connected with any other business pursuits which are directly competitive with
the Company, unless authorized in writing by the Board. The Company confirms
that the Executive's position as a director of C-Cor is not deemed competitive.
<PAGE>
2.2 Responsibilities. The Executive's duties and responsibilities
hereunder shall include the following:
(a) Active involvement in the management of the Company's business
and affairs.
(b) Development and execution (after approval by the Board) of
growth strategies for the Company's existing business and new business
opportunities, it being the aim and expectation of the parties that the new
business opportunities will ultimately constitute a majority of the Company's
business activities.
(c) Identification of new products and acquisition opportunities.
(d) Utilization of the Company's corporate structure to market
technologies, products and services offered by India Nest, Inc. ("Nest").
(e) Such other executive duties and responsibilities as may be from
time to time assigned to the Executive by the Board.
2.3 Annual Performance Review. The Board will institute a formal
process pursuant to which the Board will annually review and evaluate the
Executive's performance hereunder. The results of such performance review will
be shared with the Executive.
ARTICLE III
Compensation
3.1 Stock Options. The Board will adopt, subject to stockholder
approval, the AM Communications, Inc. 1998 Stock Option Plan (the "Plan"). The
Plan will be submitted by the Board, with its recommendation, to the
stockholders for approval at the Company's 1998 Annual Meeting. The Executive
acknowledges having received and reviewed the Plan.
Subject to approval of the Plan by the stockholders, the
Company hereby grants to the Executive, as compensation for the services to be
provided hereunder, an option to acquire 5,000,000 shares of the Company's
Common Stock, at a per share exercise price equal to the fair market value of
the stock on the date of grant. Such option shall be issued pursuant to and
shall be subject to the terms, conditions and provisions of the Plan, and will
have the following terms:
-2-
<PAGE>
(a) The option will have a term of ten years, subject to early
termination upon any termination of this Agreement or as otherwise provided in
the Plan
(b) The option will become first exercisable in three equal annual
installments, with the first such installment becoming exercisable on the first
anniversary of the date of grant.
3.2 Business Expenses. The Executive will be reimbursed for business
expenses incurred by him in connection with his services hereunder, in
conformance with the Company's normal policies and procedures.
3.3 No Other Salary or Benefits. As a non-employee, the Executive will
receive no salary for his services hereunder, nor will he be eligible for any
employee benefits, except as specified above or as otherwise designated by the
Board in its discretion.
ARTICLE IV
Term
This Agreement shall become effective, and the engagement hereunder
shall commence, on the date the Executive is elected to the Board and shall
thereafter continue for three years unless earlier terminated pursuant to
Article V hereto. After the initial three-year term, this Agreement shall
continue indefinitely until terminated by either party by written notice to the
other.
ARTICLE V
Termination of Agreement
5.1 Death or Permanent Disability. This Agreement shall automatically
terminate, without act by any party, upon the death or Permanent Disability of
the Executive.
5.2 Termination for Cause. This Agreement may at any time be terminated
by the Company for cause, which for the purposes of this Agreement shall mean
one or more of the following:
(a) dishonesty, in any material respect, which the Board reasonably
determines to be materially detrimental to the Company;
-3-
<PAGE>
(b) Executive being convicted of a felony; or
(c) material deficiency in the performance of duties or gross
insubordination hereunder, or breach of the Executive's commitments referenced
in Article VI hereto; provided, that in order to terminate this Agreement
pursuant to this subparagraph (c), the Company shall give ninety days prior
written notice to the Executive, and such notice of termination shall not be
effective if, at the end of such ninety day period, all such deficiencies and
breaches shall theretofore have been fully cured.
ARTICLE VI
Other Matters
6.1 Engineering Services. The Company and Nest, which is an affiliate
of the Executive, have or are about to enter into an agreement pursuant to which
Nest will provide certain designated engineering and other services to the
Company. The Executive will use his best efforts to insure that Nest performs
all of its duties and obligations under such agreement.
6.2 Capital Infusion. As part of the Executive's responsibilities
hereunder, the Executive will study the advisability of the Company divesting
its CATV business, and will make a recommendation to the Board with respect
thereto. In the event that the Company determines to retain this business, the
Executive, or an investor group designated by Executive, will purchase common
stock from the Company for an aggregate cash purchase price of $500,000. Such
stock will be issued and sold to the Executive at a per share price equal to the
stock's then market price.
ARTICLE VII
Miscellaneous
7.1 Notices. All notices or other communications to be given under this
Agreement shall be in writing and shall be deemed given when personally
delivered at, or three days after mailing with adequate postage by certified
mail, return receipt requested, to the following addresses:
If to the Company:
-4-
<PAGE>
AM Communications, Inc.
100 Commerce Drive
Quakertown, Pennsylvania 18951
Attn: President
If to the Executive:
or to such other address as the person to be notified shall have specified in
the manner indicated in this Paragraph 7.1.
7.2 Binding Arbitration. In the event of any dispute in connection
with this Agreement, the Company and the Executive agree to resolve such
disputes solely by binding arbitration under the rules of the American
Arbitration Association in Philadelphia, Pennsylvania. Each party consents to
the entry of judgment confirming the results of the arbitration in the courts of
the Commonwealth of Pennsylvania.
7.3 Binding Effect; Etc. This Agreement shall be binding upon and inure
to the benefit of the parties hereto, and their respective heirs, personal
representatives, successors and assigns; except that it shall not be assignable
by the Executive. This Agreement and the terms and provisions hereof shall be
construed in accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and date first above written.
AM COMMUNICATIONS, INC.
By: /s/ Keith Schneck
--------------------
/s/ Jay Hassan
--------------------
JAY HASSAN
-5-
<PAGE>
SERVICES AGREEMENT
AGREEMENT dated as of October 22, 1998 between AM COMMUNICATIONS, INC.,
a Delaware corporation (the "Company"), and JAY HASSAN (the "Executive").
WHEREAS, the Company and the Executive desire that the Executive serve
as Chairman of the Board of Directors of the Company, on the terms hereinafter
provided.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
Definitions
The following terms, when utilized herein, shall have the meanings
indicated:
Board: The term "Board" means the Company's Board of Directors.
Permanent Disability: The term "Permanent Disability" refers to the
Executive being unable, for a period of 120 continuous days, to perform his
customary duties hereunder due to his physical or mental incapacity. A
determination of Permanent Disability by a physician designated by the Company
will be conclusive and binding on the parties.
ARTICLE II
Retention; Services
2.1 Engagement. The Board will promptly take all necessary action to
cause the Executive to be appointed to the Board and to be elected to serve as
the Chairman of the Board. While the Executive will not be employed by the
Company, but will instead be a non-employee member of the Board, he will be
actively and extensively involved in the business, management and affairs of the
Company. Executive hereby accepts such engagement and agrees to devote
substantial working time and his best efforts to the Company's business and
affairs. During the term hereof. the Executive shall not engage in or be
connected with any other business pursuits which are directly competitive, with
the Company, unless authorized in writing by the Board. The Company confirms
that the Executive's position as a director of C-Cor is not deemed competitive.
<PAGE>
2.2 Responsibilities. The Executive's duties and responsibilities
hereunder shall include the following:
(a) Active involvement in the management of the Company's business
and affairs.
(b) Development and execution (after approval by the Board) of
growth strategies for the Company's existing business and new business
opportunities, it being the aim and expectation of the parties that the new
business opportunities will ultimately constitute a majority of the Company's
business activities.
(c) Identification of new products and acquisition opportunities.
(d) Utilization of the Company's corporate structure to market
technologies, products and services offered by India Nest, Inc. ("Nest").
(e) Such other executive duties and responsibilities as may be from
time to time assigned to the Executive by the Board.
2.3 Annual Performance Review. The Board will institute a formal
process pursuant to which the Board will annually review and evaluate the
Executive's performance hereunder. The results of such performance review will
be shared with the Executive.
ARTICLE III
Compensation
3.1 Stock Options. The Board will adopt, subject to stockholder
approval, the AM Communications, Inc. 1998 Stock Option Plan (the "Plan"). The
Plan will be submitted by the Board, with its recommendation, to the
stockholders for approval at the Company's 1998 Annual Meeting. The Executive
acknowledges having received and reviewed the Plan.
Subject to approval of the Plan by the stockholders, the Company
hereby grants to the Executive, as compensation for the services to be provided
hereunder, an option to acquire 5,000,000 shares of the Company's Common Stock,
at a per share exercise price equal to the fair market value of the stock on the
date of grant. Such option shall be issued pursuant to and shall be subject to
the terms, conditions and provisions of the Plan, and will have the following
terms:
-2-
<PAGE>
(a) The option will have a term of ten years, subject to early
termination upon any termination of this Agreement or as otherwise provided in
the Plan.
(b) The option will become first exercisable in three equal annual
installments, with the first such installment becoming exercisable on the first
anniversary of the date of grant.
3.2 Business Expenses. The Executive will be reimbursed for business
expenses incurred by him, in connection with his services hereunder, in
conformance with the Company's normal policies and procedures.
3.3 No Other Salary or Benefits. As a non-employee, the Executive will
receive no salary for his services hereunder, nor will he be eligible for any
employee benefits, except as specified above or as otherwise designated by the
Board in its discretion.
ARTICLE IV
Term
This Agreement shall become effective, and the engagement hereunder
shall commence, on the date the Executive is elected to the Board and shall
thereafter continue for three years unless earlier terminated pursuant to
Article V hereto. After the initial three-year term, this Agreement shall
continue indefinitely until terminated by either party by written notice to the
other.
ARTICLE V
Termination of Agreement
5.1 Death or Permanent Disability. This Agreement shall automatically
terminate, without act by any party, upon the death or Permanent Disability of
the Executive.
5.2 Termination for Cause. This Agreement may at any time be
terminated by the Company for cause, which for the purposes of this Agreement
shall mean one or more of the following:
(a) dishonesty, in any material respect, which the Board reasonably
determines to be materially detrimental to the Company;
-3-
<PAGE>
(b) Executive being convicted of a felony; or
(c) material deficiency in the performance of duties or gross
insubordination hereunder, or breach of the Executive's commitments referenced
in Article VI hereto; provided that in order to terminate this Agreement
pursuant to this subparagraph (c), the Company shall give ninety days prior
written notice to the Executive, and such notice of termination shall not be
effective if, at the end of such ninety day period, all such deficiencies and
breaches shall theretofore have been fully cured.
ARTICLE VI
Other Matters
6.1 Engineering Services. The Company and Nest, which is an affiliate
of the Executive, have or are about to enter into an agreement pursuant to which
Nest will provide certain designated engineering and other services to the
Company. The Executive will use his best efforts to insure that Nest performs
all of its duties and obligations under such agreement.
6.2 Capital Infusion. As part of the Executive's responsibilities
hereunder, the Executive will study the advisability of the Company divesting
its CATV business, and will make a recommendation to the Board with respect
thereto. In the event that the Company determines to retain this business, the
Executive, or an investor group designated by Executive, will purchase common
stock from the Company for an aggregate cash purchase price of $500,000. Such
stock will be issued and sold to the Executive at a per share price equal to the
stock's then market price.
ARTICLE VII
Miscellaneous
7.1 Notices. All notices or other communications to be given under this
Agreement shall be in writing and shall be deemed given when personally
delivered at, or three days after mailing with adequate postage by certified
mail, return receipt requested, to the following addresses:
If to the Company:
-4-
<PAGE>
AM Communications, Inc.
100 Commerce Drive
Quakertown, Pennsylvania 18951
Attn: President
If to the Executive:
or to such other address as the person to be notified shall have specified in
the manner indicated in this Paragraph 7.1.
7.2 Binding Arbitration. In the event of any dispute in connection with
this Agreement, the Company and the Executive agree to resolve such disputes
solely by binding arbitration under the rules of the American Arbitration
Association in Philadelphia, Pennsylvania. Each party consents to the entry of
judgment confirming the results of the arbitration in the courts of the
Commonwealth of Pennsylvania.
7.3 Binding Effect; Etc. This Agreement shall be binding upon and inure
to the benefit of the parties hereto, and their respective heirs, personal
representatives, successors and assigns; except that it shall not be assignable
by the Executive. This Agreement and the terms and provisions hereof shall be
construed in accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and date first above written.
AM COMMUNICATIONS, INC.
By: /s/ Keith Schneck
------------------------
/s/ Jay Hassan
----------------------------
JAY HASSAN
-5-
<PAGE>
[LOGO]
PROGRESS BANK
June 29, 1999
AM Communications, Inc.
100 Commerce Drive
Quakertown, PA 18951-2237
Attention: Keith D. Schneck
President
Dear Keith:
I am pleased to inform you that Progress Bank (hereinafter referred to as
"Bank") has approved the following secured line of credit to AM Communications,
Inc. (hereinafter referred to as "Borrower") under the terms and subject to the
conditions set forth below:
1. AMOUNT: $750,000
2. BORROWER: AM Communications, Inc.
3. USE OF PROCEEDS: The advances under the line of credit shall be used
primarily for working capital and short-term borrowings.
4. TERMS: The line of credit will be available to the Borrower until July
31, 2000, at which time continuation of the line will be considered by
the Bank on the basis of the Borrower's financial statements for the
year ended March 31, 2000, and other information available to Bank, or
which the Bank may reasonably request.
5. INTEREST RATE: Wall Street Journal's Prime Rate plus 2.0% floating (an
increase from the current pricing of WSJ Prime + 1.75%). The Wall
Street Journal's Prime Rate is a reference rate which floats and is
stated from time to time by the Bank and is used for the Bank as a
reference rate with respect to different interest rates charged to
borrowers. The rate of interest payable shall change simultaneously and
automatically upon the Bank's designation of any change in such
reference rate. The Bank's determination and
Exhibits 10-g
<PAGE>
AM Communications, Inc. 2 06/29/99
designation from time to time of the reference rate shall not in any
way preclude the Bank from making loans to other borrowers at a rate
which is higher or lower or different from the reference rate.
6. COMMITMENT FEE: The Borrower will pay a non-refundable fee equal to
.50% ($3,750.00) of the loan amount to the Bank at the time of
acceptance of the commitment evidenced by the signing of this letter.
The commitment fee is paid as consideration to the Bank for the
issuance of this commitment whether or not the transaction contemplated
herein is closed.
7. BORROWING BASE: All advances made under the line of credit will be
limited to 80% of qualified accounts receivables up to 90 days from
invoice as defined in the Bank's Secured Lending Operation Procedures
(see Attachment I).
8. CERTIFICATION: The Bank shall require the submission of certifications
of accounts receivable on a monthly basis. Each certification shall be
delivered to the Bank no later than ten (10) days after the close of
each month. Such certification shall be signed by the chief financial
officer indicating to the best of his knowledge that the certification
is valid, accurate, and prepared in accordance with Bank requirements.
9. COLLATERAL: As security for the line of credit, the Bank will require
a first priority security interest perfected under the Uniform
Commercial Code in all of the Borrower's corporate assets, including
present and future accounts, chattel paper, contracts, documents,
present and future equipment (including, but not limited to fixtures,
office equipment, furniture and motor vehicles), and accessions,
general intangibles, instruments, inventory, and any products and
proceeds of the foregoing. The Bank will require evidence satisfactory
to it and its counsel that the assets are free and clear of any and all
security interest, except as set forth herein.
10. COLLATERAL AUDITS: The Borrower, at the Borrower's expense, shall
permit the Bank to examine the Borrower's books and records and perform
audits two times per year or at any time upon reasonable notice. Should
an out-of-trust situation occur, the Bank expects an immediate payment
to cure this default.
11. INSURANCE: The Borrower will provide fire and extended coverage
insurance on all insurable assets during the term of this commitment,
satisfactory to the Bank as to form and insurer, containing the
standard mortgagee and loss payee clauses in favor of the Bank. The
amount of such coverage will not be less than 80% of the insurable
value of the assets or 100% of the loan amount, whichever is greater.
The insurance will be in effect evidenced by a certificate of insurance
submitted to the Bank prior to or at the settlement. The policy shall
require a thirty (30) day notice of cancellation to the Bank.
12. EXPENSES: The Borrower shall pay all out-of-pocket costs and expenses
incurred by the Bank in connection with the financing arrangement
promptly upon the Bank's submission of a statement to the Borrower.
This will include, but not be limited to, attorney's fees and costs,
lien search fees and filing fees.
Exhibits 10-g
<PAGE>
AM Communications, Inc. 3 06/29/99
13. DOCUMENTATION: Borrower shall duly execute and deliver such
instruments, documents, certificate, opinions, assurances and do such
other acts and things as the Bank may reasonable request, to effect the
purpose of the transaction described in this commitment letter. All
proceedings, agreements, instruments, documents, and other matters
relating to the making of the loan, and all of the transactions herein
contemplated, shall be satisfactory in form and substance to the Bank
and its counsel. Our counsel must be satisfied with respect to the
legality, validity, binding effect, and enforceability of all
instruments, agreements and documents used to effect and consummate the
loans and transactions herein contemplated.
14. DUE AUTHORIZATION: The Borrower will obtain all necessary authorization
of their respective boards of directors and shareholders to enter into
the agreement evidenced by this letter and will obtain, prior to the
making of these loans, such further authorization of their respective
board of directors and shareholders as may be necessary or appropriate
to the financing arrangement set forth within.
15. FINANCIAL COVENANTS: The Bank has agreed to waive the financial
covenant defaults for Minimum Working Capital, Minimum Tangible Net
Worth; and Maximum Debt to Tangible Net Worth at April 3, 1999. The
Borrower shall remit a waiver fee to the Bank for $3,000 ($1,000 per
financial covenant default)
The Borrower shall maintain the following financial covenants
throughout the term of this commitment to be test on a quarterly basis
per GAAP and to be determined:
a) Minimum Tangible Net Worth of $175,000 at the end of fiscal 2000.
b) Maximum Net Loss of $650,000 for Q1, $1,000,000 for year to date at
the end of Q2; $800,000 for year to date at the end of Q3; and
$175,000 for fiscal 2000.
c) Minimum Working Capital of $250,000 at the end of Ql; $500,000 at
the end of Q2; $750,000 at the end of Q3; and $1,000,000 at the end
of Q4
Note: The accruals payable to NeST shall be excluded from current
liabilities for the purpose of testing this covenant, as long as no
cash payments are made to NeST.
*Convertible Preferred Stock to be included in Net Worth for
convenant calculations.
16. FINANCIAL STATEMENTS: The Borrower shall deliver its annual financial
statements to the Bank within ninety (90) days after the close of each
fiscal year during the term of this commitment. The financial
statements will be audited by an independent accountant satisfactory to
the Bank. The statements will be prepared in accordance with generally
accepted accounting principals (GAAP). In addition, the Borrower will
submit on a monthly basis internally prepared Balance Sheet and Profit
and Loss Statement, which are prepared in accordance with GAAP.
Submission of the monthly statements will be within thirty (30) days
after the end of each period.
Exhibits 10-g
<PAGE>
AM Communications, Inc. 4 06/29/99
17. AGINGS: The Borrower shall deliver is accounts receivable agings to the
Bank on a monthly basis. Submission of the monthly statements will be
within fifteen (15) days after the end of each period.
18. DEPOSIT RELATIONSHIP: The Borrower will maintain Progress Bank as its
primary bank of account for the term of this commitment. The Borrower
shall further be required to open a lock box account at Progress Bank
which shall be utilized throughout the term of this commitment
19. SATISFACTORY FINANCIAL CONDITION: The Borrower shall maintain, in the
Bank's judgment, a satisfactory financial condition and shall notify
the Bank promptly in writing of any material adverse changes in its
financial condition since the date of issuance of this commitment.
We appreciate the opportunity of making these commitments available to you. If
the terms and conditions outlines herein are acceptable to you, please execute
the acknowledgement on the original of this letter, returning it to the
undersigned in the envelope provided. A copy is enclosed for your records.
Should you have any questions regarding this letter or if the Bank can be of
further service, please feel free to contact the undersigned at (610) 941-4893.
Sincerely,
PROGRESS BANK
Kathleen W. Coviello
Vice President
Specialized Lending
/s/ Kathleen W. Coviello
- ------------------------
KWC/slp
ACKNOWLEDGEMENT:
We hereby accept the terms and conditions outlined herein this day of
July 1, 1999.
BORROWER: AM Communications,
By: /s/ Keith Schneck
-----------------------
Attest: /s/ Patricia Eynin
------------------
Exhibits 10-g
<PAGE>
AM Communications, Inc. 5 06/29/99
ATTACHMENT I
PROGRESS BANK
SECURED LENDING - OPERATING PROCEDURES
This is an outline of the procedures which will facilitate the paperwork that
will flow between your office and the Bank. Normally, what is required will
simply be a by-product of which is already being done by your bookkeeping
department
Borrower's Collateral and Loan Certification: A Borrower's Certification must be
completed monthly, per the terms and conditions stated in the proposal dated
June 29, 1999. Please be sure that accounts receivable are covered on this
report and the balance of the receivables agrees with your control.
Aged Trial Balance: As of the end of each month you are to furnish the Bank with
an Aged Trial Balance of accounts receivable according to their date of origin.
Agings should be mailed on or before the 15th of the following month. Following
is an example of the format to be used for normal terms of 30 days.
A/R Aged Trial Balance as of 5/30/XX
<TABLE>
<CAPTION>
1-30 31-60 61-90 Over 90
Debtor Name Total April March Feb. Jan. & Prior
- ----------- ----- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
XYZ Co. $7,000 $5,000 $1,000 $500 $500
</TABLE>
Aged Accounts Payable-Trial Balance: Each month and at year end, an aged
accounts payable - trial balance is to be submitted to the Bank, similar in
format of above A/R Aging.
Unqualified Accounts: The following accounts receivable, as well as others
specifically discussed, shall not be considered qualified accounts: (a) contra
accounts, (b) offset accounts, (c) C.O.D. or sight draft accounts, (d)
commission accounts, (e) employee and salesmen accounts, (f) consignment
accounts, (g) guaranteed sales accounts, (h) inter-company accounts, (i) any
amount known to be not readily collectible for any reason, (j) any invoice
without a definite due date, (k) pre-billed invoices, (1) all amounts which are
more than 90 days past invoice date, (m) accounts in litigation or arbitration,
(n) all retainers (including, but not limited to construction retainages), (o)
accounts with 50% or more of the balance 90 days past invoice date, (p) accounts
not generated in the ordinary course of business, (q) interest, (r) finance
charges, (s) accounts arising out of a contract with any department or
instrumentality of the United States of America, unless such account has been
assigned to the Bank under the provisions of the Federal Assignment of Claims
Act, (t) accounts in which the Bank does not have a first lien, and (u) such
other accounts deemed to be unqualified by the Bank. Though the above items are
deemed unqualified for advance purposes, they remain part of the collateral
pledged to the Bank and perfected under the UCC. In computing the unqualified
receivables, in addition to the above, all credit memos are to be added back to
the total unqualified amount.
Exhibits 10-g
<PAGE>
AM Communications, Inc. 6 06/29/99
Field Audit: At any time upon reasonable notice, a representative from the
Bank's Field Audit Department will examine your books and records and perform
periodic audits. He will need access to the records of your company to complete
this examination.
Summary: On a monthly basis you are to furnish a Borrower's Certificate
reconciling collateral vs. borrowings at month end.
If you have any questions regarding the correct procedure for the completing of
our forms, please call either myself at (610) 941-4893 or my Assistant Beth
Shemonski at (610) 941-4803. Any and all mail should be addressed to the
attention of Kathleen W. Coviello.
Exhibits 10-g
<PAGE>
Page 1 of 11
CONSULTING SERVICES AGREEMENT
THIS AGREEMENT entered into as of the 8th day of October, 1998, by and between
AM Communications, Inc., a Delaware corporation, having its principal address at
100 Commerce Boulevard, Quakertown, PA 18951-2237 ("AM" or "Company") and
Network Systems and Technologies (P) Ltd. ("NeST"), having its principal address
in Trivandrum, India.
WHEREAS, NeST desires to provide and AM desires to obtain from time to time
certain technical services; and
WHEREAS, the parties intend that this Agreement shall constitute a basic
agreement the terms and conditions of which shall apply to each Task Order
issued by Company and accepted by NeST.
NOW THEREFORE, in consideration of the mutual covenants and premises contained
herein and the compensation to be paid by AM to NeST hereunder, the parties
hereto convenant and agree as follows:
1. DEFINITIONS
As used in this Agreement and all Task Orders, the terms set forth in
this Section 1 shall have those meanings indicated below or in the
referenced Section.
Consultant--An individual employee (or independent contractor) of NeST
who performs services for Company pursuant to this Agreement and any
related Task Order.
Disclosed Information - Section 5.1
Discloser - Section 5.1
Key Consultant - Section 2.4
NeST Materials - Section 5.2
Task Order - Section 2.2
Work Product - Section 5.2
<PAGE>
Page 2 of 11
2. SERVICES
2.1 Services Provided. NeST agrees to provide to AM under the terms and
conditions of this Agreement technical engineering services including
hardware and software design. Said services shall be provided in
accordance with Task Orders which reference this Agreement, are issued
from time to time by Company to NeST, and are accepted by NeST. The
parties anticipate that certain Task Orders will be issued as set out
in Schedule A. NeST agrees to have sufficient resources available to
perform the anticipated Task Orders set out in Schedule A.
2.2 Task Orders.
(a) Each Task Order shall be governed by the terms and conditions of this
Agreement and the terms and conditions of the Task Order. In the event
of a conflict between the terms and conditions of this Agreement and
the terms and conditions of any Task Order, the terms and conditions
of the Task Order shall govern and Supersede those of this Agreement
with respect to that Task order only.
(b) NeST acknowledges AM's right to make Task Orders subject to (i) NeST's
right to refuse to accept (in writing within five (5) business days
following its receipt of Company's proposed changes) material changes,
and (ii) the parties agreeing on appropriate increases or decreases to
the charges under the applicable Task Order for material changes.
(c) Company may terminate any Task Order for convenience at any time by
giving NeST prior written notice. Upon its receipt of such notice of
termination, NeST will immediately discontinue all further services on
behalf of Company under the applicable Task Order and will use
reasonable efforts to mitigate all costs to Company from that date
forward. In no event shall Company be required to pay for any
consulting fees incurred beyond a date which is (5) business days
following NeST's receipt of such notice.
2.3 Time and Place. The parties hereto will perform their respective
obligations hereunder in accordance with the time schedule set out in
each Task Order. TIME IS OF THE ESSENCE. Notwithstanding the foregoing
two sentences, neither party shall be deemed to have breached the
provisions of this Section 2.3 for any reasonable delay due to the
prolonged incapacitation of a Key Consultant or delays which are
caused solely by Company.
<PAGE>
Page 3 of 11
2.4 Key Consultants. The Key Consultants of NeST who will provide
programme management services will be designated as "Key Consultants"
in each Task Order. Unless they cease to be directly or indirectly
employed or retained by NeST, these Key Consultants shall not be
replaced by NeST for services designated under the applicable Task
Order without Company's prior approval, not to be unreasonably
withheld. In the event of prolonged illness, resignation, discharge
for cause or other causes beyond NeST's control, a Key Consultant may
be replaced by another person of equal expertise, competence and
level, and said replacement by NeST shall be made within a reasonably
feasible time following reasonable knowledge by NeST of the necessity
for such replacement.
2.5 Termination of Consultants by Company NeST shall immediately reassign
any Consultant with whom Company, in its sole opinion, is dissatisfied
for any reason.
2.6 Tools NeST shall provide at its expense all working space, tools and
other items as it considers appropriate for the services to be
performed at its location in India. AM will provide the same for any
work done at its facility in Quakertown.
2.7 Relationship Manager. Each party shall assign one individual as
relationship manager who shall be the primary liaison between the
parties during the terms of this Agreement. The NeST relationship
manager shall be located at the AM facility.
2.8 Progress Reports. NeST shall prepare reports on the first and
fifteenth day of each calendar month (or such times as may be mutually
agreed upon by the parties) during the Term of any Task Order. The
progress reports shall address the following primary areas: (i) work
accomplished during the period covered by the report, (ii) new
problems encountered during the period covered by the report and
solutions effected or recommended, (iii) work schedule for the period
to be covered by the next report, (iv) old problems that have been
resolved and old problems that have not been resolved and the
anticipated date of resolution, (v) status of the project relative to
the Time Schedule, and (vi) the amount of permissible expenses for
reimbursement for the preceding period and the aggregate total of the
reimbursable expenses to the date of the report.
<PAGE>
Page 4 of 11
2.9 Consultant Standards.
(a) NeST represents and warrants that its consultants will be of a high
caliber and will meet the highest professional standards for the type
of work assigned to such Consultant hereunder. NeST further
represents, warrants and covenants that the services performed by each
Consultant will be reasonably acceptable to Company.
(b) Any services performed by Consultants under proper technical direction
by NeST which are determined by Company to be of a caliber below that
warranted by NeST pursuant to Section 2.9 (a) above, shall be
corrected by NeST without charge to Company provided that Company
informs NeST thereof within three (3) months of the time it knew of
such below warranted caliber services.
3. COMPENSATION
3.1 Payments by AM for the NeST engineering services shall be based on the
rate of $20.00 per hour based on the number of hours incurred on each
specific Task Order. NeST shall be responsible for paying all expenses
related to consultants. NeST shall invoice AM monthly for services
performed. NeST is responsible for any and all taxes applicable to
this Agreement or which are measured by payments made under it.
3.2 AM shall pay invoices within thirty (30) days of receipt. Upon
termination of this Agreement for any reason, any compensation accrued
but unpaid at the time of termination shall be paid in accordance with
this Section.
3.3 In lieu of making cash payments on invoices, AM shall have the right
to make payment against invoices by issuing warrants to purchase AM
common stock under the following terms:
(a) The purchase price of warrants to be issued shall be $.01 per share.
(b) The number of the shares of AM Common Stock which warrants shall be
entitled to purchase shall be based on the invoice value of the
services performed divided by AM per share price based on the 30 days
average (based on average of bid and ask price) of the AM stock during
the respective month in which the services were performed.
<PAGE>
Page 5 of 11
(c) Warrants shall be exercisable for a period of five (5) years after
issuance.
(d) The maximum number of shares represented by warrants shall not exceed
10 million shares.
3.4 The terms of the warrants shall be outlined in a separate warrant
agreement to be negotiated between the parties.
4. TERM
4.1 Term of Agreement. The term of this Agreement shall commence on the
date of execution of this Agreement and shall continue until all Task
Orders issued by Company prior to termination as provided in the
immediately following sentence have expired by their terms. This
Agreement may be terminated by either party upon ninety (90) days
prior written notice to the other.
4.2 Termination for Default. Company shall have the right to immediately
terminate this Agreement and / or any Task Order in the event the
occurrence of any one of the following is not remedied within thirty
(30) days of receipt of written notice; (I) NeST neglects or fails to
perform or observe any of its obligations hereunder or pursuant to
any other Agreement with Company, or (ii) if any assignment is made of
NeST's business for the benefit of creditors, or if a petition in
bankruptcy is filed by or against NeST, or if a receiver, trustee in
bankruptcy or similar officer is appointed to take charge of all part
of its property or if NeST is adjudicated as bankrupt.
5. CONFIDENTIALITY AND PROPRIETARY RIGHTS
5.1 The parties agree to abide by the Mutual Confidentiality Agreement
attached as Schedule C.
5.2 Assignment of Work Product.
(a) NeST agrees that all inventions, improvement, discoveries, or
developments including, but not limited to, computer software authored
by NeST ("Work Product") which NeST may make or conceive during the
term hereof and for one (1) year thereafter, either solely or jointly
with others, whether arising from NeST's own efforts or suggestions
received from any other source, which arise out of the services
provided pursuant to this Agreement or
<PAGE>
Page 6 of 11
exposure to Disclosed Information, are a work make for hire and are
the exclusive property of Company free from any claim or retention of
rights thereto on the part of NeST (including for the purposes of
copyright). In addition to the immediately preceding sentence and
other than where the Work Product is considered a work made for hire.
NeST further agrees to (and, as appropriate, will in the future), and
here does, grant, convey and assign to Company absolutely and
exclusively all such Work Product and all intellectual property rights
therein.
(b) NeST agrees to fully disclose all Work Product to Company.
(c) NeST agrees that at the request and expense of Company and without
charge or compensation beyond the charges provided pursuant to this
Agreement, to execute all instruments and documents and to do all
things which may be reasonably necessary to protect the rights of
Company and vest in it and its assigns all such Work Product and all
intellectual property rights therein.
(d) NeST may identify portions of the Work Product as proprietary to NeST
at the time of delivery of the Work Product to Company, if those
portions pre-existed this agreement ("NeST Materials"). The parties
agree that the NeST Materials will remain the property of NeST, but
Company is hereby granted a permanent, non-revocable, non-exclusive,
royalty free license with the right to sublicense to make, have made,
use, sell, reproduce, distribute, perform, display and prepare
derivative works of NeST Materials.
5.3 Consultant Confidentiality Agreements. NeST represents and warrants
that NeST has appropriate agreements with its employees and / or any
Consultant to whom Disclosed Information may be disclosed, or others
whose services it may require, sufficient to enable it to comply with
all of the terms of this Agreement.
5.4 Standard of Care. In connection with NeST's obligations hereunder,
NeST agrees to use the standard of care, which is consistent with the
highest industry standards in continuously controlling the use and
disclosure of Disclosed Information in a manner that fully protects
Company's rights therein.
<PAGE>
Page 7 of 11
5.5 Representations, Warranties, Covenants and Indemnities.
(a) NeST represents, warrants and covenants that all Work Product is
original to NeST, that NeST is the sole creator of the Work Products,
that no Work Product has been published; that NeST has not made any
commitment for the use or publication of the Work Product; and that no
such Work Product nor the use thereof does or will violate or infringe
upon any patent, copyright, trademark, trade secret or other property
right of any other person, whether or not similar to any of the
foregoing, nor entitle any third party to make a claim against Company
for the unlawful use of confidential information or trade secrets.
NeST further represents and warrants that the Work Product contains no
matter which is libelous or otherwise contrary to law. NeST agrees
that NeST will indemnify and hold Company harmless from any and all
losses, costs, claims, demands, expenses (including attorney's fees),
and liabilities whatsoever arising from its breach of any warranty or
any misrepresentation with respect to the provisions of this Section
5.5, and at NeST's own expense will defend with legal counsel
acceptable to Company, or, Company, at its option, may defend with its
legal counsel at its cost and NeST will assist in such defense,
providing, however, that NeST has received reasonably prompt notice of
any matter of which Company has knowledge which gives rise to a right
of indemnity hereunder. During the pendency of any claim against NeST
with respect to infringement, Company may withhold payment of any sums
otherwise required to be paid hereunder.
(b) If, in any suit such work or any portion thereof is held to constitute
any infringement and its use enjoined, NeST will, at its sole cost,
undertake one of the following courses of action; (i) procure the
right to continue to use such work or such infringing portion, (ii)
upon the consent of Company, modify such work or such infringing
portion to render it non-infringing, or (iii) upon the consent of
Company replace such work or such infringing portion with a
non-infringing replacement.
5.6 Survival. The provisions of this Section 5 and all subsections
thereunder shall survive the completion and any termination or
expiration of any Task Order or this Agreement.
<PAGE>
Page 8 of 11
6. EMPLOYEES
6.1 Non-Solicitation of Employees. NeST agrees that without the prior
written content of Company, it will not hire or cause to be hired or
induce any of Company's employees who are assigned full or part time
to any endeavor related to a Task Order to leave his / her employment
from the expiration of said Task Order through a date two (2) years
thereafter.
7. INSURANCE AND INDEMNITIES
7.1 Insurance for NeST and Consultants. NeST represents, warrants and
covenants that during the term of this Agreement, NeST will maintain
at NeST's expense all the necessary insurance for NeST and
Consultants, including but not limited to workmen's compensation,
disability, and unemployment insurance, and to provide Company with
certification thereof upon request. NeST agrees to indemnify and hold
harmless Company and its employees from any and all loss, costs,
damages, expenses and liabilities (including attorney's fees), arising
as a result of the breach by NeST of the provisions of this Section
7.1
7.2 Injury or Damages to Persons or Property NeST agrees to indemnify and
hold harmless Company and its employees from any and all loss, costs,
damages, expenses and liabilities (including attorney's fees) by
reason of personal injury or property damage of whatsoever nature or
kind arising, in whole or in part, out of, as a result of, or in
connection with the acts or omissions of NeST or Consultants.
Furthermore, NeST agrees to maintain public liability insurance
covering NeST's obligations contained herein.
7.3 Company Regulations.
(a) NeST agrees that it and its employees will at all times comply with
all reasonable regulations regarding security, usage of Company
equipment, facilities and personnel and safety generally applicable to
Company's employees and invitees, in effect from time to time at
company's premises, and externally for material belonging to Company.
Further NeST agrees that it and its employees will be subject to
reasonable restrictions imposed by Company in connection with areas of
their premises at which Consultants may be present during the course
of the performance of this Agreement.
<PAGE>
Page 9 of 11
(b) NeST will indemnify and hold harmless Company and its employees, from
any and all loss, costs, damages, expenses and liabilities (including
attorney's fees) with respect to: (i) any injury to, or death of any
employee of NeST while such person is present on the premises of
Company, and (ii) any damage to NeST property or that of any of its
employees which may occur while at the premises of Company, unless and
except to the extent that such injury, death, loss, or damage is
caused by the gross negligence or willful misconduct of Company, its
employees or agents.
8. GENERAL
8.1 Compliance with Laws. Each party agrees to perform its obligations
hereunder in accordance with all-applicable laws, rules, and
regulations now or hereafter in effect.
8.2 Modification. This Agreement can only be modified by a written
agreement duly signed by the persons authorize to sign agreements on
behalf of Company and NeST, and variance from the terms or conditions
of this Agreement or any order or other written notification from the
Company will be of no effect.
8.3 Severability of Provisions. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions
shall not in any way be affected or be impaired thereby.
8.4 Choice of Law: Choice of Forum. This Agreement shall be construed
according to the laws (other than the laws on conflicts of laws) of
the Commonwealth of Pennsylvania. The parties hereto agree to accept
the exclusive jurisdiction of the courts of the Commonwealth of
Pennsylvania, and those of the United States of America situated in
Pennsylvania, for the adjudication of any dispute arising here from.
The parties hereby waive their right, if any, to have any dispute
arising under this Agreement determined by a jury proceeding.
8.5 Entire Agreement. This Agreement is the complete and exclusive
statement of the agreement between the parties as to the subject
matter hereof which supersedes all proposals or agreements, oral or
written, and all other communications between the parties related to
the subject matter of this Agreement.
<PAGE>
Page 10 of 11
8.6 Waivers. A waiver of a breach or default under this Agreement shall
not be a waiver of any other or subsequent breach or default. The
failure or delay by either party in enforcing compliance with any term
or condition of this Agreement shall not constitute a waiver of such
term or condition unless such term or condition is expressly waived in
writing.
8.7 Captions. Captions contained in this Agreement are for reference
purposes only and do not constitute part of this Agreement.
8.8 Equity. In the event of a breach or threatened breach by NeST or any
Consultant of any of the provisions of this Agreement, Company, in
addition to any other remedies available to it under law, shall be
entitled to an injunction restraining NeST from the performance of
acts which constitute a breach of this Agreement, and NeST agrees not
to raise adequacy of legal remedies as a defense thereof
8.9 Assignments. This Agreement and NeST's rights, duties, and obligations
under this Agreement are not transferable, delegable, or assignable by
NeST without the prior written consent of Company. Any attempt by NeST
to transfer, delegate or assign this Agreement or any of its rights,
duties, or obligations under this Agreement with such prior consent is
void. Company may assign this Agreement or any of its rights or
responsibilities hereunder.
8.10 Notices. All notices which are required to be given or submitted
pursuant to this Agreement shall be in writing and shall be hand
delivered or sent by certified mail or reputable overnight carrier
(e.g. - Federal Express) return receipt requested, to the address set
forth herein or to such other address as Company or NeST may from time
to time designate and shall be deemed given upon receipt.
8.11 Compliance With Other Agreements. NeST represents and warrants to
Company that in entering into this Agreement and carrying out its
provisions, neither NeST nor any Consultant will be violating any
Agreement or obligation it may have with any other party.
8.12 Non-use of Names and Marks. NeST agrees that it will not directly or
indirectly, without the prior written consent of Company, use for the
purposes of advertising, promotion, or publicity, or otherwise, the
name of Company or any of its divisions, subsidiaries, affiliates,
vendors or customers, or any
<PAGE>
Page 11 of 11
trademarks of Company or of any of its divisions, subsidiaries,
affiliates, vendors or customers.
8.13 Independent Contractors. NeST agrees that NeST and its consultant
employees shall be considered an independent contractor and that
neither NeST nor the consultants shall be deemed to be employees of
Company. Consultants shall not be entitled to any employee benefits of
Company. NeST will be solely responsible for the payment of all
compensation owed to Consultants including payment, if any, of
employment related taxes, all benefits and workmen's compensation
insurance. NeST warrants and represents that it has complied, is in
compliance with, and covenants that during the term of this Agreement
or any Task Order hereunder, NeST will comply with all laws, rules,
and regulations required by appropriate government authorities of
independent contractors, including the appropriate withholding,
reporting and payment of all required taxes. NeST agrees to indemnify
and hold harmless Company and its employees from any and all loss,
costs, damages, expenses or liabilities (including attorney's fees)
arising as a result of the breach by NeST of the provisions of this
Section 8.13.
8.14 Schedules All Schedules to this Agreement referred to herein are
incorporated herein by reference.
8.15 Authority Each party represents that it has full power and authority
to enter into and perform this Agreement, and the person signing this
Agreement on behalf of it has been properly authorized and empowered
to enter into this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective
the day and year first above written,
AM COMMUNICATIONS, INC, NETWORK SYSTEMS &
TECHNOLOGIES (P) LTD.
Name /s/ Keith Schneck Name /s/ xxxxxxxxx
- ---------------------- ---------------------
Title President Title
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
AM Communications, Inc.:
We consent to incorporation by reference in the registration statements on Form
S-8 (No. 33-53822 and No. 33-81500) of AM Communications, Inc. of our report
dated June 30, 1999, relating to the balance sheet of AM Communications, Inc. as
of April 3, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the year ended April 3, 1999, which report is
included in the April 3, 1999 Annual Report on Form 10-KSB of AM Communications,
Inc.
Allentown, Pennsylvania
July 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-START> MAR-29-1998
<PERIOD-END> APR-03-1998
<CASH> 24,000
<SECURITIES> 0
<RECEIVABLES> 1,489,000
<ALLOWANCES> 221,000
<INVENTORY> 1,218,000
<CURRENT-ASSETS> 2,816,000
<PP&E> 4,397,000
<DEPRECIATION> 4,001,000
<TOTAL-ASSETS> 3,228,000
<CURRENT-LIABILITIES> 2,745,000
<BONDS> 0
2,583,000
0
<COMMON> 3,107,000
<OTHER-SE> 31,981,000
<TOTAL-LIABILITY-AND-EQUITY> 3,228,000
<SALES> 9,069,000
<TOTAL-REVENUES> 9,069,000
<CGS> 5,587,000
<TOTAL-COSTS> 12,495,000
<OTHER-EXPENSES> (7,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,000
<INCOME-PRETAX> (3,452,000)
<INCOME-TAX> 28,000
<INCOME-CONTINUING> (3,480,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,480,000)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
