Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LOGIMETRICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 3663 II-217170
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
50 Orville Drive, Bohemia, New York 11716
(516) 784-4110
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Norman M. Phipps, President
LogiMetrics, Inc.
50 Orville Drive, Bohemia, New York 11716
(516) 784-4110
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
John D. Hogoboom, Esq.
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
(973) 597-2500
Approximate date of commencement of proposed sale to the public: From time
to time after the Registration Statement becomes effective as determined by the
Selling Securityholders.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. |_|
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<CAPTION>
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Securities to be Price Offering Registration
to be Registered Registered Per Unit Price Fee
- --------------------- --------------- -------------- ------------------ --------------
- --------------------- --------------- -------------- ------------------ --------------
Common Stock, $.01 par value 62,477,446 (1) $0.72 (2) $44,983,761 $15,512
Series A 12% Cumulative Convertible
Redeemable Preferred Stock 30 $50,000 (2) $ 1,500,000 $518
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Amended and Restated Common
Stock Purchase Warrants - Series A 600,000 $0.25 (3) $ 150,000 (4)
Amended and Restated Common Stock
Purchase Warrants - Series B 1,500,000 $0.25 (3) $ 375,000 (4)
Common Stock Purchase
Warrants - Series C 2,542,380 $0.01 (3) $25,424 (4)
Common Stock Purchase
Warrants - Series D 1,933,970 $0.01 (3) $19,340 (4)
Common Stock Purchase
Warrants - Series E 1,000,000 $0.40 (3) $400,000 (4)
Common Stock Purchase
Warrants - Series F 667,040 $0.50 (3) $333,520 (4)
Common Stock Purchase
Warrants - Series G 9,350,000 $0.50 (3) $4,675,000 (4)
Common Stock Purchase
Warrants - Series H 1,433,333 $0.60 (3) $860,000 (4)
Common Stock Purchase
Warrants - Series I 716,667 $1.125 (3) $806,251 (4)
Total: $16,030
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(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
Registration Statement also covers such additional shares of Common Stock
as may be issuable pursuant to certain anti-dilution adjustments.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, on
the basis of the average of the bid and asked prices for a share of Common
Stock as reported on the OTC Bulletin Board on April 27, 1998.
(3) Calculated pursuant to Rule 457(g)(1).
(4) Pursuant to Rule 457(g) under the Securities Act of 1933, as amended, no
separate registration fee is required to be paid with respect to the
Warrants registered hereby.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 30, 1998
PROSPECTUS
LOGIMETRICS, INC.
62,477,446 Shares of Common Stock
Amended and Restated Common Stock Purchase Warrants - Series A
Amended and Restated Common Stock Purchase Warrants - Series B
Common Stock Purchase Warrants - Series C
Common Stock Purchase Warrants - Series D
Common Stock Purchase Warrants - Series E
Common Stock Purchase Warrants - Series F
Common Stock Purchase Warrants - Series G
Common Stock Purchase Warrants - Series H
Common Stock Purchase Warrants - Series I
28 Shares of Series A 12% Cumulative Convertible Redeemable Preferred Stock
This Prospectus relates to (i) 62,477,446 shares of common stock, par value
$.01 per share ("Common Stock"), of LogiMetrics, Inc. (the "Company"), (ii)
Amended and Restated Common Stock Purchase Warrants - Series A ("Series A
Warrants"), (iii) Amended and Restated Common Stock Purchase Warrants - Series B
("Series B Warrants"), (iv) Common Stock Purchase Warrants - Series C ("Series C
Warrants"), (v) Common Stock Purchase Warrants - Series D ("Series D Warrants"),
(vi) Common Stock Purchase Warrants - Series E ("Series E Warrants"), (vii)
Common Stock Purchase Warrants - Series F ("Series F Warrants"), (viii) Common
Stock Purchase Warrants - Series G ("Series G Warrants"), (ix) Common Stock
Purchase Warrants - Series H ("Series H Warrants"), (x) Common Stock Purchase
Warrants - Series I ("Series I Warrants") (collectively, the "Warrants"), and
(xi) 28 shares of Series A 12% Cumulative Convertible Redeemable Preferred
Stock, stated value $50,000 per share (the "Series A Preferred Stock and,
together with the Common Stock and the Warrants, the "Securities"). Certain of
the Securities are to be offered and sold from time to time for the accounts of
the selling securityholders set forth herein (the "Selling Securityholders").
Included in the Securities are certain Optional Securities (as defined below)
which may be offered and sold by the Selling Securityholders in the event they
are acquired from the Company. In addition, this Registration Statement covers
an aggregate of 19,743,390 shares of Common Stock which may be offered and sold
from time to time by the Company upon exercise of the Warrants by the holders
thereof, including Warrants included in the Optional Securities.
Certain of the Securities being offered hereby are being registered at the
Company's expense pursuant to contractual obligations of the Company incurred in
connection with private placements under Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"). Such private placements involved the
sale by the Company to the Selling Securityholders of an aggregate of (i)
22,061,973 shares of Common Stock; (ii) $2,750,000 in aggregate principal amount
of the Company's Class A 13% Senior Subordinated Convertible Pay-in-Kind
Debentures due July 29, 1999 (the "Class A Debentures"), which are convertible
into an aggregate of 6,600,000 shares of Common Stock, (iii) $1,500,000 in
principal amount of the Company's Amended and Restated Class B 13% Senior
Subordinated Convertible Pay-in-Kind Debentures due July 29, 1999 (the "Class B
Debentures" and together with the Class A Debentures, the "Debentures"), which
are convertible into an aggregate of 2,542,380 shares of Common Stock, (iv)
$300,000 in aggregate principal amount of the Company's Amended and Restated 12%
Convertible Subordinated Debentures which have been converted into an aggregate
of 1,200,000 shares of Common Stock, (v) 30 shares of the Company's Series A
Preferred Stock, which were convertible into an aggregate of 2,830,200 shares of
Common Stock, (vi) Series A Warrants to purchase an aggregate of 600,000 shares
of Common Stock at an exercise price of $0.25 per share (subject to adjustment
in certain circumstances), (vii) Series B Warrants to purchase an aggregate of
1,500,000 shares of Common Stock at an exercise price of $0.25 per share
(subject to adjustment in certain circumstances), (viii) Series C Warrants to
purchase an aggregate of 2,542,380 shares of Common Stock at an exercise price
of $.01
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per share (subject to adjustment in certain circumstances), (ix) Series D
Warrants to purchase an aggregate of 2,830,200 shares of Common Stock at an
exercise price of $0.01 per share (subject to adjustment in certain
circumstances), (x) Series E Warrants to purchase an aggregate of 1,000,000
shares of Common Stock at an exercise price of $0.40 per share (subject to
adjustment in certain circumstances), (xi) Series F Warrants to purchase an
aggregate of 667,040 shares of Common Stock at an exercise price of $0.50 per
share (subject to adjustment in certain circumstances), (xii) Series G Warrants
to purchase an aggregate of 7,350,000 shares of Common Stock at an exercise
price of $0.50 per share (subject to adjustment in certain circumstances),
(xiii) Series H Warrants to purchase an aggregate of 1,100,000 shares of Common
Stock at an exercise price of $0.60 per share (subject to adjustment in certain
circumstances), and (xiv) Series I Warrants to purchase an aggregate of 550,000
shares of Common Stock at an exercise price of $1.125 per share (subject to
adjustment in certain circumstances). In addition, the Securities covered hereby
include up to 678,333 shares of Common Stock issuable upon the exercise of
options previously granted by the Company to certain former directors, officers
or consultants to the Company (the "Options"). The Options have a weighted
average exercise price of $0.42 per share (subject to adjustment in certain
circumstances).
This Registration Statement also covers the offer and sale by the Selling
Securityholders from time to time of the Optional Securities (as defined below).
Such Optional Securities consist of (i) up to 2,000,000 shares of Common Stock
issuable upon the conversion of Class A Debentures which the Selling
Securityholders have the right to acquire on or before July 29, 1998 (the
"Optional Class A Debentures"), (ii) up to 2,000,000 shares of Common Stock
issuable upon the exercise of additional Series G Warrants which the Selling
Securityholders have the right to acquire on or before July 29, 1998 (the
"Optional Series G Warrants"), (iii) up to 333,333 shares of Common Stock
issuable upon the exercise of additional Series H Warrants which the Selling
Securityholders have the right to acquire on or before July 29, 1998 (the
"Optional Series H Warrants"), and (iv) up to 166,667 shares of Common Stock
issuable upon the exercise of additional Series I Warrants which the Selling
Securityholders have the right to acquire on or before July 29, 1998 (the
"Optional Series I Warrants and, together with the Optional Series G Warrants
and the Optional Series H Warrants, the "Optional Warrants") (collectively, the
"Optional Securities").
The Securities to be offered and sold pursuant to this Registration
Statement also covers the offer and sale by the Selling Securityholders of (i)
up to 2,968,542 shares of Common Stock which may be issuable upon conversion of
additional Class A Debentures issuable in lieu of cash interest payable on the
Class A Debentures and the Optional Class A Debentures, and (ii) up to 956,398
shares of Common Stock which may be issuable upon conversion of additional Class
B Debentures issuable in lieu of cash interest payable on the Class B
Debentures. See "Selling Securityholders."
The Company will not receive any of the proceeds from the sale of the
Securities by the Selling Securityholders. All of the proceeds from the sale of
the Securities will be paid directly to the Selling Securityholders. The Company
will receive the exercise price with respect to the exercise of any Warrants or
Options exercised by the holders thereof, estimated to be approximately $7.9
million, if all of such Warrants and Options are exercised. The Company
estimates that its expenses in connection with the offering of the Securities
registered hereby (the "Offering") will be approximately $100,000.
The Selling Securityholders may sell the Securities registered hereby to or
through underwriters, and also may sell the Securities directly to other
purchasers or through agents from time to time in private transactions, in the
over-the-counter market or otherwise. See "Plan of Distribution."
The Common Stock is traded in the over-the-counter market under the symbol
LGMTA. On April 27, 1998, the average of the bid and asked prices for the Common
Stock as reported on the OTC Bulletin Board was $0.72 per share. There is no
established trading market for any of the other Securities.
SEE "RISK FACTORS" ON PAGE 3 FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED
BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
<PAGE>
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is April , 1998
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form SB-2 under
the Securities Act with respect to the Securities offered hereby. This
Prospectus, which constitutes part of the Registration Statement, omits certain
of the information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. Statements contained in
this Prospectus as to the content of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by such
reference. The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Seven World
Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained from the
public reference section of the Commission at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates, or from the
Commission's Internet web site at http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements examined by its independent
certified public accountants and intends to make available to such stockholders
quarterly reports containing unaudited consolidated financial information for
the first three quarters of each fiscal year.
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FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Such statements include, but are not
limited to, the anticipated development and growth of the markets for the
Company's products, the anticipated growth in the demand for the Company's
products, the Company's opportunities to increase sales through, among other
things, the development of new markets for the Company's products, the
development of new products, the probability of the Company's success in the
sale of its products in current or future markets, the potential effect of
government regulations, the Company's liquidity and capital requirements and the
Company's need for additional working capital.
Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Future events and actual results, financial and
otherwise, could differ materially from those set forth in or contemplated by
the forward-looking statements contained herein. Important factors that could
contribute to such differences are set forth below under "Risk Factors."
RISK FACTORS
The Securities offered hereby involve a high degree of risk. In addition to
the other information contained in this Prospectus, the following risk factors
should be considered carefully in evaluating the Company, its business and an
investment in the Securities offered hereby.
History of Losses; Cash Constraints; Ability to Continue as a Going Concern
The Company sustained net losses of $2.5 million and $4.9 million for the
fiscal years ended June 30, 1997 and 1996, respectively, and had an accumulated
deficit of $8.1 million at December 31, 1997. In addition, the Company had
$212,000 in cash flow from operations during the fiscal year ended June 30, 1997
and used $2.1 million of cash in operations during the fiscal year ended June
30, 1996, as a result of the Company's net losses and the need for working
capital. During the six-month period ended December 31, 1997, the Company used
$248,000 of cash in its operations. At December 31, 1997, the Company had cash
and cash equivalents of approximately $2.8 million. The Company's history of
losses and its failure to generate positive operating cash flow or to maintain
other sources of working capital have resulted in significant cash shortages
from time to time. As a result of such cash constraints, the Company has sought
to reduce operating expenses by, among other things, laying off employees and
consolidating its New York facilities. In addition, the Company has sought
extended payment terms from its vendors and has significantly curtailed its
product development and marketing activities.
As a result of the Company's history of losses and its significant cash
flow shortages, in connection with its audit of the Company's fiscal 1997
financial statements, Deloitte & Touche LLP, the Company's independent auditors,
issued an opinion that expressed substantial doubt about the Company's ability
to continue as a going concern.
There can be no assurance that the Company will ultimately be able to
achieve or sustain profitable operations. Accordingly, no assurance can be given
that the Company will not suffer additional cash shortages in future periods. If
the Company is unable to generate sufficient cash from its operations or other
sources, the Company may not be able to achieve its growth objectives, may have
to curtail further its marketing and development activities and may be unable to
operate as a going concern.
Risks Related to Change in Business Focus
Since March 1996, the Company has sought to direct its business away from
defense applications and toward emerging commercial opportunities. See
"Dependence on LMDS Market." As a result of this change in business strategy,
the Company has sustained significant losses as the Company has written off
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obsolete inventory, redirected its marketing efforts, contracted its business
operations, and shifted management focus to these commercial markets. In
connection with this change in strategic focus, the Company also has installed a
new senior management team. The Company's current senior management has only
limited experience in the markets the Company is seeking to exploit. There can
be no assurance that the Company will be able to implement successfully its new
strategic and operational objectives or that the attainment of those objectives
will result in the Company's achieving or sustaining a profitable level of
operations. The Company's failure to achieve its strategic and operational
objectives could have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on and Effects of Government Regulation
Growth in the Company's business is substantially dependent upon government
regulations implementing local multipoint distribution services ("LMDS") in the
US and other countries. Recently, the Federal Communications Commission ("FCC")
conducted an auction to award two licenses to provide LMDS services in each of
the 493 basic trading areas ("BTAs") in the United States. Of the 986 available
license, 864 were awarded as a result of the auction. The remaining 122
licenses, mostly in small and/or rural markets, went unclaimed and may be
re-auctioned in the future by the FCC. See "Business--Government Regulation." In
addition, several foreign countries, including Canada, the Philippines, Thailand
and the Republic of Korea, have reserved spectrum for the provision of services
substantially similar to LMDS and the Company expects other countries will do so
in the near future. However, no assurance can be given that, as a result of
either the FCC auction described above or other governmental action, a market
for LMDS equipment will develop, or as to the ultimate size of any market that
does develop. Further, there can be no assurance as to the timing of any market
that does develop of that any market that does develop will be sustained.
The FCC's current LMDS rules specify that LMDS licensees may take up to 10
years from the grant of their authorization to provide "substantial service" to
subscribers. Accordingly, there can be no assurance that winning bidders in the
FCC auction will purchase LMDS equipment, such as the Company's transmitters,
promptly following completion of the auction. The failure of winning bidders to
promptly purchase LMDS equipment from the Company could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Overview" and "--Government Regulation."
Dependence on LMDS Market
The Company believes that many of the existing markets for the Company's
TWTAs, other high-power amplifiers and related products are mature. Accordingly,
the Company anticipates that a significant portion of the future growth in its
business will come from the sale of equipment for use in the LMDS market and its
future profitability is substantially dependent on the Company's ability to
market such equipment successfully. There can be no assurance that new markets
for the Company's products will develop as and when the Company expects or that
the Company will be able to capitalize on such market development. Similarly,
there can be no assurance that any markets that do develop will be sustained.
See "Dependence on and Effects of Government Regulation" and "Business--Sales
and Marketing."
Dependence on Large Orders; Customer Concentrations
In certain prior fiscal periods, the Company's revenues have principally
consisted, and the Company believes its revenues in future periods will consist,
of orders for equipment from a limited number of customers. During fiscal 1997,
approximately 54.0% of the Company's consolidated revenues came from sales of
transmitters and related equipment to CellularVision Telecommunications and
Technologies, L.P. ("CT&T") and its licensees. The Company anticipates that CT&T
and its licensees will account for a substantial percentage of the Company's
consolidated revenues during fiscal 1998. While the number and identity of the
Company's customers may vary from period to period, the Company is nevertheless
dependent upon large orders for a substantial portion of its revenues, and
expects to remain dependent on such orders for the foreseeable future. There can
be no assurance that the Company will obtain such orders on a consistent basis.
The Company's inability to obtain sufficient large orders
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or to expand its customer base could have a material adverse effect on the
Company's business, financial condition and results of operations.
Relationship with CT&T
CT&T is a private entity formed for the purpose of developing and licensing
certain technology for use in the LMDS market. As such, CT&T is subject to all
of the uncertainties and risks inherent in a start-up business pursuing an
emerging market opportunity. There can be no assurance that CT&T will
successfully implement its business and operating strategies.
For the year ended June 30, 1997, approximately 54.0% of the Company's
consolidated revenues resulted from sales to CT&T. In addition, at December 31,
1997, approximately $600,000 of orders from CT&T were included in the Company's
backlog, representing approximately 11.7% of the total backlog as of that date.
At December 12, 1997, CT&T was indebted to the Company in the amount of
approximately $3.4 million, representing amounts due and owing as a result of
equipment purchased by CT&T and certain of its affiliates. While approximately
$3.0 million of the amounts due from CT&T have been paid by its affiliate,
CellularVision of New York, L.P. ("CVNY"), the Company continues to be exposed
to credit risk relating to CT&T.
CT&T has obtained a patent in the United States (the "LMDS Patent") which
purports to cover the system architecture and transmission methods for LMDS
service. In addition, CT&T has filed applications in a number of foreign
countries for the issuance of foreign patents substantially similar to the LMDS
Patent.
The design and development of the initial LMDS transmitter sold by the
Company's subsidiary, mmTech, Inc. ("mmTech"), was undertaken pursuant to an
agreement with CT&T. Under that agreement, CT&T retained ownership of all
intellectual property created during such development phase, including the
design of the transmitters sold to CT&T pursuant to that agreement. Pursuant to
the terms of that agreement, mmTech has agreed to sell transmitters utilizing
such intellectual property or otherwise intended to implement or imitate the
CT&T transmission system only to CT&T, its licensees and third parties approved
by CT&T. mmTech is required to pay CT&T a royalty of 2.5% of its gross sales
from the sale of such transmitters. mmTech is currently seeking to amend the
terms of the agreement, which has no fixed term, to allow mmTech to sell
transmitters to purchasers without restriction. However, there can be no
assurance that CT&T will agree to amend the agreement or as to the terms of any
such amendment.
The LMDS Patent, its foreign counterparts and any other patents issued to
CT&T covering the LMDS market may have the effect of significantly limiting the
markets for the Company's LMDS equipment to those entities which have obtained
appropriate licenses from CT&T. In addition, if CT&T does not agree to amend the
terms of the agreement described above, mmTech may not sell transmitters of the
type developed pursuant to the CT&T agreement to entities that do not obtain a
license from CT&T without CT&T's consent, even if such entities could provide
LMDS service without violating the LMDS Patent or other intellectual property
rights of CT&T. There can be no assurance that potential customers of the
Company will choose to obtain the required licenses from CT&T or that licenses
will be available from CT&T on terms which are acceptable to potential
customers.
Dependence on Sales of Securities; Need for Additional Financing
Because of the Company's history of losses, the Company has not generated
sufficient cash to meet all of the Company's working capital requirements. As a
result, the Company has been dependent on private sales of its debt and equity
securities to finance its working capital requirements. To the extent that the
Company is unable to meet its working capital requirements by generating
positive cash flow from operations, the Company intends to continue to fund a
portion of its working capital requirements through the
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public or private sale of its securities. There can be no assurance that the
Company can continue to finance its operations through the sale of securities or
as to the terms of any such sales that may occur in the future. The sale by the
Company of Common Stock or securities exercisable for, convertible into or
exchangeable for, shares of Common Stock could result in substantial dilution to
purchasers of the Securities offered hereby. Further, the terms of any debt
financing may contain restrictive covenants that significantly restrict the
Company's ability to take certain actions. If the Company is unable to generate
sufficient cash from its operations or other sources, the Company may not be
able to achieve its growth objectives, may have to curtail further its marketing
and development activities and may be unable to operate as a going concern. See
"History of Losses; Cash Constraints; Ability to Continue as a Going Concern."
Consequences of Technological Change
The markets in which the Company intends to compete are characterized by
rapid and significant technological change. The ability of the Company to
compete successfully in such markets will depend, in large part, on its ability
to develop or obtain advanced technologies, maintain a technically competent
staff, and to adapt to future technological changes and advances. There can be
no assurance that the Company will be able to keep pace with the technological
demands of the marketplace. In the event that the Company is unable to keep pace
with the technological demands of the marketplace, the Company's business,
results of operations, and financial condition would be materially and adversely
affected. See "Business--Product Development."
Dependence on New Product Development; Technological Advancement
The Company's success is dependent upon its ability to continue to enhance
its existing products and to develop and introduce in a timely manner new
products that incorporate technological advances, keep pace with evolving
industry standards and respond to changing customer requirements. As a result of
the Company's history of losses and resulting cash constraints, the Company has
been unable to devote significant resources to the development of new products
or the enhancement of existing products. Accordingly, the Company may be at a
competitive disadvantage to other entities with greater resources than the
Company. If the Company is unable to develop and introduce new products or
enhancements in a timely manner in response to changing market conditions or
customer requirements, the Company's business, financial condition and results
of operations would be materially and adversely affected. See "Business--Sales
and Marketing" and "--Product Development."
In addition, from time to time the Company or its present or potential
competitors may introduce new products, capabilities or technologies that have
the potential to replace, shorten the life spans of, or render obsolete the
Company's existing products. There can be no assurance that the Company will be
successful in convincing potential customers that its products are superior to
such other systems or products, that new products with comparable or greater
performance and lower prices will not be introduced, or that, if such products
are introduced, customers will not delay or cancel existing or future orders for
the Company's products. Announcements of currently planned or other new products
may cause customers to delay their purchasing decisions in anticipation of such
products. See "Business--Competition." Such delays could have a material adverse
effect on the Company's business, financial condition and results of operations.
Limited Proprietary Technology
The Company has no comprehensive patent or similar exclusive intellectual
property rights covering its products, and certain technologies used by the
Company in its products are not proprietary to the Company and are available in
the public domain. Accordingly, present and potential competitors could
duplicate the performance of the Company's products without violating any of the
Company's intellectual property rights. In addition, certain intellectual
property developed by mmTech is owned by CT&T and mmTech's right to use such
intellectual property is limited by agreement with CT&T. See "Relationship with
CT&T" and "Business--Competition" and "--Patents, Trademarks and Proprietary
Rights."
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Fluctuations in Operating Results
The Company's past operating results have been, and its future operating
results will be, subject to fluctuations resulting from a number of factors,
including: the timing and size of orders from, and shipments to, major
customers; budgeting and purchasing cycles of its customers; delays in product
shipments caused by customer requirements or the inability of customers to
accept shipments; the timing of enhancements to the Company's products or new
products introduced by the Company or its competitors; changes in pricing
policies by the Company, its competitors or suppliers, including possible
decreases in average selling prices of the Company's products in response to
competitive pressures; the proportion of revenues derived from competitive bid
processes; the mix between sales to domestic and international customers; market
acceptance of enhanced versions of the Company's products; the availability and
cost of key components; the availability of manufacturing capacity; and
fluctuations in general economic conditions. The Company also may choose to
reduce prices or to increase spending in response to competition or to pursue
new market opportunities, all of which may have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
revenues in any period are derived from sales of equipment and are generally
recognized upon shipment. As a result, variations in the number of orders or the
timing of shipments may cause the Company's quarterly and annual operating
results to vary substantially. See "--Dependence on Large Orders; Customer
Concentrations" and "--Relationship with CT&T."
Competition
In the markets for TWTAs and other high-power amplifiers, the Company
competes with other entities, including Communications and Power Industries,
Inc., Amplifier Research Corp. and Xicom Technology, a number of which have
significantly greater financial, marketing and other resources than the Company.
In the emerging LMDS market, the Company expects that its competitors will
include Wytech, PCS Wireless, Inc. and certain major communications equipment
manufacturers, a number of which have significantly greater financial, marketing
and other resources than the Company. The Company believes that principal
competitive factors in its respective markets include performance capability,
reliability, size, weight and price. Until recently, the Company has not engaged
in significant product development activities in its high-power amplifier
business. Accordingly, the Company has not kept pace with its competitors in the
markets for TWTAs and other high-power amplifiers in reducing the size and
weight of its products. As a result, the Company may be at a competitive
disadvantage in the markets for those products. See "Business--Product
Development." There can be no assurance that the Company will be able to compete
successfully with its competitors or be able to compete with new market entrants
or in new markets that may develop. The failure of the Company to successfully
compete in its markets would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Competition."
International Business; Risk of Change in Foreign Regulations; Fluctuations in
Exchange Rates
The Company markets its products to customers outside of the U.S. and,
accordingly, is exposed to the risks of international business operations,
including unexpected changes in foreign and domestic regulatory requirements,
possible foreign currency controls, uncertain ability to protect and utilize its
intellectual property in foreign jurisdictions, currency exchange rate
fluctuations or devaluations, tariffs or other barriers, difficulties in
staffing and managing foreign operations, difficulties in obtaining and managing
vendors and distributors and potentially negative tax consequences.
International sales are subject to certain inherent risks including embargoes
and other trade barriers, maintaining an international sales distribution
network and collecting accounts receivable. The Company is also subject to risks
associated with regulations relating to the import and export of high technology
products. The Company cannot predict whether quotas, duties, taxes or other
charges or restrictions upon the importation or exportation of the Company's
products in the future will be implemented by the U.S. or any other country.
There can be no
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assurance that any of these factors will not have a material adverse effect on
the Company's business, financial condition and results of operations.
Fluctuations in currency exchange rates could adversely affect the
Company's profitability and could cause the Company's products to become
relatively more expensive to customers in a particular country, leading to fewer
sales or reduced selling prices in that country. As a result, the Company is
exposed to a certain degree of exchange rate risk. The Company generally does
not hedge its foreign exchange risk. There can be no assurance that the Company
will not experience material losses in the future as a result of currency
fluctuations or that any such losses will not have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
Dependence on Independent Representatives
The Company markets and sells its products, in part, through a network of
27 independent sales representatives located in the U.S., Asia and Europe. As a
result, a substantial portion of the Company's revenues are dependent upon the
sales efforts of those representatives. There can be no assurance that the
Company's representatives, certain of which operate relatively small businesses,
have the financial stability to assure their continuing presence in their
markets.
As a result of cash constraints caused by the Company's history of
operating losses, the Company has been unable to pay amounts due to its
representatives on a timely basis. As a result, certain representatives have
terminated their relationships with the Company or have reduced the level of
their support for the Company's products, which, in certain cases, has resulted
in lost revenues. There can be no assurance that future disruptions in the
Company's relationships with its independent representatives will not occur. Any
future disruption would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Sales
and Marketing."
Dependence on Limited Number of Suppliers
Certain key components used in the Company's products have been designed by
the Company to its specifications and are currently purchased from only one or a
limited number of suppliers. The Company currently does not have long-term
agreements with these suppliers. Moreover, in view of the high cost of many of
these components, the Company does not maintain significant inventories of some
necessary components. If the Company's suppliers were to experience financial,
operational, production or quality assurance difficulties, the supply of
components to the Company would be reduced or interrupted. In the event that a
supplier were to cease operations, discontinue production of a component or
withhold supply for any reason, the Company might be unable to acquire certain
components from alternative sources, to find alternative third-party
manufacturers or sub-assemblers, or to obtain sufficient quantities of certain
components, which could result in delays or interruptions in product shipments,
and could have a material adverse effect on the Company's business, financial
condition and results of operations.
As a result of cash constraints caused by the Company's history of
operating losses, the Company has been unable to pay amounts due to its
suppliers on a timely basis. As a result, certain suppliers have terminated
their relationships with the Company or have refused to provide trade credit to
the Company, which has resulted in supply disruptions from time to time that
have materially and adversely affected its business. There can be no assurance
that future supply disruptions will not occur. The Company's failure to maintain
adequate supplies of components would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Manufacturing and Assembly."
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Retention of and Dependence on Key Personnel
The Company's success will depend, in part, on its ability to retain the
services of its key personnel, including management and technical employees, who
are and will continue to be instrumental in the development and management of
the Company's business. Although the Company has entered into employment
agreements with its Chief Executive Officer and certain of its other senior
executives, the loss of the services of one or more of the Company's key
employees could have a material adverse effect on the Company.
Warranty Claims
The Company generally provides a one-year parts and labor warranty on its
products, although the Company generally provides a two-year warranty at an
additional cost to CT&T and its licensees, and from time to time, he Company has
provided extended warranties to other customers. The Company has from time to
time incurred significant costs relating to the replacement and repair of
equipment under warranty. There can be no assurance that such claims will not
increase as the Company's sales increase, or as a result of other factors.
Increased warranty claims could have a material adverse effect on the Company's
business, financial condition and results of operations.
Potential Product Liability Insurance Limits
The Company currently maintains product liability insurance in the amount
of $1 million per occurrence. The Company's insurance policy covers certain
claims and the cost of legal fees involved in the defense of such claims, which
are either covered under the policy or alleged in such a manner so as to invoke
the insurer's duty to defend the Company. The Company believes that, as it
distributes more products into the marketplace and expands its product lines,
its exposure to potential product liability claims and litigation may increase.
There can be no assurance that the Company's current level of insurance will be
sufficient to protect the business and assets of the Company from all claims,
nor can any assurance be given that the Company will be able to maintain its
existing coverage or obtain additional coverage at commercially reasonable
rates. Product liability losses in excess of insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Absence of Public Market for Securities; Potential Volatility of Stock Price
There is no public trading market for the Securities, other than the Common
Stock, and there can be no assurance that any trading market for the Securities
will be created and sustained. In addition, while the Common Stock trades
sporadically on the OTC Bulletin Board, there can be no assurance that an active
trading market in the Common Stock will be developed or, if developed, be
maintained. As a result, purchasers may have difficulty selling, or otherwise
disposing of, the Securities offered hereby. In addition, the market price of
the shares of Common Stock is likely to be highly volatile. Factors such as
fluctuation in the Company's operating results, announcements of technological
innovations or new products and services by the Company or its competitors,
developments in the Company's strategic partnerships and general market
conditions may have a significant effect on the market price of the Securities
offered hereby.
Effects of Warrants
Holders of the Warrants offered hereby will have the opportunity to profit
from a rise in the market price of the Common Stock without assuming the risk of
ownership of the shares of Common Stock issuable upon the exercise of such
Warrants, with a resulting dilution in the interests of the Company's
stockholders by reason of exercise of Warrants at a time when the exercise price
is less than the market price for the Common Stock. Further, the terms on which
the Company could obtain additional capital during the life of the Warrants may
be adversely affected. Holders of Warrants may be expected to
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exercise their Warrants at a time when the Company could, in all likelihood,
obtain any needed capital by an offering of Common Stock on terms more favorable
than those provided by the Warrants.
Non-Registration in Certain Jurisdictions of Shares Underlying the Warrants
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares are registered, qualified or
deemed to be exempt under the securities laws of the states of residence of the
exercising holders of the Warrants. Although the Company will use its best
efforts to have all of the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified prior to the exercise of any Warrants and to
maintain a current prospectus relating thereto until the expiration of the
Warrants, there is no assurance that it will be able to do so.
Purchasers of the Warrants offered hereby may purchase Warrants in the
after-market or may move to jurisdictions in which the shares underlying the
Warrants are not registered or qualified during the period that the Warrants are
exercisable. In this event, the Company would be unable to issue shares of
Common Stock to those persons desiring to exercise their Warrants unless and
until the shares could be qualified for sale in the jurisdictions in which such
purchasers reside, or exemptions exist in such jurisdictions from such
qualification. Warrant holders would have no choice but to attempt to sell the
Warrants or allow them to expire unexercised. See "Description of Warrants."
Shares Eligible For Future Sale
A substantial number of outstanding shares of Common Stock and shares of
Common Stock issuable upon the exercise or conversion of outstanding options,
warrants and convertible securities will become available for public resale upon
the effectiveness of the Registration Statement of which this Prospectus is a
part. The Company cannot predict the effect, if any, that sales of additional
shares of Common Stock or the availability of shares for future sale will have
on the market price of the Common Stock. Sales in the public market of
substantial amounts of Common Stock (including shares issued upon the exercise
or conversion of outstanding options, warrants and convertible securities), or
the perception that such sales might occur, could adversely affect prevailing
market prices for the Common Stock. Such sales also may make it more difficult
for the Company to sell equity securities or equity related securities in the
future at a time and price that the Company deems appropriate. See "Shares
Eligible For Future Sale."
Certain Charter Provisions
The Board of Directors of the Company is empowered to issue shares of
preferred stock without stockholder action. The existence of this "blank check"
preferred stock could render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, merger, proxy contest or
otherwise and may adversely affect the prevailing market price of the Common
Stock. The Company currently has no plans to issue additional shares of
preferred stock. In addition, Section 203 of the Delaware General Corporation
Law restricts certain persons from engaging in business combinations with the
Company. See "Description of Capital Stock."
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USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Securities offered hereby. All net proceeds from the sale of the Securities will
be paid directly to the Selling Securityholders. The Company will receive the
exercise price with respect to the exercise of any Warrants or Options exercised
by the holders thereof, estimated to be approximately $7.9 million, if all of
such Warrants and Options are exercised, including the Optional Warrants. The
net proceeds, if any, from the exercise of the Warrants and the Options will be
added to the Company's working capital and will be used for general corporate
purposes.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded in the over-the-counter market under the symbol
"LGMTA." There is no established trading market for any of the other Securities.
The following table sets forth, for the periods indicated, the high and low bid
quotations for the Common Stock as reported on the OTC Bulletin Board. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
High Low
Fiscal 1996
First quarter $1.375 $0.50
Second quarter 1.50 0.375
Third quarter 2.875 1.00
Fourth quarter 2.875 0.98
Fiscal 1997
First quarter $1.250 $0.50
Second quarter 1.00 0.375
Third quarter 1.00 0.4375
Fourth quarter 0.875 0.4375
Fiscal 1998
First quarter $1.375 $0.80
Second quarter 1.00 0.375
Third quarter 0.86 0.3125
Fourth quarter
(through April 23, 1998) 0.8125 0.5625
On April 27, 1998, the average of the bid and asked prices for the Common
Stock as reported on the OTC Bulletin Board was $0.72 per share. As of April 15,
1998, the Company had approximately 400 stockholders of record.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Board of Directors currently intends to retain future earnings to support
its business and does not anticipate paying dividends in the foreseeable future.
Payment of future dividends, if any, will be at the discretion of the Board of
Directors after taking into account various factors, including the Company's
financial condition, results of operations, current and anticipated cash needs
and plans for expansion. Substantially all of the Company's indebtedness
prevents the payment of dividends by the Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
On April 25, 1997, a wholly owned subsidiary of the Company merged into
mmTech, in a transaction accounted for as a pooling of interests. Accordingly,
the consolidated financial statements have been restated to include the accounts
of mmTech for all periods presented.
Six Months Ended December 31, 1997 Compared to Six Months Ended
December 31, 1996
Net Revenues. Net revenues for the six months ended December 31, 1997
increased $721,000, or 16%, to $5.3 million from $4.6 million for the comparable
period of 1996. The increase in revenues for the six months ended December 31,
1997 resulted primarily from increased sales of LMDS equipment. As described in
Note 5 to the Company's consolidated financial statements for the six months
ended December 31, 1997, during the quarter ended December 31, 1997, the Company
recognized approximately $3.0 million in revenues from the sale of LMDS
equipment to CT&T and certain of its affiliates. The increase in LMDS sales was
offset in part by a decline in sales of the Company's other products, primarily
as a result of delays in shipment of certain orders, which had the effect of
delaying the recognition of revenues into later periods. Sales of LMDS equipment
to CT&T are expected to be substantially lower for the remainder of fiscal 1998.
Cost of Revenues. Cost of revenues for the six months ended December 31,
1997 decreased $1.2 million, or 30%, to $2.8 million from $4.0 million for the
comparable period of 1996. As a percentage of net revenues, cost of revenues was
54% for the six months ended December 31, 1997, compared to 88% for the six
months ended December 31, 1996. The decline in cost of revenues primarily
resulted from certain production inefficiencies during the 1996 period, as well
as the completion of several large projects during the six months ended December
31,1996 which had significantly higher associated costs.
Selling, General and Administrative. Selling, general and administrative
expenses for the six months ended December 31, 1997 increased $590,000, or 35%,
to $2.3 million from $1.7 million for the comparable period of 1996, primarily
as a result of increased commission expense relating to the sale of certain LMDS
equipment and the recording of a $356,000 allowance for doubtful accounts
relating to amounts owed to the Company by CT&T. As a percentage of net
revenues, selling, general and administrative expenses increased to 43% of net
revenues for the six months ended December 31, 1997 from 37% for the comparable
period of 1996 primarily as a result of the reasons stated above.
Research and Development. Research and development expenses for the six
months ended December 31, 1997 decreased $168,000, or 42%, to $229,000 from
$397,000 for the comparable period of 1996 as a result of the Company's efforts
to streamline its operations and deploy its resources more efficiently.
For the reasons discussed above, the Company recorded an operating loss of
$55,000 for the six months ended December 31, 1997, compared to an operating
loss of $1.6 million for the comparable period in 1996.
Interest Expense. Interest expense for the six months ended December 31,
1997 increased $117,000, or 32%, to $478,000 from $361,000 for the comparable
period of 1996, primarily as a result of a higher level of average outstanding
indebtedness.
Income Taxes. During the six months ended December 31, 1997, the Company
had an income tax expense of $75,000, compared to an income tax expense of
$27,000 for the six months ended December 31, 1996. The Company and mmTech
currently file separate federal and state tax returns. The
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tax expense recorded in the six months ended December 31, 1997 relates to
pre-tax income generated by mmTech in that period.
During the six months ended December 31, 1997 and 1996, the Company accrued
dividends on its outstanding preferred stock of $101,000, and $110,000,
respectively.
For the reasons discussed above, the Company recorded a net loss
attributable to common stockholders for the six months ended December 31, 1997
of $708,000, compared to a net loss attributable to common stockholders of $2.1
million for the comparable period in 1996.
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
Net Revenues. For the fiscal year ended June 30, 1997, net revenues
increased by $2.5 million, or 28.1%, to $11.4 million from $8.9 million for the
fiscal year ended June 30, 1996, primarily due to increased sales of equipment
for the LMDS market. Net revenues from the sale of TWTAs and other high-power
amplifiers in the Company's traditional markets were approximately the same as
for the prior year.
Gross Profit. For the fiscal year ended June 30, 1997, gross profit
increased by $3.8 million to $2.8 million from a negative $1.0 million for the
fiscal year ended June 30, 1996. As a percentage of net revenues, gross profit
increased to 24.7% for the 1997 fiscal year from a negative 10.7% for the 1996
fiscal year. The improvement in gross profit was attributable to increased sales
of LMDS equipment, which typically have higher margins than the Company's other
products. In addition, gross profit for the 1996 fiscal year was adversely
affected as a result of a $1.4 million charge relating to the revaluation of the
Company's inventories.
Selling, General and Administrative. For the fiscal year ended June 30,
1997, selling, general and administrative expenses increased by $309,000, or
9.6%, to $3.5 million from $3.2 million for the fiscal year ended June 30, 1996.
As a percentage of net revenues, selling, general and administrative expenses
decreased to 30.9% in the 1997 fiscal year from 36.2% in the 1996 fiscal year.
Selling, general and administrative expenses increased as a result of higher
commission expenses resulting from increased sales, as well as higher
professional fees related to the mmTech merger and business development efforts.
The decrease in selling, general and administrative expenses as a percentage of
net revenues was primarily attributable to the spreading of expenses over a
higher revenue base and actions taken by management to conserve cash and
rationalize the Company's operations.
Research and Development. For the fiscal year ended June 30, 1997, research
and development expense increased by $19,000, or 3.0%, to $648,000 from $629,000
for the fiscal year ended June 30, 1996. Research and development expenses for
the fiscal year ended June 30, 1997 related to both new product development as
well as enhancements of the Company's existing LMDS product line.
Interest Expense. For the fiscal year ended June 30, 1997, interest expense
increased by $308,000, or 67.6%, to $764,000 from $456,000 for the fiscal year
ended June 30, 1996. Interest expense increased primarily as a result of
increased borrowings used to finance the Company's working capital needs, as
well as an increase in the average rate of interest resulting from the failure
of the Company to comply with certain registration covenants contained in
certain of the Company's debt instruments.
Income Taxes. In the fiscal year ended June 30, 1997, the Company had an
income tax expense of $380,000, compared to an income tax benefit of $299,000
for the fiscal year ended June 30, 1996. The Company and mmTech currently file
separate federal and state tax returns. The tax expense recorded in 1997 relates
to pre-tax income generated by mmTech.
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Financial Condition, Liquidity and Capital Resources
At December 31, 1997, the Company had cash and cash equivalents of $2.8
million. At such date, the Company had total current assets of $7.7 million and
total current liabilities of $7.6 million.
Net cash used for operating activities was $248,000 for the six months
ended December 31, 1997. Net cash provided by operating activities was $212,000
for the 1997 fiscal year, compared to cash used for operating activities of $2.1
million in fiscal 1996. Net cash used for operating activities during the six
months ended December 31, 1997 resulted primarily from a net loss of $608,000
and the repayment of $1.7 million in accounts payable, offset in part by a
$785,000 decrease in costs and estimated earnings in excess of billings or
uncompleted contracts, as well as decreases in inventory and accounts
receivable. Net cash provided by operating activities during fiscal 1997
resulted primarily from a significant increase in accounts payable and accrued
expenses as the Company sought to defer payments to suppliers to conserve cash,
offset in part by a higher level of inventory, and the Company's net loss of
$2.5 million. Net cash used in operating activities during fiscal 1996 resulted
primarily from the Company's net loss of $4.9 million, offset in part by an
increase in cash resulting from payments received under certain long-term
contracts, an increase in accounts payable and accrued expenses and a decrease
in accounts receivable as the Company continued its efforts to conserve cash.
Net cash used for investing activities was $76,000 for the six months ended
December 31, 1997, $159,000 for the 1997 fiscal year, and $139,000 for the 1996
fiscal year. Net cash used for investing activities in each period resulted from
the purchase of equipment to support the Company's operations.
Net cash provided by financing activities was $2.8 million for the six
months ended December 31, 1997, $46,000 for the 1997 fiscal year and $2.2
million for the 1996 fiscal year. Net cash provided by financing activities
during the six months ended December 31, 1997 resulted primarily from the
proceeds of certain debt and warrant issuances by the Company, offset in part by
the repayment of certain outstanding indebtedness as well as the repayment of
loans from a stockholder of the Company. Net cash provided by financing
activities during fiscal 1997 resulted primarily from the proceeds of certain
debt and warrant issuances by the Company, offset in part by the repayment of
certain outstanding indebtedness. Net cash provided by financing activities
during fiscal 1996 resulted primarily from increased borrowings, offset in part
by the repayment of certain outstanding indebtedness.
The Company's capital expenditures aggregated $76,000 and $159,000 for the
six-month period ended December 31, 1997 and the fiscal year ended December 31,
1997, respectively. Such expenditures consisted primarily of the acquisition of
equipment needed to support the Company's operations. The Company anticipates
that capital expenditures during fiscal 1998 will increase, in part as a result
of the Company's intent to modernize its management information systems.
Since January 1, 1996, the Company has raised approximately $6.1 million
from private sales of convertible debentures, convertible preferred stock and
warrants to fund a portion of its cash flow needs. To the extent that the
Company is unable to meet its working capital requirements by generating
positive cash flow from operations, the Company intends to continue to fund a
portion of its working capital requirements through the sale of its securities.
There can be no assurance that the Company can continue to finance its
operations through the sale of securities or as to the terms of any such sales
that may occur in the future. If the Company is unable to generate sufficient
cash flows from operations or other sources, the Company may not be able to
achieve its growth objectives, may have to curtail further its marketing,
development or operations, and may be unable to continue as a going concern.
The Company is a party to a Restated and Amended Term Loan Note, dated as
of April 25, 1997, and a Sixth Restated and Amended Revolving Credit Note, dated
as of April 25, 1997, pursuant to which North Fork Bank (the "Bank") has
provided the Company with a $640,000 term loan (the "Term Loan") which matures
December 31, 1998 and a revolving credit facility (the "Revolver") which matures
April 30, 1998, pursuant to which the Company is entitled to draw up to $2.2
million assuming sufficient eligible
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inventory and accounts receivable (the Term Loan and the Revolver are referred
to herein collectively as the "Facility"). Outstanding amounts under the
Facility bear interest at the rate of 2% per annum in excess of the Bank's prime
rate. At December 31, 1997, the Bank's prime rate was 8.5%. As of February 16,
1998, the Company was in violation of a covenant contained in the Facility
requiring the Company to deliver to the Bank financial statements for the fiscal
quarter ended December 31, 1997 (the "Reporting Requirement Covenant"). The Bank
has waived the Reporting Requirement Covenant default until April 30, 1998.
In addition to the Facility, at December 31, 1997 the Company had issued
and outstanding $2.8 million of its Class A Debentures, $1.5 million of its
Class B Debentures and $45,000 of its Senior Subordinated Notes (together with
the Class A Debentures and the Class B Debentures, the "Senior Subordinated
Indebtedness"), which contain financial covenants identical to those contained
in the Facility. Accordingly, as of February 16, 1998, the Company was in
default of the Reporting Requirement Covenant to the same extent as under the
Facility. The holders of the Senior Subordinated Indebtedness have waived the
Reporting Requirement Covenant default until April 30, 1998. Pursuant to the
terms of the Class A Debentures and the Class B Debentures, the Company is
required to file a registration statement covering, among other things, the
resale of the shares of Common Stock issuable upon the conversion of the Class A
Debentures and the Class B Debentures on or prior to October 27, 1997 and to
have the registration statement declared effective by the Securities and
Exchange Commission (the "SEC") on or prior to January 25, 1998. This
Registration Statement is being filed to satisfy these registration
requirements. Unless the Company complies with its registration obligations, the
interest rate on the Class A Debentures and the Class B Debentures will increase
(subject to a maximum interest rate of 17% per annum). The holders of the Class
A Debentures and the Class B Debentures have the right to declare all amounts
thereunder due and payable if the Registration Statement is not declared
effective by the SEC on or prior to April 25, 1998. The holders of the Class A
Debentures and the Class B Debentures have waived until April 30, 1998 any
default arising as a result of the Company's failure to file the required
registration statement, and have waived until June 30, 1998 any default arising
as a result of the Company's failure to have the required registration statement
declared effective by the SEC.
At December 12, 1997, CT&T was indebted to the Company in the amount of
approximately $3.4 million, representing amounts due and owing as a result of
equipment purchased by CT&T and certain of its affiliates. In December 1997,
CVNY, an affiliate of CT&T, entered into a letter agreement with the Company
pursuant to which CVNY agreed to pay on behalf of CT&T approximately $3.0
million of the amounts owed by CT&T. Under the terms of the letter agreement,
CVNY paid $350,000 to the Company, and delivered to the Company the CVNY Note in
the principal amount of approximately $2.6 million. In December 1997, CVNY paid
the Company $50,000 pursuant to the terms of the CVNY Note. On December 31,1997,
the Company sold the CVNY Note without recourse for approximately $2.4 million.
There can be no assurance that the Company will receive payment of the remaining
amounts owed to it by CT&T or as to the timing of any such payments that are
ultimately made. The Company and mmTech currently file separate federal and
state income tax returns.
As of June 30, 1997, the Company had an approximate $6.1 million net
operating loss carry forward available to be used to offset future income.
Inflation
Inflation was not a material factor in either the sales or the operating
expenses of the Company during the periods presented herein.
Recent Pronouncements of the Financial Accounting Standards Board
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128") which establishes standards for computing and presenting earnings per
share. SFAS 128 replaces the presentation of primary earnings
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per share and fully diluted earnings per share with basic earnings per share and
diluted earnings per share, respectively. Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted
earnings per share is computed similarly to fully diluted earnings per share.
The standard is effective for financial statements for periods ending after
December 15, 1997, with earlier application not permitted.
Because the Company incurred losses in both of the fiscal years ended June
30, 1997 and 1996, the reported losses per share would not have been affected by
using this new standard.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which requires disclosure of reportable operating segments and will be effective
for financial statements issued for fiscal years beginning after December 31,
1997. The Company will be reviewing this pronouncement to determine its
applicability to the Company, if any.
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. Certain computer
programs 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
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activity. Based on a recent internal assessment, the Company has determined that
the cost to modify its existing software and/or to convert to new software will
not be significant. However, if customers, suppliers or others with whom the
Company does business experience problems relating to the year 2000 issue, the
Company's business, financial condition or results of operation could be
materially adversely affected.
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BUSINESS
Overview
The Company manufactures and sells high-power amplifiers, including
traveling wave tube amplifiers ("TWTAs") and other peripheral transmission
equipment, used to transmit communication signals. The Company also manufactures
and sells instrumentation amplifiers for industrial, commercial and military
applications, either as stand-alone units or as part of electromagnetic test
systems used to measure the electromagnetic compatibility ("EMC") and
electromagnetic susceptibility ("EMS") of various equipment, including satellite
earth stations, wireless communication systems, automobiles and other
transportation equipment. These systems frequently incorporate multiple TWTAs.
The Company's customers include military and other governmental agencies,
manufacturers and testing laboratories. Customers using the Company's
amplifiers, systems and test systems in the communications area include CT&T,
the National Aeronautics and Space Administration, the European Space Agency,
Eaton Corporation and the NASA Lewis Research Center Jet Propulsion Laboratory,
and in the EMC/EMS area include General Motors Proving Ground, TRW, Inc.,
Lockheed Martin Corporation and Space Systems Loral.
The TWTAs sold by the Company are used for a variety of purposes,
including: LMDS and Very Small Aperture Terminal ("VSAT") transmitting devices,
EMC/EMS testing, microwave studies and general high-power component testing. In
addition, the Company sells complete specialty systems in response to specific
customer requests. These systems are typically designed to meet specific
customer needs and range from automated EMS testing systems to sophisticated
electronic ground-based or airborne electronic warfare equipment. These systems
typically incorporate one or more TWTAs and may also include software and
ancillary equipment.
Since March 1996, the Company has sought to redirect its business focus
away from defense applications and toward commercial opportunities. In
particular, the Company is now actively pursuing the sale of TWTAs, other
high-power amplifiers and peripheral equipment operating in the Ka band (26-40
GHz) for use in the emerging market for LMDS service and for new satellite
applications. See "Industry Overview."
In furtherance of this change in strategic focus, in April 1997, the
Company merged with mmTech, which designs, develops, manufactures and sells
telecommunications equipment for use in the LMDS market. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Overview." The Company's customers in the LMDS market presently consist of CT&T
and certain licensees of CT&T. See "Sales and Marketing."
The Company was founded in December 1968. The Company's headquarters are
located at 50 Orville Drive, Bohemia, New York 11716, and its telephone number
is (516) 784-4110.
Industry Overview
The Company believes that many of the existing markets for its TWTAs, other
high-power amplifiers and related products are mature. For instance, prior to
1995, a significant portion of the Company's business consisted of sales of
high-power electronic jamming systems and related products to the U.S. military
and foreign military organizations. However, in conjunction with the contraction
of the U.S. defense industry, the Company's military sales have declined.
Other traditional markets for the Company's TWTAs, other high-power
amplifiers and related products have historically been characterized by low
revenue growth. For instance, the Company sells equipment to manufacturers for
testing the sensitivity of various products to electromagnetic forces. In the
EMC/EMS market, the Company's products are generally used to flood an instrument
or piece of equipment with electromagnetic energy over a broad spectrum of
frequencies and to record the results of
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the test. The Company believes that this and other traditional markets for the
Company's products are growing at a rate of approximately 5% per year.
In response to the decline in the U.S. defense industry and the low growth
rates characterizing other existing markets for the Company's products, the
Company has sought new markets for its products, with particular emphasis on the
LMDS market and other broad band applications.
LMDS generically describes a proposed method of providing two-way broadband
services, such as video programming distribution, video teleconferencing,
wireless local loop telephony, high speed data transmission and Internet access.
On March 25, 1998, the FCC completed an auction to award licenses to provide
LMDS services in each of the 493 BTAs in the U.S. ("BTAs"), excluding the New
York Primary Metropolitan Statistical Area ("PMSA") where CellularVision of New
York, L.P. ("CVNY"), an affiliate of CT&T, has an existing license. One license
included 1,150 MHz of spectrum (the "Block A License"), consisting of
frequencies in the 27.5 GHz - 28.35 GHz, 29.1 GHz - 29.25 GHz and 31.075 GHz -
31.225 GHz bands. The second license included 150 MHz of spectrum (the "Block B
License"), consisting of frequencies in the 31.0 GHz. - 31.075 GHz and 31.225
GHz - 31.3 GHz bands. See "Government Regulation."
The Company believes that, as a result of the auction, a new segment of the
telecommunications industry will emerge, although no assurances can be given in
that regard. See "Risk Factors - Dependence on LMDS Market." As of April 25,
1998, CVNY was the only entity with a commercial license to provide LMDS
services that was operational. The Company has, through CT&T, supplied CVNY with
the transmitters and other equipment used by it in the New York market.
In addition to the LMDS market in the U.S., several foreign countries, such
as Canada, the Philippines, Thailand, Russia and the Republic of Korea, have
reserved spectrum for the provision of LMDS services. The Company has, through
CT&T, provided transmitters and other equipment to licensees of CT&T's
technology providing those services outside the United States. The Company
believes that, as a result of the FCC's auction of LMDS licenses, additional
countries will begin to authorize the provision of LMDS services. Due to these
developments, the Company believes that the LMDS market could experience
significant growth in the future, although no assurances can be given in that
regard. See "Risk Factors - Dependence and Effects of Government Regulations."
The Company's objective is to build on its experience as a supplier of LMDS
equipment to capitalize on the expected growth of this market. In addition, many
of the components used in the Company's LMDS equipment can be used for Ka-band
satellite communications.
LMDS Systems
The Company designs, develops, manufactures and sells transmitters,
repeaters, relays and other infrastructure equipment used to provide LMDS
service. LMDS services use signals transmitted at relatively high frequencies
(28 GHz) compared to other transmission methods. At higher frequency, signals
attenuate more quickly ("path loss") and can be adversely affected by rain
("rain fade").
As currently contemplated, LMDS service will be provided in a cellular
system to minimize the effects of the relatively short distances traveled by
high frequency signals (typically three miles or less) because of path loss and
rain fade. By utilizing a cellular system, and by employing certain techniques
to limit inter-cell interference, frequencies can be re-used from cell to cell,
thereby effectively covering a large area and maximizing the amount of bandwidth
available to carry video, voice or data transmissions.
Video, telephone services or data signals to be transmitted through an LMDS
system are received by the system from satellite transponders, terrestrial
microwave facilities and/or studios at a head-end. Signals are generally
processed at the head-end and are then sent to transmitters located in each
adjacent cell which, in turn, transmit the signals to subscribers within the
cell. Point-to-point relays, which are installed with the transmitter, are used
to transmit signals to remote cells. Because of the high
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frequency used by LMDS and the resulting attenuation of the signal, transmission
of the signal is generally by line of sight. Where topographical conditions,
such as mountains, tall buildings and heavy foliage, result in areas where the
original signal cannot readily be received, a repeater is used to capture and
re-transmit the signal to the shadowed area. Signals can be "repeated" in this
fashion several times without any noticeable loss of signal quality.
A small, narrow beam antenna is used by subscribers to receive signals, and
the Company's system utilizes a square, flat-panel antenna which is
approximately seven inches square for this purpose. As a result of the high
frequencies involved, this small antenna has the same gain as much larger
antennas typically used to receive broadcast television signals.
The Company's transmitters can transmit a wide variety of signals,
including, video, voice and data, without the need for significant modification
and it is possible to send different signals for different services from the
same transmitter. In addition, the system can be readily configured to transmit
either digital or analog signals, or a combination of the two.
Advantages of LMDS Service
The Company believes that LMDS service has several significant advantages
over other existing transmission techniques. The Company believes that the most
important advantages are the broad bandwidth made available for LMDS services,
and the lack of restrictions on the services that licensees will be allowed to
offer.
Under the FCC's rules, 1,300 MHz of bandwidth is available to LMDS
licensees in each BTA. Currently, transmission of an analog television signal
requires approximately 20 MHz per channel. Accordingly, approximately 50
channels could be transmitted simultaneously under a Block A License. With
digital transmission of television signals and using existing compression
technologies, over 200 channels could be transmitted simultaneously under a
Block A License. Similarly, a typical telephone call requires approximately 30
KHz of bandwidth. Under a Block A License, an LMDS service could handle over
33,000 simultaneous phone conversations. If certain currently available
compression techniques were used, that number could be increased to over
150,000.
The Company believes that LMDS operators could also offer wireless Internet
access to subscribers. For example, with a Block B License, LMDS operators may
provide one-way Internet service equivalent in speed to current ISDN service
(approximately 128 KB) to over 1,200 simultaneous users. CVNY has recently
commenced providing fast Internet access (48,000 KB) to subscribers in New York,
and the Company expects that other LMDS operators will offer similar Internet
access services in the future. The Company currently manufactures equipment used
for the provision of this Internet access service.
Unlike other spectrum grants, the LMDS service authorized by the FCC is not
limited to a specific use. Instead, the FCC will allow the marketplace to
determine the most valuable use of the spectrum. As a result, LMDS providers
will be able to use their licenses to provide a wide variety of one-way and
two-way services, such as video programming, telephony or data transmission,
either exclusively, or as a package of related services. The Company believes
that this broad service authorization will enhance the value of LMDS licenses
and will increase the potential uses of the spectrum grant.
The Company believes that LMDS will offer certain advantages over existing
transmission techniques. Those advantages include the following:
Low Cost Infrastructure. The Company believes that LMDS systems offer a low
cost, high quality and dependable broad band alternative to both franchised
cable systems and satellite systems, such as Direct Broadcast Satellite ("DBS")
and fiber optic systems. The Company believes that LMDS providers will be able
to offer substantially the same services at significantly lower prices than
franchised cable
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systems because LMDS providers will not require the extensive networks of cables
and amplifiers or the constant maintenance, repair and cost of upgrading system
architecture inherent in such systems. DBS systems have a lower cost per
household passed than will LMDS systems, but involve other expenses associated
with high-power direct broadcast satellites. In addition, subscribers are
required to pay monthly charges comparable to cable rates. By comparison,
subscribers to CVNY's video transmission service currently pay a one-time
installation fee of approximately $50 and monthly charges that are lower than
competing cable rates.
Higher Quality Picture. The Company's LMDS transmitter is capable of
delivering a generally superior picture quality as compared to the quality
generally characteristic of franchised cable or current Multichannel Multipoint
Distribution Service ("MMDS") systems. In a franchised cable system, each time a
television signal passes through an amplifier, some measure of noise is added
which results in a "grainier" picture. As a result, franchised cable picture
quality generally degrades significantly depending on the distance the signal
travels from the head-end to the subscriber. Current MMDS systems lack the FM or
digital video fidelity associated with the Company's system, and the Company
believes that these systems are also generally subject to perceptible
interference. The Company's LMDS transmitter, by contrast, has been designed to
deliver a video picture without perceptible interference under most conditions,
although the signals can be subject to temporary degradation as a result of
atmospheric conditions, such as rain fade.
Dependability. As compared to franchised cable systems, the Company
believes that LMDS systems provide a highly reliable signal because there are no
cables, amplifiers or processing and filtering equipment between the transmitter
which serves the subscriber and the subscriber's household to potentially break
or malfunction. Failure of any one of these components in the chain may
"black-out" large portions of a franchised cable system, and diagnosis and
repair efforts involve a network consisting of hundreds of miles of cable and
related relay equipment, in contrast to the subscriber/cell alignment which the
Company believes will be used by LMDS providers. In addition, the Company
believes that many LMDS providers will use fully redundant transmitter
installations, such as those currently employed by CVNY.
Compact Antenna. Unlike currently available MMDS systems, which require
rooftop mounted antennas of varying sizes up to three feet in diameter, or DBS
systems, which require an outdoor dish aimed directly at a stationary satellite,
the antennas used with the Company's system, in many cases, permit reception of
signals when mounted inside the subscriber's window, eliminating the need for
outdoor installations. The wireless nature of LMDS transmissions allow these
antennas, in many cases, to be used for delivery of LMDS services to apartment
buildings and office towers in urban areas without extensive in-building wiring.
This wiring is necessary not only in the case of franchised cable, but also with
wireless technologies such as MMDS, Satellite Master Antenna ("SMATV") service
and DBS, whose signals require a direct line-of-sight to the transmitter, and,
consequently, in densely populated urban environments, generally require rooftop
antenna installation in apartment or office buildings and internal wiring of the
building to deliver service to subscribers. However, an LMDS signal can be
received in the same manner as MMDS and SMATV signals and then transmitted to
subscribers within an apartment building or office building or other structure
through in-building cable.
Localized Programming and Advertising Options. Because of the cellular
nature of LMDS services, the Company believes that channel offerings can be
localized on a cell-by-cell basis, permitting, for example, channels targeted to
demographic or linguistic groups in particular neighborhoods, as well as
micro-marketing. In comparison, cable operators generally offer uniform
programming throughout a geographic service area, and DBS systems offer the same
programming on a nationwide basis and, to date, do not offer any local
programming.
Accurate, High-Speed Data Transmission. The Company's transmission
equipment has high signal-to-noise ratios and broad band width, enabling it to
transmit large volumes of data at least as
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accurately under normal operating conditions as fiber optic systems. This
capability should make LMDS services particularly well suited for high-speed,
broad band data transmission, including Internet access.
Mitigation of the Multipath Phenomenon. Multipath is a phenomenon in
broadcast transmission which results in the reception of multiple signals at the
receiver (literally on multiple transmission paths) which can severely degrade
the picture and audio quality or cause undesirable levels of errors in digital
systems. Multipath can be a severe drawback in systems such as VHF/UHF
television and currently available MMDS systems, which use AM modulation and
relatively broad beam width receive antennas. The Company's system, which
employs FM or digital modulation and narrow beam receive antennas, can reject
multipath degradation of the signal. Because of this advantage, the Company
believes that its transmitters will be relatively immune to picture "ghosting"
and other degradations that result from multipath.
Large Spectrum Grant and Efficient Spectrum Usage. As described above, the
FCC has set aside 1,300 MHz of spectrum for LMDS services, all or a significant
portion of which can be re-used from cell to cell. This large spectrum grant may
result in advantages over competing technologies, such as MMDS systems, which
typically have access to a maximum of 200 MHz of fragmented spectrum and use
frequencies only once in a metropolitan area. In other countries, an even
broader spectrum may be reserved for LMDS services. For instance, in Canada, 3
GHz of bandwidth has been allocated to the provision of LMDS services (which the
Canadian government calls Local Multi-point Communications Service, or "LMCS").
Sales and Marketing
The Company sells its TWTAs and other high-power amplifiers through a
direct sales organization from its facilities in New York and New Jersey. In
addition, the Company utilizes a network of independent sales representatives
located in the U.S., Asia and Europe. See "--Facilities." Sales prospects
generally are targeted by the Company or its independent sales representatives,
although the Company also responds to requests for proposals. Substantially all
of the Company's specialty systems are sold through competitive bidding after
receipt of a request for proposal.
Due to cash constraints caused by the Company's history of operating
losses, the Company has been unable to pay amounts due to its representatives on
a timely basis. As a result, certain representatives have terminated their
relationships with the Company or have reduced the level of their support for
the Company's products, which, in certain cases, has resulted in lost business
opportunities. There can be no assurance that future disruptions in the
Company's relationships with its independent representatives will not occur, or
as to the effects thereof. See "Risk Factors - Dependence on Independent
Representatives."
To date, the Company has not actively marketed its LMDS equipment. Pursuant
to an agreement with CT&T, mmTech is permitted to sell certain of its products
only to CT&T, licensees of CT&T's technology and third parties approved by CT&T.
Under that agreement, mmTech pays to CT&T a royalty equal to 2.5% of the gross
sales from such products. See "Patents, Trademarks and Proprietary Rights."
Under current arrangements between CT&T and its licensees, such as CVNY, CT&T
receives orders for transmitters and other equipment from its licensees and in
turn places orders with the Company and other suppliers for such equipment. CT&T
has publicly disclosed that it intends to alter its method of doing business
with its licensees to address certain potential conflict of interest issues
raised by its current procurement policies. As a result, the Company expects in
the future sales of transmitters and other LMDS equipment will be made directly
to such end users, although there can be no assurance this will be the case.
Upon request, the Company provides training at a customer's location to
teach operators how to use its equipment. The Company generally provides a
one-year parts and labor warranty on its equipment, although the Company
provides a two-year warranty at an additional cost to CT&T and its
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licensees, and from time to time, the Company has provided extended warranties
to other customers. During the fiscal year ended June 30, 1997, the Company
incurred warranty repair expenses of approximately $200,000. See "Risk Factors -
Warranty Claims." During the fiscal year ended June 30, 1997, CT&T and its
licensees accounted for approximately 54% of the Company's consolidated
revenues. The Company anticipates that CT&T and its licensees will account for a
substantial percentage of the Company's consolidated revenues during fiscal
1998. See "Risk Factors - Dependence on Large Orders; Customer Concentrations"
and "--Relationship with CT&T."
Backlog
The Company measures its backlog as orders for which contracts or purchase
orders have been signed, but that have not yet been shipped and for which
revenues have not yet been recognized. The Company includes in its backlog only
those customer orders that are scheduled for delivery within the next 18 months.
The Company typically ships its products within six months of receiving an
order. The Company had a backlog of $5.1 million, $5.8 million, $7.1 million and
$6.4 million at December 31, 1997, December 31, 1996, June 30, 1997 and June 30,
1996, respectively. Substantially all of the Company's backlog at December 31,
1997 is expected to be shipped during the current fiscal year. Any failure by
the Company to meet an agreed-upon schedule could lead to the cancellation of
the related order. All orders are subject to cancellation or delay by the
customer and, accordingly, there can be no assurance that such backlog will
eventually result in revenues.
Manufacturing and Assembly
The Company manufactures and assembles TWTAs and other high-power
amplifiers at its facility in Bohemia, New York, and LMDS transmitting equipment
and related components at its facility in Eatontown, New Jersey. The Company
assembles its products from components supplied to it by various suppliers and
parts manufactured internally. Once the products are assembled, they are "burned
in" and tested to assure their proper functioning. After successful completion
of this procedure, the products are shipped to customers.
Although many of the basic components used in the Company's products, such
as chipboards, resistors, capacitors and other similar components, are readily
available from a number of sources, the Company typically purchases such
components from single suppliers to take advantage of available volume
discounts. However, to assure an adequate supply of traveling wave tubes, a
critical component in many of the Company's products, the Company has
established multiple supply sources. A limited number of components and
sub-assemblies are manufactured for the Company pursuant to the Company's
proprietary specifications, but the Company does not believe it is dependent on
any single source for these items. The Company does not have any long-term
supply arrangements.
Due to cash constraints caused by the Company's history of operating
losses, the Company has been unable to pay amounts due to its suppliers on a
timely basis. As a result, certain suppliers have terminated their relationships
with the Company or have refused to extend trade credit to the Company, which
has resulted in supply disruptions from time to time that have materially and
adversely affected its business. There can be no assurance that the Company will
not experience future supply disruptions, or as to the effects thereof. See
"Risk Factors - Dependence on Limited Number of Suppliers."
Competition
In the markets for TWTAs and other high-power amplifiers, the Company
competes with other entities, including Communications and Power Industries,
Inc., Amplifier Research Corp. and Xicom Technology, a number of which have
significantly greater financial, marketing and other resources than the Company.
In the emerging LMDS market, the Company expects that its competitors will
include Wytech, PCS Wireless, Inc. and certain major communications equipment
manufacturers, a number of which have significantly greater financial, marketing
and other resources than the Company. The
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Company believes that principal competitive factors in its respective markets
include performance capability, reliability, size, weight and price. Until
recently, the Company has not engaged in significant product development
activities in its high-power amplifier business. Accordingly, the Company has
not kept pace with its competitors in the markets for TWTAs and other high-power
amplifiers in reducing the size and weight of its products. As a result, the
Company may be at a competitive disadvantage in the markets for those products.
See "Product Development." There can be no assurance that the Company will be
able to compete successfully with its competitors or be able to compete with new
market entrants or in new markets that may develop. See "Risk Factors -
Dependence on New Product Development; Technological Advancement" and
"--Competition."
Government Regulation
The Company's business is not subject to significant direct government
regulation. However, the Company believes that demand for its LMDS products will
be significantly affected by government regulation because customers for its
LMDS products will be required to obtain licenses from the FCC and governmental
agencies in other countries in order to provide LMDS services. A description of
the FCC's authorization of LMDS service is provided below.
The FCC has set aside a total of 1,300 MHz of spectrum for LMDS service in
the United States and certain of its territories: 850 MHz in the 27.5-28.35 GHz
band, 150 MHz in the 29.1-29.25 GHz band, and 300 MHz in the 31.0-31.3 MHz band.
The LMDS spectrum is licensed regionally on the basis of 493 BTAs throughout the
United States. Two licenses with ten-year terms ultimately will be awarded in
each BTA: one 1,150 MHz "Block A" license, and one 150 MHz "Block B" license.
The Block A license consists of 1,000 MHz located in the 28 GHz band (27.5-28.35
GHz and 29.1-29.25 GHz) and 150 MHz of spectrum in the middle of the 300 MHz of
spectrum in the 31 GHz band (31.075-31.225 GHz). The Block B license consists of
the two 75 MHz segments located at each end of the 300 MHz block (31.0-31.75 GHz
and 31.225-31.3 GHz). As discussed in "Business--Industry Overview," the FCC has
awarded 864 of the 986 available licenses through an auction which ended on
March 25, 1998.
The FCC has placed few restrictions on the use of the spectrum allocated to
LMDS. Significantly, LMDS licensees will have substantial discretion to develop
services in response to market demand. Potential uses of LMDS spectrum include
video broadcasting, local telephony, Internet access, and point-to-point
communications. LMDS licensees can choose to provide services on a common
carrier basis, a non-common carrier basis, or a combination of the two.
There are no restrictions on the number of licenses an entity may acquire.
Parties can acquire the Block A and Block B licenses in a BTA and combine the
two licenses to create a 1.3 GHz LMDS system.
LMDS licensees will receive exclusive licenses and will be protected from
interference in most of the 1,300 MHz of spectrum allocated for LMDS use.
However, LMDS operations in the 150 MHz of the Block A spectrum in the
29.1-29.25 GHz band will be on a co-primary basis with Mobile Satellite Service
("MSS") operations and will be restricted to hub-to-subscriber transmissions
because of FCC concerns about potential interference to MSS feeder links. Block
B LMDS licensees will also be co-primary with incumbent licensees in their band
and will be required to afford interference protection to those licensees.
However, the incumbent operations protected in the Block B 150 MHz licenses are
limited in scope: protection is to be afforded only to (i) 19 state and local
government agency licensees in six states whose operations are confined to
localized vehicular traffic management and control services and (ii) eight
private business licensees who use the spectrum solely for internal business
purposes.
In order to encourage competition in the video and telephony markets, the
FCC determined in its Second Report and Order in its LMDS proceeding (the
"Second Report and Order") to limit the right of local telephone companies
(known as "local exchange carriers" or "LECs") and cable television companies
(known as "multiple system operators" or "MSOs") to acquire Block A licenses in
their respective service regions. Under rules adopted in the Second Report and
Order, LECs and MSOs will be ineligible to
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acquire a 20% or greater ownership interest in a Block A license in their
service region for the three years following completion of the auction. LECs and
MSOs are considered "in-region" in a particular BTA if 10% of the BTA's
population is within the authorized service area of the LEC or MSO. There is no
restriction on LECs or MSOs acquiring Block B licenses within their respective
service areas or Block A licenses outside of their respective service areas.
The eligibility restrictions on LECs and MSOs with respect to in-region
Block A licenses may be extended beyond the initial three-year period if the FCC
determines that incumbent LECs and/or MSOs continue to have substantial market
power. Conversely, the FCC can waive the restriction on a case-by-case basis
during the initial three-year period if a LEC or MSO makes a showing to the FCC
that its particular market is sufficiently competitive and that it no longer
possesses substantial market power. As described below, certain LECs and MSOs
sought FCC reconsideration of the eligibility restrictions, and other parties
challenged those restrictions in court appeals of the relevant FCC decisions.
The Second Report and Order adopted a number of service and technical rules
governing operations by LMDS licensees. In particular, the FCC will allow LMDS
licensees up to ten years to provide "substantial service" to their respective
service areas. While it declined to define "substantial service" in the LMDS
context on a generic basis, the FCC did offer examples of service that would
qualify as "substantial." For an LMDS licensee offering video distribution
services, a demonstration of coverage of 20% of the population of its licensed
service area at the 10-year mark would constitute substantial service. For a
licensee offering point-to-point services, the construction of four links per
million people in its service area would be sufficient. In making its
determination as to whether a licensee is providing "substantial" service, the
FCC said that it may consider such factors as (i) whether the licensee is
offering a specialized or technologically sophisticated service that does not
require a high level of coverage to be of benefit to customers, and (ii) whether
the licensee's operations serve niche markets or focus on serving populations
outside of areas served by other licensees.
Because of the FCC's liberal service requirements, the Company cannot
predict when LMDS licensees will purchase the equipment necessary to provide
LMDS services. However, the Company believes that many of such LMDS licensees
may delay purchases of equipment for a significant period following the auction
or any re-auction. Accordingly, the Company does not expect that the completion
of the auction will have a material impact on the Company's business in the
short-term.
The FCC will allow licensees to disaggregate and partition their licenses.
Disaggregation refers to the assignment of a portion of the licensee's
authorized spectrum to another entity; partitioning refers to the assignment of
a portion of the licensee's geographic service area to another entity. The
Company believes that disaggregation and partitioning opportunities will
encourage the deployment of LMDS services, although no assurances can be given
in that regard. The FCC has asked for public comment on specific procedural,
administrative, and operational rules to implement LMDS disaggregation and
partitioning. However, as of April 25, 1998, the FCC had not issued any final
rules in that regard.
Various parties sought reconsideration and judicial review of certain
aspects of the FCC's Second Report and Order and other decisions concerning
LMDS. The issues raised include (i) LEC and MSO eligibility; (ii) the allocation
of spectrum in the 31 GHz band to LMDS and the reinstatement of numerous 31 GHz
applications that were previously dismissed by the FCC; (iii) further
reconsideration of the FCC's denial of 971 waiver applications to provide LMDS
service filed in the wake of the FCC's 1991 grant of the waiver application
filed by CVNY's predecessor-in-interest to authorize the provision of LMDS
service in New York City; (iv) clarifications of various technical and service
rules; and (v) the level of bidding credits for qualifying entities and other
auction rules. On February 3, 1998, the FCC adopted an order addressing the
petitions for reconsideration. The order "generally affirmed" the challenged
provisions of the FCC's LMDS rules. The order "generally denied" the petitions
filed by various LECs and MSOs seeking a change in the LMDS eligibility rules.
The order also generally upheld (i) the FCC's plan for allocation of LMDS
spectrum; (ii) the FCC's liberal LMDS construction requirements; and (iii) the
denial of the 971 waiver applications.
-24-
<PAGE>
On February 6, 1998, the United States Court of Appeals for the District of
Columbia Circuit released a decision denying various petitioners' challenges to
(i) the eligibility restrictions on LECs and MSOs; and (ii) the denial of the
971 waiver applications.
No assurance can be given regarding the effect of either the FCC's
reconsideration order or the Court's decision on the marketplace for LMDS
services as the FCC order is subject to court appeal and the Court's decision is
subject to further review by the Court or by the United States Supreme Court.
A number of countries, such as Canada, the Republic of Korea and the
Philippines, have authorized the provision of LMDS services or services
substantially similar thereto. The Company expects that other countries will
only authorize the provision of LMDS services pursuant to licensing or other
permitting processes.
Under the FCC's rules, the Company is required to obtain certification of
its LMDS equipment to the extent that the equipment is capable of emitting RF
energy. The certification process is designed to insure that there is no excess
RF radiation or other effects which could be inconsistent with other FCC rules
or the public interest. The Company has obtained such certification for all of
the equipment that it currently intends to market to LMDS licensees.
If and when the Company develops new equipment or encounters changes to the
FCC's rules, shifts in market demand, or technological developments, the Company
may have to develop new equipment which would require FCC certification. While
such certification can be routinely granted by the FCC in due course, any
inability of the Company to obtain such certification, or any delay in marketing
its equipment due to the delays occasioned by the certification process, could
have a material adverse effect on the Company's business.
Product Development
The Company incurred $229,000, $397,000, $648,000 and $629,000 of expenses
for the six-month periods ended December 31, 1997 and 1996 and the fiscal years
ended June 30, 1997 and 1996, respectively, related to research and development,
the development of new products and enhancement of the Company's existing
products. Until recently, the Company has not engaged in significant product
development activities in its high-power amplifier business. Accordingly, the
Company has not kept pace with its competitors in the markets for TWTA's and
other high-power amplifiers in reducing the size and weight of its products. As
a result, the Company may currently be at a competitive disadvantage in the
markets for those products.
The Company is currently developing a new power supply system for its TWTAs
and other high-power amplifiers. If development of the new power supply system
is successfully completed, the Company believes that it will be able to reduce
substantially the size and weight of its TWTAs and other high-power amplifiers.
There can be no assurance that the Company will successfully complete the
development of the new power supply system, or as to the timing thereof. In
addition, there can be no assurance that any products incorporating the new
power supply system would, if successfully developed, achieve market acceptance
or a significant level of sales. See "Risk Factors - Dependence on New Product
Development; Technological Advancement."
Patents, Trademarks and Proprietary Rights
The Company does not own any patents or trademarks relating to its TWTAs or
other high-power amplifiers. The basic technology used in the design and
manufacture of those products is not proprietary to the Company and is available
in the public domain, however the Company believes that the know-how it has
developed with respect to such products is proprietary and cannot be readily
duplicated by its competitors.
-25-
<PAGE>
In connection with its development of LMDS technology, CT&T has obtained a
patent in the United States (the "LMDS Patent") which purports to cover the
system architecture and transmission methods for LMDS service. In addition, CT&T
has filed applications in a number of foreign countries for the issuance of
foreign patents substantially similar to the LMDS Patent.
The design and development of the initial LMDS transmitter sold by mmTech
was undertaken pursuant to an agreement with CT&T. Under that agreement, CT&T
retained ownership of all intellectual property created during such development
phase, including the design of the transmitters sold to CT&T pursuant to that
agreement. Pursuant to the terms of that agreement, mmTech has agreed to sell
transmitters utilizing such intellectual property or otherwise intended to
implement or imitate the CT&T transmission system only to CT&T, its licensees
and third parties approved by CT&T. mmTech is required to pay CT&T a royalty of
2.5% of its gross sales from the sale of such transmitters. mmTech is currently
seeking to amend the terms of the agreement, which has no fixed term, to allow
mmTech to sell transmitters to purchasers without restriction. However, there
can be no assurance that CT&T will agree to amend the agreement or as to the
terms of any such amendment.
The LMDS Patent, its foreign counterparts and any other patents issued to
CT&T covering the LMDS market may have the effect of significantly limiting the
markets for the Company's LMDS equipment to those entities which have obtained
appropriate licenses from CT&T. In addition, if CT&T does not agree to amend the
terms of the agreement described above, mmTech may not sell transmitters of the
type developed pursuant to the CT&T agreement to entities that do not obtain a
license from CT&T without CT&T's consent, even if such entities could provide
LMDS service without violating the LMDS Patent or other intellectual property
rights of CT&T. There can be no assurance that potential customers of the
Company will choose to obtain the required licenses from CT&T or that licenses
will be available from CT&T on terms which are acceptable to potential
customers. See "Risk Factors - Relationship with CT&T."
Facilities
The Company does not own any real property and currently conducts its
operations at the following leased premises:
<TABLE>
<CAPTION>
Approximate
Square Annual Lease
Location Description of Facility Footage Lease Cost Expiration
<S> <C> <C> <C> <C>
50 Orville Drive Corporate headquarters, 14,000 $130,000 7/31/04
Bohemia, New York manufacturing and assembly,
11716 sales and customer support
20 Meridian Way Research, manufacturing 11,500 $95,000 3/31/00
Eatontown, New Jersey and assembly, customer
07724 support and administrative
</TABLE>
The Company believes that its existing facilities will be sufficient to
meet the Company's needs for the foreseeable future.
Employees
As of April 1, 1998, the Company had 66 full-time and five part-time
employees, of whom 44 were engaged in manufacturing, ten were engaged in product
development activities and 17 were engaged in
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<PAGE>
sales, service and general administration. None of the Company's employees is
represented by a union, and the Company considers its relationships with its
employees to be satisfactory.
Litigation
The Company is not a party to any material legal proceedings.
-27-
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the Company's
executive officers and directors as of March 24, 1998.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Kenneth C. Thompson(1) 50 Chief Executive Officer and Director
Charles S. Brand(1) 58 Chairman of the Board and Chief Technology Officer
Frank A. Brand(2)(3) 73 Director
Jean-Francois Carreras(2)(3) 48 Director
Mark B. Fisher 38 Director
Francisco A. Garcia(2)(3) 46 Director
Erik S. Kruger 36 Vice President--Finance and Administration and
Secretary
Norman M. Phipps(1) 37 President, Chief Operating Officer and Director
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
</TABLE>
Kenneth C. Thompson. Mr. Thompson has been a director of the Company since
July 1997 and, since March 1998, has been the Company's Chief Executive Officer.
From April 1997 until March 1998, Mr. Thompson was a private investor and
consultant. Prior to April 1997, Mr. Thompson held several senior management
positions with Glenayre Electronics, Inc., including President of the Voice and
Data Technologies Group, Executive Vice President - Sales and Marketing and
Executive Vice President - Business Operations. Glenayre is a manufacturer of
infrastructure equipment for the paging and cellular industry.
Charles S. Brand. Mr. Brand has served as the Chairman of the Board and the
Chief Technology Officer since April 1997 and March 1998, respectively. From
April 1997 until March 1998, Mr. Brand also served as the Chief Executive
Officer of the Company. Since February 1994, Mr. Brand has been the President of
mmTech, which was acquired by the Company in April 1997. Prior to founding
mmTech, Mr. Brand was the founder and President of Trontech, Inc., a
manufacturer of wireless equipment for the cellular and PCS markets. Mr. Brand
has been involved in the development of LMDS systems and architecture for over
ten years. Mr. Brand is the nephew of Dr. Frank A. Brand.
Dr. Frank A. Brand. Dr. Brand has been a director of the Company since
April 1997. Since 1991, Dr. Brand has been a private investor and consultant.
Prior to his retirement in 1991, Dr. Brand held several senior management
positions with M/A-COM, Inc., a major manufacturer of telecommunications
products and systems, including Chief Technical Officer, Chief Operating Officer
and Acting Chief Executive Officer. Dr. Brand is a Life-Fellow of the Institute
of Electrical and Electronic Engineers, a Fellow of Polytechnic University and a
member of the Engineering Dean's Council at UCLA.
Jean-Francois Carreras. Mr. Carreras has been a director of the Company
since April 1997. Since October 1994, Mr. Carreras has been a partner in the
Paris law firm of Sokolow, Dunaud, Mercadier and Carreras. From October 1994 to
July 1995, Mr. Carreras was also a partner in the law firm of Arent, Fox,
Kintner, Plotkin & Kahn. Prior thereto, until October 1994, Mr. Carreras was a
partner in the law firm of Coudert Brothers. Mr. Carreras is a French citizen.
-28-
<PAGE>
Mark B. Fisher. Mr. Fisher has been a director of the Company since July
1997. Mr. Fisher is the President of MBF Capital Corporation, Inc. ("MBF"), a
firm that invests in and advises technology driven companies. From 1990 to 1996,
Mr. Fisher served as a principal of Alex. Brown & Sons, Inc. (now, BT Alex.
Brown).
Franciso A. Garcia. Mr. Garcia has been a director of the Company since
July 1997. From 1987 to December 1997, Mr. Garcia has served as Chairman of the
Board of Neptune Management Company, Inc., a manager of funds and accounts
investing in distressed securities, obligations and consumer receivables. Since
1991, Mr. Garcia has also served as President of Nethuns, Inc., a firm engaged
in financial advisory, consumer finance and investment activities. Mr. Garcia is
a Spanish citizen.
Erik S. Kruger. Mr. Kruger has been the Company's Vice President--Finance
and Administration and Secretary since February 1998. Prior thereto, from
February 1996 until February 1998, Mr. Kruger served as the Chief Financial
Officer of CVNY. From October 1990 until February 1996, Mr. Kruger was employed
by Coopers & Lybrand L.L.P.
Norman M. Phipps. Mr. Phipps has served as the President and Chief
Operating Officer of the Company since April 1997. From May 1996 to April 1997,
Mr. Phipps served as Chairman and Acting President of the Company. Mr. Phipps
served as a Principal of Phipps, Teman & Co. L.L.C. ("PTCO"), a private
investment firm, from August 1993 to March 1998. From January 1991 to August
1993, Mr. Phipps was Managing General Partner of CP Capital Partners, a private
investment firm. Mr. Phipps is a director of Avery Communications, Inc.
The Company currently does not regularly compensate directors for their
service to the Company. However, directors are reimbursed for out-of-pocket
expenses incurred in their capacity as directors of the Company.
Currently, Dr. Brand and Mr. Fisher provide consulting services to the
Company and receive or will receive certain fees and/or shares of the Company's
Common Stock in connection therewith. In addition, prior to his appointment as
the Company's Chief Executive Officer, Mr. Thompson also provided consulting
services to the Company and received certain fees and/or shares of the Company's
Common Stock in connection therewith. See "Employment Agreements and
Compensation Arrangements."
Pursuant to the terms of the Stock Compensation Program, each director who
has not been a full-time employee of the Company or any subsidiary for at least
the prior 12 months receives an option to purchase 5,000 shares of Common Stock
each year on the earlier of (i) the date of the Company's annual meeting of
stockholders, or (ii) June 1. Options granted to such directors under the Stock
Compensation Program have an exercise price equal to the fair market value of
the underlying shares of Common Stock on the date of grant. See "1997 Stock
Compensation Program."
Right to Designate Directors; Changes in Control
In connection with the March 1996 recapitalization of the Company (the
"Restructuring"), the Company and Cerberus Partners, L.P. ("Cerberus") entered
into a Unit Purchase Agreement, dated March 7, 1996 (the "Unit Purchase
Agreement"), pursuant to which the Company issued to Cerberus 30 Units (the
"Units"), each Unit consisting of $50,000 in aggregate principal amount of 12%
Convertible Senior Subordinated Debentures due December 31, 1998 (the "Senior
Subordinated Debentures") and a Series C Warrant to purchase 84,746 shares of
Common Stock. The Senior Subordinated Debentures were subsequently exchanged for
Class B Debentures in July 1997 in connection with the transactions described
below. Pursuant to the terms of the Unit Purchase Agreement, Cerberus currently
has the right to require the Company to increase the size of the Board of
Directors by one person and to designate a
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<PAGE>
person to fill the vacancy created by such increase. Cerberus has not exercised
its right to designate a director.
To assist the Company in effecting the Restructuring, the Company retained
PTCO and SFM Group, Ltd. ("SFM") pursuant to the terms of a consulting
agreement, dated December 20, 1995 (the "Consulting Agreement"). Pursuant to the
terms of the Consulting Agreement, among other things, Murray H. Feigenbaum, a
former President of the Company, and Jerome Deutsch, a former Executive Vice
President of the Company, granted irrevocable proxies to PTCO and SFM to vote
the shares of Common Stock owned by them at that time on certain matters,
including the election of directors (the "Voting Rights"). Under the terms of
the Consulting Agreement, PTCO had the right to elect three directors and SFM
had the right to elect two directors. Accordingly, since Mr. Feigenbaum and Mr.
Deutsch owned more than 50% of the Common Stock then outstanding, PTCO and SFM
were deemed to have acquired control of the Company at that time. In connection
with the acquisition of mmTech, PTCO and SFM irrevocably waived their rights
under the Consulting Agreement to appoint directors and to exercise the Voting
Rights. SFM is no longer in existence and its principals, which included Alfred
Mendelsohn and Lawrence I. Schneider, former directors of the Company, and Mark
B. Fisher, a director of the Company, have succeeded to its rights under the
Consulting Agreement and the proxy arrangements referenced above.
Pursuant to the terms of the Agreement and Plan of Merger, dated December
18, 1996, as amended (the "Merger Agreement"), among the Company, mmTech, a
wholly owned subsidiary of the Company ("Merger Sub"), and Charles S. Brand,
Merger Sub merged with and into mmTech (the "Merger") and mmTech became a wholly
owned subsidiary of the Company. Pursuant to the Merger, each outstanding share
of mmTech common stock was converted into 192,478 shares of Common Stock,
resulting in the issuance of a total of 19,247,800 shares of Common Stock to Mr.
Brand. Upon consummation of the Merger, Mr. Brand became the Chairman and Chief
Executive Officer of the Company and its largest stockholder. Accordingly, upon
consummation of the Merger, Mr. Brand acquired control of the Company. At that
time, Norman M. Phipps, previously the Chairman and Acting President of the
Company, became the President and Chief Operating Officer of the Company.
Following the Merger, the Company's Board of Directors was reconstituted to
consist of Mr. Brand, Dr. Frank A. Brand, Jean-Francois Carreras, Alfred
Mendelsohn and Mr. Phipps.
In July 1997, the Company entered into a Purchase Agreement (the "Purchase
Agreement") with a group of institutional investors (the "Purchasers"),
including certain entities affiliated with Mark B. Fisher, a director of the
Company. Pursuant to the terms of the Purchase Agreement, the Company issued and
sold to the Purchasers $2,750,000 in aggregate principal amount of the Class A
Debentures, Series G Warrants to purchase an aggregate of 7,350,000 shares of
Common Stock at an exercise price of $0.50 per share, Series H Warrants to
purchase an aggregate of 1,100,000 shares of Common Stock at an exercise price
of $0.60 per share and Series I Warrants to purchase an aggregate of 550,000
shares of Common Stock at an exercise price of $1.125 per share, for a total
purchase price of $3,352,500. Pursuant to the terms of the Purchase Agreement,
the Purchasers have the right, at any time prior to July 28, 1998, to purchase
an additional $833,333 in aggregate principal amount of the Class A Debentures,
Series G Warrants to purchase an aggregate of 2,000,000 shares of Common Stock,
Series H Warrants to purchase an aggregate of 333,333 shares of Common Stock and
Series I Warrants to purchase an aggregate of 166,667 shares of Common Stock for
a total purchase price of $1,000,000 (the "Purchase Option").
In connection with the transactions contemplated by the Purchase Agreement,
the Purchasers, the Company and Charles S. Brand entered into a Stockholders
Agreement (the "Stockholders Agreement") pursuant to which, among other things,
Mr. Brand agreed to certain restrictions on his ability to sell his shares of
Common Stock. Pursuant to the terms of the Stockholders Agreement, the size of
the Board of Directors was increased to seven members and the Purchasers
received the right to appoint three directors. In the event that the Purchase
Option is exercised in full, the number of directors will be increased to eight,
and the Purchasers will have the right to appoint an additional director. At any
time
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<PAGE>
that the Purchasers are entitled to appoint at least four directors, at either
the request of Mr. Brand or the Purchasers, the size of the Board will be
further increased by one and Mr. Brand and the Purchasers will have the right to
mutually select an independent director to fill the resulting vacancy. Further,
in the event that Cerberus (or any subsequent holder of the Class B Debentures)
exercises its right under the Unit Purchase Agreement to designate a member of
the Board of Directors, the number of directors will be increased by two, the
holder of the Class B Debentures will have the right to appoint one director and
Mr. Brand and the Purchasers will have the right to appoint an additional
independent director.
Pursuant to the terms of the Stockholders Agreement, Mr. Brand has
appointed himself, Dr. Brand, Mr. Carreras and Mr. Phipps and the Purchasers
have appointed Messrs. Fisher, Garcia and Thompson as directors of the Company.
To facilitate the recomposition of the Board of Directors, Mr. Mendelsohn
resigned as a director of the Company effective upon the closing of the
transactions contemplated by the Purchase Agreement.
Under the terms of the Stockholders Agreement, the parties agreed to cause
(i) the Executive Committee of the Board of Directors to be comprised of two
directors designated by Mr. Brand and one director designated by the Purchasers,
(ii) the Audit Committee of the Board of Directors to be comprised of two
directors designated by Mr. Brand and two directors designated by the
Purchasers, and (iii) the Compensation Committee of the Board of Directors to be
comprised of two directors designated by Mr. Brand and two directors designated
by the Purchasers. In the event that the Purchase Option is exercised in full,
the Purchasers will have the right to designate a second director to serve on
the Executive Committee of the Board of Directors. All directors have been
designated by either Mr. Brand or the Purchasers to serve on the respective
Board committees set forth below.
Effective in March 1998, Mr. Thompson became the Chief Executive Officer of
the Company. Under the terms of the Stockholders Agreement, Mr. Thompson is
treated as a director designated by Mr. Brand and is entitled to serve as a
member of the Executive Committee of the Board of Directors.
Under the terms of the Stockholders Agreement, the holders of a majority of
the shares of Common Stock beneficially owned by the Purchasers have the right,
subject to certain limitations, to cause the Company to enter into a "Company
Sale". A Company Sale is defined to include (i) a sale of all or substantially
all of the assets of the Company (other than to certain affiliates), (ii) a
merger, consolidation, share exchange or other similar transaction in which the
holders of the Company's voting stock receive less than 50% of the voting power
of the surviving entity, (iii) a sale, disposition or issuance of shares of
voting stock of the Company in which a person or entity (other than a party to
the Stockholder Agreement or its affiliates) acquires 50% or more of the total
voting power of the Company, and (iv) the formation of certain partnerships,
joint ventures and other strategic alliances involving the sale or transfer of
all or substantially all of the assets of the Company to a third party.
The Stockholders Agreement terminates upon the earliest to occur of (i) the
written consent of the holders of a majority of the shares of Common Stock
beneficially owned by the Purchasers and the holders of a majority of the shares
of Common Stock then beneficially owned by Mr. Brand and certain transferees,
(ii) Mr. Brand and certain transferees, as a group, or the Purchasers, as a
group, becoming the beneficial owners of less than 10% of the outstanding Common
Stock (determined on a fully-diluted basis), or (iii) upon the consummation of a
Company Sale in accordance with the terms of the Stockholders Agreement.
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<PAGE>
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee is currently comprised of Dr. Brand
and Messrs. Carreras and Garcia. Mr. Thompson resigned as a member of the
Compensation Committee effective upon his election as the Company's Chief
Executive Officer. During the fiscal year ended June 30, 1997, Mr. Mendelsohn
(who resigned as a director of the Company in July 1997) was also a member of
the Compensation Committee. Mr. Mendelsohn has entered into a consulting
agreement with the Company.
The Company has entered into a consulting agreement with Dr. Brand pursuant
to which Dr. Brand provides strategic, technological and other services to the
Company for up to 90 days in any calendar year. Under the consulting agreement,
which expires April 30, 1999, Dr. Brand is entitled to receive a quarterly
payment of 36,363 shares of Common Stock. In the consulting agreement, Dr. Brand
has agreed to certain confidentiality, non-competition and intellectual property
covenants.
The Company has entered into a consulting agreement with Mr. Thompson
pursuant to which Mr. Thompson has provided strategic, technological and other
services to the Company since August 1997. Under the consulting agreement, Mr.
Thompson received an aggregate of approximately $47,000 for work performed under
the agreement as of December 31, 1997, as well as reimbursement for certain
expenses incurred by him in connection therewith. Mr. Thompson also is entitled
to receive additional monthly payments of up to $12,000 per month through March
31, 1998, as well as additional expense reimbursements. In addition to the cash
payments referred to above, under the consulting agreement, Mr. Thompson
received 108,000 shares of Common Stock. In the consulting agreement, Mr.
Thompson agreed to certain confidentiality, non-competition and intellectual
property covenants. Mr. Thompson's consulting agreement will terminate upon the
effectiveness of the employment agreement between the Company and Mr. Thompson.
See "Employment Agreements and Compensation Arrangements."
No executive officer of the Company and no member of the Compensation
Committee is a member of any other business entity that has an executive officer
that sits on the Company's Board or on the Compensation Committee.
Executive Compensation
The following table summarizes certain information relating to the
compensation paid or accrued by the Company for services rendered during the
fiscal years ended June 30, 1997, June 30, 1996 and June 30, 1995 to each person
serving as its Chief Executive Office and each of the Company's four other most
highly paid executive officers whose total annual salary and bonus for the
fiscal year ended June 30, 1997 exceeded $100,000 (collectively, the "Named
Executive Officers"):
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<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
-----------------------------------------------------
Other Long-Term
Name and Fiscal Annual Compensation
Principal Position Year Salary($) Bonus($) Compensation($) Awards/Options (#)
<S> <C> <C> <C> <C> <C>
Charles S. Brand (1) 1997 $150,000 -- * 20,000
Chairman of the Board 1996 150,000 -- * --
and Chief Executive 1995 150,000 -- * --
Officer
Norman M. Phipps (2) 1997 $153,395 -- * 825,000
President and Chief 1996 -- -- -- --
Operating Officer 1995 -- -- -- --
Russell J. Reardon (3) 1997 $100,000 $50,000 * 310,000
Senior Vice President-- 1996 25,000 -- * 250,000
Finance and 1995 -- -- -- --
Administration
- -----------------------
</TABLE>
(1) Mr. Thompson succeeded Mr. Brand as the Company's Chief Executive Officer
in March 1998. Mr. Thompson did not receive compensation for services
rendered to the Company in any capacity during the fiscal year ended June
30, 1997.
(2) Includes $130,325 in consulting fees paid to Mr. Phipps prior to his
employment by the Company in April 1997.
(3) Employment commenced in April 1996. Mr. Reardon resigned as an officer of
the Company effective February 27, 1998.
* Less than 10% of salary plus bonus.
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<PAGE>
Option Grants
The following table summarizes certain information relating to the grant of
options to purchase Common Stock to each of the Named Executive Officers during
the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year(1)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date
<S> <C> <C> <C> <C> <C>
Charles S. Brand 20,000 0.7% $0.605 6/20/07
Norman M. Phipps 825,000 29.5% $0.550 6/20/07
Russell J. Reardon 310,000 11.1% $0.550 6/20/07
</TABLE>
(1) The Company did not grant stock appreciation rights during the fiscal year
ended June 30, 1997.
Options Exercised in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of stock options during the fiscal
year ended June 30, 1997 and unexercised options held by such Named Executive
Officers as of June 30, 1997.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Fiscal 1997 and
Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised Options Value of Unexercised
at Fiscal Year End In-The-Money Options at
(#) Exercisable/Unexercisable Fiscal Year End ($) (1)
----------------------------- -----------------------
<S> <C> <C>
Charles S. Brand --/20,000 0/0
Norman M. Phipps 543,334/281,666 0/0
Russell J. Reardon 350,000/210,000 $12,500/0
</TABLE>
(1) Based on an estimated market value of $0.55 per share for the Common
Stock on June 30, 1997.
1997 Stock Compensation Program
In May 1997, the Company adopted the Stock Compensation Program in order to
promote the interests of the Company, its direct and indirect present and future
subsidiaries and its stockholders by providing eligible persons with the
opportunity to acquire an ownership interest, or to increase their ownership
interest, in the Company as an incentive to remain in the service of the
Company. The Stock Compensation Program authorizes the granting of incentive
stock options, non-qualified stock options, stock appreciation rights,
performance shares and stock bonus awards to employees and consultants of the
Company and its subsidiaries, including those employees serving as officers or
directors of the
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<PAGE>
Company (the "Employee Plans"). The Stock Compensation Program also authorizes
automatic option grants to directors who are not otherwise employed by the
Company (the "Independent Director Plan"). In connection with the Stock
Compensation Program, 7,500,000 shares of Common Stock are reserved for
issuance, of which up to 7,350,000 shares may be issued under the Employee Plans
and up to 150,000 shares may be issued under the Independent Director Plan. The
Stock Compensation Program is administered by the Compensation Committee of the
Board of Directors (the "Administrator").
Options and awards granted under the Stock Compensation Program may have an
exercise or payment price as established by the Compensation Committee, provided
that the exercise price of incentive stock options granted under the Employee
Plans may not be less than the fair market value of the underlying shares on the
date of grant. Options granted under the Independent Director Plan must have an
exercise price equal to the fair market value of the underlying shares on the
date of grant.
Unless otherwise provided at the date of grant, no option or award may vest
within one year of the date of grant and no option or award may be exercised
more than 10 years from the date of grant. Options granted under the Independent
Director Plan vest one year following the date of grant and expire if not
exercised on or before the fifth anniversary thereof. Unless otherwise specified
by the Compensation Committee, options and awards (other than pursuant to the
Independent Director Plan) vest in four equal installments on the first, second,
third and fourth anniversaries of the date of grant. Vesting of any option or
award granted under the Stock Compensation Program may be accelerated in certain
circumstances, including upon the occurrence of a "Change in Control Event" (as
defined in the Stock Compensation Program).
Options and awards granted under the Stock Compensation Program are
nontransferable, except by will or by the laws of descent and distribution.
However, the Compensation Committee may permit the recipient of a non-incentive
stock option granted under the Employee Plans and options granted under the
Independent Director Plan to transfer the option to a family member or a trust
created for the benefit of family members. During the lifetime of a participant,
an option may be exercised only by the participant or a permitted transferee. In
the event that a participant's employment or service terminates as a result of
death, all vested awards will be paid to the participant's estate by the Company
and the participant's estate or any permitted transferee will have the right to
exercise vested options for a period ending on the earlier of the expiration
dates of such options or one year from the date of death. If the participant's
employment or service terminates as a result of retirement or a "disability" (as
set forth in the Stock Compensation Program), all vested awards will be paid to
the participant by the Company and the participant or any permitted transferee
will have the right to exercise vested options for a period ending on the
earlier of the expiration dates of such options or one year from the date of
termination. If the participant's employment or service terminates for cause,
all options and awards will automatically expire upon termination. If the
participant's employment or service terminates other than as a result of death,
disability, retirement or termination for cause, the participant will have the
right to collect all vested awards immediately and the participant or any
permitted transferee will have the right to exercise vested options for a period
ending on the earlier of the expiration dates of such options or awards or 30
days from the date of termination, subject to extension at the discretion of the
Administrator, or three months from the date of termination in the case of
options granted pursuant to the Independent Director Plan. In all cases, any
unvested options or awards will terminate as of the date of termination of
employment or service.
The Stock Compensation Program terminates on April 30, 2007, unless earlier
terminated by the Board of Directors. No options or awards may be granted under
the Stock Compensation Program after its termination; however, termination of
the Stock Compensation Program will not affect the status of any option or award
outstanding on the date of termination.
-35-
<PAGE>
Employment Agreements and Compensation Arrangements
The Company expects to enter into a three-year employment agreement (the
"Thompson Agreement") with Mr. Thompson, the Company's Chief Executive Officer,
in the near future. Although no agreement has been executed as of the date
hereof, the Company anticipates that, pursuant to the terms of the Thompson
Agreement, in the event that the Company consummates a private or public sale of
its securities resulting in net proceeds of at least $10,000,000 to the Company
(a "Qualifying Offering"), Mr. Thompson will receive a base salary of $250,000
per annum, subject to periodic review in the discretion of the Board of
Directors. In addition, upon consummation of a Qualifying Offering, Mr. Thompson
will receive a one-time bonus of $50,000. Pursuant to the expected terms of the
Thompson Agreement, Mr. Thompson will, upon consummation of a Qualifying
Offering, receive a non-qualified stock option exercisable for 3,000,000 shares
of Common Stock at an exercise price of $0.60 per share, subject to adjustment
in certain circumstances. Such option will be immediately exercisable. The
Company also will maintain a $1,000,000 term life insurance policy for Mr.
Thompson's benefit upon completion of a Qualifying Offering. Mr. Thompson also
will be entitled to certain other perquisites in such circumstances.
Prior to the consummation of a Qualifying Offering, Mr. Thompson will be
entitled to receive compensation for his services to the Company equivalent to
those provided to him pursuant to his consulting arrangements with the Company.
See "Compensation Committee Interlocks and Insider Participation." Prior to the
consummation of a Qualifying Offering, Mr. Thompson will not be required to
devote more than 10 days in any calendar month to the Company's affairs. In the
event that a Qualifying Offering does not occur on or prior to June 30, 1998,
Mr. Thompson will have the right to terminate his employment by the Company.
If a Qualifying Offering occurs, Mr. Thompson will be entitled to certain
severance benefits from the Company in the event that his employment is
terminated thereafter pursuant to a Without Cause Termination, or Mr. Thompson
terminates his employment thereafter for Good Reason (as such terms are expected
to be defined in the Thompson Agreement). In addition, upon consummation of a
Qualifying Offering, Mr. Thompson will have the right to terminate his
employment in certain circumstances following a Change in Control Event (as such
term is expected to be defined in the Thompson Agreement) and to receive certain
payments in connection therewith.
The Company expects that, pursuant to the Thompson Agreement, Mr. Thompson
will be subject to certain confidentiality, work-for-hire and non-competition
covenants.
In connection with the Merger, Mr. Charles Brand and Mr. Phipps entered
into five-year employment agreements with the Company. Pursuant to such
agreements, Mr. Brand receives an annual base salary of $200,000 and Mr. Phipps
receives an annual base salary of $150,000, subject to periodic increases at the
discretion of the Board of Directors. Mr. Brand and Mr. Phipps are entitled to
participate in all compensation and employee benefit plans, including such
bonuses as may be authorized by the Board of Directors from time to time. The
Company also agreed to provide and maintain a $1,000,000 term-life insurance
policy for the benefit of each of Mr. Brand and Mr. Phipps. In the event of the
termination of employment by the Company (other than upon death, permanent
disability or a "termination for cause"), each of Mr. Brand and Mr. Phipps would
be entitled to receive his then-current base salary for a period equal to the
greater of (i) the remainder of the term of his employment agreement, or (ii)
twelve months from the effective date of termination.
In July 1997, the Company entered into a consulting agreement with MBF, an
entity which is controlled by Mr. Fisher, pursuant to which MBF agreed to cause
Mr. Fisher to provide certain financial consulting services to the Company for
up to 25% of Mr. Fisher's business time. Under the consulting agreement, MBF is
entitled to receive a monthly payment of $5,000 The consulting agreement has a
term of 18 months.
-36-
<PAGE>
In addition, the Company has entered into consulting agreements with Dr.
Brand and Mr. Thompson. Mr. Thompson's consulting arrangements were terminated
upon his election as the Company's Chief Executive Officer. See "Compensation
Committee Interlocks and Insider Participation."
Mr. Reardon resigned as an officer of the Company effective February 27,
1998. Pursuant to the terms of his severance agreement, the Company agreed to
continue to pay to Mr. Reardon his current base salary and certain medical
benefits through June 30, 1998 (subject to certain exceptions). Also pursuant to
the severance agreement, Mr. Reardon has agreed to terminate certain vested
options held by him and, in exchange therefor, the Company has granted Mr.
Reardon an option to purchase an equal number of shares of Common Stock which
option shall remain exercisable for one year from the effective date of
termination. Mr. Reardon has agreed to provide certain consulting services to
the Company upon request until June 30, 1998.
Indemnification of the Directors and Officers
The Certificate of Incorporation provide that every person who is or was a
director, officer, employee or agent of the Company shall be indemnified by the
Company pursuant to the provisions of Section 145 of the Delaware General
Corporation Law to the fullest extent permitted thereby against all liabilities
and expenses imposed upon or incurred by that person in connection with any
proceeding in which that person may be made, or threatened to be made, a party,
or in which that person may become involved by reason of that person being or
having been a director or officer or continues to serve in any capacity with any
other enterprise at the request of the Company. In addition, the Company's
by-laws, as amended, provide the directors, officers and employees of the
Company with similar protections. Such provisions may provide indemnification to
the officers and directors of the Company for liability under the Securities
Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
In July 1995, the Company sold to SFM Series B Warrants to purchase
1,500,000 shares of Common Stock, at a price of $0.02 per share, with an
exercise price of $0.25 per share, for services rendered in obtaining financing
for the Company. Alfred Mendelsohn and Lawrence I. Schneider, former directors
of the Company, were principals in SFM. Mark B. Fisher, a director of the
Company, was also a principal in SFM.
In December 1995, the Company entered into a consulting agreement with two
companies, SFM and PTCO, for services to be rendered in obtaining additional
financing for the Company. SFM and PTCO were granted Series E Warrants to
purchase a total of 1,000,000 shares of the Company's Common Stock at $0.50 per
share any time prior to March 7, 2003. SFM and PTCO also were subsequently paid
fees of $87,500 and $216,377, respectively, when the financing was provided in
March 1996. Norman M. Phipps, a director of the Company, and Wade Teman, a
former officer of the Company, are principals in PTCO.
In May 1996, a former director of the Company, Lawrence I. Schneider, was
elected Chairman of the Executive Committee for a five-year term. As
compensation, he was paid $100,000, in June 1996. Mr. Schneider resigned as a
director in November 1996.
During the fiscal year ended June 30, 1996, the Company paid Orbitrex
International, Inc. ("Orbitrex"), whose President is Alfred Mendelsohn, a former
director of the Company, $71,000 for business development services provided to
the Company. Additionally, the Company granted Mr. Mendelsohn Series F Warrants
to purchase 100,000 shares of Common Stock at $0.50 per share.
-37-
<PAGE>
In June 1997, the Company entered into a consulting agreement with
Orbitrex. Under the consulting agreement, Orbitrex agreed to provide certain
services in connection with product development and international marketing
opportunities. Under the consulting agreement, Orbitrex is entitled to receive
payments aggregating $60,000, payable in monthly installments on or prior to
April 30, 1998. In the consulting agreement, Orbitrex agreed to certain
confidentiality, non-competition and intellectual property covenants.
In July 1997, Mr. Phipps purchased 850,000 shares of Common Stock from the
Company for $467,500, or $0.55 per share. In connection with the purchase,
$8,500 was paid in cash from the proceeds of a one-time bonus paid to Mr. Phipps
and the remainder was paid in the form of a non-recourse secured promissory note
(the "Phipps Note"). The Phipps Note does not bear interest, has no fixed
maturity date, and is secured by a pledge of the shares of Common Stock
purchased by Mr. Phipps. The Phipps Note will automatically be forgiven upon the
occurrence of a "Change in Control Event" (as defined in the Phipps Note). The
Phipps Note will become due and payable upon the occurrence of certain events,
including a sale or other disposition by Mr. Phipps of the shares of Common
Stock or the termination of Mr. Phipps' employment as a result of a "Termination
for Cause" (as defined in the Phipps Note). If Mr. Phipps' employment
terminates, other than as a result of a Termination for Cause or a "Without
Cause Termination" (as defined in the Phipps Note), the Phipps Note will become
payable in 60 monthly installments. The Company has agreed to make certain
payments to Mr. Phipps in respect of certain federal income tax consequences
which may result from the terms of the Phipps Note.
MBF, an entity controlled by Mark B. Fisher, a director of the Company,
paid $35,000 of the purchase price payable by it in connection with its July
1997 purchase of Class A Debentures, Series G Warrants, Series H Warrants, and
Series I Warrants in the form of a non-recourse secured promissory note (the
"MBF Note"). The MBF Note matures on July 29, 2000 and bears interest
(compounded annually) at a rate of 6.07% per annum, which is payable at
maturity. The MBF Note is secured by a pledge of the Series G Warrants purchased
by MBF. The MBF Note will become immediately due and payable upon the occurrence
of certain events, including a sale or other disposition by MBF of the Series G
Warrants purchased by it or the consummation of a Company Sale (as defined in
the Stockholders Agreement).
Prior to its acquisition by the Company, Mr. Brand, the Company's Chairman
and Chief Executive Officer, lent certain amounts to mmTech on an as-needed
basis to fund a portion of mmTech's working capital requirements. The maximum
amount advanced by Mr. Brand was $649,150, and $623,086 in such advances were
outstanding at June 30, 1997. Pursuant to an agreement between Mr. Brand and the
Company, the Company has agreed to pay interest on the unpaid advances (which
previously had been interest-free) at a rate of seven percent per annum. The
Company also agreed that, subject to its cash flow requirements, it would use
its best efforts to repay up to $300,000 of such advances on or before September
30, 1997 and that the remaining advances would be repaid at a rate of $50,000
per month, commencing in October 1997. As of April 15, 1998, the Company had
paid Mr. Brand $200,000 pursuant to the arrangements described above.
Mr. Brand owns 40% of the outstanding common stock of Advanced Control
Components, Inc. ("ACC"). ACC currently sublets space from the Company at its
Eatontown, New Jersey facility and pays to mmTech $33,312 in annual rent.
Employees from mmTech perform services for ACC and employees from ACC perform
services for mmTech from time to time. The company utilizing such services pays
to the company providing such services an amount equal to two times the base
hourly salary of the employees providing such services for the number of hours
involved. Pursuant to such arrangements, ACC paid to mmTech net amounts of
$230,686 during the fiscal year ended June 30, 1997 and $154,850 during the
fiscal year ended June 30, 1996.
-38-
<PAGE>
Certain holders of the Company's securities, including directors, officers
and beneficial owners of more than 5% of the Common Stock are entitled to
certain registration rights with respect to securities of the Company held by
them.
For a description of certain other transactions between the Company and
certain of its directors, executive officers and major stockholders, See
"Management - Right to Designate Directors; Changes in Control."
-39-
<PAGE>
SELLING SECURITYHOLDERS
The Securities registered hereby will be offered from time to time by the
Selling Securityholders. For a description of certain relationships between the
Company and certain of the Selling Securityholders, See "Management--Executive
Officers and Directors," "--Right to Designate Directors; Changes in Control"
and "Certain Transactions." Mr. Laird served as the Company's Chairman of the
Board, President and Chief Executive Officer from March 1996 to May 1996. Mr.
Wade Teman was a Principal of PTCO until March 1998 and served as a Senior Vice
President of the Company from May 1996 until August 1997. Mr. Gaffney currently
is an employee of mmTech.
The following tables sets forth certain information with respect to the
Selling Securityholders. All ownership information is as of April 15, 1998.
-40-
<PAGE>
<TABLE>
<CAPTION>
Common Stock
Common Stock
Common Stock Maximum Owned
Selling Owned Amount to After Offering if
Securityholder Prior to Offering(1)(2) be Sold(2) Maximum is Sold(1)(2)
- ------------------------------ ----------------------------- --------------- -------------------------------
Amount Percent Amount Percent
---------------- --------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles S. Brand 19,387,800 (3) 74.9% 19,367,800 20,000 *
Stephen Feinberg 6,041,159 (4) 19.0 6,041,159 -- --
Mark B. Fisher 5,044,551 (5) 16.4 5,044,551 -- --
Gregory Manocherian 4,086,063 (6) 13.7 4,086,063 -- --
A.C. Israel Enterprises, Inc. 2,423,944 (7) 8.6 2,423,944 -- --
Gerald B. Cramer 2,423,944 (8) 8.6 2,423,944 -- --
CRM Partners, L..P. 2,181,549 (9) 7.8 2,181,549 -- --
Norman M. Phipps 2,153,118 (10) 7.9 1,328,118 825,000 3.2%
CRM Enterprise Fund, L.L.C. 1,624,040 (11) 5.9 1,624,040 -- --
CRM Retirement Partners, L.P. 1,211,971 (12) 4.5 1,211,971 -- --
CRM Madison Partners, L.P. 1,211,971 (13) 4.5 1,211,971 -- --
Beja International SA 943,400 (14) 3.5 943,400 -- --
Murray H. Feigenbaum 795,344 3.1 795,344 -- --
L.A.D. Equity Partners, L.P. 727,181 (15) 2.7 727,181 -- --
Lawrence I. Schneider 622,857 (16) 2.4 622,857 -- --
Lamare Investments Ltd. 617,360 (17) 2.4 617,360 -- --
CRM-EFO Partners, L.P. 605,984 (18) 2.3 605,984 -- --
Wade Teman 585,739 (19) 2.2 335,739 250,000 *
Jerome Deutsch 575,376 (20) 2.2 575,376 -- --
Alfred Mendelsohn 506,250 (21) 1.9 390,000 116,250 *
Cramer Rosenthal McGlynn,
Inc. 442,527 (22) 1.7 442,527 -- --
UTO Bank 420,000 (23) 1.6 420,000 -- --
Richard K. Laird 413,680 (24) 1.6 413,680 -- --
Michael Gaffney 411,000 (25) 1.6 400,000 11,000 *
RILAR Family Associates, L.P. 380,000 (26) 1.5 380,000 -- --
Frederick G. Graham 377,360 (27) 1.4 377,360 -- --
Freydun Manocherian 377,360 (28) 1.4 377,360 -- --
Stanley Associates 377,360 (29) 1.4 377,360 -- --
CRM U.S. Value Fund, Ltd. 363,592 (30) 1.4 363,592 -- --
CRM Eurycleia Partners, L.P. 363,592 (31) 1.4 363,592 -- --
Richard S. Fuld 363,592 (32) 1.4 363,592 -- --
Russell J. Reardon 353,333 (33) 1.4 353,333 -- --
Henry N. Schneider 342,013 (34) 1.3 322,013 20,000 *
Nathan A. Low 308,680 (35) 1.2 308,680 -- --
Radix Associates 248,680 (36) * 248,680 -- --
Weiskopf, Silver & Co. 248,680 (37) * 248,680 -- --
McGlynn Family Partnership 242,394 (38) * 242,394 -- --
Edward J. Rosenthal Keogh 242,394 (39) * 242,394 -- --
Fred M. Filoon 242,394 (40) * 242,394 -- --
Erik S. Kruger 240,000 (41) * 40,000 200,000 *
Venturetek, L.P. 214,340 (42) * 214,340 -- --
Danilan Investments Inc. 188,680 (43) * 188,680 -- --
Howard & Lois Lorsch 188,680 (44) * 188,680 -- --
Eric E. Ozada 188,680 (45) * 188,680 -- --
Leonard Pearlman 188,680 (46) * 188,680 -- --
Stephen J. DeGroat 188,680 (47) * 188,680 -- --
Jeremy Isaacs 188,680 (48) * 188,680 -- --
Stephen B. Kalafer 188,680 * 188,680 -- --
Rita Schneider 188,680 (49) * 188,680 -- --
Seymour & Arlene Teman 188,680 (50) * 188,680 -- --
Frank A. Brand 145,453 * 145,453 -- --
Eugene A. Trainor 121,198 (51) * 121,198 -- --
Sabina International Inc. 120,000 (52) * 120,000 -- --
Amy Schneider 120,000 (53) * 120,000 -- --
-41-
<PAGE>
Leonard P. Shaykin 120,000 (54) * 120,000 -- --
Kenneth C. Thompson 108,000 * 108,000 -- --
Kenneth & Claire Alpert 94,340 (55) * 94,340 -- --
Spencer Brown 94,340 (56) * 94,340 -- --
Scott Schneider 94,340 (57) * 94,340 -- --
RBC, Inc. 60,000 (58) * 60,000 -- --
Kenneth I. Haber 50,000 (59) * 50,000 -- --
Allan Schneider 50,000 (60) * 50,000 -- --
Waveland Limited Partnership 50,000 (61) * 50,000 -- --
Edward J. Harrison 40,000 (62) * 40,000 -- --
David & Julie Musicant 40,000 (63) * 40,000 -- --
Russell T. Stern, Jr. 40,000 (64) * 40,000 -- --
Jeffrey Plattus 33,333 (65) * 33,333 -- --
Jean-Francois Carreras 32,500 (66) * 32,500 -- --
Kemlink, Inc. 20,000 (67) * 20,000 -- --
William & Janice Fisher 15,000 (68) * 15,000 -- --
Arthur L. Chianese 7,500 (69) * 7,500 -- --
Robert Danziger 7,500 (70) * 7,500 -- --
Carlton Ziegenfus 7,500 (71) * 7,500 -- --
Gilda Miodownic 4,000 (72) * 4,000 -- --
Mark & Rita Woltin 3,000 (73) * 3,000 -- --
Elaine Nakis 1,000 (74) * 1,000 -- --
</TABLE>
- -----------------------
*Less than 1%.
(1) Assumes the full exercise or conversion of outstanding convertible
securities, warrants, rights or options for such person or entity
exercisable or convertible.
(2) Certain amounts shown are subject to adjustment in certain circumstances.
(3) Includes (i) 40,000 shares of Common Stock issuable upon the exercise of
Series A Warrants held by Mr. Brand and (ii) 20,000 shares of Common
Stock issuable upon the exercise of options.
(4) Consists of (i) 2,815,104 shares of Common Stock issuable upon the
conversion of Class B Debentures held by Cerberus, (ii) 683,674 shares of
Common Stock issuable upon the conversion of Class B Debentures issuable
to Cerberus in lieu of cash interest on the outstanding Class B
Debentures, and (iii) 2,542,380 shares of Common Stock issuable upon the
exercise of Series C Warrants held by Cerberus. Mr. Feinberg is the
Managing Member of Cerberus Associates, L.L.C., the general partner of
Cerberus and, accordingly, is deemed to be the beneficial owner of all
shares of Common Stock owned by Cerberus.
(5) Includes (i) 284,425 shares of Common Stock issuable upon the conversion
of Class A Debentures held by Mr. Fisher, (ii) 60,000 shares of Common
Stock issuable upon the exercise of Series A Warrants held by Mr. Fisher,
(iii) 520,000 shares of Common Stock issuable upon the exercise of Series
B Warrants held by Mr. Fisher, (iv) 241,935 shares of Common Stock
issuable upon the exercise of Series G Warrants held by Mr. Fisher, (v)
12,943 shares of Common Stock issuable upon the exercise of Series H
Warrants held by Mr. Fisher, and (vi) 6,472 shares of Common Stock
issuable upon the exercise of Series I Warrants held by Mr. Fisher. Also
includes (i) 500,000 shares of Common Stock issuable to MBF upon the
exercise of Series G Warrants held by MBF, (ii) 568,850 shares of Common
Stock issuable upon the conversion of Class A Debentures held by MBF
Broadband Systems, L.P. ("Broadband Systems"), (iii) 483,871 shares of
Common Stock issuable upon the exercise of Series G Warrants held by
Broadband Systems, (iv) 25,886 shares of Common Stock issuable upon the
exercise of Series H Warrants held by Broadband Systems, (v) 12,943
shares of Common Stock issuable upon the exercise of Series I Warrants
held by Broadband Systems, (vi) 383,721 shares of Common Stock issuable
upon the exercise of Series G Warrants held by Phineas Broadband Systems,
L.P. ("Phineas"), (vii) 767,442 shares of Common Stock issuable upon the
exercise of Series H Warrants held by Phineas and (viii) 383,721 shares
of Common Stock issuable upon the exercise of Series I Warrants held by
Phineas. Also includes (i) 69,075 shares of Common Stock issuable upon
the conversion of Class A Debentures issuable to Mr. Fisher in lieu of
cash interest on the outstanding Class A Debentures held by him, (ii)
138,151 shares of Common Stock issuable upon the conversion of Class A
Debentures issuable to Broadband Systems in lieu of cash interest on the
outstanding Class A Debentures held by it, and (iii) 465,116 shares of
Common Stock issuable upon the exercise of additional Series G Warrants,
Series H Warrants and Series I Warrants which Phineas has the right to
acquire from the Company. Mr. Fisher is the sole officer, director and
shareholder of MBF and MBF Broadband Systems, Inc., the general partner
of both Broadband Systems and Phineas. Accordingly, Mr. Fisher is deemed
to be the beneficial owner of all shares of Common Stock beneficially
owned by each of MBF, Broadband Systems and Phineas.
(6) Includes (i) 47,170 shares of Common Stock issuable upon the conversion
of one-half of a share of Series A Preferred Stock held by Mr.
Manocherian, (ii) 20,000 shares of Common Stock issuable upon the
exercise of Series A Warrants held by Mr. Manocherian, (iii) 47,170
shares of Common Stock issuable upon the exercise of Series D Warrants
held by Mr. Manocherian. Also includes (i) 113,771 shares of Common Stock
issuable upon the conversion of Class A Debentures held
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<PAGE>
by Kabuki Partners ADP, GP ("Kabuki"), (ii) 96,774 shares of Common Stock
issuable upon the exercise of Series G Warrants held by Kabuki, (iii)
5,177 shares of Common Stock issuable upon the exercise of Series H
Warrants held by Kabuki, (iv) 2,589 shares of Common Stock issuable upon
the exercise of Series I Warrants held by Kabuki, (v) 421,606 shares of
Common Stock issuable upon the conversion of Class A Debentures held by
Whitehall Properties LLC ("Whitehall"), (vi) 375,246 shares of Common
Stock issuable upon the exercise of Series G Warrants held by Whitehall,
(vii) 19,186 shares of Common Stock issuable upon the exercise of Series
H Warrants held by Whitehall, (viii) 9,593 shares of Common Stock
issuable upon the exercise of Series I Warrants held by Whitehall, (ix)
843,214 shares of Common Stock issuable upon the conversion of Class A
Debentures held by Pamela Equities Corp. ("PEC"), (x) 750,492 shares of
Common Stock issuable upon the exercise of Series G Warrants held by PEC,
(xi) 38,371 shares of Common Stock issuable upon the exercise of Series H
Warrants held by PEC, and (xii) 19,186 shares of Common Stock issuable
upon the exercise of Series I Warrants held by PEC. Also includes (i)
27,630 shares of Common Stock issuable upon the conversion of Class A
Debentures issuable to Kabuki in lieu of cash interest on the outstanding
Class A Debentures held by it, (ii) 102,391 shares of Common Stock
issuable upon the conversion of Class A Debentures issuable to Whitehall
in lieu of cash interest on the outstanding Class A Debentures held by
it, (iii) 204,783 shares of Common Stock issuable upon the conversion of
Class A Debentures issuable to PEC in lieu of cash interest on the
outstanding Class A Debentures held by it, (iv) 268,276 shares of Common
Stock issuable upon the exercise or conversion of Optional Class A
Debentures and additional Series G Warrants, Series H Warrants and Series
I Warrants which Whitehall has the right to acquire from the Company, (v)
536,553 Shares of Common Stock issuable upon the exercise or conversion
of Optional Class A Debentures and Series G Warrants, Series H Warrants
and Series I Warrants which PEC has the right to acquire from the
Company, (vi) 32,295 shares of Common Stock issuable upon the conversion
of Class A Debentures issuable to Whitehall in lieu of cash interest on
the Optional Class A Debentures it has the right to acquire from the
Company, and (vii) 64,590 shares of Common Stock issuable upon the
conversion of Class A Debentures issuable to PEC in lieu of cash interest
on the Optional Class A Debentures it has the right to acquire from the
Company. Mr. Manocherian is (i) the controlling general partner of
Kabuki, (ii) a member of Whitehall, and (iii) an officer of PEC.
Accordingly, Mr. Manocherian may be deemed to be the beneficial owner of
all shares of Common Stock beneficially owned by each of Kabuki,
Whitehall and PEC.
(7) Consists of (i) 843,214 shares of Common Stock issuable upon the
conversion of Class A Debentures held by A.C. Israel Enterprises, Inc.
("ACIE"), (ii) 717,247 shares of Common Stock issuable upon the exercise
of Series G Warrants held by ACIE, (iii) 38,371 shares of Common Stock
issuable upon the exercise of Series H Warrants held by ACIE, and (iv)
19,186 shares of Common Stock issuable upon the exercise of Series I
Warrants held by ACIE. Also includes (i) 204,783 shares of Common Stock
issuable upon the conversion of Class A Debentures issuable to ACIE in
lieu of cash interest on the outstanding Class A Debentures held by it,
(ii) 536,553 shares of Common Stock issuable upon the exercise or
conversion of Optional Class A Debentures and additional Series G
Warrants, Series H Warrants and Series I Warrants which ACIE has the
right to acquire from the Company, and (iii) 64,590 shares of Common
Stock issuable upon the conversion of Class A Debentures issuable to ACIE
in lieu of cash interest on the Optional Class A Debentures it has the
right to acquire from the Company.
(8) Consists of (i) 843,214 shares of Common Stock issuable upon the
conversion of Class A Debentures held by Mr. Cramer, (ii) 717,247 shares
of Common Stock issuable upon the exercise of Series G Warrants held by
Mr. Cramer, (iii) 38,371 shares of Common Stock issuable upon the
exercise of Series H Warrants held by Mr. Cramer, and (iv) 19,186 shares
of Common Stock issuable upon the exercise of Series I Warrants held by
Mr. Cramer. Also includes (i) 204,783 shares of Common Stock issuable
upon the conversion of Class A Debentures issuable to Mr. Cramer in lieu
of cash interest on the outstanding Class A Debentures held by him, (ii)
536,553 shares of Common Stock issuable upon the exercise or conversion
of Optional Class A Debentures and additional Series G Warrants, Series H
Warrants and Series I Warrants which Mr. Cramer has the right to acquire
from the Company, and (iii) 64,590 shares of Common Stock issuable upon
the conversion of Class A Debentures issuable to Mr. Cramer in lieu of
cash interest on the Optional Class A Debentures he has the right to
acquire from the Company.
(9) Consists of (i) 758,893 shares of Common Stock issuable upon the
conversion of Class A Debentures held by CRM Partners, L.P. ("CRM
Partners"), (ii) 645,522 shares of Common Stock issuable upon the
exercise of Series G Warrants held by CRM Partners, (iii) 34,534 shares
of Common Stock issuable upon the exercise of Series H Warrants held by
CRM Partners, and (iv) 17,267 shares of Common Stock issuable upon the
exercise of Series I Warrants held by CRM Partners. Also includes (i)
184,304 shares of Common Stock issuable upon the conversion of Class A
Debentures issuable to CRM Partners in lieu of cash interest on the
outstanding Class A Debentures held by it, (ii) 482,898 shares of Common
Stock issuable upon the exercise or conversion of Optional Class A
Debentures and additional Series G Warrants, Series H Warrants and Series
I Warrants which CRM Partners has the right to acquire from the Company,
and (iii) 58,131 shares of Common Stock issuable upon the conversion of
Class A Debentures issuable to CRM Partners in lieu of cash interest on
the Optional Class A Debentures it has the right to acquire from the
Company.
(10) Includes (i) 296,042 shares of Common Stock issuable upon the exercise of
Series E Warrants held by Mr. Phipps, (ii) 134,906 shares of Common Stock
issuable upon the exercise of Series F Warrants held by Mr. Phipps, (iii)
23,585 shares of Common Stock issuable upon the conversion of one-quarter
share of Series A Preferred Stock held by Mr. Phipps, and (iv) 825,000
shares of Common Stock issuable upon the exercise of options.
(11) Consists of (i) 564,952 shares of Common Stock issuable upon the
conversion of Class A Debentures held by CRM 1997 Enterprise Fund, L.L.C.
("CRM Enterprise Fund"), (ii) 480,556 shares of Common Stock issuable
upon the exercise of Series G Warrants held by CRM Enterprise Fund, (iii)
25,709 shares of Common Stock issuable upon the exercise of Series
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H Warrants held by CRM Enterprise Fund, and (iv) 12,854 shares of Common
Stock issuable upon the exercise of Series I Warrants held by CRM
Enterprise Fund. Also includes (i) 137,203 shares of Common Stock
issuable upon the conversion of Class A Debentures issuable to CRM
Enterprise Fund in lieu of cash interest on the outstanding Class A
Debentures held by it, (ii) 359,491 shares of Common Stock issuable upon
the exercise or conversion of Optional Class A Debentures and additional
Series G Warrants, Series H Warrants and Series I Warrants which CRM
Enterprise Fund has the right to acquire from the Company, and (iii)
43,275 shares of Common Stock issuable upon the conversion of Class A
Debentures issuable to CRM Enterprise Fund in lieu of cash interest on
the Optional Class A Debentures it has the right to acquire from the
Company.
(12) Consists of (i) 421,606 shares of Common Stock issuable upon the
conversion of Class A Debentures held by CRM Retirement Partners, L.P.
("CRM Retirement Partners"), (ii) 358,624 shares of Common Stock issuable
upon the exercise of Series G Warrants held by CRM Retirement Partners,
(iii) 19,186 shares of Common Stock issuable upon the exercise of Series
H Warrants held by CRM Retirement Partners, and (iv) 9,593 shares of
Common Stock issuable upon the exercise of Series I Warrants held by CRM
Retirement Partners. Also includes (i) 102,391 shares of Common Stock
issuable upon the conversion of Class A Debentures issuable to CRM
Retirement Partners in lieu of cash interest on the outstanding Class A
Debentures held by it, (ii) 268,276 shares of Common Stock issuable upon
the exercise or conversion of Optional Class A Debentures and additional
Series G Warrants, Series H Warrants and Series I Warrants which CRM
Retirement Partners has the right to acquire from the Company, and (iii)
32,295 shares of Common Stock issuable upon the conversion of Class A
Debentures issuable to CRM Retirement Partners in lieu of cash interest
on the Optional Class A Debentures it has the right to acquire from the
Company.
(13) Consists of (i) 421,606 shares of Common Stock issuable upon the
conversion of Class A Debentures held by CRM Madison Partners, L.P. ("CRM
Madison Partners"), (ii) 358,624 shares of Common Stock issuable upon the
exercise of Series G Warrants held by CRM Madison Partners, (iii) 19,186
shares of Common Stock issuable upon the exercise of Series H Warrants
held by CRM Madison Partners, and (iv) 9,593 shares of Common Stock
issuable upon the exercise of Series I Warrants held by CRM Madison
Partners. Also includes (i) 102,391 shares of Common Stock issuable upon
the conversion of Class A Debentures issuable to CRM Madison Partners in
lieu of cash interest on the outstanding Class A Debentures held by it,
(ii) 268,276 shares of Common Stock issuable upon the exercise or
conversion of Optional Class A Debentures and additional Series G
Warrants, Series H Warrants and Series I Warrants which CRM Madison
Partners has the right to acquire from the Company, and (iii) 32,295
shares of Common Stock issuable upon the conversion of Class A Debentures
issuable to CRM Madison Partners in lieu of cash interest on the Optional
Class A Debentures it has the right to acquire from the Company.
(14) Consists of (i) 471,700 shares of Common Stock issuable upon the
conversion of five shares of Series A Preferred Stock held by Beja
International SA ("Beja"), and (ii) 471,700 shares of Common Stock
issuable upon the exercise of Series D Warrants held by Beja.
(15) Consists of (i) 252,963 shares of Common Stock issuable upon the
conversion of Class A Debentures held by L.A.D. Equity Partners ("LAD"),
(ii) 215,174 shares of Common Stock issuable upon the exercise of Series
G Warrants held by LAD, (iii) 11,511 shares of Common Stock issuable upon
the exercise of Series H Warrants held by LAD, and (iv) 5,756 shares of
Common Stock issuable upon the exercise of Series I Warrants held by LAD.
Also includes (i) 61,435 shares of Common Stock issuable upon the
conversion of Class A Debentures issuable to LAD in lieu of cash interest
on the outstanding Class A Debentures held by it, (ii) 160,956 shares of
Common Stock issuable upon the exercise or conversion of Optional Class A
Debentures and additional Series G Warrants, Series H Warrants and Series
I Warrants which LAD has the right to acquire from the Company, and (iii)
19,377 shares of Common Stock issuable upon the conversion of Class A
Debentures issuable to LAD in lieu of cash interest on the Optional Class
A Debentures it has the right to acquire from the Company.
(16) Consists of (i) 291,667 shares of Common Stock issuable upon the exercise
of Series E Warrants held by Mr. Schneider and (ii) 331,190 shares of
Common Stock issuable upon the exercise of Series F Warrants held by Mr.
Schneider.
(17) Includes (i) 188,680 shares of Common Stock issuable upon the conversion
of two shares of Series A Preferred Stock held by Lamare Investments Ltd.
("Lamare"), (ii) 80,000 shares of Common Stock issuable upon the exercise
of Series A Warrants held by Lamare, and (iii) 188,680 shares of Common
Stock issuable upon the exercise of Series D Warrants held by Lamare.
(18) Consists of (i) 210,803 shares of Common Stock issuable upon the
conversion of Class A Debentures held by CRM-EFO Partners, L.P.
("CRM-EFO"), (ii) 179,312 shares of Common Stock issuable upon the
exercise of Series G Warrants held by CRM-EFO, (iii) 9,593 shares of
Common Stock issuable upon the exercise of Series H Warrants held by
CRM-EFO, and (iv) 4,796 shares of Common Stock issuable upon the exercise
of Series I Warrants held by CRM-EFO. Also includes (i) 51,195 shares of
Common Stock issuable upon the conversion of Class A Debentures issuable
to CRM-EFO in lieu of cash interest on the outstanding Class A Debentures
held by it, (ii) 134,138 shares of Common Stock issuable upon the
exercise or conversion of Optional Class A Debentures and additional
Series G Warrants, Series H Warrants and Series I Warrants which CRM-EFO
has the right to acquire from the Company, and (iii) 16,147 shares of
Common Stock issuable upon the conversion of Class A Debentures issuable
to CRM-EFO in lieu of cash interest on the Optional Class A Debentures it
has the right to acquire from the Company.
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<PAGE>
(19) Includes (i) 200,125 shares of Common Stock issuable upon the exercise of
Series E Warrants held by Mr. Teman, (ii) 88,444 shares of Common Stock
issuable upon the exercise of Series F Warrants held by Mr. Teman, (iii)
23,585 shares of Common Stock issuable upon the conversion of one-quarter
share of Series A Preferred Stock held by Mr. Teman, and (iv) 250,000
shares of Common Stock issuable upon the exercise of options.
(20) Includes 100,000 shares of Common Stock issuable upon the exercise of
options.
(21) Includes (i) 290,000 shares of Common Stock issuable upon the exercise of
Series B Warrants held by Mr. Mendelsohn, (ii) 100,000 shares of Common
Stock issuable upon the exercise of Series F Warrants held by Mr.
Mendelsohn, and (iii) 85,000 shares of Common Stock issuable upon the
exercise of options.
(22) Consists of (i) 84,321 shares of Common Stock issuable upon the
conversion of Class A Debentures held by Cramer Rosenthal McGlynn, Inc.
("CRM"), (ii) 271,858 shares of Common Stock issuable upon the exercise
of Series G Warrants held by CRM, (iii) 3,837 shares of Common Stock
issuable upon the exercise of Series H Warrants held by CRM, and (iv)
1,919 shares of Common Stock issuable upon the exercise of Series I
Warrants held by CRM. Also includes (i) 20,478 shares of Common Stock
issuable upon the conversion of Class A Debentures issuable to CRM in
lieu of cash interest on the outstanding Class A Debentures held by it,
(ii) 53,655 shares of Common Stock issuable upon the exercise or
conversion of Optional Class A Debentures and additional Series G
Warrants, Series H Warrants and Series I Warrants which CRM has the right
to acquire from the Company, and (iii) 6,459 shares of Common Stock
issuable upon the conversion of Class A Debentures issuable to CRM in
lieu of cash interest on the Optional Class A Debentures it has the right
to acquire from the Company.
(23) Includes 140,000 shares of Common Stock issuable upon the exercise of
Series A Warrants held by UTO Bank.
(24) Includes (i) 94,340 shares of Common Stock issuable upon the exercise of
Series D Warrants held by Mr. Laird and (ii) 225,000 shares of Common
Stock issuable upon the exercise of options.
(25) Includes 11,000 shares of Common Stock issuable upon the exercise of
options.
(26) Consists of 380,000 shares of Common Stock issuable upon the exercise of
Series B Warrants held by RILAR Family Associates, L.P..
(27) Consists of (i) 188,680 shares of Common Stock issuable upon the
conversion of two shares of Series A Preferred Stock held by Mr. Graham,
and (ii) 188,680 shares of Common Stock issuable upon the exercise of
Series D Warrants held by Mr. Graham.
(28) Consists of (i) 188,680 shares of Common Stock issuable upon the
conversion of two shares of Series A Preferred Stock held by Mr.
Manocherian, and (ii) 188,680 shares of Common Stock issuable upon the
exercise of Series D Warrants held by Mr. Manocherian.
(29) Consists of (i) 188,680 shares of Common Stock issuable upon the
conversion of two shares of Series A Preferred Stock held by Stanley
Associates ("Stanley"), and (ii) 188,680 shares of Common Stock issuable
upon the exercise of Series D Warrants held by Stanley.
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<PAGE>
(30) Consists of (i) 126,482 shares of Common Stock issuable upon the
conversion of Class A Debentures held by CRM U.S. Value Fund, Ltd.
("Value Fund"), (ii) 107,587 shares of Common Stock issuable upon the
exercise of Series G Warrants held by Value Fund, (iii) 5,756 shares of
Common Stock issuable upon the exercise of Series H Warrants held by
Value Fund, and (iv) 2,878 shares of Common Stock issuable upon the
exercise of Series I Warrants held by Value Fund. Also includes (i)
30,717 shares of Common Stock issuable upon the conversion of Class A
Debentures issuable to Value Fund in lieu of cash interest on the
outstanding Class A Debentures held by it, (ii) 80,483 shares of Common
Stock issuable upon the exercise or conversion of Optional Class A
Debentures and additional Series G Warrants, Series H Warrants and Series
I Warrants which Value Fund has the right to acquire from the Company,
and (iii) 9,689 shares of Common Stock issuable upon the conversion of
Class A Debentures issuable to Value Fund in lieu of cash interest on the
Optional Class A Debentures it has the right to acquire from the Company.
(31) Consists of (i) 126,482 shares of Common Stock issuable upon the
conversion of Class A Debentures held by CRM Eurycleia Partners, L.P.
("Eurycleia"), (ii) 107,587 shares of Common Stock issuable upon the
exercise of Series G Warrants held by Eurycleia, (iii) 5,756 shares of
Common Stock issuable upon the exercise of Series H Warrants held by
Eurycleia, and (iv) 2,878 shares of Common Stock issuable upon the
exercise of Series I Warrants held by Eurycleia. Also includes (i) 30,717
shares of Common Stock issuable upon the conversion of Class A Debentures
issuable to Eurycleia in lieu of cash interest on the outstanding Class A
Debentures held by it, (ii) 80,483 shares of Common Stock issuable upon
the exercise or conversion of Optional Class A Debentures and additional
Series G Warrants, Series H Warrants and Series I Warrants which
Eurycleia has the right to acquire from the Company, and (iii) 9,689
shares of Common Stock issuable upon the conversion of Class A Debentures
issuable to Eurycleia in lieu of cash interest on the Optional Class A
Debentures it has the right to acquire from the Company.
(32) Consists of (i) 126,482 shares of Common Stock issuable upon the
conversion of Class A Debentures held by Mr. Fuld, (ii) 107,587 shares of
Common Stock issuable upon the exercise of Series G Warrants held by Mr.
Fuld, (iii) 5,756 shares of Common Stock issuable upon the exercise of
Series H Warrants held by Mr. Fuld, and (iv) 2,878 shares of Common Stock
issuable upon the exercise of Series I Warrants held by Mr. Fuld. Also
includes (i) 30,717 shares of Common Stock issuable upon the conversion
of Class A Debentures issuable to Mr. Fuld in lieu of cash interest on
the outstanding Class A Debentures held by him, (ii) 80,483 shares of
Common Stock issuable upon the exercise or conversion of Optional Class A
Debentures and additional Series G Warrants, Series H Warrants and Series
I Warrants which Mr. Fuld has the right to acquire from the Company, and
(iii) 9,689 shares of Common Stock issuable upon the conversion of Class
A Debentures issuable to Mr. Fuld in lieu of cash interest on the
Optional Class A Debentures he has the right to acquire from the Company.
(33) Consists of 353,333 shares of Common Stock issuable upon the exercise of
options.
(34) Consists of (i) 133,333 shares of Common Stock issuable upon the exercise
of Series E Warrants held by Mr. Schneider, (ii) 94,340 shares of Common
Stock issuable upon the conversion of one share of Series A Preferred
Stock held by Mr. Schneider, and (iii) 20,000 shares of Common Stock
issuable upon the exercise of options.
(35) Includes (i) 40,000 shares of Common Stock issuable upon the exercise of
Series A Warrants held by Mr. Low and (ii) 94,340 shares of Common Stock
issuable upon the conversion of one-share of Series A Preferred Stock
held by Mr. Low.
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<PAGE>
(36) Consists of (i) 20,000 shares of Common Stock issuable upon the exercise
of Series A Warrants held by Radix Associates ("Radix"), ,(ii) 94,340
shares of Common Stock issuable upon the exercise of Series D Warrants
held by Radix, and (iii) 94,340 shares of Common Stock issuable upon the
conversion of one share of Series A Preferred Stock held by Radix.
(37) Consists of (i) 20,000 shares of Common Stock issuable upon the exercise
of Series A Warrants held by Weiskopf, Silver & Co. ("WS"), (ii) 94,340
shares of Common Stock issuable upon the exercise of Series D Warrants
held by WS, and (iii) 94,340 shares of Common Stock issuable upon the
conversion of one share of Series A Preferred Stock held by WS.
(38) Consists of (i) 84,321 shares of Common Stock issuable upon the
conversion of Class A Debentures held by McGlynn Family Partnership
("McGlynn"), (ii) 71,725 shares of Common Stock issuable upon the
exercise of Series G Warrants held by McGlynn, (iii) 3,837 shares of
Common Stock issuable upon the exercise of Series H Warrants held by
McGlynn, and (iv) 1.919 shares of Common Stock issuable upon the exercise
of Series I Warrants held by McGlynn. Also includes (i) 20,478 shares of
Common Stock issuable upon the conversion of Class A Debentures issuable
to Eurycleia in lieu of cash interest on the outstanding Class A
Debentures held by it, (ii) 53,655 shares of Common Stock issuable upon
the exercise or conversion of Optional Class A Debentures and additional
Series G Warrants, Series H Warrants and Series I Warrants which McGlynn
has the right to acquire from the Company, and (iii) 6,459 shares of
Common Stock issuable upon the conversion of Class A Debentures issuable
to McGlynn in lieu of cash interest on the Optional Class A Debentures it
has the right to acquire from the Company.
(39) Consists of (i) 84,321 shares of Common Stock issuable upon the
conversion of Class A Debentures held by Edward J. Rosenthal Keogh
("Keogh"), (ii) 71,725 shares of Common Stock issuable upon the exercise
of Series G Warrants held by Keogh, (iii) 3,837 shares of Common Stock
issuable upon the exercise of Series H Warrants held by Keogh, and (iv)
1.919 shares of Common Stock issuable upon the exercise of Series I
Warrants held by Keogh. Also includes (i) 20,478 shares of Common Stock
issuable upon the conversion of Class A Debentures issuable to Keogh in
lieu of cash interest on the outstanding Class A Debentures held by it,
(ii) 53,655 shares of Common Stock issuable upon the exercise or
conversion of Optional Class A Debentures and additional Series G
Warrants, Series H Warrants and Series I Warrants which Keogh has the
right to acquire from the Company, and (iii) 6,459 shares of Common Stock
issuable upon the conversion of Class A Debentures issuable to Keogh in
lieu of cash interest on the Optional Class A Debentures it has the right
to acquire from the Company.
(40) Consists of (i) 84,321 shares of Common Stock issuable upon the
conversion of Class A Debentures held by Mr. Filoon, (ii) 71,725 shares
of Common Stock issuable upon the exercise of Series G Warrants held by
Mr. Filoon, (iii) 3,837 shares of Common Stock issuable upon the exercise
of Series H Warrants held by Mr. Filoon, and (iv) 1.919 shares of Common
Stock issuable upon the exercise of Series I Warrants held by Mr. Filoon.
Also includes (i) 20,478 shares of Common Stock issuable upon the
conversion of Class A Debentures issuable to Mr. Filoon in lieu of cash
interest on the outstanding Class A Debentures held by him, (ii) 53,655
shares of Common Stock issuable upon the exercise or conversion of
Optional Class A Debentures and additional Series G Warrants, Series H
Warrants and Series I Warrants which Mr. Filoon has the right to acquire
from the Company, and (iii) 6,459 shares of Common Stock issuable upon
the conversion of Class A Debentures issuable to Mr. Filoon in lieu of
cash interest on the Optional Class A Debentures he has the right to
acquire from the Company.
(41) Includes 200,000 shares of Common Stock issuable upon the exercise of
options.
(42) Consists of (i) 40,000 shares of Common Stock issuable upon the exercise
of Series A Warrants held by Venturetek, L.P. ("Venturetek") , (ii)
47,170 shares of Common Stock issuable upon the exercise of Series D
Warrants held by Venturetek, and (iii) 47,170 shares of Common Stock
issuable upon the conversion of one-half share of Series A Preferred
Stock held by Venturetek.
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<PAGE>
(43) Consists of (i) 94,340 shares of Common Stock issuable upon the exercise
of Series D Warrants held by Danilan Investments Inc. ("Danilan") and
(ii) 94,340 shares of Common Stock issuable upon the conversion of one
share of Series A Preferred Stock held by Danilan.
(44) Includes 94,340 shares of Common Stock issuable upon the conversion
of one share of Series A Preferred Stock held by Mr. and Mrs. Lorsch as
joint tenants.
(45) Consists of (i) 94,340 shares of Common Stock issuable upon the exercise
of Series D Warrants held by Mr. Ozada and (ii) 94,340 shares of Common
Stock issuable upon the conversion of one share of Series A Preferred
Stock held by Mr. Ozada.
(46) Consists of (i) 94,340 shares of Common Stock issuable upon the exercise
of Series D Warrants held by Leonard Pearlman and (ii) 94,340 shares of
Common Stock issuable upon the conversion of one share of Series A
Preferred Stock held by Mr. Pearlman.
(47) Includes 94,340 shares of Common Stock issuable upon the conversion of
one-share of Series A Preferred Stock held by Mr. DeGroat.
(48) Includes 94,340 shares of Common Stock issuable upon the conversion of
one-share of Series A Preferred Stock held by Mr. Isaacs.
(49) Includes 94,340 shares of Common Stock issuable upon the conversion of
one-share of Series A Preferred Stock held by Mrs. Schneider.
(50) Includes 94,340 shares of Common Stock issuable upon the conversion of
one-share of Series A Preferred Stock held by Mr. and Mrs. Teman as joint
tenants.
(51) Consists of (i) 42,161 shares of Common Stock issuable upon the
conversion of Class A Debentures held by Mr. Trainor, (ii) 35,862 shares
of Common Stock issuable upon the exercise of Series G Warrants held by
Mr. Trainor, (iii) 1,919 shares of Common Stock issuable upon the
exercise of Series H Warrants held by Mr. Trainor, and (iv) 959 shares of
Common Stock issuable upon the exercise of Series I Warrants held by Mr.
Trainor. Also includes (i) 10,239 shares of Common Stock issuable upon
the conversion of Class A Debentures issuable to Mr. Trainor in lieu of
cash interest on the outstanding Class A Debentures held by him, (ii)
26,828 shares of Common Stock issuable upon the exercise or conversion of
Optional Class A Debentures and additional Series G Warrants, Series H
Warrants and Series I Warrants which Mr. Trainor has the right to acquire
from the Company, and (iii) 3,230 shares of Common Stock issuable upon
the conversion of Class A Debentures issuable to Mr. Trainor in lieu of
cash interest on the Optional Class A Debentures he has the right to
acquire from the Company.
(52) Includes 40,000 shares of Common Stock issuable upon the exercise
of Series A Warrants held by Sabina International Inc.
(53) Includes 40,000 shares of Common Stock issuable upon the exercise of
Series A Warrants held by Ms. Schneider.
(54) Includes 40,000 shares of Common Stock issuable upon the exercise of
Series A Warrants held by Mr. Shaykin.
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<PAGE>
(55) Consists of (i) 47,170 shares of Common Stock issuable upon the exercise
of Series D Warrants held by Mr. and Mrs. Alpert as joint tenants and
(ii) 47,170 shares of Common Stock issuable upon the conversion of
one-half share of Series A Preferred Stock held by Mr. and Mrs. Alpert as
joint tenants.
(56) Includes 47,170 shares of Common Stock issuable upon the conversion
of one-half-share of Series A Preferred Stock held by Mr. Brown.
(57) Includes 47,170 shares of Common Stock issuable upon the conversion
of one-half-share of Series A Preferred Stock held by Mr. Schneider.
(58) Includes 20,000 shares of Common Stock issuable upon the exercise of
Series A Warrants held by RBC, Inc.
(59) Consists of 50,000 shares of Common Stock issuable upon the exercise
of Series B Warrants held by Mr. Haber.
(60) Consists of 50,000 shares of Common Stock issuable upon the exercise
of Series B Warrants held by Mr. Schneider.
(61) Consists of 50,000 shares of Common Stock issuable upon the exercise of
Series B Warrants held by Waveland Limited Partnership.
(62) Consists of 40,000 shares of Common Stock issuable upon the exercise
of Series B Warrants held by Mr. Harrison.
(63) Consists of 40,000 shares of Common Stock issuable upon the exercise
of Series B Warrants held by Mr. and Mrs. Musicant as joint tenants.
(64) Consists of 40,000 shares of Common Stock issuable upon the exercise
of Series B Warrants held by Mr. Stern.
(65) Consists of 33,333 shares of Common Stock issuable upon the exercise
of Series E Warrants held by Mr. Plattus.
(66) Consists of (i) 20,000 shares of Common Stock issuable upon the exercise
of Series E Warrants held by Mr. Carreras, and (ii) 12,500 shares of
Common Stock issuable upon the exercise of Series F Warrants held by Mr.
Carreras.
(67) Consists of 20,000 shares of Common Stock issuable upon the exercise of
Series B Warrants held by Kemlink, Inc.
(68) Consists of 15,000 shares of Common Stock issuable upon the exercise
of Series B Warrants held by Mr. and Mrs. Fisher as joint tenants.
(69) Consists of 7,500 shares of Common Stock issuable upon the exercise
of Series E Warrants held by Mr. Chianese.
(70) Consists of 7,500 shares of Common Stock issuable upon the exercise
of Series E Warrants held by Mr. Danziger.
(71) Consists of 7,500 shares of Common Stock issuable upon the exercise
of Series E Warrants held by Mr. Ziegenfus.
(72) Consists of 4,000 shares of Common Stock issuable upon the exercise
of Series B Warrants held by Ms. Miodownic.
(73) Consists of 3,000 shares of Common Stock issuable upon the exercise of
Series E Warrants held by Mr. and Mrs. Woltin as joint tenants.
(74) Consists of 1,000 shares of Common Stock issuable upon the exercise of
Series B Warrants held by Ms. Nakis.
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<PAGE>
<TABLE>
<CAPTION>
Series A Warrants
Series A Warrants
Series A Warrants Maximum Owned
Selling Owned Amount to After Offering if
Securityholder Prior to Offering be Sold Maximum is Sold
- ------------------------------ ----------------------------- --------------- -------------------------------
Amount Percent Amount Percent
---------------- --------- ---------------- ----------
<S> <C> <C> <C>
UTO Bank 140,000 23.3% 140,000 -- --
Lamare Investments Ltd. 80,000 13.3 80,000 -- --
Mark B. Fisher 60,000 10.0 60,000 -- --
Charles S. Brand 40,000 6.7 40,000 -- --
Nathan A. Low 40,000 6.7 40,000 -- --
Sabina International Inc. 40,000 6.7 40,000 -- --
Amy Schneider 40,000 6.7 40,000 -- --
Leonard P. Shaykin 40,000 6.7 40,000 -- --
Venturetek, L.P. 40,000 6.7 40,000 -- --
Gregory Manocherian 20,000 3.3 20,000 -- --
RBC, Inc. 20,000 3.3 20,000 -- --
Radix Associates 20,000 3.3 20,000 -- --
Weiskopf, Silver & Co. 20,000 3.3 20,000 -- --
</TABLE>
<TABLE>
<CAPTION>
Series B Warrants
Series B Warrants
Series B Warrants Maximum Owned
Selling Owned Amount to After Offering if
Securityholder Prior to Offering be Sold Maximum is Sold
- ------------------------------ ----------------------------- --------------- -------------------------------
Amount Percent Amount Percent
---------------- --------- ---------------- ----------
<S> <C> <C> <C>
Mark B. Fisher 520,000 34.7% 520,000 -- --
RILAR Family Associates, L.P. 380,000 25.3 380,000 -- --
Alfred Mendelsohn 290,000 19.3 290,000 -- --
Kenneth I. Haber 50,000 3.3 50,000 -- --
Allan Schneider 50,000 3.3 50,000 -- --
Waveland Limited Partnership 50,000 3.3 50,000 -- --
Edward J. Harrison 40,000 2.7 40,000 -- --
Russell T. Stern, Jr. 40,000 2.7 40,000 -- --
David & Julie Musicant 40,000 2.7 40,000 -- --
Kemlink, Inc. 20,000 1.3 20,000 -- --
William & Janice Fisher 15,000 1.0 15,000 -- --
Gilda Miodownic 4,000 * 4,000 -- --
Elaine Nakis 1,000 * 1,000 -- --
</TABLE>
- -----------------------
*Less than 1%.
-50-
<PAGE>
<TABLE>
<CAPTION>
Series C Warrants
Series C Warrants
Series C Warrants Maximum Owned
Selling Owned Amount to After Offering if
Securityholder Prior to Offering be Sold Maximum is Sold
- ------------------------------ ----------------------------- --------------- -------------------------------
Amount Percent Amount Percent
---------------- --------- ---------------- ----------
<S> <C> <C> <C> <C>
Stephen Feinberg 2,542,380 (1) 100.0% 2,542,380 -- --
</TABLE>
- -------------------
(1) Consists of Series C Warrants to acquire an aggregate of 2,542,380 shares
of Common Stock held by Cerberus. Mr. Feinberg is the Managing Member of
Cerberus Associates, L.L.C., the general partner of Cerberus and,
accordingly, is deemed to be the beneficial owner of all Series C
Warrants owned by Cerberus.
<TABLE>
<CAPTION>
Series D Warrants
Series D Warrants
Series D Warrants Maximum Owned
Selling Owned Amount to After Offering if
Securityholder Prior to Offering be Sold Maximum is Sold
- ------------------------------ ----------------------------- --------------- -------------------------------
Amount Percent Amount Percent
---------------- --------- ---------------- ----------
<S> <C> <C> <C>
Beja International SA 471,700 24.4% 471,700 -- --
Frederick G. Graham 188,680 9.8 188,680 -- --
Lamare Investments Ltd. 188,680 9.8 188,680 -- --
Freydun Manocherian 188,680 9.8 188,680 -- --
Stanley Associates 188,680 9.8 188,680 -- --
Danilan Investments Inc. 94,340 4.9 94,340 -- --
Richard K. Laird 94,340 4.9 94,340 -- --
Eric E. Ozada 94,340 4.9 94,340 -- --
Leonard Pearlman 94,340 4.9 94,340 -- --
Radix Associates 94,340 4.9 94,340 -- --
Weiskopf, Silver & Co. 94,340 4.9 94,340 -- --
Kenneth & Claire Alpert 47,170 2.4 47,170 -- --
Gregory Manocherian 47,170 2.4 47,170 -- --
Venturetek, L.P. 47,170 2.4 47,170 -- --
</TABLE>
-51-
<PAGE>
<TABLE>
<CAPTION>
Series E Warrants
Series E Warrants
Series E Warrants Maximum Owned
Selling Owned Amount to After Offering if
Securityholder Prior to Offering be Sold Maximum is Sold
- ------------------------------ ----------------------------- --------------- -------------------------------
Amount Percent Amount Percent
---------------- --------- ---------------- ----------
<S> <C> <C> <C>
Norman M. Phipps 296,042 29.6% 296,042 -- --
Lawrence Schneider 291,667 29.2 291,667 -- --
Wade Teman 200,125 20.0 200,125 -- --
Henry N. Schneider 133,333 13.3 133,333 -- --
Jeffrey Plattus 33,333 3.3 33,333 -- --
Jean-Francois Carreras 20,000 2.0 20,000 -- --
Arthur L. Chianese 7,500 * 7,500 -- --
Robert Danziger 7,500 * 7,500 -- --
Carlton L. Ziegenfus 7,500 * 7,500 -- --
Mark & Rita Woltin 3,000 * 3,000 -- --
</TABLE>
- -----------------------
*Less than 1%.
<TABLE>
<CAPTION>
Series F Warrants
Series F Warrants
Series F Warrants Maximum Owned
Selling Owned Amount to After Offering if
Securityholder Prior to Offering be Sold Maximum is Sold
- ------------------------------ ----------------------------- --------------- -------------------------------
Amount Percent Amount Percent
---------------- --------- ---------------- ----------
<S> <C> <C> <C>
Lawrence I. Schneider 331,190 49.7% 331,190 -- --
Norman M. Phipps 134,906 20.2 134,906 -- --
Alfred Mendelsohn 100,000 15.0 100,000 -- --
Wade Teman 88,444 13.3 88,444 -- --
Jean-Francois Carreras 12,500 1.9 12,500 -- --
</TABLE>
-52-
<PAGE>
<TABLE>
<CAPTION>
Series G Warrants
Series G Warrants
Series G Warrants Maximum Owned
Selling Owned Amount to After Offering if
Securityholder Prior to Offering(1) be Sold Maximum is Sold(1)
- ------------------------------ ----------------------------- --------------- -------------------------------
Amount Percent Amount Percent
---------------- --------- ---------------- ----------
<S> <C> <C> <C> <C>
Mark B. Fisher 1,725,806 (2) 23.1%_ 1,725,806 -- --
Gregory Manocherian 1,598,254 (3) 20.7 1,598,254 -- --
A.C. Israel Enterprises, Inc. 967,742 (4) 12.7 967,742 -- --
Gerald B. Cramer 967,742 (5) 12.7 967,742 -- --
CRM Partners, L..P. 870,967 (6) 11.5 870,967 -- --
CRM Enterprise Fund, L.L.C. 648,388 (7) 8.6 648,388 -- --
CRM Madison Partners, L.P. 483,871 (8) 6.5 483,871 -- --
CRM Retirement Partners, L.P. 483,871 (9) 6.5 483,871 -- --
Cramer Rosenthal McGlynn, Inc. 296,907 (10) 4.0 296,907 -- --
L.A.D. Equity Partners, L.P. 290,322 (11) 3.9 290,322 -- --
CRM-EFO Partners, L.P. 241,936 (12) 3.3 241,936 -- --
Richard S. Fuld 145,161 (13) 2.0 145,161 -- --
CRM Eurycleia Partners, L.P. 145,161 (14) 2.0 145,161 -- --
CRM U.S. Value Fund, Ltd. 145,161 (15) 2.0 145,161 -- --
Fred M. Filoon 96,774 (16) 1.3 96,774 -- --
McGlynn Family Partnership 96,774 (17) 1.3 96,774 -- --
Edward J. Rosenthal Keogh 96,774 (18) 1.3 96,774 -- --
Eugene A. Trainor 48,387 (19) * 48,387 -- --
</TABLE>
- -----------------------
*Less than 1%.
(1) Assumes that the full exercise of the holders' rights to purchase
additional Series G Warrants as described herein.
(2) Consists of (i) 241,935 Series G Warrants held by Mr. Fisher, (ii)
500,000 Series G Warrants held by MBF, (iii) 483,871 Series G Warrants
held by Broadband Systems, (iv) 383,721 Series G Warrants held by
Phineas, and (v) 116,279 additional Series G Warrants which Phineas has
the right to acquire from the Company. Mr. Fisher is the sole officer,
director and shareholder of MBF and MBF Broadband Systems, Inc., the
general partner of both Broadband Systems and Phineas. Accordingly, Mr.
Fisher is deemed to be the beneficial owner of all Series G Warrants
beneficially owned by each of MBF, Broadband Systems and Phineas.
(3) Consists of (i) 96,774 Series G Warrants held by Kabuki, (ii) 375,246
Series G Warrants held by Whitehall, (iii) 750,492 Series G Warrants held
by PEC, (iv) 125,247 additional Series G Warrants which Whitehall has the
right to acquire from the Company, and (v) 250,495 additional Series G
Warrants which PEC has the right to acquire from the Company. Mr.
Manocherian is (i) the controlling general partner of Kabuki, (ii) a
member of Whitehall, and (iii) an officer of PEC. Accordingly, Mr.
Manocherian may be deemed to be the beneficial owner of all Series G
Warrants beneficially owned by each of Kabuki, Whitehall and PEC.
(4) Consists of (i) 717,247 Series G Warrants held by ACIE, and (ii) 250,495
additional Series G Warrants which ACIE has the right to acquire from the
Company.
(5) Consists of (i) 717,247 Series G Warrants held by Mr. Cramer, and (ii)
250,495 additional Series G Warrants which Mr. Cramer has the right to
acquire from the Company.
(6) Consists of (i) 645,522 Series G Warrants held by CRM Partners, and (ii)
225,445 additional Series G Warrants which CRM Partners has the right to
acquire from the Company.
(7) Consists of (i) 480,556 Series G Warrants held by CRM Enterprise Fund,
and (ii) 167,832 additional Series G Warrants which CRM Enterprise Fund
has the right to acquire from the Company.
(8) Consists of (i) 358,624 Series G Warrants held by CRM Madison Partners,
and (ii) 125,247 additional Series G Warrants which CRM Madison Partners
has the right to acquire from the Company.
(9) Consists of (i) 358,624 Series G Warrants held by CRM Retirement
Partners, and (ii) 125,247 additional Series G Warrants which CRM
Retirement Partners has the right to acquire from the Company.
-53-
<PAGE>
(10) Consists of (i) 271,858 Series G Warrants held by CRM, and (ii) 25,049
additional Series G Warrants which CRM has the right to acquire from the
Company.
(11) Consists of (i) 215,174 Series G Warrants held by LAD, and (ii) 75,148
additional Series G Warrants which LAD has the right to acquire from the
Company.
(12) Consists of (i) 179,312 Series G Warrants held by CRM-EFO, and (ii)
62,624 additional Series G Warrants which CRM-EFO has the right to
acquire from the Company.
(13) Consists of (i) 107,587 Series G Warrants held by Mr. Fuld, and (ii)
37,574 additional Series G Warrants which Mr. Fuld has the right to
acquire from the Company.
(14) Consists of (i) 107,587 Series G Warrants held by Eurycleia, and (ii)
37,574 additional Series G Warrants which Eurycleia has the right to
acquire from the Company.
(15) Consists of (i) 107,587 Series G Warrants held by Value Fund, and (ii)
37,574 additional Series G Warrants which Value Fund has the right to
acquire from the Company.
(16) Consists of (i) 71,725 Series G Warrants held by Mr. Filoon, and (ii)
25,049 additional Series G Warrants which Mr. Filoon has the right to
acquire from the Company.
(17) Consists of (i) 71,725 Series G Warrants held by McGlynn, and (ii) 25,049
additional Series G Warrants which McGlynn has the right to acquire from
the Company.
(18) Consists of (i) 71,725 Series G Warrants held by Keogh, and (ii) 25,049
additional Series G Warrants which Keogh has the right to acquire from
the Company.
(19) Consists of (i) 35,862 Series G Warrants held by Mr. Trainor, and (ii)
12,525 additional Series G Warrants which Mr. Trainor has the right to
acquire from the Company.
-54-
<PAGE>
<TABLE>
<CAPTION>
Series H Warrants
Series H Warrants
Series H Warrants Maximum Owned
Selling Owned Amount to After Offering if
Securityholder Prior to Offering(1) be Sold Maximum is Sold(1)
- ------------------------------ ----------------------------- --------------- -------------------------------
Amount Percent Amount Percent
---------------- --------- ---------------- ----------
<S> <C> <C> <C> <C>
Mark B. Fisher 1,038,829 (2) 62.4% 1,038,829 -- --
Gregory Manocherian 82,835 (3) 5.7 82,835 -- --
A.C. Israel Enterprises, Inc. 51,772 (4) 3.6 51,772 -- --
Gerald B. Cramer 51,772 (5) 3.6 51,772 -- --
CRM Partners, L..P. 46,595 (6) 3.2 46,595 -- --
CRM Enterprise Fund, L.L.C. 34,688 (7) 2.4 34,688 -- --
CRM Madison Partners, L.P. 25,886 (8) 1.8 25,886 -- --
CRM Retirement Partners, L.P. 25,886 (9) 1.8 25,886 -- --
L.A.D. Equity Partners, L.P. 15,531 (10) 1.1 15,531 -- --
CRM-EFO Partners, L.P. 12,943 (11) * 12,943 -- --
CRM Eurycleia Partners, L.P. 7,766 (12) * 7,766 -- --
CRM U.S. Value Fund, Ltd. 7,766 (13) * 7,766 -- --
Richard S. Fuld 7,766 (14) * 7,766 -- --
Cramer Rosenthal McGlynn, 5,177 (15) * 5,177 -- --
Inc.
Fred M. Filoon 5,177 (16) * 5,177 -- --
McGlynn Family Partnership 5,177 (17) * 5,177 -- --
Edward J. Rosenthal Keogh 5,177 (18) * 5,177 -- --
Eugene A. Trainor 2,589 (19) * 2,589 -- --
</TABLE>
- -----------------------
*Less than 1%.
(1) Assumes that the full exercise of the holders' rights to purchase
additional Series H Warrants as described herein.
(2) Consists of (i) 12,943 Series H Warrants held by Mr. Fisher, (ii) 25,886
Series H Warrants held by Broadband Systems, (iii) 767,442 Series H
Warrants held by Phineas, and (iv) 232,558 additional Series H Warrants
which Phineas has the right to acquire from the Company. Mr. Fisher is
the sole officer, director and shareholder of MBF Broadband Systems,
Inc., the general partner of both Broadband Systems and Phineas.
Accordingly, Mr. Fisher is deemed to be the beneficial owner of all
Series H Warrants beneficially owned by each of Broadband Systems and
Phineas.
(3) Consists of (i) 5,177 Series H Warrants held by Kabuki, (ii) 19,186
Series H Warrants held by Whitehall, (iii) 38,371 Series H Warrants held
by PEC, (iv) 6,700 additional Series H Warrants which Whitehall has the
right to acquire from the Company, and (v) 13,401 additional Series H
Warrants which PEC has the right to acquire from the Company. Mr.
Manocherian is (i) the controlling general partner of Kabuki, (ii) a
member of Whitehall, and (iii) an officer of PEC. Accordingly, Mr.
Manocherian may be deemed to be the beneficial owner of all Series H
Warrants beneficially owned by each of Kabuki, Whitehall and PEC.
(4) Consists of (i) 38,371 Series H Warrants held by ACIE, and (ii) 13,401
additional Series H Warrants which ACIE has the right to acquire from the
Company.
(5) Consists of (i) 38,371 Series H Warrants held by Mr. Cramer, and (ii)
13,401 additional Series H Warrants which Mr. Cramer has the right to
acquire from the Company.
(6) Consists of (i) 34,534 Series H Warrants held by CRM Partners, and (ii)
12,061 additional Series H Warrants which CRM Partners has the right to
acquire from the Company.
(7) Consists of (i) 25,709 Series H Warrants held by CRM Enterprise Fund, and
(ii) 8,979 additional Series H Warrants which CRM Enterprise Fund has the
right to acquire from the Company.
(8) Consists of (i) 19,186 Series H Warrants held by CRM Madison Partners,
and (ii) 6,700 additional Series H Warrants which CRM Madison Partners
has the right to acquire from the Company.
(9) Consists of (i) 19,186 Series H Warrants held by CRM Retirement Partners,
and (ii) 6,700 additional Series H Warrants which CRM Retirement Partners
has the right to acquire from the Company.
-55-
<PAGE>
(10) Consists of (i) 11,511 Series H Warrants held by LAD, and (ii) 4,020
additional Series H Warrants which LAD has the right to acquire from the
Company.
(11) Consists of (i) 9,593 Series H Warrants held by CRM-EFO, and (ii) 3,350
additional Series H Warrants which CRM-EFO has the right to acquire from
the Company.
12) Consists of (i) 5,756 Series H Warrants held by Eurycleia, and (ii) 2,010
additional Series H Warrants which Eurycleia has the right to acquire
from the Company.
(13) Consists of (i) 5,756 Series H Warrants held by Value Fund, and (ii)
2,010 additional Series H Warrants which Value Fund has the right to
acquire from the Company.
(14) Consists of (i) 5,756 Series H Warrants held by Mr. Fuld, and (ii) 2,010
additional Series H Warrants which Mr. Fuld has the right to acquire from
the Company.
(15) Consists of (i) 3,837 Series H Warrants held by CRM, and (ii) 1,340
additional Series H Warrants which CRM has the right to acquire from the
Company.
(16) Consists of (i) 3,837 Series H Warrants held by Mr. Filoon, and (ii)
1,340 additional Series H Warrants which Mr. Filoon has the right to
acquire from the Company.
(17) Consists of (i) 3,837 Series H Warrants held by McGlynn, and (ii) 1,340
additional Series H Warrants which McGlynn has the right to acquire from
the Company.
(18) Consists of (i) 3,837 Series H Warrants held by Keogh, and (ii) 1,340
additional Series H Warrants which Keogh has the right to acquire from
the Company.
(19) Consists of (i) 1,919 Series H Warrants held by Mr. Trainor, and (ii) 670
additional Series H Warrants which Mr. Trainor has the right to acquire
from the Company.
-56-
<PAGE>
<TABLE>
<CAPTION>
Series I Warrants
Series I Warrants
Series I Warrants Maximum Owned
Selling Owned Amount to After Offering if
Securityholder Prior to Offering(1) be Sold Maximum is Sold(1)
- ------------------------------ ----------------------------- --------------- -------------------------------
Amount Percent Amount Percent
---------------- --------- ---------------- ----------
<S> <C> <C> <C> <C>
Mark B. Fisher 519,415 (2) 62.4% 519,415 -- --
Gregory Manocherian 41,418 (3) 5.7 41,418 -- --
A.C. Israel Enterprises, Inc. 25,886 (4) 3.6 25,886 -- --
Gerald B. Cramer 25,886 (5) 3.6 25,886 -- --
CRM Partners, L..P. 23,297 (6) 3.2 23,297 -- --
CRM Enterprise Fund, L.L.C. 17,343 (7) 2.4 17,343 -- --
CRM Madison Partners, L.P. 12,943 (8) 1.8 12,943 -- --
CRM Retirement Partners, L.P. 12,943 (9) 1.8 12,943 -- --
L.A.D. Equity Partners, L.P. 7,766 (10) 1.1 7,766 -- --
CRM-EFO Partners, L.P. 6,471 (11) * 6,471 -- --
CRM Eurycleia Partners, L.P. 3,883 (12) * 3,883 -- --
CRM U.S. Value Fund, Ltd. 3,883 (13) * 3,883 -- --
Richard S. Fuld 3,883 (14) * 3,883 -- --
Cramer Rosenthal McGlynn, Inc. 2,589 (15) * 2,589 -- --
Fred M. Filoon 2,589 (16) * 2,589 -- --
McGlynn Family Partnership 2,589 (17) * 2,589 -- --
Edward J. Rosenthal Keogh 2,589 (18) * 2,589 -- --
Eugene A. Trainor 1,294 (19) * 1,294 -- --
</TABLE>
- -----------------------
*Less than 1%.
(1) Assumes that the full exercise of the holders' rights to purchase
additional Series I Warrants as described herein.
(2) Consists of (i) 6,472 Series I Warrants held by Mr. Fisher, (ii) 12,943
Series I Warrants held by Broadband Systems, (iii) 383,721 Series I
Warrants held by Phineas, and (iv) 116,279 additional Series I Warrants
which Phineas has the right to acquire from the Company. Mr. Fisher is
the sole officer, director and shareholder of MBF Broadband Systems,
Inc., the general partner of both Broadband Systems and Phineas.
Accordingly, Mr. Fisher is deemed to be the beneficial owner of all
Series I Warrants beneficially owned by each of Broadband Systems and
Phineas.
(3) Consists of (i) 2,589 Series I Warrants held by Kabuki, (ii) 9,593 Series
I Warrants held by Whitehall, (iii) 19,186 Series I Warrants held by PEC,
(iv) 3,350 additional Series I Warrants which Whitehall has the right to
acquire from the Company, and (v) 6,700 additional Series I Warrants
which PEC has the right to acquire from the Company. Mr. Manocherian is
(i) the controlling general partner of Kabuki, (ii) a member of
Whitehall, and (iii) an officer of PEC. Accordingly, Mr. Manocherian may
be deemed to be the beneficial owner of all Series I Warrants
beneficially owned by each of Kabuki, Whitehall and PEC.
(4) Consists of (i) 19,186 Series I Warrants held by ACIE, and (ii) 6,700
additional Series I Warrants which ACIE has the right to acquire from the
Company.
(5) Consists of (i) 19,186 Series I Warrants held by Mr. Cramer, and (ii)
6,700 additional Series I Warrants which Mr. Cramer has the right to
acquire from the Company.
(6) Consists of (i) 17,267 Series I Warrants held by CRM Partners, and (ii)
6,030 additional Series I Warrants which CRM Partners has the right to
acquire from the Company.
(7) Consists of (i) 12,854 Series I Warrants held by CRM Enterprise Fund, and
(ii) 4,489 additional Series I Warrants which CRM Enterprise Fund has the
right to acquire from the Company.
(8) Consists of (i) 9,593 Series I Warrants held by CRM Madison Partners, and
(ii) 3,350 additional Series I Warrants which CRM Madison Partners has
the right to acquire from the Company.
(9) Consists of (i) 9,593 Series I Warrants held by CRM Retirement Partners,
and (ii) 3,350 additional Series I Warrants which CRM Retirement Partners
has the right to acquire from the Company.
-57-
<PAGE>
(10) Consists of (i) 5,756 Series I Warrants held by LAD, and (ii) 2,010
additional Series I Warrants which LAD has the right to acquire from the
Company.
(11) Consists of (i) 4,796 Series I Warrants held by CRM-EFO, and (ii) 1,675
additional Series I Warrants which CRM-EFO has the right to acquire from
the Company.
(12) Consists of (i) 2,878 Series I Warrants held by Eurycleia, and (ii) 1,005
additional Series I Warrants which Eurycleia has the right to acquire
from the Company.
(13) Consists of (i) 2,878 Series I Warrants held by Value Fund, and (ii)
1,005 additional Series I Warrants which Value Fund has the right to
acquire from the Company.
(14) Consists of (i) 2,878 Series I Warrants held by Mr. Fuld, and (ii) 1,005
additional Series I Warrants which Mr. Fuld has the right to acquire from
the Company.
(15) Consists of (i) 1,919 Series I Warrants held by CRM, and (ii) 670
additional Series I Warrants which CRM has the right to acquire from the
Company.
(16) Consists of (i) 1,919 Series I Warrants held by Mr. Filoon, and (ii) 670
additional Series I Warrants which Mr. Filoon has the right to acquire
from the Company.
(17) Consists of (i) 1,919 Series I Warrants held by McGlynn, and (ii) 670
additional Series I Warrants which McGlynn has the right to acquire from
the Company.
(18) Consists of (i) 1,919 Series I Warrants held by Keogh, and (ii) 670
additional Series I Warrants which Keogh has the right to acquire from
the Company.
(19) Consists of (i) 959 Series I Warrants held by Mr. Trainor, and (ii) 335
additional Series I Warrants which Mr. Trainor has the right to acquire
from the Company.
-58-
<PAGE>
<TABLE>
<CAPTION>
Preferred Stock
Preferred Stock
Preferred Stock Maximum Owned
Selling Owned Amount to After Offering if
Securityholder Prior to Offering be Sold Maximum is Sold
- ------------------------------ ----------------------------- --------------- -------------------------------
Amount Percent Amount Percent
---------------- --------- ---------------- ----------
<S> <C> <C> <C>
Beja International SA 5 17.9% 5 -- --
Frederick G. Graham 2 7.1 2 -- --
Lamare Investments Ltd. 2 7.1 2 -- --
Freydun Manocherian 2 7.1 2 -- --
Stanley Associates 2 7.1 2 -- --
Danilan Investments Inc. 1 3.6 1 -- --
Stephen J. DeGroat 1 3.6 1 -- --
Jeremy Isaacs 1 3.6 1 -- --
Howard & Lois Lorsch 1 3.6 1 -- --
Nathan Low 1 3.6 1 -- --
Eric E. Ozada 1 3.6 1 -- --
Leonard Pearlman 1 3.6 1 -- --
Radix Associates 1 3.6 1 -- --
Henry N. Schneider 1 3.6 1 -- --
Rita Schneider 1 3.6 1 -- --
Seymour & Arlene Teman 1 3.6 1 -- --
Weiskopf, Silver & Co. 1 3.6 1 -- --
Kenneth & Claire Alpert 0.5 1.8 0.5 -- --
Spencer Brown 0.5 1.8 0.5 -- --
Gregory Manocherian 0.5 1.8 0.5 -- --
Scott Schneider 0.5 1.8 0.5 -- --
Venturetek, L.P. 0.5 1.8 0.5 -- --
Norman M. Phipps 0.25 * 0.25 -- --
Wade Teman 0.25 * 0.25 -- --
</TABLE>
- -----------------------
*Less than 1%.
-59-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The following is a brief summary of certain provisions of the capital stock
of the Company. Such summary does not purport to be complete and is qualified in
all respects by reference to the actual text of the Certificate of
Incorporation, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
TheCompany's authorized capital stock consists of 100,000,000 shares of
Common Stock, par value $0.01 per share, and 200 shares of Preferred Stock, par
value $0.01 per share, of which 30 shares are designated as Series A 12%
Cumulative Convertible Redeemable Preferred Stock, stated value $50,000 per
share. As of April 15, 1998, the Company had outstanding 25,823,324 shares of
Common Stock and 28 shares of Series A Preferred Stock. In addition, as of April
15, 1998, the Company had 43,173,273 shares of Common Stock reserved for
issuance pursuant to options, warrants and convertible securities outstanding as
of that date. See "Shares Eligible For Future Sale." As of April 15, 1998, there
were approximately 400 record holders of Common Stock.
Common Stock
The holders of shares of Common Stock are entitled to one vote for each
share on all matters on which the holders of Common Stock are entitled to vote.
Subject to the rights of any outstanding shares of Preferred Stock, the holders
of the Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
Holders of Common Stock are entitled to share ratably in the net assets of the
Company upon liquidation or dissolution after payment or provision for all
liabilities and the preferential liquidation rights of any shares of Preferred
Stock then outstanding. The holders of Common Stock have no pre-emptive rights
to purchase any shares of any class of stock of the Company. All outstanding
shares of Common Stock are, and the shares of Common Stock to be issued by the
Company pursuant hereto will be, upon payment therefor, fully paid and
non-assessable.
Preferred Stock
The Preferred Stock may be issued from time to time in one or more classes
or series, and the Board of Directors is authorized, subject to any limitations
prescribed by Delaware law, to fix the rights, preferences and privileges of the
shares and the qualifications, limitations or restrictions thereon, the number
of shares constituting such class or series and the designation thereof, without
any further vote or action by the stockholders.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
Depending upon the rights of such Preferred Stock, the issuance of additional
Preferred Stock could adversely affect the holders of Common Stock. For example,
Preferred Stock issued by the Company may rank senior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of Common Stock. Accordingly, the
issuance of shares of Preferred Stock may discourage bids for the Common Stock
at a premium or may otherwise adversely affect the market price of the Common
Stock.
For a description of the terms of the Series A Preferred Stock, see
"Description of Preferred Stock."
Section 203 of the Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law generally restricts a
corporation from entering into certain business combinations with an interested
stockholder (defined as any person or entity that is the
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<PAGE>
beneficial owner of at least 15% of a corporation's voting stock) or its
affiliates for a period of three years after the date of the transaction in
which the person became an interested stockholder unless (i) the transaction is
approved by the board of directors of the corporation prior to such business
combination, (ii) the interested stockholder acquires 85% of the corporation's
voting stock in the same transaction in which it exceeds 15%, or (iii) the
business combination is approved by the board of directors and by a vote of
two-thirds of the outstanding voting stock not owned by the interested
stockholder. The Delaware General Corporation Law provides that a corporation
may elect not to be governed by Section 203. At present, the Company does not
intend to make such an election. Section 203 may render more difficult a change
in control of the Company or the removal of incumbent management.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
Possible Changes in Capital Structure
In April 1998, the Company's stockholders approved a number of amendments
to the Company's Certificate of Incorporation, including (i) an amendment to
change the Company's name to "Broadband Wireless Communications, Inc.", (ii) an
amendment authorizing a one-for ten reverse stock split of the Common Stock, in
which each ten shares of issued and outstanding Common Stock would be
reclassified into one share of new Common Stock of the Company, par value $.01
per share, and the number of authorized shares of Common Stock would be reduced
to 10,000,000 (the "Reverse Split Amendment"), (iii) an amendment to increase
the number of authorized shares of capital stock of the Company from 100,000,200
to 355,000,000 (or from 10,000,200 to 40,000,000 if the Reverse Split Amendment
is effected), to be comprised of 350,000,000 shares of Common Stock (or
35,000,000 if the Reverse Split Amendment is effected), and 5,000,000 shares of
Preferred Stock, and (iv) an amendment to change the terms of the Series A
Preferred Stock to (x) limit the voting rights of the holders thereof to those
provided by Delaware law, and (y) permit the Company to pay dividends on the
Series A Preferred Stock in shares of Common Stock at the discretion of the
Board of Directors. As of the date of this Prospectus, none of the amendments
has been effected. Pursuant to Delaware law, the Board of Directors has reserved
the right not to effect the amendments if the Board of Directors, in its sole
discretion, determines that any or all of such amendments are no longer in the
best interests of the Company and its stockholders. Accordingly, no assurance
can be given as to whether any of the amendments will be effected or as to the
timing thereof.
DESCRIPTION OF PREFERRED STOCK
Holders of Series A Preferred Stock have a preference in the payment of
dividends over the payment of dividends on Common Stock or any other class of
stock of the Company junior to the Series A Preferred Stock with respect to the
payment of dividends. No dividends may be paid or declared, nor any distribution
made, upon any shares of Common Stock or any other class of stock of the Company
junior to the Series A Preferred Stock, unless all cumulative dividends payable
on Series A Preferred Stock have been paid or sufficient funds set aside for
payment thereof. In addition, no shares of Common Stock or any class of stock
junior to the Series A Preferred Stock with respect to the payment of dividends
may be redeemed, retired or otherwise acquired by the Company unless all
cumulative dividends payable on Series A Preferred Stock have been paid or
sufficient funds have been set aside for payment thereof. Cumulative dividends
on Series A Preferred Stock are payable, when and as declared by the Board of
Directors, at an annual rate of $6,000 per share, on a quarterly basis. The
dividends payable on the Series A Preferred Stock are subject to escalation in
the event that the Company does not satisfy in a timely fashion its obligation
to register the shares of Common Stock into which the Series A Preferred Stock
is convertible. Pursuant to these provisions, dividends on the Series A
Preferred Stock are currently accumulating at an annual rate of $8,500.
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<PAGE>
Holders of shares of Series A Preferred Stock are not entitled to
preemptive or subscriptive rights for the purchase or additional shares of any
class of capital stock of the Company.
The Company may, at its option, redeem all (but not less than all) of the
Series A Preferred Stock at $50,000 per share, plus accrued dividends, so long
as the average closing price of the Common Stock is not less than $5.00 per
share during the 120-day period immediately preceding the date notice of
redemption is given, and the closing price of the Common Stock is at least $5.00
per share for each of the thirty trading days immediately preceding the date of
such notice.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, or any reduction in its capital resulting in any
distribution of assets to its stockholders (subject to certain exceptions),
holders of Series A Preferred Stock will be entitled to a liquidation preference
of $50,000 per share plus accrued and unpaid dividends before any payments are
made with respect to the Common Stock or any other class of stock of the Company
which is junior to the Series A Preferred Stock with respect to the payment of
dividends. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the liquidation preference on the outstanding shares of
Series A Preferred Stock and the liquidation preferences on all shares of other
classes or series of the Company's capital stock ranking on a parity with the
Series A Preferred Stock, the holders of such shares will share ratably in any
distribution of assets in proportion to the full amounts to which they would
otherwise be respectively entitled.
Holders of shares of Series A Preferred Stock have the right, at their
option, at any time (unless the shares have been called for redemption, in which
case to and including the close of business on the date fixed for redemption) to
convert each share of Series A Preferred Stock into 94,340 shares of Common
Stock (subject to adjustment as summarized below). Shares of Common Stock will
be delivered upon surrender to the Company of the certificate or certificates
representing the shares of Series A Preferred Stock being converted. On
conversion, no payment or adjustment for dividends on either class will be made.
The number of shares of Common Stock into which each share of Series A
Preferred Stock is convertible is subject to adjustment in following
circumstances: (i) upon the issuance or sale by the Company of Common Stock
(subject to certain exceptions) at a price per share less than $0.27 (subject to
adjustment in certain circumstances) (the "Trigger Price"); (ii) upon the
issuance or sale by the Company of securities convertible into Common Stock at a
per share price below the Trigger Price (subject to certain exceptions); (iii)
upon the grant by the Company of any rights or options to acquire Common Stock
or securities convertible into Common Stock at a per share price below the
Trigger Price (subject to certain exceptions); (iv) the issuance of securities
or, under certain circumstances, the payment of cash by the Company to holders
of Common Stock as a dividend; (v) the distribution of securities and other
property of the Company to holders of Common Stock as the result of a stock
split, or other "corporate rearrangement"; and (vi) as the result of the
reorganization, merger or consolidation of the Company or the sale of all or
substantially all of its assets.
The Company may not, without the approval of the holders of at least 66
2/3% of the outstanding Series A Preferred Stock, (i) increase the authorized
Preferred Stock, or authorize or create, or increase the authorized amount of,
any other class of stock ranking prior to or on a parity with the Preferred
Stock as to dividends or assets, or authorize or create, or increase the
authorized amount of, any class of stock or obligations convertible into or
evidencing the right to purchase any class of stock ranking prior to or on
parity with the Preferred Stock as to dividends or assets, (ii) amend, alter or
repeal any of the provisions of the Certificate of Incorporation or any of the
rights, preferences or powers of the Preferred Stock or its holders, including
changes in the terms of the Series A Preferred Stock that would adversely affect
the rights, preferences or powers of the Series A Preferred Stock, (iii) sell,
lease or convey all, or substantially all, of its property or assets, (iv) merge
or consolidate with or into any other entity (subject to certain exceptions), or
(v) amend or repeal any of the voting rights of the holders of the Series A
Preferred Stock.
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<PAGE>
As described above, holders of the Series A Preferred Stock are entitled to
certain registration rights with respect to the shares of Common Stock into
which the Series A Preferred Stock is convertible. This Registration Statement
is intended to satisfy those registration rights.
For a description of certain potential changes to the terms of the Series A
Preferred Stock, see "Description of Capital Stock--Possible Changes in Capital
Structure."
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<PAGE>
DESCRIPTION OF WARRANTS
The following is a brief summary of certain provisions of the Warrants.
Such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the particular Warrant. A copy of the form of
Warrant has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
Purchase Price and Terms
The Series A Warrants are exercisable for an aggregate of 600,000 shares of
Common Stock at an exercise price of $0.25 per share prior to July 15, 2002.
The Series B Warrants are exercisable for an aggregate of 1,500,000 shares
of Common Stock at an exercise price of $0.25 per share prior to July 15, 2002.
The Series C Warrants are exercisable for an aggregate of 2,542,380 shares
of Common Stock at an exercise price of $0.01 per share prior to March 7, 2003.
The Series D Warrants are exercisable for an aggregate of 1,933,970 shares
of Common Stock at an exercise price of $0.01 per share prior to March 7, 2003.
The Series E Warrants are exercisable for an aggregate of 1,000,000 shares
of Common Stock at an exercise price of $0.40 per share prior to March 7, 2003.
The Series F Warrants are exercisable for an aggregate of 667,040 shares of
Common Stock at an exercise price of $0.50 per share prior to March 7, 2003.
The Series G Warrants (including the Optional Series G Warrants) are
exercisable for an aggregate of 9,350,000 shares of Common Stock at an exercise
price of $0.50 per share prior to July 29, 2004.
The Series H Warrants (including the Optional Series H Warrants) are
exercisable for an aggregate of 1,433,333 shares of Common Stock at an exercise
price of $0.60 per share prior to July 29, 2004.
The Series I Warrants (including the Optional Series I Warrants) are
exercisable for an aggregate of 716,667 shares of Common Stock at an exercise
price of $1.125 per share prior to July 29, 2004.
The number of shares of Common Stock issuable upon the exercise of the
Warrants is subject to adjustment in accordance with the anti-dilution and other
provisions referred to below. The holder of any Warrant may exercise such
Warrant by surrendering the certificate representing the Warrant to the Company,
with the subscription form thereon properly completed and executed, together
with payment of the purchase price. The Warrants may be exercised at any time in
whole or in part at the purchase price then in effect until the expiration of
the Warrants. No fractional shares will be issued upon the exercise of the
Warrants.
Adjustments
The number of shares of Common Stock purchasable upon the exercise of each
series of Warrants is subject to adjustment upon the occurrence of certain
events, including stock dividends, stock splits, combinations or
reclassifications of the Common Stock, or sale by the Company of shares of its
Common Stock (exclusive of shares issued upon the exercise or conversion of
outstanding options, warrants, debentures and convertible securities) at a price
less than a price specified in the respective series of Warrants. Additionally,
an adjustment would be made in the case of a reclassification or
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<PAGE>
exchange of Common Stock, payment of a dividend in other securities or property,
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the surviving
corporation) or sale of all or substantially all of the assets of the Company in
order to enable Warrant holders to acquire the kind and number of shares of
stock or other securities or property receivable in such event by a holder of
the number of shares of Common Stock that might otherwise have been purchased
upon the exercise of the Warrant.
Transfer, Exchange and Exercise
The Warrants are in registered form and may be presented to the Company for
transfer, exchange or exercise at any time prior to their expiration date. If a
market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
Warrant Holder Not a Stockholder
The Warrants do not confer upon holders any voting, dividend or other
rights as stockholders of the Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of April 15, 1998, the Company had outstanding 25,823,324 shares of
Common Stock. As of that date, the Company also had reserved for issuance an
aggregate of 40,415,473 shares of Common Stock which are issuable upon the
exercise or conversion of outstanding options, warrants and convertible
securities (excluding options granted pursuant to the Stock Compensation
Program). Upon the effectiveness of the Registration Statement of which this
Prospectus is a part, all 67,539,385 shares of Common Stock that would be issued
and outstanding (assuming the sale of all shares of Common Stock covered hereby)
would be freely tradable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares of
Common Stock for at least one year, including an "affiliate" as that term is
defined under the Securities Act, is entitled to sell, within any three-month
period commencing, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly trading volume
of the Common Stock on all exchanges and/or reported through the automated
quotation system of a registered securities association during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed to have been an "affiliate" of the Company at any time during
the 90 days preceding a sale, and who has beneficially owned the shares proposed
to be sold for at least two years, would be entitled to sell such shares under
Rule 144(k) without regard to the limitations described above. Restricted
securities sold by the Company to, among others, its employees, officers and
directors in reliance of Rule 701 under the Securities Act may be resold in
reliance on Rule 144 by such persons who are not affiliates subject only to the
provisions of Rule 144 regarding manner of sale, and by such persons who are
affiliates without complying with the Rule's holding period requirements. Rule
144A under the Securities Act permits the immediate sale by the current holders
of shares of Common Stock of all or a portion of their shares to certain
qualified institutional buyers as defined in Rule 144A, subject to certain
conditions.
In addition, 7,500,000 shares of Common Stock are issuable upon the
exercise of options granted under the Stock Compensation Plan. The Company
intends to file a registration statement on Form S-8 covering the shares of
Common Stock issuable upon the exercise of options and other awards made or
eligible to be made under the Stock Compensation Program. Upon the filing of
that registration statement, the shares of Common Stock issuable under the Stock
Compensation Program will be freely tradable without restriction or registration
under the Securities Act, other than shares acquired by affiliates of the
Company.
Sales of substantial amounts of such shares in the public market, or the
perception that such sales might occur, could adversely affect the market price
of the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See "Risk Factors--Shares
Eligible for Future Sale."
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<PAGE>
PLAN OF DISTRIBUTION
An aggregate of 19,743,390 shares of Common Stock covered hereby is
issuable upon the exercise of the Warrants. Such shares of Common Stock may be
offered and sold from time to time by the Company upon exercise of the Warrants
by the holders thereof. The Warrants may be exercised by the holders thereof by
tendering the exercise price, together with the warrant certificate and exercise
form, to the Company prior to the expiration of the Warrants.
The distribution of the Securities (including the shares of Common Stock
issuable upon the exercise of the Warrants) by the Selling Securityholders, or
by the Selling Securityholders' pledgees, donees, transferees or other
successors in interest, may be effected from time to time in one or more
transactions in the over-the-counter market, in special offerings, exchange
distributions and/or secondary distributions pursuant to and in accordance with
the applicable rules of the National Association of Securities Dealers, Inc.
("NASD"), in negotiated transactions (including, without limitation, privately
negotiated transactions), through the writing of options on the Securities, or
through the issuance of other securities convertible into the Securities
(whether such options or other securities are listed on an options or securities
exchange or otherwise), or a combination of such methods of distribution, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Any or all of the Securities may be sold from time to time to purchasers
directly by a Selling Securityholder. Sales of Securities also may be made
pursuant to Rules 144, 144A or 904 of the Securities Act, provided that the
requirements of such rules, including, without limitation, any applicable
holding periods and manner of sale requirements, are met. Alternatively, a
Selling Securityholder may from time to time offer any or all of the Securities
through underwriters, dealers, brokers or agents, including in transactions in
which any such underwriters, dealers, brokers or agents solicit purchasers, in
block transactions or in transactions in which any such underwriters, dealers,
brokers, or agents will attempt to sell such Securities as an agent but may
resell such Securities as a principal pursuant to this Prospectus.
Any underwriters, dealers, brokers or agents participating in the
distribution of the Securities offered hereby may receive compensation in the
form of underwriting discounts, concessions, commissions or fees from a Selling
Securityholder and/or purchasers of Securities for whom they may act as agents
(which compensation may be in excess of customary commissions). In addition, a
Selling Securityholder and any such underwriters, dealers, brokers or agents
that participate in the distribution of Securities may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
commissions received by them and any profit on the resale of the Securities may
be deemed to be underwriting compensation. Additionally, the Selling
Securityholders may pledge Securities, and in such event agents or dealers may
acquire the Securities or interests therein, and may, from time to time, effect
distribution of the Securities or interests in such capacity.
At the time any underwritten or coordinated distribution of any Securities
is made, to the extent required, a supplement to this prospectus will be
distributed which will set forth the aggregate amount of Securities being
offered and the terms of the offering, including the name or names of any
participating Selling Securityholders, underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Securityholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the Securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In certain states, the Securities may
not be sold unless registered or qualified for sale in such state or unless an
exemption from registration or qualification is available and such sale is made
in compliance with such exemption.
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<PAGE>
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Lowenstein Sandler PC, Roseland, New Jersey.
EXPERTS
The financial statements of LogiMetrics, Inc. and its consolidated
subsidiaries as of June 30, 1997 and for each of the two years in the period
ended June 30, 1997, except mmTech, Inc. for the year ended October 31, 1996,
included in this Prospectus have been audited by Deloitte & Touche LLP as stated
in their report appearing herein (which report expresses an unqualified opinion
and includes an explanatory paragraph relating to the Company's losses from
operations, its deficiency in working capital and the stockholders' capital
deficiency which raise substantial doubt about its ability to continue as a
going concern). The financial statements of mmTech, Inc. (consolidated with
those of the Company) have been audited by Reydel, Perier & Neral, PA, as stated
in their report included herein (which report expresses an exception relating to
any adjustments that might have been determined to be necessary in the
statements of income, accumulated deficit, and cash flows had they been able to
observe the physical inventory taken as of October 31, 1995). Such financial
statements of the Company and its consolidated subsidiaries are included herein
in reliance upon the respective reports of such firms given upon their authority
as experts in accounting and auditing. Both of the foregoing firms are
independent auditors.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
For the Six Months Ended December 31, 1997 (Unaudited):
Consolidated Balance Sheet as of December 31, 1997....................F-2
Consolidated Statements of Operations
for the Six Months Ended December 31, 1997 and 1996...................F-3
Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 1997 and 1996...................F-4
Notes to Consolidated Financial Statements............................F-5
For the Fiscal Years Ended June 30, 1997 and 1996:
Independent Auditors' Reports.........................................F-8
Consolidated Balance Sheet as of June 30, 1997........................F-10
Consolidated Statements of Operations
for the Fiscal Years Ended June 30, 1997 and 1996.....................F-11
Consolidated Statements of Stockholders' Equity (Deficiency)
for the Fiscal Years Ended June 30, 1997 and 1996.....................F-12
Consolidated Statements of Cash Flows
for the Fiscal Years Ended June 30, 1997 and 1996.....................F-14
Notes to Consolidated Financial Statements............................F-15
F-1
<PAGE>
LOGIMETRICS, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 2,829,069
Accounts receivable, less allowance
for doubtful accounts of $505,875 1,618,335
Inventories (Note 2) 3,235,315
Prepaid expenses and other current
assets 48,207
---------
Total current assets 7,730,926
Equipment and fixtures (net) 616,858
Deferred financing costs 128,156
Other assets 37,012
-----------
TOTAL ASSETS $ 8,512,952
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and other accrued expenses $ 3,613,321
Advance payments 900,815
Income taxes payable 491,278
Current portion of long-term debt (Note 3) 2,548,291
----------
Total current liabilities 7,553,705
Long-term debt (Note 3) 4,445,863
----------
TOTAL LIABILITIES $ 11,999,568
------------
COMMITMENTS
STOCKHOLDERS' DEFICIENCY (Note 3 and 4)
Preferred Stock:
Series A, stated value $50,000 per share;
authorized, 200 shares; issued and
outstanding, 28 shares 924,526
Common Stock:
Par value $.01; authorized,
100,000,000 shares; issued and
outstanding, 25,648,984 shares 256,490
Additional paid-in capital 4,306,468
Deficit (8,109,650)
Stock subscriptions receivable (Note 4) (864,450)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY $(3,486,616)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 8,512,952
==========
See Notes to Consolidated Financial Statements
F-2
<PAGE>
LOGIMETRICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended December 31,
1997 1996
Restated (Note 1)
Net revenues (Note 5) $ 5,312,344 $ 4,591,332
Costs and expenses:
Cost of revenues 2,844,438 4,044,004
Selling, general and
administrative expenses 2,294,488 1,704,384
Research and development 228,780 396,986
----------- ------------
Loss from operations (55,362) (1,554,042)
Interest expense 477,570 361,073
----------- ------------
Loss before income taxes (532,932) (1,915,115)
Provision for income taxes 74,714 27,091
----------- ------------
Net loss (607,646) (1,942,206)
Preferred stock dividends 100,553 110,422
----------- -----------
Net loss attributable
to common stockholders $ (708,199) $ (2,052,628)
=========== ============
Loss per common share (Note 6) $ (0.03) $ (0.09)
Weighted average number of
common shares outstanding 25,112,026 22,208,394
========== ==========
See Notes to Consolidated Financial Statements
F-3
<PAGE>
LOGIMETRICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended December 31,
1997 1996
(Restated Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (607,646) $ (1,942,206)
--------- -----------
Adjustments to reconcile net loss to net
cash (used for) provided by operating activities:
Depreciation and amortization 259,152 221,182
Allowance for doubtful accounts 355,875 -
Accrued interest expense paid by
issuance of debentures 240,394 -
Increase (decrease) in cash from:
Accounts receivable 189,955 1,345,976
Costs and estimated earnings
in excess of billings on
uncompleted contracts 785,013 (33,859)
Inventories 113,721 (189,922)
Prepaid expenses and other
current assets 41,305 111,468
Accounts payable and accrued expenses (1,701,827) 791,041
Other assets/liabilities 76,145 3,489
--------- ---------
Total adjustments 359,733 2,249,375
--------- ---------
Net cash (used for) provided by
operating activities (247,913) 307,169
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and fixtures (75,654) (99,677)
---------- ---------
Net cash used for investing activities (75,654) (99,677)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance - net 2,750,000 -
Proceeds from warrant issuance 567,500 943
Proceeds from sale of stock 12,500 -
Repayment of loan from stockholder - net (182,755) (185,282)
Proceeds from exercise of warrants 15,188 -
Stock subscriptions received 8,500 1,250
Repayment of debt - net (386,624) (38,512)
---------- ---------
Net cash (used for) provided by financing
activities 2,784,309 (221,601)
--------- ---------
NET INCREASE (DECREASE) IN CASH 2,460,742 (14,109)
CASH AND CASH EQUIVALENTS, beginning
of period 368,327 269,248
--------- -------
CASH AND CASH EQUIVALENTS, end of period $ 2,829,069 $ 255,139
========= =======
See Notes to Consolidated Financial Statements
F-4
<PAGE>
LOGIMETRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements
The accompanying consolidated financial statements include the accounts of
LogiMetrics, Inc. ("LogiMetrics") and its wholly-owned subsidiaries, mmTech,
Inc. ("mmTech") and LogiMetrics FSC, Inc. (collectively, the "Company"). All
intercompany balances and transactions have been eliminated. The consolidated
financial statements have been prepared to give retroactive effect to the
business combination with mmTech which occurred on April 25, 1997 and which has
been accounted for as a pooling of interests.
The Company's financial statements have been prepared assuming that the Company
will continue as a going concern. The independent auditors' report on the
Company's financial statements for the fiscal year ended June 30, 1997 included
an emphasis paragraph concerning the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The balance sheet as of December 31, 1997, the statements of operations for the
six-month and three-month periods ended December 31, 1997 and 1996, and the
statements of cash flows for the six-month periods ended December 31, 1997 and
1996, are unaudited. Such unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-QSB. Accordingly, they
do not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments, consisting of normal recurring accruals
considered necessary for a fair presentation, have been included. Results for
the six and three months ended December 31, 1997 are not necessarily indicative
of the results that may be achieved for any other interim period or for the
fiscal year ending June 30, 1998. These statements should be read in conjunction
with the financial statements and related notes included in the Company's Annual
Report on Form 10-KSB for the year ended June 30, 1997.
2. Inventories
Inventory consists of the following at December 31, 1997:
Raw material and components $ 1,367,555
Work-in-progress 1,867,760
---------
$ 3,235,315
===========
3. Long-Term Debt
Long-term debt consists of the following at December 31, 1997:
Notes payable to Bank $ 2,008,810
Class A Debentures 2,906,436
Class B Debentures 1,583,958
Less: Discount at issuance (457,628)
Plus: Amortization of discount 300,321
Notes payable - stockholder 440,332
Notes payable - other 45,000
Capital lease obligations 166,925
---------
Sub-total 6,994,154
Less: current portion 2,548,291
---------
Total long term debt $ 4,445,863
=========
F-5
<PAGE>
Principal payments due on all long-term debt consist of the following:
Fiscal year ending June 30, 1998 $ 2,319,827
Fiscal year ending June 30, 1999 255,235
Fiscal year ending June 30, 2000 4,407,554
Thereafter 11,538
---------
$ 6,994,154
=========
4. Stockholders' Deficiency
Stock subscriptions receivable consists of the following at December 31, 1997:
Notes from former officers $ 154,450
Notes from two employees 675,000
Note from a director 35,000
-------
$ 864,450
=======
5. Revenue Recognition
In December 1997, CellularVision of New York, L.P. ("CVNY") entered into a
letter agreement with the Company pursuant to which CVNY agreed to pay on behalf
of CellularVision Technology & Telecommunications L.P. ("CT&T") approximately
$3.0 million of the amounts owed by CT&T. Under the terms of the letter
agreement, CVNY paid $350,000 to the Company, and delivered to the Company a
secured promissory note in the principal amount of approximately $2.6 million
(the "CVNY Note"). The debt assumed by CVNY related to equipment, substantially
all of which had been ordered by CT&T and CVNY in prior periods, and which was
being held at the Company's premises at CVNY's request. In addition, CVNY has
assumed ownership rights and risk of loss. CVNY has committed to accept delivery
of all such equipment by June 30, 1998. As of December 28, 1997, CVNY had paid
$49,500 pursuant to the CVNY Note. On December 31, 1997, the Company sold the
CVNY Note without recourse for approximately $2.4 million. The Company has
recorded approximately $3 million of sales during the second quarter related to
these transactions.
F-6
<PAGE>
LOGIMETRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
6. Income (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS No.
128 specifies the computation, presentation and disclosure requirements for
earnings per share ("EPS") and became effective for both interim and annual
periods ending after December 15, 1997. In accordance with SFAS No. 128, basic
earnings per common share are computed based on the weighted-average number of
common shares outstanding during each period. The loss per share calculations
for the six month periods ended December 31, 1997 and December 31, 1996, and the
three-month period ended December 31, 1996, do not give effect to common stock
equivalents because they would have an antidilutive effect. The following table
provides a reconciliation between basic and diluted earnings per share for the
three-month period ended December 31, 1997.
Three-months ended December 31, 1997
Basic EPS Income Shares Per Share
Income available to common stockholders $ 404,999 25,617,708 0.02
Effect of Dilutive Securities
Options/Warrants $ - 11,305,160 $ (0.01)
Diluted EPS
Income available to common stockholders
plus assumed exercises $ 404,999 36,922,868 $ 0.01
The Company's (i) Series A 12% Cumulative Convertible Redeemable Preferred
Stock, stated value $50,000 per share; (ii) Class A 13% Senior Subordinated
Convertible Pay-in-Kind Debentures due July 29, 1999; and (iii) Amended and
Restated Class B 13% Senior Subordinated Convertible Pay-in-Kind Debentures due
July 29, 1999 are not included in the above table, as their inclusion would be
antidilutive.
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
LogiMetrics, Inc. and Subsidiaries
Bohemia, New York
We have audited the accompanying consolidated balance sheet of LogiMetrics, Inc.
and Subsidiaries (the "Company") as of June 30, 1997 and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for each of the two years in the period 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 audit. We did not audit the statements of income, accumulated deficit and
cash flows of mmTech, Inc., a wholly-owned subsidiary, for the year ended
October 31, 1996, which statements reflect total revenues constituting 43% of
consolidated total revenues for the year ended June 30, 1996. Those financial
statements were audited by other auditors whose report (which as to 1996 is
qualified because they were unable to perform an opening physical inventory
observation, the effect of which, in our opinion, is not material in relation to
the consolidated financial statements) has been furnished to us, and our
opinion, insofar as it relates to the amounts included for mmTech, Inc. is based
solely on the report of such auditors.
We conducted our audit 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 from 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, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of June 30, 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
June 30, 1997 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company's losses from operations, its
deficiency in working capital and the stockholders' capital deficiency raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Jericho, New York
January 5, 1998
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
mmTech, Inc.
We have audited the statements of income, accumulated deficit, and cash flows of
mmTech, Inc. for the year ended October 31, 1996. 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 audit.
Except as discussed in the following paragraph, we conducted our audit 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
audit provides a reasonable basis for our opinion.
We did not observe the physical inventory (stated at $390,868) taken as of
October 31, 1995, since that date was prior to our engagement as auditors for
the Company.
In our opinion, except for the effects of any adjustments that might have been
determined to be necessary in the statements of income, accumulated deficit, and
cash flows had we been able to observe the physical inventory taken as of
October 31, 1995, the financial statements referred to in the first paragraph
present fairly, in all material respects, the results of operations and cash
flows of mmTech, Inc. for the year ended October 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Reydel, Perier & Neral
REYDEL, PERIER & NERAL, PA
Wall, New Jersey
February 7, 1997
F-9
<PAGE>
<TABLE>
<CAPTION>
LOGIMETRICS, INC.
CONSOLIDATED BALANCE SHEET
June 30, 1997
ASSETS
<S> <C> <C>
Current Assets
Cash (Note 8) $ 368,327
Accounts receivable, less allowance
for doubtful accounts of $150,000 2,156,464
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 4) 785,013
Inventories (Note 5) 3,349,036
Prepaid expenses and other current assets 89,512
----------
Total current assets 6,748,352
Equipment and fixtures (net) (Note 7) 620,243
Deferred financing costs 216,462
Other assets 38,443
----------
TOTAL ASSETS $ 7,623,500
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accounts payable and other accrued expenses $ 4,975,804
Advance payments 1,125,907
Income taxes payable 416,564
Current portion of long-term debt (Note 8) 3,193,018
---------
Total current liabilities 9,711,293
Long term debt 1,594,314
----------
TOTAL LIABILITIES 11,305,607
----------
Commitments (Note 12)
Stockholders' deficiency (Notes 8 and 10)
Preferred Stock:
Series A, stated value $50,000 per share;
authorized, 200 shares; issued and
outstanding, 30 shares 990,564
Warrants (Note 10) 1,023,234
Common Stock:
Par Value $.01; authorized,
100,000,000 shares; issued and
outstanding, 22,391,434 shares 223,914
Additional paid-in capital 1,644,583
Deficit (7,401,452)
Stock subscriptions receivable ( Note 10 ) (162,950)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (3,682,107)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 7,623,500
==========
</TABLE>
See Notes to Consolidated Financial Statements
F-10
<PAGE>
LOGIMETRICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30,
1997 1996
Restated (Note 2)
Net Revenues $ 11,374,182 $ 8,879,544
Cost and expenses:
Cost of revenues ( Note 4 ) 8,563,694 9,831,316
Selling, general and
administrative expenses 3,520,094 3,211,232
Research and development 647,919 628,967
--------- ---------
Loss from operations (1,357,525) (4,791,971)
Interest expense 763,801 455,741
---------- ----------
Loss before income taxes (2,121,326) (5,247,712)
( Benefit ) provision for
income taxes ( Note 9 ) 380,000 (299,000)
---------- ------------
Net loss (2,501,326) (4,948,712)
Preferred stock dividends 234,164 57,205
---------- ------------
Net loss attributable
to common shareholders $ (2,735,490) $ (5,005,917)
=============== ===============
Loss per common
share ( Note 11 ) $ (0.12) $ (0.23)
Weighted average number of common shares
and equivalents outstanding( Note 10 ) 22,282,361 22,202,754
See Notes to Consolidated Financial Statements
F-11
<PAGE>
<TABLE>
<CAPTION>
LOGIMETRICS, INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY ( DEFICIENCY )
Par Value
Class A Class B Additional Stock Retained Stockholders'
Common Common Preferred Paid-in Subscriptions Earnings Equity
Stock Stock Stock Capital Warrants Receivable (Deficit) (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995
as previously reported $ 261,060 $ 25,000 - $ 1,949,209 - $ (177,950) $ 601,395 $ 2,658,714
Common stock issued
pursuant to merger
(Note 3 ) 1,924,780 - - (1,923,780) - - (216,400) (215,400)
_________ _______ ______ ___________ ______ ___________ __________ ___________
Balance, June 30, 1995
as restated (Note 3) 2,185,840 25,000 - 25,429 - (177,950) 384,995 2,443,314
_________ _______ ______ ___________ ______ ____________ ___________ ___________
Receipt of stock
subscription payments - - - - - 13,750 - 13,750
Issuance of Warrants
Series A - - - - 11,285 - - 11,285
Series B - - - - 28,215 - - 28,215
Series C - - - - 457,628 - - 457,628
Series D - - - - 509,436 - - 509,436
Series E - - - - 10,000 - - 10,000
Series F - - - - 6,670 - - 6,670
Preferred Stock issuance - - 990,564 - - - - 990,564
Conversion of Class B
Common Stock to Class
A Common Stock 25,000 (25,000) - - - - - -
Change in par value per
share from
$.10 to $.01 (1,989,756) - - 1,989,756 - - - -
Exercise of Series D
Warrants 943 - - - - - - 943
Expenditures relating to
Preferred Stock
offering and
registration
statement - - - (370,602) - - - (370,602)
Net loss - - - - - - (4,948,712) (4,948,712)
Preferred Stock dividends - - - - - - (57,205) (57,205)
________ _________ ______ ________ _______ _____ __________ __________
Balance, June 30, 1996 222,027 - 990,564 1,644,583 1,023,234 (164,200) (4,620,922) (904,714)
________ _________ ______ ________ _______ _____ __________ __________
Receipt of stock
subscription payments 1,250 1,250
Exercise of Series D
Warrants 1,887 1,887
Net loss (2,501,326) (2,501,326)
Change in year end of pooled
company (45,040) (45,040)
Preferred Stock dividends - - - - - - (234,164) (234,164)
___________ ________ ________ _________ _________ ________ ____________ ____________
Balance, June 30, 1997 $ 223,914 $ - $ 990,564 $ 1,644,583 $ 1,023,234 $(162,950) $ (7,401,452)$(3,682,107)
=========== ======== ======== ========== =========== ========== ============= ===========
</TABLE>
(continued)
F-12
<PAGE>
<TABLE>
<CAPTION>
LOGIMETRICS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
Class A Class B Preferred
Common Stock Common Stock Stock
<S> <C> <C> <C>
Shares Outstanding
Balance at June 30, 1995
As previously reported 2,610,614 250,000 -
Common Stock issued pursuant to the merger
(Note 3) 19,247,800 - -
Balance, June 30, 1995
As restated (Note 3) 21,858,414 250,000 -
Issuance of Preferred
Stock - - 30
Conversion of Class B
Common Stock to Class A 250,000 (250,000) -
Exercise of Series D
Warrant 94,340 - -
Balance at June 30, 1996 22,202,754 - 30
Exercise of Series D Warrants 188,680 - -
Balance, June 30, 1997 22,391,434 - 30
========== ======== ======
</TABLE>
See Notes to Consolidated Financial Statements
F-13
<PAGE>
<TABLE>
LOGIMETRICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
1997 1996
Restated (Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (2,501,326) $ (4,948,712)
---------------- ---------------
Adjustments to reconcile net loss to net cash
provided by ( used for ) operating activities:
Depreciation and amortization 462,861 198,662
Allowance for doubtful accounts 75,000 70,500
Deferred income tax ( benefit ) - (299,000)
Increase ( decrease ) in cash from:
Accounts receivable 443,865 428,080
Costs and estimated earnings
in excess of billings on
uncompleted account contracts 216,750 2,357,220
Inventories (929,883) (963,956)
Prepaid expenses and other
current assets 134,485 (124,195)
Accounts payable and accrued expenses 1,870,188 657,427
Other assets 440,282 564,726
--------- ---------
Total adjustments 2,713,548 2,889,464
--------- ---------
Net cash provided by ( used for ) operating activities 212,222 (2,059,248)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and fixtures (159,301) (139,325)
--------- ---------
Net cash used for investing activities (159,301) (139,325)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of debt issuance - net 291,003 568,602
Proceeds of warrant issuance - 1,023,234
Proceeds of preferred stock issuance - 1,129,398
Repayment of loans from stockholders (5,972) (86,032)
Proceeds from exercise of warrants 1,887 943
Decrease in stock subscriptions receivable 1,250 13,750
Repayment of debt (242,010) (429,191)
--------- ---------
Net cash provided by financing activities 46,158 2,220,704
--------- ---------
NET INCREASE IN CASH 99,079 22,131
CASH and CASH EQUIVALENTS, beginning of period 269,248 230,991
--------- ---------
CASH and CASH EQUIVALENTS, end of period $ 368,327 $ 253,122
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-14
<PAGE>
LOGIMETRICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
1. Description of Business and Summary of Significant Accounting Policies
a. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
LogiMetrics, Inc. ("LogiMetrics") and its wholly-owned subsidiaries, mmTech,
Inc. ("mmTech") and LogiMetrics FSC, Inc. (collectively, the "Company"). All
intercompany balances and transactions have been eliminated. The consolidated
financial statements of the Company have been prepared to give retroactive
effect to the business combination with mmTech (Note 3) which occurred on April
25, 1997 and has been accounted for as a pooling of interests.
b. Revenue Recognition
Revenues related to products with short-term production cycles are recognized
when the products are shipped. The Company reports revenues from the sale of
products which have production cycles longer than three months on the
percentage-of-completion method for financial reporting purposes. Revenues under
these contracts are recognized based on the proportion of contract costs
incurred to total estimated contract costs. Contract costs include all direct
material and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, tools, repairs, and depreciation
costs. Selling, general, and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.
The net sales value of partially completed contracts in excess of billings is
included in current assets.
c. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
d. Equipment and Fixtures
Equipment and fixtures are recorded at cost and include equipment under capital
leases. Depreciation and amortization are provided by the straight-line method
over an estimated useful life of five or ten years and in the case of leasehold
improvements, the remaining lease term.
e. Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes." Under this
method, deferred tax assets are determined based on differences between the
financial reporting and tax bases of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
f. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-15
<PAGE>
g. Long-Lived Assets
Effective July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("Statement 121"). Statement 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used for long-lived assets and certain identifiable intangibles to be
disposed of. Statement 121 requires the review of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The adoption of
Statement 121 did not have a material effect on the consolidated financial
statements of the Company.
h. Fair Value of Financial Instruments
At June 30, 1997, the carrying amount of the Company's financial instruments,
including cash, accounts receivable, accounts payable, accrued liabilities, and
notes payable, approximated fair value because of their short-term maturities.
Long-term borrowings bear interest at variable rates, which approximate market.
i. Deferred Financing Costs
Deferred financing costs are amortized on a straight-line basis over the lives
of the related obligations.
j. Reclassifications
Certain amounts in the 1996 financial statements have been reclassified to
conform with 1997 presentation.
2. Financial Condition and Liquidity
On March 7, 1996, LogiMetrics was recapitalized and new management was brought
in to lead a restructuring of the Company's operations (the "Restructuring").
The primary objective of the Restructuring was to redirect LogiMetrics' focus
toward the higher value-added, broad band wireless communications market.
Consistent with this focus, on April 25, 1997, a subsidiary of LogiMetrics
merged into mmTech, a manufacturer of broad band wireless communications
equipment. (The merger is further discussed in Note 3.) As a result of the
change in focus, the merger and other operating inefficiencies preceding the
change in control, operations for the fiscal years ended June 30, 1997 and 1996,
have been significantly impacted.
As shown in the financial statements, during the years ended June 30, 1997 and
1996 the Company incurred net losses of $2,501,326 and $4,948,712, respectively,
and, at June 30, 1997, the Company's current liabilities exceeded its current
assets by $2,962,941, while its total liabilities exceeded its total assets by
$3,682,107. The net losses have caused the Company to be in default with respect
to certain covenants contained in the Company's debt instruments. While the
Company has currently obtained waivers covering such defaults (such defaults and
related waivers are more fully discussed in Note 8), there can be no assurance
that the holders of such debt will agree to new waivers, if necessary, once the
original waivers expire.
The Company has not paid any dividends on its Series A 12% Cumulative
Convertible Redeemable Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), which have accumulated in the amount of approximately
$380,000 through December 12, 1997. Additionally, as of December 12, 1997, the
Company is past due in payments to vendors in an amount of approximately
$1,800,000.
Recognizing the need for additional resources to fund the Company's anticipated
operating shortfalls, management has entered into discussions with investment
bankers and other consultants to assist with identifying and pursuing additional
funding sources. In relation to these efforts, during the years ended
F-16
<PAGE>
June 30, 1997 and 1996, the Company raised approximately $3.0 million from the
private sale of convertible debentures, convertible preferred stock and
warrants. Through December 12, 1997, the Company raised approximately an
additional $3.4 million through the private issuance of convertible debentures
and warrants; and on December 31, 1997, the Company sold approximately $2.6
million of notes receivable for approximately $2.4 million in cash (refer to
Note 16 for further information). While management expects that the continuing
efforts of the investment bankers and other consultants will result in the
identification of new financing sources, no assurance can be given that the
Company will be successful in raising capital.
Based upon the above information, the Company's financial statements for the
year ended June 30, 1997 have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company's continuation as a
going concern is dependant upon its ability to generate sufficient cash flow to
meet its obligations on a timely basis, to comply with the terms and covenants
of its financial agreements, to obtain additional financing or refinancing as
may be required, and ultimately to attain successful operations. If the Company
is unable to generate sufficient cash flows from operations or other sources,
the Company may not be able to achieve its growth objectives, may have to
curtail further its marketing, development or operations, and may be unable to
continue as a going concern.
3. Acquisition
On April 25, 1997, a wholly-owned subsidiary of LogiMetrics merged into mmTech,
pursuant to which LogiMetrics issued 19,247,800 shares of its common stock, par
value $0.01 per share (the "Common Stock"), to Mr. Charles S. Brand, the sole
stockholder of mmTech. mmTech is primarily engaged in the design, development,
manufacturing and sale of telecommunications equipment used in Local Multipoint
Distribution Service ("LMDS") systems that deliver wireless video, telephone and
data signals. The acquisition has been accounted for as a pooling of interests
and, accordingly, the consolidated financial statements have been restated to
include the accounts of mmTech for all periods presented. The accompanying
consolidated financial statements for the year ended June 30, 1997 include the
operations of mmTech on a common fiscal year. The accompanying consolidated
financial statements for the year ended June 30, 1996, include the operations of
mmTech for the fiscal year ended October 31, 1996. Accordingly, as a result of
conforming fiscal years, mmTech's net income for the period July 1, 1996,
through October 31, 1996, of $45,040 is included twice in the accompanying
consolidated statements of operations for the fiscal years ended June 30, 1997
and 1996, and has been included as an adjustment to consolidated accumulated
deficit. Included in the operating results of the Company for the year ended
June 30, 1997 are approximately $3,600,000 of revenues and approximately
$400,000 of net income of mmTech prior to the date of acquisition. Because the
acquisition was accounted for as a pooling of interests, acquisition expenses of
$135,000 have been charged against results of operations in the year ended June
30, 1997.
The following is a reconciliation of certain restated amounts with amounts
previously reported for 1996:
Revenues:
As previously reported $ 5,038,193
Effect of mmTech pooling of interests 3,841,351
-----------
As restated $ 8,879,544
-----------
Net income (loss):
As previously reported $ (5,196,067)
Effect of mmTech pooling of interests 190,150
-----------
As restated $ (5,005,917)
------------
Net income (loss) per share:
Primary:
As previously reported $ (1.82)
Effect of mmTech pooling of interests 1.59
-----------
As restated $ (0.23)
-----------
F-17
<PAGE>
4. Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
Costs and estimated earnings in excess of billings on uncompleted contracts
consist of the following at June 30, 1997:
Costs and estimated earnings $1,235,707
Less: Estimated loss upon completion (293,094)
Progress billings (157,600)
----------
$ 785,013
=========
5. Inventories
Inventory consists of the following at June 30, 1997:
Raw material and components $1,573,727
Work-in-progress 1,211,598
Finished goods 563,711
---------
$3,349,036
==========
6. Supplementary Information - Statement of Cash Flows
Cash paid during the period for:
Year ended June 30,
1997 1996
Interest $359,214 $331,356
Income taxes $ -0- $ 9,931
Non-cash investing and financing activities during the period for:
Year ended June 30,
1997 1996
Machinery and equipment
purchased under capital lease $117,685 $ 107,686
7. Equipment and Fixtures
Equipment and fixtures, at cost, are summarized as follows at June 30, 1997:
Machinery and equipment $2,434,271
Furniture and fixtures 141,115
Leasehold improvements 179,562
----------
2,754,948
Less: accumulated depreciation and amortization (2,134,705)
-----------
$ 620,243
==========
F-18
<PAGE>
8. Long-Term Debt
Long-term debt consists of the following at June 30, 1997:
Notes payable to Bank $2,375,961
Senior debentures 1,500,000
Less: Discount at issuance (457,628)
Plus: Amortization of discount 214,515
Subordinated debentures 300,000
Notes payable - officer (Note 15) 623,086
Notes payable - other 45,000
Capital lease obligations 186,398
----------
4,787,332
Less: current portion (3,193,018)
----------
1,594,314
==========
Subordinated Debentures and Series A and Series B Warrants
On July 14, 1995, the Company completed a private offering of 15 units of its
securities at a price of $20,800 per unit. Each unit consisted of one $20,000
12% Convertible Subordinated Debenture and one Common Stock Purchase Warrant,
Series A. For managing the financing, Common Stock Purchase Warrants, Series B,
to purchase 1,500,000 shares of Common Stock were sold to SFM Group, Ltd.
("SFM") at a price of $.02 per share, with an exercise price of $0.25 per share.
Subsequently, on March 7, 1996, in connection with the Restructuring, all of the
holders of the 12% Convertible Subordinated Debentures and Common Stock Purchase
Warrants, Series A, and Common Stock Purchase Warrants, Series B, exchanged such
debentures and warrants for Amended and Restated 12% Convertible Subordinated
Debentures (the "Subordinated Debentures") and Amended and Restated Series A and
Series B Warrants of like tenor (the "Series A Warrants" and "Series B
Warrants", respectively). Refer to Note 10c for a further discussion of the
Series A Warrants and Series B Warrants.
At June 30, 1997, accrued interest on the Subordinated Debentures totaled
approximately $79,000. The principal was payable in one balloon payment on July
14, 1997. On that date, the holders of the Subordinated Debentures converted all
of the Subordinated Debentures into an aggregate of 1,200,000 shares of Common
Stock. All accrued interest on the Subordinated Debentures was paid on August
29, 1997.
North Fork Bank Credit Facilities
The Company is a party to a Restated and Amended Term Loan Note, dated as of
April 25, 1997, and a Sixth Restated and Amended Revolving Credit Note, dated as
of April 25, 1997, pursuant to which North Fork Bank (the "Bank") has provided
the Company with a $640,000 term loan (the "Term Loan") which matures December
31, 1998 and a revolving credit facility (the "Revolver") which matures April
30, 1998, pursuant to which the Company is entitled to draw up to $2,200,000
assuming sufficient eligible inventory and accounts receivable (the Term Loan
and the Revolver are referred to herein collectively as the "Facility"). The
Term Loan and the Revolver bear interest at the rate of 2% per annum in excess
of the Bank's prime rate. At June 30, 1997, the Bank's prime rate was 8.5%. As a
result of the Company's losses during fiscal 1997, as of June 30, 1997, the
Company was in violation of a covenant contained in the Facility that the
Company report net income of at least $1.00 for each fiscal quarter beginning
with the quarter ended June 30, 1997 (the "Net Income Covenant"). Additionally,
as of October 28, 1997, the Company was in violation of a covenant contained in
the Facility which required the Company to deliver audited financial statements
for the fiscal year ended June 30, 1997, and as of November 14, 1997, the
Company was in violation of a covenant contained in the Facility requiring the
Company to deliver to the Bank financial statements for the fiscal quarter ended
September 30, 1997 (these covenants are collectively referred to herein as the
"Reporting Requirement Covenants"). The
F-19
<PAGE>
Bank has waived the Net Income Covenant default in respect of the fiscal
quarters ended June 30, 1997 and September 30, 1997. The Bank has also waived
the Reporting Requirement Covenants defaults until February 28, 1998.
Senior Debentures and Series C Warrants
In connection with the Restructuring, the Company and Cerberus Partners, L.P.
("Cerberus") entered into a Unit Purchase Agreement, dated March 7, 1996 (the
"Unit Purchase Agreement"), pursuant to which the Company issued to Cerberus 30
Units (the "Units"), each Unit consisting of $50,000 in aggregate principal
amount of the Company's 12% Senior Subordinated Convertible Debentures due
December 31, 1998 (the "Senior Debentures") and a Common Stock Purchase Warrant
Series C (the "Series C Warrants") to purchase 84,746 shares of Common Stock for
$.01 per share at any time prior to March 7, 2003. The Company allocated the
$1,500,000 proceeds between the Senior Debentures and the Series C Warrants
based upon their estimated fair value as of March 7, 1996. On July 29, 1997, the
Senior Debentures were exchanged for the Amended and Restated Class B 13%
Convertible Senior Subordinated Debentures due July 29, 1999 (the "Class B
Debentures"). Each Class B Debenture is convertible into 84,746 shares of Common
Stock. The Class B Debentures were senior in right of payment to the Company's
Subordinated Debentures, but are subordinate to the Company's Term Loan and
Revolver. As a result of the exchange of the Senior Debentures for the Class B
Debentures, the principal is payable on the Class B Debentures in one balloon
payment due July 29, 1999.
The Class B Debentures contain financial covenants identical to those contained
in the Facility. Accordingly, as of June 30, 1997, the Company was in default in
respect of the Net Income Covenant contained in the Class B Debentures to the
same extent as under the Facility. Additionally, as of October 28, 1997 and
November 14, 1997, the Company was in default of the Reporting Requirement
Covenants to the same extent as under the Facility. The holder of the Class B
Debentures has waived the Net Income Covenant default in respect of the fiscal
quarters ended June 30, 1997, September 30, 1997 and December 31, 1997, and has
waived the Reporting Requirement Covenants defaults until February 28, 1998.
Pursuant to the terms of the Class B Debentures, the Company is required to file
a registration statement covering, among other things, the resale of the shares
of Common Stock issuable upon the conversion of Class B Debentures on or prior
to October 27, 1997, and to have the registration statement declared effective
by the Securities and Exchange Commission (the "SEC") on or prior to January 25,
1998. The Company has not yet filed the registration statement. As a result,
effective October 28, 1997, the interest rate on the Class B Debentures was
increased by 1-1/2% per annum pursuant to their terms. Unless the Company
complies with its registration obligations, the interest rate on the Class B
Debentures will continue to increase (subject to a maximum interest rate of 17%
per annum). The holder of the Class B Debentures has the right to declare all
amounts thereunder due and payable if the registration statement is not declared
effective by the SEC on or prior to April 25, 1998. The holder of the Class B
Debentures has waived until February 28, 1998,any default arising as a result of
the Company's failure to file the required registration statement.
Principal payments due on all long-term debt consist of the following:
Fiscal year ending June 30, 1998 $3,193,018
Fiscal year ending June 30, 1999 1,568,231
Fiscal year ending June 30, 2000 14,505
thereafter 11,578
----------
$4,787,332
==========
F-20
<PAGE>
9. Income Taxes
The provision for (benefit from) income taxes consists of the following:
Year Ended June 30, 1997 Federal State Total
Current $ 272,000 $108,000 $ 380,000
Deferred (1,330,000) (307,000) (1,637,000)
Valuation Allowance 1,330,000 307,000 1,637,000
---------------------------------------
$ 272,000 $108,000 $ 380,000
======================================
Year Ended June 30, 1996 Federal State Total
Current - - -
Deferred $(1,476,000) - $(1,476,000)
Valuation Allowance 1,177,000 - 1,177,000
----------------------------------------
$ (299,000) - $ (299,000)
========================================
F-21
<PAGE>
LOGIMETRICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a summary of deferred tax assets as of June 30, 1997:
Current Deferred Taxes:
Costs in excess of deferred revenue $ 328,000
Inventory Reserves 356,000
Accounts Receivable 63,000
Accrued Expenses 70,000
-----------
Total Current 817,000
-----------
Non-Current Deferred Taxes:
Depreciation 18,000
NOL Carry-forward 2,553,000
---------
Non-Current 2,571,000
---------
Total Deferred Tax Assets 3,388,000
Valuation Allowance (3,388,000)
----------
Net Deferred Tax Assets $ -
===========
The Company's effective tax rate differs from the anticipated federal statutory
rate. A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
% of Pretax Earnings
Years Ended June 30,
1997 1996
Federal statutory tax rate (34.0)% (34.0)%
Permanent difference 1.3 -
Net operating loss not producing
a current tax benefit 32.7 28.3
Federal and state taxes
related to the earnings
of mmTech:
State 3.4 -
Federal 12.8 1.4
Utilization of net operating
loss carry-forward - (1.4)
Other 1.7 -
------ ----
Final provision 17.9% (5.7)%
====== =====
10. Stockholders' Deficiency
a. Common and Preferred Stock
In August 1995, all 250,000 outstanding shares of Class B common stock were
converted to Common Stock.
F-22
<PAGE>
In March 1996, the Company's Certificate of Incorporation was amended. Among
other things, the authorized common stock of the Company was increased from
7,000,000 shares of Class A common stock, par value $.10 per share, to
35,000,000 shares of Common Stock. The appellation "Class A" was eliminated from
the common stock, since there were no longer any shares of Class B common stock
outstanding. In addition, the Company's Certificate of Incorporation was amended
to authorize 200 shares of Preferred Stock.
In May 1997, the Company's Certificate of Incorporation was amended. Among other
things, the authorized Common Stock of the Company was increased from 35,000,000
shares of Common Stock to 100,000,000 shares of Common Stock. As of June 30,
1997, the Company had outstanding 22,391,434 shares of Common Stock and 30
shares of Preferred Stock. In addition, as of June 30, 1997, the Company had
20,312,980 shares of Common Stock reserved for issuance pursuant to stock
options, warrants and convertible securities outstanding as of that date. As of
December 12, 1997, the Company had outstanding 25,601,814 shares of Common Stock
and 28 shares of Preferred Stock. In addition, as of December 12, 1997, the
Company had 32,960,109 shares of Common Stock reserved for issuance pursuant to
stock options, warrants and convertible securities outstanding as of that date.
Preferred Stock and Series D Warrants
On March 7, 1996, the Company completed a private offering with respect to an
additional 30 units of its securities. Each unit was comprised of one share of
Preferred Stock and one Common Stock Purchase Warrant, Series D (the "Series D
Warrants"). Each share of Preferred Stock is convertible into 94,340 shares of
Common Stock. Each Series D Warrant entitles the holder thereof to purchase
94,340 shares of Common Stock at $.01 per share at any time prior to March 7,
2003. Holders of Preferred Stock have no voting or preemptive rights. The
Company allocated the $1,500,000 received between the Preferred Stock and the
Series D Warrants based upon their estimated fair value as of March 7, 1996.
Dividends on the Preferred Stock are payable quarterly, beginning June 15, 1996.
With respect to all the dividend payments due until December 12, 1997, the Board
of Directors has elected to defer payment until the Company has sufficient cash
for that purpose. Pursuant to the terms of the Preferred Stock and the Series D
Warrants, the Company is required to effect the registration for resale of,
among other things, the shares of Common Stock issuable upon the conversion of
the Preferred Stock and the exercise of the Series D Warrants. The Company has
not yet effected such registration.
The accumulated amount of dividends due on the Preferred Stock as of December
12, 1997 is approximately $380,000. As a result of the Company's failure to
effect the registration rights of the holders of the Preferred Stock, the
dividend rate on the Preferred Stock increased to 17% per annum effective March
4, 1997. Until the Company complies with its registration obligations, the
dividend rate will remain at 17% per annum.
The Preferred Stock is redeemable, at the Company's option, upon the giving of
thirty days prior written notice, unless the price of the Company's Common Stock
fell below $5.00 per share during the 120-day period immediately preceding the
date of the notice. If redeemed by the Company, the Preferred Stock must be
redeemed at stated value plus all accrued and unpaid accumulated dividends.
b. Stock Options
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for the fixed portion of its stock option plans. Had compensation
cost for the Company's fixed stock options been determined based on fair value
at the grant dates consistent with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation to Employees" the Company's
net loss attributable to common shareholders and net loss per share would have
increased to the pro forma amounts indicated below:
F-23
<PAGE>
1997
As Pro
Reported Forma
Net loss attributable to
common shareholders $(2,735,490) $(3,321,825)
Net loss per share $(.12) $(.15)
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model with the following weighted average
assumptions used for grants. The weighted average fair value of options granted
during fiscal 1997 was $0.55 per share.
1997
Dividend yield 0%
Expected volatility 100.0%
Risk-free interest rate 6.22%
Expected option lives, in years 5
LogiMetrics, Inc. 1997 Stock Compensation Program
In May 1997, the Company adopted the LogiMetrics, Inc. 1997 Stock Compensation
Program (the "Stock Compensation Program") which authorizes the granting of
incentive stock options, non-qualified supplementary options, stock appreciation
rights, performance shares and stock bonus awards to employees and consultants
of the Company (the "Employee Plans"). The Stock Compensation Program also
authorizes automatic option grants to directors who are not otherwise employed
by the Company (the "Independent Director Plan"). A total of 4,000,000 shares of
Common Stock are reserved for issuance in connection with the Stock Compensation
Program, of which up to 3,850,000 shares may be issued under the Employee Plans
and up to 150,000 shares may be issued under the Independent Director Plan.
In the event that an option or award granted under the Stock Compensation
Program expires, is terminated or forfeited or certain performance objectives
with respect thereto are not met prior to exercise or vesting, then the number
of shares of Common Stock covered thereby will again become eligible for grant
under the Stock Compensation Program. The Company will receive no consideration
for grants of options or awards under the Stock Compensation Program.
A summary of the status of the Stock Compensation Program at June 30, 1997 is
presented below:
Weighted
Weighted Average
Shares Average Remaining
Underlying Exercise Contractual
Options Price Life
Outstanding at beginning of year - - -
Granted 2,798,800 $ .55 10 Years
Exercised - -
Forfeited - -
-----------
Outstanding at end of year 2,798,800 $ .55
========= ======
Exercisable at end of year 1,442,935 $ .55 10 Years
========== ========
F-24
<PAGE>
Other Stock Option Grants
In May 1996, the Board of Directors granted non-qualified stock options to an
officer of the Company to purchase 250,000 shares of Common Stock at an exercise
price of $.50 per share, exercisable at any time on or prior to March 7, 2003.
In March 1996, the Board of Directors granted non-qualified stock options to a
former officer to purchase 1,000,000 shares of Common Stock at exercise prices
ranging from $.40 per share to $3.40 per share. Subsequently, on September 14,
1996, in connection with a settlement agreement with the former officer, the
grant was reduced to a total of 225,000 shares of Common Stock at $.40 per
share.
The options are exercisable in accordance with the following vesting schedule:
Date Vested Exercise Price Number of Shares
----------- -------------- ----------------
March 7, 1996 $.40 125,000
September 14, 1996 $.40 100,000
-------
Total 225,000
=======
In May 1994, the Board of Directors granted non-qualified stock options to two
officers to each purchase 300,000 shares of Common Stock at the fair market
value of $.10 per share. These options were exercisable in whole or in part at
any time until December 31, 1998. During the year ended June 30, 1995, each
officer exercised options for 100,000 shares of Common Stock. During the year
ended June 30, 1996, each officer agreed to terminate options for 100,000 shares
of Common Stock. At June 30, 1997, the balance of these exercisable options
equaled 100,000 shares of Common Stock for each of the two former officers.
c. Warrants
As of June 30, 1997, the Company had outstanding several series of warrants.
The Series A Warrants were issued in July 1995 in connection with the issuance
of the Subordinated Debentures and as of June 30, 1997, were exercisable for an
aggregate of 600,000 shares of Common Stock at an exercise price of $.25 per
share (subject to adjustment in certain circumstances). The Series A Warrants
expire on July 15, 2002.
The Series B Warrants were issued in July 1995 in connection with the issuance
of the Subordinated Debentures and as of June 30, 1997, were exercisable for an
aggregate of 1,500,000 shares of Common Stock at an exercise price of $.25 per
share (subject to adjustment in certain circumstances). The Series B Warrants
expire on July 15, 2002.
The Series C Warrants were issued in March 1996 in connection with the issuance
of the Senior Debentures and as of June 30, 1997, were exercisable for an
aggregate of 2,542,380 shares of Common Stock at an exercise price of $.01 per
share (subject to adjustment in certain circumstances). The Series C Warrants
expire on March 7, 2003.
The Series D Warrants were issued in March 1996 in connection with the issuance
of the Preferred Stock and as of June 30, 1997, were exercisable for an
aggregate of 2,547,180 shares of Common Stock at an exercise price of $.01 per
share (subject to adjustment in certain circumstances). The Series D Warrants
expire on March 7, 2003.
The Common Stock Purchase Warrants, Series E (the "Series E Warrants") were
issued in March 1996 in connection with a consulting agreement and as of June
30, 1997, were exercisable for an aggregate of 1,000,000 shares of Common Stock
at an exercise price of $.40 per share (subject to adjustment in certain
circumstances). The Series E Warrants expire on March 7, 2003.
F-25
<PAGE>
The Common Stock Purchase Warrants, Series F (the "Series F Warrants") were
issued in May 1996 to certain directors, officers and other related parties as
compensation for services performed and as of June 30, 1997, were exercisable
for an aggregate of 667,040 shares of Common Stock at an exercise price of $.50
per share (subject to adjustment in certain circumstances). The Series F
Warrants expire on March 7, 2003.
The Series A Warrants, Series B Warrants, Series C Warrants, Series D Warrants,
Series E Warrants and Series F Warrants are referred to herein collectively as
the "Warrants". Pursuant to the terms of the Warrants, the Company is required
to effect the registration for resale of, among other things, the shares of
Common Stock issuable upon the exercise of the Warrants. The Company has not yet
effected such registration.
d. Stock Subscriptions Receivable
As of June 30, 1997, two former officers of the Company owed the Company
$106,350 and $56,600 for Common Stock purchased from the Company. By agreement,
such amounts are payable at the rate of $.25 per Common Share as shares are
sold. During the year ended June 30, 1997, $1,250 was paid to the Company by one
of the former officers.
e. Registration Rights
Under the terms of the Class B Debentures, the Preferred Stock, the Warrants,
and the options granted to an officer of the Company, the Company was obligated
to effect the respective holders' registration rights within 90 days after
issuance. The Company has not yet complied with these obligations.
11. Loss Per Share
Loss per Common Share was computed by dividing the net loss by the weighted
average number of shares of Common Stock outstanding during each of the years
presented. The loss per share calculations for 1997 and 1996 do not give effect
to Common Stock equivalents because they would have an antidilutive effect.
12. Commitments
a. Lease Agreements
The Company is obligated under several non-cancelable leases for office space
and equipment rentals. Annual minimum lease payments under non-cancelable
operating leases as of June 30, 1997, were as follows:
Fiscal year ending June 30, 1998 $ 285,827
Fiscal year ending June 30, 1999 284,625
Fiscal year ending June 30, 2000 230,523
thereafter 13,320
b. Employment Agreements
In connection with the merger with mmTech in April 1997, the Company entered
into five-year employment agreements with two officers of the Company, which
provide for base compensation totaling $350,000, subject to periodic increases
at the discretion of the Company's Board of Directors. The agreements also
provide for certain life insurance and severance benefits.
F-26
<PAGE>
13. Major Customers
One customer accounted for 54% and 41% of revenues, for the years ended June 30,
1997 and 1996, respectively.
Sales to foreign customers by geographic location, as a percentage of total
revenues, were as follows:
Years ended June 30, 1997 1996
--------------------------- ---- ----
Asia 16% 34%
Canada 11 2
Europe 9 5
---- ---
36% 41%
==== ====
14. Pension Plan
The Company had two separate defined contribution plans covering eligible
full-time employees as of June 30, 1997. Participation in each plan is voluntary
and participants may contribute up to 15% of their compensation, subject to
federal limitations. The Company, at its discretion, can make matching
contributions to the LogiMetrics, Inc. Employees 401(k) Savings Plan (the
"LogiMetrics Plan"). For the years ended June 30, 1997 and 1996, the Company has
made no matching contribution to the LogiMetrics Plan. The mmTech, Inc. 401(k)
Plan and Trust (the "mmTech Plan") provides for a Company match of 5% of
participant contributions, plus a discretionary amount based on profitability.
Discretionary Company contributions are vested ratably over a 6-year period.
Company contributions for the year ended June 30, 1997, totaled $2,823 under the
mmTech Plan. The Company made no discretionary contributions to the mmTech Plan
in the fiscal year ended June 30, 1997.
15. Certain Relationships and Related Party Transactions
In July 1995, the Company sold to SFM Series B Warrants to purchase 1,500,000
shares of Common Stock, at a price of $.02 per share, with an exercise price of
$0.25 per share, in connection with obtaining financing for the Company. Alfred
Mendelsohn and Lawrence I. Schneider, former directors of the Company, were
principals in SFM. Mark B. Fisher, a director of the Company, was also a
principal in SFM.
In December 1995, the Company entered into a consulting agreement with two
companies, SFM and Phipps, Teman & Company, L.L.C. ("PTCO"), for services to be
rendered in obtaining additional financing for the Company. SFM and PTCO were
granted Series E Warrants to purchase a total of 1,000,000 shares of the
Company's Common Stock at $.50 per share any time prior to March 7, 2003. SFM
and PTCO also were subsequently paid fees of $87,500 and $216,377, respectively,
when the financing was provided in March 1996. Norman M. Phipps, a director of
the Company, and Wade Teman, a former officer of the Company, are principals in
PTCO.
In May 1996, a former director of the Company, Lawrence I. Schneider, was
elected Chairman of the Executive Committee for a five-year term. As
compensation, he was paid $100,000, in June 1996. Mr. Schneider resigned as a
director in November 1996.
During the fiscal year ended June 30, 1996, the Company paid Orbitrex
International, Inc. ("Orbitrex"), whose President is Alfred Mendelsohn, a former
director of the Company, $71,000 for business development services provided to
the Company. Additionally, the Company granted Mr. Mendelsohn Series F Warrants
to purchase 100,000 shares of Common Stock at $.50 per share.
In June 1997, the Company entered into a consulting agreement with Orbitrex.
Under the consulting agreement, Orbitrex agreed to provide certain services in
connection with product development and international marketing opportunities.
Under the consulting agreement, Orbitrex is entitled to receive payments
aggregating $60,000, payable in monthly installments on or prior to April 30,
1998. In the consulting agreement, Orbitrex agreed to certain confidentiality,
non-competition and intellectual property covenants.
F-27
<PAGE>
In July 1997, Mr. Phipps purchased 850,000 shares of Common Stock from the
Company for $467,500, or $0.55 per share. In connection with the purchase,
$8,500 was paid in cash from the proceeds of a one-time bonus paid to Mr. Phipps
and the remainder was paid in the form of a non-recourse secured promissory note
(the "Phipps Note"). The Phipps Note does not bear interest, has no fixed
maturity date, and is secured by a pledge of the shares of Common Stock
purchased by Mr. Phipps. The Phipps Note will automatically be forgiven upon the
occurrence of a "Change in Control Event" (as defined in the Phipps Note). The
Phipps Note will become due and payable upon the occurrence of certain events,
including a sale or other disposition by Mr. Phipps of the shares of Common
Stock or the termination of Mr. Phipps' employment as a result of a "Termination
for Cause" (as defined in the Phipps Note). If Mr. Phipps' employment
terminates, other than as a result of a Termination for Cause or a "Without
Cause Termination" (as defined in the Phipps Note), the Phipps Note will become
payable in 60 monthly installments. The Company has agreed to make certain
payments to Mr. Phipps in respect of certain federal income tax consequences
which may result from the terms of the Phipps Note.
Prior to its acquisition by the Company, Mr. Brand, the Company's Chairman and
Chief Executive Officer, lent certain amounts to mmTech on an as-needed basis to
fund a portion of mmTech's working capital requirements. The maximum amount
advanced by Mr. Brand was $649,150, and $623,086 in such advances were
outstanding at June 30, 1997. Pursuant to an agreement between Mr. Brand and the
Company, the Company has agreed to pay interest on the unpaid advances (which
previously had been interest-free) at a rate of seven percent per annum. The
Company also agreed that, subject to its cash flow requirements, it would use
its best efforts to repay up to $300,000 of such advances on or before September
30, 1997, and that the remaining advances would be repaid at a rate of $50,000
per month, commencing in October 1997. As of December 12, 1997, the Company has
paid Mr. Brand $200,000 pursuant to the arrangements described above.
Mr. Brand owns 40% of the outstanding Common Stock of Advanced Control
Components, Inc. ("ACC"). ACC currently sublets space from the Company at its
Eatontown, New Jersey facility and pays to mmTech $33,312 in annual rent.
Employees from mmTech perform services for ACC and employees from ACC perform
services for mmTech from time to time. The company utilizing such services pays
to the company providing such services an amount equal to two times the base
hourly salary of the employees providing such services for the number of hours
involved. Pursuant to such arrangements, ACC paid to mmTech net amounts of
$230,686 during the fiscal year ended June 30, 1997 and $154,850 during the
fiscal year ended June 30, 1996.
Certain holders of the Company's securities, including directors, officers and
beneficial owners of more than 5% of the Common Stock are entitled to certain
registration rights with respect to securities of the Company held by them.
16. Subsequent Events
In July 1997 the Company entered into a Purchase Agreement (the "Purchase
Agreement") with a group of institutional investors (the "Purchasers"),
including certain entities affiliated with Mark B. Fisher, a director of the
Company. Pursuant to the terms of the Purchase Agreement, the Company issued and
sold to the Purchasers $2,750,000 in aggregate principal amount of the Company's
Class A 13% Convertible Senior Subordinated Pay-in-Kind Debentures due July 29,
1999 (the "Class A Debentures"), Common Stock Purchase Warrants - Series G (the
"Series G Warrants") to purchase an aggregate of 7,350,000 shares of Common
Stock at an exercise price of $0.50 per share, Common Stock Purchase Warrants -
Series H (the "Series H Warrants") to purchase an aggregate of 1,100,000 shares
of Common Stock at an exercise price of $0.60 per share and Common Stock
Purchase Warrants - Series I (the "Series I Warrants") to purchase an aggregate
of 550,000 shares of Common Stock at an exercise price of $1.125 per share, for
a total purchase price of $3,352,500. Pursuant to the terms of the Purchase
Agreement, the Purchasers have the right, at any time prior to July 28, 1998, to
purchase an additional $833,333 in aggregate principal amount of the Class A
Debentures, Series G Warrants to purchase an aggregate of 2,000,000 shares of
Common Stock, Series H Warrants to purchase an aggregate of 333,333 shares of
Common Stock and Series I Warrants to purchase an aggregate of 166,667 shares of
Common Stock for a total purchase price of $1,000,000 (the "Purchase Option").
F-28
<PAGE>
In connection with the transactions contemplated by the Purchase Agreement, the
Purchasers, the Company and Charles S. Brand entered into a Stockholders
Agreement (the "Stockholders Agreement") pursuant to which, among other things,
Mr. Brand agreed to certain restrictions on his ability to sell his shares of
Common Stock. Pursuant to the terms of the Stockholders Agreement, the size of
the Board of Directors was increased to seven members and the Purchasers
received the right to appoint three directors. In the event that the Purchase
Option is exercised in full, the number of directors will be increased to eight,
and the Purchasers will have the right to appoint an additional director. At any
time that the Purchasers are entitled to appoint at least four directors, at
either the request of Mr. Brand or the Purchasers, the size of the Board will be
further increased by one and Mr. Brand and the Purchasers will have the right to
mutually select an independent director to fill the resulting vacancy. Further,
in the event that Cerberus (or any subsequent holder of the Class B Debentures)
exercises its right under the Unit Purchase Agreement to designate a member of
the Board of Directors, the number of directors will be increased by two, the
holder of the Class B Debentures will have the right to appoint one director and
Mr. Brand and the Purchasers will have the right to appoint an additional
independent director.
Pursuant to the terms of the Stockholders Agreement, Mr. Brand has appointed
himself, Dr. Brand, Mr. Carreras and Mr. Phipps and the Purchasers have
appointed Messrs. Fisher, Garcia and Thompson as directors of the Company. To
facilitate the recomposition of the Board of Directors, Mr. Mendelsohn resigned
as a director of the Company effective upon the closing of the transactions
contemplated by the Purchase Agreement.
Under the terms of the Stockholders Agreement, the parties agreed to cause (i)
the Executive Committee of the Board of Directors to be comprised of two
directors designated by Mr. Brand and one director designated by the Purchasers,
(ii) the Audit Committee of the Board of Directors to be comprised of two
directors designated by Mr. Brand and two directors designated by the
Purchasers, and (iii) the Compensation Committee of the Board of Directors to be
comprised of two directors designated by Mr. Brand and two directors designated
by the Purchasers. In the event that the Purchase Option is exercised in full,
the Purchasers will have the right to designate a second director to serve on
the Executive Committee of the Board of Directors.
Pursuant to the terms of the Stockholders Agreement, an ad hoc committee of the
Board of Directors is to be formed to search for a permanent successor to Mr.
Brand as the Company's Chief Executive Officer. Mr. Brand has the right, in his
sole discretion, to approve any such successor. Under the terms of the
Stockholders Agreement, the successor Chief Executive Officer will be treated as
a director designated by Mr. Brand and will be entitled to serve as a member of
the Executive Committee of the Board of Directors (which will be further
increased in size to permit such appointment). As of December 12, 1997, the ad
hoc committee had not yet been formed.
Under the terms of the Stockholders Agreement, the holders of a majority of the
shares of Common Stock beneficially owned by the Purchasers have the right,
subject to certain limitations, to cause the Company to enter into a "Company
Sale". A Company Sale is defined to include (i) a sale of all or substantially
all of the assets of the Company (other than to certain affiliates), (ii) a
merger, consolidation, share exchange or other similar transaction in which the
holders of the Company's voting stock receive less than 50% of the voting power
of the surviving entity, (iii) a sale, disposition or issuance of shares of
voting stock of the Company in which a person or entity (other than a party to
the Stockholder Agreement or its affiliates) acquires 50% or more of the total
voting power of the Company, and (iv) the formation of certain partnerships,
joint ventures and other strategic alliances involving the sale or transfer of
all or substantially all of the assets of the Company to a third party.
The Stockholders Agreement terminates upon the earliest to occur of (i) the
written consent of the holders of a majority of the shares of Common Stock
beneficially owned by the Purchasers and the holders of a majority of the shares
of Common Stock then beneficially owned by Mr. Brand and certain transferees,
(ii) Mr. Brand and certain transferees, as a group, or the Purchasers, as a
group, becoming the beneficial owners of less than 10% of the outstanding Common
Stock (determined on a fully-diluted basis), or (iii) upon the consummation of a
Company Sale in accordance with the terms of the Stockholders Agreement.
F-29
<PAGE>
MBF Capital Corporation ("MBF"), an entity controlled by Mark B. Fisher, a
director of the Company, paid $35,000 of the purchase price payable by it in
connection with its July 1997 purchase of the Class A Debentures, Series G
Warrants, Series H Warrants, and Series I Warrants in the form of a non-recourse
secured promissory note (the "MBF Note"). The MBF Note matures on July 29, 2000
and bears interest (compounded annually) at a rate of 6.07% per annum, which is
payable at maturity. The MBF Note is secured by a pledge of the Series G
Warrants purchased by MBF. The MBF Note will become immediately due and payable
upon the occurrence of certain events, including a sale or other disposition by
MBF of the Series G Warrants purchased by it or the consummation of a Company
Sale (as defined in the Stockholders Agreement).
On December 31, 1997, the Company sold without recourse approximately $2.6
million of notes receivable for approximately $2.4 million cash.
F-30
<PAGE>
<TABLE>
<CAPTION>
No dealer, salesman or any other person has
been authorized to give any information or to
make any representations in connection with this
offering other than those contained in this
Prospectus and, if given or made, such other
information and representations must not be
relied upon as having been authorized by the
<S> <C>
Company. Neither the delivery of this 62,477,446 Shares of Common Stock
Prospectus nor any sale made hereunder shall, Amended and Restated Common Stock
Purchase Warrants - Series A
under any circumstances, create any implication
that there has been no change in the affairs Amended and Restated Common Stock
of the Company since the date hereof Purchase Warrants - Series B
or that the information contained herein
is correct as of any time subsequent to its Common Stock Purchase Warrants - Series C
date. This Prospectus does not constitute Common Stock Purchase Warrants - Series D
an offer to sell or a solicitation of an offer Common Stock Purchase Warrants - Series E
to buy such securities in any circumstances
in which such offer or solicitation is Common Stock Purchase Warrants - Series F
unlawful. Common Stock Purchase Warrants - Series G
Common Stock Purchase Warrants - Series H
Common Stock Purchase Warrants - Series I
28 Shares of Series A 12% Cumulative
Convertible Redeemable Preferred Stock
</TABLE>
LOGIMETRICS, INC.
______________
PROSPECTUS
______________
---------------------
TABLE OF CONTENTS
Page April , 1998
Available Information................................2
Forward-Looking Statements...........................3
Risk Factors.........................................3
Use of Proceeds......................................11
Price Range of Common Stock..........................11
Dividend Policy......................................11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...........................................12
Business ............................................17
Management...........................................28
Certain Transactions.................................37
Selling Securityholders..............................40
Description of Capital Stock.........................59
Description of Preferred Stock.......................60
Description of Warrants..............................63
Shares Eligible for Future Sale......................65
Plan of Distribution.................................66
Legal Matters........................................67
Experts ............................................67
Index to Financial Statements........................F-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article Seventh of the Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), provide that every person who is or was a
director, officer, employee or agent of the Company shall be indemnified by the
Company pursuant to the provisions of Section 145 of the Delaware General
Corporation Law to the fullest extent permitted thereby against all liabilities
and expenses imposed upon or incurred by that person in connection with any
proceeding in which that person may be made, or threatened to be made, a party,
or in which that person may become involved by reason of that person being or
having been a director or officer or continues to serve in any capacity with any
other enterprise at the request of the Company. In addition, the Company's
by-laws, as amended, provide the directors, officers and employees of the
Company with similar protections.
Section 145 of the General Corporation Law of the State of Delaware (the
"GCL") permits a corporation, under specified circumstances, to indemnify its
directors, officers, employees or agents against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been judged liable to the corporation unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Article Seventh of the Certificate of Incorporation also provides that no
director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that the foregoing shall not apply to any liability of a
director (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (iii) for payment of
dividends or repurchases or redemptions of stock other than from lawfully
available funds, or (iv) for any transaction from which the director derived an
improper benefit. In the event that the Delaware General Corporation Law is
amended to authorize corporate action further limiting the personal liability of
directors, Article Seventh of the Certificate of Incorporation provides that the
liability of a director of the Company shall be eliminated or further limited to
the extent permitted thereby.
Item 25. Other Expenses of Issuance and Distribution
The following table lists the expenses which will be incurred in connection
with the issuance and distribution of the Securities being registered:
Expense
SEC Registration Fee $16,030
Accounting Fees and Expenses 10,000
Legal Fees and Expenses 50,000
Blue Sky Fees and Expenses 20,000
Printing and Engraving 1,000
Miscellaneous 2,970
---------
TOTAL $100,000
II-1
<PAGE>
All of the above amounts, other than the registration fee, are estimates
only. All of the above expenses will be paid by the Company.
Item 26. Recent Sales of Unregistered Securities
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act:
On July 14, 1995 the Company issued an aggregate of 15 units (the "1995
Units"), each 1995 Unit consisting of one $20,000 12% Convertible
Subordinated Debenture (the "Old Debentures") and one Common Stock Purchase
Warrant - Series A (the "Old Series A Warrants") to purchase 40,000 shares
of Common Stock at $0.25 per share, to private investors for an aggregate
purchase price of $312,000. This transaction was completed without
registration under the Securities Act of the Old Debentures, the Old Series
A Warrants or the shares of Common Stock, par value $.01 per share of the
Company (the "Common Stock"), issuable upon the conversion of the Old
Debentures and the exercise of the Old Series A Warrants in reliance upon
the exemption provided by Section 4(2) of the Securities Act. There were no
underwriters for this issuance.
In connection with the offering of the 1995 Units, the Company issued
Common Stock Purchase Warrants - Series B (the "Old Series B Warrants") to
purchase 1,500,000 shares of Common Stock at $0.25 per share to one private
investor for services rendered in arranging the sale of the 1995 Units. This
transaction was completed without registration under the Securities Act of
the Old Series B Warrants or the shares of Common Stock issuable upon the
exercise of the Old Series B Warrants in reliance upon the exemption
provided by Section 4(2) of the Securities Act. There were no underwriters
for this issuance.
On March 7, 1996 the Company issued an aggregate of 30 units (the "1996
Units"), each 1996 Unit consisting of one $50,000 12% Convertible Senior
Subordinated Debenture (the "Old Class B Debentures") and one Common Stock
Purchase Warrant - Series C (the "Series C Warrants") to purchase 84,746
shares of Common Stock at $0.01 per share, to one private investor for an
aggregate purchase price of $1,500,000. This transaction was completed
without registration under the Securities Act of the Old Class B Debentures,
the Series C Warrants or the shares of Common Stock issuable upon the
conversion of the Old Class B Debentures and the exercise of the Series C
Warrants in reliance upon the exemption provided by Section 4(2) of the
Securities Act. There were no underwriters for this issuance.
In addition, on March 7, 1996, the Company issued an aggregate of 30
units (the "Preferred Stock Units"), each Preferred Stock Unit consisting of
one share of its Series A 12% Cumulative Convertible Redeemable Preferred
Stock, stated value $50,000 per share (the "Series A Preferred Stock"), and
one Common Stock Purchase Warrant - Series D (the "Series D Warrants") to
purchase 94,340 shares of Common Stock at $0.01 per share, to private
investors for an aggregate purchase price of $1,500,000. This transaction
was completed without registration under the Securities Act of the Series A
Preferred Stock, the Series D Warrants or the shares of Common Stock
issuable upon the conversion of the Series A Preferred Stock and the
exercise of the Series D Warrants in reliance upon the exemption provided by
Section 4(2) of the Securities Act. There were no underwriters for this
issuance.
Also on March 7, 1996, (i) the holders of the Old Debentures exchanged
the Old Debentures for the Company's Amended and Restated 12% Convertible
Subordinated Debentures (the "New Debentures"), (ii) the holders of the Old
Series A Warrants exchanged the Old Series A Warrants for the Company's
Amended and Restated Series A Warrants (the "Series A Warrants"), and (iii)
the holders of the Old Series B Warrants exchanged the Old Series B Warrants
for the Company's Amended and Restated Series B Warrants (the "Series B
Warrants"). This transaction was completed without registration under the
Securities Act of the New Debentures, the Series A Warrants, the Series B
Warrants or the shares of Common Stock issuable upon the conversion of the
New Debentures and the exercise of the Series A Warrants and the Series B
Warrants in reliance upon the exemptions provided by Sections 3(a)(9) and
4(2) of the Securities Act. There were no underwriters for this issuance.
II-2
<PAGE>
In connection with the offering of the 1996 Units and the Preferred
Stock Units, the Company issued Common Stock Purchase Warrants - Series E
(the "Series E Warrants") to purchase 1,000,000 shares of Common Stock at
$0.40 per share to two private investors for services rendered in arranging
the sale of the 1996 Units and the Preferred Stock Units. This transaction
was completed without registration under the Securities Act of the Series E
Warrants or the shares of Common Stock issuable upon the exercise of the
Series E Warrants in reliance upon the exemption provided by Section 4(2) of
the Securities Act. There were no underwriters for this issuance.
On May 1, 1996, the Company issued Common Stock Purchase Warrants -
Series F (the "Series F Warrants") to purchase an aggregate of 667,040
shares of Common Stock at $0.50 per share to certain directors in exchange
for certain services rendered. This transaction was completed without
registration under the Securities Act of the Series F Warrants or the shares
of Common Stock issuable upon the exercise of the Series F Warrants in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
There were no underwriters for this issuance.
On April 25, 1997, the Company issued 19,247,800 shares of Common Stock
to the former chief executive officer of the Company in connection with the
Company's acquisition of mmTech, Inc. ("mmTech") in exchange for all of
mmTech's outstanding capital stock. This transaction was completed without
registration under the Securities Act of the shares of Common Stock in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
There were no underwriters for this issuance.
On July 22, 1997, the Company issued an aggregate of 1,250,000 shares of
Common Stock to two members of management for an aggregate purchase price of
$687,500 which was paid $12,500 in cash and the remainder in non-recourse
promissory notes secured by the shares of Common Stock. These transactions
were completed without registration under the Securities Act of the shares
of Common Stock in reliance upon the exemption provided by Section 4(2) of
the Securities Act. There were no underwriters for these issuances.
On July 29, 1997, the Company issued $2,750,000 in aggregate principal
amount of its Class A 13% Senior Subordinated Convertible Pay-in-Kind
Debentures due July 29, 1999 (the "Class A Debentures"), Common Stock
Purchase Warrants - Series G (the "Series G Warrants") to purchase an
aggregate of 7,350,000 shares of Common Stock at $0.50 per share, Common
Stock Purchase Warrants - Series H (the "Series H Warrants") to purchase an
aggregate of 1,100,000 shares of Common Stock at $0.60 per share and Common
Stock Purchase Warrants - Series I (the "Series I Warrants") to purchase an
aggregate of 550,000 shares of Common Stock at $1.125 per share to private
investors for an aggregate purchase price of $3,352,500. Pursuant to the
terms of the purchase agreement with those investors, such investors have
the right, at any time prior to July 28, 1998, to purchase an additional
$833,333 in aggregate principal amount of the Class A Debentures, Series G
Warrants to purchase an aggregate of 2,000,000 shares of Common Stock,
Series H Warrants to purchase an aggregate of 333,333 shares of Common Stock
and Series I Warrants to purchase an aggregate of 166,667 shares of Common
Stock for a total purchase price of $1,000,000 (the "Purchase Option"). This
transaction was completed without registration under the Securities Act of
the Class A Debentures, the Series G Warrants, the Series H Warrants, the
Series I Warrants, the Purchase Option or the shares of Common Stock
issuable upon the conversion of the Class A Debentures and the exercise of
the Series G Warrants, the Series H Warrants, the Series I Warrants or the
securities issuable upon the exercise of the Purchase Option in reliance
upon the exemption provided by Section 4(2) of the Securities Act. There
were no underwriters for this issuance.
Also on July 29, 1997, the holder of the Old Class B Debentures
exchanged the Old Class B Debentures for the Company's Amended and Restated
13% Senior Subordinated Convertible Pay-in-Kind Debentures due July 29, 1999
(the "Class B Debentures"). This transaction was completed without
registration under the Securities Act of the Class B Debentures or the
shares of Common Stock issuable upon the conversion of the Class B
Debentures in reliance upon the exemptions provided by Sections 3(a)(9) and
4(2) of the Securities Act. There were no underwriters for this issuance.
The Company entered into a consulting agreement, dated January 20, 1998,
with one of its outside directors. In connection therewith, the Company has
issued an aggregate of 145,453 shares of Common
II-3
<PAGE>
Stock to such director as compensation for services rendered under the
consulting agreement. These transactions were completed without
registration under the Securities Act of the shares of Common Stock in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
There were no underwriters for these issuances.
The Company entered into a consulting agreement, dated March 4, 1998,
with its current chief executive officer. In connection therewith, the
Company has issued an aggregate of 108,000 shares of Common Stock to such
officer as compensation for services rendered under the consulting
agreement. This transaction was completed without registration under the
Securities Act of the shares of Common Stock in reliance upon the exemption
provided by Section 4(2) of the Securities Act. There were no underwriters
for this issuance.
On March 9, 1998, the Company issued an aggregate of 40,000 shares of
Common Stock to an officer of the Company for a cash purchase price of
$20,000. This transaction was completed without registration under the
Securities Act of the shares of Common Stock in reliance upon the exemption
provided by Section 4(2) of the Securities Act. There were no underwriters
for this issuance.
At various times between January 1995 and April 1998, the Company
granted stock options to certain directors, employees and consultants
covering an aggregate of 3,436,133 shares of Common Stock. These grants were
exempt from registration pursuant to Securities Act Release No. 33-6188
(Feb. 1, 1980). No underwriter was involved in these grants.
Item 27. Exhibits
The following exhibits are filed as part of this Registration Statement:
3.1 Certificate of Incorporation of the Company, as amended.
3.2 By-laws of the Company, as amended.
4.1 Form of Class A 13% Senior Subordinated Convertible Pay-in-Kind
Debentures due July 29, 1999.
4.2 Form of Amended and Restated Class B 13% Senior Subordinated
Convertible Pay-in-Kind Debentures due July 29, 1999.
4.3 Form of Series A Warrant.
4.4 Form of Series B Warrant.
4.5 Form of Series C Warrant.
4.6 Form of Series D Warrant.
4.7 Form of Series E Warrant.
4.8 Form of Series F Warrant.
4.9 Form of Series G Warrant.
4.10 Form of Series H Warrant.
4.11 Form of Series I Warrant.
II-4
<PAGE>
4.12 Form of Certificate of the Designations, Powers, Preferences and
Rights of the Company's Series A 12% Cumulative convertible
Redeemable Preferred Stock, stated value $50,000 per share.
5.1 Opinion of Lowenstein Sandler PC.
5.2 Opinion of Dickstein Shapiro Morin & Oshinsky.
10.1 Restated and Amended Term Loan Note, dated as of April 25, 1997, in
favor of North Fork Bank (the "Bank").
10.2 Sixth Restated and Amended Revolving Credit Note, dated as of April
25, 1997, in favor of the Bank.
10.3 Amended and Restated General Security Agreement, dated as of April
25, 1997, in favor of the Bank.
10.4 Purchase Agreement, dated as of July 29, 1997, among the Company and
the purchasers party thereto.
10.5 Stockholders Agreement, dated as of July 29, 1997, among the
Company, Charles S. Brand and the purchasers party thereto.
10.6 Unit Purchase Agreement, dated as of March 7, 1996, by and between
the Company and Cerberus Partners, L.P. ("Cerberus").
10.7 Amended and Restated Security Agreement, dated March 7, 1996, as
amended and restated as of July 29, 1997, among the Company and
Cerberus.
10.8 Agreement to Purchase and Sell Equipment, dated as of June 30, 1994,
by and between mmTech, Inc. and CellularVision Technology &
Telecommunications, L.P. ("CT&T").
10.9 Letter Agreement, dated as of October 23, 1996, by and between the
Company and CT&T.
10.10 Letter Agreement, dated December 1, 1997, by and between the Company
and CellularVision of New York, L.P.
10.11 Assignment Agreement, dated as of December 31, 1997, by and
between the Company and NewStart Factors, Inc.
10.12 Agreement of Lease, dated as of April 22, 1997, by and between the
Company and Reckson FS Limited Partnership.
10.13 Lease, dated January 24, 1994, by and between Mid Atlantic
Industrial Co. and mmTech, Inc., as amended.
10.14 Employment Agreement, dated as of April 25, 1997, by and between the
Company and Charles S. Brand.
10.15 Employment Agreement, dated as of April 25, 1997, by and between the
Company and Norman M. Phipps.
II-5
<PAGE>
10.16 Consulting Agreement, dated as of July 29, 1997, by and between the
Company and MBF Capital Corp.
10.17 Non-Recourse Secured Promissory Note, dated July 22, 1997, made by
Norman M. Phipps in favor of the Company.
10.18 Pledge Agreement, dated July 22, 1997, between the Company and
Norman M. Phipps.
10.19 Letter Agreement, dated as of August 6, 1997, by and between the
Company and MBF.
10.20 Non-Recourse Secured Promissory Note, dated July 29, 1997, made by
MBF Capital Corp. in favor of the Company.
10.21 Pledge Agreement, dated July 29, 1997, between the Company and
MBF Capital Corp.
10.22 Stock Option Agreement, dated as of May 1, 1996, by and between the
Company and Russell J. Reardon.
10.23 LogiMetrics, Inc. 1997 Stock Compensation Program, as amended.
10.24 Form of Indemnification Agreement for Directors.
10.25 Consulting Agreement, dated January 20, 1998, by and between the
Company and Dr. Frank A. Brand.
10.26 Consulting Agreement, dated March 4, 1998, by and between the
Company and Kenneth C. Thompson.
21.1 List of the Company's Subsidiaries.
23.1 Consent of Deloitte & Touche LLP, independent certified public
accountants.
23.2 Consent of Reydel, Perier & Neral.
23.3 Consent of Lowenstein Sandler PC (included in Exhibit 5.1 to this
registration statement).
23.4 Consent of Dickstein Shapiro Morin & Oshinsky.
24.1 Power of Attorney (included on the signature page).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) For the purpose of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act, shall be deemed a part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions on
indemnification, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorizes this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Bohemia, State of New York, on April 30, 1998.
LOGIMETRICS, INC.
By:/s/ Norman M. Phipps
Norman M. Phipps, President
and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated below on April 30, 1998. Each of the undersigned hereby
constitutes and appoints Kenneth C. Thompson, Norman M. Phipps and Erik S.
Kruger, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement on Form SB-2 relating
to the securities offered pursuant hereto, any additional registration statement
filed pursuant to Rule 462 under the Securities Act of 1933 relating hereto, and
any and all amendments (including post-effective amendments) thereto, and to
file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and such other
state and federal government commissions and agencies as may be necessary or
advisable, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title
/s/ Kenneth C. Thompson Chief Executive Officer (Principal
Kenneth C. Thompson Executive Officer) and Director
/s/ Charles S. Brand Chairman of the Board, Chief
Charles S. Brand Technology Officer and Director
/s/ Frank A. Brand Director
Frank A. Brand
/s/ Jean-Francois Carreras Director
Jean-Francois Carreras
/s/ Francisco A. Garcia Director
Francisco A. Garcia
/s/ Mark B. Fisher Director
Mark B. Fisher
/s/ Norman M. Phipps President, Chief Operating Officer
Norman M. Phipps and Director
/s/ Erik S. Kruger Vice President-Finance and
Erik S. Kruger Administration (Principal Accounting
and Financial Officer)
II-8
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page
3.1 Certificate of Incorporation of the Company, as
amended, (previously filed as Exhibit 3.1 to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 (file no. 0-10696)
and incorporated herein by reference).
3.2 By-laws of the Company, as amended, (previously
filed as Exhibit 3.2 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended June 30,
1997 (file no. 0-10696) and incorporated herein by
reference).
4.1 Form of Class A 13% Senior Subordinated Convertible
Pay-in-Kind Debentures due July 29, 1999
(previously filed as Exhibit 4.1 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 (file no. 0-10696) and
incorporated herein by reference).
4.2 Form of Amended and Restated Class B 13% Senior
Subordinated Convertible Pay-in-Kind Debentures due
July 29, 1999 (previously filed as Exhibit 4. to
the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 (file no. 0-10696)
and incorporated herein by reference).
4.3 Form of Series A Warrant (previously filed as
Exhibit 7 to the Company's Current Report on Form
8-K, dated March 7, 1996 (file no. 0-10696), and
incorporated herein by reference).
4.4 Form of Series B Warrant (previously filed as
Exhibit 8 to the Company's Current Report on Form
8-K, dated March 7, 1996 (file no. 0-10696), and
incorporated herein by reference).
4.5 Form of Series C Warrant (previously filed as
Exhibit 2 to the Company's Current Report on Form
8-K, dated March 7, 1996 (file no. 0-10696), and
incorporated herein by reference).
4.6 Form of Series D Warrant (previously filed as
Exhibit 4 to the Company's Current Report on Form
8-K, dated March 7, 1996 (file no. 0-10696), and
incorporated herein by reference).
4.7 Form of Series E Warrant (previously filed as
Exhibit 5 to the Company's Current Report on Form
8-K, dated March 7, 1996 (file no. 0-10696), and
incorporated herein by reference).
4.8 Form of Series F Warrant (previously filed as
Exhibit 10.9 to the Company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1996
(file no. 0-10696) and incorporated herein by
reference).
4.9 Form of Series G Warrant (previously filed as part
of Exhibit 10.4 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997
(file no. 0-10696) and incorporated herein by
reference).
4.10 Form of Series H Warrant (previously filed as part
of Exhibit 10.4 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997
(file no. 0-10696) and incorporated herein by
reference).
II-9
<PAGE>
4.11 Form of Series I Warrant (previously filed as part
of Exhibit 10.4 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997
(file no. 0-10696) and incorporated herein by
reference).
4.12 Form of Certificate of the Designations, Powers,
Preferences and Rights of the Company's Series A
12% Cumulative convertible Redeemable Preferred
Stock, stated value $50,000 per share (previously
filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended
June 30, 1996 (file no. 0-10696) and incorporated
herein by reference).
5.1 Opinion of Lowenstein Sandler PC.*
5.2 Opinion of Dickstein Shapiro Morin & Oshinsky.*
10.1 Restated and Amended Term Loan Note, dated as of
April 25, 1997, in favor of North Fork Bank (the
"Bank") (previously filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 (file no. 0-10696)
and incorporated herein by reference).
10.2 Sixth Restated and Amended Revolving Credit Note,
dated as of April 25, 1997, in favor of the Bank
(previously filed as Exhibit 10.2 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 (file no. 0-10696) and
incorporated herein by reference).
10.3 Amend and Restated General Security Agreement,
dated as of April 25, 1997, in favor of the Bank
(previously filed as Exhibit 10.3 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 (file no. 0-10696) and
incorporated herein by reference).
10.4 Purchase Agreement, dated as of July 29, 1997,
among the Company and the purchasers party thereto
(previously filed as Exhibit 10.4 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 (file no. 0-10696) and
incorporated herein by reference).
10.5 Stockholders Agreement, dated as of July 29, 1997,
among the Company, Charles S. Brand and the
purchasers party thereto (previously filed as
Exhibit 10.5 to the Company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1997
(file no. 0-10696) and incorporated herein by
reference).
10.6 Unit Purchase Agreement, dated as of March 7, 1996,
by and between the Company and Cerberus Partners,
L.P. ("Cerberus") (previously filed as Exhibit 10.6
to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1997 (file no.
0-10696) and incorporated herein by reference).
10.7 Amended and Restated Security Agreement, dated
March 7, 1996, as amended and restated as of July
29, 1997, among the Company and Cerberus
(previously filed as Exhibit 10.7 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 (file no. 0-10696) and
incorporated herein by reference).
II-10
<PAGE>
10.8 Agreement to Purchase and Sell Equipment, dated as
of June 30, 1994, by and between mmTech, Inc. and
CellularVision Technology & Telecommunications,
L.P. ("CT&T") (previously filed as Exhibit 10.8 to
the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 (file no. 0-10696)
and incorporated herein by reference).
10.9 Letter Agreement, dated as of October 23, 1996, by
and between the Company and CT&T (previously filed
as Exhibit 10 to the Company's Quarterly Report on
Form 10-QSB for the fiscal quarter ended December
31, 1996 (file no. 0-10696) and incorporated herein
by reference).
10.10 Letter Agreement, dated December 1, 1997, by and
between the Company and CellularVision of New York,
L.P. (previously filed as Exhibit 10.10 to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 (file no. 0-10696)
and incorporated herein by reference).
10.11 Assignment Agreement, dated as of December 31,
1997, by and between the Company and NewStart
Factors, Inc. (previously filed as Exhibit 10.11 to
the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 (file no. 0-10696)
and incorporated herein by reference).
10.12 Agreement of Lease, dated as of April 22, 1997, by
and between the Company and Reckson FS Limited
Partnership (previously filed as Exhibit 10.12 to
the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 (file no. 0-10696)
and incorporated herein by reference).
10.13 Lease, dated January 24, 1994, by and between Mid
Atlantic Industrial Co. And mmTech, Inc., as
amended, (previously filed as Exhibit 10.13 to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 (file no. 0-10696)
and incorporated herein by reference).
10.14 Employment Agreement, dated as of April 25, 1997,
by and between the Company and Charles S. Brand
(previously filed as Exhibit 10.14 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 (file no. 0-10696) and
incorporated herein by reference).
10.15 Employment Agreement, dated as of April 25, 1997,
by and between the Company and Norman M. Phipps
(previously filed as Exhibit 10.15 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 (file no. 0-10696) and
incorporated herein by reference).
10.16 Consulting Agreement, dated as of July 29, 1997, by
and between the Company and MBF Capital Corp.
(previously filed as Exhibit 10.16 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 (file no. 0-10696) and
incorporated herein by reference).
10.17 Non-Recourse Secured Promissory Note, dated July
22, 1997, made by Norman M. Phipps in favor of the
Company (previously filed as Exhibit 10.17 to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997 (file no. 0-10696)
and incorporated herein by reference).
II-11
<PAGE>
10.18 Pledge Agreement, dated July 22, 1997, between the
Company and Norman M. Phipps (previously filed as
Exhibit 10.18 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997
(file no. 0-10696) and incorporated herein by
reference).
10.19 Letter Agreement, dated as of August 6, 1997, by
and between the Company and MBF (previously filed
as Exhibit 10.19 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997
(file no. 0-10696) and incorporated herein by
reference). 10.20 Non-Recourse Secured Promissory
Note, dated July 29, 1997, made by MBF Capital
Corp. in favor of the Company (previously filed as
Exhibit 10.20 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997
(file no. 0-10696) and incorporated herein by
reference).
10.21 Pledge Agreement, dated July 29, 1997, between the
Company and MBF Capital Corp. (previously filed as
Exhibit 10.21 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997
(file no. 0-10696) and incorporated herein by
reference).
10.22 Stock Option Agreement, dated as of May 1, 1996, by
and between the Company and Russell J. Reardon
(previously filed as Exhibit 10.22 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 (file no. 0-10696) and
incorporated herein by reference).
10.23 LogiMetrics, Inc. 1997 Stock Compensation Program,
as amended.*
10.24 Form of Indemnification Agreement for Directors
(previously filed as Exhibit 10.24 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 (file no. 0-10696) and
incorporated herein by reference).
10.25 Consulting Agreement, dated January 20, 1998, by
and between the Company and Dr. Frank A. Brand
(previously filed as Exhibit 10.25 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997 (file no. 0-10696) and
incorporated herein by reference).
10.26 Consulting Agreement, dated March 4, 1998, by and
between the Company and Kenneth C. Thompson.
21.1 List of the Company's Subsidiaries (previously
filed as Exhibit 21.1 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended
June 30, 1997 (file no. 0-10696) and incorporated
herein by reference).
23.1 Consent of Deloitte & Touche LLP, independent
certified public accountants.
23.2 Consent of Reydel, Perier & Neral.
23.3 Consent of Lowenstein Sandler PC (included in
Exhibit 5.1 to this registration statement).*
23.4 Consent of Dickstein Shapiro Morin & Oshinsky.*
24.1 Power of Attorney (included on the signature
page).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
- ----------------------
* To be filed by amendment.
II-12
EXHIBIT 10.26
CONSULTING AGREEMENT
CONSULTING AGREEMENT, dated as of March 4, 1998, by and between
LogiMetrics, Inc. (the "Company"), a Delaware corporation, and Kenneth C.
Thompson (the "Consultant").
W I T N E S S E T H:
WHEREAS, the Consultant has had extensive experience as an executive
officer of companies involved in the manufacturing of telecommunications
products and systems; and
WHEREAS, the Company wishes to retain the Consultant's services and the
Consultant desires to provide his services to the Company upon the terms set
forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and intending to be legally bound, the parties hereto agree as follows:
Section 1. Consulting Services. During the term of this Agreement (which
commenced August 1, 1997), the Consultant shall render to the Company, its
subsidiaries and affiliates, such consulting services relating to the Company,
its subsidiaries and affiliates as may be reasonably requested by the Chief
Executive Officer or the Chief Operating Officer from time to time (the
"Consulting Services"). Such Consulting Services may include, but shall not be
limited to, advice and assistance in connection with strategy and business plan
development, strategic and other alliances, technology developments and trends,
governmental relations, financial planning and other matters relating to the
conduct of the business of the Company and its subsidiaries and affiliates.
Consulting Services may be rendered in person at the offices of the Company, or
any of its subsidiaries or affiliates, at some other mutually agreeable place,
by telephone or by correspondence. Except as otherwise agreed between the
parties hereto, the Consultant will not be obligated to render Consulting
Services hereunder on more than 10 days in any month. Consulting Services will
be provided by the Consultant personally and, without the prior written consent
of the Company, the Consultant shall not subcontract or delegate to any other
person or entity the performance of any such Consulting Services.
Section 2. Consulting Fees. In consideration of the Consulting Services
previously provided by the Consultant hereunder through December 31, 1997, the
Company has previously paid the Consultant a total of $47,100 in cash, receipt
of which is hereby acknowledged. In addition, the Consultant shall be entitled
to receive monthly payments of up to $12,000 per month for Consulting Services
to be rendered through April 30, 1998. In addition to such cash payments, the
Company also shall issue to the Consultant on the date hereof 108,000 duly
authorized, validly issued, fully paid and non-assessable shares of its Common
Stock, par value $.01 per share (the "Common Stock") (together with such cash
fees, the "Consulting Fee"). In no event shall any portion of the Consulting Fee
be refundable in the event of the termination of this Agreement for any reason,
with or without cause, including, without limitation, as a result of the
Consultant's death, permanent disability; or other inability to perform the
Consulting Services.
The Consultant acknowledges that the shares of Common Stock to be issued to
him hereunder (collectively, the "Consulting Shares") have not been registered
under the Securities Act of 1933, as amended (the "Act"), or any State
securities laws and, therefore, may not be resold or transferred by the
Consultant unless they are subsequently registered under the Act and applicable
State securities or "Blue Sky" laws or exemptions from such registration are
available. No sale or other transfer of the Consulting Shares may be made
without the Company's consent unless (i) the offer and sale of the Consulting
Shares has been registered under the Act and applicable State securities or
"Blue Sky" laws, or (ii) the offer and sale of the Consulting Shares is exempt
under the Act and such laws and the Company has received an opinion of counsel
(in form and substance reasonably satisfactory to the Company) to that effect.
Further, the Consultant acknowledges that a legend summarizing the restrictions
described above will be placed on the certificates representing the Consulting
Shares.
In addition to the payment of the Consulting Fee, the Company will
reimburse the Consultant for all out-of-pocket expenses reasonably and
necessarily incurred by the Consultant in connection with the provision of
Consulting Services hereunder; provided that the Company has approved such
expenses in advance. The Consultant's right to reimbursement of such expenses is
hereby expressly conditioned on the Company's receipt of appropriate
documentation of such expenses so as to preserve any claim of deductibility of
such expenses by the Company for Federal income tax purposes. Approved expenses
shall be reimbursed promptly upon receipt of all required documentation.
<PAGE>
Section 3. Termination. This Agreement may be terminated by either party
hereto upon not less than 30 days' prior written notice to the other party. In
addition, this Agreement shall terminate immediately upon the earlier to occur
of (i) death of the Consultant, or (ii) the Consultant's becoming incapable, in
the reasonable judgment of the Company, of performing the Consulting Services to
be provided by him hereunder. This Agreement will expire on March 31, 1998,
unless otherwise extended in writing by mutual agreement of the parties hereto.
Section 4. Status of Consultant. The Consultant shall be an independent
contractor with respect to the Consulting Services to be rendered hereunder. The
Consultant shall not be considered as having employee status with the Company or
its subsidiaries or affiliates and shall not be entitled to participate in any
of the employee benefit and/or welfare plans maintained by the Company, its
subsidiaries or its affiliates. Subject to the provisions of Section 5 below,
the Consultant's engagement hereunder shall not preclude the Consultant's
employment by another person or entity on either a part-time or full-time basis.
Section 5. Confidentiality Covenant; Non-solicitation; Non-competition.
(a) The Consultant recognizes that during the course of performing
Consulting Services hereunder the Consultant will have access to and will
acquire confidential and proprietary information relating to the Company, its
subsidiaries and affiliates (the "Proprietary Information"). The Consultant
acknowledges that the Proprietary Information has been and will continue to be
of critical importance to the business and operations of the Company, its
subsidiaries and affiliates. Accordingly, the Consultant shall use such
Proprietary Information only in connection with the provision of Consulting
Services hereunder and shall not, without the express prior written consent of
the Company, directly or indirectly disclose any Proprietary Information to any
other person or use any such Proprietary Information, either directly or
indirectly, for his benefit or for the benefit of any third party. Upon any
termination or expiration of this Agreement, the Consultant shall return to the
Company all Proprietary Information provided to the Consultant by the Company,
its subsidiaries or affiliates and shall destroy all other Proprietary
Information then in his possession or subject to his control and shall certify
such destruction to the Company. Under no circumstances shall the Consultant
retain any copies of materials containing Proprietary Information, or any
documents, notes, memoranda, studies, analyses or other material reduced to a
tangible form containing Proprietary Information. The Consultant's obligations
under this Section 5(a) shall survive any termination or expiration of this
Agreement forever.
The term "Proprietary Information" does not include information which (i)
is or becomes generally available to the public (other than as a result of a
disclosure by the Consultant or a representative of the Consultant), (ii)
becomes available to the Consultant on a non-confidential basis from a source
other than the Company or one of its representatives which the Consultant
reasonably believes is entitled to disclose it, or (iii) was already in the
Consultant's possession on a non-confidential basis prior to its disclosure to
the Consultant by the Company or one of its representatives.
(b) During the term of this Agreement and for one year thereafter, the
Consultant shall not, without the express prior written consent of the Company,
directly or indirectly, (i) solicit or assist any third party in soliciting for
employment any technical, engineering or managerial employee employed by the
Company, its subsidiaries or affiliates (collectively, "Employees"), or (ii)
employ, attempt to employ or materially assist any third party in employing or
attempting to employ any Employee. The Consultant's obligations under this
Section 5(b) shall survive any termination or expiration of this Agreement.
(c) During the term of this Agreement, the Consultant shall not, without
the express prior written consent of the Company, directly or indirectly, any
where in the world (x) engage in the design, manufacture, assembly, sale,
maintenance or servicing of wireless telecommunications transmitting and
receiving equipment or components thereof (collectively, a "Competing
Business"), or (y) serve as an officer, director, employee, partner, member,
manager or consultant to or beneficially own any equity interest (other than an
interest of less than 2% of the outstanding voting power of any publicly traded
company) in any Competing Business. The Consultant's obligations under this
Section 5(c) shall survive any termination or expiration of this Agreement.
(d) The Consultant acknowledges that, in the event of any breach of this
Section 5 by him, the Company would be irreparably and immediately harmed and
could not be made whole by monetary damages. Accordingly, the Company, in
addition to any other remedy to which it may be entitled, shall be entitled to
temporary, preliminary and permanent injunctive relief to prevent breaches of
the provisions of this Section 5 and to compel specific performance of the
provisions hereof. The Company shall not be required to post a bond or other
security in connection with the granting of any such relief. These remedies
shall not be deemed to be exclusive remedies for a violation of this Agreement
but shall be in addition to all other remedies available to the Company at law
or in equity.
Section 6. Ownership of Works. The Consultant acknowledges and confirms
that all Works (as defined below) to be supplied by or on behalf of the
Consultant to the Company will be prepared or supplied by the Consultant for,
and at the instigation and under the direction of, the Company and that the
Works are, at all times are intended to be, and shall be deemed to be "works
made for hire" (as that term is used in the United States copyright laws) made
<PAGE>
in the course of the services rendered by the Consultant to the Company. To the
extent that title to any such Works may not, by operation of law, vest in the
Company or may not be considered "works made for hire," the Consultant hereby
assigns, grants and delivers all of his right, title and interest of every kind
and nature whatsoever in and to the Works (and all copies and versions thereof)
to the Company. The Company shall have the exclusive right to apply for, obtain
and hold patent, copyright, trademark and/or service mark registrations
(including renewals and extensions thereof) or any other protection for the
Works. The Consultant will, without further consideration, at any time (during
or after the term of this Agreement), sign any documents or instruments that the
Company requests to (i) establish the Company's ownership of the Works and (ii)
apply for and obtain patent, copyright, service mark and trademark registrations
in the U.S. and foreign countries. The Consultant will assist the Company,
without further consideration, in obtaining, defending and enforcing the
Company's rights in all of the Works. All Works provided or to be provided to
the Company by the Consultant or on his behalf shall bear an appropriate
copyright or other appropriate notice indicating ownership thereof by the
Company.
As used in this Agreement, "Works" means all copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by or for the Consultant during the course of performing the Consulting
Services (including, but not limited to, design concepts, plans and schematics,
engineering drawings, manufacturing plans, models, demonstrators, business
plans, marketing and sales plans, customer lists, lists of potential contacts,
reports and notes prepared by or for the Consultant, all other documentation
developed for or specifically relating to the Consulting Services to be rendered
hereunder), all of the subject matter contained in any of the foregoing, and all
of the Company's source documents, stored data and other information relating
thereto.
The Consultant (i) acknowledges that the Consultant has or will have no
claim to any ownership or other interest in the Works, (ii) hereby waives any
"artist's rights" or "moral rights" he may have to the Works, and (iii)
acknowledges that the Company shall have the exclusive right (forever and
throughout the world) to use and exploit the Works throughout the world in
perpetuity as it sees fit (including the right to publish or broadcast the Works
in any media, or license others to do so) all without further obligation or
compensation to the Consultant.
The Consultant represents and warrants that all Works created by or for him
will not contain or violate any intellectual property rights of any other person
or entity.
Section 7. Representations. The Consultant represents and warrants to the
Company that (i) he has full power and authority to enter into this Agreement
and to perform the services provided for hereunder; (ii) the performance of the
services does not, and will not, violate any law, rule, regulation, judgment or
order of any court binding on him and does not, and will not, in any way violate
or conflict with any agreement, understanding or arrangement to which he is a
party or by which he may be bound; (iii) he is not in any way precluded from
performing the services provided for hereunder; (iv) this Agreement is a valid
and binding Agreement of the Consultant, enforceable against him in accordance
with its terms; and (v) he is acquiring the Consulting Shares for his own
account for investment only and not for or with a view to resale or distribution
thereof in violation of the Act; he has not entered into any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
pledge to such person or anyone else the Consulting Shares; and he has no
present plans or intentions to enter into any such contract, undertaking,
agreement or arrangement.
Section 8. Severability. The invalidity of any portion hereof shall not
effect the validity, force or effect of the remaining portions hereof. If it is
ever held that any restriction hereunder is too broad to permit enforcement of
such restriction to its fullest extent, each party agrees that a court of
competent jurisdiction may enforce such restriction to the maximum extent
permitted by law.
Section 9. Benefits of Agreement. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective executors,
administrators, successors and assigns. This Agreement is personal to the
Consultant and may not be assigned by the Consultant without the Company's prior
written consent. Any assignment or purported assignment by the Consultant in
violation of this Section 9 shall be null and void.
Section 10. Entire Agreement. This Agreement shall constitute the entire
agreement among the parties with respect to the matters covered hereby and shall
supersede all previous written, oral or implied agreements and understandings
among the parties with respect to such matters.
Section 11. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York without
reference to the choice of law principles thereof.
Section 12. Amendment and Modifications. This Agreement may only be amended
or modified in writing signed by the party against whom enforcement of such
amendment or modification is sought.
<PAGE>
Section 13. Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally, by
facsimile or sent by certified, registered or express air mail, postage prepaid,
and shall be deemed given which so delivered personally, or by facsimile, or if
mailed, five days after the date of mailing, as follows:
If to the Company: LogiMetrics, Inc.
50 Orville Drive
Bohemia, New York 11803
Telephone: (516) 784-4110
Facsimile: (516) 784-4130
Attention: Mr. Norman M. Phipps
If to Consultant: Kenneth C. Thompson
10114 Waterbrook Lane
Charlotte, North Carolina 28277
Telephone: (704) 844-0947
Facsimile (704) 844-0947
or at such other addresses as shall be furnished in writing to the other party
hereto.
Section 14. Titles and Headings. The headings in this Agreement are for
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original agreement, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LOGIMETRICS, INC.
By: /s/ Norman M. Phipps
Name: Norman M. Phipps
Title: President and Chief
Operating Officer
/s/ Kenneth C. Thompson
Kenneth C. Thompson
EXHIBIT 23.1
INDEPENDENT AUDIT'S CONSENT
We consent to the use in this Registration Statement of Logimetrics, Inc. on
For, SB-2 of our report dated January 5, 1998 (which expresses an unqualified
opinion and includes an explanatory paragraph relating to the Company's losses
from operations, its deficiency in working capital and the stockholders' capital
deficiency which raise substantial doubt about its ability to continue as a
going concern) appearing in the Prospectus, which is part of this Registration
Statements.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Jericho, New York
April 27, 1998
EXHIBIT 23.2
Mr. Charles Brand
mmTech, Inc.
20 Meridian Road
Eatontown, New Jersey 07724
We consent to the incorporation by reference in this Form SB-2 of LogiMetrics,
Inc. of our reports dated February 7, 1997 and June 19, 1997, on the financial
statements of mmTech, Inc. as of and for the year ended October 31, 1996 and
1995, respectively, and the accompanying financial statements and financial
schedules and the reference to this firm under the caption "Experts" in the
accompanying Prospectus.
REYDEL, PERIER & NERAL
Wall, New Jersey
April 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FINANCIAL STATEMENTS WITH FISCAL YEAR ENDED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<CIK> 0000060128
<NAME> LOGIMETRICS
<MULTIPLIER> 1,000
<CURRENCY> U.S
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 368,327
<SECURITIES> 0
<RECEIVABLES> 2,306,464
<ALLOWANCES> (150,000)
<INVENTORY> 3,349,036
<CURRENT-ASSETS> 6,748,352
<PP&E> 2,754,948
<DEPRECIATION> 2,134,705
<TOTAL-ASSETS> 7,623,500
<CURRENT-LIABILITIES> 9,711,293
<BONDS> 0
0
990,564
<COMMON> 223,914
<OTHER-SE> 2,134,705
<TOTAL-LIABILITY-AND-EQUITY> 7,623,500
<SALES> 11,374,182
<TOTAL-REVENUES> 11,374,182
<CGS> 8,563,694
<TOTAL-COSTS> 12,731,707
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 763,801
<INCOME-PRETAX> (2,121,326)
<INCOME-TAX> 380,000
<INCOME-CONTINUING> (2,501,326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,501,326)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE REGISTRANT'S FORM 10-QSB FOR THE SIX MONTHS ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 2,829,069
<SECURITIES> 0
<RECEIVABLES> 2,124,210
<ALLOWANCES> 505,875
<INVENTORY> 3,235,315
<CURRENT-ASSETS> 7,730,926
<PP&E> 2,830,605
<DEPRECIATION> 2,213,747
<TOTAL-ASSETS> 8,512,952
<CURRENT-LIABILITIES> 7,553,705
<BONDS> 4,333,087
0
924,526
<COMMON> 256,490
<OTHER-SE> (4,667,632)
<TOTAL-LIABILITY-AND-EQUITY> 8,512,952
<SALES> 5,312,344
<TOTAL-REVENUES> 5,312,344
<CGS> 2,844,438
<TOTAL-COSTS> 5,367,706
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 477,570
<INCOME-PRETAX> (532,932)
<INCOME-TAX> 74,714
<INCOME-CONTINUING> (607,646)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (607,646)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
