U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
(Mark One)
X Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the fiscal year ended December 31, 1997
____ Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from to
Commission file number 0-24886
ACRODYNE COMMUNICATIONS, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 11-3067564
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
516 Township Line Road, Blue Bell, PA 19422
(Address of Principal Executive Office) (Zip Code)
215-542-7000
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
Securities registered under Section 12(g) of the Exchange Act:
Units (Title of Class)
Common Stock
(Title of Class)
Warrants
(Title of Class)
<PAGE>
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year. $ 8,171,612
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $20,171,489, computed by reference to the average bid and asked
prices of such stock, as of March 16, 1998. This computation is based upon
the number of issued and outstanding shares held by persons other than
directors and officers of the Registrant.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. Common stock, par value
$0.01 per share: 5,314,270 outstanding at March 16, 1998.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
FORM 10-KSB
FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PAGE
PART I
Item 1.
Description of Business...................................................5
Item 2.
Description of Property..................................................15
Item 3.
Legal Proceedings........................................................16
Item 4.
Submission of Matters to a Vote of Security-Holders......................16
PART II
Item 5.
Market For Common Equity and Related Stockholder Matters.................17
Item 6.
Management's Discussion and Analysis.....................................18
Item 7.
Financial Statements.....................................................18
Item 8.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure....................................................22
PART III
Item 9.
Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act........................23
Item 10.
Executive Compensation...................................................25
Item 11.
Security Ownership of Certain Beneficial Owners and Management...........27
Item 12.
Certain Relationships and Related Transactions...........................28
Item 13.
Exhibits, List and Reports on Form 8-K...................................28
Signatures.................................................................31
<PAGE>
Part I
The Form 10-KSB for the fiscal year ended December 31, 1996 filed by Acrodyne
Communications, Inc. on March 31, 1998 is hereby amended to read in its
entirety as follows:
Item 1. Description of Business
THE COMPANY The business of Acrodyne Communications, Inc. (formerly
Acrodyne Holdings, Inc.), a Delaware corporation (the "Company"), is conducted
through its sole operating subsidiary Acrodyne Industries, Inc. ("Acrodyne").
Acrodyne was acquired by the Company on October 24, 1994 (the "Acquisition").
Prior thereto, the Company had no operations. The Company changed its name to
Acrodyne Communications, Inc. on June 9, 1995.
As used in this Form 10-KSB, the term "Company" refers to Acrodyne Holdings,
Inc. as of dates and periods prior to the acquisition of Acrodyne, and refers
to the combined operations of Acrodyne Communications, Inc. and Acrodyne
Industries, Inc. subsequent to the acquisition.
BUSINESS OF ACRODYNE. Acrodyne (together with its predecessor), has designed,
manufactured and marketed television transmitters and translators which have
been sold in the United States and internationally since 1971. The function of
a television transmitter is to broadcast on the air television signals to a
specific audience receiving such signals by regular antenna or by a local
cable company which then feeds the signal to their subscribers. Television
translators, which operate unattended, retransmit incoming signals from
primary stations on different channels within areas where direct reception of
the original signal may be limited by mountains or other geographic impediments.
ACRODYNE PRODUCTS AND SERVICES
Overview
Acrodyne designs, manufactures and markets digital and analog television
broadcast transmitters and translators for domestic and international
television stations, broadcasters, government agencies, not-for-profit
organizations and educational institutions. The useful life of a television
transmitter or translator is approximately 20 years. Acrodyne's television
transmitters, which range in transmission power levels from one watt for
localized applications to tens of thousands of watts for large television
broadcasters, have a modularized design which permits Acrodyne to respond
to specific customer requests. Acrodyne classifies its transmitters into two
categories based upon the power output of such transmitters (as discussed in
greater detail below). Lower power transmitters and higher power transmitters
transmit signals in both UHF and VHF frequency bands. The VHF band covers
channels two through thirteen and the UHF band covers channels above thirteen.
Each transmitter permits the sender to broadcast over one channel, except in
the case of adjacent channel assignments for which one transmitter is able to
transmit two television signals, one analog and one digital. In addition,
Acrodyne manufactures a full line of Multichannel Multipoint Distribtuion
System ("MMDS") transmitters for the wireless cable industry.
<PAGE>
All of Acrodyne's television transmitters feature enhanced linear amplifiers.
Such units feature easy to read diagnostic displays and meters which clearly
indicate a unit's operating condition. Units automatically shut down for self-
protection if out-of-tolerance conditions are encountered. The Company
believes that Acrodyne's television transmitters are relatively easy to
maintain since they utilize common modules and parts. Other operating features
include full remote control, telemetry and status functions, and a modular
design which allows for cost-effective expansion to higher output power levels.
Lower Power Analog Television Transmitters
Lower power analog television transmitters with power outputs of up to 10
kilowatts and translators account for approximately 36% of Acrodyne's sales.
Such transmitters are used by LPTV Stations, a United States classification,
which are limited by the Federal Communications Commission ("FCC") to power
output levels of 10 watts in the VHF band and 10 kilowatts in the UHF band.
Although virtually all of Acrodyne's lower power transmitters are solid state,
Acrodyne will produce some models using single tetrode tube final amplifiers
for certain customers. Solid-state refers to the physical make-up of the
transmitter components. Instead of vacuum tubes where electron flow takes
place in a vacuum, solid state transmitters utilize transistors, which have
crystalline structures. Tetrode and diacrode tubes are four electrode, vacuum
tube amplifying devices used in the final power stage of both lower and higher
power television transmitters. Acrodyne's solid-state television transmitters
have the advantage of long-life and compact size as compared to tube-based
units, and utilize high frequency "microstrip" designs to minimize the number
of components and provide reliability. Solid-state television transmitters
also have multiple amplifiers so that the loss of any one amplifier means
only a partial loss of power and not lost air time. Failure of a tube
amplifier, on the other hand, may cause the entire unit to go off line until
a replacement tube can be installed.
UHF solid state television transmitters are particularly well-suited for LPTV
Stations. In addition, there is a substantial market overseas for these UHF
transmitters. Acrodyne's translators in this area cover the power range up to
10 watts in VHF and up to 10 kilowatts in UHF frequency spectra for domestic
and international television formats. Substantially all of the translators
sold by Acrodyne have been solid state as compared to tetrode tube-based
designs. List prices for Acrodyne's lower power transmitters range from
approximately $10,000 to $140,000.
Higher Power UHF Analog Television Transmitters
Higher power UHF analog television transmitters range in power from above 10
kilowatts to 240 kilowatts and higher, and account for approximately 36% of
Acrodyne's sales. For television transmitters with power output levels of 10
kilowatts and above, Acrodyne uses advanced tetrode and diacrode tubes which
use water vaporization cooling to prolong their useful lives. Acrodyne also
utilizes a 10 kilowatts air cooled diacrode. Such advanced design features
significantly reduce the operating costs of these transmitters. At identical
output power, the power consumption of an advanced tetrode or diacrode
transmitter is approximately 50% less than that of a transmitter using
klystron tubes, a high power vacuum tube amplifying device, which is the
predecessor of the current tube technology.
Acrodyne's solid-state analog transmitters can also be made at power levels
of 5 to 10 kilowatts.
<PAGE>
Acrodyne also produces analog television transmitters standard to the industry
which have power ratings in multiples of 60 kilowatts in analog and 25
kilowatts in digital. Acrodyne can produce a 60 kilowatt UHF transmitter by
combining two 30 kilowatt diacrode tube transmitters. More notably, the
Company's mainstay high power product is the 60 kilowatt diacrode tube
transmitter. The Company won the New Technology Award at the 1996 National
Association of Broadcasters ("NAB") show for the development of this product.
This product provides Acrodyne access to a much larger portion of the United
States television transmitter market and to the international television high
power transmitter market. List prices for Acrodyne's higher power analog
television transmitters range from approximately $150,000 to $2,000,000 for a
240 kilowatt transmitter. As of the date of this report, the Company has sold
multiple diacrode transmitters that are equivalent to eighteen 60 kilowatt
sockets.
Auxiliary Products and Services
In addition to manufacturing and selling its transmitters and translators,
Acrodyne also offers television broadcasters a value-added complete "turn-key"
broadcast system which includes the procurement, systems integration and
installation of the television transmitter and antenna and related accessory
equipment. Such products and services, which are provided to both higher
power and lower power broadcasters, account for approximately 28% of Acrodyne's
sales. Upon request, Acrodyne technicians also supervise the installation of
television transmitters on-site, in the United States and abroad. Acrodyne
technicians perform additional testing after the transmitter has been
connected to the station's programming sources and the transmission antenna
to assure that the television transmitter operates as intended.
New Products
Since the announcement of adjacent channel assignments by the FCC to some
current National Television Systems Committee (NTSC) broadcasters, the
Company believes that a whole new market has emerged exclusively for Acrodyne.
The Company believes that the broad (two channel) tuning capability of
Acrodyne's diacrode and advanced tetrode high power amplifiers currently
offers the exclusive solution to a difficult channel combining problem.
Amplification by Acrodyne of both adjacent channel signals requires only one
antenna and transmission line. To the Company's knowledge, all other solutions
require two of each and possibly a second tower. Consequently, the Company's
primary research and development focus has become the development of
Acrodyne's Adjacent Channel Technology, or ACT(tm) as it is being trademarked,
for which the Company has applied for a U.S. patent.
In 1989, Acrodyne was issued a United States patent for a digital amplitude
modulator-transmitter the output of which is compatible with television sets
currently in use as well as for future high definition television broadcasting.
Five additional patents have been granted to the Company, covering
improvements and enhancements to the first patent. The Company's management
believes that its design significantly improves power efficiency and
performance while reducing the cost of the electronic components in the
transmitter by approximately 30%. In April 1993, Acrodyne demonstrated a 1
kilowatt prototype solid-state UHF television transmitter incorporating this
design at an NAB show. Management has taken measures to reserve the
introduction of the digital transmitter until the ACT(tm) product line is
fully developed.
<PAGE>
THE ANALOG TELEVISION TRANSMISSION INDUSTRY
Approximately 9,300 analog translators and television transmitters with an
output power level of one watt or more are in operation in the United States,
and approximately 26,500 are in operation worldwide. Of these, more than
1,687 television transmitters in the United States have an output power level
of 5 kilowatts or more, and more than 10,000 in operation worldwide have a
power level of 5 kilowatts or more. As of December 31, 1997, there were
construction permits for 90 new higher power stations and 1,495 new low power
stations in the United States. As of December 31, 1997, Acrodyne had sold and
delivered, since its inception, 1,640 lower power transmitters and 74 higher
power transmitters in the United States and 1,555 lower power transmitters
and 80 higher power transmitters abroad.
DIGITAL TELEVISION (Formerly High Definition Television - "HDTV")
Digital Television ("DTV") encompasses higher fidelity video and audio
production, transmission and display technologies, and promises to provide
television viewers with greater picture resolution, improved color fidelity,
and higher fidelity surround sound audio. The Company's management believes
that DTV is the largest emerging market for the manufacturers of television
broadcasting equipment.
In December 1996, the FCC announced its decision concerning the transmitted
format to be used for the transmission of DTV signals relieving the
speculation that had taken place for several years. In the first quarter of
1997, the FCC allocated DTV channels in the UHF band for each full service
television station in the country. Based on the most recent FCC pronouncements,
those channels will co-exist with each station's existing VHF or UHF channel
for 9 years after the selection of a transmission standard and adoption of a
Table of Allotments, after which the pre-existing channel will be abandoned.
Each station will be required to apply for a construction permit to install
one DTV transmitter during the three-year phase-in period and will have three
years to construct such a facility. During the remainder of the 9-year
transition, each licensee may transmit on the assigned DTV channel and its
regular channel. At the end of the 9-year period, each licensee must
surrender the non-DTV channel. Each DTV channel will require its own
transmitter and antenna if the channel assignments are not adjacent.
The Company's management believes that it can capitalize on the opportunities
afforded by this emerging market because its current product line, as well as
its planned digital amplitude modulator-transmitters, can be re-engineered to
be compatible with the DTV digital transmission format selected.
GROWTH STRATEGY
Management of the Company believes that the Company can increase sales of its
transmitters and translators based on a growth strategy centered on the
following principles:
(i) expanding Acrodyne's sales and marketing activities;
(ii) expanding and strengthening its network of agents and
distributors;
(iii) increasing work-in-progress inventory for expedited
product delivery; and
(iv) commercializing the one kilowatt digital transmitter
("Adam(r)").
<PAGE>
To implement the Company's growth strategy, the Company expanded its annual
operating budget from $2.2 million in 1995 to approximately $4 million in 1997.
Over the Company's past two fiscal years, the Sales and Marketing department
has grown from three to ten individuals including sales management for the
domestic high power, low power and international markets; the network of
sales representatives and dealers for the international market has been
upgraded to include exclusive representation in China, the Philippines,
Malaysia and Brazil; and strategic new hires have been added to engineering,
field service, testing, quality control and materials management in support
of anticipated growth from the domestic and international markets.
RESEARCH AND DEVELOPMENT
Overview
Acrodyne's Engineering Department is responsible for new product design and
development, drafting and documentation, system testing, product support and
field service. Acrodyne devotes a significant amount of its engineering
resources to continually incorporating new technology to maintain its
competitive advantage. The Engineering Department also provides product
support to sales, manufacturing and quality assurance as required.
Digital Technology
Adjacent Channel Technology (ACT(TM))
The assignment to broadcast by the FCC, in its Fifth and Sixth Report and
Order of April 1997, of DTV channels adjacent to existing NTSC channels
appeared to initially cause apprehension among broadcasters allotted such
assignments. These broadcasters appeared to believe that in the case, at
least, of DTV assignments above an NTSC channel (such assignments, the
"N + 1 Case"), there existed no practical[, co-located] solution for sharing
a single transmission line to a common antenna. Currently, it appears
virtually impossible to manufacture a channel combiner in which there is no
dead band between channels. Consequently, in the N+1 Case, broadcasters with
such assignments appeared to initially believe that a second antenna and line,
and perhaps a second tower, would be required.
As a solution to the problems associated with the FCC's adjacent assignments,
Acrodyne's Engineering Department theorized and then confirmed that it would
be possible to amplify both the NTSC and DTV signals through a single advanced
tetrode or diacrode high power amplifier since the cavity tuning of such
amplifiers could readily be made wide enough to carry both channels. To the
company's knowledge, this is not presently possible with any other vacuum
amplifying device such as the klystron, klystrode or IOT. Returning and
adding a second separate DTV driver alongside the existing NTSC driver
demonstrated conclusively that a diacrode 60kW NTSC 6kW Aural transmitter
could readily be converted into a single 25kW NTSC 1.25kW Aural 2.5kW DTV
transmitter. The Company believes that this technology works equally well
for the N=1 Case and the [N-1 Case] Having tested and proved its technology,
Acrodyne promptly applied to register to ACT(tm) trademark and to patent this
new technology. As of the date of this Report on Form 10-KSB, both the
trademark and patent applications are pending.
<PAGE>
Because the market is so large (nearly 400 adjacent channel assignments) for
which the Company believes that Acrodyne alone has a technical solution,
management has decided to refocus the majority of the Engineering Department's
efforts toward bringing ACT(tm) to fruition before any other major product
developments. The first delivery is expected to take place in May 1998.
Acrodyne's Digital Amplitude Modulator (ADAM(r))
Acrodyne's Engineering Department has developed a one kilowatt digital
amplitude modulator-television transmitter which is compatible with currently
existing television transmission formats, as well as any DTV and wireless
cable format. This digital transmitter, demonstrated in 1993 at a NAB show,
improves power efficiency over existing television transmitters. Digital
transmission involves sampling an analog video signal to create a digital
video signal which then drives the digital video signal through a sequence of
related solid state amplifiers, the outputs of which are then combined to
produce the desired signal. By using highly efficient but non-linear solid
state amplifiers, the power efficiency of a transmitter of this design using
Class C type amplifiers is expected to be more than 50% greater than any
television transmitter now in use. As Class C amplifiers do not preserve
linearity, they cannot be used to amplify television signals. However, when
Class C amplifiers are used with Acrodyne's patented digital technology, such
Class C amplifiers can be combined to produce a modulated output television
signal. Moreover, a solid state configuration is more reliable and will have
lower maintenance costs.
As noted above, as part of the Company's growth strategy, management has
decided to concentrate its immediate development efforts toward the market
directly related to Adjacent Channel Technology or ACT(tm), since the Company
believes no other manufacturer is in a position to do so, and to delay the
introduction of the Digital Amplitude Modulation Transmitter demonstrated at
the 1993 NAB show until it is fully developed for DTV use.
MARKETING AND SALES
Marketing Strategy
Acrodyne's marketing strategy is based on the technology, performance, and
cost advantages of its television transmitters. The Company's solid state
designs have been extensively field proven in the low power television
transmitter market. Acrodyne's solid state, advanced tetrode, and diacrode
equipped transmitters are widely used in the U.S. medium power television
transmitter market. The Company's management believes that Acrodyne's high
power diacrode equipped television transmitters, introduced in 1995, are
proving more reliable and cost effective than transmitters using klystron and
inductive output tubes, and that significant opportunity exists for the
Company to increase sales of its solid state, advanced tetrode and diacrode
technologies on the basis of the technical advantages inherent in these
designs. In addition, the Company believes that the bandwidth and linearity
of its advanced tetrode and diacrode tubes and cavities offer a distinct
advantage to Acrodyne for DTV sales, including adjacent channel (ACT(tm))
opportunities. Longer term, Acrodyne's patented digital amplitude modulator
transmitter design is expected to enhance the performance and cost advantages
of its current product line and permit Acrodyne's entry into other product
areas.
<PAGE>
General
Sales department representatives are strategically located to respond to
client needs in an efficient and economical manner. Regional sales managers
gather information about potential transmitter business in their territories
from industry journals, personal networking, and telemarketing. They follow
through on leads by telephone and personal contact. Proposals for standard
commercial sales are generated in the field. The home office sales team
receives and evaluates all government bids and requests for quotation ("RFQ")
for non-standard product. In responding to bids, RFQ's, and standard proposals
for lower power applications, Acrodyne is often either a sole source, or
competing with one or two firms of similar size specializing in lower power
products. When Acrodyne pursues higher power opportunities, it competes with
major international manufacturers. The sales department organizes, prepares
and presents proposal and bid packages to a potential client based on the
most cost effective design, taking into account the client's exact
requirements, and optimum engineering and manufacturing considerations. The
broadcast industry is strictly regulated, both in the United States and
abroad; therefore transmitter purchases are not forthcoming on a regular
basis. The goal of the sales department is to broaden the Company's client
base to in effort to establish a steady stream of purchasers of the Company's
products.
Domestic Sales
Domestic sales account for approximately 70% of the Company's net sales in
1997. Transmitter and translator equipment and turnkey systems are sold
directly to television station operators. Domestic sales are handled by
regional sales managers located in field offices supported by management and
applications personnel at the Company's factory. Regular contact promotes
coordination of effort for optimum performance. Domestic sales negotiations
often require weeks or months of consultative effort. All domestic sales
staff are required to have in-depth industry knowledge to guide the
prospective client to cost-effective, responsible purchasing decisions.
Domestic payment terms are normally 30% of the purchase price payable upon
order, 60% due when the equipment is ready for shipment, and the final 10%
due thirty days after shipment.
International Sales
International sales accounted for approximately 30% of net sales in 1997.
Independent manufacturers' representatives and distributors, who normally
have specific account affiliations within a particular country, operate on an
exclusive and non-exclusive basis and receive a negotiated commission rate.
In general, Company management believes that sales to international customers
have been steadily growing in the past few years for United States-based
television transmitter manufacturers, and that market growth in these areas
will accelerate as a result of the recent ascendancy of democratic governments
in the former eastern bloc nations, the trend toward greater privatization of
broadcasting in general and the expansion of new communication services in
developing countries.
International payment terms are similar to domestic payment terms and rely on
an irrevocable letter of credit payable upon presentation for any balance
outstanding at the time of shipment. A portion of the Company's present
business is subject to performance bonds, "holdbacks" (a renegotiation of
profits) or contract termination credits against the purchase price.
<PAGE>
Customer Base
Acrodyne's customer base is large and diversified. Acrodyne's business has
historically been dependent upon a relatively small number of significant
transmitter sales with one-time customers. No single commercial customer
accounted for more than 10% of total sales in 1997.
Although Acrodyne is not dependent upon military contracts or upon customers
who are dependent on military contracts, its largest recurring customer is
the United States General Services Administration which is primarily
responsible for United States Government procurement including, to some
degree, military procurement. Such customer accounted for approximately 3%
of net sales in 1996 and approximately 17% of net sales in 1997.
GOVERNMENT REGULATION
Industry Regulation
Transmission characteristics are stringently regulated in the United States
by the FCC and abroad by local governments and international treaties. United
States television transmission is in either the VHF band, covering the
frequency ranges from 54 MHz (Channel 2) to 88 MHz (Channel 6) and 174 MHz
(Channel 7) to 216 MHz (Channel 13), or the UHF band, covering the frequency
range from 470 MHz (Channel 14) to 806 MHz (Channel 69). Users include
governments, not-for-profit and privately owned and operated commercial,
educational, foreign language and religious broadcasters. United States
broadcasters are regulated by the FCC as to operating characteristics and
suitability of ownership. Acrodyne has registered all of its television
translators and transmitters with the FCC and believes that its products and
procedures satisfy all the criteria necessary to comply with the regulations
of the FCC.
In addition to the FCC, foreign governments regulate radio-frequency
broadcast equipment operating within their borders. However, the United
States and almost all foreign governments are parties to international
treaties which adhere to frequency allocation and interference criteria.
Environmental Regulation
The registrant believes it is in material compliance with applicable United
States, state and local laws and regulations relating to the protection of
the environment.
Competition
Acrodyne competes, with respect to lower power applications, on the basis of
product features, quality, technology advantages, dependability, life cycle,
costs associated with acquiring and operating the equipment, and reputation.
The domestic lower power UHF market is dominated by a small number of
American companies. Acrodyne competes with specialty firms of similar size
and resources, such as EMCEE Broadcast Partners, LARCAN-Television Technology
Corp. ("TTC") or Information Transmission Systems Corporation ("ITS") in this
market. The VHF market represents an insignificant percentage of Acrodyne's
sales.
Unlike the lower power domestic market, the higher power domestic market is
characterized by intense competition from companies that are much larger than
Acrodyne and which possess significantly greater resources. The high power
television transmitter market is currently dominated by larger companies with
older klystron technology or newer inductive output tubes ("IOT"). IOTs are
amplifying devices used in higher power television transmitters, which
utilize features from tetrode and klystron technology. The higher power
transmitter market is dominated by suppliers such as Comark, a subsidiary of
Thomson-CSF and Harris Corporation ("Harris"). Both Comark and Harris have
access to significant resources, both financial and otherwise.
<PAGE>
The international markets are characterized by intense competition in both
the higher power and lower power segments. For lower power applications,
particularly in the third world and newly developing countries, price
considerations typically are the determining factor. Acrodyne has been very
competitive in this market and a significant portion of Acrodyne's business
has been derived from lower power solid state transmitters sold in these
countries. For higher power applications overseas, Acrodyne's primary
competition comes from companies that are much larger, have significantly
greater resources, and are willing to offer attractive financing terms in
order to secure new business. Acrodyne's major competition in this market
comes from Thomson-CSF (France), Nippon Electric Corporation (Japan), and
Rohde & Schwarz (Germany). The foregoing foreign competitors have a dominant
market position within their home countries. The Company's management does
not expect that the Company will be able to compete with such companies in
their respective home countries in the near future. Harris Corporation, a
U.S. company, is also a very strong competitor in most international markets.
The primary competing technology to Acrodyne's higher power advanced tetrode
tube products are transmitters offering the IOT design. IOTs were developed
as an attempt to improve the linearity and efficiency of klystron tubes.
However, the IOT configuration is significantly more expensive to build. In
addition, another major drawback to IOT-based transmitters is that they are
much more complicated and difficult to service, with the time required to
change a tube averaging about one full day (during which time the transmitter
must remain off the air) whereas an advanced tetrode or diacrode tube can be
changed on-site in about 20 minutes. The Company's management believes that
for both analog and digital requirements, Acrodyne's advanced tetrode or
diacrode tube transmitter designs are more cost effective than competing
technologies based upon initial capital expenditures, tube replacement,
maintenance and operating efficiency.
Manufacturing
Acrodyne's manufacturing department includes a machine shop, circuit board
assembly, assembly fabrication, wire and cable harness fabrication and final
systems assembly. Acrodyne does not utilize, and is not dependent upon, any
unusual raw materials or processes in the design of its products. Other than
the advanced tetrode tubes supplied by Thomson Components and specialized
transistors supplied by Thomson SGS and Ericsson, the Company purchases from
multiple sources to the maximum extent practical. Acrodyne maintains limited
inventory quantities of materials in excess of its immediate requirements.
Major purchased parts include fabricated printed circuit boards, water
cooling pumps and specialized output filters, output power tubes and cavities
and power transformers. As part of an ongoing profit improvement program,
manufactured subassemblies, where appropriate, are reviewed for suitability
for outsourcing to contract vendors. Outsourcing provides decreased costs,
improved quality and better inventory control.
Acrodyne machine shop fabricates heat sinks, metal cabinet parts and
specialized interior mounting panels. Chemical etching of circuit boards and
painting of cabinets is performed by outside suppliers to minimize the
potential for adverse environmental consequences at Acrodyne's facility.
Assembly occurs in a build-to-order job shop environment utilizing standard
assembly modules depending on the frequency and output power level of the
transmitter. All phases of assembly are carried out in a single open area
comprising approximately 15,000 square feet.
<PAGE>
The first phase of the assembly process includes placing electronic and
electrical components on two-sided, single layer circuit boards. These
circuit boards are mated with a mechanical structure and are then built into
modules. The modules are assembled into cabinets along with other purchased
components, the electrical harness and, in the case of higher powered units,
plumbing for the water cooled tetrode tubes. Completed television
transmitters, which may be comprised of as many as seven six-foot high
cabinets depending on the output power level, then move from final assembly
into system test. Eight weeks are normally required for a television
transmitter to complete the manufacturing cycle and be ready for shipment. In
some cases, customer education and training sessions are conducted at
Acrodyne's facility prior to shipment of a television transmitter. A service
manual is written for each product type sold, a copy of which is maintained
in Acrodyne's reference library.
In a continuing effort to support product quality, a quality assurance
manager was hired in 1997. This position reports directly to the General
Manager. Quality assurance procedures are in place during incoming parts
inspection and throughout the production process. Assemblies are thoroughly
tested and inspected in the manufacturing area for accuracy and workmanship
prior to final assembly and systems testing. Connected utility power is
adequate to meet all current test requirements for high power systems up to
30 kilowatts. After systems testing, results are verified to be in
accordance with specifications. A final mechanical inspection is performed
just prior to shipment. A permanent record of all test results is maintained
for future reference.
Acrodyne provides a limited one year warranty on its products with the
exception of vendor parts which are warranted by their manufacturer.
Testing, Product Support and Field Service
To support the requirements for extensive testing of high power digital
transmitters, the Company incurred capital expenditures in 1997 in excess of
$150,000.00 to acquire diacrode and DTV test equipment as well as a high
voltage electrical generator. Module and full system testing is performed by
skilled technicians using a full array of highly sophisticated television
transmitter test equipment. A technical manual for each product by serial
number accompanies each television transmitter. A duplicate manual is
maintained at the factory to minimize field troubleshooting time.
Acrodyne's Engineering Department provides technical information necessary to
complete requests for sales quotations, accompanies sales representatives in
visits to customer sites, prepares customer manuals and regularly publishes
promotional oriented articles in trade journals, and presents technical
papers at important conventions and exhibitions.
PATENTS AND TRADEMARKS
Acrodyne is the owner of United States Patent 4,804,931, entitled Digital
Amplitude Modulator-Transmitter, issued on February 14, 1989, expiring in
2006. Digital Amplitude Modulation is the process of converting an arbitrary
video or audio signal into successive binary words of sampled equivalent
information which control the presence or absence of power signal sources to
synthesize such information in a high power combiner, such as a television
transmitter for broadcasting the signal. The process offers less distortion
and greater power efficiency than any other method. Six additional patents
based on the general technology of the original patent have also been granted.
For one key patent with respect to DTV and wireless cable, Acrodyne has filed
for international patent protection. Certain additional steps have been
taken under the PCT (Patent Cooperation Treaty) to apply for foreign
protection on the other patents.
<PAGE>
Acrodyne has also applied for a U.S. patent covering the Adjacent Channel
Technology concept and has also applied to register the ACT(tm) trademark.
With the exception of the above-referenced patents, Acrodyne relies on
proprietary know-how and trade secrets and employs various methods to protect
its processes, concepts, ideas and documentation associated with its
proprietary products. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such processes, concepts, ideas and documentation. Although Acrodyne
has confidentiality agreements with all of its employees, there can be no
assurance that such arrangements will adequately protect its trade secrets.
EMPLOYEES
Acrodyne currently employs approximately 76 individuals on a full-time basis,
none of whom are union members. Acrodyne believes it has a good relationship
with its employees.
Item 2. Description of Property
Acrodyne's headquarters and manufacturing facility is located at 516 Township
Line Road in Blue Bell, Pennsylvania, 19422. Its site includes a 30,000
square foot single story building on approximately ten acres. The facility is
rented under a lease expiring July 31, 2000 and includes a five-year
extension option and the ability to terminate the current lease if a larger
facility is needed. The current rental rate is approximately $6.65 per
square foot or $199,500 annually excluding taxes, insurance and maintenance
which the Company is responsible for paying. Total lease expense was $202,400
for the year ended December 31, 1997. This represents a $4,200 increase over
the total 1996 lease expense, resulting from an annual price adjustment which
is based on a consumer price index calculation.
The Company also operates a machine shop located at 704 Forman Rd, Souderton,
PA 18964. This facility consists of 5,000 square feet of warehouse and
manufacturing space. The facility is rented under a lease that commenced in
November 1996 and expires in October 2001. The current rental rate is
approximately $3.50 per square foot or $17,500 annually. Lease expense over
the five year term totals $87,499.80 excluding taxes, insurance and
maintenance.
The Company's management believes the facilities are sufficient to meet
current and future needs. Included at the Blue Bell facility are all office,
engineering, manufacturing and test operations.
<PAGE>
Item 3. Legal Proceedings
There are no legal proceedings pending to which the Company is party.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
<PAGE>
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
MARKET INFORMATION
Since October 1994 the principal market on which the Company's common stock,
units and warrants are quoted is the NASDAQ Small Cap over-the-counter market
under the symbols ACRO, ACROU and ACROW, respectively. ACROU (units) and
ACROW (warrants) ceased trading on July 29, 1996.
HOLDERS
As of March 16, 1998, there were 1,931 beneficial holders of record of the
Company's Common Stock, along with 110 holders of record.
DIVIDENDS
No dividends on the Company's Common Stock were declared during fiscal 1997.
The Company anticipates that all of its earnings in the foreseeable future
will be retained to finance the growth of its business and does not intend to
pay cash dividends on its Common Stock in the foreseeable future.
The Company paid dividends of $64,087 during fiscal 1997 to the holders of
the Company's 8% Convertible Redeemable Preferred Stock as described further
in the "Liquidity and Capital Resources" section below. The next dividend
payment of $14,028 is expected to be made on April 1, 1998.
PRICE RANGE OF SECURITIES
The following table sets forth the high and low bid prices for shares of the
Company's Common Stock for the periods indicated, as supplied by NASDAQ.
These quotations reflect interdealer prices, without retail mark-up, mark-down
or commissions, and may not necessarily represent actual transactions. There
has been only limited and sporadic trading in the Company's securities.
QUARTER ENDING
High Low
March 31, 1996..... $5-5/8 $3-15/16
June 30, 1996...... 7-5/8 5
September 30, 1996. 7 4-1/8
December 31,1996... 6-7/8 3-5/8
March 31, 1997..... 5-1/4 4-3/8
June 30, 1997....... 6-1/4 4
September 30, 1997. 5-5/8 3
December 31, 1997.. 5-1/2 2-5/8
As of the close of business on March 16, 1998 the high and low bid price for
the Company's Common Stock was $4-3/16 and $3-7/8, respectively.
For a description of certain recent sales of unregistered securities, see
"Significant and Recent Events" below.
<PAGE>
Item 6. Management Discussion and Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The business of Acrodyne Communications, Inc. (the "Company") is conducted
through its sole operating subsidiary Acrodyne Industries, Inc. ("Acrodyne").
The following discussion compares the Company's actual results for the years
ended December 31, 1997 and 1996.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
1997 1996
Net Sales.. ...................... $ 8,171,612 $ 10,417,029
Cost of Sales..................... 6,869,003 7,371,857
--------- ---------
Gross Profit.................. 1,302,609 3,045,172
--------- ---------
Operating expenses:
Engineering, research and development. 823,406 807,287
Selling.......................... 1,609,600 1,359,013
Administration................... 1,543,824 1,550,686
Amortization:
Goodwill and intangibles...... 156,496 156,496
Noncompete agreement.......... 75,000 75,000
--------- ---------
Total operating expenses.......... 4,208,326 3,948,482
--------- ---------
Operating loss.................... (2,905,658) (903,310)
Other income (expense):
Interest expense, net........... ( 15,218) (70,845)
Other income (expense), net (see Note 9).. 7,902 (247,255)
---------- ----------
Net loss.......................... ($2,912,974) ($1,221,410)
------------ ------------
Dividend on 8% Convertible Redeemable
Preferred Stock ( 64,087) ( 482,224)
------------ ------------
Net loss applicable to common shares ($2,977,061) ( $1,703,634)
============ =============
Net loss per common share $ (0.65) $ (0.48)
Weighted average number of ------------ -------------
common shares outstanding 4,584,347 3,558,856
------------ -------------
<PAGE>
Net Sales for the year ended December 31, 1997 were $8,171,612 which reflects
a 22% decline from net sales for the year ended December 31, 1996.
Management believes this shortfall is directly related to the lack of capital
spending in the broadcast industry. For the past two years the industry has
postponed any significant transmission equipment expenditures pending a clear
plan for the emergence of Digital Television. During 1997 this DTV plan was
being finalized by the FCC and early in 1998 the final channel allocations
were defined. Without these allocations, the Company believes that
broadcasters were unable to specifically define their transmitter
requirements and thus the entire transmitter manufacturing industry was set
back. Accordingly, in order to generate sales volume and to obtain a portion
of the available business in 1997 in an increasingly competitive market, the
Company's margin on sales, on an operating basis, fell to 20% as compared to
29% in 1996 (see "Liquidity and Capital Resources" below).
The Company experienced a charge to profit in 1997 of $364,000 as a result of
a change in estimate of obsolete inventory. The impact on gross profit
margin is a reduction from 21% before the change to 16% at December 31, 1997.
This estimate change is consistent with technology changes and trends that
are occurring industry wide. In addition, Acrodyne, and perhaps the entire
industry, is on the verge of converting to Digital TV from the present
analog design. This change will further reduce the installed base of older
technology analog transmitters and thus further reduce the need for spare
parts.
As a result of the Company's continuing to focus on its strategic plan, total
operating expenses increased 6.6% from 1996 to 1997. Selling expenses
increased 18.4% over the year. The Company made conscious decisions to
position itself to be able to take advantage of the anticipated industry wide
increase in capital expenditures that will take place as a result of recent
FCC rulings.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Acrodyne has financed its activities primarily from customer
deposits, internally generated funds, and use of its credit facility. At
December 31, 1997, the Company's working capital decreased $994,806 compared
to December 31, 1996. This reduction was due primarily to the use of working
capital for operations and a lack of sales activity during 1997.
Accounts receivable at December 31, 1997 were $943,183 and reflect a
$1,213,925 reduction from 1996. This decline is due mainly to the lower
sales volume experienced during 1997. The majority of the Company's sales of
domestic transmitters are made with credit terms of a non-refundable 30%
deposit at the time of placing the order, 40% to 60% prior to shipment and
10% to 30% net thirty days. The Company continues to require an irrevocable
letter of credit on international orders.
Inventories, net of reserves, increased to $5,271,449 at December 31, 1997
from $4,487,887 at December 31, 1996. This increase is due to lower sales
volume without a corresponding reduction in inventory, slow turnover due to
delayed purchasing of Digital transmission equipment for replacement or
upgrading of current transmission equipment, the Company's strategy to have
sufficient inventories on hand to provide quick turnaround to strengthen its
market position, and higher volume purchasing by the Company to take
advantage of discount opportunities. In addition, a portion of the
increase can be attributed to the addition to inventory of two finished
products: the Acrodyne model AuD-6T digital transmitter and the Acrodyne
ACT(tm)-AuD-25D transmitter. The Company has built these units for
demonstration purposes in anticipation of future sales.
<PAGE>
The Company purchased a full complement of Digital Technology test equipment
from Hewlett Packard. This test equipment has enabled Engineering Department
to properly monitor and test the Company's Digital products in compliance
with the new 8-VSB technology (Digital Modulation scheme). The Company
believes that the use of these assets demonstrates its DTV and ACT(tm)
capabilities which are expected to enhance its sales opportunities for 1998
and beyond.
In March of 1998, the Company and Acrodyne, as co-borrowers, established a
new $1,500,000 credit facility with a bank for working capital purposes to
replace its then existing bank credit facilities. Also, in the same month,
the company reserved $500,000 for an irrevocable standby letter of credit to
partially secure the Senior Subordinated Note described below. At December
31, 1997 and March 31, 1998 there was no balance outstanding under the
Company's and Acrodyne's credit facility. The March 1998 credit facility is
secured by the assignment of a Certificate of Deposit in the amount of
$1,500,000 maintained at the bank. The standby letter of credit is secured
by a $500,000 Treasury Bill maintained at the issuing bank.
The Company is obligated to pay the former majority shareholder of Acrodyne
quarterly installments of principal and interest over a five-year period
under the terms of a $1,450,000 Senior Subordinated Note. Interest on such
note is payable at the rate of 9% per annum. Such note is partially secured
by the irrevocable standby letter of credit in the principal amount of
$500,000 mentioned above. The first thirteen (13) quarterly payments totaling
$1,260,439 (including interest) under such note have been made through
January 23, 1998 pursuant to the agreement. The next quarterly payment of
$78,131 (including interest) is due on April 23, 1998.
Significant and Recent Events
During the first and second quarters of 1996, the Company privately placed,
pursuant to Rule 505 under the Securities Act of 1933, as amended (the "Act"),
an aggregate of 7,900 shares and 2,600 shares, respectively, of its then
newly created class of 8% convertible redeemable preferred stock, par value
$1.00 per share (the "Preferred Stock"), for which the Company received
aggregate proceeds of $790,000 and $260,000 respectively. In 1997 an
aggregate of 4,000 shares of the Preferred Stock were converted into 100,000
of such shares of the Company's common stock in accordance with the
conversion provisions of the preferred stock.
In consideration for advisory services related to the Acrodyne acquisition,
the Company sold warrants to Alchemy Capital to purchase 170,000 shares of
common stock at an exercise price of $3.00 per share on October 24, 1994.
As of December 31, 1997, 20,000 of these warrants have been exercised,
raising net proceeds of $60,000.
During 1996, the Company paid $125,200 and issued an aggregate of 465,000
warrants to a financial consulting firm, Colin Winthorp, for advisory
services performed during the year. The warrants are exercisable over a
three year period at prices ranging from $4.00 to $5.00. During the year
ended December 31, 1997, 10,000 of such warrants were exercised at an
exercise price of $4.00 per share.
<PAGE>
On April 15, 1997, the Company's Board of Directors approved the Company's
1997 stock option plan with authorization to grant options with respect to an
aggregate of up to 450,000 shares of the Company's common stock. On January
20, 1998 the stock option plan had been amended to add another 200,000 shares
of the company's common stock. There have been no options granted through
March of 1998.
On November 7, 1997, the Company privately placed with a group of investors
800,000 shares of its common stock at a purchase price of $2.50 per share,
for an aggregate purchase price of $2,000,000. Concurrently, the Company
also issued warrants for the purchase of up to 500,000 shares of its common
stock, with such warrants being exercisable until November 7, 2002 at an
exercise price of $3.00 per share of common stock. These securities were all
issued pursuant to the exemption from registration under the Act set forth in
Section 4(2) of the Act (such issuance of the shares and warrants,
collectively, the "Private Placement"). Scorpion Holdings Inc. ("Scorpion")
arranged for the financing by the investors in the Private Placement.
Of the total number of Shares issued, 134,400 were purchased by Newlight
Associates L.P. ("Newlight") for $336,000; 225,600 were purchased by Newlight
Associates (B.V.I.) L.P. ("Newlight BVI") for $564,000; and 440,000 were
purchased by Scorpion-Acrodyne Investors LLC ("SAI" and, collectively with
Newlight and Newlight BVI, the "Investor Group") for $1,100,000. Immediately
after the Private Placement, the Shares represented 15% of the issued and
outstanding shares of common stock of the Company.
Of the total number of warrants issued in the Private Placement, warrants for
the purchase of up to 50,400 shares of common stock were issued to Newlight;
warrants for the purchase of up to 84,600 shares of common stock were issued
to Newlight BVI; warrants for the purchase of up to 165,000 shares of common
stock were issued to SAI; and warrants for the purchase of up to 200,000
shares of common stock were issued to S-A Partners, an affiliate of Scorpion.
The warrants issued to the Investor Group were issued in consideration of the
Investor Group's investment in the Company; the warrants issued to S-A
Partners were issued in consideration of Scorpion's introduction of the
Investor Group to the Company.
Pursuant of the terms of the Private Placement, the Company expects to file
shortly following the filing of this 10KSB document, a registration statement
on Form S-3 with the Securities and Exchange Commission to register for
resale, under the Act, the shares of common stock sold in the Private
Placement and the shares of common stock underlying the warrants sold in the
Private Placements. However, the Investor Group has agreed not to sell or
otherwise dispose of such shares and warrants for a period of one year after
the Private Placement. The Company has also agreed that for so long as the
Investor Group owns beneficially not less than 10% of the Company's issued
and outstanding common stock, on a fully diluted basis (assuming the exercise
or conversion of all securities exercisable or convertible into common stock):
(i) the Company's Board of Directors shall consist of five directors; (ii)
the Investor Group shall be entitled to nominate one director for election as
a member of the Board of Directors of the Company at the annual meeting of
stockholders or any other meeting at which directors are elected, and the
Company shall include such nominee in the slate of nominee directors
recommended for election by the incumbent directors and management; and
(iii) the Company shall include in such slate of nominee directors at least
two nominees who are not affiliated with the Company's management or with the
Investor Group and who shall be selected with the consent of the Investor
Group, whose consent shall not be unreasonably or arbitrarily withheld. In
addition, the Company has entered into an advisory agreement with Scorpion
pursuant to which Scorpion has agreed to provide certain financial advisory
services to the Company in connection with the Company's management and
strategic planning and its identification of opportunities for growth.
<PAGE>
As of March 16, 1998, the Company had approximately $2,420,000 of available
cash and cash equivalents on hand, as compared to $3,011,294 and $3,931,544
as of December 31, 1997 and December 31, 1996, respectively. The reduction
is due primarily to the use of capital for funding operations due to lack of
sales volume during 1997.
Available cash on hand combined with cash flow from operations and available
funds under the line of credit and other financing sources are anticipated to
be sufficient to finance the operations and obligations of the Company through
March 1999.
Item 7. Financial Statements
See pages 32 to 48 of this report for the financial statements required by
this item.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There is no information relevant to the Registrant which must be disclosed
under this item.
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
The directors, officers and significant employees of the Company are as
follows:
NAME AGE POSITION
Robert Mancuso.............. 60 Chairman of the Board and President
of the Company and Acrodyne
Martin J. Hermann............ 59 Director, Secretary and
General Counsel of the Company
Dr. Elmer M. Lipsey.......... 73 Director of the Company
Daniel D. Traynor............. 55 General Manager and Vice President of
Acrodyne and Director of the Company
Dr. Timothy P. Hulick......... 55 Vice President/Engineering of Acrodyne
Robert F. Raucci............... 43 Director of the Company
Ronald R. Lanchoney............ 51 Chief Financial Officer of Acrodyne
A. ROBERT MANCUSO has been Chairman of the Board and President of the Company
since its inception in May 1991. Since July 1991, he has also been president
of R.M. Hudson Co., Inc., financial consultants for mergers and acquisitions.
From January 1987 to June 1991, he served as vice president of Reichhold
Chemicals, a specialty chemical company. From January 1987 to June 1991, he
also served as president of RBH Dispersions, another specialty chemical
company. From July 1986 to December 1989, he was senior vice president of
Polychrome Corporation, a manufacturer of film and printing plates for the
ink industry, and president and chief executive officer of Polychrome
Chemicals, a specialty chemical manufacturer. Reichhold Chemicals, RBH
Dispersions, Polychrome Corporation and Polychrome Chemicals are owned by
Dainippon Ink & Chemicals, Inc., a Japanese chemical conglomerate. Prior to
joining the Polychrome companies in 1986, Mr. Mancuso was employed by Union
Carbide Corporation for 26 years.
MARTIN J. HERMANN has served as a Director, Secretary and General Counsel of
the Company since its inception. Mr. Hermann has been engaged in the
private practice of law since 1963.
DR. ELMER M. LIPSEY has been a Director of the Company since December 24,
1993. Since 1984 he has been the President and Chief Executive Officer of
E.M. Lipsey Associates, Inc., a company which he founded to design and
manufacture digital communications and navigation equipment and systems.
Since 1991 he has also been the Chief Scientist and a Director of The LuxCel
Group, Inc., a cellular communications company. Dr. Lipsey has specific
expertise on the propagation of radio signals, holds several patents, has
published numerous scientific and engineering papers, and was an engineering
consultant to the U.S. Air Force and Navy.
<PAGE>
DANIEL D. TRAYNOR has been employed by Acrodyne since 1970, has been its
Vice President since 1985 and the General Manager since 1990, and has the
responsibility for overall day to day management of Acrodyne, including
supervision of production, sales and marketing. Prior to 1970, he held
engineering management positions with American Electronics Laboratories.
Mr. Traynor has served as a Director of the Company since October 1994.
DR. TIMOTHY P. HULICK has been Vice President--Engineering of Acrodyne since
1985, with responsibility for product concept, design and development, as
well as final test and field service. Dr. Hulick authored Acrodyne's 1989
United States patent for the digital amplitude modulator design concept.
Prior to 1985, Dr. Hulick was director of transmitter products development
at the Broadcast Products Division of Harris Corporation and President of
Electronic Research Corporation.
ROBERT F. RAUCCI has newly served as a Director of the Company since January
1998. During 1997, Mr. Raucci has been a Managing Member for Newlight
Management, LLC, a technology oriented private equity management firm. Prior
to joining Newlight, Mr. Raucci was the President of RAM Investment
Corporation ("RAM). RAM, formed in 1994, makes venture capital investments
and advises institutional private equity clients. Before forming RAM, Mr.
Raucci spent the preceding 9 years (1985-1994) at Alliance Capital Management
Corporation, a leading global investment management organization. Mr. Raucci
was part of a team that managed a portfolio of $300 million in private equity
investments, including new venture capital partnerships, secondary purchases
of existing venture capital investments, and direct company investments.
Between 1976 and 1985, Mr. Raucci worked for Graphic Scanning Corporation
("GSC"), a publicly traded telecommunications service and manufacturing
company. Mr. Raucci was seconded to Digital Communications Corporation
(a subsidiary of M/A-Com, Inc.) in Germantown, Maryland for two years as a
software engineering consultant. During his employment at GSC Mr. Raucci held
various senior management positions in engineering and technical marketing.
RONALD R. LANCHONEY has been the Chief Financial Officer of the Company since
March 1998. Prior to that date, Mr. Lanchoney held the position of
Consulting CFO for Acrodyne. As an independent financial consultant, Mr.
Lanchoney operated his own management and financial consulting business from
August 1996 until joining the Company on a full-time basis in March 1998.
From 1978 to mid 1996, Mr. Lanchoney was the Executive Vice President and Co-
founder of I/O Corporation, a distributor of advanced technology electrical
and electronic control equipment. From 1970 to 1978, Mr. Lanchoney held
various positions including division controller with I-T-E Imperial
Corporation, a manufacturer of High and Low Voltage Electrical switchgear,
distribution and control equipment.
Directors will serve in such capacity until the next annual meeting of the
stockholders or until their successors have been duly elected and qualified.
Executive officers are elected by the Board of Directors on an annual basis
and serve at the discretion of the Board or pursuant to an employment
agreement.
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the officers,
Directors and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the NASD. Officers,
Directors and greater than ten-percent shareholders are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all such reports they file.
Based solely on a review of the copies of such reports furnished to the
Company, or written representations that no Form 5 was required, the Company
believes that all Section 16(a) filing requirements applicable to its
officers, Directors and greater than ten-percent beneficial owners were
complied with through December 31, 1996 and December 31, 1997.
Item 10. Executive Compensation
EXECUTIVE COMPENSATION The following table summarizes the compensation
earned by the Company's executive officers, for services provided during
fiscal years 1997-1996.
SUMMARY COMPENSATION TABLE
Name & Principal Position Year Salary
A. Robert Mancuso
Chairman of the Board and Chief Executive Officer........ 1997 $150,000
1996 $150,000
Daniel Traynor
General Manager and Vice President....................... 1997 $126,500
1996 $126,500
Dr. Tim Hulick
Vice President--Engineering.............................. 1997 $113,000
1996 $113,000
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR - NONE
(Individual Grants)
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options Options
Name at 12-31-97 at 12-31-97
A. Robert Mancuso Exercisable 237,500 $ 0
Unexercisable 0 $ 0
Daniel Traynor Exercisable 37,500 $ 0
Unexercisable 0 $ 0
Timothy Hulick Exercisable 37,500 $ 0
Unexercisable 0 $ 0
*David Meister Exercisable 37,500 $ 0
Unexercisable 0 $ 0
* Former consulting CFO until January 1996.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
PRINCIPAL SHAREHOLDERS The following table sets forth information with
respect to the beneficial ownership of shares of Common Stock by (i) each
person known by the Company to be the owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director, and (iii) all
directors and officers as a group:
(1) (2) (3) (4)
Title of Name & Address Amount & Nature Percent of
Class of Beneficial Owner of Beneficial Owner Class
____________ ________________ ________________ ________
(a)
Common Stock Scorpion-Acrodyne 605,000 shares(b) 11.04%
Investors, LLC
Common Stock Colin Winthrop 455,000 shares(c) 7.89%
& Co., Inc.
Common Stock Daniel Traynor 185,460 shares(e) 3.47%
Common Stock A. Robert Mancuso 292,500 shares(d) 5.27%
Common Stock Martin J. Hermann 43,000 shares 0.80%
Common Stock Dr. Elmer M. Lipsey 5,000 shares .09%
All officers and directors as a group (6 persons)
628,260 shares 11.09%
- --------
(a) The address of Scorpion-Acrodyne Investors, LLC ("SAI") is 505 Park
Avenue, New York, New York, 10022. The address of Colin Winthrop & Co., Inc.
("Colin") is 100 Jericho Quadrangle, Suite 337, Jericho, New York, 11753. The
address of Messrs. Traynor and Mancuso is c/o the Company, 516 Township Line
Road, Blue Bell, Pennsylvania 19422. The address of Dr. Lipsey is 6719
Wemberly Way, McLean, Virginia 22101. The address of Mr. Hermann is 725
Glen Cove Avenue, Glen Head, New York 11545.
(b) Based solely on Company's review of a filing made by SAI on Schedule
13D, dated as of March 4, 1998. Includes 440,000 shares of common stock owned
by SAI and 165,000 shares of common stock issuable to SAI upon exercise of
outstanding warrants exercisable within 60 days after the date of this Annual
Report on Form 10-KSB. Arabella, S.A., which was also a reporting person with
respect to such Schedule 13-D, is described in such Schedule 13-D as being an
81.82% member of SAI.
(c) Includes 455,000 shares of common stock issuable to Colin Winthrop upon
exercise of outstanding warrants exercisable within 60 days after the date of
this annual Report on Form 10-KSB.
(d) Includes 237,500 shares of Common Stock issuable upon the exercise of
stock options granted to Mr. Mancuso consisting of (i) 137,500 shares of
Common Stock issuable pursuant to the Company's 1993 Stock Option Plan of
which 100,000 and 37,500 shares vested on October 14, 1995 and June 9, 1996,
respectively, (ii) 100,000 shares of Common Stock issuable pursuant to the
terms of his employment agreement of which 33,333 vested on January 1, 1995
and 1996 and 33,334 vested on January 1, 1997.
(e) Includes 37,500 shares of common stock issuable upon the exercise of
stock options granted to Mr. Traynor pursuant to the Company's 1993 Stock
Option Plan of which all shares vested on June 9, 1996.
<PAGE>
Item 12. Certain Relationships and Related Transactions
As of October 24, 1997, the Company entered into a Financial Consulting
Agreement with Scorpion Holdings, Inc. ("Scorpion") Scorpion is retained to
provide financial management, strategic planning and to arrange private and
public financing along with review and analysis of potential acquisition
candidates. The annual consulting fee of $120,000 is paid in 12 monthly
installments of $10,000. The agreement may be terminated by either party at
any time with 60 days prior notice.
Item 13. Exhibits and Reports on Form 8-K
(a) The following constitutes an Exhibit Index of the applicable Exhibits to
this report:
DESCRIPTION OF EXHIBIT
- -----------------------------------------------------------------------------
3.1* Certificate of Incorporation of Acrodyne Holdings, Inc.
3.2* By-Laws of Acrodyne Holdings, Inc., as amended to date
3.3* Certificate of Incorporation of Acrodyne Industries, Inc.
3.4* By-Laws of Acrodyne Industries, Inc., as amended to date
3.5 Certificate of Amendment to Certificate of Incorporation of
Registrant Changing its Name from Acrodyne Holdings, Inc. to
Acrodyne Communications, Inc.
3.6 Form of Certificate of Designation Preferences and Relative,
Participating, Optional or Other Special Rights, and Qualifications,
Limitations, Restrictions, of the 8% Convertible Redeemable
Preferred Stock of Acrodyne Communications, Inc.
4.1* Specimen Share Certificate
4.2* Form of Redeemable Common Stock Purchase Warrant
4.3* Form of Unit Certificate
10.1* Stock Acquisition Agreement, dated May 16, 1994, by and among
Acrodyne Holdings, Inc., Marshall Smith and Acrodyne Industries,
Inc. (without exhibits), as amended
10.1A* Amendment No. 3, dated September 21, 1994, to the Stock Acquisition
Agreement, dated May 16, 1994, by and among Acrodyne Holdings, Inc.,
Marshall Smith and Acrodyne Industries, Inc.
10.2* Form of Senior Subordinated Installment Promissory Note
10.3* Hulick and Traynor Stock Contribution Agreement, dated May 16, 1994,
by and among Acrodyne Holdings, Inc., Dr. Timothy Hulick, Daniel
Traynor and Acrodyne Industries, Inc. (without exhibits), as amended
10.3A* Amendment No. 2, dated September 21, 1994, to the Hulick and Traynor
Stock Contribution Agreement, dated May 16, 1994, by and among
Acrodyne Holdings, Inc., Dr. Timothy Hulick, Daniel Traynor and
Acrodyne Industries, Inc.
<PAGE>
10.4* Minority Shareholders' Stock Contribution Agreement, dated May 16,
1994, by and among Acrodyne Holdings, Inc. and certain minority
shareholders of Acrodyne Industries, Inc. (without exhibits), as
amended
10.4A* Amendment No. 2, dated September 21, 1994, to the Minority
Shareholders' Stock Contribution Agreement, dated May 16, 1994, by
and among Acrodyne Holdings, Inc. and certain minority shareholders
of Acrodyne Industries, Inc.
10.5* Form of Non-Compete Agreement by and among the Company and Marshall
Smith
10.6* Form of Consulting Agreement by and among the Company and Marshall
Smith
10.7* Form of Promissory Note
10.8* Form of Mancuso Employment Agreement
10.9* Form of Hulick Employment Agreement
10.10* Form of Traynor Employment Agreement
10.11* 1993 Stock Option Plan of the Company
10.12* Form of Warrant Agreement
10.13* Confirmation Letter, dated September 13, 1994, from CoreStates
Bank, N.A. regarding a line of credit of up to $1,200,000
10.14* Financial Advisory Agreement, dated as of September 14, 1993, by
and between Alchemy Capital Corp. and Acrodyne Holdings, Inc.,
as amended to date.
10.15** Financial consulting agreement dated July 1, 1995 between the
Company and Colin Winthrop & Co., Inc. and form of warrant given to
Colin Winthrop & Co., Inc.
10.16** Financial consulting agreement dated January 1, 1996 between the
Company and Colin Winthrop & Co., Inc. and form of warrant given to
Colin Winthrop & Co.,Inc.
10.17 Form of Subscription Agreement, dated March 29, 1996 between
Acrodyne Communications, Inc. and (i) Furst Associates and (ii)
Eagle Partners.
10.18 Form of Subscription Agreement, dated May 7, 1996 between Acrodyne
Communications, Inc. and (i) FM Partners and (ii) Dynamic Value
Partners.
10.19 Form of Subscription Agreement, dated Nov. 7, 1997 between Acrodyne
Communications, Inc. and Newlight Associates L.P., Newlight
Associates (B.V.I.), Scorpion-Acrodyne Investors LLC and S-A
Partners.
21.0 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants
27.0 Financial Data Schedule
- ------------------
* Incorporated by reference from the Form SB-2 filed by the Registrant (file
number 0-24886) with the U.S. Securities and Exchange Commission on October
11, 1994.
** Incorporated by reference to the Form 10-KSB filed by the Registrant (file
number 0-24886) with the SEC for its fiscal year ended December 31, 1995.
(b) Form 8-K filings: The Registrant did not file a Form 8-K during the last
quarter of the period covered by this report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Acrodyne Communications, Inc.
(Registrant)
By /s/ A. Robert Mancuso
A. Robert Mancuso, President, CEO and Director
Date 3/27/98
In accordance with the Exchange Act, this report has been signed below by the
following persons on and behalf of the registrant and in the capacities and
on the dates indicated.
By /s/ Daniel D. Traynor
Daniel D. Traynor, Director
Date 3/27/98
By /s/ Martin J. Hermann
Martin J. Hermann, Director
Date 3/27/98
By /s/ Dr. Elmer M. Lipsey
Dr. Elmer M. Lipsey, Director
Date 3/27/98
By /s/ Ronald R. Lanchoney
Ronald R. Lanchoney, CFO
Date 3/27/98
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Acrodyne Communications, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Acrodyne Communications, Inc. and its subsidiary at December 31, 1997 and
1996, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, PA
March 18, 1998
<PAGE>
Acrodyne Communications, Inc.
Consolidated Balance Sheet
December 31, 1997 and 1996
1997 1996
Assets
Current assets:
Cash and cash equivalents $ 3,011,294 $ 3,921,544
Accounts receivable, net of
allowance for doubtful accounts
of $24,327 at December 31, 1997 and 1996 943,183 2,157,108
Inventories 5,271,449 4,487,887
Prepaid expenses and deposits 105,067 63,957
------------ ------------
Total current assets 9,330,993 10,630,496
Property and equipment, net 666,395 574,311
Note receivable 85,436 79,935
Non-compete agreement, net 510,822 585,822
Goodwill, net 4,212,202 4,368,698
----------- ------------
Total assets $14,805,848 $16,239,262
=========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt and
capital leases $ 352,082 $ 336,147
Accounts payable 1,151,372 1,425,149
Accrued expenses 238,796 383,822
Customer advances 347,378 249,266
---------- -----------
Total current liabilities and
capital leases 2,089,628 2,394,384
Long-term debt 379,196 573,406
Non-compete liability 722,647 731,834
----------- -----------
Total liabilities 3,191,471 3,699,624
----------- -----------
Commitments and contingencies (Notes 8 and 12)
Shareholders' equity:
Preferred stock, par value $1.00;
1,000,000 shares authorized, 6,500 and 10,500
shares issued and outstanding in 1997 and 1996,
respectively 6,500 10,500
Common stock, par value $.01; 10,000,000
shares authorized, 5,314,270 and 4,384,270
shares issued and outstanding
in 1997 and 1996, respectively 53,143 43,843
Additional paid-in capital 17,180,718 15,134,218
Accumulated deficit (5,625,984) (2,648,923)
----------- ------------
11,614,377 12,539,638
Total liabilities and shareholders' ----------- ------------
equity $ 14,805,848 $ 16,239,262
=========== ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
Acrodyne Communications, Inc.
Consolidated Statement of Operations
For the Years Ended December 31, 1997 and 1996
1996 1995
Net sales $ 8,171,612 $10,417,029
Cost of sales 6,869,003 7,371,857
----------- -----------
Gross profit 1,302,609 3,045,172
Operating expenses: ----------- -----------
Engineering, research and development 823,406 807,287
Selling 1,609,600 1,359,013
Administration 1,543,824 1,550,686
Amortization 231,496 231,496
----------- -----------
Total operating expenses 4,208,326 3,948,482
----------- -----------
Operating loss (2,905,658) (903,310)
Other income (expense):
Interest expense, net (15,218) (70,845)
Other income (expense), net (See Note 9) 7,902 (247,255)
----------- -----------
Loss before income tax benefit (2,912,974) (1,221,410)
Income tax benefit - -
----------- -----------
Net loss $(2,912,974) $(1,221,410)
=========== ===========
Dividend on 8% Convertible Redeemable
Preferred Stock (64,087) (482,224)
----------- -----------
Net loss applicable to common shareholders (2,977,061) (1,703,634)
=========== ===========
Net loss per share - basic and diluted $ (0.65) $ (0.48)
=========== ===========
Weighted average common shares outstanding 4,584,347 3,558,856
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Acrodyne Communications, Inc.
Consolidated Statement of Shareholders' Equity
For the Years Ended December 31, 1997 and 1996
<CAPTION>
Add'l
Preferred Stock Common Stock paid-in Accum. Shareholders'
Shares Amount Shares Amount capital deficit equity
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995 2,560,530 $25,606 $7,110,580 $(945,289) $6,190,897
Issuance of warrants
for services 250,000 250,000
Issuance of shares in
connection with warrant
exercise 1,695,040 16,950 5,835,898 5,852,848
Issuance of shares in
connection with
underwriters option 128,700 1,287 482,809 484,096
Sale of preferred
shares 10,500 $10,500 1,016,702 1,027,202
Beneficial conversion
feature associated
with the sale of
preferred stock 421,563 421,563
Dividend on preferred stock (482,224) (482,224)
Stock option accrual 16,666 16,666
Net loss (1,221,410) (1,221,410)
-------- -------- --------- ------- --------- -------- ----------
December 31, 1996 10,500 10,500 4,384,270 43,843 15,134,218 (2,648,923) 12,539,638
Issuance of shares in
connection with warrant
exercise 30,000 300 99,700 100,000
Conversion of preferred
shares into common shares (4,000) (4,000) 100,000 1,000 3,000 -
Sale of common shares 800,000 8,000 1,943,800 1,951,800
Dividends on preferred
stock (64,087) (64,087)
Net loss (2,912,974) (2,912,974)
------ ------- --------- ------- ----------- ---------- -----------
December 31, 1997 6,500 $ 6,500 5,314,270 $53,143 $17,180,718 $(5,625,984) $11,614,377
====== ======= ========= ======= =========== ============ ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Acrodyne Communications, Inc.
Consolidated Statement of Cash Flows
For the Years Ended December 31, 1997 and 1996
1997 1996
Cash flows from operating activities:
Net loss $(2,912,974) $(1,221,410)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 388,159 339,508
Stock option accrual - 16,666
Issuance of warrants for services - 250,000
Changes in assets and liabilities:
Accounts receivable 1,213,925 (1,007,108)
Inventories (783,562) (2,164,100)
Note receivable (5,501) (6,030)
Prepaid expenses and deposits (41,110) 27,513
Accounts payable (273,777) 244,338
Accrued expenses (145,026) (56,041)
Customer advances 98,112 93,530
---------- ---------
Net cash used in operating activities (2,461,754) (3,483,134)
---------- ---------
Cash flows from investing activities:
Purchase of property and equipment (74,809) (227,695)
---------- ---------
Cash flows from financing activities:
Proceeds from the issuance of common stock 1,951,800 484,096
Proceeds from issuance of preferred stock - 1,027,202
Proceeds from warrant exercise 100,000 5,852,848
Payments on promissory notes (270,000) (270,000)
Repayments on line of credit - (200,000)
Capital lease repayments (82,214) (95,015)
Repayments on other borrowings and
non-compete liability (9,186) (24,844)
Cash dividends to stockholders (64,087) (60,661)
--------- ---------
Net cash provided by
financing activities 1,626,313 6,713,626
--------- ---------
Net (decrease) increase in cash and
cash equivalents (910,250) 3,002,797
Cash and cash equivalents at beginning of year 3,921,544 918,747
--------- -----------
Cash and cash equivalents at end of year $ 3,011,294 $ 3,921,544
========= ===========
Supplemental cash flow information:
Cash paid for interest $ 172,819 $ 211,454
Disclosure of non-cash financing and investing activities:
Property and equipment acquired through capital leases totaled $173,938
during the year ended December 31, 1997.
Non-cash dividends of $421,563 were paid during the year ended
December 31, 1996.
The accompanying notes are an integral part of these financial statements.
<PAGE>
1. Business and Organization
Organization
Acrodyne Holdings, Inc. (the "Company"), a Delaware corporation, was formed
in May 1991 for the purpose of acquiring an operating company. In 1995, the
Company changed its name to Acrodyne Communications, Inc.
On May 16, 1994, the Company entered into agreements to acquire all of the
outstanding stock of Acrodyne Industries, Inc., a company engaged in the
manufacture and sale of TV transmitters, LPTV transmitters and TV translators,
which are produced to customer specification. The Acrodyne Acquisition was
consummated on October 24, 1994 with proceeds obtained from a public offering
(see Note 9).
2. Summary of Significant Accounting Policies
The following summarizes the significant accounting policies employed by the
Company in preparation of its financial statements:
Consolidation
The financial statements include the accounts of the Company and its wholly-
owned subsidiary, Acrodyne Industries, Inc. All intercompany transactions and
balances are eliminated in consolidation.
Cash and cash equivalents
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents. Cash equivalents amounted to
$2,171,884 and $3,875,952 at December 31, 1997 and 1996, respectively.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or market.
Property and equipment
Property and equipment are carried at cost. The cost of additions and
improvements are capitalized, while maintenance and repairs are charged to
operations when incurred. Depreciation is recorded using the straight-line
method over the estimated useful lives of the assets (three to seven years).
Leasehold improvements are amortized over the shorter of their useful lives
or the remaining lease terms. Capital leases are depreciated over their
useful lives or lease term, as applicable.
Customer advances
Customer deposits received prior to completion of the contract between the
Company and its customers are recorded as a liability.
Revenue recognition and accounts receivable
The Company recognizes revenue from the sale of transmitters when title and
risks of ownership are transferred to the customer, which generally occurs
upon shipment or customer pick-up. A customer may be invoiced for and receive
title to transmitters prior to taking physical possession when the customer
has made a fixed, written commitment for the purchase, the transmitters have
been completed and are available for pick-up or delivery, and the customer
has requested the Company to hold the transmitters until the customer
determines the most economical means of taking physical possession. Upon such
a request, the Company has no further obligation except to segregate the
transmitters, invoice the customer under normal billing and credit terms, and
hold the transmitter for a short period of time as is customary in the
industry, until pick-up or delivery. Transmitters are built to customer
specification and no right of return or exchange privileges are granted.
Accordingly, no provision for sales allowances or returns is recorded.
<PAGE>
Concentration of credit risk
The Company's customers are primarily domestic and international television
stations, broadcasters, government entities, not-for-profit organizations and
educational institutions. International sales approximated $2,439,841 and
$2,503,000 for the years ended December 31, 1997 and 1996, respectively. No
individual customer represented more than 17% of sales in either 1997 or 1996.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make reasonable estimates and
assumptions, based upon all known facts and circumstances, that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements. Actual
results could differ from those estimates.
Research and development
Research and development expenditures related to the design and development
of new products are expensed as incurred and as such are included in
engineering, research and development in the accompanying financial
statements. Research and development costs of $168,607 and $133,000 were
charged to expense during the years ended December 31, 1997 and 1996,
respectively.
Income taxes
The Company records deferred income taxes related to estimated future tax
effects of temporary differences between financial statement carrying amounts
and the tax bases of existing assets and liabilities. A valuation allowance
has been provided to reduce deferred tax assets to their estimated net
realizable value.
Fair value of financial instruments
The fair value of financial instruments is determined by reference to various
market data and other valuation techniques as appropriate. Accounts
receivable, notes receivable and debt are financial instruments that are
subject to possible material market variations from the recorded book value.
The fair value of these financial instruments approximate their recorded book
value as of December 31, 1997 and 1996.
Segment reporting
The Company currently has one principal line of business in the manufacture
and sale of TV transmitters, LPTV transmitters and TV translators.
New accounting pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued its
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting on
Comprehensive Income," effective for fiscal years beginning after December 15,
1997. SFAS 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in the financial statements and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital on the balance sheet.
<PAGE>
Also in June 1997, the FASB issued SFAS 131, "Disclosures About Segments of
an Enterprise and Related Information," effective for fiscal years beginning
after December 15, 1997.
The Company is currently analyzing the effect these standards will have upon
the disclosure in the financial statements and notes thereto.
In 1997, the FASB also issued SFAS 128, "Earnings Per Share" and SFAS 129,
"Disclosure of Information About Capital Structure." Both statements are
effective for periods ending after December 15, 1997 and neither has had a
material impact on the financial position or results of operations of the
Company.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3. Earnings Per Share
All earnings per share amounts reflect the implementation of SFAS No. 128,
"Earnings per Share." SFAS 128 established new standards for computing and
presenting earnings per share and requires all prior period earnings per
share data be restated to conform with the provisions of the statement.
Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted average number of shares outstanding
during the period, as restated for shares issued in business combinations
accounted for as poolings-of-interests and stock dividends. Diluted earnings
per share are computed using the weighted average number of shares determined
for the basic computations plus the number of shares of common stock that
would be issued assuming all contingently issuable shares having a dilutive
effect on earnings per share were outstanding for the period.
Year ended December 31,
1997 1996
Net loss $(2,912,974) $(1,221,410)
Preferred stock dividends (64,087) (482,224)
------------ ------------
Net loss applicable to common shareholders $(2,977,061) $(1,703,634)
============ ============
Weighted average common shares outstanding (basic) 4,584,347 3,558,856
Convertible Preferred STock (Note 9) (*) (*)
Employee Stock Options (Note 10) (*) (*)
Warrants issued in connection with various
transactions (Note 10) (*) (*)
Weighted average common shares outstanding (diluted)4,584,347 3,558,856
========== ===========
Loss per share (basic) $ (0.65) $ (0.48)
========== ===========
Loss per share (diluted) $ (0.65) $ (0.48)
========== ===========
(*)Due to the Company's loss from continuing operations in 1997 and 1996, the
incremental shares issuable in connection with these instruments are anti-
dilutive and accordingly not considered in the calculation.
<PAGE>
4. Inventories
Inventories consist of the following:
December 31,
1997 1996
Raw Materials $2,815,710 $2,944,652
Work in process 1,035,065 1,416,644
Finished goods 1,854,470 246,591
---------- ----------
5,705,245 4,607,887
Reserve for excess/obsolete inventory (433,856) (120,000)
----------- -----------
$5,271,449 $4,487,887
=========== ===========
In 1997, the Company recorded a direct charge to cost of sales of $364,000 in
order to increase the reserve for excess/obsolete inventory. This additional
reserve was necessitated by technological changes that are occurring industry
wide which will reduce the installed base of older technology analog
transmitters, thus reducing the quantities of spare parts which will be
needed to support the transmitters.
5. Property and Equipment
Property and equipment consist of the following:
December 31,
1997 1996
Test equipment $559,511 $467,138
Machinery and equipment 59,564 29,046
Office Equipment 239,067 135,224
Automobile 11,043 11,043
Leasehold improvements 76,205 76,205
Purchased computer software 29,342 7,328
-------- --------
974,732 725,984
Less: Accumulated depreciation (308,337) (151,673)
--------- ---------
$666,395 $574,311
Depreciation expense amounted to $156,664 and $108,012 for the years ended
December 31, 1997 and 1996, respectively.
Property and equipment at December 31, 1997 and 1996 includes assets
(primarily test equipment) under capital leases of $319,666 and $180,509,
net of accumulated depreciation of $62,980 and $64,411, respectively.
Depreciation expense related to these assets was $31,634 and $34,392 for the
years ended December 31, 1997 and 1996, respectively.
<PAGE>
6. Non-Compete Agreement
Simultaneous with the Acrodyne Acquisition, the Company and the former
majority shareholder entered into a non-compete agreement. In consideration
for this agreement not to compete, the Company is obligated to make lifetime
annual payments to this former shareholder equal to $65,000 and provide
certain benefits at no cost to him for the remainder of his life. The Company
recorded the estimated actuarial present value of $750,000 related to this
agreement as an asset and established a corresponding liability. During the
years ended December 31,1997 and 1996, the Company recorded interest expense
of $64,215 and $66,296, respectively, relating to this liability.
The intangible asset associated with the non-compete agreement is being
amortized on a straight-line basis over a ten-year period. Amortization
expense of $75,000 was recorded during each of the years ended December 31,
1997 and 1996.
7. Goodwill
The Company recorded goodwill totaling $4,711,274 representing the excess of
purchase price over the fair value of net assets acquired of Acrodyne
Industries, Inc. Goodwill is being amortized on a straight line basis over
30 years. Amortization charged to expense during the years ended December 31,
1997 and 1996 amounted to $156,496 each year. The Company periodically
reviews goodwill to assess recoverability through a non-discounted cash flow
analysis and any perceived impairment would be charged to operations in the
period in which such impairment becomes evident.
8. Debt
Long-term debt consists of the following:
December 31,
1997 1996
Senior Subordinated Installment
Promissory Note $540,000 $810,000
Capital lease obligations 191,278 99,553
-------- --------
731,278 909,553
Less: Current portion (352,082) (336,147)
--------- ---------
$379,196 $573,406
========= =========
Pursuant to the Acrodyne Acquisition agreement, the Company issued promissory
notes to both the former majority shareholder and the former minority
shareholders, totaling $1,450,000 and $41,885, respectively.
The Senior Subordinated Installment Promissory Note payable to the former
majority shareholder bears interest at 9% and is payable in twenty unequal
quarterly installments of principal and interest, commencing January 1995.
As partial security for payment of this note, the Company has issued a
$500,000 irrevocable standby letter of credit in favor of the former majority
shareholder.
The Promissory Notes payable to the former minority shareholders bear
interest at 10% and were paid in two equal installments of principal and
interest due on October 24, 1995 and 1996.
<PAGE>
Principal payments on long-term debt are as follows:
1998 $352,082
1999 334,292
2000 44,904
--------
$731,278
========
The Company also has a $1,200,000 line of credit facility with a bank. This
facility provides for interest at prime plus 1.00% (9.5% at December 31,
1997) and is payable on demand. Availability has been reduced by the value of
the irrevocable standby letter of credit issued as partial security on the
Senior Subordinated Installment Promissory Note. No amounts were outstanding
under the facility at either December 31, 1997 or 1996.
9. Shareholders' Equity
Preferred stock
Preferred stock consists of 1,000,000 shares, par value $1 per share, which
may be issued in series from time to time with such designation, rights,
preferences and limitations as the Board of Directors of the Company may
determine by resolution. Any and all such rights that may be granted to
preferred stockholders may be in preference to common stockholders.
During 1996, the Company sold 10,500 shares of 8% Convertible Redeemable
Preferred Stock (the "8% Preferred Stock") in a private placement. Proceeds
from this sale, net of related expenses, were $1,027,202. The 8% Preferred
Stock has a liquidation preference of $100 per share plus all outstanding and
unpaid dividends and is redeemable at the discretion of the Company for the
amount of the liquidation value after one year from issuance date provided
certain stipulations are met. The 8% Preferred Stock is convertible at the
option of the holder into the number of common shares obtained by dividing
the liquidation value by the $4.00 per share conversion price, subject to
adjustment. As of December 31, 1997, the conversion price had been adjusted
to $3.71 per share because of the sale of common stock in 1997 as discussed
below. As of the dates of issuance, the weighted average market price for the
Company's common stock was $5.55. Accordingly, the beneficial conversion
feature of the preferred stock had an intrinsic value of $421,563 which was
recorded as an immediate dividend in accordance with rules established by the
staff of the Securities and Exchange Commission. Holders of the 8% Preferred
Stock vote on a fully converted basis with the holders of common stock and,
in the event of certain dividend arrearages, have the right to elect a
director to the Company's Board. During 1997, 4,000 shares of the 8%
Preferred Stock were converted into Common Stock at a conversion price of
$4.00 per share.
Common stock
On October 24, 1994, the Company completed a public offering of 1,495,000
units consisting of one share of common stock and one redeemable common stock
purchase warrant. The $3,922,313 proceeds of this offering were utilized
principally to finance the acquisition of Acrodyne Industries, Inc. and to
repay bank indebtedness of the acquired company. Each warrant entitled the
holder to purchase one share of common stock for $3.50 per share during a
four-year period commencing one year after the date of this offering. The
warrant agreement allowed the Company to redeem the warrants via a forced
exercise if the stock traded above $6 for twenty consecutive trading days.
<PAGE>
In connection with the public offering, the Company sold to the underwriter,
GKN Securities Corp. ("GKN") for nominal consideration, the right to purchase
up to an aggregate of 130,000 additional units at an exercise price of $3.85
per unit. The units issuable upon exercise of the unit purchase option were
identical to those issued in the public offering. This unit purchase option
is exercisable through 1999. In July 1996, the underwriter purchased 128,700
units yielding net proceeds of $484,096. The purchase option on the remaining
1,300 units remains outstanding at December 31, 1997.
On November 7, 1997 the Company sold 800,000 shares of common stock and
warrants to purchase up to an additional 500,000 shares of common stock for
aggregate net proceeds of $1,951,800. The warrants issued in connection with
this transaction carry an exercise price of $3.50 per common share and expire
on November 7, 2002.
<PAGE>
Warrants
During 1996, the Company paid $125,200 and issued an aggregate of 465,000
warrants to a financial consulting firm for advisory services performed
during the year. The warrants are exercisable over a three year period at
prices ranging from $4.00 to $5.00. In 1996, the Company charged $250,000 to
other expenses in connection with these warrants. During the year ended
December 31, 1997, 10,000 warrants were exercised yielding proceeds of
$100,000.
On May 24, 1996, the Company entered into an agreement with GKN to issue to
GKN and its designees certain warrants to purchase an aggregate of 200,000
shares of the Company's common shares at $6.00 per share in consideration of
GKN waiving solicitation rights and costs as indicated in the underwriting
agreement, dated October 14, 1994. No warrants have been exercised as of
December 31, 1997.
During 1996, various warrants were exercised resulting in 1,695,040 shares of
new common stock and net proceeds to the Company of $5,852,848.
The following warrants were outstanding at December 31, 1997:
Warrants Price Expiration Date
16,120 $6.30 June 30, 1999
50,000 3.00 October 24, 1999
150,000 3.00 October 24, 1999
90,000 4.00 December 31, 1998
140,000 4.50 March 31, 1999
225,000 5.00 March 31, 1999
200,000 6.00 May 24, 2001
500,000 3.00 November 7, 2002
- ---------
1,371,120
=========
Stock options
In December 1993, the Company adopted the 1993 Stock Option Plan. A total of
250,000 shares of common stock options were issuable under the 1993 Plan. The
options may be incentive stock options or non-qualified stock options. The
maximum term of each option under the 1993 Plan is 10 years. The President of
the Company was granted an option to purchase an additional 100,000 shares of
common stock at an exercise price of $3.00 per share pursuant to his
employment agreement.
In April 1997, the Company adopted the 1997 Stock Option Plan under which
450,000 options have been authorized. As of December 31, 1997, no options
have been granted under the 1997 Plan.
<PAGE>
The Company applies APB Opinion 25 and related interpretations in accounting
for its plan. For all other options granted, no compensation cost has been
recognized for its stock option plan. Had compensation cost for the Company
stock-based compensation plan been determined based on the fair value at the
grant date for awards under that plan consistent with the method of SFAS 123,
the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
December 31,
1997 1996
Net loss:
As reported $(2,912,974) $(1,221,410)
Pro forma (2,912,974) (1,341,370)
EPS:
As reported $ (0.65) $ (0.48)
Pro forma (0.65) (0.51)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model.
A summary of the Company's stock option plan as of December 31, 1997 and 1996
and changes during the years ending on those dates is presented below:
December 31, 1997 December 31, 1996
Weighted Weighted
Shares Average Shares Average
Exercise Price Exercise Price
Outstanding at beginning
of year 350,000 $3.36 350,000 $3.36
Granted - - - -
Exercised - - - -
Forfeited - - - -
------- ------- -------- ------
Outstanding at end
of year 350,000 $3.36 350,000 $3.36
======= ========
Options exercisable
at year end 350,000 350,000
Weighted average
fair value of options
granted during the year n/a n/a
<PAGE>
10. Income Taxes
The provision for income taxes differs from the amount computed using the
federal income tax rate as follows:
Year Ended
December 31,
1997 1996
Income tax at statutory federal rate $(1,018,914) $ (415,279)
Permanent differences 60,129 (30,344)
Increase in valuation allowance 958,785 445,623
Utilization of net operating loss carryforwards - -
------------ -----------
Effective tax amount $ - $ -
============ ===========
The components of the net deferred income tax asset (liability) are as
follows:
December 31,
1997 1996
Tax loss carryforwards and miscellaneous accruals $1,525,447 $ 560,763
Valuation allowance (1,486,408) (527,623)
----------- ----------
Net deferred tax asset 39,039 33,140
----------- ----------
Deferred tax liability (39,039) (33,140)
----------- ----------
$ - $ -
=========== ==========
11. Note Receivable
The Company has a note receivable outstanding from the former majority
shareholder in the amount of $66,850 plus accrued interest of $18,586 as of
December 31, 1997. This note bears interest at 9% and is repayable in full
(including all accrued interest) upon full satisfaction of amounts due to
this former majority shareholder under the Senior Subordinated Installment
Promissory Note issued in connection with the Acrodyne Acquisition (see Note 8.)
12. Commitments and Contingencies
The Company has an operating lease for its manufacturing facility and office
space which expires July 31, 2000 and includes a five-year extension option
as well as an option to terminate the current lease if a larger facility is
needed. Rental expense was approximately $219,900 and $196,560 for the years
ended December 31, 1997 and 1996, respectively.
<PAGE>
The Company also leases certain test equipment under capital leases. These
leases are secured by the related equipment. Future minimum lease payments
under noncancelable leases are as follows:
Operating Capital
Fiscal year leases leases
1998 $ 221,200 $ 82,082
1999 221,200 64,292
2000 102,375 44,903
2001 14,588
2002
--------- ---------
$ 559,363 $ 191,278
=========
Less: Interest portion (33,594)
----------
Present value of capital lease obligations $ 157,684
==========
The Company is involved in several claims in the ordinary course of business.
Management believes the resolution of these outstanding claims will not have
a material impact on the financial position, results of operations or cash
flows of the Company.
Exhibit 10.19
SUBSCRIPTION AGREEMENT
NOTE: THREE COMPLETED AND EXECUTED COPIES OF THIS
SUBSCRIPTION AGREEMENT MUST BE RETURNED, AND THE
ENTIRE PURCHASE PRICE FOR THE COMMON
STOCK SUBSCRIBED FOR MUST BE PAID AS SET FORTH HEREIN,
TO SUBSCRIBE FOR THIS OFFERING.
Number of Shares of Common Stock,
$0.01 par value, at $2.50 per Share: 800,000
Aggregate Purchase Price: $2,000,000
* * * * * * * * *
SUBSCRIPTION AGREEMENT, dated as of November 3, 1997, by and among
Acrodyne Communications, Inc., a Delaware corporation (the "Company"),
and each entity whose name appears on Schedule 1 hereto (each an "the
"Investor" and collectively the "Investor Group").
W I T N E S S E T H
WHEREAS, the Company desires to sell to the Investor Group, and the
Investor Group desires to purchase from the Company, an aggregate of
800,000 shares of the Company's Common Stock, par value $0.01 per
share (the "Common Stock"), at a purchase price of $2.50 per share;
and
WHEREAS, the Company is described in the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1996 and its
Quarterly Reports on Form 10-QSB for the periods ended March 31,
1997 and June 30, 1997 (collectively the "Reports") as filed with the
Securities and Exchange Commission (the "Commission");
NOW, THEREFORE, the parties hereto agree as follows:
1. Subscription and Payment.
Subject to the terms and conditions herein set forth, each Investor
severally hereby subscribes for that number of shares of Common Stock
appearing opposite its name on Schedule 1 and shall deliver to the
Company at the Closing (as defined below) the aggregate purchase price
appearing in Schedule 1 payable in immediately available funds.
2. Closing.
The closing (the "Closing") of the purchase and sale of the Common
Stock (the "Offering") shall occur on November 6, 1997 or the
earliest date thereafter on which the closing conditions specified in
Sections 7 and 8 of this Agreement shall have been satisfied or
waived (any such date, the "Closing Date"); provided, however, that
if the Closing has not occurred by November 7, 1997, then this
Agreement shall terminate and the Closing shall not take place. At
the Closing, the Company will deliver to each Investor one executed
copy of this Agreement with a stock certificate representing the
Investor's ownership of the Common Stock subscribed for hereby and a
Warrant as described in Section 6(d).
<PAGE>
3. Termination of Offering.
The Investor understands and agrees that it will not be entitled to
exercise the rights of a shareholder of the Company until an
appropriate certificate representing the Common Stock for which it
has subscribed has been issued to it on the day of the Closing. If
(a) the Company shall have reasonably determined that an event has
occurred or a condition exists which could materially and adversely
affect the business or proposed business of the Company and that
such possibility warrants termination of the Offering, (b) the
conditions to the Closing of the Offering are not satisfied or (c)
the Company elects to terminate the Offering, the Offering will be
terminated, and the Company will not issue the Common Stock and the
Company will not be entitled to payment of the purchase price for the
Common Stock.
4. Representations and Warranties by Investor.
Each Investor hereby severally represents and warrants to the Company
that:
(a) it is an "accredited investor" as that term is defined in
Rule 501(a) under the Securities Act of 1933, as amended (the
"Act");
(b) it has the requisite knowledge and experience in financial
and business matters to be capable of evaluating the merits and
risks of an investment in the Company;
(c) it understands that the Common Stock involves risk of loss of
such Investor's investment;
(d) its financial situation is such that such Investor is able to
bear the economic risks of its investment made hereby and at the
present time and in the foreseeable future could afford a
complete loss of such investment;
(e) it has received and carefully read the Reports and has
evaluated the risks of investing in the Company;
(f) it has been given the opportunity to ask questions of, and
receive answers from, the Company concerning the terms and
conditions of the Offering and to obtain additional information
necessary to verify the accuracy of the information contained in
the Reports or such other information as it desired in order to
evaluate its investment;
(g) in making its decision to purchase the Common Stock herein
subscribed for, it has relied solely upon the Reports, certain
other written materials provided by the Company including,
without limitation current backlog reports (such other
materials, collectively the "Materials"), and the
representations, warranties, agreements, undertakings and
acknowledgments of the Company in this Agreement and
independent investigations made by it;
(h) it understands that an investment in the Company involves
certain risks and it has taken full cognizance of and
understands such risks;
(i) it understands that the Common Stock has not been registered
under the Act and agrees that the Common Stock may not be sold,
offered for sale, transferred, pledged, hypothecated or
otherwise disposed of except in compliance with the Act and
subject to the terms of this Subscription Agreement;
(j) it understands that no federal or state agency has made any
finding or determination as to the fairness for investment in,
or any recommendation or endorsement of, the Common Stock;
(k) the Common Stock herein subscribed for is being acquired
by it in good faith solely for its own account, for
investment purposes and not with a view to subdivision,
distribution or resale. It will not sell or otherwise
dispose of any shares of the Common Stock, unless:
i) it shall have advised the Company in writing that it
intends to dispose of such shares of Common Stock in a manner
to be described in such advice, and counsel reasonably
acceptable to the Company shall have delivered to the Company
an opinion that registration is not required under the Act or
under any applicable securities laws of any jurisdiction; or
<PAGE>
ii) a registration statement on an appropriate form under
the Act, or a post-effective amendment to such registration
statement, covering the proposed sale or other disposition of
such shares of Common Stock shall be in effect under the Act
and such shares of Common Stock or the proposed sale or other
disposition thereof shall have been registered or qualified
under applicable securities laws of any jurisdiction.
Each Investor undertakes to notify the Company as soon as practicable
of any material change in any representation, warranty or other
information relating to the Investor set forth herein which occurs
prior to the Closing in order to insure compliance of the Investor
with the terms of this Agreement.
Each Investor acknowledges and agrees that the certificates
representing the Common Stock shall bear the following legend (unless
not required under the Act):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 and may not be sold,
exchanged, hypothecated or transferred in any manner except in
compliance with that certain Subscription Agreement dated as of
November 3, 1997 between the Company and the Investors named therein."
Each Investor also acknowledges that the Company may place a stop
transfer order against transfer of the Common Stock, if necessary in
the Company's reasonable judgment in order to assure compliance by the
Investor with the terms of this Agreement.
If the Investor is a partnership, corporation, trust or other entity,
the Investor represents and warrants that (i) the individual executing
this Agreement has appropriate authority to act on behalf of the
Investor and (ii) the Investor was not specifically formed to acquire
the Common Stock subscribed for hereby. If the Investor is a
partnership, the Investor further represents that the funds to make
this investment were not derived from additional capital contributions
of the partners of such partnership made solely for the purpose of
enabling such partnership to purchase the Common Stock and that such
partnership was not formed solely for the purpose of enabling such
partnership to purchase the Common Stock.
The foregoing representations, warranties, agreements, undertakings
and acknowledgments are made by the Investor with the intent that they
be relied upon in determining its suitability as a purchaser of Common
Stock.
5. Representations and Warranties of the Company. The Company
represents and warrants to each Investor that:
(a) The Company has duly filed with the Commission all reports
required by the Securities Exchange Act of 1934 (the "Exchange
Act"). The Company has furnished to the Investor a true and
correct copy of the Reports. The Reports do not, as of the
date on which each was signed, contain any untrue statement of
a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
Materials were prepared in good faith from the Company's
records maintained in the ordinary course of business, except
that the Company makes no representations or warranties with
respect to any projections or forecasts contained in the
Materials.
(b) The financial statements (including the related notes) of
the Company included in the Reports present fairly the
financial position of the Company as of the dates indicated and
its results of operations for the periods specified therein,
subject, in all cases, to the qualifications stated in the
Reports. All such financial statements have been prepared in
accordance with generally accepted accounting principles on a
basis consistently applied, subject, in all cases, to the
qualifications stated in the Reports.
<PAGE>
(c) The Company has been duly organized and validly existing
as a corporation in good standing under the laws of its
jurisdiction of organization, with full power and authority
(corporate and other) to own its properties and conduct its
business as described in the Reports, and is duly qualified
to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the
business conducted by it or the location of the properties
owned or leased by it makes such licenses, certificates and
permits from governmental authorities necessary for the
conduct of its business as described in the Reports.
(d) The authorized capital stock of the Company consists of
(i) 1,000,000 shares of Preferred Stock, par value $1.00 per
share, of which 6,500 shares are issued and outstanding at
October 15, 1997, and (ii) 10,000,000 shares of Common Stock,
par value $.01 per share, of which 4,500,270 shares are
issued and outstanding at October 15, 1997. At October 15,
1997, there are outstanding stock options and warrants
exercisable for a total of 1,215,000 shares of Common Stock.
Schedule 2 hereto accurately sets forth the Company's issued
and outstanding capital stock and all securities convertible
into capital stock. The Company has all requisite power and
authority to issue, sell and deliver the Common Stock in
accordance with and upon the terms and conditions set forth
in this Agreement; and all corporate action required to be
taken by the Company for the due and proper authorization,
issuance, sale and delivery of the Common Stock has been
validly and sufficiently taken. The shares of Common Stock
are being subscribed for hereby will be, when issued, duly
authorized, validly issued, fully paid and nonassessable.
(e) Except as set forth in this Agreement, or as described
in the Reports, subsequent to the respective dates as of
which information is given in the Reports, the Company has
not incurred any material liability or obligation, direct or
contingent, or entered into any material transaction, whether
or not in the ordinary course of business, and there has not
been any material change on a consolidated basis in the
capital stock, or any material increase in the short-term
debt or long-term debt, or any material adverse change in the
condition (financial or other), business, key personnel,
properties or results of operations of the Company.
(f) The Company is not in violation of its Certificate of
Incorporation or Bylaws or in default in the performance of
any material obligation contained in any material agreement,
indenture or other instrument. The performance by the
Company of its obligations under this Agreement and the
consummation of the transactions herein contemplated will not
conflict with or result in a breach of the Certificate of
Incorporation or Bylaws of the Company, or any material
agreement, indenture or other instrument to which the Company
is a party or by which it is bound, or any law, rule,
administrative regulation or decree of any court or
governmental authority having jurisdiction over the Company
or its properties, or result in the creation or imposition of
any material lien, charge, claim or encumbrance upon any
property or asset of the Company. Except as required by the
Act and applicable state securities or blue sky laws, no
consent, approval, authorization or order of any court or
governmental authority is required in connection with the
consummation of the transactions contemplated by this
Agreement. The rights granted to the Investor hereunder do
not in any way conflict with and are not inconsistent with
any rights granted to the holders of the Company's securities
or debt instruments.
(g) The Common Stock subscribed for hereunder, when issued,
will conform to the description thereof contained in the
Reports. Except as described in the Reports or as set forth
in this Agreement, there are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of, any shares of Common Stock
pursuant to the Company's Certificate of Incorporation or
Bylaws or any agreement or other instrument to which the
Company is a party.
(h) The Company has full right, power and authority to enter
into this Agreement and this Agreement has been duly
authorized, executed and delivered by the Company and
constitutes the legal, valid and binding agreement of the
Company enforceable against the Company in accordance with
its terms.
<PAGE>
(i) Except as otherwise stated in the Reports, (A) the
Company has good and marketable title (in fee simple, in the
case of real property), free and clear of all liens and
encumbrances, to all of the material real and personal
property described in the Report as being owned by it, except
for any liens and encumbrances which are not material in the
aggregate and do not materially interfere with the conduct of
the business of the Company, and (B) has valid leases to the
material real property described in the Reports as under
lease to it with such exceptions as do not materially
interfere with the conduct of the business of the Company.
(j) Except as set forth in the Reports, there are no
actions, suits or proceedings pending before or by any court
or governmental agency or authority, or any arbitrator, which
seek to restrain or prohibit the consummation of the
transactions contemplated hereby or which might reasonably be
expected to result in any material adverse change in the
condition (financial or other), business or results of
operations of the Company and, to the best of the Company's
knowledge, no such action, suit or proceeding has been
threatened.
(k) The Company is not in violation of any law, ordinance,
governmental rule or regulation or court degree to which it
may be subject and the Company has not failed to obtain any
license, permit, franchise or other governmental
authorization necessary to the ownership of its property or
to the conduct of its business, which violation or failure to
obtain is likely to have a material adverse effect on the
condition (financial or other), business or results of
operations of the Company.
(l) No person other than Scorpion Holdings, Inc.("Scorpion")
is entitled to receive any commission, fee or compensation
from the Company for services rendered as placement agent in
connection with the offer or sale of the Common Stock
pursuant to the Offering.
6. Covenants of the Company.
The Company covenants with the Investor that:
(a) The Company will apply the net proceeds from the sale of
the Common Stock to working capital and other general
corporate purposes.
(b) The Company undertakes to notify the Investor as soon as
practical of any material change in any representation,
warranty or other information relating to the Company set
forth herein which occurs prior to the Closing.
(c) Neither the Company nor any of its employees or other
persons directly or indirectly affiliated with it will engage
in any activity that would jeopardize the status of the
Offering as an exempt transaction under the Act or under the
laws of any state in which the Offering is made.
(d) At Closing, the Company shall issue to the Investors
identified in Schedule 1 warrants for the purchase of up to
300,000 shares of Common Stock, exercisable for five (5)
years after the Closing Date at a warrant exercise price of
$3.00 per share of Common Stock, in the form of the Warrant
Agreement attached hereto as Exhibit A (such warrants, the
"Investor Warrants").
(e) At Closing, in consideration for Scorpion Holdings Inc.'s
("Scorpion") introduction to the Investor Group the Company
shall sell to S-A Partners for $2,000 warrants for the
purchase of up to 200,000 shares of Common Stock, exercisable
for five (5) years after the Closing Date at a warrant
exercise price of $3.00 per share of Common Stock, in the form
of the Warrant Agreement attached hereto as Exhibit A (such
warrants, the "Scorpion Warrants" and, collectively with the
Investor Warrants, the "Warrants").
(f) At Closing, the Company shall enter into a financial
advisory agreement with Scorpion in the form of Exhibit B
attached hereto.
(g) For so long as the Investor Group owns beneficially
not less than 10% of the Common Stock of the Company issued
and outstanding on a fully diluted basis (assuming the
exercise or conversion of all securities exercisable or
convertible into Common Stock): (i) the Company's Board of
Directors shall consist of five (5) directors, (ii) the
Investor Group shall be entitled to nominate one (1) director
for election as a member of the Board of Directors of the
Company at the annual meeting of stockholders or any other
meeting at which directors are elected, and the Company shall
include such nominee in the slate of nominee directors
recommended for election by the incumbent directors and
management; and (iii) the Company shall include in such slate
of nominee directors at least two (2) nominees who are not
affiliated with the Company's management or with the Investor
Group and who shall be selected with the consent of the
Investor Group, whose consent shall not be unreasonably or
arbitrarily withheld. The Company shall be entitled to rely
on instructions received by Investors representing a majority
of the Common Stock held by the Investor Group.
<PAGE>
7. Conditions of Investor Obligations.
The Investor's obligations under this Agreement are subject to the
accuracy of the representations and warranties of the Company made in
Section 5 hereof in all material respects, to the performance by the
Company of its other obligations under this Agreement to be performed
at or prior to the Closing and to the following further conditions:
(a) At the Closing, the Investor shall have received the
favorable opinion of counsel to the Company, dated the
Closing Date and in form and substance satisfactory to the
Investor, to the effect that:
i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of
its jurisdiction of organization, with full power and
authority to own its properties and conduct its business as
described in the Reports, and is duly qualified to do
business as a foreign corporation and is in good standing in
each jurisdiction in which the location of the properties
owned or leased by it, as known by such counsel, makes such
qualification materially necessary.
ii) The authorized capital stock of the Company consists of
1,000,000 shares of preferred stock, par value $1.00 per
share, and 10,000,000 shares of Common Stock, par value $.01
per share. The Company has all requisite power and authority
to issue, sell and deliver the Common Stock subscribed for
hereby in accordance with and upon the terms and conditions
set forth in this Agreement; and all corporate action
required to be taken by the Company for the due and proper
authorization, issuance, sale and delivery of such Common
Stock has been validly and sufficiently taken. Upon payment
by the Investor at the Closing of the purchase price for the
shares of Common Stock subscribed for hereby, such Common
Stock will be, upon issuance and delivery thereof duly
authorized, validly issued, fully paid and nonassessable.
There are no preemptive or other rights to subscribe for or
to purchase, nor any restriction upon the voting or transfer
of, any shares of Common Stock pursuant to the Company's
Certificate of Incorporation, By-laws or any agreement or
other instrument known to such counsel to which the Company
is a party except as described in the Reports.
iii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not
result in a violation of, or constitute a default under, the
Certificate of Incorporation or Bylaws of the Company, or any
material agreement, indenture or other instrument known to
such counsel to which the Company is a party or by which it
may be bound, or to which any property of the Company is
subject, nor will the performance by the Company of its
obligations hereunder violate any law, rule, administrative
regulation or decree known to such counsel of any court, or
any governmental agency or authority having jurisdiction over
the Company or its properties, or, to the knowledge of such
counsel, result in the creation or imposition of any material
lien, charge, claim or encumbrance upon any property or asset
of the Company. No consent, approval, authorization or other
order of any court, governmental agency or authority is
required in connection with the consummation of the
transactions contemplated by this Agreement, except such as
have been obtained or as are contemplated hereunder.
<PAGE>
iv) The Company has full legal right, power and authority to
enter into this Agreement. This Agreement has been validly
authorized, executed and delivered by the Company and
constitutes a legal, valid and binding agreement of the
Company, enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and similar laws relating
to or affecting creditors' rights generally and court
decisions with respect thereto (provided that no opinion need
be expressed with respect to the application of equitable
principles in any proceeding, whether at law or in equity).
In expressing such opinion, such counsel may state (i) that,
as to questions of fact not independently established by such
counsel, such counsel has relied on certificates of the
Company or its officers and of public officials, (ii) that
such opinion is limited to the General Corporation Law of the
State of Delaware, the laws of the United States and the laws
of the state in which such counsel maintains its principal
office, and (iii) that, when reference is made in such
opinion to "knowledge" or to what is "known" to such counsel,
such reference means the actual knowledge of only those
attorneys who have given substantive attention to the
representation of the Company and the preparation and
negotiation of this Agreement.
(b) At the Closing the Investor shall have received a
certificate, dated the date thereof and signed by the
Chairman of the Board and President of the Company to the
effect that:
i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects, as
if made at and as of the Closing Date, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Date; and
ii) The signer of said certificate has examined the Reports
and after giving effect to all amendments or supplements
thereto, on the Closing Date, such Reports does not include
any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not
misleading.
If any of the conditions specified in this Section 7 have not been
fulfilled in all material respects when and as required by this
Agreement to be fulfilled, the Investor may cancel this Agreement and
all its obligations under this Agreement by notifying the Company of
such cancellation in writing or by telegram or by facsimile at any
time at or before the Closing and any such cancellation will be
without liability or obligation of any party to any other party
(except in the case of willful breach).
8. Conditions of Obligations of the Company.
The obligations of the Company under this Agreement are subject to
the accuracy of the representations and warranties of the Investor
made in Section 4 hereof in all material respects and to the
performance by the Investor of its other obligations under this
Agreement to be performed at or prior to the Closing.
If any of the conditions specified in this Section 8 have not been
fulfilled in all material respects when and as required by this
Agreement to be fulfilled, the Company may cancel this Agreement and
all its obligations under this Agreement by notifying the Investor of
such cancellation in writing or by telegram at any time at or before
the Closing and any such cancellation will be without liability or
obligation of any party to any other party (except in the case of
willful breach).
<PAGE>
9. Special Covenants of Investor Group.
(a) Each Investor hereby severally agrees that, without the prior
written consent of the Company, it will not during the period ending
on the first (1st) anniversary of the Closing, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, or (ii) enter
into any swap or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii) above is
to be settled by delivery of Common Stock or such other securities,
in cash or otherwise.
(b) Each Investor and Scorpion agrees that, for a period of two
years and six (6) months from the date hereof, neither they nor any
of their affiliates will, without the prior written consent of the
Company or its Board of Directors: (i) in any manner, acquire,
attempt to acquire, offer to acquire, or agree to acquire, directly
or indirectly, by purchase or otherwise, greater than a 49.9%
interest in the voting securities (including direct or indirect
rights to acquire any voting securities) of the Company or any
subsidiary thereof, or of any successor to or person in control of
the Company, (ii) make or in any way participate in, directly or
indirectly, any "solicitation" of "proxies" (as such terms are used
in the proxy rules of the Securities and Exchange Commission) to
vote, or seek to advise or influence any person or entity with
respect to the voting of, any voting securities of the Company; (iii)
nominate for election or otherwise cause to be elected directors
constituting a majority of the entire Board of Directors of the
Company; (iv) make any public announcement with respect to a proposal
for, or offer of (with or without conditions) any extraordinary
transaction involving the Company or its securities or assets; (v)
form, join or in any way participate in a "group" (as defined in
Section 13(d)(3) of the Exchange Act) in connection with any of the
foregoing or (vi) take any action which might require the Company to
make a public announcement regarding the possibility of a business
combination or merger or other transaction. Investor and Scorpion
also agree during such period not to request the Company or any of
its representatives, directly or indirectly, to amend or waive any
provision of this paragraph (including this sentence). Investor and
Scorpion will promptly advise the Company of any inquiry or proposal
made to them with respect to any of the foregoing. For the purposes
of this Section 9(b), each Investor and Scorpion shall be deemed to
be affiliated and their ownership of Common Stock aggregated.
10. Registration Rights
(a) "Registration Period" means the period between the date
of this Agreement and the earlier of (i) the date on which
all of the shares of Common Stock and the Common Stock into
which the Warrants are exercisable (collectively the
"Registrable Securities") have been sold in transactions
where the transferee is not subject to securities law resale
restrictions (or is subject to securities law resale
restrictions solely because it is an "affiliate" of the
Company under the Securities Act and the Rules promulgated
thereunder), or (ii) the date on which the Registrable
Securities (in the opinion of Investor's counsel) may be
immediately sold without registration and free of
restrictions on transfer.
(b) "Registration Statement " means a registration statement
of the Company filed with the Securities and Exchange
Commission (the "SEC") under the Securities Act.
(c) The term "register", "registered", and "registration"
refer to a registration effected by preparing and filing a
Registration Statement in compliance with the Securities Act
and applicable rules and regulations thereunder and pursuant
to Rule 415 under the Securities Act, and the declaration or
ordering of effectiveness of such Registration Statement by
the SEC.
(d) The Company represents and warrants that it meets the
requirements for the use of Form S-3 and the Company shall
file all reports required to be filed by the Company with the
SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
<PAGE>
(e) Within ninety (90) days following the Closing Date, the
Company will prepare and file a Registration Statement on
Form S-3 with the SEC, registering all of the Registrable
Securities for resale. To the extent allowable under the
Securities Act and the Rules promulgated thereunder, the
Registration Statement shall include the Registrable
Securities and such indeterminate number of additional shares
of Common Stock as may become issuable pursuant to this
Agreement and/or upon exercise of the Warrants (i) to prevent
dilution resulting from stock splits, stock dividends or
similar transactions. The Registration Statement (and each
amendment or supplement thereto) shall be provided to, and
subject to the reasonable approval of , the Investors and
their counsel. The Company shall use its best efforts to
cause such Registration Statement to be declared effective by
the SEC as soon as practicable after filing. Such best
efforts shall include, but not be limited, promptly
responding to all comments received from the staff of the SEC.
Should the Company receive notification from the SEC that the
Registration Statement will receive no action or no review
form the SEC, the Company shall cause such Registration
Statement to become effective within five (5) business days of
such SEC notification. Once declared effective by the SEC, the
Company shall cause such Registration Statement to remain
effective throughout the Registration Period.
(f) The Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) filed
by the Company shall not contain any untrue statements of a
material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein,
in light of the circumstances in which they were made, not
misleading. The Company shall prepare and file with the SEC
such amendments (including post-effective amendments) and
supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all
times during the Registration Period and, during such period,
shall comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until such
time as all of such Registrable Securities have been disposed
of in accordance with the intended methods of disposition by
the sellers thereof as set forth in the Registration Statement.
11. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable
Securities, the directors, if any, of such Investor, the
officers, if any, of such Investor, each person, if any, who
controls any Investor within the meaning of the Securities Act
or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of
such underwriter and the officers, if any, of such underwriter,
and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Exchange Act
(each, an "Indemnified Person"), against any losses, claims,
damages, expenses or liabilities (joint or several)
(collectively "Claims") to which any of them become subject
under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or
are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-
effective amendment thereof, or any prospectus included
therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement
or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective
date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company
files any amendment thereof or supplement thereto with the
SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein,
in light of the circumstances under which the statements
therein were made, not misleading, or (iii) any violation or
alleged violation by the Company of the Securities Act, the
Exchange Act or any state securities law or any rule or
regulation (the matters in the foregoing clauses ((i)through
(iii) being, collectively, "Violations"). Subject to the
restrictions set forth in Section 11(c) with respect to the
number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person,
promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement
contained in this Section 11(a): (A) shall not apply to a
Claim arising out of or based upon a Violation which occurs
in reliance upon and in conformity with information furnished
in writing to the Company by any Indemnified Person or
underwriter forsuch Indemnified Person expressly for use in
connection with the preparation of the Registration Statement
or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant
to this Agreement hereof;
<PAGE>
(B) with respect to any preliminary
prospectus shall not inure to the benefit of any such person
from whom the person asserting any such Claim purchased the
Registrable Securities that are the subject thereof (or to
the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in
the preliminary prospectus was corrected in the prospectus,
as then amended or supplemented, if a prospectus was timely
made available by the Company pursuant to this Agreement; and
(C) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or
on behalf of the Indemnified Persons and shall survive the
transfer of the Registrable Securities by the Investors to
this Agreement.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor, severally and
not jointly, agrees to indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 11(a),
the Company, each of its directors, each of its officers who
signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the Securities Act
or the Exchange Act, any underwriter and any other stockholder
selling securities pursuant to the Registration Statement or
any of its directors or officers or any person who controls
such stockholder or underwriter within the meaning of the
Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an "Indemnified Party"), against
any Claim to which any of them may be come subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such
Claim arises out of or is based upon any Violation, in each
case to the extent (an onlyto the extent) that such Violation
occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor
expressly for use in connection with such Registration
Statement, and such Investor will promptly reimburse any
legal or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in
this Section 11(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided further,
however, that the Investor shall be liable under this Section
11(b) for only that amount of a Claim as does not exceed the
net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf
of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to this
Agreement. Notwithstanding anything to the contrary contain
herein, the indemnification agreement contained in this
Section 11(b) with respect to any preliminary prospectus
shall not inure to the benefit of any Indemnified Party if
the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis
in the prospectus, as then amended or supplemented.
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 11 of notice of the
commencement of any action (including any governmental action)
such Indemnified Person or Indemnified Party shall, if a Claim
in respect thereof is to be made against any indemnifying
party under this Section 11, deliver to the indemnifying party
a written notice of the commencement thereof and this
indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with
any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually
satisfactory to the indemnifying parties; provided, however,
that an Indemnified Person or Indemnified Party shall have the
right to retain its own counsel, with the fees and expenses to
be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and
other party represented by such counsel in such proceeding.
The Company shall pay for only one separate legal counsel for
the Investors; such legal counsel shall be selected by the
Investors holding a majority in interest of the Registrable
Securities. The failure to deliver written notice to the
indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person
or Indemnified Party under this Section 11, except to the
extent that the indemnifying party is prejudiced in its
ability to defend such action. The indemnification required
by this Section 11 shall be made by periodic payments of the
amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is
incurred and is due and payable. The provisions of this
Section 11 shall survive the termination of this Agreement.
<PAGE>
12. Contribution. If the indemnification provided for in Section
11 herein is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein (other than
by reason of the exceptions provided therein), then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified
Party as a result of such losses, claims, damages or liabilities as
between the Company on the one hand and any Investor on the other, in
such proportion as is appropriate to reflect the relative fault of
the Company and of such Investor in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
The relative fault of the Company on the one hand and of any Investor
on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to
information supplied by the Company or by such Investor.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 12 exceed the amount that such
Indemnifying Party would have been obligated to pay by way of
indemnification if the indemnification provided for under Sections
11(a) or 11(b) hereof had been available under the circumstances.
The Company and the Investors agree that it would not be just and
equitable if contribution pursuant to this Section 12 were determined
by pro rata allocation (even if the Investors or the underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take account o the equitable considerations
referred to in the immediately preceding paragraphs. The amount paid
or payable by an Indemnified Party as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding
paragraphs shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this section,
no Investor or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any Investor, the
net proceeds received by such Investor from the sale of Registrable
Securities or (ii) in the case of an underwriter, the total price at
which the Registrable Securities purchased by it and distributed to
the public were offered to the public exceeds, in any such case, the
amount of any damages that such Investor or underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
<PAGE>
13. Public Information. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities
Act or any other similar rule or regulation of the SEC that may at
any time permit the Investors to sell securities of the Company to
the public without registration ("Rule 144"), the Company agrees to:
(a) File with the SEC in a timely manner and make and keep
available all reports and other documents required of the
Company under the Exchange Act so long as the Company remains
subject to such requirements and the filing and availability
of such reports and other documents is required for the
applicable provisions of Rule 144; and
(b) Furnish to each Investor so long as such Investor holds
Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the
reporting requirements of Rule 144 and the Exchange Act, (ii)
a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be
reasonably requested to permit the Investors to sell such
securities pursuant to Rule 144 without registration.
14. Assignment of Registration Rights. The rights to have the
Company register Registrable Securities pursuant to this Agreement
shall be automatically assigned by the Investors to transferees or
assignees of all or any portion of such securities or Warrants
exercisable into Registrable Securities only if (i) the Investor
agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished
with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration
rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by
the transferee or assignee is restricted under the Securities Act and
applicable state securities laws, (iv) at or before the time the
Company received the written notice contemplated by clause (ii) of
this sentence, the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein, (v)
such transfer shall have been made in accordance with the applicable
requirements of the Agreement, and (vi) such transferee shall be an
"accredited investor" as that term is defined in Rule 501 of
Regulation D promulgated under the Securities Act.
15. Expenses.
The reasonable legal and accounting fees and out-of-pocket expenses
of the Investor Group and Scorpion incurred in connection with this
Offering and the transactions contemplated herein, aggregating up to
a total of $20,000, shall be borne by the Company. Subject to the
preceding sentence, each party hereto shall bear its own legal and
other expenses incurred in connection with this Offering.
16. Notices.
(a) Any notice required to be given or delivered to the
Investor shall be mailed first class, postage prepaid, return
receipt requested, to such Investor's address shown on the
signature page hereof with a copy to:
Robert T. Tucker, Esq.
61 Purchase Street
Rye, NY 10580
(b) Any notice required to be given or delivered to the
Company shall be mailed first class, postage prepaid, return
receipt requested, to:
<PAGE>
Acrodyne Communications, Inc.
516 Township Line Road
Blue Bell, PA 19422
Attn: President
with a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attn: Stephan Haimo, Esq.
17. Survival of Representations and Warranties. All
representations and warranties and agreements hereunder shall
survive execution of this Agreement and delivery of the Common Stock.
18. Governing Law. This Agreement and the rights and obligations
of the parties shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and to
be performed wholly within that State.
19. Entire Agreement. This Agreement (including all schedules
and exhibits thereto) constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are
no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement
supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
20. Amendment of Agreement. Provisions of this Agreement may be
amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the Investor. Any
amendment or waiver effected in accordance with this Section 15 shall
be binding upon the Investor and the Company.
21. Severability. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision hereof.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement as of the date first above written.
NEWLIGHT ASSOCIATES L.P.
Name of Subscriber
By: ____________________________
Name:
Title:
Address:
____________________________
____________________________
____________________________
Tax Identification Number:
____________________________
The terms of the foregoing including
the subscription described therein are
agreed to and accepted as of
the date first above written:
ACRODYNE COMMUNICATIONS, INC.
By: ______________________________
Name: A. Robert Mancuso
Title: Chairman and President
The terms of the foregoing, insofar
as they relate to Scorpion Holdings, Inc.,
are agreed to and accepted as of
the date first above written:
SCORPION HOLDINGS, INC.
By: ______________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement as of the date first above written.
NEWLIGHT ASSOCIATES (B.V.I.) L.P.
Name of Subscriber
By: ____________________________
Name:
Title:
Address:
____________________________
____________________________
____________________________
Tax Identification Number:
____________________________
The terms of the foregoing including
the subscription described therein are
agreed to and accepted as of
the date first above written:
ACRODYNE COMMUNICATIONS, INC.
By: ______________________________
Name: A. Robert Mancuso
Title: Chairman and President
The terms of the foregoing, insofar
as they relate to Scorpion Holdings, Inc.,
are agreed to and accepted as of
the date first above written:
SCORPION HOLDINGS, INC.
By: ______________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement as of the date first above written.
SCORPION-ACRODYNE INVESTORS LLC
Name of Subscriber
By: ____________________________
Name:
Title:
Address:
____________________________
___________________________
___________________________
Tax Identification Number:
___________________________
The terms of the foregoing including
the subscription described therein are
agreed to and accepted as of
the date first above written:
ACRODYNE COMMUNICATIONS, INC.
By: ______________________________
Name: A. Robert Mancuso
Title: Chairman and President
The terms of the foregoing, insofar
as they relate to Scorpion Holdings, Inc.,
are agreed to and accepted as of
the date first above written:
SCORPION HOLDINGS, INC.
By: ______________________________
Name:
Title:
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