U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A-2
(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 (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation or Organization)
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/A-2
FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
PAGE
PART I...............................................................5
Item 1............................................................5
Description of Business........................................5
Item 2...........................................................16
Description of Property.......................................16
Item 3...........................................................16
Legal Proceedings.............................................16
Item 4...........................................................16
Submission of Matters to a Vote of Security Holders...........16
Part II.............................................................17
Item 5...........................................................17
Market for Common Equity and Related Stockholder Matters......17
Item 6...........................................................18
Management Discussion and Analysis............................18
Item 7...........................................................22
Financial Statements..........................................22
Item 8...........................................................22
Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.....................................22
Part III............................................................23
Item 9...........................................................23
Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act....23
Item 10..........................................................26
Executive Compensation........................................26
Item 11..........................................................27
Security Ownership of Certain Beneficial Owners and
Management....................................................27
Item 12..........................................................28
Certain Relationships and Related Transactions................28
Item 13..........................................................29
Exhibits and Reports on Form 8-K..............................29
SIGNATURES.......................................................31
<PAGE>
PART I
The Form 10-KSB for the fiscal year ended December 31, 1996 filed by
Acrodyne Communications, Inc. on April 1, 1998, as amended by the Form 10-KSB/A
filed on April 1, 1998, is hereby further amended and restated in its entirety
to read 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 Distribution System ("MMDS") transmitters for the wireless cable
industry.
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.
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.
Six 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.
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)").
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 the 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.
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 the second fiscal
quarter of 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.
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 in effort to establish a
steady stream of purchasers of the Company's products.
DOMESTIC SALES
Domestic sales accounted 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.
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.
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's 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.
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 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.
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.
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 have been 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 required by the terms of
such stock. A dividend payment of $14,028 was also 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.
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.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
1997 1996
---- ----
<S> <C> <C>
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 823,406 807,287
development
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
---------- ----------
</TABLE>
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.
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 fourteen (14) quarterly payments totaling $1,338,570
(including interest) under such note have been made through April 23, 1998
pursuant to the agreement.
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 of such
shares of the Preferred Stock were converted into 100,000 shares of the
Company's common stock in accordance with the conversion provisions of the
Preferred Stock at a conversion price of $4.00 per share of common stock. In
addition, subsequent to such conversion, pursuant to the terms of the Preferred
Stock and as a result of certain common stock issuances by the Company during
1997, the conversion price for the remaining shares Preferred Stock was reduced
to $3.71 per share of common 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 Winthrop, 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.
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 the date of
this Report.
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 has recently filed a
registration statement on Form S-3 with the Securities and Exchange Commission
to, among other things, 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.
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, as of March
31, 1998, are as follows:
NAME AGE POSITION
A. Robert Mancuso........ 60 Chairman of the Board,
President and Chief
Executive Officer of the
Company and Acrodyne
Industries, Inc.
Martin J. Hermann......... 59 Director, Secretary and
General Counsel of the
Company
Dr. Elmer M. Lipsey........ 75 Director of the Company
Daniel D. Traynor.......... 55 Director of the Company and
Vice President and General
Manager of Acrodyne
Industries, Inc.
Dr. Timothy P. Hulick....... 55 Vice President-Engineering
of Acrodyne Industries, Inc.
Robert F. Raucci............ 43 Director of the Company
Ronald R. Lanchoney......... 51 Chief Financial Officer of
the Company
A. ROBERT MANCUSO has been Chairman of the Board, President and Chief Executive
Officer of the Company since its inception in May 1991. Mr. Mancuso has also
served as President and Chief Executive Officer of Acrodyne since its
acquisition by the Company in October 1994. From July 1991 to October 1994, he
was also 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 in May 1991. 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.
DANIEL D. TRAYNOR has been employed by Acrodyne since 1970. He has been its Vice
President since 1985 and General Manager since 1990. Mr. Traynor has
responsibility for the overall day-to-day management of Acrodyne, including
supervision of production, sales and marketing. Prior to 1970, he held
engineering and 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 seven (7) Acrodyne United
States patents 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 served as a Director of the Company since January 18, 1998.
Since 1997, Mr. Raucci has been a managing member of Newlight Management, LLC, a
technology-oriented private equity management firm. Since 1994, Mr. Raucci has
also been 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)
with Alliance Capital Management Corporation, a global investment management
organization at which he 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. During his employment at GSC, Mr. Raucci held various
senior management positions in engineering and technical marketing. Mr. Raucci
also serves as a director of Dental Care Alliance Corp.
RONALD R. LANCHONEY has been the Chief Financial Officer of the Company since
March 2, 1998. During the one month period prior to that date, Mr. Lanchoney
held the position of consulting CFO for the Company, providing financial
consulting services to the Company on a part-time basis. 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 of I/O Corporation, a company which he co-founded and which is 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
shareholders 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.
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.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION The following table summarizes the compensation earned by
the Company's executive officers (the "Named Executive Officers"), for services
provided during the Company's fiscal years ended December 31, 1997, 1996 and
1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term All Other
Annual Compensation Compensation Compensation
Securities
Fiscal Underlying
Name and Principal Position Year Salary Bonus OPTIONS (#)
<S> <C> <C> <C> <C> <C>
A. Robert Mancuso 1997 $150,000 None None $900/month*
Chairman of the 1996 $150,000 None None $900/month*
Board, President 1995 $150,000 $104,000 137,500 $900/month*
and
Chief Executive
Officer
Daniel D. Traynor 1997 $126,500 None None None
General Manager 1996 $126,500 None None None
and Vice President 1995 $126,500 None 37,500 None
of Acrodyne
Dr. Timothy P. 1997 $113,000 None None None
Hulick
Vice President - 1996 $113,000 None None None
Engineering of 1995 $113,000 None 37,500 None
Acrodyne
Ronald R. 1997 None None None None
Lanchoney* *
Chief Financial 1996 None None None None
Officer
- ------------------
* Automobile allowance.
** Mr. Lanchoney was hired as Chief Financial Officer on March 2, 1998 at an
annual salary of $80,000. During the one month period prior to that date, Mr.
Lanchoney served as consulting CFO to the Company, providing financial
consulting services to the Company on a part-time basis.
</TABLE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no stock option grants made by the Company to the Named Executive
Officers during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
Number of Value of Unexercised
Unexercised In-The-
Shares Options At Money Options At Year
Acquired Value Year-End (#) End ($)
NAME On REALIZED
EXERCISE (#) ($) Exercisable (E)/ Exercisable (E)/
--------- --- Unexercisable(U) Unexercisable (U)
<S> <C> <C> <C> <C>
A. Robert Mancuso - - E 237,500 E $0
U 0 U $0
Daniel D.Traynor - - E 37,500 E $0
U 0 U $0
Dr. Timothy P. Hulick - - E 37,500 E $0
U 0 U $0
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of Common Stock as of March 31, 1998, 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, (iii) the Named Executive Officers and (iv)
all directors and officers as a group:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Amount & Nature Percent
Title of Name & Address of Beneficial of Class
Class of Beneficial Owner(a) Ownership
<S> <C> <C> <C>
Common Stock Scorpion-Acrodyne 605,000 shares(b) 11.04%
Investors, LLC
Common Stock A. Robert Mancuso 292,500 shares(c) 5.27%
Common Stock Daniel D. Traynor 185,460 shares(d) 3.47%
Common Stock Martin J. Hermann 43,000 shares 0.81%
Common Stock Dr. Elmer M. Lipsey 5,000 shares .09%
Common Stock Dr. Timothy P. Hulick 103,840 shares(e) 1.94%
All officers and directors as a group (5 persons) 444,340 shares(f) 7.9%
- --------
(a) The address of Scorpion-Acrodyne Investors, LLC ("SAI") is 505 Park
Avenue, New York, New York, 10022. The address of Messrs. Mancuso and
Traynor and Dr. Hulick 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 the 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 13D, is described in such Schedule 13D as being
an 81.82% member of SAI.
(c) 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 (the "1993
Stock Option Plan"), of which 100,000 and 37,500 options
vested on each of October 14, 1995 and June 9, 1996,
respectively and (ii) 100,000 shares of Common Stock
issuable upon the exercise of options issued pursuant to
the terms of Mr. Mancuso's employment agreement, of which
33,333 options vested on each of January 1, 1995 and 1996
and 33,334 options vested on January 1, 1997.
(d) Includes 37,500 shares of Common Stock issuable upon the exercise of
stock options granted to Mr. Traynor pursuant to the 1993 Stock Option
Plan, all of which vested on June 9, 1996.
(e) Includes 37,500 shares of Common Stock issuable upon the exercise of
stock options granted to Dr. Hulick pursuant to the 1993 Stock Option
Plan, all of which vested on June 9, 1996.
(f) Includes 312,500 shares of Common Stock issuable upon exercise of
options exercisable within 60 days after March 31, 1998.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of October 24, 1997, the Company entered into a financial consulting
agreement (the "Scorpion Agreement") with Scorpion Holdings, Inc. ("Scorpion").
Scorpion has been retained by the Company to provide financial management and
strategic planning services and to arrange private and public financing, as well
as to review and analyze potential acquisition candidates. Pursuant to the
Scorpion Agreement, an annual consulting fee of $120,000 is paid by the Company
to Scorpion in 12 equal monthly installments of $10,000. The Scorpion 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.
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
27.0 Financial Data Schedule
- ------------------
* Incorporated by reference to the Form SB-2 filed by the Registrant
(file number 33-82910 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.
*** 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, 1996.
(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 5/11/98
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 5/11/98
By /S/ MARTIN J. HERMANN
Martin J. Hermann, Director
Date 5/11/98
By /S/ ROBERT F. RAUCCI
Robert F. Raucci, Director
Date 5/11/98
By /S/ RONALD R. LANCHONEY
Ronald R. Lanchoney, CFO
Date 5/11/98
<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>
<TABLE>
<CAPTION>
ACRODYNE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------------------------------------------------
1997 1996
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,011,294 $ 3,921,544
Accounts receivable, net of allowance for doubtful
accounts of $24,327 at December 943,183 2,157,108
31, 1997 and 1996
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 2,089,628 2,394,384
Long-term debt and capital leases 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, 6,500 10,500
respectively
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, 53,143 43,843
respectively
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACRODYNE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
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 benefits (2,912,974) (1,221,410)
Income tax benefit - -
--- --
Net loss $(2,912,974) $(1,221,410)
============ ============
Dividend on 8% Convertible Redeemable (64,087) (482,224)
-------- ---------
Preferred Stock
Net loss applicable to common $(2,977,061) $(1,703,634)
============ ============
shareholders
Net loss per share - basic and diluted $ (0.65) $ (0.48)
========== ==========
Weighted average common shares 4,584,347 3,558,856
========= =========
outstanding
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACRODYNE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------------------------------------------------------------------
1997 1996
Cash flows from operating activities:
<S> <C> <C>
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 used in 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 (910,250) 3,002,797
and cash equivalents
Cash and cash equivalents at 3,921,544 918,747
--------- -------
beginning of year
Cash and cash equivalents at end $ 3,011,294 $ 3,921,544
=========== ==========
of year
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACRODYNE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Additional Total
Preferred Stock Common Stock paid-in Accumulated Shareholders'
Shares Amount Shares Amount capital deficit equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 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 options 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
Dividend on preferred stock 421,563 421,563
Stock option accrual (482,224) (482,224)
Net loss 16,666 16,666
---------- -------- ----------- -------- ------------ ---------- -----------
Balance at 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 30,000 300 99,700 100,000
connection with warrant exercise
Conversion of preferred (4,000) (4,000) 100,000 1,000 3,000
shares into common shares
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)
------------ ----------- ----------- ---------- ---------- ---------- -----------
Balance at December 31, 1997 6,500 $ 6,500 5,314,270 $ 53,143 $17,180,718 $(5,625,984) $ 11,614,377
----------- ---------- ----------- ---------- ----------- ------------ ------------
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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.
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.
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.
<PAGE>
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 $(2,977,061) $(1,703,634)
shareholders ============ ============
Weighted average common shares 4,584,347 3,558,856
outstanding (basic)
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.
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.
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 $540,000 $810,000
Promissory Note
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.
Principal payments on long-term debt are as follows:
1998 $352,082
1999 34,292
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.
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.
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.
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:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Weighted Weighted
Shares Average Shares Average
Exercise Exercise
Price Price
Outstanding at
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES
The provision for income taxes differs from the amount computed using
the federal income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1997 1996
<S> <C> <C>
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 $ - $ -
</TABLE>
The components of the net deferred income tax asset (liability) are as
follows:
December 31,
1997 1996
Tax loss carryforwards and miscellaneous $1,525,447 $ 560,763
accruals
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.
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.
<PAGE>
EXHIBIT INDEX
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.
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
27.0 Financial Data Schedule
- ------------------
* Incorporated by reference to the Form SB-2 filed by the
Registrant (file number 33- 82910) 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.
*** 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, 1996.
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 "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).
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
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.
(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.
(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.
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.
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).
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.
(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 for such
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;
(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 (and only to 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 contained 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.
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 of 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.
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:
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.
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
<PAGE>
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:
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:
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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