SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
COMMISSION FILE NUMBER 000-28506
AMERICAN DIGITAL COMMUNICATIONS, INC.
-------------------------------------
(Name of Small Business Issuer in Its Charter)
WYOMING 13-3411167
------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
745 FIFTH AVENUE, SUITE 900
NEW YORK, NEW YORK 10151
------------------ -----
(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number, including area code: (212) 486-7424
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
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<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following persons are all of the directors and executive officers
of American Digital Communications, Inc. (the "Company" or "ADC"):
John G. Simmonds, 47, was appointed Chairman of the Board, a Director,
Chief Executive Officer and President of the Company effective January 29, 1998.
Mr. Simmonds is the founder of Simmonds Capital Limited, (formerly Simmonds
Communications Ltd.), a TSE listed company ("SCL"). Since 1991, Mr. Simmonds has
served as Chairman, President and Chief Executive Officer of SCL. SCL is
involved in the wireless communications business as a systems integrator and in
the electronics business as a manufacturer and distributor of electronic
components and related products. From 1994 to 1996, Mr. John Simmonds served as
Director and Chief Executive Officer of INTEK Global Corp. (formerly Intek
Diversified Corp.), a NASDAQ-listed (Small-Cap) company. Intek is involved in
the US Specialized Mobile Radio market which owns and manages SMR licenses in
the 200 MHz frequency. Between September 1995 and November 1997, Mr. Simmonds
served as the Chairman of Ventel Inc., a VSE listed company. Ventel provides
secured loans to developing companies in the US SMR market. Mr. Simmonds
currently serves as a director of both INTEK and Ventel.
Kenneth J. Adelberg, 45, has been a Director of the Company since April
1, 1996. Mr. Adelberg, who holds Bachelor of Science degrees in Biophysics and
Psychology, and studied for an MBA, is the President and Chief Executive Officer
of HiFi House Group of Companies; a founding shareholder and currently a
director of Republic First Bancorp; and a founding shareholder and former
director of U.S. Watts. Since 1995, Mr. Adelberg has also been a director of
Global Sports Inc., a NASDAQ-listed (Small-Cap) company.
Charles Cernansky, 44, has been a Director of the Company since August
1997. Mr. Cernansky is a principal of Pellinore Securities Corp., a New York
City-based broker-dealer, and since 1992, a principal of WestCap Partners, Inc.,
a Manhattan-based financial consulting and advisory services firm. Mr. Cernansky
is experienced in business development advice, consulting on overall corporate
financial functions, tax planning, corporate finance strategy, venture capital
activities and merger-acquisition assistance. Mr. Cernansky holds a B.S. from
SUNY College at Brockport, an M.B.A. from Rensselaer Polytechnic Institute and a
J.D. from Albany Law School of Union University. Mr. Cernansky is an attorney
and C.P.A. in the State of New York.
J. Harry Dunstan, 47, a Director of the Company since January 1988, is
a professional engineer. He is currently on the board of directors for the
Canadian Wireless Telecommunications Association. Mr. Dunstan has been a senior
executive of SCL since 1991. He is a director on the SCL board, and has served
as the company's Chief Technology Officer. At SCL, Mr. Dunstan was responsible
for the systems group which built all of the large radio communication systems
including: BC Hydro, Nova Scotia Power Inc., the Toronto Transit Commission, and
the Department of Customs and Excise. Mr. Dunstan has served on various advisory
and technical committees of the Radio Advisory Board of Canada and the Federal
Department of Communications. A graduate of the University of Toronto, Mr.
Dunstan received his degree in electrical engineering in 1974. Mr. Dunstan also
serves as ADC's Chief Technology Officer.
Gary Hokkanen, 42, was appointed Chief Financial Officer of the Company
in February 1998. Mr. Hokkanen's principal occupation is an accountant and he
holds a Certified Management Accountant ("CMA") designation from Society of
Management Accountants of Ontario. Mr. Hokkanen also is Vice President,
Finance/Chief Financial Officer of SCL. He has held this position since July
1997. For the period, April 1996 to July 1997, Mr. Hokkanen was Treasurer of
SCL. For the period June 1994 to April 1996 he was Manager, Finance & Treasury.
Prior to June 1994, Mr. Hokkanen was Manager, Financial Planning & Analysis,
with CUC Broadcasting Limited ("CUC"). CUC, prior to being acquired by Shaw
Communications Inc., was a privately owned Canadian cable TV multiple system
operator, with approximately 350,000 subscribers and $75 million in revenue.
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<PAGE>
Ian MacDonald, 43, has been a Director of the Company since June 1996.
Mr. MacDonald, who holds a Bachelor of Science degree in Economics, an MBA in
Marketing and is a C.A., is the Managing Director of Tri-Capital Management
Limited, a Toronto based private merchant bank since 1989.
Carrie Weiler, 39, Secretary of the Company since February 1998, joined
the Simmonds group of companies in 1979. Promoted to Vice President of Corporate
Development for SCL and its divisions in 1994, Mrs. Weiler continues to serve in
this capacity and is a key liaison between the compensation and audit committees
and the Board of Directors.
R. Gene Klawetter was Chairman of the Board, Director, Chief Executive
Officer and President of the Company from March 15, 1994 through January 28,
1998. Effective January 29, 1998, Mr. Klawetter was replaced as Chairman of the
Board, Chief Executive Officer and President by John G. Simmonds. Effective
April 17, 1998, the employment of Mr. Klawetter, as well as that of Mr. George
Sullivan, formerly Secretary of the Company, and Mr. Daniel Smith, formerly
controller and acting Chief Financial Officer of the Company during a portion of
the year ended February 28, 1998, was terminated. A dispute has arisen between
the Company and such individuals with respect to payments due. See "Employment
Contracts and Termination of Employment and Change of Control Arrangements",
below. In addition, following his termination of employment with the Company,
and in connection with an investigation commenced by the Company, Mr. Smith
admitted that during the year ended February 28, 1998, he took from the Company
without authorization funds aggregating approximately $35,000. The Company is
continuing to investigate this matter.
Effective June 15, 1998, Mr. Klawetter resigned as a Director of the
Company, which resignation was accepted by the Board of Directors on June 16,
1998.
The Company's directors will serve until the next annual meeting of
shareholders and until their respective successors are duly elected and shall
have qualified. The By-laws of the Company provide that the number of directors
of the Company shall be fixed by the shareholders or the Board of Directors and
shall be not less than three or more than 15. The number has been fixed by the
Board of Directors at seven. There are currently two vacancies in the Board of
Directors. The Company's Articles of Incorporation provides that directors may
be removed by the shareholders, with or without cause, upon the affirmative vote
of the holders of a majority of the votes cast and at a meeting called for the
purpose of such removal. While the Company believes that the foregoing
provisions of the Company's Articles of Incorporation are in the best interests
of the Company and its Shareholders, such requirements may have the effect of
protecting management against outside interests and in retaining its position.
There are no family relationships among any of the directors or
executive officers of the Company.
For the year ended February 28, 1998, each of the current directors and
officers was delinquent in filing the forms required to be filed under Section
16 of the Securities Exchange Act of 1934, as amended.
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<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation
for services in all capacities for the fiscal years ended February 28, 1998,
February 28, 1997 and February 28, 1996 of those persons who were, during all or
part of the fiscal year ended February 28, 1998, the chief executive officer. No
other executive officers of the Company received compensation in excess of
$100,000 in fiscal year ended February 28, 1998.
<TABLE>
<CAPTION>
==================================================================================================================
Long Term Compensation
Annual Compensation
----------------------------------------
Awards Payouts
-------------------------------------------------------------------------------------------
Other Restricted
Name and Principal Annual Stock Options/ LTIP
Position Year Salary Bonus Compensation Awards SARs(#) Payouts
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. Gene Klawetter, 1998 $91,334(3) $0 (2) None None None
Chairman of the Board, 1997 $80,000 $9,000 (2) None None None
Chief Executive Officer 1996 $80,000 $4,000 (2) None None None
and President(1)
- ------------------------------------------------------------------------------------------------------------------
John G. Simmonds, 1998 (4) (4) (4) None 250,000 None
Chairman of the Board, 1997 N/A N/A N/A N/A N/A N/A
Chief Executive Officer 1996 N/A N/A N/A N/A N/A N/A
and President(1)
==================================================================================================================
</TABLE>
- -----------------------------
(1) Effective January 29, 1998, Mr. Klawetter was replaced as Chairman of the
Board, Chief Executive Officer and President by Mr. Simmonds. Effective
June 15, 1998, Mr. Klawetter resigned as a Director of the Company, which
resignation was accepted by the Board of Directors on June 16, 1998. The
employment of Mr. Klawetter was terminated on April 17, 1998. See
"Employment Contracts and Termination of Employment and Change of Control
Arrangements", below.
(2) The Company has concluded that the aggregate amount of perquisites and
other personal benefits, if any, paid to the executive officers named in
the table for the 1996, 1997 and 1998 fiscal years did not exceed the
lesser of 10% of such officer's total annual salary and bonus for such
years or $50,000; such amounts are not included in the table. See
footnote (3), below.
(3) Represents payment at a rate equal to $80,000 per annum through September
12, 1998, and at rate equal to $98,000 thereafter, through February 28,
1998, together with a one time "cost-of-living" payment of $3,000. During
the year ended February 28, 1998, Mr. Klawetter also received a car
allowance in the aggregate amount of $8,400 and payment on account of
unused vacation time in the amount of $3,077. The Company has commenced
an investigation into these matters, and believes at this time that none
of the salary increase, "cost-of-living" payment, vacation pay or car
allowance was authorized by the Company. Depending on the results of its
investigation, the Company may seek to recover such sums. Mr. Klawetter
disputes such contention, and claims that he is owed certain wages, as
well as severance payments in connection with the termination of his
employment with the Company. See "Employment Contracts and Termination of
Employment and Change of Control Arrangements", below. Mr. Klawetter
continued to receive a salary at the rate of $98,000 per annum through
the date of his termination of employment from March 1, 1998 through
April 17, 1998.
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(4) In connection with the acquisition of certain assets of SCL in January
1998, the Company agreed to pay to SCL an aggregate of $25,000 per month
commencing February 1998 and terminating at the end of July 1999, for the
services of Mr. Simmonds, Mr. Dunstan, Ms. Weiler and Mr. Hokkanen.
The Company has no long-term incentive plan.
OPTION GRANTS TABLE FOR FISCAL 1998
The following table sets forth information concerning stock option
grants made during the fiscal year ended February 28, 1998 under the Company's
1993 Compensatory Stock Option Plan (the "Stock Option Plan") to the executive
officers named in the Summary Compensation table.(1) These grants are also
reflected in the Summary Compensation Table. The Company has not granted any
stock appreciation rights. The Company has not granted any options under any of
its other stock options plans.
================================================================================
Individual Grants
-----------------------------------------------------------
% of Total
Options
Granted to
Employees Exercise
Options in Fiscal Price Expiration
Name Granted(#) 1998(2) ($/Share) Date
- --------------------------------------------------------------------------------
John G. Simmonds 250,000 23% $.40 February 28, 2001
- --------------------------------------------------------------------------------
R. Gene Klawetter (2) 0 N/A N/A N/A
================================================================================
- -----------------------------
(1) The Company has adopted the Stock Option Plan for officers, key
employees, potential key employees, non-employee directors and advisors.
The Company has reserved a maximum of 4,000,000 Common Shares to be
issued upon the exercise of options granted under the Stock Option Plan.
The Stock Option Plan will not qualify as an "incentive stock option"
plan under Section 422A of the Internal Revenue Code of 1986, as amended.
Options are granted under the Stock Option Plan at exercise prices to be
determined by the Board of Directors or stock option committee. With
respect to options granted pursuant to the Stock Option Plan, optionees
will not recognize taxable income upon the grant of options, but will
realize income (or capital loss) at the time the options are exercised to
purchase common stock. The amount of income will be equal to the
difference between the exercise price and the fair market value of the
common stock on the date of exercise. The Company will be entitled to a
compensating deduction in an amount equal to the taxable income realized
by an optionee as a result of exercising the option. The Stock Option
Plan is currently administered by the Board of Directors. The Company
maintains three other stock option plans, no options under which have
been granted.
(2) Effective January 29, 1998, Mr. Klawetter was replaced as Chairman of the
Board, Chief Executive Officer and President by Mr. Simmonds. Effective
June 15, 1998, Mr. Klawetter resigned as a Director of the Company, which
resignation was accepted by the Board of Directors on June 16, 1998. The
employment of Mr. Klawetter was terminated on April 17, 1998. See
"Employment Contracts and Termination of Employment and Change of Control
Arrangements", below.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information regarding the exercise of
stock options during the last fiscal year by the executives named in the Summary
Compensation Table and the fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
================================================================================================
Value of
Number of Unexercised
Shares Acquired Unexercised In-the-Money
on Exercise Value Options at Options at
Name Realized February 28, 1998 February 28, 1998
exercisable/
unexercisable(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. Gene Klawetter None N/A 1,250,000(1) $22,500/0
- ------------------------------------------------------------------------------------------------
John G. Simmonds None N/A 250,000 0
================================================================================================
</TABLE>
(1) It is the Company's position that all stock options previously granted to
Mr. Klawetter have been terminated and are of no force and effect. See
"Employment Contracts and Termination of Employment and Change of Control
Arrangements", below.
(2) Represents the difference between the fair market value of the securities
underlying the options and the exercise price of the options at fiscal
year-end.
COMPENSATION OF DIRECTORS
The Company currently reimburses each director for expenses incurred in
connection with his attendance at each meeting of the Board of Directors or a
committee on which he serves.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Company does not have any employment agreements with any of its
current officers.
Effective April 17, 1998, the employment of Mr. Klawetter (Vice Chairman
of the Board), Daniel Smith (controller and acting Chief Financial Officer
during a portion of the year ended February 28, 1998) and George Sullivan
(Secretary) with the Company was terminated. The Company entered into various
severance agreements with such individuals, providing for the payment of various
severance amounts and arrangements regarding stock options previously granted to
such individuals. In light of certain information that subsequently came to the
Company's attention, the Company notified all three individuals that, among
other things, (i) each individual was terminated for cause; (ii) such severance
agreements were of no force and effect; (iii) the individuals were not entitled
to the payment of any severance amounts; (iv) all stock options previously
granted to such individuals were terminated and cancelled; and (v) such
individuals are indebted to the Company. See footnote (3) to the "Summary
Compensation Table", above. The three individuals have disputed the Company's
position. As noted above, the Company has commenced and is continuing an
investigation into these matters.
Mr. Simmonds, Chairman of the Board, Chief Executive Officer and
President, and Mr. Hokkanen, Chief Financial Officer, as well as the other
officers of the Company, are permitted to devote some working time to the
business of SCL so long as, in the judgment of a majority of the Company's
disinterested directors, it does not interfere with the complete and faithful
performance of his or her duties to the Company.
The Company offers basic health, major medical and life insurance to its
employees. No retirement, pension or similar program has been adopted by the
Company.
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<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation includes certain provisions
permitted pursuant to the Wyoming Business Corporation Act ("WBCA"), whereby
officers and directors of the Company are to be indemnified against certain
liabilities. The Articles of Incorporation also limit to the fullest extent
permitted by the WBCA a director's liability to the Company or its shareholders
for monetary damages for breach of his fiduciary duty as a director, except for
(i) any breach of a director's duty of loyalty to the Company or its
shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) acts in violation of
Section 17-16-833 of the WBCA) or (iv) any transaction from which the director
derives an improper personal benefit. This provision of the Articles of
Incorporation has no effect on any director's liability under Federal securities
laws or the availability of equitable remedies, such as injunction or recision,
for breach of fiduciary duty. The Company believes that these provisions will
facilitate the Company's ability to continue to attract and retain qualified
individuals to serve as directors and officers of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information with respect to persons known by
the Company to own beneficially, as of June 22, 1998, 5% or more of the
outstanding shares of its Common Stock:
================================================================================
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner Ownership of Common Stock
- --------------------------------------------------------------------------------
Simmons Capital Limited (1) 9,337,163(1) 33.5% (1)
580 Granite Court
Pickering, Ontario Canada
L1W 3Z4
- --------------------------------------------------------------------------------
SCL Distributors (Western), Ltd. (3) 1,750,000 7.1%
8713-53rd Avenue
Edmonton, Alberta, Canada T6E 5E9
================================================================================
(1) Simmonds Capital Limited ("SCL"), either directly or through its wholly
owned subsidiary, Midland International Corp. ("Midland"), owns an
aggregate of 7,839,163 shares of common stock of ADC, representing 31.6% of
the aggregate shares of common stock of ADC outstanding.(2) In addition,
SCL owns (i) 1,000,000 shares of preferred stock of the Company, which are
convertible into an aggregate of 1,000,000 shares of common stock of the
Company, and (ii) warrants to purchase 500,000 shares of common stock of
the Company at an exercise price of $2.00 per share; assuming the
conversion of such preferred stock and the exercise of such warrants, SCL
owns 35.5% of the outstanding common stock of ADC. Does not include any
securities of the Company owned by certain directors and/or officers of SCL
who are also directors and/or officers of the Company.
(2) Based on 24,777,886 shares outstanding at June 22, 1998.
(3) SCL Distributors (Western), Ltd. acquired 1,750,000 shares of common stock
of the Company in November 1996, in connection with the sale by it to ADC
of certain distribution rights. SCL Distributors (Western), Ltd. was
formerly an affiliate of SCL.
SECURITY OWNERSHIP OF MANAGEMENT
7
<PAGE>
The following table sets forth the beneficial ownership of Common Stock
of the Company as of June 19, 1998, by each director, each executive officer
named in the Summary Compensation Table, and by all directors and executive
officers of the Company as a group:
============================================================================
Amount and Nature Percent
Name and Address of of Beneficial of Common
Beneficial Owner Ownership (1) Stock (2)
- ----------------------------------------------------------------------------
John G. Simmonds (3)(8) 880,000 3.5%
580 Granite Court
Pickering, Ontario, Canada
L1W 324
- ----------------------------------------------------------------------------
Kenneth J. Adelberg (4) 677,042 2.7%
1001 Sussex Blvd.
Broomall, Pennsylvania
29008
- ----------------------------------------------------------------------------
Charles Cernansky (5) 30,000 *
WestCap Partners, Inc.
745 Fifth Avenue
New York, New York
10151
- ----------------------------------------------------------------------------
J. Harry Dunstan (6)(8) 435,000 1.7%
6 Damascus Drive
Caledon East, Ontario
Canada LON 1E0
- ----------------------------------------------------------------------------
Ian MacDonald (7) 407,500 1.6%
TriCapital Management
Limited
36 Toronto Street
Toronto, Ontario, Canada
M5C 164
============================================================================
- ----------------------------------------------------------------------------
All Executive Officers and 3,029,542 11.7%
Directors as a group,
including those named
above (8 persons) (8)
============================================================================
* Less than 1%
- -----------------------------
(1) Except as otherwise indicated below, each named person has voting and
investment power with respect to the securities owned by them.
(2) Based on 24,777,886 shares outstanding at June 22, 1998.
(3) Represents (a) 250,000 options to acquire the Company's common stock
granted under the Stock Option
8
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Plan effective September 8, 1997, at an exercise price of $.40 per share,
all of which are fully exercisable; (b) 300,000 options to acquire the
Company's common stock granted by SCL on January 12, 1998 at an exercise
price of $.01 per share, all of which are currently exercisable, subject
to certain conditions regarding the minimum trading price of the
Company's stock for a specified period; (c) 300,000 options to acquire
the Company's common stock granted by SCL on January 28, 1998 at an
exercise price of $.25 per share, all of which are currently exercisable,
subject to certain conditions regarding the minimum trading price of the
Company's stock for a specified period; (d) 7,500 warrants to purchase
the Company's common stock at an exercise price of $.30 per share issued
on April 17, 1998; (e) 7,500 warrants owned by Mr. Simmonds' wife to
purchase the Company's common stock at an exercise price of $.30 per
share issued on April 17, 1998; (f) 7,500 shares of the Company's common
stock; and (g) 7,500 shares of the Company's common stock owned by Mr.
Simmonds' wife.
(4) Represents (a) 402,042 shares of the Company's common stock; (b) options
to acquire 250,000 shares of the Company's common stock granted under the
Stock Option Plan on April 1, 1996 at an exercise price of $.10 per
share, all of which are fully exercisable; and (c) 25,000 warrants to
purchase the Company's common stock at an exercise price of $.30 per
share issued on April 17, 1998.
(5) Represents (a) 15,000 shares of the Company's common stock owned by an
affiliate; and (b) 15,000 warrants owned by an affiliate to purchase the
Company's common stock at an exercise price of $.30 per share issued on
April 17, 1998.
(6) Represents (a) 200,000 options to acquire the Company's common stock
granted under the Stock Option Plan effective September 8, 1997, at an
exercise price of $.40 per share, all of which are fully exercisable; (b)
100,000 options to acquire the Company's common stock granted by SCL on
January 12, 1998 at an exercise price of $.01 per share, all of which are
currently exercisable, subject to certain conditions regarding the
minimum trading price of the Company's stock for a specified period; (c)
100,000 options to acquire the Company's common stock granted by SCL on
January 28, 1998 at an exercise price of $.25 per share, all of which are
currently exercisable, subject to certain conditions regarding the
minimum trading price of the Company's stock for a specified period; (d)
17,500 warrants to purchase the Company's common stock at an exercise
price of $.30 per share issued on April 17, 1998; and (e) 17,500 shares
of the Company's common stock.
(7) Represents (a) options to acquire 250,000 shares of the Company's common
stock granted under the Stock Option Plan on April 1, 1996 at an exercise
price of $.10 per share, all of which are fully exercisable; (b) 50,000
warrants owned by an affiliate to purchase the Company's common stock at
an exercise price of $.30 per share issued on April 17, 1998; (c) 57,500
shares of the Company's common stock; and (d) 50,000 shares of the
Company's common stock owned by an affiliate.
(8) Does not include securities owned by SCL, other than with respect to
options to purchase the Company's stock granted by SCL, as described
above. The relationship of such person to SCL is described below under
"Certain Relationships and Related Transactions."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SCL, either directly or through its wholly-owned subsidiary, Midland,
owns as of June 22, 1998 an aggregate of 7,839,163 shares of common stock of
ADC, representing 31.6% of the aggregate shares of common stock of ADC
outstanding, based on 24,777,886 shares outstanding. In addition, SCL owns (i)
1,000,000 shares of preferred stock of the Company, which are convertible into
an aggregate of 1,000,000 shares of common stock of the Company, and (ii)
warrants to purchase 500,000 shares of common stock of the Company at an
exercise price of $2.00 per share; assuming the conversion of such preferred
stock and the exercise of such warrants, SCL owns 35.5% of the outstanding
common stock of ADC. (The above figures do
9
<PAGE>
not include any securities of the Company owned by officers and/or directors of
SCL who are also officers and/or directors of the Company.) Mr. John G.
Simmonds, either directly or through various affiliates, owns approximately 6%
of the stock of SCL.
Certain of the stock of ADC owned by SCL was acquired in December 1995,
in connection with the grant to ADC of certain exclusive license rights and the
sale of assets. Additional shares were acquired in November 1996, in connection
with an exclusive distribution license granted to ADC. In addition, in January
1998, SCL completed the sale to ADC of certain intellectual property and other
assets. As consideration for these assets, SCL received 1,000,000 shares of
convertible preferred stock of ADC, which are convertible at the option of the
holder into 1,000,000 shares of common stock of ADC, and a warrant exercisable
until January 31, 2001 to purchase 500,000 common shares of ADC at a purchase
price of $2.00 per share. In connection with these transactions, the Company
agreed to pay to SCL an aggregate of $25,000 per month commencing February 1998
and terminating at the end of July 1999, for the services of Mr. Simmonds, Mr.
Dunstan, Ms. Weiler and Mr. Hokkanen.
Mr. Simmonds, Chairman of the Board, President and Chief Executive
Officer of ADC, serves SCL in the same capacities. In addition, Gary Hokkanen,
Chief Financial Officer of the Company, is Vice President, Finance/Chief
Financial Officer of SCL. Mr. Dunstan, a director of the Company, is also a
director of SCL. Mr. MacDonald, a director of the Company, has been nominated
for election to the Board of Directors of SCL.
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<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMERICAN DIGITAL COMMUNICATIONS, INC.
Date: June 26, 1998
/s/ John G. Simmonds
--------------------
John G. Simmonds, Chairman
of the Board, Chief Executive
Officer & Director
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated below.
Date: June 26, 1998
/s/ John G. Simmonds
--------------------
John G. Simmonds, Chairman
of the Board, Chief Executive
Officer & Director
(Principal Executive Officer)
/s/ Gary Hokkanen
-----------------
Gary Hokkanen
Chief Financial Officer
(Principal Financial Officer)
/s/ Charles Cernansky
---------------------
Charles Cernansky, Director
/s/ Ian MacDonald
Ian MacDonald, Director
/s/ J. Harry Dunstan
J. Harry Dunstan, Director
11
