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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Mark One)
[X] Amendment No. 2 to Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended December 31, 1994
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Act
of 1934 [No Fee Required] for the transition period from _____ to _____
Commission file number 0-17581
GEOTEK COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2358635
(State of Incorporation) (I.R.S. Employer Identification No.)
20 Craig Road, Montvale, New Jersey 07646
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 930-9305
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not 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-K or amendment
to this Form 10-K. [X}
As of March 29, 1995, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $349,281,269.
As of March 1, 1995, the number of outstanding shares of the Registrant's
Common Stock was approximately 51,094,677.
The undersigned Registrant hereby amends its Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 as set forth in the pages attached
hereto.
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Page 1 of Pages
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GEOTEK COMMUNICATIONS, INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
Part I ----
- ------
Item 1. Business........................................................ 1
2. Properties ..................................................... 15
3. Legal Proceedings .............................................. 15
4. Submission of Matters to a Vote of
Security Holders............................................. 16
Part II
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5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 16
6. Selected Financial Data......................................... 17
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 18
8. Financial Statements and Supplementary Data..................... 23
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................
Part III
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10. Directors and Executive Officers of the
Registrant................................................... 25
11. Executive Compensation.......................................... 25
12. Security Ownership of Certain Beneficial
Owners and Management........................................ 25
13. Certain Relationships and Related
Transactions................................................. 25
Part IV
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14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 26
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PART I
Item 1. BUSINESS
Geotek Communications, Inc. (the "Company" or the "Registrant"), through
its subsidiaries and investments currently provides specialized mobile radio or
equivalent ("SMR") services to approximately 65,000 subscribers in the United
States, the United Kingdom and Germany. The Company intends to become a leading
international provider of integrated, multi-function, digital wireless
communications services to businesses. The Company intends to deploy, in the
United States, a digital wireless voice and data network utilizing advanced
technologies which it believes will increase the capacity of its radio spectrum
and improve the quality and security of the Company's wireless communications
services relative to traditional analog wireless systems. The Company has
acquired, and intends to continue acquiring, 900 MHz SMR licenses in cities
throughout the United States and to make strategic acquisitions of spectrum and
operating networks worldwide. To date, the Company and its subsidiaries have
acquired or have entered into agreements to acquire 120 SMR licenses covering 36
of the largest U.S. markets, with a combined population of over 120 million. The
Company also is engaged in the development, manufacture and marketing of
communications products and electronics testing products. The Company is a
Delaware corporation whose principal executive offices are located at 20 Craig
Road, Montvale, New Jersey 07645 and its telephone number is (201) 930-9305.
Company History
The Company was formed in February 1989 when Patlex Corporation ("Patlex")
transferred certain manufacturing assets, primarily in the defense industry, to
the Company and distributed shares of the Company's Common Stock to the
stockholders of Patlex. In early 1992, the Company refocused its resources in
the fields of communications products and services because it believed these
industries provided greater growth and profit potential than its defense-related
businesses, which it has since divested, and has entered into the following
transactions in furtherance of that direction:
- -- In July 1992, the Company entered into a joint venture with Rafael Armament
Development Authority ("Rafael"), an agency of the government of Israel, for
the commercialization and further development of a digital wireless
communications system based on a frequency hopping spread spectrum
technology previously developed by Rafael for military applications,
Frequency Hopping Multiple Access ("FHMA")(TM). The Company holds the
non-Israel, worldwide rights to license, market, distribute and sell digital
wireless communications systems utilizing FHMA(TM) technology.
- -- At or about the same time, the Company began a 900 MHz spectrum acquisition
program in the United States to implement its wireless communications
strategy. The Company currently owns, manages (with options to acquire) or
has entered into agreements to acquire licenses representing 1200 channels.
These licenses cover 36 cities with a combined population of over 120
million and over two million businesses.
- -- In May 1993, the Company acquired a 66% interest in GMSI, Inc. ("GMSI"), a
Canadian corporation which develops, manufactures, and sells various systems
for the worldwide mobile data market and has a substantial position in the
market for data dispatch systems for taxicabs, limousines and similar fleets
in North America. On May 2, 1994, the Company increased its ownership of
GMSI to 76%.
- -- In July 1993, the Company acquired all of the outstanding stock of National
Band Three Limited ("NB3"). NB3 is the largest provider of SMR type dispatch
voice and data communication services in the United Kingdom and owns the
only national public access mobile radio (the United Kingdom SMR equivalent)
license in Great Britain, which covers an area with a population of
approximately 48 million (representing 85% of the United Kingdom population
and 90% of its business population). NB3 provides dispatch voice and data
communications throughout Great Britain to approximately 50,000 subscribers.
NB3's wireless communications network targets mobile business users with
distribution and field service organizations as well as other businesses
which want to maintain contact with a mobile staff.
- -- In December 1993, the Company formed a strategic alliance with a group of
investors affiliated with George Soros (the "Soros Group"). In connection
therewith, the Company sold 444,445 shares of Series H Cumulative
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Convertible Participating Preferred Stock,(the "Series H Stock") to the
Soros Group for $40 million. Each share of Series H Stock is convertible
into ten shares of Common Stock. Each share of Series H Stock also entitles
the holder thereof to vote on all matters voted on by holders of Common
Stock as if such Series H Stock had already been converted. The stated value
of the Series H Stock is $90 per share, and each share carries a cumulative
annual preferred dividend of 5% of the stated value thereof, payable
quarterly for a five-year period from the date of issuance.
The Soros Group invested an additional $10 million in December 1994 through
the purchase of 20 shares of Series I Cumulative Convertible Preferred Stock
(The "Series I Stock"). The Series I Stock is convertible into an aggregate of
851,064 shares of common stock and the holders of the Series I Stock vote on all
matters voted on by holders of Common Stock as if such Series I Stock had
already been converted. The stated value of the Series I Stock is $500,000 per
share, and each share carries a cumulative annual preferred dividend of 7% of
the stated value thereof, payable quarterly for a five-year period from the date
of issuance. Dividends may be paid in shares of Common Stock of the Company, at
the Company's option.
- -- In January 1994, the Company acquired a 49% interest in Protocall Ventures,
Ltd. ("Protocall") which has interests in trunked radio networks (an SMR
equivalent) in Portugal, Spain, Romania, and Germany.
- -- In January 1994, the Company acquired, through a merger, all of the
outstanding stock of Metro Net Systems, Inc. ("MetroNet") in consideration
for the issuance of 3,112,500 common shares of the Company. The merger has
been accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements have been restated for all periods prior
to the acquisition to include the results of operations, financial position
and cash flows of MetroNet. The effect of the merger on the results of
operations in the period in which the pooling of interests occurred is
immaterial. MetroNet is a provider of wide area SMR services in the New York
City area.
- -- In February 1994, Vanguard Cellular Systems, Inc. ("Vanguard"), a leading
independent cellular provider, purchased 2.5 million shares of Common Stock
for $30 million. The Company granted Vanguard options to purchase 10 million
additional shares of Common Stock for an aggregate consideration of $167
million (the "Vanguard Options"). The Company draws upon Vanguard's
expertise in the implementation of GEONET(TM) and in connection therewith
will issue to Vanguard, for a five-year period from the date of the
transaction, 300,000 shares of Common Stock per year as a management
consulting fee. Three hundred thousand shares were issued in February 1995
under the terms of the agreement for services rendered.
Pursuant to the Purchase Agreement and the Vanguard Options, Vanguard
has the right to purchase two million shares of Common Stock at $15.00 per
share, expiring on the later of (i) February 23, 1995 or (ii) commercial
validation (as defined therein) of the Company's first FHMA(TM) system (the
"Series A Option"). Vanguard also has the right to acquire two million
shares of Common Stock at $16.00 per share, expiring twelve months after the
expiration of the Series A Option (the "Series B Option"), subject to
immediate termination if the Series A Option expires unexercised (the
"Series B Expiration Date"). Vanguard was also granted a third option to
acquire three million shares of Common Stock at $17.00 per share and three
million shares of Common Stock at $18.00 per share (the "Series C Option"),
expiring twelve months after the Series B Expiration Date, subject to
immediate termination if either the Series A Option or the Series B Option
expires unexercised. In the case of the Series B Option and the Series C
Option, Vanguard may give the Company notice of a six-month extension of the
respective expiration dates thereof, provided that in the event of such an
extension, the exercise prices of the Series B Option and the Series C
Option, as applicable, shall be increased by an amount equal to the
respective exercise price multiplied by the annualized interest rate of the
prime rate then in effect plus one percent.
In connection with the closing of the transaction, Vanguard President and
CEO Haynes G. Griffin was elected to the Board of Directors. Upon exercise of
the Series Option, Vanguard will have the right to elect an additional director.
Upon exercise of the Series C Option, Vanguard will be entitled to designate one
2
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additional member of the Board of Directors of the Company, if necessary to
provide representation proportional to its equity ownership at that time.
- -- In July 1994, the Company acquired a 49% equity interest in Preussag
Bundelfunk GmbH ("Preussag"), a provider of trunked mobile radio service in
the Hamburg, Leipzig, Nurnberg and Munster/Osnabruck regions of Germany.
Subject to regulatory approvals, the Company expects to acquire the
remainder of Preussag during 1995 for no additional consideration. In August
1994, the Company acquired a 49.9% equity interest in DBF Bundelfunk GmbH &
Co. Betriebs KG ("DBF"), a provider of trunked mobile radio service in the
Rhein Ruhr Berlin, Hannover and Bremen regions of German from Quante A.G.
("Quante"). In March 1995, the Company was notified by Quante that it
intends to exercise its option to sell its remaining 50.1% interest in DBF.
This transaction, which is subject to regulatory approvals, is expected to
be consummated in 1995. The DBF and Preussag networks cover a population of
approximately 30 million and provide dispatch, telephony and data
communications services under the "RegioNet" trade name.
- -- On March 24, 1995, the Company entered into an agreement with Nextel
Communications, Inc. ("Nextel") to exchange its New York City 800 MHz analog
SMR network, for 130 channels (which includes an option to acquire 10
channels) at 900 MHz in seven major markets. The closing of the transaction
is subject to regulatory approvals, among other conditions.
- -- In March 1995, the Company entered into an agreement in principle to
transfer its subsidiaries, Bogen Communications, Inc. ("Bogen") and Speech
Design GmbH ("Speech Design"), to European Gateway Acquisition Corporation
("EGAC"). At closing, the Company expects to receive approximately $10
million in cash and shares representing approximately 51-55% of the
outstanding stock of EGAC. The agreement provides that the Company will
receive additional consideration based on the earnings of Bogen and Speech
Design for a two-year period following the closing. Under certain conditions
the Company's ownership interest in EGAC may fall below 50%. In such an
event, the Company expects to receive additional cash consideration and will
maintain control of EGAC through October 1997, through a shareholders
agreement. The closing of the transaction is subject to certain conditions,
including EGAC shareholder approval.
Wireless Communications Activities
Overview
The Company currently provides analog SMR services in the United States,
the United Kingdom and Germany and intends to offer advanced cost-effective
communications services capable of being designed to meet the specific
communications needs of different business users.
In the United States, the Company's digital wireless network, GEONET(TM),
will offer when fully implemented an integrated, easy-to-use package of high
quality communications products, including basic (push-to-talk) and premium
(full duplex) voice dispatch, telephony (interconnect), data dispatch/paging,
circuit and packet data, advanced vehicle location, or combinations thereof. In
addition, GEONET(TM) will offer its users customized software applications to
maximize the benefits of its wireless data services. GEONET(TM) is designed to
permit businesses to configure their mobile workforces into any number or
combination of segments and to provide each segment with different
communications capabilities depending on their particular needs. The Company
believes these features will provide meaningful product differentiation in the
marketplace.
The Company will target its product offerings at the approximately 25
million mobile business users in the United States with particular focus on
small to medium-size businesses demonstrating a high usage of wireless
communications. GEONET(TM) will deliver to these users high quality service with
cost-effective integration of features. The Company will market its services
through various distribution channels. As of March 27, 1995, the Company had
entered into exclusive agreements with more than 25 dealers in Philadelphia, New
York, Boston and Washington, D.C. to sell the Company's digital wireless
products and services.
3
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The Company believes its subscriber terminals also will provide
differentiation with a high level of combined functionality and ease of
operation. The Company's enhanced mobile terminal features a large screen for
the display of user option menus, messages or other data. The enhanced mobile
terminal is being manufactured by Mitsubishi Consumer Electronics America. These
units will be available upon the commencement of GEONET(TM) service.
In March 1995, the Company entered into an interim contract with Hughes
Network Systems ("HNS"), a unit of GM Hughes Electronics, to design and
manufacture portable subscriber terminals. HNS and the Company will share all
development costs relating to the portable terminal equally. The agreement with
HNS contemplates availability of the portable unit during the second quarter of
1996.
The Company will also offer a vehicle mounted mobile unit beginning by the
fourth quarter of 1995, to be manufactured by HNS and based upon the design of
HNS's mobile digital cellular handset.
The Company intends to initiate the roll-out of GEONET(TM) in the United
States in 1995 and to have commenced service in 36 cities by 1997. In 1995, the
Company expects to commence commercial operation in Philadelphia and in several
additional markets including New York, Boston, Washington, D.C. and Baltimore.
To implement GEONET(TM), the Company must first identify, and procure
leases and permits for, the sites at which the network's base station and
microsites are to be located. The Company has completed its propagation
analysis, which involves the identification, through sophisticated software
programs and engineering analysis, of the optimal areas for the placement of
GEONET(TM) base stations and microsites. Additionally, the Company has begun
obtaining leases and permits to install GEONET(TM) base stations and microsites.
The Company has entered into leases and has received the necessary permits to
install and operate its base stations in Philadelphia and Washington, D.C., and
is in the process of securing sites in New York, Boston, and Baltimore.
Preparation of each site, which includes ventilation and air conditioning,
grounding and equipment installation, testing and optimization, is expected to
take six to eight weeks.
The Company believes that it will effectively implement GEONET(TM).
However, there can be no assurance that such implementation will occur or that
it will occur on a timely basis. The Company's roll-out schedule may be reviewed
and revised from time to time in light of changing conditions, including
availability of financial resources. See "Liquidity and Capital Resources." In
addition, the Company's ability to proceed with the roll-out of GEONET(TM) will
also be subject to successful negotiation and acquisition of site leases, and
the timing of the roll-out will be subject to normal construction and other
delays. Thus, it is possible that certain elements of the Company's roll-out
plan will not be commenced or completed on schedule or that such plan will be
modified.
The Company has pursued strategic acquisitions and partnerships to enhance
its operational expertise and to expand its opportunities. Accordingly, in order
to implement the GEONET(TM) roll-out, the Company intends to draw upon the
operational and marketing experience of NB3 and Vanguard. The Company will
continue to seek other strategic relationships and opportunities.
FHMA(TM) Technology
Through its FHMA(TM) technology, the Company believes that it will be able
to implement GEONET(TM) utilizing significantly fewer frequencies at lower
infrastructure and operating costs than systems utilizing other available radio
technologies. The Company believes these cost savings will afford it a
competitive advantage. Geotek's FHMA(TM) technology combines several proven
digital wireless technologies, including Time Division Multiple Access ("TDMA"),
voice multiplexing and frequency hopping. The Company believes a system
combining these technologies will allow it to increase the capacity of its radio
spectrum by more than 20 times traditional analog SMR capacity and to provide
secure, high quality communications.
4
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While each of TDMA, voice multiplexing and frequency hopping has been
employed in commercial or military applications, these technologies have not
been previously combined into an integrated communications system. Although the
Company believes that it will effectively develop its FHMA(TM) network for use
in GEONET(TM) and that it will successfully integrate subcomponents being
developed by third parties, there can be no assurance that these development
efforts will be completed on a timely basis, if at all. The Company has been
operating validation systems in Haifa, Israel since August 1994 and in
Philadelphia, Pennsylvania since October 1994.
Geotek's FHMA(TM) technology enables frequency reuse in adjacent geographic
areas. The ability to reuse frequencies will enable the Company to increase the
capacity of its radio spectrum. Typically in wireless communications
applications, it is not possible to reuse the same frequency in adjacent areas
due to interference which generally results when two transmission signals share
the same frequency. FHMA(TM) technology permits the reuse of radio spectrum in
adjacent sectors by breaking down a transmission signal into many small
components and having each component hop from frequency to frequency within a
predetermined sequence. Different frequency hopping sequences sets are then used
in adjacent areas to minimize interference. Finally, FHMA(TM) technology employs
an advanced error correction feature which restores transmitted signals in the
event of interference.
In each market, GEONET(TM) will utilize a macrocellular configuration
consisting of one centrally located base station (macrocell) with a common
system controller and several remote sectors connected to the macrocell by
microwave, fiber or other means. Areas of high use or poor transmission quality
will be served by microsites, simple antenna relays that improve signal quality
to that area. The system's use of a central base station, and its ability to
reuse frequencies, will enable the Company to divide each macrocell coverage
area into several sectors. The Company believes its macrocell approach will
enable it to reduce the infrastructure cost required to service a market
relative to the multicell approach employed in conventional cellular systems. In
contrast to the Company's macrocell configuration, conventional cellular system
operators are required to build multiple overlapping "cells," sometimes dozens
or hundreds in a market, each with its own low power transmission station in
order to reuse frequencies. In addition, the Company believes that its macrocell
architecture will allow it to initiate service in a given market at a lower cost
and attain profitability with fewer subscribers than its competitors. The
Company also believes that GEONET(TM) will be less expensive to operate than a
multicell system. Moreover, the Company's ability to reuse frequencies will
enable it to increase, at a relatively low cost, the capacity of GEONET(TM) as
such capacity is needed by further sectorizing a macrocell or adding sectors.
Geotek's FHMA(TM) technology is being developed for commercial
communications applications in Israel by the Company's joint venture with
Rafael. Rafael is one of the largest research and development organizations in
Israel and has invested substantial resources over the past fifteen years to
develop and refine frequency hopping for various military applications. The
Company owns a 56% interest in the joint venture, on a fully diluted basis, and
holds the worldwide rights to license, market, distribute and sell
FHMA(TM)-based systems which are developed by the joint venture. The Company has
committed to fund the development of its digital wireless communications system
through the joint venture with Rafael. The program is being coordinated by the
Company's technical team which is also involved in system integration
activities. The joint venture is responsible for the development and manufacture
of the base stations and the validation system. A number of established
engineering and manufacturing firms located in Israel, the United Kingdom and
the United States have been contracted to provide various aspects of the
GEONET(TM) technology and components. These firms include PA Consulting Services
Ltd. (commercial subscriber radio design), Digital Voice Systems, Inc.
(vocoder), Tadiran Limited (switches), Orckit Communications Ltd. (system
software design) and Analog Devices Inc. (ASIC chip set for subscriber unit).
PST, in parallel with its system integration activities, is also
responsible for developing a Commercial Subscriber Unit ("CSU") based on the
FHMA(TM) technology. The CSU project is being funded by the Company and a number
of established engineering and manufacturing firms have been contracted to
provide various aspects of the program. These firms include: PA Consultants
(commercial subscriber radio), Orckit Ltd. (baseband chipset), Mitsubishi
Consumer Electronics America (manufacture of vehicular subscriber units) and
Hughes Network Systems (miniaturization of radio, design of portable subscriber
terminal and manufacture of vehicle mounted mobile handsets).
5
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International Operations
NB3 operates under the only national SMR equivalent license covering a
population of approximately 48 million throughout Great Britain. NB3 provides
services to business users with distribution and field service organizations
that want to maintain contact with a mobile staff. NB3's major customers include
providers of domestic and commercial maintenance services, haulers and couriers.
The Company believes that NB3, which was formed in early 1992 upon the merger of
the competing radio communications networks of GEC and Vodafone, will benefit
from increased marketing efforts aimed at increasing its utilization by business
users.
The Company intends to take advantage of NB3's position as the only United
Kingdom SMR equivalent provider with a national license. The Company currently
is focusing its marketing efforts on businesses utilizing their own private
radio networks and emphasize NB3's wide coverage area and voice and data
capabilities. The Company believes that the same competitive pressures for
improved field services which exist in the United States are present in the
United Kingdom. These pressures should assist the Company in migrating private
radio network users to the NB3 network. The NB3 network is currently an analog
system which utilizes a series of overlapping cells in conjunction with large
switching stations. The NB3 network currently consists of approximately 100 base
stations and three switching stations. NB3 anticipates increasing the capacity
of its analog system to approximately 65,000- 70,000 subscribers. Approximately
50,000 subscribers currently utilize the NB3 network. The Company is evaluating
the possibility of setting up a nationwide digital network in the United
Kingdom.
During the third quarter of 1994, the Company consummated the acquisitions
of the 49% equity interest in Preussag Bundelfunk GmbH and the 49.9% equity
interest of DBF Bundelfunk GmbH. As described elsewhere, the Company expects to
obtain the remaining interest in the two networks during 1995, subject to
governmental approval.
Immediately following the acquisitions, the Company began to participate in
the management of the two networks which were only partially built with a
combined subscriber base of approximately 3,000 subscribers. The two networks
cover a total of 8 major regions in the northern part of Germany with a
population of approximately 28 million.
A new management team today leads both networks as one, to improve the key
parameters which the Company's management believes are essential for the
long-term success of the networks, which include completing an efficient roll
out of the two networks (based on analog equipment), building effective
distribution channels and adding new subscribers, and creating differentiation
for the network by offering wireless data applications and other products. To
achieve these goals, the Company's contribution includes the operating
experience accumulated at NB3 as well as other expertise and products utilized
in other parts of the Company.
The networks today have approximately 6,500 subscribers and the estimated
1995 capital expenditures of the two networks total $3 million.
The Company intends to expand its position internationally. The Company
believes that the mobile communications needs of businesses worldwide are
converging. The Company also believes that it is well-positioned to capitalize
on attractive opportunities to obtain ownership positions in trunked mobile
radio licenses in various parts of the world. The Company intends to pursue the
acquisition of frequencies or SMR operators in several additional countries and
to pursue additional international opportunities.
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Competition
In the United States the Company intends to provide an integrated approach
to customer needs, offering a family of communications services to business
users and expects to experience competition for each type of service it intends
to offer. The Company believes that its targeted business customers currently do
not have access to the quality and array of services to be provided by the
Company, and that such services will meaningfully differentiate the Company from
other wireless providers. Many of the current major competitors presently offer
generic services, such as dispatch, cellular telephony, paging or access to
public data and electronic mail services. The Company intends to target certain
customers of these services for whom the GEONET(TM) integrated service package
is expected to offer a cost-effective communications solution, and other
prospective customers today forgoing the use of multiple mobile wireless
communications services because of the inadequacies of private and SMR systems
and the inefficiencies and costs associated with a combined use of wireless
services such as cellular and paging.
Cellular telephony companies are the dominant providers of wireless voice
communications. Many of the Company's competitors, including cellular and ESMR
operators, are larger companies and have significantly greater financial
resources than the Company.
Several large SMR providers are positioning themselves to compete for
wireless voice and data traffic and have announced plans to construct digital
ESMR networks utilizing equipment manufactured primarily by Motorola. Primary
among those operators is Nextel Communications, Inc. ("Nextel"). Nextel has
secured a significant number of 800 MHz SMR channels in top 20. The other large
SMR operators that are positioned to provide wireless voice services are OneComm
Corp., Dial Page and Pittencrieff Communications, Inc. Motorola has announced
agreements to transfer its 800 MHz SMR licenses to Nextel, OneComm and Dial Page
in consideration for equity positions in those companies. Prior to these
transactions Motorola was the largest provider of SMR services in the U.S. and
remains the largest SMR service provider in the 900 MHz band utilizing analog
equipment. In 1994, Nextel announced plans to acquire One Comm and Dial Page.
The remaining SMR licensees offer a combination of dispatch (the traditional
service provided by SMR licensees) and telephony over relatively discrete market
areas. The Company also expects to experience competition for traditional
trunked mobile radio customers from operators utilizing frequencies in the 220
MHz band. Also, there exist two data communications services, which may result
in competition for the data capabilities to be offered as part of the Company's
integrated package.
In addition, the Company experiences competition from manufacturers of
private network equipment. These manufacturers target existing private network
operators and SMR customers and urge them to build or upgrade their own private
networks rather than utilize SMR service providers.
The Company faces possible competition from other radio operators for
channels that may be allocated by the FCC in the future, other two-way radio
systems, paging services, and new wireless communications technologies such as
personal communications systems ("PCS"). During the past year, the FCC has
allocated spectrum for the operation of PCS systems and began the process of
conducting auctions for PCS spectrum. When such PCS systems are operational,
they may provide services competitive with those offered by the Company now and
in the future. Moreover, the FCC is expected to make additional spectrum
available in the future for other mobile communications services that may be
competitive with services provided by the Company.
In the United Kingdom, NB3 competes for customers with regional SMR
equivalent systems and from private radio networks. Additionally, NB3 competes
for customers with cellular providers PCS-like services, and wireless data.
In Germany, DBF and PBG compete with two large regional operators of SMR
equivalent systems. Operators also face competition from cellular networks, a
PCS network and wireless data networks.
7
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Government and Industry Regulation
The construction, operation and acquisition of SMR systems in the United
States is regulated by the FCC under the Communications Act of 1934 (the
"Communications Act"), and pursuant to the FCC's rules and policies adopted
thereunder. The FCC grants five year SMR licenses to the extent frequencies are
available in a particular location. Licenses may be renewed for additional five
year terms upon demonstrating compliance with FCC regulations. In October 1992,
the Company submitted a waiver request to the FCC in connection with certain
rules and regulations covered under Part 90 of the FCC rules. Specifically, the
Company requested an extension of the construction deadline for certain systems
it has agreed to acquire so GEONET(TM) could be installed by 1997. On June 29,
1993, the FCC granted such waiver request extending the deadline for the
construction and loading of the Company's 900 MHz SMR systems for a period of
four years. This waiver allows the Company to maintain its SMR licenses until
GEONET(TM) is implemented, as scheduled.
Under the Communications Act, SMR system providers were traditionally
regulated as private carriers and, therefore, were subject to less regulation by
both the FCC and individual states than were common carriers, such as cellular
telephone companies. During 1994, the FCC initiated several regulatory
proceedings with wide-range implications for the wireless telecommunications
industry. Most of the rule makings were initiated in response to congressional
amendments to the Communications Act, as directed by the Omnibus Budget
Reconciliation Act of 1993 (the "Budget Act"). A primary intent of these recent
amendments was to encourage competition among mobile communications service
providers and thus improve service to consumers by imposing regulatory symmetry.
Accordingly, the most sweeping regulatory changes during the past year have been
designed to either lift or impose restrictions which will ensure a level playing
field among the Company and its competitors.
Commercial Mobile Service Providers
In a series of rule makings, the Commission initiated or adopted, pursuant
to congressional amendments to Sections 3(n) and 332 of the Communications Act,
a mandated reclassification of mobile services. Specifically, the Commission
reconfigured the mobile marketplace to include in the category of Commercial
Mobile Radio Service ("CMRS"), any mobile service provider (including cellular
and specialized mobile radio) which offers, for a profit, mobile service
interconnected to the public switched network to a substantial portion of the
public. This restructuring has been accomplished through a number of rule-making
proceedings:
In its first decision effecting regulatory parity for CMRS providers,
released January 5, 1994, the Commission adopted similar foreign ownership
limitations under Section 310(b) of the Communications Act for CMRS providers
that previously have applied only to common carrier telephone service providers.
Section 310(b) limits the percentage of foreign ownership and management and/or
participation in any entity holding and FCC license. The Commission provided,
however, that newly reclassified CMRS providers could petition for a waiver of
those limitations.
The Company filed such a petition, which remains pending before the FCC. If
it is not granted however, the Company would be limited in its ability to retain
foreign directors or officers and to attract foreign investors.
On March 7, 1994, the Commission adopted a Second Report and Order which
imposed the following regulatory modifications relevant to the Company:
Title II Regulation
Although the Commission reserved its authority to continue to monitor the
CMRS marketplace and adjust its regulatory control as competition and technology
evolves, the Commission recently determined that it will forbear from applying
provisions of Title II of the Communications Act. Title II imposes broad
operational rules for providers of telephone service. Specifically, the
Commission determined that it will forbear from applying Title II provisions
which relate to rate and market structure for the SMR category of CMRS
8
<PAGE>
providers. The FCC is currently considering whether to forbear from additional
Title II requirements for CMRS providers.
Although the Commission applied forbearance for CMRS providers as noted
above, the Commission denied forbearance for the remaining provisions of Title
II. Section 202 requires that a common carrier may not discriminate in its
service offerings. This restriction may limit the Company's implementation of
customized service offerings or pricing structures in its marketing strategy. In
addition, as of August 10, 1996, all CMRS providers will required to comply with
Section 201, which requires that common carriers must furnish communication
service upon reasonable request, in connection to other carriers, and for just
and reasonable rates. Also, Section 208 will require that all CMRS providers be
subject to a formal complaint process imposed upon common carriers for any party
aggrieved by a violation of title II provisions of the Communications Act.
Interconnection
The obligation of interconnection requires each common carrier to permit
the physical connection to others carriers. In the Second Report and Order, the
Commission adopted regulations which will require local exchange carriers to
provide reasonable and fair interconnection for all CMRS providers. The
Commission declined to determine: 1) whether it will impose a tariff-filing
requirement for MCRS interconnection rates; and 2) whether CMRS providers will
be obligated to ensure non-discriminatory interconnection among other CMRS
providers and across different CMRS services. Although it is unlikely that the
Commission will address these issues in the immediate future, such imposition of
interconnection among CMRS providers would impose burdens upon equipment
compatibility and operations.
State Authority
The Budget Act exempted state and local regulation of rate or market entry
of CMRS providers as of August 10, 1993. The statute reserved, however, the
Commission's authority to extend state authority where individual states
petition the FCC successfully showing that market conditions warrant such local
intervention, or where mobile service serves in the place of traditional
land-line telephone service.
To date, a number of states have filed petitions seeking to exert state
regulation over CMRS services, all of which remain pending before the
Commission. The Company's service offerings and rate structures could be
regulated in the future by both the FCC and by states in which it provides
service.
Grandfathering
The Commission has exempted for a period of three (3) years, any CMRS
operator which was licensed or eligible to provide private land mobile service
on or before August 10, 1993, from complying with changes imposed by all CMRS
rulemaking proceedings, except foreign ownership restrictions. Accordingly, the
Company will not be subject to common carrier Title II regulations until August
9, 1996.
In the Third Report and Order, released September 23, 1994, the FCC
determined that in further licensing of 900 MHz spectrum, it will issue
authorizations covering Metropolitan Trading Areas ("MTAs"), auctioning the
spectrum in ten (10) channel blocks, permitting applicants to aggregate as many
blocks as they wish. Both incumbent and new licensees will be permitted to
participate in the auctions. The Company expects to participate in these
auctions.
Lastly, on November 18, 1994, the Commission issued an order requiring CMRS
providers that held management agreements with FCC licensees to execute new,
revised management contracts for any managed stations by August 10, 1996. The
FCC determined that the validity of a management agreement will be guided by the
FCC's prohibition against the de facto transfer of control of the radio
facilities from the licensee to the manager.
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<PAGE>
Equal Access and Interconnection
On July 1, 1994, the Commission initiated a Notice of Proposed Rule Making
and Notice of Inquiry designed to determine the costs and benefits of imposing
equal access provisions on all CMRS providers. Such an obligation would require
CMRS providers to ensure non-discriminating interconnection to their networks
for all long distance carriers. Relying upon an analysis of market power to
determine whether equal access obligations should apply, the Commission
tentatively concluded, although the rulemaking is still pending, that equal
access requirements should not be imposed upon any CMRS providers other than
cellular carriers.
Marketing of Equipment/Equipment Authorization Processes
The Commission adopted a Notice of Proposed Rule Making on June 9, 1994, to
simplify and reduce the regulations regarding the marketing , sale and equipment
authorizations procedures for radio frequency devices. If adopted, the
provisions in this rule making will permit the Company to market, demonstrate,
and sell its equipment, prior to equipment authorizations, provided that certain
precautions are met. Further, the Commission proposed to reduce the burdens in
the equipment authorization process, and to place responsibility for radio
frequency compliance upon the party responsible for modifying previously
authorized equipment.
In February 1995, the FCC granted type acceptance for the Company's network
infrastructure equipment. The Company's subscriber units must meet similar FCC
approvals prior to commercial use.
Wireline Entry into SMR Markets
In March 1995, the FCC eliminated previous restrictions on wireline
telephone companies from controlling an SMR license or licensee. The Commission
concluded that the ban no longer serves its original purpose of protection
against unfair competition in light of the growth and maturity of the SMR
market. The Commission also permitted common carriers, such as cellular
operators, to offer dispatch services, which was previously prohibited.
In the United Kingdom, NB3 operates under licenses granted under the
Telecommunications Act 1984 and the Wireless Telegraphy Act 1949. NB3 is
regulated by various agencies within the Department of Trade and Industry. The
Company is not aware of any pending regulatory changes.
In Germany, the Company's networks operate under licenses granted by the
Ministry of Post and Telecommunications. The Company is not aware of any pending
regulatory changes.
Patents and Trademarks Rights
In accordance with the joint venture agreement with Rafael, the joint
venture has the right to review the technology of Rafael relating to the subject
matter of the agreement, and file, in Rafael's name, patent applications on any
patentable technology already in existence at the time of the signing of the
agreement. Rafael is also obligated to grant the joint venture a royalty free
license under any patent applications so filed which is limited to and exclusive
in non-military fields. The joint venture has the right to file patent
applications on any inventions made by it based on, or connected to, the
technology after the date of the Rafael agreement. There can be no assurance
that any such inventions will be made.
Further to the above right, the joint venture has filed several patent
applications in Israel, and thereafter counterparts in other countries including
the United States. In addition, the Company has filed several patent
applications in Israel based on technology developed by the Company. There is no
assurance that a patent will issue from these patent applications or that if one
is issued that it will have any commercial significance. The Company is aware of
certain patents and patent applications of others which generally relate to the
subject matter of its activities. However, the Company believes that none of
such patents or applications is likely to have a material adverse effect on the
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<PAGE>
Company implementing the proposed system being developed by the joint venture.
The Company owns several trademarks, including FHMA(TM) and GEONET(TM), in
the United States and certain foreign countries.
The Company's Research and Development expense related to the digital
wireless communication system totalled $16.8 million in 1994 compared to $8.9
million in 1993 (exclusive of acquired research and development of $32.4
million) and $0.7 million in 1992.
GMSI
GMSI designs, manufactures, and sells various systems for the mobile data
market. It has a dominant position in the market for data dispatch systems for
taxicabs, limousines, and similar fleets, selling its systems in North America,
Europe and Australia.
GMSI offers the Wireless Network Interface ("WNI") software package under
license to interface to a variety of private and SMR radio networks. WNI
licenses are available to UNIX, Windows and DOS machines. WNI provides software
developers with a seamless interface to multiple networks and eliminates the
complexities, cost and risk of implementing a mobile data solution with existing
dispatch and management software.
GMSI provides a variety of mobile data terminals and radio modems for
courier and other applications. "Status" terminals report predetermined events
such as on-site with a single keystroke on a labeled function key. A terminal
with an alphanumeric keyboard is able to record information such as name of
recipient. All terminals support customer designed forms, mag-swipe and bar-code
data entry.
Communications Products Activities
The Company's communications products activities consists of Bogen
Corporation ("Bogen") and Speech Design GmbH ("Speech Design"). Bogen is a 99%
owned subsidiary of the Company and Speech Design is a 68% owned subsidiary of
the Company.
EGAC
In March 1995, the Company entered into an agreement in principle to
transfer its subsidiaries, Bogen Communications, Inc. ("Bogen") and Speech
Design GmbH ("Speech Design"), to European Gateway Acquisition Corporation
("EGAC"). At closing, the Company expects to receive approximately $10 million
in cash and shares representing approximately 51-55% of the outstanding stock of
EGAC. The agreement provides that the Company will receive additional
consideration based on the earnings of Bogen and Speech Design for a two-year
period following the closing. The transaction is subject to the approval of the
shareholders of EGAC. Under certain conditions the Company's ownership interest
in EGAC may fall below 50%. In such an event, the Company expects to receive
additional cash consideration and will maintain control of EGAC through October
1997, via a shareholders agreement.
Bogen Corporation
Bogen develops, produces and sells telephone and telecommunications
peripherals and sound and communications equipment through its wholly owned
subsidiary, Bogen Communications, Inc. ("BCI"). Since 1932, when originally
founded, Bogen has been involved in the communications industry, concentrating
its efforts on the development and sale of equipment for commercial, industrial,
professional and institutional markets and applications.
Bogen's traditional line of products includes audio amplifiers and related
sound equipment for professional, industrial and commercial system applications,
11
<PAGE>
such as telephone paging, intercommunications and administrative communications
systems for schools, correctional facilities and other institutions.
During 1991, Bogen introduced its first product in a line of
telecommunications and telephone peripherals. The product is the MMT, a digital
announcer with automatic microprocessor controlled tape download for "on-hold"
applications. During 1992, Bogen introduced various products in the digital
telephone peripherals area, including the Automated Attendant and the Digital
Announcer. Bogen introduced, during 1993, the PCM/ZPM, zone page modules for
telephone paging. Although Bogen believes that the growth experienced in the
last four years in this line of products may continue, there can be no assurance
of such growth.
In September 1993, Bogen introduced the Friday Home Office Receptionist, a
homeoffice digital receptionist with a built-in fax switch, call-forward
capabilities, four incoming mailboxes and three outgoing message mailboxes.
Additional products in this line are planned.
Sales and Marketing
All of Bogen's products, with the exception of its office automation
products, are sold primarily through distributors, dealers and contractors,
often as complete systems designed to satisfy an end-user's specific sound and
communications needs. The principal users of these products are industrial,
professional and commercial concerns and institutions such as schools, nursing
homes and correctional institutions. Bogen management believes that these user
markets are all relatively stable markets in which Bogen enjoys name
recognition.
Bogen markets its office automation line of products to office superstores,
office product dealers, high-end electronic retailers, phone center stores and
catalog houses, which resell such products to end-users.
Sales of Bogen's traditional products are made through a network of about
2,000 distributors, dealers and contractors located throughout the United States
and Canada which purchase products directly from Bogen and then resell these
products to dealers and/or end-users.
Bogen considers its distribution network to be one of its most valuable
assets. Bogen's products are generally marketed through a field sales
organization and several independent sales representative entities under the
direction of Bogen's internal sales force. Both the representatives and the
field sales group are responsible for assigned territories. The representatives
are compensated on a commission basis and the field sales personnel are
compensated with salary and bonuses based on performance. Sales agreements are
maintained with all of Bogen's independent sales representatives and engineered
systems contractors. The sales representative agreements typically permit the
sale of Bogen products by the representative in a specific territory. Each
territory is assigned one or more sales representatives. Similarly, the
engineered systems contractor agreements typically allow the contractor to
purchase and install specific product lines in a designated territory. These
agreements, which restrict the representative or contractor from dealing in a
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<PAGE>
competitive line of products while representing Bogen, may be terminated by
either party upon 30 days' notice.
Bogen maintains its principal warehouse and executive offices at its main
location in Ramsey, New Jersey and it also maintains stock in the States of
California and Washington at warehouses managed by certain of Bogen's
independent sales representatives. Service for all of Bogen's products is
provided by its service department.
Although its sales are substantially to United States customers, Bogen also
sells its products in Canada through a stocking representative which has its
headquarters in Ontario and branch offices throughout Canada. Export sales to
other foreign countries are handled in a similar fashion to sales within the
United States, through distributors which purchase the products and sell them to
an established account base overseas.
Patents and Trademarks
"Bogen" is a trademark of the Company registered in the United States and
in certain foreign countries throughout the world, which expires in the United
States in March 2000. Bogen has also obtained trademark registration for the
tradename "Multicom 2000" utilized in connection with the engineered systems it
markets, which expires in July 2001. Bogen has various pending patents related
to its new products. There can be no assurance that any patents will ultimately
be issued.
Sources of Material
All components and material used in the construction of Bogen's products
are of standard commercial quality or better, and are readily available from
overseas and United States suppliers. Bogen relies principally upon an
established network of suppliers and subcontractors located in the Republic of
South Korea, Taiwan, Israel and the United States. These suppliers and
sub-contractors either produce sub-assemblies for use in the final assembly of a
finished product, or produce the finished products themselves. Products are
based on Bogen designs and are built in accordance with Bogen drawings and
specifications.
Bogen's primary source of components and completed products is from
manufacturers located in the Republic of South Korea. There can be no assurances
that disruptions in supplies will not occur, or that such disruptions will not
have a material adverse effect on Bogen.
Research and Development
Bogen's engineering department is responsible for research and development,
production engineering and sales engineering. In 1994, Bogen incurred
approximately $1,463,000 in research and development expenditures, compared to
$1,332,000 in 1993, and $1,064,000 in 1992.
Competition
Because in a large part of its relatively broad product base and multiple
markets, Bogen believes that it has no significant direct competitor. Instead,
competition varies from market to market and product to product. Bogen competes
on the basis of several different factors, including name recognition, price,
innovation and product quality. Such factors vary in relative importance
depending on Bogen's product(s). Bogen's management has concentrated on markets
in which it believes that Bogen could obtain at least a 10% market share, be one
of the top two or three suppliers and/or obtain substantial growth.
In the general line distributor customer market, Bogen's principal
competition comes from University Sound, a United States manufacturer, and from
several off-shore suppliers. Because these off-shore suppliers have not
developed significant brand name recognition, no single one has become a major
factor in this market. Because ready availability and accessibility is a primary
consideration for retail customers, Radio Shack, with over several thousand
retail outlets, is a significant competitor. Bogen's management anticipates no
major competitive changes in this market in the foreseeable future.
13
<PAGE>
The Telco customer market has overall growth potential in the view of
Bogen's management. Bogen's main competitor is Valcom Inc. which has been
established in this market for several decades. Other competition comes
primarily form several United States companies who have been losing market share
over the past few years and from several companies attempting to enter the
market. Bogen has increased its share of the Telco market in recent years.
The Engineered Sound customer market is a highly specialized market
characterized by low unit volume/high dollar sales which has deterred potential
competition from off-shore manufacturers. Bogen's principal competition comes
from Rauland Borg Corp. and Dukane Corporation, which, like Bogen, have been in
the market for several years and have well established name recognition and
distribution channels. Rauland Borg Corp. is currently the acknowledged market
leader.
The Commercial Sound customer market is characterized by intense
competition, particularly from several overseas companies. Bogen's principal
competitor is a Japanese company, TOA Electronics, Inc., which features broad,
high quality product lines. Other competitors are comparatively small
manufacturers which rely mainly on established account relationships.
Government and Industry Regulation
Many of Bogen's products require either certification by the Federal
Communications Commission or Underwriter's Laboratory approval, or both. All
current products of Bogen that require such approval have obtained them. Bogen's
products must also comply with applicable local and state regulations to permit
use by the end-user. Bogen makes all reasonable efforts to assure that its
products comply with such requirements.
Backlog of Orders
As of December 31, 1994, Bogen had a backlog of firm orders of
approximately $671,000, as compared to approximately $1,500,000 as of December
31, 1993, all of which it expects to fill within 1995.
Speech Design
Speech Design, located in Munich, Germany, develops, manufactures and
markets telephone peripheral hardware utilizing digital voice processing
technologies. The Company acquired a controlling interest in Speech Design in
February 1993 with a goal of initially expanding sales of the Company's
communications products into Germany, Europe's largest market, and to utilize
Speech Design as a platform to penetrate other European markets.
Speech Design was engaged until 1992 primarily in selling peripheral
equipment for cellular telephones over the analog network. With the advent of
the European GSM digital standard and the related decline of prices of ancillary
subscriber equipment Speech Design's management decided to refocus its
activities from the cellular market to the telephone peripherals. Management
expects continued growth in sales of telephone peripherals, but there can be no
assurance that such growth will be achieved.
In 1994, sales to four customers accounted for 78 percent of Speech
Design's sales. Such customers generally packaged Speech Design products with
PBX equipment for sale to third parties.
Speech Design relies principally on German subcontractors to assemble
products it develops. As of December 31, 1994 Speech Design's backlog was
approximately $223,000 as compared to approximately $160,000 as of December 31,
1993, all of which it expects to fill within 1995.
Employees
As of December 31, 1994, the Company had approximately 330 full-time
employees engaged in its wireless communications activities and approximately
14
<PAGE>
135 full-time employees engaged in its communications products businesses.
Additionally, approximately 90 employees of Rafael were engaged on a full time
basis in the development of the Company's FHMA(TM) digital system. Rafael has
had labor disputes from time to time with its employees who are represented by a
labor union. Such disputes have resulted in slow downs which have not had a
material effect on the Company's business. There are no assurances, however,
that any future disputes will not have a material adverse effect on the Company.
Thirty of Bogen's employees are subject to collective bargaining agreements.
Bogen also uses temporary and/or part-time employees, as required. The Company
considers its relationship with its employees to be good.
Item 2. PROPERTIES
Since July 2, 1993, the Company's principal place of business has been
located at 20 Craig Road, Montvale, New Jersey. The Company rents 8,000 square
feet of office space at the annual rate of $15.00 per square foot, or $120,000
per year, plus taxes and utilities. The lease expires in July 1998, although the
Company may renew the lease for an additional five-year term. The Company leases
an additional 9,160 square feet at the Montvale location at an annual rate of
$17.00 per square foot, or $156,000 per year, plus taxes and utilities. This
lease expires in April 1996, although the Company may renew the lease for an
additional two-year term.
In connection with the rollout of GeoNet, the Company expects to lease
office space in each of the thirty-five cities in which it intends to provide
service. In addition to office space, the Company must secure leases for its
transmission equipment at suitable locations in each of these cities.
Bogen subleases its facilities, located at 50 Spring Street, Ramsey, New
Jersey from an unaffiliated third party. The rental arrangement commenced on
January 1, 1987 and expires on December 31, 2000. Bogen presently pays rent at
the annual rate of $507,000. Such rate is applicable through December 31, 1995.
For the balance of the rental period, the annual rent will be $607,000. Bogen is
also obligated to pay additional annual rent in the amount of approximately
$31,000 for the remaining term of the lease in connection with repairs made to
the roof of the building in 1989.
National Band Three moved to leased facilities, located in Chelmsford,
England in September 1994. The lease has an initial term of five years with
annual rents of approximately $310,000. The Company also has four successive
five year options to continue the lease. Rental payments under each of the
options are to be negotiated prior to the start of each five year period. NB3
leases sites for its base stations from different parties under leases with
various terms, amounts and conditions.
Speech Design leases its facilities in Munich, Germany, under a lease
expiring in July 1999. Annual rents over the remainder of the lease increase
from approximately $93,000 in 1995 to approximately $107,000 in 1999.
GMSI leases its facilities in Ontario, Canada, under a lease expiring in
April 1996. Annual base rents over the remainder of the lease are approximately
$116,000.
The Company's Montvale facility functions both as corporate headquarters
and the general offices of the US wireless operation. The facilities occupied by
Bogen, National Band Three, Speech Design and GMSI house local management, as
well as the sales, marketing and operational staffs of the respective entity.
All manufacturing is performed by third parties, although Bogen and Speech
Design each perform light assembly at their facilities. Management of the
Company believes that the facilities occupied by the Company and its
subsidiaries are adequate to meet its current needs.
Item 3. LEGAL PROCEEDINGS
In June 1994 the Company filed a lawsuit against Harris Adacom Corporation
B.V. ("Harris"), a Dutch corporation, to enforce its rights under a loan
agreement between the parties. The Company is seeking repayment of a $3.5
million loan made to Harris in January 1994 in connection with a potential
purchase transaction between the Company and Adacom Technologies Ltd. ("ATL"),
an affiliate of Harris and an Israeli publicly traded company. The loan was
collateralized by stock owned by Harris in ATL. At the time of the loan, the
collateral had a market value in excess of $10 million and the total market
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<PAGE>
value of ATL was in excess of $100 million. The purchase transaction was not
consummated. In May 1994 the market value of ATL dropped dramatically and ATL
became insolvent, thereby reducing the value of the collateral to practically
zero. At or about the same time, creditors placed Harris into bankruptcy
proceedings in the Netherlands. The Company subsequently received limited
information relating to the recoverability of the loan, and Management does not
expect to recover the full amount of the loan. The Company is aggressively
pursuing its rights under the loan in Dutch bankruptcy court and is awaiting
additional information on the assets and creditors of Harris. Based upon the
information currently available, it cannot be determined the amount, if any,
that will ultimately be recovered; therefore, the Company has established a
reserve against the full amount of the loan. Accordingly, the 1994 financial
statement of operations includes, in other expenses, a charge of $3.5 million to
establish this reserve.
In response to the Company's lawsuit, Harris and its subsidiaries filed a
lawsuit against the Company in the courts of the State of Israel, requesting a
declaratory judgment that the Company entered into a binding agreement for the
purchase by the Company of a significant interest in certain wireless
communication business assets owned by ATL and subsequently breached such
agreement. The plaintiffs in such action have stated an intention to file a
separate claim for monetary damages and have estimated their losses to be
several million dollars. The Company believes none of plaintiffs' claims in such
action have any merit and are only an attempt to delay efforts to collect
Harris's debt to the Company. The Company intends to defend such action
vigorously.
Access Line Technologies, Inc. ("Access Line") has filed a claim against
Bogen alleging that Bogen's manufacture and sale of its one- and two-line FRIDAY
Home/Office Receptionist infringes certain patents of Access Line. Access Line
has claimed unspecified damages. Bogen believes the claim is without merit.
Discovery has been extended by agreement of the parties while alternatives to
litigation are explored.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of 1994.
PART II
Item 5. MARKET PRICE FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock currently trades on the NASDAQ Stock Market
under the symbol "GOTK" and on the Pacific Stock Exchange under the symbol
"GEO".
The following were the high and low sales prices of the Company's stock as
traded on NASDAQ:
- --------------------------------------------------------------------------------
Year Ended December 31, 1994 High Low
- --------------------------------------------------------------------------------
First Quarter 16 10 3/8
Second Quarter 11 5/8 7 1/4
Third Quarter 12 1/8 6 3/8
Fourth Quarter 10 3/4 7 1/2
- --------------------------------------------------------------------------------
Year Ended December 31, 1993 High Low
- --------------------------------------------------------------------------------
First Quarter 6 3/8 4 3/16
Second Quarter 8 3/4 4 7/8
Third Quarter 9 1/4 6 7/16
Fourth Quarter 17 5/8 8 1/4
- --------------------------------------------------------------------------------
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The Company has not declared or paid any cash dividends on its common stock
since commencing operations and does not anticipate paying any dividends on its
common stock in the foreseeable future. At present, the Company is obligated to
pay, for a five-year period following the issuance of the Series H preferred
stock, cumulative dividends equaling $2,000,000 per year on the Series H
preferred stock, in cash and, for a five-year period following the issuance of
the Series I preferred stock, cumulative dividends equaling $700,000 per year on
the Series I preferred stock, in cash or shares of common stock of the Company,
before any cash dividends may be paid on its common stock. At present, the
Company is current in payment of all required dividends on its outstanding
preferred stock. In addition, the terms of certain indebtedness of the Company
prohibit, during the term of such indebtedness, the declaration or payment of
any dividend on the Company's common stock (other than in shares of such common
stock).
As of March 1, 1995, the Company had 1,296 record holders of its common
stock.
Item 6. SELECTED FINANCIAL DATA (In thousands, except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the Year Ended December 31 1994 1993(1) 1992(1) 1991(1) 1990
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 72,991 $ 48,971 $ 28,546 $ 22,186 $ 6,453
Net loss from continuing
operations (42,405) (50,441) (2,381) (892) (4,131)
Net loss per common share
from continuing operations (0.90) (1.43) (0.21) (0.29) (1.46)
- --------------------------------------------------------------------------------------------------
At End of Fiscal Year 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------
Total Assets $ 179,844 $ 135,644 $ 39,366 $ 34,646 $ 23,902
Long-term debt (net of current
maturities), other non-current
items and redeemable preferred
stock 69,986 44,926 3,824 8,510 6,596
Shareholders' equity 77,356 69,244 24,432 15,351 11,536
</TABLE>
(1) Historical numbers were restated for the acquisition in January 1994,
through a merger, of 100% of Metro Net Systems Inc. The merger has been
accounted for as a pooling of interest.
The Company did not pay a cash dividend on its Common Stock during any
period indicated.
The difference in financial results between the years are affected by the
following acquisitions and dispositions. In 1990, USI Venture Corp. and Aryt
Optronics Industries, Ltd. were acquired. In April 1991, 87% of Bogen was
acquired. In 1992 PowerSpectrum, Inc. was formed, the defense segment was
discontinued and an additional 4% of Bogen was acquired. In 1993 National Band
Three Ltd., Speech Design, GMSI and the remaining interest in PowerSpectrum,
Inc. were acquired and Oram Electric Industries, Ltd., Oram Power Supplies 1990,
Ltd. and Geopower were sold. In 1994, 49% interests in Preussag Bundelfunk GmbH
and DBF Bundelfunk GmbH and an 8% interest in Bogen were acquired. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
17
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
General
Over the past three years, the Company has aggressively restructured its
business operations to reflect its strategic focus on wireless communications.
To accomplish this, the Company has divested certain businesses and has
consummated various transactions to develop its wireless communications
business. Due to these transactions, it is difficult to compare the Company's
results of operations from period to period. In addition, the Company's past
operating results may not be indicative of the Company's future results of
operations because of the Company's change in strategic direction. Although
Management believes its current strategy will have a positive effect on the
Company's results of operations in the long term, this strategy is expected to
have a substantial negative effect on the Company's results of operations in the
short term. The Company expects to incur substantial losses for the foreseeable
future, attributable in part to a high investment in research and development
related to its wireless communications activities as well as operating, sales,
marketing and general and administrative expenses relating to the roll out of
the Company's digital wireless network in the US ("Geonet"TM).
The Company currently groups its operations primarily into two types of
activities: wireless communications and communications products. The Company's
wireless communications subsidiaries are engaged primarily in providing trunked
mobile radio services utilizing analog equipment, developing and selling
wireless data solutions, and developing a digital wireless communications system
to provide integrated wireless communications services. In 1995 the Company
plans to commence the rollout of GEONET(TM). The Company's communications
products subsidiaries are primarily engaged in the development, manufacturing,
and marketing of telephone and facsimile peripherals and sound and
communications equipment.
The Company's merger with Metro Net Systems Inc. ("Metro Net") in January
1994 was accounted for as a pooling of interests; therefore, the Company's 1993
and 1992 financial statements have been restated to include the results of Metro
Net. All amounts referred to in the following analysis include the results of
Metro Net for all years presented.
1994 Compared to 1993
Summary of Operations
Consolidated revenues increased by 49% in 1994, principally due to the
acquisition of NB3 in July 1993 and higher revenues from the communications
products segment.
Consolidated operating expenses increased by 14% in 1994, due to increased
research and development activities associated with the Company's digital
wireless communication system, costs related to the rollout of GEONET(TM), the
Company's 1993 and 1994 acquisitions and volume growth of the communications
product segment.
Consolidated losses from continuing operations decreased by $8.0 million to
$42.4 million.
Wireless Communications Activities
Revenues from wireless communications activities increased by $13.3
million, or 108%, in 1994, primarily due to the acquisitions of National Band
Three Ltd. ("NBTL") on July 1, 1993 (1994 revenues of NBTL were $19.8 million),
and GMSI Inc. ("GMSI") on May 1, 1993 (1994 revenues of GMSI were $3.5 million).
The Company's 1993 results include the results of these subsidiaries from their
date of acquisition forward, while the results for 1994 include the results of
these subsidiaries for the entire year. On a pro forma basis year-to-year 1994
revenues of NBTL increased by 22%, while revenues of GMSI declined slightly. In
addition, the average number of subscribers on the NBTL network increased by 29%
18
<PAGE>
in 1994. The increase was the result of an aggressive marketing program as well
as through the acquisition of smaller regional networks. While average service
revenue per subscriber on the Company's core customer base remained unchanged in
1994, the acquisition of the smaller regional networks, which charge lower
tariffs, slightly reduced NBTL's average revenue per subscriber in 1994. US
analog wireless networks generated revenues of $2.5 million in 1994.
Operating expenses decreased $3.5 million or 5.6% in 1994. Excluding a non
cash charge recorded in 1993 related to the acquisition of a minority interest
in the Company's U.S. wireless subsidiary of $32.4 million (see analysis of 1993
compared to 1992), operating expenses increased by $28.9 million or 100%.
Expenses at NBTL increased by $12.1 million in 1994, including $7.8 million
related to the full year inclusion, $1.8 million related to network operating
costs to service the larger subscriber base and the additional base stations
which were acquired from the regional networks and approximately $2.5 million of
additional marketing and general costs. Research and development expenses (net
of grants) related to the digital wireless system and subscriber unit increased
by $8.2 million or 93.0%. In 1994 the Company continued to receive grants from
the Chief Scientist of the Ministry of Commerce and Industry of the Israeli
Government. Such grants, which are recorded as a reduction of research and
development expenses, totaled $4.0 million in 1994 and $2.8 million in 1993. The
Company expects significant research and development expenses to continue in the
future as enhancements are made to the system. The Company expects to begin
providing wireless service over its proprietary network in the US in 1995 and
accordingly has begun to put in place its marketing, engineering, operations and
administrative staff and systems. Costs related to these activities totaled
$14.8 million in 1994, an increase of $8.1 million over 1993. Beginning in 1994
corporate general and administrative activities are reported as part of the
wireless activities as the US rollout has become the primary activity of the
corporate staff. Corporate amounts for 1993 have been reclassified for purposes
of this comparison.
In 1994, the Company acquired minority stakes in two wireless networks in
Germany and in Protocall Ventures Ltd. ("PVL"), an entity which holds minority
interests in several networks in Europe. The networks in Germany have only
recently begun operations and subscriber revenues do not cover operating
expenses. The PVL networks are in either the build out or start-up phase and
operate at a loss. A substantial portion of these losses are funded by the
Company. In 1994, the Company's interest in the losses of these networks totaled
$3.1 million. In the near future it is expected that these networks will
continue to generate losses.
The wireless activities generated a loss before net interest expense and
amortization of $32.6 million in 1994 compared to a loss of $49.4 million in
1993 due to the factors discussed above. Included in the 1994 loss were $17.0
million of research and development costs related to the digital wireless
communications system and $14.8 million of rollout costs related to the US
network (including approximately $2.5 million relating to shares of common stock
issued to Vanguard in consideration for management consulting services).
Communications Products Activities
Revenues from communications products activities in 1994 increased by $16.0
million, or 53%. The Company's subsidiary Bogen Communications ("Bogen")
increased its sales by $11.7 million, mainly due to the growth of its Office
Automation line of products. Speech Design's 1994 sales increased by $4.1
million, or 115%.
Cost of goods sold in 1994, amounted to $29.7 million or 64.3% of sales
compared to $18.2 million or 60.6% of sales in 1993. This decrease in gross
profit as a percentage of sales in 1994 reflects the change in product mix (the
new products introduced by Bogen are typically sold at a lower margin than
Bogen's traditional products), the sales to large customers and private label
customers which enjoy volume discounts, and Bogen's reduction of the carrying
value of certain inventories by $1.1 million. These factors were offset by the
consistently higher margins on Speech Design's products.
Marketing expenses in 1994 amounted to $8.9 million or 19.4% of sales,
compared to $6.4 million or 21.2% of sales in 1993. This increase of $2.5
million is largely the result of higher revenue levels in general and higher
19
<PAGE>
distribution costs for Bogen's new products. General and administrative expenses
in 1994 were $3.9 million or 8.5% of sales, compared to $2.9 million or 9.5% of
sales in 1993. This increase of $1.1 million in general and administrative
expenses is directly related to the higher revenue levels at both Bogen and
Speech Design.
Income before interest expense, amortization expense and minority interest
from the Company's Communications Products activities amounted to $1.5 million
in 1994 compared to $0.9 million in 1993.
In March 1995, the Company signed an agreement in principle to transfer its
interest in Speech Design and Bogen Communications, Inc. to European Gateway
Acquisition Corporation in exchange for $10 million in cash and approximately
51% to 55% of European Gateway's common shares. Geotek will also be eligible to
receive a performance payment of up to $17 million (assuming it retains a 55%
interest) based on the future earnings of both companies through July 1997. The
transaction is subject to, among other things, execution of a definitive
agreement, regulatory approvals, if any, and European Gateway shareholder
approval.
Other Activities
The Company's other activities generated a loss before net interest
expense, amortization, and other charges in 1994, of $1.2 million compared to a
loss of $0.5 million in 1993. Revenues from these activities were $1.2 million
in 1994, compared to revenues of $6.6 million in 1993. The decrease in revenues
is primarily caused by the disposal by the Company of Oram Electric Industries
Ltd., Oram Power Supplies (1990) Ltd., and Geopower Inc. In 1993 these entities
generated a net loss of $0.3 million on revenues of $6.3 million. Operating
losses at the Company's Geotest subsidiary increased from $0.7 million in 1993
to $1.3 million in 1994. In addition, the Company recorded a charge of $3.5
million as a reserve against a loan receivable (see Note 12 to the accompanying
financial statements).
On a consolidated basis, interest expense increased in 1994 due to a higher
level of debt outstanding during the year. Interest income increased in 1994 due
to higher average balances on hand throughout the year as well as higher rates
earned on invested funds. Amortization expense increased from $0.9 million in
1993 to $2.8 million in 1994 because of the Company's 1993 and 1994
acquisitions.
1993 Compared to 1992
Revenues for 1993 amounted to $49 million, an increase of $20.5 million or
72% over $28.5 million in 1992. Subsidiaries acquired in 1993 contributed $14.0
million towards the increase in revenues. Revenues were generated as follows:
wireless communications activities $12.3 million in 1993 and 1.3 million in
1992; communications products activities $30.1 million in 1993 and $19.5 million
in 1992; and corporate and other activities $6.6 million in 1993 and $7.7
million in 1992. During 1993, the Company posted a net loss from continuing
operations of $50.4 million compared to a loss of $2.4 million in 1992. The 1993
loss included a non-cash charge of $32.4 million as discussed below.
Wireless Communications Activities
Revenues from wireless communications activities were $12.3 million for
1993. Operations of NBTL, which are included only since its acquisition in July
1993, contributed $8.1 million to the Company's revenues.
Research and development expenses relating to the development of the
digital system (excluding the non-cash charge) amounted to $8.2. million, which
is net of participation by the Chief Scientist of the Israeli Government of
approximately $2.6 million. Marketing and general and administrative expenses
were $8.7 million of which $2.5 million related to NBTL. Minority interest in
the losses of the Company's PowerSpectrum, Inc. subsidiary amounted to $1.5
million.
The Company's 1993 wireless communications activities generated a loss before
net interest income, amortization and minority interest of $46.7 million
20
<PAGE>
primarily due to a $32.4 million non-cash charge related to the July 1993
acquisition of the minority ownership interest in PSI (the Company's U.S.
wireless communications subsidiary). In exchange for all the shares of PSI that
it did not already own, Company issued common shares and options to acquire
additional shares. The value of the consideration paid over the fair value of
the net assets acquired ($32.4 million) has been attributed to the incomplete
research and development project and was charged to expense at the time of the
exchange. The minority shareholders' interest in the loss was $1.5 million in
1993. The Company began its wireless activities in 1992 and generated operating
losses of $1.2 million that year.
Communications Products Activities
Revenues from the sale of communications products were $30.1 million in
1993, which represented an increase of 54% compared to revenues of $19.5 million
in 1992. Approximately one third of the increase in revenues is due to the
acquisition of Speech Design which has been included in the Company's
consolidated financial statements since February 1, 1993. Income from continuing
operations before net interest expense, amortization expense and minority
interest for 1993 was $809,000 compared to income of $241,000 in 1992. The
operating results reflect Bogen's marketing expenses which increased by $1.8
million or 43% from the same period a year earlier. This increase related
primarily to marketing efforts in connection with two new products launched in
1993, for which significant revenues are expected to begin in 1994.
Cost of goods sold for 1993 amounted to $18.2 million or 60% of sales
compared to $13.1 million or 67% of sales in 1992. The improvement in the gross
margin is primarily attributable to the acquisition of Speech Design which
enjoys relatively high margins, as well as improved efficiency at Bogen. General
and administrative expenses increased by 190% from $1.0 million in 1992 to $2.9
million in 1993. Such increase in general and administrative expenses is due
primarily to the acquisition of Speech Design, and the increased activity level
at Bogen.
Prior to 1993, the Company's Geopower, Geotest and Oram subsidiaries were
reported as communication products activities. During 1993, the operations of
these entities were separately classified as "Corporate and Other Activities'
and are discussed below. For a more meaningful comparison, the results of
operations from communications products activities for the year end December 31,
1992 are included in this subsection exclusive of the operating results of these
companies. However, the operating results of these entities for the year ended
December 31, 1992 are included in the results of operations from communications
products activities for purposes of the comparison of 1992 to 1991 below. These
entities generated aggregate revenues of $6.3 million and $6.8 million during
the years ended December 31, 1993 and 1992, respectively.
Corporate and Other Activities
The Company's corporate and other activities generated a loss before net
interest expense, amortization and other charges of $3.2 million in 1993
compared to a loss of $1.5 million in 1992. Corporate overhead increased from
$801,000 in 1992 to $2.0 million in 1993 primarily due to increased staffing to
support the Company's expanded wireless operations. Also contributing to the
increased loss were operating losses at the Company's Geopower, Geotest, Oram
subsidiaries, which increased from $676,000 in 1992 to $1.2 million in 1993.
Consolidated net interest expense increased from $624,000 in 1992 to $1.4
million in 1993 primarily due to interest on a note relating to the acquisition
of NBTL of $1.9 million which was partially offset by reductions of other
interest bearing debt and higher interest income attributable to an increase in
the amount of cash available for investment. The disposal of Oram in September
1993 and Geopower in December 1993 generated a net loss of $479,000.
Amortization expense increased from $390,000 in 1992 to $919,000 in 1993.
21
<PAGE>
Liquidity and Capital Resources
The Company requires significant capital to implement its wireless
communication strategy. In order to effect its strategy, the Company increased
its debt borrowing and entered into a series of transactions, including the sale
of equity, mainly to strategic partners. At December 31, 1994, the Company had
$52.0 million of cash, equivalents, and temporary investments.
The Company's short term cash needs are primarily related to the
development of the digital FHMA(TM) system which the Company's U.S. network
intends to deploy starting in 1995, and the cost of rolling out the U.S.
network. One of the advantages of the Company's FHMA(TM) system is its
modularity, which allows the Company to execute a flexible roll out plan
requiring a relatively low investment in infrastructure in a given geographical
area (compared to other wireless communication systems) which is sufficient to
provide commercial service. Additionally as the Company expects to serve
customers which require primarily local or regional coverage, management
believes therefore that the Company has additional flexibility in controlling
its resources by accelerating or slowing down the rate at which various cities
are rolled out without impacting the business results of its then operating city
or region networks in a material way.
The Company estimates that a minimum average investment of approximately $5
million is required to roll out an average city. Additional expenditures will be
required later if and when increased subscriber capacity is needed. The Company
estimates that its 1995 cash needs associated with completing the development of
its first generation commercial grade FHMA(TM) system are approximately $10
million. Nevertheless, the Company plans further improvements to the FHMA(TM)
system as well as other related research and development projects which will
require additional resources.
Based upon current operating plans, the Company believes it has sufficient
funds to meet its needs for the next 12 months. Nevertheless, additional
acquisitions of spectrum, or businesses may create the need for additional
capital. On a long-term basis, the Company will require additional capital to
complete the planned rollout of Geonet in 36 cities in the United States by the
end of 1997, to repay convertible debt and redeemable preferred stock (if such
are not converted into equity), to finance its international networks and to
make acquisitions of businesses in the fields of communications and of spectrum
in the United States and internationally.
The following discussion of liquidity and capital resources, among other
things, compares the Company's financial and cash position as of December 31,
1994, to the Company's financial and cash position as of December 31, 1993,
restated for the merger, accounted for as a pooling of interests, with Metro
Net.
During 1994, cash, equivalents, and temporary investments decreased by $7.6
million to $52.0 million, while working capital decreased by $11.5 million to
$47.1 million as of December 31, 1994.
Cash utilized in connection with continuing operating activities for the
year ended December 31, 1994, amounted to $24.4 million.
Cash outflows from investing activities, exclusive of an increase in
temporary investments of $16.6 million, were $52.5 million. The Company invested
$16.4 million in the acquisition and subsequent funding of a 49% interest in
Preussag Bundelfunk GmbH ("PBG") and $8.1 million in the acquisition and funding
of a 49.9% interest in DBF Bundelfunk GmbH & Co. ("DBF"). PSG and DBF are
providers of private mobile radio services in Germany, holding licenses in
territories covering a population of approximately 28 million. The Company has
agreed to fund the future operating and capital needs of PBG in excess of the
existing capital as of the date of the acquisition. In addition, the Company and
the seller of DBF have each committed to invest approximately $3.2 million in
DBF over the next year, of which $1.8 million had been invested as of December
31, 1994. The Company has guaranteed an obligation of PBG, due in 1999, to the
seller of approximately $2.5 million. This guarantee is supported by a letter of
credit. Cash of $2.5 million has been restricted as collateral for letters of
credit and other bank transactions.
22
<PAGE>
The Company expended $10.5 million on acquisitions of property and
equipment and $13.0 million on SMR licenses in the United States and extended a
loan of $3.5 million to Harris Adacom Corporation B.V. in January 1994. (See
Note 12 to the accompanying financial statements.)
In January 1994 the Company acquired all the outstanding shares of Metro
Net in exchange for 3,112,500 shares of Common Stock. The Company did not pay
cash in connection with its acquisition (except for related expenses).
The Company's financing activities provided cash of $69.3 million. In
February 1994 the Company completed the sale of 2.5 million shares of Common
Stock to Vanguard. Net proceeds of the sale were $29.2 million. The Company also
granted Vanguard the right to invest up to an additional $167.0 million through
a series of related nontransferable options to purchase up to an additional 10
million shares of Common Stock. Additionally, the Company received net proceeds
from the exercise by various parties of warrants and options of approximately
$3.8 million in 1994.
In June 1994 the Company issued and sold senior secured notes, due in
September 1995, with an aggregate principal amount of $25.0 million and warrants
to purchase 300,000 shares of the Company's Common Stock. Net proceeds from the
sale amounted to $24.5 million and were used to finance the Company's
acquisitions in Germany. In March 1995, the Company refinanced the Notes. Under
the terms of new financing, borrowings increased to $36.0 million and carry an
interest rate of 14.75%. The new debt is payable over 36 months and convertible
to common shares (during a twelve month window beginning six months after
closing) at 87.5% of the market value of the common shares on the date
converted. At closing, the Company issued warrants to acquire 700,000 shares of
the Company's common stock to the purchaser of the debt. The Company must meet
certain financial covenants, needs permission of the holder to enter certain
transactions and may be required to make repayments under certain circumstances.
Net borrowings under the short-term lines of credit were $2.4 million. In
August 1994 the Company's Bogen subsidiary completed negotiations on the
establishment of a one-year $10 million working capital line. Dividends of $2.0
million were paid on the Series H redeemable Convertible Preferred Stock.
The Company has reached agreement for the private placement of Cumulative
Convertible Preferred Shares in consideration for $20.0 million. The shares will
pay a dividend of 7% per annum for five years, carry a conversion premium, and
be redeemable by the Company under certain circumstances. In December 1994, the
Company received $10 million of this private placement. Closing of the balance
of the transaction is subject to certain regulatory approvals.
The Company has placed an order with Rafael Armament Development Authority
of approximately $12.8 million for base stations to be used in its digital
wireless communications system, of which $2.1 million has been paid as of
December 31, 1994.
The controlling shareholder of DBF has informed the Company that it intends
to exercise its option to sell its interest in BDF to the Company for DM 9.0
million (approximately $6.3 million). Consummation of the transfer is subject to
regulatory approval.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The remainder of this page is intentionally left blank. The Financial
Statements of the Company begin on the following page.
23
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
-----
Financial Statements:
Reports of Independent Accountants ............................ F-1
Consolidated Balance Sheets at December 31, 1994 and 1993 ..... F-7
Consolidated Statements of Operations for the years ended
December 31, 1194, 1993 and 1992 .......................... F-8
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1994, 1993 and 1992 ...... F-10
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 ........................... F-12
Notes to Consolidated Financial Statements ....................... F-15
24
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors, executive officers and key employees of the Corporation are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Winston J. Churchill.............................. 54 Chairman of the Board and Director
Yaron I. Eitan.................................... 38 President, Chief Executive Officer and Director
George Calhoun President-Wireless Communications Group
and Director
Yoram Bibring..................................... 37 Executive Vice President, Chief Operating
Officer and Chief Financial Officer
John Egidio....................................... 46 Senior Vice President, Operations
Oliver Hilsenrath................................. 37 Senior Vice President, Technology
William A. Opet................................... 38 Senior Vice President, Marketing and Sales
Andrew Robb....................................... 52 Managing Director, European Operations
Andrew Siegel..................................... 29 General Counsel and Secretary
Walter E. Auch.................................... 74 Director
Purnendu Chatterjee............................... 45 Director
Haynes G. Griffin................................. 48 Director
Richard Krants.................................... 51 Director
Richard T. Liebhaber.............................. 60 Director
Haim Rosen........................................ 59 Director
Kevin Sharer...................................... 47 Director
William Spier..................................... 59 Director
</TABLE>
- --------------
Mr. Churchill has served as Chairman of the Board and as a director of the
Company since 1991. He is a principal of CIP Capital Management, Inc., a private
investment firm formed in 1989. Prior to 1989, Mr. Churchill practiced law and
served as Chairman of the Banking and Financial Institutions Department and the
Finance Committee of Saul, Ewing, Remick & Saul, Philadelphia, PA, for
approximately 16 years.
Mr. Eitan has served as President, Chief Executive Officer and a director
of the Company since March 1989. He is also Chairman of the Board of Bogen
Corporation and a director of PowerSpectrum Technology, Ltd., GMSI, Inc. and
National Band Three Limited ("NB3"), subsidiaries of the Corporation. Mr. Eitan
served as a director of Patlex Corporation from 1985 until February 1989, during
which time he served as President of Patlex from November 1987 to June 1988 and
Executive Vice President of Patlex from July 1987 to November 1987 and from June
1988 to February 1989.
Mr. Calhoun was appointed a director of the Company in July 1993 when he
became President of the Company's wireless communications group. Mr. Calhoun
joined the Company in June 1992 as President, Chief Operating Officer and a
director of PowerSpectrum, Inc., a wholly owned subsidiary of the Company
("PowerSpectrum"). He is also a director of NB3. Prior to June 1992, Mr. Calhoun
served as General Manager of the Intellectual Property Licensing Division of
International Mobile Machines Corporation, a corporation co- founded by Mr.
Calhoun and engaged in the development of digital radio technology.
Mr. Bibring joined the Company as Chief Financial Officer in April 1991. He
has served as Executive Vice President, Chief Operating Officer and Chief
Financial Officer of the Company since June 1993. He also served
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<PAGE>
as Vice President of Aryt from December 1990 to April 1992. From November 1986
to January 1990, Mr. Bibring was a Senior Auditor at Shachak & Company, a public
accounting firm in Israel.
Mr. Egidio became Senior Vice President of the Company in October 1993.
From August 1991 to October 1992, he was President and Chief Executive Officer
of Metagram America. From February 1985 to April 1990, Mr. Egidio was President
and Chief Executive Officer of Metromedia Paging, a subsidiary of Southwestern
Bell.
Mr. Hilsenrath has served as Senior Vice President of the Company since
1992. From 1990 to 1992, he was employed by the Aydin Vector division of Aydin
Corporation, a defense electronics and communications company, serving as
Engineering Manager from 1990 to 1991. Prior to 1990, Mr. Hilsenrath was
employed by the Communication Directorate of Rafael from 1983 to 1990, where he
served as Chief Research and Development Engineer.
Mr. Opet was appointed Vice President of Marketing for the Company in April
1994. From June 1990 to March 1994, he served as Vice President of Marketing for
LIN Broadcasting ("LIN"), Kirkland, Washington, a 52% owned subsidiary of McCaw
Cellular, where he worked extensively on the introduction of digital cellular
systems. Prior thereto, Mr. Opet was Vice President of Marketing and Sales for
LIN's Philadelphia cellular operations from May 1986 to June 1990.
Mr. Robb was appointed as Managing Director for the Company's European
operations during 1994. He had served as Managing Director of NB3 and one of its
predecessor companies for more than five years. Prior to January 1987, Mr. Robb
served as Sales Director of the Communications Group of Motorola in the United
Kingdom for approximately four years.
Mr. Siegel has served as General Counsel and Secretary of the Company since
March 1993. From January 1990 to March 1993, he practiced law with Skadden,
Arps, Slate, Meagher & Flom, New York, New York.
Mr. Auch has served as a director of the Company since 1989. He also
currently serves as a director of Fort Dearborn Funds, Raymond James Financial,
Shearson VIP Fund, Shearson Advisors Fund, Banyan Funds, Pinco Advisors, L.P.,
Brinson Funds, Nicholas/ Applegate and Express America Corp. Mr. Auch was the
Chairman and Chief Executive Officer of the Chicago Board Options Exchange from
1979 until 1986.
Mr. Chatterjee was appointed a director of the Company in December 1993. He
has served as President of S-C Rig Co., the general partner of S-C Rig
Investments-III, L.P. and President of Chatterjee Fund Management, L.P. since
1990. Mr. Chatterjee has also been a financial advisor to Soros Fund Management,
the principal advisor to Quantum Fund (founded by Mr. George Soros) since 1986.
Mr. Chatterjee is also a director of APC Corporation, Beall Technologies, Inc.,
Falcoln Drilling Company, Inc., The Indigo Group, Premiere Microwave Corporation
and R.V.I. Guaranty Co., Ltd.
Mr. Griffin was appointed a director of the Company in February 1994. He is
a co-founder of Vanguard and has served as President and Chief Executive Officer
of Vanguard since 1984. In 1993, Mr. Griffin was appointed to the United States
Advisory Council on the National Information Infrastructure. Mr. Griffin is also
a director of Piedmont Management Company, Inc., a diversified financial service
holding company.
Mr. Krants was appointed to the Board of Directors in January 1994 upon the
closing of the Corporation's acquisition of Metro Net Systems, Inc. ("Metro
Net"). Prior to the acquisition of Metro Net, Mr. Krants was the President and
the Chief Executive Officer of Metro Net since October 1990. Mr. Krants was also
the Vice President of Famous Make Communications, Inc. until October 1993 and is
currently the Vice President of Mobile Message Service of N.Y., Inc.
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<PAGE>
Mr. Liebhaber was appointed to the Board of Directors in April 1995. Mr.
Liebhaber is currently Executive Vice President of MCI Communications Corp.
("MCI"), where he has been employed for more than five years. Mr. Liebhaber
previously served as a director of MCI, a position from which he resigned in
December 1994.
Mr. Rosen has served as a director of the Company since 1993. Mr. Rosen has
served as Vice President of Tadiran, Ltd., an Israeli manufacturer of
telecommunications equipment, systems and software, and as President of Tadiran
Communications, Inc., a wholly owned subsidiary of Tadiran, Ltd., since 1981.
Mr. Sharer has served as a director of the Company since May 1994. Mr.
Sharer is currently the President and Chief Operating Officer of Amgen, Inc., a
leading biotechnology company, positions he has held since October 1992. From
April 1989 to October 1992, Mr. Sharer was employed by MCI Communications Corp.,
where he most recently served as Executive Vice President and President of
Business Markets Division.
Mr. Spier has served as a director of the Company since 1991. He is
currently the Chairman of the Board and a director of each of Desoto Corp. a
detergent manufacturer, and Video Lottery Technologies. From 1987 to 1990, Mr.
Spier was Chairman of the Board and director of USI Ventures, Inc.
During the past five years, none of the directors of the Company has been:
(a) convicted in a criminal proceeding; or (b) a party to any civil proceeding
as a result of which either has been subject to a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws, or finding any violation with
respect to such laws. On January 13, 1993, the Securities and Exchange
Commission (the "SEC") filed a civil complaint in the United States District
Court for the District of Massachusetts against certain defendants, including
Mr. Chatterjee, wherein the Commission alleged that Mr. Chatterjee engaged in
conduct in violation of, or aided and abetted certain alleged violations of,
Sections 10(b) and 14(e) of the Exchange Act and certain rules promulgated
thereunder. Mr. Chatterjee settled the SEC's action on the same date it was
filed without admitting or denying the allegations of the complaint. Mr.
Chatterjee consented to the entry of a Final Judgment restraining and enjoining
him from, inter alia, violating, or aiding and abetting violations of, Sections
10(b) and 14(e) of the Securities Exchange Act of 1934, as amended, and the
rules promulgated thereunder. Mr. Chatterjee also agreed to pay a civil penalty
of $643,855.
Item 11. EXECUTIVE COMPENSATION.
Executive Officers.
The following table sets forth all cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Corporation and the other executive officers required to be
reported pursuant to Item 402(a)(3) of Regulation S-K promulgated under the
Exchange Act for all services performed by such executive officers for the
Corporation or its affiliates, whether paid by the Company, its affiliates or a
third party. Except as set forth herein, none of the named executive officers
received during the last three fiscal years any prerequisites or other personal
benefits, securities or property which had an aggregate value of greater than
the lower of $50,000 or 10% of the total salary and bonus reported for such
executive officer.
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long Term
Annual Compensation Compensation
------------------- ------------
Securities
Name & Principal Underlying All other
Position Year Salary Bonus Options(1) Compensation
-------- ---- ------ ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Yaron I. Eitan 1994 $224,025 $125,000 960,000 $36,919(2)
President and Chief 1993 224,642 225,000 10,000 39,240(2)
Executive Officer 1992 171,095 -- 710,000 28,712(2)
George Calhoun 1994 173,543 35,000 10,000 --
President--Wireless 1993 149,994 50,000 10,000 1,415(3)
Technology Division 1992 73,183 -- -- --
Yoram Bibring 1994 131,910 35,000 -- 8,557(4)
Executive Vice President, 1993 119,260 50,000 65,000 9,333(4)
Chief Operating Officer 1992 94,023 -- -- 8,235(4)
and Chief Financial
Officer
John Egidio(5) 1994 121,563 30,000 20,000 --
Senior Vice President, 1993 26,520 -- 40,000 --
Operations
Andrew Siegel(6) 1994 117,506 25,000 15,000 2,019(7)
General Counsel 1993 89,088 25,000 60,000 759(7)
and Secretary
</TABLE>
- --------------------------
(1) In addition to the options reported hereunder, Mr. Eitan, Mr. Calhoun and
Mr. Bibring received options to purchase 207,295, 246,780 and 49,356 shares
of Common Stock, respectively, in connection with the merger of
PowerSpectrum into a wholly-owned subsidiary of the Corporation in 1992.
The exercise price for such options is $.061 per share. These options were
granted pursuant to the Plan of Merger in exchange for PowerSpectrum
options which had been previously awarded to these executive officers.
(2) Consists of life and disability insurance premiums paid by the Corporation
for Mr. Eitan aggregating $28,960 and $3,699, respectively, in 1994,
$31,292 and $3,451 in 1993 and $500 and $4,212 in 1992; contributions by
the Corporation to the Corporation's 401(k) plan on behalf to Mr. Eitan of
$4,260 in 1994 and $4,497 in 1993 and compensation for unused vacation days
of $24,000 accrued in 1992.
(3) Consists of life insurance premiums paid by the Corporation for Mr. Calhoun
of $204 in 1993 and contributions by the Corporation to the Corporation's
401(k) plan on behalf of Mr. Calhoun of $1,211 in 1993.
(4) Consists of life and disability insurance premiums paid by the Corporation
for Mr. Bibring aggregating $6,500 and $2,057, respectively, in 1994,
$7,417 and $1,916 in 1993 and $6,500 and $1,735 in 1992.
(5) Mr. Egidio joined the Corporation in October 1993.
(6) Mr. Siegel joined the Corporation in March 1993.
(7) Consists of contributions by the Corporation to the Corporation's 401(k)
plan on behalf of Mr. Siegel.
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<PAGE>
Options and Stock Appreciation Rights
The following tables contain information concerning option grants to, and
option exercises by, the executive officers named in the Summary Compensation
Table during fiscal 1994 and the value of the options held by such persons at
the end of fiscal 1994. No Stock Appreciation Rights ("SARs") were granted or
exercised during fiscal 1994.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of Stock
Appreciation for Option Term(1)
--------------------------------
Number
of Securities % of Total
Underlying Options Granted Exercise or
Options to Employees Base Price
Name Granted (#) In Fiscal Year ($/Sh) Expiration Date 5%($) 10%($)
---- ----------- -------------- ------ --------------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Yaron I. Eitan 10,000(3) 0.6% $ 10.50 Sept. 12, 2004 $ 66,000 $ 167,300
200,000(3) 13.0 13.87 Feb. 4, 2004 1,744,000 4,420,000
225,000(4) 14.6 8.00 Dec. 7, 2004 1,131,750 2,868,750
250,000(5) 16.2 10.00 Dec. 7, 2004 1,572,500 3,985,000
275,000(6) 17.8 14.00 Dec. 7, 2004 2,420,000 6,135,250
George Calhoun 10,000(3) 0.6 10.50 Sept. 12, 2004 66,000 167,300
Yoram Bibring -- -- -- -- -- --
John Egidio 20,000(7) 1.2 11.00 Aug. 10, 2004 138,400 350,600
Andrew Siegel 15,000(8) 1.0 8.50 April 1, 2004 80,250 203,250
- ----------
<FN>
(1) In accordance with the rules of the Commission, "Potential Realizable
Value" has been calculated assuming an aggregate ten-year appreciation
of the fair market value of the Corporation's Common Stock on the date
of grant, at annual compounded rates of 5% and 10%, respectively.
(2) The exercise price of each option reported hereunder was equal to or
greater than the fair market value of the Corporation's Common Stock on
the date such option was granted.
(3) These options were immediately exercisable when granted.
(4) These options become exercisable on December 7, 1995.
(5) These options become exercisable on December 7, 1996.
(6) These options become exercisable on December 7, 1997.
(7) These options became exercisable with respect to 6,667 shares in
October 1994. The remainder of the options become exercisable in equal
installments in October of 1995 and 1996.
(8) These options become exercisable in equal installments on each of the
first two anniversaries after the date of grant.
</FN>
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End (#) Options at FY-End ($)
Shares Acquired Value (Exercisable/Unex- (Exercisable/Unex-
Name on Exercise (#) Realized($) erciseable) erciseable)
- ---- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Yaron Eitan -- -- 1,220,295/850,000 $6,385,946/$579,750
George Calhoun -- -- 366,780/ 0 2,593,476/ 0
Yoram Bibring -- -- 144,355/ 40,000 955,185/ 105,200
John Egidio -- -- 20,000/ 40,000 7,600/ 15,200
Andrew Siegel -- -- 47,500/ 27,500 146,175/ 73,575
</TABLE>
- -------------
(1) Value based on market value of the Corporation's Common Stock on
December 31, 1994, or $8.625 per share, minus the exercise price.
Employment Agreements and Other Matters
In March 1995, the Corporation and Mr. Churchill entered into an agreement
pursuant to which Mr. Churchill agreed to serve as the Chairman of the Board of
the Corporation through March 31, 1998. Under the agreement, Mr. Churchill is
paid compensation of $50,000 per year and is eligible to receive bonuses at the
discretion of the Compensation Committee. In addition, Mr. Churchill was granted
options to purchase 250,000 shares of the Company's Common Stock at prices
ranging from $8.00 to $14.00 per share. The options were immediately exercisable
with respect to 83,334 shares and become exercisable with respect to 83,333
shares on each of March 31, 1996 and March 31, 1997.
During 1994, Mr. Eitan served as the President and Chief Executive Officer
of the Corporation pursuant to an employment agreement which expired on March
31, 1995. Under such agreement, Mr. Eitan was paid a base salary of $225,000 per
year pursuant to such agreement, subject to such adjustment in future years as
was agreed upon by the Committee and Mr. Eitan. Mr. Eitan's agreement did not
specify the circumstances under which such base salary may be adjusted and there
was no maximum limit on the amount of such adjustments. Mr. Eitan was also
entitled to receive an annual cash bonus in an amount equal to three percent of
the Corporation's consolidated pre-tax income for each fiscal year in which such
agreement is in effect, as certified by the Corporation's independent
accountants. Mr. Eitan was also eligible to receive such additional bonuses
(including stock grant awards and options) as was determined by the Committee,
whose determination was not required to be based on specific performance goals.
The Compensation Committee of the Board of Directors awarded Mr. Eitan a bonus
of $125,000 for the fiscal year ended December 31, 1994. Presently, Mr. Eitan
serves as the President and Chief Executive Officer of the Corporation pursuant
to a new employment agreement which expires on March 31, 1998. Under such
Agreement, Mr. Eitan will be paid a base salary of $250,000 during the first
year thereof, $275,000 per year during the second year thereof and $320,000 per
year during the third year thereof. Mr. Eitan is also entitled to receive such
additional bonuses as shall be determined by the Compensation Committee in its
sole discretion. Mr. Eitan was also granted options to purchase an aggregate of
750,000 shares of the corporation's common stock. See "Proposal III - New Plan
Benefits".
Pursuant to both Mr. Eitan's past and present agreements, the Corporation
provides Mr. Eitan with health, accident and individual disability insurance as
well as a life insurance policy with benefits aggregating $1,500,000, with the
beneficiaries thereunder to be named by him. Mr. Eitan is also to be reimbursed
for out-of-pocket expenses incurred in connection with the performance of his
duties. Mr. Eitan also receives the use of an automobile supplied by the
Corporation, of value and quality acceptable to him. The Corporation is
responsible for all expenses and maintenance costs attributed thereto as well as
for the costs of insuring such vehicle.There is no specific limit in Mr. Eitan's
-30-
<PAGE>
agreement as to the amount to be expended by the Corporation for the use and
maintenance of such automobile.
Mr. Eitan is bound by his employment agreement to treat confidentially all
proprietary information learned by him during the course of his employment with
the Corporation for the term of the agreement and for three years thereafter.
Mr. Eitan has also agreed to refrain from competing, in any state of the United
States or in Israel, with the Corporation or any of its subsidiaries during the
term of the agreement and for a period of three years thereafter. He has also
agreed to refrain from soliciting the Corporation's employees or officers
following the termination of his employment.
The Corporation has also agreed to use its best efforts to have Mr. Eitan
elected as a member of the Board of Directors of the Corporation during the term
of his employment agreement.
George Calhoun serves as the President of the Corporation's Wireless
Communications Group pursuant to an employment agreement, dated June 9, 1992.
The term of such agreement extends to June 9, 1996. Mr. Calhoun is presently
paid a base salary at the rate of $175,000 per year, subject to annual
adjustments. Mr. Calhoun is entitled to receive all employee benefits offered to
senior executives and key management employees, including without limitation,
disability insurance, hospitalization insurance, major medical insurance,
medical reimbursement, survivor income, life insurance and any other benefit
plan or arrangement. Mr. Calhoun is entitled to be reimbursed for all
out-of-pocket expenses reasonably and necessarily incurred in the performance of
his duties. Mr. Calhoun also receives the use of an automobile and an allowance
to cover all expenses and maintenance costs attributed thereto, as well as the
cost of insuring such vehicle.
During 1994, the Corporation entered into one year employment agreements
with each of Yoram Bibring, John Egidio, William Opet and Andrew Siegel. The
term of each of these agreements is automatically extended for an additional
year unless the Corporation or the respective executive officer provides the
other sixty days' advance notice of its or his desire to terminate the
employment relationship. Pursuant to these agreements, the Corporation is
obligated to pay each of these executives a base salary at least equal to the
base salary such executive received during 1994. The actual compensation payable
to each of these executives shall be determined by the Compensation Committee.
These executives are also eligible to receive annual bonuses in amounts
determined by the Compensation Committee based upon such executive's performance
and the operating results and financial condition of the Corporation. In
addition, the executives are entitled to participate in all employee benefit
plans and arrangements which are generally available to the Corporation's
executive officers.
The Corporation may terminate the employment agreement with any of Messrs.
Bibring, Egidio, Opet or Siegel for "cause" (as defined in the respective
employment agreements) or in the event of the death or incapacity of such
executive. In the event the Corporation terminates Messrs. Bibring, Egidio, Opet
or Siegel for another reason, such executive will generally be entitled to six
months salary, in the case of Messrs. Bibring and Opet, or ninety days salary in
the case of Messrs. Egidio and Siegel. Upon certain "changes of control" (as
defined in the respective employment agreements) of the Corporation, each of
Messrs. Bibring and Siegel will be entitled to an amount equal to six times his
respective average monthly compensation for the twelve month period preceding
the change of control plus an amount sufficient to reimburse such officer for
tax liabilities incurred as a result of such change of control payments. In
addition, all stock options granted to Mr. Bibring, Mr. Siegel and Mr. Opet will
vest upon certain changes of control.
Directors.
Mr. Churchill is paid $50,000 per year for serving as Chairman of the Board
of Directors. All other directors receive only options as compensation for
acting as directors of the Corporation. During 1994, each director (including
Mr. Churchill) of the Corporation received 10,000 options with an exercise price
equal to the fair market value of the Corporation's Common Stock on the date of
grant. The grant of such options are subject to the approval of the
Corporation's stockholders at the Corporation's annual meeting scheduled for
June 22, 1995 of a proposed amendment to the Corporation's 1989 Stock Option
Plan to increase the number of shares of Common Stock issuable under such stock
-31-
<PAGE>
option plan. Employee directors do not receive any additional compensation for
serving as directors of the Corporation. Directors are reimbursed for expenses
related to their attendance at Board of Directors meetings. If the proposed
amendments to the Corporation's 1989 Stock Option Plan are approved at the
Annual Meeting, non-employee directors will receive 10,000 options per year for
serving as directors of the Corporation. All options granted to directors expire
ten years from the date of grant.
Compensation Committee Interlocks and Insider Participation.
Compensation decisions with respect to the Corporation's executive officers
are made by the Compensation Committee of the Board of Directors. Decisions with
respect to option grants to executive officers are made by the Rule 16b-3
Committee of the Board of Directors. The Compensation Committee consists of
Messrs. Auch, Churchill, Eitan and Griffin. Mr. Churchill is the Corporation's
Chairman and Mr. Eitan is the Corporation's President and Chief Executive
Officer. The Rule 16b-3 Committee consists of Messrs. Auch and Griffin.
In August 1991, the Board of Directors of the Corporation approved an
arrangement with Yaron Eitan in connection with the relocation of his permanent
residence from the Philadelphia, PA area (the former site of the Corporation's
headquarters) to the Ramsey, NJ area (the site of the Corporation's new
headquarters at that time), pursuant to which, among other things, Mr. Eitan
received a three year $25,000 loan from the Corporation. This loan accrued
interest at a rate of 8% and was repaid during 1994.
In October 1992, Yaron Eitan purchased from the Corporation 100,000 shares
of Common Stock and 100,000 warrants to purchase Common Stock, at an exercise
price of $3.10 per share, for an aggregate purchase price of $185,000. Of such
purchase price, $30,000 was paid in cash and the remainder was loaned by the
Corporation to Mr. Eitan at an interest rate of prime plus 1%, to be paid within
12 months of the date of purchase. The term of this loan has been extended to
October 1995. The outstanding balance of this loan (including accrued interest)
on December 31, 1994 was $180,654.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership (as determined in accordance with Rule 13d-3 promulgated under the
Exchange Act) of the Corporation's Common Stock, Series H Cumulative Preferred
Stock ("Series H Stock") and Series I Cumulative Preferred Stock ("Series I
Stock") as of April 25, 1995, for (a) directors and executive officers of the
Corporation, (b) all directors and executive officers of the Corporation, as a
group, and (c) each person who is known by the Corporation to own beneficially
5% or more of the Corporation's Common Stock. No director or executive officer
of the Corporation beneficially owns any of the Corporation's Series E Preferred
Stock or Series K Cumulative Preferred Stock. Except as otherwise noted, each
person listed below has sole voting and dispositive power with respect to the
shares of Common Stock listed next to such person's name.
-32-
<PAGE>
<TABLE>
<CAPTION>
Total
Number of Percentage Percentage Percentage
Shares of of Class of of Class of of Class of
Common Common Series H Series I
Directors, Nominees Series Series Stock Stock Stock Stock
and Executive Officers Common H I Beneficially Beneficially Beneficially Beneficially
- ---------------------- ------ - - Owned(1) Owned(2) Owned Owned
----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Walter E. Auch(3) 21,891 0 0 96,891 * 0 0
Yoram Bibring(4) 78,356 0 0 222,711 * 0 0
George Calhoun(5) 265,161 0 0 631,941 1.22% 0 0
Purnendu Chatterjee(6) 0 444,445 20 5,505,514 9.67% 100% 100%
Winston Churchill(7) 1,023,330 0 0 1,044,130 2.03% 0 0
John Egidio(8) 0 0 0 20,000 * 0 0
Yaron Eitan(9) 393,170 0 0 1,613,465 3.07% 0 0
Haynes G. Griffin(10) 2,800,000 0 0 12,810,000 20.86% 0 0
Oliver Hilsenrath(11) 10,000 0 0 44,678 * 0 0
Richard Krants(12) 474,873 0 0 522,373 1.02% 0 0
Richard T. Liebhaber 0 0 0 0 0% 0 0
Haim Rosen(13) 1,200,000 0 0 1,220,000 2.37% 0 0
Kevin W. Sharer(8) 0 0 0 10,000 * 0 0
Andrew Siegel(12) 400 0 0 47,900 * 0 0
William Spier(14) 696,353 0 0 716,353 1.39% 0 0
All directors and
executive 6,963,534 444,445 20 24,505,956 35.54% 100% 100%
officers as a group
(15 persons)(15)
Other Beneficial
Owners
S-C Rig Investments-III,
L.P.(16) 0 444,445 20 5,295,514 9.34% 100% 100%
Vanguard Cellular
Systems, Inc.(17) 2,800,000 0 0 12,800,000 20.85% 0% 0%
- ----------
</TABLE>
- ----------
*Less than 1%
(1) The Series H Stock is, under certain circumstances, convertible into
Common Stock by dividing (i) the sum of the $90.00 per share stated
value and any dividend arrearages by (ii) $9.00 per share (as adjusted
from time to time for certain events of dilution). As of April 25,
1995, each share of Series H Stock was convertible into ten shares of
Common Stock. The Series I Stock is, under certain circumstances,
convertible into Common Stock by dividing (x) the sum of $500,000 per
share stated value and any dividend arrearages by (y) $11.75 per share
(as adjusted from time to time for certain events of dilution). As of
April 25, 1995, the Series I Stock was convertible into 42,553 shares
of Common Stock. The number of shares indicated in each column refer
only to issued and outstanding shares of such class or series.
(2) The percentage column represents the percentage of Common Stock
beneficially owned, calculated in accordance with the Exchange Act,
whether presently issued and outstanding or reserved for issuance
pursuant to conversion or exercise of acquisition rights.
(3) Mr.Auch currently holds 75,000 options which are immediately
exercisable.
-33-
<PAGE>
(4) Mr. Bibring currently holds 94,999 options which are immediately
exercisable and warrants to acquire an additional 49,356 shares of
Common Stock.
(5) Mr. Calhoun currently holds warrants to acquire up to 346,780 shares of
Common Stock and 20,000 options which are immediately exercisable.
(6) Dr. Chatterjee is an affiliate of S-C Rig and, as such, may be deemed
to beneficially own those securities held by S-C Rig. S-C Rig is the
record owner of 444,445 shares of Series H Stock and 20 shares of
Series I Stock, convertible in accordance with the Certificate of
Designation for such series into 4,444,450 shares of Common Stock and
851,064 shares of Common Stock, respectively. Dr. Chatterjee is also
deemed to beneficially own options to purchase 200,000 shares held by
one of his affiliates, XTec International, Inc. Dr. Chatterjee also
holds 10,000 options which are immediately exercisable. Mr.
Chatterjee's address is 888 7th Avenue, Suite 3300, New York, New York
10106.
(7) Mr. Churchill is principal of CIP Capital Management, Inc., the general
partner of CIP Capital, L.P. ("CIP"), and, as such, may be deemed to
beneficially own those securities held by CIP. CIP is the record holder
of 636,836 shares of Common Stock and 10,800 options. Mr. Churchill
also holds 10,000 options which are immediately exercisable. Does not
include 155,134 shares of Common Stock held by a trust for the benefit
of Mr. Churchill's son of which shares Mr. Churchill disclaims
beneficial ownership.
(8) Consists of shares issuable upon options which are currently
exercisable.
(9) Mr. Eitan currently holds 905,000 options which are immediately
exercisable. He also holds other warrants to purchase an aggregate of
315,295 shares of Common Stock.
(10) Mr. Griffin is President of Vanguard and, as such, may be deemed to
beneficially own these securities held by Vanguard. Vanguard is the
record owner of the 2,800,000 shares of Common Stock indicated.
Vanguard also holds options to acquire up to an additional 10,000,000
shares of Common Stock. See Note (13) below and "Certain Relationships
and Related Transactions." Mr. Griffin also holds 10,000 options which
are immediately exercisable. Mr. Griffin's address is 2002 Pisgah
Church Road, Suite 300, Greensboro, North Carolina 27408.
(11) Mr. Hilsenrath currently holds 10,000 options which are immediately
exercisable and warrants to acquire an additional 24,678 shares of
Common Stock.
(12) Includes 47,500 options which are immediately exercisable.
(13) Mr. Rosen is Vice-President of Tadiran, Ltd. ("Tadiran") and, as such,
may be deemed to beneficially own those securities held by Tadiran.
Tadiran is the record owner of the 1,200,000 shares of Common Stock
indicated. Mr. Rosen also holds 20,000 options which are immediately
exercisable.
(14) Mr. Spier currently holds 20,000 options which are immediately
exercisable.
(15) Includes 17,542,422 shares of Common Stock issuable upon the conversion
of Series H Stock and Series I Stock and the exercise of currently
exercisable warrants and options.
(16) S-C Rig holds 444,445 shares of Series H Stock and 20 shares of Series
I Stock, convertible in accordance with the Certificate of Designation
of such series into 4,444,450 shares of Common Stock and 851,060 shares
of Common Stock, respectively.
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<PAGE>
(17) In addition to the shares of Common Stock indicated, Vanguard holds
options to acquire up to an additional 10,000,000 shares of Common
Stock. However, the Corporation and Vanguard have entered into an
agreement in principle pursuant to which Vanguard will purchase
531,462.5 shares of Series L Stock, with each share of Series L Stock
convertible into one share of Common Stock, and the number of shares of
Common Stock issuable upon exercise of options held by Vanguard will
decrease to 5,285,714 shares. See "Certain Relationships and Related
Transactions."
Item 13. Certain Relationships and related transactions
Set forth below is a description concerning transactions which may not
otherwise be described herein by and between the Corporation and/or its
affiliates and other persons or entities affiliated with the Corporation or its
affiliates. The Corporation is of the view that each of such transactions was on
terms no less favorable to the Corporation than would otherwise have been
available to the Corporation in transactions with unaffiliated third parties, if
available at all.
In February 1992, George Calhoun purchased from the Corporation 100,000
shares of Common Stock and 100,000 warrants to purchase Common Stock, at an
exercise price of $3.10 per share, for an aggregate purchase price of $185,000.
Of such purchase price, $35,000 was paid in cash and the remainder was loaned by
the Corporation to Mr. Calhoun at an interest rate of 7%. The largest amount of
indebtedness owed by Mr. Calhoun to the Corporation during 1994 pursuant to this
loan was $150,000. Mr. Calhoun repaid this loan in 1994.
On December 15, 1993, the Corporation sold 444,445 shares of Series H Stock
to S-C Rig, an entity affiliated with Messrs. George Soros and Purnendu
Chatterjee, a director of the Corporation, for an aggregate consideration of
$40,050,000. In connection with this transaction, the Corporation entered into a
consulting agreement with Valcoflex Management Co. an affiliate of S-C Rig
("Valcoflex"), pursuant to which Valcoflex will provide certain advisory
services for a fee of $25,000 per month. The agreement terminates on the earlier
to occur of December 15, 2000 and such date that S-C Rig or one of its
affiliates no longer beneficially owns 50% of the shares of the Common Stock
into which the Series H Stock converts (calculated on a fully diluted basis).
On January 27, 1994, pursuant to an Agreement and Plan of Merger (the
"Metro Net Agreement") with Metro Net Systems, Inc. ("Metro Net") and Metro
Net's shareholders dated December 9, 1993, the Corporation issued 3,112,500
shares of Common Stock to the shareholders of Metro Net upon the merger of Metro
Net into a newly formed wholly-owned subsidiary of the Corporation (the
"Merger"). Pursuant to the terms of the Metro Net Agreement, Richard Krants, the
President and Chief Executive Officer of Metro Net prior to the transaction, was
appointed to the Corporation's Board of Directors at the effective time of the
Merger. In connection with this transaction, the Corporation entered into a
consulting agreement with Mr. Krants pursuant to which he agreed to provide
consulting services related to the management and construction of the
Corporation's Specialized Mobile Radio networks in exchange for annual
consideration of $75,000 and an option to purchase 75,000 shares of Common Stock
at a price of $9.50 per share vesting over three years. This consulting
agreement is scheduled to terminate in December 1995.
On February 23, 1994, pursuant to a Stock Purchase Agreement (the "Purchase
Agreement") between the Corporation and Vanguard dated December 29, 1993, the
Corporation sold 2.5 million shares of Common Stock to Vanguard for a total of
$30 million. Vanguard was also granted the right to invest up to an additional
$167 million in a series of related non-transferable options (together, the
"Options") to purchase additional shares of Common Stock at prices ranging from
$15.00 to $18.00 per share over an approximately 48-month period following the
Initial Investment.
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<PAGE>
Pursuant to the Purchase Agreement, Vanguard nominated Haynes G. Griffin,
the President and Chief Executive Officer of Vanguard, to the Board of Directors
of the Corporation. In certain circumstances, Vanguard will have the right to
elect one or more additional directors.
Vanguard was granted certain registration rights with respect to the shares
of Common Stock which it purchased and the shares of Common Stock issuable upon
exercise of the Options. In addition, Vanguard was granted preemptive rights to
purchase any voting securities of the Corporation, at the same price and same
terms as the Corporation may offer to third parties, in an amount sufficient to
maintain Vanguard's percentage interest in the voting securities of the
Corporation on a fully diluted basis.
Vanguard has agreed not to acquire securities of the Corporation prior to
February 23, 1996 without approval of a majority of the Corporation's Board of
Directors if such acquisition would result in Vanguard holding in excess of
20.1% of the outstanding voting securities of the Corporation on a fully diluted
basis, provided, however, that Vanguard may acquire not more than an additional
5% of the outstanding voting securities of the Corporation on a fully diluted
basis without approval of the Corporation's Board of Directors if all unexpired
Options are out-of-themoney. Additionally, the Corporation shall have the right
of first offer, prior to February 23, 1998, on any proposed sale of the shares
of Common Stock held by Vanguard if such sale is in an amount equal to or
greater than 10% of the Corporation's outstanding Common Stock.
The Corporation also entered into a five-year management consulting
agreement with Vanguard, pursuant to which Vanguard provides operational and
marketing support to the Corporation for an aggregate of 1.5 million shares of
Common Stock. In February 1995, the Corporation issued 300,000 shares of Common
Stock to Vanguard pursuant to this agreement. Such agreement will terminate, and
the compensation paid thereunder shall cease, upon Vanguard's failure to
exercise any of the Options.
In April 1995, Vanguard agreed to purchase 531,462.5 shares of a newly
created series of the Corporation's preferred stock (the "Series L Stock") for
an aggregate purchase price of $5 million. This transaction was entered into at
the same time that Toronto Dominion Investments, Inc. ("TDI"), an entity not
affiliated with the Corporation or Vanguard, also agreed to purchase 531,462.5
shares of Series L Stock for the same purchase price. Each share of Series L
Stock will be convertible into one share of Common Stock. Each share of Series L
Stock also will entitle the holder thereof to certain voting rights, including
the right to vote on all matters voted on by holders of Common Stock as if such
Series L Stock had already been converted. The stated value of the Series L
Stock will be $9.408 per share, with a cumulative annual preferred dividend of
7.5% of the stated value thereof, payable quarterly through and including the
date in which the Series L Stock is no longer issued and outstanding. The
dividends may be paid in shares of Series L Stock.
The Corporation may, at its option, call the Series L Stock for mandatory
conversion into Common Stock at any time after the average closing price of the
Common Stock is greater than $14.11 (subject to certain adjustments for changes
in the number of shares outstanding) for any forty-five trading days within any
period of sixty trading days. The redemption price will be payable in cash or
shares of Common Stock at the Corporation's option.
The Corporation will also grant Vanguard certain registration rights with
respect to the shares of Common Stock issuable by the Corporation upon
conversion of the Series L Stock and any other shares of Common Stock acquired
by Vanguard. In addition, upon the occurrence of certain events of default, the
number of directors constituting the Board of Directors of the Corporation will
be automatically increased by two and the holders of the Series L Stock will
have the right to elect the two additional directors. Vanguard's purchase of the
Series L Stock is subject to certain conditions, including the negotiation and
execution of definitive agreements and Vanguard's completion of satisfactory due
diligence. Assuming the satisfaction of these conditions, the Company expects
Vanguard's purchase of the Series L Stock to occur on or about September 1, 1995
(the "Funding Date").
-36-
<PAGE>
In connection with Vanguard's purchase of the Series L Stock, the
Corporation agreed to modify the terms of the Options granted to Vanguard under
the Purchase Agreement. Pursuant to these modifications, the total number of
shares of Common Stock subject to the Options will be decreased from ten million
shares to seven million shares, with options to purchase two million shares of
Common Stock at $15.00 per share and $16.00 per share expiring on the first
anniversary of the Funding Date and options to purchase three million shares of
Common Stock at $17.00 per share expiring on the second anniversary of the
Funding Date. In the event any Options expire unexercised, all remaining Options
will automatically expire. In addition, Vanguard agreed to assign one-half of
the Options exercisable at $15.00 per share and one-seventh of each of the
Options exercisable at $16.00 and $17.00 per share to TDI. All of the Options
assigned to TDI will operate independent of the Options held by Vanguard.
In April 1994, the Corporation sold to S-C Rig, in a private placement, 20
shares of Series I Stock for an aggregate purchase price of $10 million. Each
share of Series I Stock is convertible into 42,553 shares of Common Stock. Each
share of Series I Stock also entitles the holder thereof to certain voting
rights, including the right to vote on all matters voted on by holders of Common
Stock as if such Series I Stock had already been converted. The stated value of
the Series I Stock is $500,000 per share, with a cumulative annual preferred
dividend of 7% of the stated value thereof, payable quarterly for a five-year
period.
The Corporation may, at its option, call the Series I Stock for mandatory
conversion into Common Stock at any time after the average closing price of the
Common Stock is greater than $17.63 (subject to certain adjustments for changes
in the number of shares outstanding) for any twenty trading days within any
period of thirty consecutive trading days. The redemption price is payable in
cash or shares of Common Stock at the Corporation's option.
Pursuant to the Stock Purchase Agreement, S-C Rig Group shall have certain
registration rights with respect to the shares of Common Stock issuable by the
Corporation upon conversion of the Series I Stock and any other shares of Common
Stock acquired by the Soros Group. In addition, upon the occurrence of certain
events of default, the number of directors constituting the Board of Directors
of the Corporation will be automatically increased by two and the holders of the
Series I Stock will have the right to elect the two additional directors.
During 1994, the Corporation entered into a consulting agreement with Kevin
Sharer, a director of the Corporation. Pursuant to this agreement, Mr. Sharer
provided and will continue to provide certain advisory services with respect to
the Corporation's marketing and distribution strategies and operations. In
exchange for these services, the Corporation granted Mr. Sharer options to
purchase 40,000 shares of the Corporation's Common Stock at $10.87 per share
(the market price of the Corporation's Common Stock on the date of grant), which
options vest over three years.
During 1994, the Corporation entered into a joint venture with XTEC
International, Inc. ("XTEC"), an affiliate of Purnendo Chatterjee, to pursue the
acquisition of trunked mobile radio licenses in India. The Corporation and XTEC
each own 50% of this joint venture. This joint venture terminates if no license
has been granted to the joint venture by June 30, 1995, unless the Corporation
and XTEC mutually agree to extend the term of the joint venture. The Corporation
issued XTEC options to purchase 200,000 shares of its Common Stock at a price of
$9.25 per share in connection with the formation of this joint venture. These
options are exercisable for a period of five years. In the event the joint
venture is granted a trunked mobile radio license in India, the Corporation will
grant XTEC a five year option to purchase an additional 250,000 shares of Common
Stock at a price of $9.25 per share.
All financial terms of the transactions described above resulted from
negotiations between the parties. All future transactions between the
Corporation and affiliates of the Corporation will be on terms intended to be no
less favorable to the Corporation than could have been realized in an
arm's-length transaction with unaffiliated parties and will be approved by a
majority of the disinterested directors.
-37-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GEOTEK COMMUNICATIONS, INC.
April 28, 1995 By: /s/ Yoram Bibring
-------------------------
Name: Yoram Bibring
Title: Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
-38-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
Reports of Independent Accounts
Consolidated Balance Sheets as of December 31, 1994 and December 31,
1993
Consolidated Statements of Operations for the years ended December 31,
1994, 1993 and 1992
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1993 and 1992
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
(b) Reports on Form 8-K
The following Current Reports on Form 8-K and Amendments to Current
Reports on Form 8-K/A were filed by the Company during the fourth
quarter of 1994.
Current Report, dated December 1, 1994, reporting (i) the issuance of
20 shares of Series I Preferred Stock, stated value $500,000 per
share, to S-C Rig Investments III, L.P., an investment partnership
affiliated with George Soros, which shares are convertible into shares
of common stock of the Company at $11.75 per share and bear dividends
at seven percent (7%) per annum, payable in cash or shares of common
stock, at the option of the Company for up to five (5) years; and (ii)
the announcement by the Company on December 21, 1994 that it had
successfully completed a test of its FHMA(TM) wireless digital voice
and data communications systems and that it had placed an order valued
at approximately $20 million for FHMA(TM) infrastructure equipment.
Amendment to Current Report, dated August 2, 1994 (amended as of
October 12, 1994) amending item 7 of the Current Report reporting the
acquisition of a 49.9% interest in DBF Bundelfunk GmbH for
approximately $8.5 million to file financial statements and pro forma
information in correction with the transaction.
(c) Exhibits
The following documents are filed as a part of this report. (Exhibit
numbers correspond to the exhibits required by Item 601 of Regulation
S-K for an Annual Report on Form 10-K).
Exhibit No.
- -----------
2.1 Stock Purchase Agreement, dated as of November 1, 1993, by and between
the Company and S-C Rig Investment-III, L.P.(1)
2.2 Stock Purchase Agreement, dated as of December 29, 1993, by and between
the Company and Vanguard Cellular Systems, Inc. and its affiliates
("Vanguard"), regarding the sale of up to an aggregate of 12.5 million
shares of the Company's Common Stock.(2)
39
<PAGE>
2.3 Notarial Deed and Share Purchase Agreement, dated May 26, 1994, by and
between Preussag Mobilfunk GmbH and Geotek Communications GmbH, a
wholly-owned subsidiary of the Company.(3)
2.4 Notarial Deed and Share Purchase Agreement, dated July 6, 1994, by and
between Quante A.G., on the one hand, and Geotek Communications GmbH and
Geotek Beteilingungs GmbH, wholly-owned subsidiaries of the Company, on
the other hand.(4)
4.1 Restated Certificate of Incorporation of the Company, as amended.(5)
4.2 Certificate of Designation of Series H Participating Cumulative
Convertible Preferred Stock.(2)
4.3 Certificate of Designation of Series I Participating Cumulative
Convertible Preferred Stock.(5)
4.5 1989 Employee Stock Option Plan, as amended, of the Company.(7)
*4.6 1994 Employee Stock Option Plan of the Company.
4.7 Certificate of Amendment of the Restated Certificate of Incorporation of
the Company filed February 26, 1993.(9)
4.8 Certificate of Amendment of the Restated Certificate of Incorporation of
the Company filed February 16, 1994.(3)
4.9 Note and Warrant Purchase Agreement, dated as of June 15, 1994, by and
among Geotek Communications, Inc., The SC Fundamental Value Fund, L.P.
and SC Fundamental Value BVI, Ltd.(10)
4.10 Pledge Agreement, dated as of June 15, 1994, by and among Geotek
Communications, Inc., Geotek Acquisition Corp., Geotek Subsidiary
Industries, Inc., Bogen Corporation, U.S.I. Venture Corp. and SC
Fundamental Inc., as agent for The SC Fundamental Value Fund, L.P. and
SC Fundamental Value BVI, Ltd.(10)
4.11 Senior Secured Note, dated June 20, 1994, from the Company in connection
with the Note and Warrant Purchase Agreement referenced in Exhibit 4.9
hereof.(10)
4.12 Senior Secured Note, dated June 20, 1994, from the Company in connection
with the Note and Warrant Purchase Agreement referenced in Exhibit 4.9
hereof.(10)
4.13 Warrant Certificate issued in connection with the Note and Warrant
Purchase Agreement referenced in Exhibit 4.9 hereof.(10)
4.14 Warrant Certificate issued in connection with the Note and Warrant
Purchase Agreement referenced in Exhibit 4.9 hereof.(10)
*4.15 Note and Warrant Purchase Agreement, dated as of March 20, 1995, by and
among the Company, The SC Fundamental Value Fund, L.P. and SC
Fundamental Value BVI, LTD.
*4.16 Pledge Agreement, dated as of March 30, 1995, by and among the Company,
certain of its subsidiaries and SC Fundamental Inc., as agent for and on
behalf of The SC Fundamental Value Fund, L.P. and SC Fundamental Value
BVI, LTD.
*4.17 Senior Secured Convertible Note, dated March 30, 1995, from the Company
in connection with the Note and Warrant Purchase Agreement referenced in
Exhibit 4.15.
*4.18 Senior Secured Convertible Note, dated March 30, 1995, from the Company
inconnection with the Note and Warrant Purchase Agreement referenced in
Exhibit 4.15.
*4.19 Warrant Certificate issued in connection with the Note and Warrant
Purchase Agreement referenced in Exhibit 4.15, dated March 30, 1995.
40
<PAGE>
*4.20 Warrant Certificate issued in connection with the Note and Warrant
Purchase Agreement referenced in Exhibit 4.15, dated March 30, 1995.
10.1 Stockholders Voting Agreement, dated as of February 23, 1994, among the
Company, Vanguard Cellular Systems, Inc., S-C Rig Investments III, L.P.,
Evergreen Canada-Israel Investment & Co., Ltd., Yaron Eitan and Winston
Churchill.(5)
*10.2 Asset Exchange Agreement, dated as of March 24, 1995, by and between the
Company, Metro Net Systems, Inc., Nextel Communications and certain
Nextel subsidiaries.
*23.1 Consent of Coopers &Lybrand L.L.P. -- Geotek Communications, Inc.
*23.2 Consent of Shachak & Co. -- PowerSpectrum Technology Ltd.
Consent of Shachak & Co. -- Oram Power Supplies (1990) Ltd.
Consent of Shachak & Co. -- Oram Electric Industries, Ltd.
- ---------------
* Filed herewith
(1) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K with respect to events whose earliest date was November 1,
1993.
(2) Incorporated by reference to the Exhibits to Amendment No. 1 to the
Company's Registration Statement on Form S-3 (Registration No. 33-72820)
filed with the Commission on January 25, 1994.
(3) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated July 5, 1994.
(4) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated August 2, 1994.
(5) Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
(7) Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-3 (Registration No. 33-72820) filed with the Commission
on December 10, 1993.
(9) Incorporated by reference to the Exhibits to Post-Effective Amendment No. 2
to the Company's Registration Statement on Form S-1 (Registration No.
33-42185) filed with the Commission on August 27, 1993.
(10) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated June 1, 1994.
41
<PAGE>
GEOTEK COMMUNICATIONS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C(1) Column C(2) Column D Column E
- -------- -------- ----------- ----------- -------- --------
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Other Deduction Period
- ----------- --------- ---------- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for
doubtful accounts $458 $ 287 242(a) $ 503
Reserve for inventory
obsolescence 99 1,195 1(b) 1,293
---- ------ ---- ------
$557 $1,482 $243 $1,796
==== ====== ==== ======
Year ended December 31, 1993:
Allowance for doubtful
accounts $ 69 $ 93 $296 $ 458
Reserve for inventory
obsolescence 45 15 39(c) 99
---- ------ ---- ------
$114 $ 108 $335 $ 557
==== ====== ==== ======
Year ended December 31, 1992:
Allowance for doubtful
accounts $157 $ 56 $ 63(d) $ 81(a) $ 69
Reserve for inventory
obsolescence 94 49 45
---- ------ ---- ---- ------
$251 $ 56 $ 63 $130 $ 114
==== ====== ==== ==== ======
</TABLE>
(a) Uncollectible accounts written off, net of recoveries.
(b) Write-off of obsolete inventory.
(c) Assumed through acquisition.
(d) Liability of deconsolidated and partially disposed entity.
42
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
May __, 1995 GEOTEK COMMUNICATIONS, INC.
By:/s/ Yoram Bibring
-----------------------------------
Yoram Bibring
Executive Vice President, Chief
Operating Officer and Chief
Financial Officer
43
<PAGE>
EXHIBIT INDEX
Exhibit No. Page
- ----------- ----
2.1 Stock Purchase Agreement, dated as of November 1, 1993, by and between
the Company and S-C Rig Investment-III, L.P.(1)
2.2 Stock Purchase Agreement, dated as of December 29, 1993, by and between
the Company and Vanguard Cellular Systems, Inc. and its affiliates
("Vanguard"), regarding the sale of up to an aggregate of 12.5 million
shares of the Company's Common Stock.(2)
2.3 Notarial Deed and Share Purchase Agreement, dated May 26, 1994, by and
between Preussag Mobilfunk GmbH and Geotek Communications GmbH, a
wholly-owned subsidiary of the Company.(3)
2.4 Notarial Deed and Share Purchase Agreement, dated July 6, 1994, by and
between Quante A.G., on the one hand, and Geotek Communications GmbH and
Geotek Beteilingungs GmbH, wholly- owned subsidiaries of the Company, on
the other hand.(4)
4.1 Restated Certificate of Incorporation of the Company, as amended.(5)
4.2 Certificate of Designation of Series H Participating Cumulative
Convertible Preferred Stock.(2)
4.3 Certificate of Designation of Series I Participating Cumulative
Convertible Preferred Stock.(5)
4.5 1989 Employee Stock Option Plan, as amended, of the Company.(7)
*4.6 1994 Employee Stock Option Plan of the Company.
4.7 Certificate of Amendment of the Restated Certificate of Incorporation of
the Company filed February 26, 1993.(9)
4.8 Certificate of Amendment of the Restated Certificate of Incorporation of
the Company filed February 16, 1994.(3)
4.9 Note and Warrant Purchase Agreement, dated as of June 15, 1994, by and
among Geotek Communications, Inc., The SC Fundamental Value Fund, L.P.
and SC Fundamental Value BVI, Ltd.(10)
4.10 Pledge Agreement, dated as of June 15, 1994, by and among Geotek
Communications, Inc., Geotek Acquisition Corp., Geotek Subsidiary
Industries, Inc., Bogen Corporation, U.S.I. Venture Corp. and SC
Fundamental Inc., as agent for The SC Fundamental Value Fund, L.P. and
SC Fundamental Value BVI, Ltd.(10)
4.11 Senior Secured Note, dated June 20, 1994, from the Company in connection
with the Note and Warrant Purchase Agreement referenced in Exhibit 4.9
hereof.(10)
4.12 Senior Secured Note, dated June 20, 1994, from the Company in connection
with the Note and Warrant Purchase Agreement referenced in Exhibit 4.9
hereof.(10)
4.13 Warrant Certificate issued in connection with the Note and Warrant
Purchase Agreement referenced in Exhibit 4.9 hereof.(10)
4.14 Warrant Certificate issued in connection with the Note and Warrant
Purchase Agreement referenced in Exhibit 4.9 hereof.(10)
44
<PAGE>
Exhibit No. Page
- ----------- ----
*4.15 Note and Warrant Purchase Agreement, dated as of March 20, 1995, by and
among the Company, The SC Fundamental Value Fund, L.P. and SC
Fundamental Value BVI, LTD.
*4.16 Pledge Agreement, dated as of March 30, 1995, by and among the Company,
certain of its subsidiaries and SC Fundamental Inc., as agent for and on
behalf of The SC Fundamental Value Fund, L.P. and SC Fundamental Value
BVI, LTD.
*4.17 Senior Secured Convertible Note, dated March 30, 1995, from the Company
in connection with the Note and Warrant Purchase Agreement referenced in
Exhibit 4.15.
*4.18 Senior Secured Convertible Note, dated March 30, 1995, from the Company
inconnection with the Note and Warrant Purchase Agreement referenced in
Exhibit 4.15.
*4.19 Warrant Certificate issued in connection with the Note and Warrant
Purchase Agreement referenced in Exhibit 4.15, dated March 30, 1995.
*4.20 Warrant Certificate issued in connection with the Note and Warrant
Purchase Agreement referenced in Exhibit 4.15, dated March 30, 1995.
10.1 Stockholders Voting Agreement, dated as of February 23, 1994, among the
Company, Vanguard Cellular Systems, Inc., S-C Rig Investments III, L.P.,
Evergreen Canada-Israel Investment & Co., Ltd., Yaron Eitan and Winston
Churchill.(5)
*10.2 Asset Exchange Agreement, dated as of March 24, 1995, by and between the
Company, Metro Net Systems, Inc., Nextel Communications and certain
Nextel subsidiaries.
*23.1 Consent of Coopers & Lybrand L.L.P. -- Geotek Communications, Inc.
*23.2 Consent of Shachak & Co. -- PowerSpectrum Technology Ltd.
Consent of Shachak & Co. -- Oram Power Supplies (1990) Ltd.
Consent of Shachak & Co. -- Oram Electric Industries, Ltd.
- ---------------
* Filed herewith
(1) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K with respect to events whose earliest date was November 1,
1993.
(2) Incorporated by reference to the Exhibits to Amendment No. 1 to the
Company's Registration Statement on Form S-3 (Registration No. 33-72820)
filed with the Commission on January 25, 1994.
(3) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated July 5, 1994.
(4) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated August 2, 1994.
45
<PAGE>
(5) Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
(7) Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-3 (Registration No. 33-72820) filed with the Commission
on December 10, 1993.
(9) Incorporated by reference to the Exhibits to Post-Effective Amendment No. 2
to the Company's Registration Statement on Form S-1 (Registration No.
33-42185) filed with the Commission on August 27, 1993.
(10) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated June 1, 1994.
46
<PAGE>
[Letterhead of Coopers & Lybrand]
REPORT OF INDEPENDENT ACCOUNTS
To the Board of Directors and Shareholders of Geotek Communications, Inc.:
We have audited the consolidated financial statements and the consolidated
financial statement schedule of Geotek Communications, Inc. and Subsidiaries as
listed in Item 14(a)(1) and (2) of this Form 10-K/A. These consolidated
financial statements and the consolidated financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the consolidated
financial statement schedule based on our audits. We did not audit the financial
statements of PowerSpectrum Technologies, Ltd., a consolidated research and
development joint venture, which statements reflect losses from continuing
operations of approximately 26%, 16% and 34% of the corresponding consolidated
totals in 1994, 1993 and 1992, respectively. We also did not audit the financial
statements of Oram Electric Industries Ltd. and Oram Power Supplies (1990) Ltd.,
consolidated subsidiaries at December 31, 1992, which statements reflect
approximately 18% of the consolidated net revenues in 1992. These statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for PowerSpectrum
Technologies, Ltd. For 1994, 1993 and 1992, and Oram Electric Industries Ltd.,
and Oram Power Supplies (1990) Ltd. For 1992, is based solely on the reports of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits, and
the reports of other auditors, provide a reasonable basis for our opinion.
During 1992, the Company had certain significant transactions with related
parties as more fully described in the notes to the consolidated financial
statements.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Geotek Communications,
Inc. and Subsidiaries as of December 31, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles. In addition, in our opinion, based on our audits and the reports of
other auditors, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
New York, New York
March 30, 1995
F-1
<PAGE>
[Letterhead of Shachak & Co.]
INDEPENDENT AUDITORS' REPORT
To the shareholders
of Powerspectrum Technology Ltd.
We have examined the Balance Sheet of Powerspectrum Technology Ltd. (hereinafter
the "Company") as of December 31, 1994 and the related Statement of Loss, the
Statement of Changes in Shareholders' Equity and the Statement of Cash Flows for
the year then ended. Our examination was made in accordance with generally
accepted auditing standards accepted in Israel, including those prescribed by
the Auditors Regulations (Auditor's Mode of Performance), 1973, and in the
United States of America, accordingly, we have applied such auditing procedures
as we deemed necessary under the circumstances.
The financial statements referred to above were prepared on the basis of the
historical cost convention, adjusted for changes in the general purchasing power
of the Israeli currency, as measured by the changes in the exchange rate of the
US Dollar to the Israeli Shekel, in accordance with the Statements of the
Institute of Certified Public Accountants in Israel. Condensed nominal financial
statements, on the basis of which the adjusted financial statements were
prepared are presented in Note 20.
In our opinion, the financial statements referred to above present fairly, in
accordance with generally accepted accounting principles in Israel, which are
not materially different from those in the United States of America, the
financial position of the Company as of December 31, 1994 and its results of
operations, and the changes in shareholders' equity and cash flow for the year
then ended.
Pursuant to Section 211 of the Companies Ordinance (New Version) 1983, we state
that we have obtained all the information and explanations we have required and
that our opinion on the above financial statements is given according to the
best of our information and the explanations received by us and as shown by the
books of the Company.
Without qualifying our opinion, we draw your attention to note 1b in reference
to the Company's being in the development stage, as mentioned in the note, the
Company's funds were derived from shareholders' investment and the Chief
Scientist participation. The continuation of the Company's development of the
system is conditioned upon further funding as described in the above-mentioned
note.
The US Dollar financial statements are a translation of the above financial
statements into US Dollars. In our opinion, the US Dollar financial statements
have been translated fairly, in accordance with the basis explained in Note 2A.
Shachak & Co.
Certified Public Accountants (Israel)
Tel-Aviv, February 14, 1995
F-2
<PAGE>
[Letterhead of Shachak & Co.]
AUDITORS' REPORT TO THE BOARD OF
DIRECTORS OF GEOTEK INDUSTRIES, INC.
We have examined the Balance Sheet of Powerspectrum Technology Ltd. (hereinafter
the "Company") as of December 31, 1993, and the related Statement of Loss, the
Statement of Changes in Shareholders' Equity, and the Statement of Cash Flows
for the fifteen month period then ended. Our examination was performed in
accordance with generally accepted auditing standards accepted in Israel,
including those prescribed by the Auditors Regulations (Auditor's Mode of
Performance), 1973, and in the United States of America, accordingly, we have
applied such auditing procedures as we deemed necessary under the circumstances.
The financial statements referred to above were prepared on the basis of the
historical cost convention, adjusted for changes in the general purchasing power
of the Israeli currency, as measured by changes in the exchange rate of the US
Dollar to the Israeli Shekel, in accordance with the Statements of the Institute
of Certified Pubic Accountants in Israel. Condensed nominal financial
statements, on the basis of which the adjusted financial statements were
prepared are presented in Note 2A.
In our opinion, the financial statements referred to above present fairly, in
accordance with generally accepted accounting principles in Israel, which are
not materially different from those in the United States, the financial position
of the Company as of December 31, 1993, and its results of operations, and the
changes in shareholders' equity and cash flow for the fifteen month period then
ended.
Pursuant to Section 211 of the Companies Ordinance (New Version) 1983, we state
that we have obtained all the information and explanations we have required and
that our opinion on the above financial statements is given according to the
best of our information and the explanations received by us and as shown by the
books of the Company.
The US Dollar financial statements are a translation of the above financial
statements into US Dollars. In our opinion, the US Dollar financial statements
have been translated fairly, in accordance with the basis explained in Note 2A.
Shachak & Co.
Certified Public Accounts (Israel)
Tel Aviv, February 27, 1994
F-3
<PAGE>
[Letterhead of Shachak & Co.]
INDEPENDENT AUDITORS' REPORT
TO: THE BOARD OF DIRECTORS OF
GEOTEK COMMUNICATIONS, INC.
We have examined the Balance Sheet of Powerspectrum Technology Ltd. (hereinafter
the "Company") as of September 30, 1992, and the related Income Statement, the
Statement of Changes in Shareholders' Equity, and the Statement of Cash Flows
for the three month period then ended. Our examination was performed in
accordance with generally accepted auditing standards accepted in Israel,
including those prescribed by the Auditors Regulations (Auditor's Mode of
Performance), 1973, and in the United States of America, accordingly, we have
applied such auditing procedures as we deemed necessary under the circumstances.
The financial statements referred to above were prepared on the basis of the
historical cost convention, adjusted for changes in the general purchasing power
of the Israeli currency, as measured by changes in the exchange rate of the US
Dollar to the Israeli Shekel, in accordance with the Statements of the Institute
of Certified Pubic Accountants in Israel. Condensed nominal financial
statements, on the basis of which the adjusted financial statements were
prepared are presented in Note 19.
In our opinion, the financial statements referred to above present fairly, in
accordance with generally accepted accounting principles in Israel, which are
not materially different from those in the United States, the financial position
of the Company as of September 301992, and its results of operations, and the
changes in shareholders' equity and cash flow for the three month period then
ended.
Pursuant to Section 211 of the Companies Ordinance (New Version) 1983, we state
that we have obtained all the information and explanations we have required and
that our opinion on the above financial statements is given according to the
best of our information and the explanations received by us and as shown by the
books of the Company.
The US Dollar financial statements are a translation of the above financial
statements into US Dollars. In our opinion, the US Dollar financial statements
have been translated fairly, in accordance with the basis explained in Note 2A.
Shachak & Co.
Certified Public Accounts (Israel)
Tel Aviv, January 17, 1993
F-4
<PAGE>
[Letterhead of Shachak & Co.]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
of Geotek Industries, Inc.
We have audited the Balance Sheet of "Oram" Power Supplies (1990) Ltd.--
(hereinafter the "Company") as of December 31, 1992 and 1991, and the related
Statements of Income, Changes in Shareholders' Equity and Cash Flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
accepted in Israel and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance as to 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of "Oram" Power Supplies (1990)
Ltd. As of December 31, 1992 and 1991, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Shachak & Co.
Certified Public Accountants (Isr.)
February 24, 1993
Tel Aviv, Israel
F-5
<PAGE>
[Letterhead of Shachak & Co.]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
of Geotek Industries, Inc.
We have audited the Balance Sheet of "Oram" Electric Industries Ltd.
(hereinafter the "Company") as of December 31, 1992 and 1991, and the Statements
of Income, Changes of Shareholders' Equity and Cash related Flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
accepted in Israel and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance as to 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of "Oram" Power Supplies (1990)
Ltd. As of December 31, 1992 and 1991, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Shachak & Co.
Certified Public Accountants (Isr.)
February 24, 1993
Tel Aviv, Israel
F-6
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
(Dollars in thousands, except per share data)
1994 1993
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 27,531 $ 51,686
Temporary investments 24,515 7,873
Accounts receivables trade, net of allowance
for doubtful accounts of $503 in 1994
and $458 in 1993 11,371 10,214
Inventories 8,667 6,468
Prepaid expenses and other assets 7,468 3,810
--------- ---------
Total current assets 79,552 80,051
Investments in affiliates 26,582 1,443
Property, plant and equipment, net 24,446 17,535
Intangible assets, net 46,099 29,741
Other assets 3,165 6,874
--------- ---------
$ 179,844 $ 135,644
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable -- trade $ 12,490 $ 8,441
Accrued expenses and other 12,315 8,744
Notes payable, banks and other 5,641 2,996
Current maturities, long-term debt 2,056 1,293
--------- ---------
Total current liabilities 32,502 21,474
--------- ---------
Long-term debt 29,396 3,961
Other non current liabilities 198 744
Minority interest 392 221
Redeemable preferred stock 40,000 40,000
Commitments and contingent liabilities
Shareholders' equity:
Preferred stocks, $.01 par value: 3
Common stock, $.01 par value:
Authorized 86,000,000 and 58,000,000
respectively; issued 50,869,000 and
45,989,000 shares respectively, outstanding
50,631,000 and 45,751,000
shares, respectively 509 460
Capital in excess of par value 186,651 137,151
Foreign currency translation adjustment 767 (204)
Accumulated deficit (109,185) (66,780)
Treasury stock, at cost (238,000 common shares) (1,386) (1,386)
--------- ---------
77,356 69,244
--------- ---------
$ 179,844 $ 135,644
========= =========
See notes to consolidated financial statements.
F-7
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net product sales $48,370 $37,501 $27,184
Service income 24,621 11,470 1,362
-------- -------- -------
Total revenues 72,991 48,971 28,546
-------- -------- -------
Costs and expenses:
Cost of goods sold 31,174 25,653 19,458
Cost of services 16,578 7,958 466
Research and development 19,477 10,570 2,225
Acquisition of minority interest of a subsidiary
assigned to a research and development project 32,430
Marketing 18,291 8,913 4,276
General and administrative 19,850 12,508 4,527
Interest expense 3,101 2,591 1,099
Interest and other income (3,206) (1,188) (475)
Amortization of intangibles 2,772 919 390
Equity in losses of investees 3,056 34
Other expenses (income) 3,472 479 (1,039)
-------- -------- -------
Total Costs and expenses 114,565 100,867 30,927
-------- -------- -------
Loss from continuing operations before taxes
on income and minority interest (41,574) (51,896) (2,381)
Taxes on income (660)
Minority interest ( 171) 1,455
-------- -------- -------
Loss from continuing operations (42,405) (50,441) (2,381)
Discontinued operations:
Income from operations 193
Gain on disposal 323 68
--------- -------- -------
323 261
--------- -------- -------
Loss before extraordinary item and
cumulative effect of accounting change (42,405) (50,118) (2,120)
Extraordinary item -- loss from early
extinguishment of debt (2,340)
Cumulative effect of change in fiscal
year of subsidiary (1,207)
-------- -------- -------
Net loss (42,405) (53,665) (2,120)
Preferred dividends (2,066) (246) (777)
-------- -------- -------
Net loss applicable to common stock $(44,471) $(53,911) $(2,897)
======== ======== =======
</TABLE>
F-8
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
for the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Weighted average number of common
shares outstanding 49,687,000 35,579,000 14,232,000
========== ========== ===========
Per common share:
Loss from continuing operations,
after preferred dividends $(0.90) $(1.43) $(0.21)
Discontinued operations:
Income from operations 0.01
Gain on disposal 0.01
------- ------ ------
Loss before extraordinary item and
cumulative effect of accounting change (0.90) (1.42) (0.20)
Extraordinary item -- loss from early
extinguishment of debt (0.07)
Cumulative effect of change in fiscal
year of subsidiary (0.03)
------ ------ ------
Net loss applicable to common shares $(0.90) $(1.52) $(0.20)
====== ===== ======
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
as of and for the years ended December 31, 1994, 1993 and 1992
(In Thousands)
<TABLE>
<CAPTION>
Foreign
Preferred Stock Common Stock Capital in Currency
--------------- ------- ------ Excess of Translation Accumulated Treasury
Shares Amount Shares Amount Par Value Adjustment Deficit Stock
------ ------ ------ ------ --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 2,230 $ 23 9,461 $ 95 $ 32,997 $(10,995) $ (6,768)
Issuance of common stock and warrants:
Unit offering, net of related costs 6,679 67 13,554
Acquisition of Bogen shares 181 2 351
Conversion of debt 757 7 959
Conversion of Series A,B,C & G
preferred stock (1,134) (12) 3,270 33
Conversion of Series F redeemable
preferred stock 560 6 630
Dividend on preferred 259 3 605
Exercise of warrants 564 6 770
Other 83 65
Accretion of Series F preferred (108)
Preferred dividend (669)
Sale of defense segment to Aryt (5,069)
Net loss (2,120)
------- ----- ------- ----- -------- --------- --------
Balance, January 1, 1993 1,096 $ 11 21,814 $ 219 $ 49,154 $ (13,115) $(11,837)
Issuance of common stock and warrants:
Unit offering, net of related costs 4,952 50 18,286
Exercise of warrants and options 13,343 133 36,674
Acquisition of Speech Design 552 5 3,137
Conversion of preferred stock (484) (5) 1,323 13 (8)
Other 92 1 269
Issuance of options in connection
with the acquisition of GMSI 303
Capital contributed to Metro Net 107
Issuance of warrants in connection
with note payable 3,708
Issuance of shares and options in
connection with the acquisition of
minority interest in PSI 5,113 51 37,589 (1,386)
Retirement of Treasury Stock (267) (3) (1,200) (12) (11,822) 11,837
Translation Adjustments (204)
Preferred dividends (246)
Net loss (53,665)
------- ------ ------- ----- --------- --------- --------- --------
345 $ 3 45,989 $ 460 $ 137,151 (204) $ (66,780) $ (1,386)
</TABLE>
F-10
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY, Continued
as of and for the years ended December 31, 1994, 1993 and 1992
(in Thousands)
<TABLE>
<CAPTION>
Foreign
Preferred Stock Common Stock Capital in Currency
--------------- ------ ------ Excess of Translation Accumulated Treasury
Shares Amount Shares Amount Par Value Adjustment Deficit Stock
------ ------ ------ ------ --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 345 $3 45,989 $460 $137,151 $(204) $(66,780) $(1,386)
Issuance of common stock and warrants:
Exercise of warrants and options 1,394 14 3,833
Conversion of Series A preferred
stock (345) (3) 345 3
Acquisition of minority interest in Bogen 233 2 3,439
Sale to Vanguard pursuant to
stock purchase agreement 2,500 25 29,225
Issuance of shares to Vanguard pursuant to
management consulting agreement 258 3 2,514
Acquisition of additional interest in GMSI 150 2 1,630
Issuance of warrants in connection with
note payable 925
Issuance of Series I Preferred Stock 10,000
Preferred dividends (2,066)
Changes in currency translation adjustment 971
Net Loss (42,405)
---- --- ------- ---- -------- ---- --------- --------
Balance, December 31, 1994 0 $0 50,869 $509 $186,651 $767 $(109,185) $(1,386)
==== === ======= ==== ======== ==== ========== ========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993* 1992
---- ----- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(42,405) $(53,665) $ (2,120)
Adjustments to reconcile net loss to net cash
used in operating activities:
Cumulative effect on prior year of changing
the fiscal year end of a subsidiary 1,207
Discontinued operations:
Income from operations (193)
Gain on disposal (323) (68)
Minority Interest 171 (1,455)
Depreciation and amortization 7,438 2,910 814
Post acquisition adjustment for
utilization of acquired
net operating loss carryforward 573
Gain on sale of marketable securities (1,039)
Non cash acquisition of minority interest
of a subsidiary, assigned to a research
and development project 32,430
Amortization of discount on senior
secured note payable 391 1,545
Equity in losses of investees 3,056 34
Loss on extinguishment, net of cash portion 2,163
Loss on sale of subsidiaries 479
Reserve for impairment of loan 3,500
Issuance of stock for management consulting fee 2,517
Changes in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable 876 (1,732) 481
Inventories (1,866) 1,083 (1,995)
Prepaid expenses and other assets (5,312) (2,971) (689)
Advances from Aryt 1,079
Accounts payable and accrued expenses 6,900 4,790 349
Other 84 (805) 12
------ ------ ------
Net cash used in operating activities (24,077) (14,310) (3,369)
====== ====== ======
Cash flows from investing activities:
Advances to PowerSpectrum
subsequent to October 1, 1992 (4,198)
Acquisition of licenses (12,963) (5,281)
Net increase in temporary investments (16,642) (7,872)
</TABLE>
- ---------
* Opening balance sheet adjusted to reflect cumulative effect of change in
fiscal year of subsidiary.
See notes to consolidated financial statements.
F-12
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
for the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993* 1992
---- ---- ----
<S> <C> <C> <C>
Proceeds from sale of subsidiaries shares 6,180 1,170
Proceeds from sale of marketable securities 1,100
Acquisitions of property and equipment (10,458) (2,279) (926)
Collection of notes receivable 37 828
Investment in intangibles (349)
Proceeds from sale of property and equipment 13
Cash invested in acquisition of subsidiaries, net (25,842) (27,903) (368)
Loan to Harris Adacom B.V. (3,500)
Other (59) (11)
-------- -------- --------
Net cash used in investing activities $(69,405) $(37,177) $ (2,741)
======== ======== ========
Cash flows from financing activities:
Net borrowings, (repayments) under
line-of-credit agreements $ 2,390 $ (268) $ (3,409)
Proceeds from debt and warrants 2,674 244
Repayments of debt (1,507) (14,035) (1,740)
Net proceeds from issuance of stock and debentures 18,715
Treasury stock acquired (60)
Proceeds from issuance of redeemable preferred stock 40,000
Proceeds from issuance of preferred stock 10,000
Deferred financing costs (1,200)
Proceeds from issuance of senior
secured note and related warrants 25,000 12,000
Investment by others in stock of subsidiary 2,124
Proceeds from issuance of stock and warrants
to Vanguard 29,250
Proceeds from issuances of common stock 13,621
Proceeds from issuance of options 303
Proceeds from exercise of warrants and options 3,848 36,807 770
Payment of preferred dividends (2,066) (246) (417)
Advances to employees and directors (300)
Other (289) 587 17
-------- ------- --------
Net cash provided by
financing activities 69,300 94,787 8,726
-------- ------- --------
Effect of exchange rate changes on cash 27 (277)
Increase (decrease) in cash and equivalents (24,155) 43,023 2,616
Increase in cash due to a change in the
fiscal year end of a subsidiary 5,638
Cash and equivalents, beginning of year 51,686 3,025 409
-------- -------- --------
Cash and equivalents, end of year $ 27,531 $ 51,686 $ 3,025
======== ======== ========
</TABLE>
- ---------
* Opening balance sheet adjusted to reflect cumulative effect of change in
fiscal year of subsidiary.
See notes to consolidated financial statements.
F-13
<PAGE>
GEOTEK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
for the years ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid $ 3,142 $ 822 $ 1,163
Supplemental schedule of noncash investing and financing activities:
Summary of acquired subsidiaries:
Fair value of assets acquired 4,217
Liabilities assumed 2,066 2,029
Disposition of investee 185
Stock issued 3,142 2,071
Issuance of common stock and warrants to acquire:
PowerSpectrum, Inc. minority 37,640
Additional interest in GMSI 1,631
Bogen, Inc. remaining minority interest 3,441
Issuance of shares to subsidiary 1,386
Conversion of Preferred Series A 1
Management consulting fee paid in common stock 2,517
Transfer of Jerico and Reshef to Aryt:
Acquisition of debt, debenture and accrued interest 3,425
Treasury stock acquired 10,363
Conversion of preferred stock and redeemable preferred stock 636
Stock for services and bonuses 50
Preferred dividend paid by issuance of common stock 608
Acquisition of technology rights by issuance of debenture 595
Conversion of related party debt into Preferred Series G stock
and common stock 816
Acquisition of Reshef shares 15
Stock issued in lieu of debt payment 150 150
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of Geotek Communications, Inc. ("the
Company") include all wholly-owned, majority-owned and controlled subsidiaries.
The Company accounts for 20%-50% owned entities by the equity method. All
significant intercompany accounts and transactions have been eliminated. Certain
amounts in the 1993 and 1992 financial statements and notes have been
reclassified to conform to the 1994 presentation.
Revenue Recognition
Commercial manufacturing product revenues, net of expected sales returns,
are recognized upon shipment. Revenues relating to contracts for the sale and
installation of wireless dispatch systems are recognized using the percentage of
completion method. Revenues for service income are recognized when services are
provided. Deferred revenues are recognized when the customer is billed in
advance and is recorded in income over the period to which the advance billing
relates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid debt instruments purchased with
a maturity of three months or less, and are considered to be cash equivalents
for cash flow reporting purposes.
Temporary Investments
The Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115")
as of January 1, 1994. In accordance with FAS 115, prior years' financial
statements have not been restated to reflect the change in accounting method.
There was no cumulative effect as a result of adopting FAS 115.
Management determines the appropriate classification of its investments in
debt and equity securities with a maturity of more than three months at the time
of purchase and reevaluates such determination at each balance sheet date. Debt
securities for which the Company has the positive intent and ability to hold to
maturity are classified as held to maturity securities and reported at amortized
cost. At December 31, 1994, the Company had no investment in equity securities
and no debt securities that qualified as trading or available for sale. At
December 31, 1993, debt securities were carried at amortized cost which
approximated market.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies: continued
Concentration of Credit Risk and Off-Balance-Sheet Risks
The Company provides mobile radio services to commercial customers in the
United States and the United Kingdom and designs, manufactures and distributes
electronic communications equipment for commercial customers, under contractual
arrangements. The Company performs ongoing credit evaluations of its commercial
customers and generally does not require collateral. The Company maintains
reserves for potential losses from these contractual arrangements. Credit risk
with respect to accounts receivable is limited due to the large number of
customers and their industry and geographic dispersion. The Company's Israeli
subsidiaries are prohibited from making certain payments, including loans, to
entities outside of Israel without the Bank of Israel's approval. The
subsidiaries are permitted, however, to distribute dividends, reimburse expenses
and make other specific payments.
Financial Instruments
Forward exchange contracts are entered into from time to time to offset the
effects of exchange rates on transactions denominated in foreign currencies.
Gains and losses on contracts designated as effective hedges of firm commitments
are deferred and included in income as part of those transactions. Gains and
losses on contracts used to hedge anticipated transactions are recorded to
income currently. See Note 15 for the fair value of these instruments. The
company is exposed to certain losses in the event of non-performance by the
counter-parties to these agreements. However, the Company's exposure is not
material.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Property, plant and
equipment acquired through acquisition are recorded at the fair value at the
date of acquisition. Depreciation and amortization are provided principally by
the straight-line method over the estimated useful lives of the related assets
which range between 3 to 10 years. Gains or losses arising from dispositions are
recorded in operations.
Intangible Assets
The excess of cost over the fair value of net assets acquired is amortized
on a straight-line basis over twenty to forty years. At each balance sheet date
management assesses whether there has been a permanent impairment in the value
of goodwill by comparing anticipated undiscounted future cash flows from
operating activities with the carrying value of goodwill. The factors considered
by management in performing this assessment include current operating results,
trends and prospects as well as the effects of obsolescence, demand, competition
and other economic factors. FCC and other private radio licenses are amortized
over twenty years.
Foreign Currency Translation
For international operations, assets and liabilities are translated at
year-end exchange rates and income statement items are translated at average
exchange rates for the period. Resulting translation adjustments are recorded as
a separate component of shareholders' equity.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies: continued
Research and Development
Research and Development expenditures are expensed as incurred. All
expenses relating to research and development ventures are recorded, net of
grants (see Note 12) as research and development expense.
Taxes on Income
Effective January 1, 1993 the Company implemented FAS No. 109, "Accounting
for Income Taxes". This pronouncement changed the method of accounting for
income taxes from the deferred method to the liability method, which includes a
requirement for adjustment of deferred tax balances for tax rate changes. Prior
to 1993 taxes on income were determined under Accounting Principles Board
Opinion No. 11, whereby the income tax provision is calculated under the
deferred method. The deferred method recognized income taxes on financial
statement income, and the tax effect of differences between financial income and
taxable income are deferred at tax rates in effect during the period.
Cumulative Effect on Prior Year of Changing Fiscal Year End of a Subsidiary
In 1993, the Company's PowerSpectrum, Inc. ("PSI") subsidiary changed its
fiscal year end from September 30 to December 31. This change was made in
anticipation of the merger, which occurred on July 30, 1993, of PSI into a
wholly owned subsidiary of the Company (See Note 2). The operating results of
PSI for the period October 1, 1992 to December 31, 1992 are included in the 1993
statement of operations as a cumulative effect on prior year of changing the
fiscal year end of a subsidiary.
Loss Per Common Share
Net loss per common share is computed by dividing the net loss, after
preferred dividend requirement, by the weighted average number of common shares
outstanding during the year. Common stock equivalents are excluded since the
effect would be anti-dilutive.
2. Acquired, Discontinued and Disposed Operations:
Wireless Networks in Germany
In the third quarter of 1994, in two separate transactions, the Company
acquired an approximate 49% interest in each of two SMR type networks in
Germany. On a combined basis, these networks provide services in eight of the
fourteen major metropolitan areas in Germany.
The Company acquired 49% of Preussag Bundelfunk GmbH ("PBG") in July 1994,
for approximately $14.0 million in cash. The Company does not have a controlling
interest in PBG and accounts for its investment under the equity method. Under
the terms of its investment, the Company has agreed to fund PBG and, after PBG's
existing capital is exhausted, will record 100% of PBG's losses as its share
under the equity method. Due to regulatory restrictions regarding the transfer
of mobile radio licenses, the Company cannot control PBG at this time. If, and
when, regulatory approval is obtained, the remaining 51% of PBG will be
transferred to the Company for no additional consideration and the Company will
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquired, Discontinued and Disposed Operations: continued
consolidate the results of PBG in its financial statements. The Company has
guaranteed the repayment of certain debt of PBG, due in 1999, to the seller,
Preussag Mobilefunk GmbH ("PMG"), of DM 3.5 million plus interest (approximately
$2.4 million). This guarantee has been secured by a letter of credit. The excess
of the purchase price over the Company's share of the fair value of the net
assets of PBG at the date of acquisition of $12.2 million has been accounted for
as goodwill and is being amortized over 20 years.
The Company acquired 49.9% of DBF Bundelfunk GmbH & Co. ("DBF") in August
1994 for approximately $5.3 million in cash. In addition, the Company and the
seller, Quante A.G., have each committed to contribute DM 5.0 million
(approximately $3.2 million), of which DM 3.0 million (approximately $1.8
million) has been contributed by the Company prior to December 31, 1994. The
Company and Quante were granted call and put options, respectively, for the
remaining 50.1% of DBF held by Quante. In March, 1995 Quante advised the Company
that it will exercise its option to sell its 50.1% interest in DBF to the
Company for DM 9.0 million (approximately $6.3 million) in cash. The transfer is
subject to approval of the German radio licensing authority which is expected
during 1995. The Company does not currently have a controlling interest in DBF
and accounts for its investment under the equity method. After the purchase of
the remaining 50.1% interest in DBF is consummated, the Company will consolidate
the results of DBF in its financial statements. The excess of the purchase price
over the Company's share of the fair value of the net assets of DBF at the date
of acquisition of $7.3 million has been accounted for as goodwill and is being
amortized over 20 years.
Other Acquisitions
In January 1994 the Company completed a tender offer, whereby its interest
in Bogen increased from 91% to 99% in exchange for 233,442 shares of the
Company's common stock. The shares have been valued at $3.4 million, which
amount has been recorded as additional goodwill. (See Note 18)
In February 1993, the Company acquired a 67% interest in Speech Design
GmbH, a Munich based developer, manufacturer and marketer of telephone
peripherals in exchange for $900,000 in cash and notes and 553,000 of the
Company's common shares. (See Note 18)
In May 1993, the Company acquired a 66% interest in GMSI (formerly known as
Gandalf Mobile Systems, Inc.) in consideration for Canadian $2.0 million and the
guarantee by the Company of Canadian $2.0 million in debt (due in 1998) to the
seller. In April 1994, upon the exercise by GTI of a put option granted at the
acquisition date, the Company acquired GTI's remaining 10% interest in GMSI in
consideration for 150,000 shares of the Company's common stock. The shares
issued in April 1994 have been valued at $1.6 million, which amount has been
recorded as additional goodwill.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquired, Discontinued and Disposed Operations: continued
In July 1993, the Company acquired all of the outstanding stock of National
Band Three Ltd. ("NBTL"), the only national provider of private mobile radio
services in Great Britain, for approximately $24.0 million in cash.
In July 1993, the Company acquired the 38% of its U.S. wireless subsidiary,
PSI, that it did not already own, through a merger of PSI into a wholly-owned
subsidiary of the Company (the "Merger"). Under the terms of the Merger
Agreement all outstanding shares of PSI common stock not then owned by the
Company and all options to acquire PSI common stock were converted into either
shares of or options to acquire the Company's common stock. All employment
related and other options to purchase PSI common stock (including those held by
certain members of Geotek management) were converted into options to purchase
shares of the Company's common stock. In connection with the Merger, the Company
issued approximately 5.1 million shares of common stock and options to acquire
an additional 2.0 million shares of the Company's common stock. In 1992 PSI
entered into a joint venture, PowerSpectrum Technologies, Ltd. ("PST") with an
Israeli government agency, Rafael Armament Development Authority ("Rafael"). PST
is developing the Company's digital wireless communications system based upon
the technology contributed to PST by Rafael. PSI holds a 56% interest in PST.
The excess of consideration paid over the fair value of the net assets acquired
in the merger, of $32.4 million has been attributed to the incomplete research
and development project and was charged to expense at the time of the Merger.
Each of the acquisitions has been accounted for using the purchase method
of accounting and, accordingly, the purchase price has been allocated to the
underlying assets and liabilities at their estimated fair values at the dates of
acquisition. The excess of the respective purchase prices over the fair value of
the net assets acquired has been recorded as goodwill for each of these
acquisitions. The results of operations are included from the respective dates
of acquisition.
Pro Forma Information
The following table summarizes the unaudited consolidated pro forma results
of operations, assuming the acquisitions had occurred at the beginning of each
of the periods as follows (in thousands):
1994 1993*
---- ----
Net sales $ 72,991 $ 58,190
Loss from continuing operations (46,313) (56,107)
Loss from continuing operations per share ($0.93) ($1.47)
- ---------------
* Includes non cash charge of $32.4 million related to PSI merger.
The unaudited pro forma results of operations are not necessarily
indicative of the actual results of operations that would have occurred had the
acquisitions been made at the beginning of the period, or of results which may
occur in the future.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquired, Discontinued and Disposed Operations: continued
Merger with Metro Net
In January 1994 the Company acquired, through a merger, all of the
outstanding stock of Metro Net Systems, Inc. ("MetroNet") in consideration for
the issuance of 3,112,500 common shares of the Company. The merger has been
accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements have been restated for all periods prior to
the acquisition to include the results of operations, financial position and
cash flows of Metro Net. The effect of the merger on the results of operations
in the period in which the pooling of interests occurred is immaterial. Metro
Net is a provider of wide area SMR services in the New York City area.
Disposal of Defense Segment
During the second quarter of 1992 the Company transferred its two defense
subsidiaries, Reshef Technologies, Ltd. and J.P. Mfg. Inc. to Aryt Industries,
Ltd. ("Aryt"), a partially owned subsidiary at that time, in exchange for cash
and certain securities of the Company that were owned by Aryt. In connection
with the exchange, the Company will receive up to $1.8 million (of which $1.3
million was advanced in 1992) of volume discounts on purchases from Aryt during
the three year period ending December 31, 1995. The advance, net of discounts
taken, has been recorded as deferred credits and $570,000 is included in accrued
expenses in the December 31, 1993 balance sheet. The December 31, 1994 balance
sheet includes $339,000 in other assets, representing discounts earned in excess
of the advance. Purchases from Aryt for the years ended December 31, 1994, 1993
and 1992 totaled $5.4 million, $3.5 million and $1.1 million, respectively.
During the third quarter of 1992 the Company reached an agreement in
principle to sell its investment in Aryt, representing its entire defense
segment, to Evergreen Canada-Israel Investment Co. Ltd. a related party. The
Company has accounted for the defense segment as a discontinued operation and
accordingly reclassified the 1992 financial statements. The transaction was
completed in June 1993 and resulted in total consideration of $5.4 million. In
1992, discontinued operations generated operating revenues of $13.2 million
operating income $499,000, related income taxes of $306,000 and net income from
operations of $193,000.
Other Dispositions
In September 1993 the Company sold its interest in Oram Electric
Industries, Ltd. and Oram Power Supplies Ltd. to a company in which a
then-current director of the Company was a principal shareholder. The Company
received $1.0 million in cash at the closing, which resulted in a gain of
$53,000. In December 1993 the Company sold substantially all of the assets of
Geopower, Inc., a wholly owned subsidiary, to an unaffiliated company for $1.1
million resulting in a loss of $522,000, including approximately $322,000
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquired, Discontinued and Disposed Operations: continued
attributable to the write off of intangibles. The results of operations of
these entities are included in the Company's financial statements through the
respective dates of sale. These companies were included in the Company's "other"
segment.
3. Temporary Investments:
Temporary Investments include $22.0 million of U.S. Government Agency
securities and $2.5 million of other debt obligations at December 31, 1994. The
amortized cost of marketable securities at December 31, 1994 approximates fair
market value. All marketable debt securities classified as held to maturity at
December 31, 1994 are due within one year. Temporary investments of $2.5 million
are pledged as collateral for a letter of credit.
4. Inventories:
Inventories as of December 31, 1994 and 1993 are as follows (in thousands):
1994 1993
------ ------
Raw materials $2,030 $1,798
Work-in-process 781 513
Finished goods 5,856 4,157
------ ------
$8,667 $6,468
====== ======
5. Investments in Affiliates:
During 1994 the Company acquired minority non-controlling equity interests
in two wireless networks in Germany as described in Note 2. As of December 31,
1994 the carrying values of these investments was $14.9 million and $7.2 million
in PBG and DBF, respectively.
In January 1994, the Company acquired a 49% interest in Protocall Ventures,
Inc. ("Protocall") for $3.8 million. Protocall owns minority interests in
licenses in Portugal, Spain, Germany & Romania. In the event Protocall is not
granted permanent licenses for certain temporary licenses (not included above)
it holds, a portion of the purchase price, currently held in escrow, will be
returned to the Company. The excess of the purchase price over the fair value of
the net assets of Protocall at the date of acquisition of $2.3 million has been
recorded as goodwill and is being amortized over 20 years. As of December 31,
1994 the carrying value of this investment was $3.2 million. As of December 31,
1993, the Company had placed $3 million in escrow pending completion of the
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Investments in Affiliates: continued
transaction, which amount is included in other assets. The Company is recording
its investment in Protocall on the equity basis.
Company is recording 100% of Protocall's losses as it funds 100% of PVL's
losses, primarily, through loans to Protocall.
The Company acquired, in August 1993, a 25% interest in Cumulous
Communications Company ("Cumulous") for aggregate consideration of $1.5 million.
Cumulus is a provider of SMR services in the San Joaquin Valley of California.
The Company's investment exceeds its share of the underlying net assets of
Cumulous by approximately $940,000 which amount is being amortized over 20
years. The carrying value of this investment as of December 31, 1994 and 1993
was $1.3 million and $1.4 million, respectively.
Summarized combined financial information for affiliated companies
accounted for under the equity method is shown below on a 100 percent basis (in
thousands).
Results of Operations for the year ended December 31, 1994:
Gross revenues $ 3,048
Loss from operations and net loss 5,203
Financial position as of December 31, 1994:
Current assets $ 3,564
Non current assets 15,333
Current liabilities 8,642
Non current liabilities 3,695
6. Property, Plant and Equipment (in thousands):
1994 1993
---- ----
Machinery and equipment $29,064 $19,140
Furniture and fixtures 1,891 1,164
Leasehold improvements 623 358
Construction in progress 719
------- -------
32,303 20,662
Less accumulated depreciation
and amortization 7,856 3,127
------- -------
$24,446 $17,535
======= =======
Depreciation expense was $4,666, $1,914 and $430 in 1994, 1993, and 1992,
respectively.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Intangible Assets (in thousands):
1994 1993
---- ----
Excess of cost over fair value
of net assets acquired $21,462 $16,091
FCC and other private mobile radio licenses
acquired and related intangibles 27,479 14,518
Other 753 753
------- -------
49,694 31,362
Less accumulated amortization 3,595 1,621
------- -------
$46,099 $29,741
======= =======
The increase in the excess of cost over fair value of net assets acquired
in 1994 is primarily attributable to the acquisitions of additional interests in
Bogen and GMSI. The increase in FCC and other private mobile radio licenses is
attributable to the cost of licenses acquired in the United States.
8. Notes Payable:
Notes payable consists of the following (in thousands):
1994 1993
----- -----
$10.0 million line of credit, bank
interest at prime plus 2.5% (a) $4,355
$4.5 million line of credit, bank,
interest at prime plus 3% (b) $2,564
Line of credit, bank (c) 728 432
Line of credit, bank (d) 558
------ ------
$5,641 $ 2,996
====== ======
Prime rate at December 31 8.50% 6.00%
- ---------
(a) This line of credit (which expires on August 10, 1995) is subject to
available collateral (primarily accounts receivable and inventory). The
assets of a subsidiary, with a book value of $13.8 million at December 31,
1994, are pledged as collateral for the line, which is also guaranteed by
the Company. As of December 31, 1994 the unutilized amount available under
the line was $269,000.
(b) This line of credit was terminated in February 1994. While in effect the
assets of a subsidiary were pledged as collateral and the Company had
guaranteed the line. It was replaced by the $10.0 million line discussed
above.
(c) The maximum amount available under this line of credit is $1.3 million
including amounts outstanding under the long term portion. Interest rates
vary between 6.5% and 9.5% depending on the length of time the funds will
be used. The assets of a subsidiary, with a book value of $4.5 million, are
pledged as collateral. As of December 31, 1994 the unutilized amount
available under this line of credit was $404,000.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Notes Payable: continued
(d) As of December 31, 1994 the line of credit was fully utilized. Interest on
the line is payable at a rate of 6.75%.
9. Long-Term Debt:
Long-term debt consists of the following (in thousands):
1994 1993
------- -------
Senior secured notes, due September 1995 (a) $24,177
Notes payable, due in various installments
through 1999, interest between 10% and 15% (b) 2,066
Convertible debenture, face value $4.0 million
imputed interest at 10%, due in 2012 (c) 755 $ 686
Debenture, interest at 5% due in quarterly payments,
payment of principal due March 31, 1998 1,427 1,453
Notes payable, interest at 7.5% due in quarterly payments
through December 31, 1995, payment of principal
due December 1995 850 850
Notes payable, other, due in various installments
through 1997, bearing interest at rates ranging
between 7.5% and 12% 1,510 1,280
Subordinated notes payable, interest at prime and 9%,
due in installments through 1996 667 985
------- -------
31,452 5,254
Less, current maturities 2,056 1,293
------- -------
$29,396 $ 3,961
======= =======
- ----------
(a) In June 1994, the Company issued senior secured notes, due September 1995,
in the aggregate principal amount of $25.0 million (the "Notes"), along
with detachable five-year warrants to purchase 300,000 shares of the
Company's common stock at an exercise price of $7.875 per share (the
"Warrants"). The aggregate net proceeds to the Company from the issuance
and sale of the Notes and Warrants was $24.5 million, of which, $925,000
has been allocated to the Warrants as well as recorded as a discount on the
Notes. The Notes bear interest at the rate of 14.0% per annum, payable
monthly until maturity. The Company has pledged its shares in, and/or
obtained joint and several guarantees of, certain of the Company's
subsidiaries, including PowerSpectrum Inc., National Band Three Limited,
Metro Net Systems Inc., and Bogen Corporation as collateral. Under the
terms of the Notes, the Company must maintain certain financial ratios,
needs permission of the holder of the Notes to enter certain transactions
and may be required to make prepayments under certain circumstances.
Certain penalties apply in the event the Replacement Notes are prepaid. The
proceeds were used to fund the Company's acquisitions in Germany (see Note
2). The Notes were originally due in September 1995 but were refinanced
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Long-Term Debt: continued
(See Note 18) in March 1995 and are presented herein and in the
accompanying financial statements as long-term debt based upon the terms
specified in the refinancing agreements.
(b) These notes were assumed in connection with the purchase of certain SMR
licenses in various cities in the US. Certain analog SMR equipment as well
as revenues generated by the systems is pledged as collateral for the
notes.
(c) This note is convertible into a 38% ownership interest of PST (See Note 2).
PST may demand conversion at any time after July 2, 1996, provided that PSI
has fulfilled its financial obligations to PST.
Minimum annual principal repayments of long-term debt during the next five
years and thereafter, are as follows:
Year In Thousands
---- ------------
1995 $ 2,056
1996 12,849
1997 12,123
1998 2,619
1999 1,050
Thereafter 755
-------
Total $31,452
=======
Extinguishment of Certain Debt
In July 1993, the Company issued a $12.0 million Senior Secured Note, (the
"Note") in connection with the acquisition of National Band Three Ltd. The Note
was due in July 1994 with an interest rate of prime plus 1%. In connection with
the issuance of the Note the Company also issued warrants to acquire 1.9 million
shares of the Company's common stock at $6.00 per share to the purchaser of the
Note. The value of the warrants was recorded as a discount on the Note and was
to be amortized over the life of the Note.
In December 1993, in separate but related transactions, the Note was
retired and the purchaser of the Note exercised its rights to purchase 2.1
million common shares under warrants issued in connection with the Note and
other warrants it held. In order to induce the purchaser to exercise its rights
in advance of the warrant expiration date, the Company reduced the exercise
price to an aggregate of $8.9 million which represents the present value of the
exercise prices of the various options if exercised just prior to expiration. At
closing, the Company paid $3.2 million of principal, which, combined with the
exercise price, repaid the Note in full. In connection with the early
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Long-Term Debt: continued
extinguishment of debt the Company recorded a pre-tax extraordinary loss of $2.3
million resulting primarily from the unamortized discount on the Note as of the
date of repayment.
The Company's debt agreements restrict dividend payments by the Company and
certain of its subsidiaries.
10. Pension and Severance Plans:
The Company and its subsidiaries provide defined contribution and other
severance plans for certain employees. One of its domestic subsidiaries
participates in multi-employer pension plans which cover all union employees.
The Company also maintains a 401(K) plan covering substantially all U.S. based
employees. Expenses under these plans totalled $319,000, $356,000 and $237,000
for the years ended December 31, 1994, 1993 and 1992, respectively.
11. Income Taxes:
Effective January 1, 1993, the Company adopted FAS No. 109, "Accounting for
Income Taxes". FAS No. 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The impact of adoption of this standard was immaterial.
Taxes on income in 1994 consists of taxes paid by a foreign subsidiary. The
amount presented includes $573,000 related to the 1994 utilization of
pre-acquisition net operating losses, which had a full valuation allowance
established at the time of acquisition by the Company and has been recorded in
1994 as a reduction to goodwill.
The Company has domestic net operating loss (NOL) carryforwards for tax
purposes of approximately $36.2 million and $16.5 million in 1994 and 1993,
respectively, which expire between the years 2001 through 2008. Additionally,
the Company has tax deferred balance sheet reserves of approximately $4.0
million in 1994. An effective tax rate reconciliation has not been provided as
the Company had no domestic tax provision for the years ended December 31, 1994,
1993 and 1992.
The Company has domestic deferred tax assets of $ 14.0 million and $5.9
million in 1994 and 1993, respectively, related to the NOLs. In accordance with
FAS No. 109, the Company has established a valuation allowance offsetting the
tax benefit of the NOL carryforwards as it is unlikely that the benefit will be
realized. The carryforwards are subject to certain limitations on their
utilization and limitations as a result of various changes in control which have
occurred.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Income Taxes: continued
The Company has not provided deferred U.S. income taxes on the
undistributed earnings of foreign subsidiaries which the Company intends to
permanently reinvest in their operations. The Company has foreign NOL
carryforwards for tax purposes of approximately $3.4 million in 1994. The
deferred tax asset related to those NOL carryforwards is approximately $1.5
million. The Company has established a valuation allowance offsetting the tax
benefit of the NOL carryforwards as it is unlikely that the benefit will be
realized.
12. Commitments and Contingent Liabilities:
Leases
The Company leases facilities under noncancellable operating leases, some
of which include escalation clauses. Future minimum rental commitments under
noncancellable operating leases are as follows:
Year In Thousands
---- ------------
1995 $ 6,552
1996 5,060
1997 4,795
1998 4,396
1999 1,699
Thereafter 1,581
-------
$24,083
=======
Rent expense was $6.4 million, $2.1 million and $0.8 million in 1994, 1993
and 1992, respectively.
Forward Transactions
In order to protect itself from losses which may arise from differences
between obligations to Rafael and other expected expenditures linked to a
foreign Consumer Price Index and dollar denominated assets, PST has entered into
a series of forward (hedging) transactions with a bank. As of December 31, 1994,
PST had a single contract outstanding in the amount of $600,000. In addition,
the Company uses forward exchange contracts to hedge against certain firm
commitments. As of December 31, 1994, other contracts with a value of $1.3
million were outstanding.
Government Participation in Research and Development Project
The Chief Scientist of the Israeli Ministry of Industry and Commerce (Chief
Scientist) has agreed to fund certain eligible expenditures related to the
development of the digital wireless communication system by PST. Funding
received from the Chief Scientist is repayable without interest only from
revenues generated by the product being developed. Through December 31, 1994
such participation amounted to $6.8 million and is reported in the statement of
operations as a reduction of research and development expenses.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Commitments and Contingent Liabilities: continued
Manufacturing Commitment
The Company has contracted with Mitsubishi Consumer Electronics of America
to manufacture Commercial Subscriber Units on behalf of the Company. An initial
order has been placed with a value of approximately $2.5 million.
Guarantees of Debt of Equity Investees
The Company has guaranteed the repayment of certain debt of PBG, due in
1999, to the former owner of PBG, in the amount of DM 3.5 million plus interest
(approximately $2.5 million). A letter of credit has been issued as collateral
for this obligation.
The Company has guaranteed an obligation of approximately $3.8 million of
DBF pursuant to an equipment leasing arrangement. The other shareholder of DBF
guarantees an equal amount under this arrangement.
FCC Waiver
The Company has applied for and received a waiver by the FCC to construct
and activate certain systems it has acquired. In the event the Company fails to
construct or activate such systems in accordance with the dates set forth in the
waiver, the Company could lose the waiver and lose all of the frequencies
covered by such waiver to the extent the systems have not been constructed or
activated.
Litigation
In June 1994 the Company filed a lawsuit against Harris Adacom Corporation
B.V. ("Harris"), a Dutch corporation, to enforce its rights under a loan
agreement between the parties. The Company is seeking repayment of a $3.5
million loan made to Harris in January 1994 in connection with a potential
purchase transaction between the Company and Adacom Technologies Ltd. ("ATL"),
an affiliate of Harris and an Israeli publicly traded company. The loan was
collateralized by stock owned by Harris in ATL. At the time of the loan, the
collateral had a market value in excess of $10 million and the total market
value of ATL was in excess of $100 million. The purchase transaction was not
consummated. In May 1994 the market value of ATL dropped dramatically and ATL
became insolvent, thereby reducing the value of the collateral to practically
zero. At or about the same time, creditors placed Harris into bankruptcy
proceedings in the Netherlands. The Company subsequently received limited
information relating to the recoverability of the loan, and Management does not
expect to recover the loan. The Company is aggressively pursuing its rights
under the loan in Dutch bankruptcy court and is awaiting additional information
on the assets and creditors of Harris. Based upon the information currently
available, it cannot be determined the amount, if any, that will ultimately be
recovered; therefore, the Company has established a reserve against the full
amount of the loan. Accordingly, the 1994 statement of operations includes, in
other expenses, a charge of $3.5 million to establish this reserve.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Commitments and Contingent Liabilities: continued
In response to the Company's lawsuit, Harris and its subsidiaries filed a
lawsuit against the Company in the courts of the State of Israel, requesting a
declaratory judgment that the Company entered into a binding agreement for the
purchase by the Company of a significant interest in certain wireless
communication business assets owned by ATL and subsequently breached such
agreement. The plaintiffs in such action have stated an intention to file a
separate claim for monetary damages and have estimated their losses to be
several million dollars. The Company believes none of plaintiffs' claims in such
action have any merit and are only an attempt to delay efforts to collect
Harris's debt to the Company. The Company intends to defend such action
vigorously.
The Company is subject to various legal proceedings arising in the ordinary
course of business. In the opinion of management, all such matters are without
merit or are of such kind, or involve such amounts, as would not have a
significant adverse effect on the financial position results of operations or
cash flows of the Company, if disposed of unfavorably.
13. Redeemable Preferred Stock:
In December 1993 the Company issued through a private placement, 444,445
shares of Series H Cumulative Redeemable Convertible Preferred Stock at a price
of $90 per share. The shares bear a dividend for five years, at a rate of five
percent per year, payable quarterly. The shares are redeemable, at stated value,
on October 31, 2000 only if the Company's common stock has not closed at an
average price of $18 for any 20 consecutive trading days after the third
anniversary of the date of issuance of the preferred shares. In the event that
the shares are redeemed, the Company may elect to pay the redemption price in
shares of its common stock, provided that the common shares will have an
aggregate market value equal to 150% of the redemption value of the Series H
shares being redeemed. The shares are convertible into common shares at any time
at a ratio (adjusted for splits) of ten common shares for each preferred share.
The holders of the Series H shares are entitled to vote on all matters voted on
by common shareholders as if the Series H shares were converted to common stock.
The Company has paid dividends of $2.0 million and $0.1 million, respectively,
for the years ended December 31, 1994 and 1993.
14. Shareholders' Equity:
Preferred Stock
At December 31, 1994, there were 15 shares of Series E Preferred Stock and
20 shares of Series I Preferred Stock issued and outstanding. At December 31,
1993, there were 345,000 of Series A Preferred Stock and 30 shares of Series E
Preferred Stock issued and outstanding. In February 1994 all of the Series A
Preferred shares then outstanding were converted into an equal number of common
shares.
In December 1994, the Company executed two separate agreements to issue a
total of 40 shares of Series I Convertible Preferred Stock at a price of
$500,000 per share or total consideration of $20.0 million. The Soros Group
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Shareholder's Equity: continued
(currently holders of 100% of the Company's Series H Cumulative Convertible
Preferred Stock) has agreed to purchase 20 shares, and the Company's partner in
a joint venture attempting to secure a license to provide wireless services in
Korea has agreed to purchase 20 shares. The shares bear a dividend, payable
quarterly in either cash or common shares, for five years at a rate of 7% per
annum and carry a conversion premium. The Company has the option to retire the
shares, in either cash or common shares if the price of the Company's common
stock exceeds 150% of the conversion price for any 20 days within a period of 30
consecutive days. The purchase by the Soros Group was consummated in December
1994, in the amount of $10.0 million, while the closing of the other transaction
is subject to certain regulatory approvals which are yet to be received.
The Series E Preferred Shares were issued to collateralize principal
payments required by certain subordinated debt of which $150,000 was outstanding
as of December 31, 1994 and each share is convertible into common shares with a
market value of $10,000 based upon market price prior to conversion. Holders of
Series E shares are entitled to vote only on matters affecting the Company's
preferred stock.
During 1993, 484,000 Series A and 42 Series G shares were converted into
1,323,000 common shares. During 1992 all of Series B and C, 50,000 Series A and
twenty-one Series G shares were converted into 3,270,000 common shares.
The Company's outstanding preferred shares earn cumulative annual dividends
as follows: Series A (converted into common shares in 1994), $0.25 per share;
Series B (converted into common shares in 1992), $0.50 per share; Series C
(converted into common shares in 1992), $1.00 per share; Series G (converted
into common shares in 1993 and 1992), $2,500 per share. The Series D preferred
shares reacquired by the Company in 1992 were cancelled in 1993.
Common Stock
In February 1994 the Company sold 2.5 million shares of common stock to
Vanguard Cellular Systems Inc. ("Vanguard") for a total of $30 million (before
expenses of $750,000). See below for a description of the options issued to
Vanguard. (Also see Note 16.)
In April 1993 the Company completed a private placement, commenced in
December 1992, of approximately 1 million units consisting of three shares of
common stock and one two year warrant to purchase an additional share of common
stock at an exercise price of $4.98. Net proceeds from the offering amounted to
approximately $9.5 million, of which $5.4 million was received prior to December
31, 1992. In addition, the Company issued to the selling agent a two year
warrant to acquire 180,723 shares of common stock at an exercise price of $3.32.
In January 1993, the Company completed a private placement of 408,640
units, each consisting of nine common shares and three separate warrants to
purchase one common share at an exercise price of $4.8125, expiring 18 months,
30 months and 42 months from issuance, respectively. Each unit was sold in
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Shareholder's Equity: continued
consideration for $37.6876. Net proceeds to the Company amounted to
approximately $14.4 million.
In order to finance a portion of the acquisition of National Band Three,
the Company requested in June 1993 that warrant and option holders immediately
exercise their right to purchase the Company's common stock. To induce the
warrant and option holders to exercise early, the Company offered discounts from
the original exercise price. The amount of the discount varied depending upon
the expiration date of the warrant or option. The Company issued approximately
9,200,000 shares in connection with the exercise of options and warrants under
this program. Net proceeds were approximately $23 million.
Included in the 5.1 million common shares issued in connection with the PSI
Merger (Note 2) were approximately 424,000 shares issued to PST in exchange for
the PSI shares then owned by PST. The number of shares issued was determined
using the same ratio as for other PSI shareholders. The Company has recorded the
value of its ultimate ownership interest in these shares as treasury stock.
In 1993 the Company cancelled the 1.2 million shares that were held in
treasury at December 31, 1992.
Warrants and Options
A summary of the warrants and options activity during the years ended
December 31, 1994, 1993 and 1992 is as follows (shares in thousands):
<TABLE>
<CAPTION>
1994
- ----
Exercise
Outstanding Outstanding Price
Name January 1 Granted Exercised Cancelled December 31 Per Share
---- ------- ------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee/Director Plan 1,564 1,174 (240) (33) 2,465 $1.00-$16.00
Loan warrants and options 130 300 (49) 381 $1.25-$ 7.88
PSI Merger 1,056 (83) 973 $0.61-$ 5.06
Vanguard Options 10,000 10,000 $15.00-$18.00
Private Placements 1,026 (959) 67 $3.10-$ 4.98
Other warrants and options 1,208 220 (63) 1,365 $1.00-$6.00
------ ------- ------ ------- -------
Total outstanding 4,984 11,694 (1,394) (33) 15,251
====== ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1993
- ----
Exercise
Outstanding Exercised Exercised Outstanding Price
Name January 1 Granted Full Price Discount December 31 Per Share
---- ------- ------- ------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee / Director Plan 1,223 737 (136) (260) 1,564 $1.00-$8.50
Loan warrants and options 710 1,900 (330) (2,050) 130 $1.25-$6.00
Preferred stocks 915 (60) (855) $1.00-$1.65
PSI merger 2,056 (1,000) 1,056 $0.61-$5.06
Private Placements 6,730 1,938 (323) (7,311) 1,026 $3.10-$4.98
Debt Conversion 305 (198) (107) $1.00-$2.50
Other warrants and options 1,718 213 (148) (565) 1,208 $0.18-$6.00
------ ------- ------ ------- -------
Tota1 outstanding 11,601 6,844 (2,195) (11,148) 4,984
====== ======= ====== ======= =======
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Shareholder's Equity: continued
<TABLE>
<CAPTION>
1992
- ----
Exercise
Outstanding Outstanding Price
Name January 1 Granted Exercised Cancelled December 31 Per Share
---- ------- ------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee / Director Plan 1,025 320 (63) (59) 1,223 $1.00-$2.25
Loan warrants and options 620 140 (50) 710 $1.25-$2.00
Preferred stocks 1,155 (240) 915 $1.00-$1.65
Private Placements 6,766 (36) 6,730 $3.10-$4.98
Debt Conversion 465 (160) 305 $1.00-$2.50
Other warrants and options 561 1,190 (15) (18) 1,718 $0.18-$4.25
------ ------- ------ ------- -------
Total Outstanding 3,361 8,881 (564) (77) 11,601
====== ======= ====== ======= =======
</TABLE>
All options are vested upon issuance except those issued pursuant to the
Employee / Director plan which are described below. The presentation of 1993
activity includes the cancellation of 100,000 loan warrants and options, 8,000
private placement options and 10,000 other warrants and options.
Employee/Director Stock Option Plan
The Company has a non-qualified stock option plan (the "Plan") which
permits the granting to employees and directors of options to purchase up to
2.75 million shares at not less than fair market value on the date of grant. The
options generally vest over three years and expire 10 years from the date
granted. Of the options granted pursuant to this plan, options to purchase 1.2
million shares and 0.8 million shares, respectively, were vested as of December
31, 1994 and 1993.
Vanguard Options
Pursuant to the stock purchase agreement, Vanguard was also granted the
right to invest up to an additional $167.0 million in a series of related
non-transferable options ("Vanguard Options") to purchase up to 10 million
additional shares of common stock. The Vanguard Options provide that in the
event any of the Vanguard Options expire without exercise, the remaining
Vanguard Options terminate immediately. Vanguard has agreed, for a period of
three years after the initial purchase, not to acquire securities of the Company
if such acquisition would result in Vanguard holding in excess of 20.1% of the
outstanding voting securities of the Company on a fully diluted basis, provided,
however, that Vanguard may acquire not more than an additional 5% if all
unexpired Vanguard Options are out-of-the-money.
Other Warrants and Options
In exchange for services rendered, the Company granted options to purchase
213,000 and 1.2 million shares of common stock during 1993 and 1992,
respectively. The exercise prices on these option range between $1.00 and $6.00
per share and the options expire five years from date of grant. In 1992, the
Company granted warrants to acquire 464,800 shares of common stock at exercise
prices varying from $1.50 to $1.625 in connection with a conversion of a loan
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Shareholder's Equity; continued
from a related party and also granted warrants and options to acquire
1,190,000 shares of common stock at exercise prices varying between $1.50 to
$4.25 per share in exchange for services.
15. Fair Value of Financial Instruments
The recorded amount of cash, cash equivalents, temporary investments and
notes payable banks and other, approximates fair value due to the short term
maturities of these assets and liabilities.
Investments in affiliates are accounted for by the equity method and
pertain to several equity investments in privately held companies for which fair
values are not readily available, but are believed to be at least equal to
carrying amounts.
The fair values (estimated by discounting the cash flows based on currently
available market information) of the Company's long term debt (including current
portion) were $29,948 and $4,729 at December 31, 1994 and 1993, respectively.
The contract prices of the Company's forward contracts approximate fair market
value as of December 31, 1994.
16. Certain Related Party Transactions:
In connection with the issuance of common shares and options to Vanguard in
February 1994, the Company entered into a five-year management consulting
agreement with Vanguard, pursuant to which Vanguard will provide operational and
marketing support to the Company for an aggregate of 1.5 million shares of
common stock. Such management consulting agreement will terminate upon
Vanguard's failure to exercise any of the Vanguard Options. For the period ended
December 31, 1994, Vanguard earned approximately 258,000 shares pursuant to this
agreement, which has been recorded at approximately $2.5 million and is included
in marketing expenses.
In 1994, the Company incurred expenses of $300,000 pursuant to its
consulting agreement with the Soros Group, who are the holders of the Company's
Series H redeemable Preferred Shares and 20 shares of the Series I Preferred
Shares.
PST has entered into a subcontractor agreement with Rafael under which
Rafael will be paid approximately $14 million in connection with the development
of the digital wireless communications system to be deployed by the Company in
the US. Research and development expense for the years ended December 31, 1994,
1993 and 1992 includes approximately $11.1 million, $7.0 million and $708,000,
respectively, for research performed by Rafael under this agreement. PST has
also entered into agreements with Rafael under which Rafael will manufacture the
infrastructure equipment to be used by PSI in its US network. Through December
31, 1994 the Company had placed firm orders for equipment and engineering
totaling $12.8 million and had made an advance payment (recorded in other
current assets) of $2.1 million to Rafael under these orders during the year
ended December 31, 1994.
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Segment Information:
The Company's operations have been classified into three business segments:
wireless communications, communications products and other. The wireless
communications group is engaged in the development of a digital wireless
communication system, preparation for the commercial rollout of its wireless
communications network in the United States, principally through its PSI and PST
subsidiaries, provision of mobile radio services in the United States (PSI and
MetroNet), the United Kingdom (NBTL), Germany (PBG and DBF) and the development
of certain mobile data applications (GMSI). The development of a digital
wireless communication system is primarily taking place in Israel. GMSI is
located in Canada and markets its products in Canada, the United States and the
United Kingdom. The activities in Germany are conducted through equity
investees.
The communications products group is engaged in the development,
manufacturing and marketing of telephone and facsimile peripheral products and
commercial audio and paging equipment in the United States (Bogen) and Munich
Germany (Speech Design). (See Note 18) The other segment primarily consists of
subsidiaries engaged in the manufacturing and marketing of customized
transformers and power supplies and other diversified operations. The Company
disposed of its transformer and power supply operations in 1993.
Sales between geographic areas and industry segments are not material.
Information about the Company's continuing segments in 1994, 1993 and 1992
follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Communications products $ 46,075 $ 30,060 $ 19,501
Wireless communications 25,668 12,338 1,362
Other 1,248 6,573 7,683
--------- --------- ---------
$ 72,991 $ 48,971 $ 28,546
========= ========= =========
Operating income (loss):
Communications products $ 45 $ 296 $ (62)
Wireless communications (37,225) (45,584) (1,182)
Other (1,348) (1,542) (760)
Interest and other income (expense), net 105 (1,403) 415
Corporate (3,982) (2,208) (792)
--------- --------- ---------
Loss from continuing operations $ (42,405) $ (50,441) $ (2,381)
========= ========= =========
</TABLE>
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Segment Information: continued
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Identifiable assets:
Communications products $ 35,663 $ 28,642 $ 24,180
Wireless communications 95,222 52,824 $ 2,873
Other 936 509 5,755
Corporate and other assets 48,023 53,669 6,558
--------- --------- ---------
$ 179,844 $ 135,644 $ 39,366
========= ========= =========
Depreciation and amortization:
Communications products $ 1,190 $ 956 $ 492
Wireless communications 6,032 1,792 5
Other 24 127 305
Corporate 192 35 12
--------- --------- ---------
$ 7,438 $ 2,910 $ 814
========= ========= =========
Capital expenditures -- property and equipment:
Communications products $ 939 $ 1,042 $ 412
Wireless communications 9,386 17,135 169
Other 66 41 327
Corporate 67 8 18
--------- --------- ---------
$ 10,458 $ 18,226 $ 926
========= ========= =========
Capital expenditures -- intangibles:
Communications products $ 3,548 $ 3,840 $ 178
Wireless communications 14,785 15,766 944
--------- --------- ---------
$ 18,333 $ 19,606 $ 1,122
========= ========= =========
Geographic Segments:
Revenues:
United States $ 41,591 $ 30,616 $ 23,577
Foreign 31,400 18,355 4,969
--------- --------- ---------
$ 72,991 $ 48,971 $ 28,546
========= ========= =========
Operating income (loss):
United States $ (22,624) $ (37,860) $ (1,114)
Foreign (15,904) (8,970) (890)
Interest and other income (expense), net 105 (1,403) 415
Corporate (3,982) (2,208) (792)
--------- --------- ---------
Loss from continuing operations $ (42,405) $ (50,441) $ (2,381)
========= ========= =========
</TABLE>
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Segment Information: continued
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Identifiable assets:
United States $ 51,511 $ 38,765 $ 27,481
Foreign 80,310 43,210 5,327
Corporate and other 48,023 53,669 6,558
--------- --------- ---------
$ 179,844 $ 135,644 $ 39,366
========= ========= =========
</TABLE>
18. Subsequent Events:
In January 1995, the Company signed an agreement in principle to acquire
900 MHz radio channels in seven major US markets from Nextel Communications in
exchange for the assets and customers obtained by the Company in its merger with
MetroNet Systems, Inc. Completion of the transaction is subject to regulatory
approvals. The exchange will be accounted for as a non-monetary transaction and
no gain or loss will be recognized thereon.
In March 1995, the Company reached agreement to transfer its interest in
Speech Design GmbH and Bogen Communications, Inc. to European Gateway
Acquisition Corporation ("EGAC") in exchange for $10 million in cash and
approximately 51%-55% of EGAC's common shares. Geotek will also be eligible to
receive a performance payment of up to $17 million (assuming it retains a 55%
interest in EGAC) based on the future earnings of both companies through July
1997. The transaction is subject to, among other things, execution of a
definitive agreement, regulatory approvals, if any, and European Gateway
shareholder approval.
In March 1995, the Company refinanced the $25.0 million Senior Secured
Notes with $36.0 million of newly issued Senior Secured Notes (the "Replacement
Notes"). At closing, the Company received net proceeds of $11.0 million and
issued warrants to the purchaser to acquire 700,000 of the Company's common
shares at $8.125 per share. The Replacement Notes are payable in three equal
installments fifteen: twenty-four and thirty-six months after the closing.
Interest at 14.75% is payable quarterly through the term of the Notes. The Notes
may be converted into shares of the Company's common stock beginning six months
after the closing and ending 18 months after closing, subject to daily limits
and certain other restrictions, at 87.5% of the average trading price of the
Company's common stock on the respective conversion dates. Substantially all of
the Company's assets not previously pledged have been pledged to collateralize
this debt. Under terms of the Replacement Notes, the Company must maintain
certain financial ratios, needs permission of the holder of the Notes to enter
certain transactions and may be required to make prepayments under certain
circumstances. Certain penalties apply in the event the Replacement Notes are
prepaid.
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Subsequent Events: continued
In March 1995, the Company and Hughes Network Systems ("HNS"), a unit of GM
Hughes Electronics, announced that they are forming a strategic partnership to
develop a series of subscriber terminals and equipment based on the Company's
proprietary technology. Geotek has placed an initial order of $1.6 million for
units to be delivered beginning in the third quarter of 1995. Under the terms of
the agreement, HNS and the Company will share equally the cost of developing the
portable subscriber unit which is expected to cost $15.0 million.
F-37
<PAGE>
EXHIBIT 23.1
Letterhead of Coopers & Lybrand
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Geotek Communications, Inc. on Form S-3 (Nos. 33-5508, 33-49548, 33-57530,
33-61034, 33-72820 and 33-78540) and Form S-8 (No. 33-67144) of our report dated
March 30, 1995, on our audits of the consolidated financial statements of Geotek
Communications, Inc. as of December 31, 1994 and 1993, and for the years ended
December 31, 1994. 1993, and 1992, which report is included in this Annual
Report on Form 10-K/A. Our report contains an emphasis of a matter paragraph
related to significant transactions with related parties in 1992.
COOPERS & LYBRAND L.L.P.
New York, New York
May 25, 1995
EXHIBIT 23.2
Letterhead of Shachak & Co.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Geotek Communication, Inc. on Form S-3 (nos. 33-49548, 33-57530, 33-610344,
33-7280 and 33-78540) and form S-8 (no. 33-67144) of our reports, (i) dated
February 24, 1995, on our audit of the financial statements of Powerspectrum
Technology Ltd. as of December 31, 1994 and 1993 and for the year ended December
31, 1994 and the fifteen month period ended December 31, 1993, (ii) dated
January 17, 1993, on our audit of the financial statements of Powerspectrum
Technologies Ltd. as of September 30, 1992 and for the three month period then
ended, (iii) dated February 24, 1993 on our audit of the financial statements of
Oram Electric Industries Ltd. as of December 31, 1992 and for the year then
ended and (iv) dated February 24, 1993 on our audit of the financial statements
of Oram Power Supplies (1990) Ltd. as of December 31, 1992 and for the year then
ended, which reports appear in this current report on Form 10-K/A.
SHACHAK & CO.
Certified Public Accountants
May 25, 1995
Tel-Aviv, Israel
