<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1997
REGISTRATION NO. 333-4778
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ELECTRONICS COMMUNICATIONS CORP.
(Exact name of issuer as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 11-2649088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 PLOG ROAD, FAIRFIELD, NEW JERSEY 07004
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
WILLIAM S. TAYLOR, PRESIDENT
ELECTRONICS COMMUNICATIONS CORP.
10 PLOG ROAD
FAIRFIELD, NJ 07004
(Name and address of agent for service)
(201) 808-8862
(Telephone number, including area code of agent for service)
------------------------------
COPIES TO:
JOEL C. SCHNEIDER, ESQ.
Sommer & Schneider LLP
600 Old Country Road, Suite 535
Garden City, NY 11530
(516) 228-8181
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE FEE(1)
<S> <C> <C> <C> <C>
Common Stock, $.05 par value.......... 104,145 $2.375 $247,344 $85.16
A Warrants............................ 800,000 $1.00 $800,000 $275.44
Common Stock, $.05 par value(2)....... 800,000 $5.00 $4,000,000 $1,377.20
Total................................. $5,047,344 $1,737.80
</TABLE>
(1) The fee with respect to these shares has been calculated pursuant to Rules
457(h) and 457(c) under the Securities Act of 1933 and based upon the
average of the last price per share of the Registrant's A Warrants and
Common Stock on April 26, 1996 a date within five (5) days prior to the date
of filing of this Registration Statement, as reported by the NASDAQ SmallCap
Market.
(2) Issuable upon the exercise of A Warrants.
------------------------------
Documents Incorporated by Reference /X/ Yes / / No
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED
ELECTRONICS COMMUNICATIONS CORP.
104,145 SHARES OF COMMON STOCK
800,000 CLASS A REDEEMABLE COMMON STOCK PURCHASE
WARRANTS AND 800,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF CLASS A REDEEMABLE COMMON STOCK
PURCHASE WARRANTS.
------------------
This Prospectus relates to 104,145 shares of Common Stock, par value $.05
(the "Common Stock"), 800,000 Class A Redeemable Common Stock Purchase Warrants
("A Warrants") and 800,000 shares of Common Stock issuable upon the exercise of
the A Warrants. The Common Stock, A Warrants and the shares of the Company's
Common Stock, underlying the A Warrants will be sold by holders of such
securities. See "Selling Securityholders". Each A Warrant entitles the holder
thereof to purchase one share of Common Stock, at $5.00 per share during the
period from May 12, 1995 to May 12, 1999 (the "Exercise Period"). The A Warrants
are subject to redemption by the Company, with the prior consent of Investors
Associates, Inc., the representative ("Representative") of the several
underwriters (the "Underwriters) of the Company's public offering consummated on
May 19, 1995, at $.001 per A Warrant at anytime following May 12, 1996, on 45
days prior written notice, provided the closing bid quotation for the Common
Stock on NASDAQ is at least $8.00 for the 20 consecutive trading days ending
three days prior to the notice of redemption. See "Selling Securityholders" and
"Description of Securities". The Common Stock, A Warrants and shares of Common
Stock issuable upon the exercise of A Warrants are sometimes collectively
referred to herein as the "Securities".
The Company will not receive any of the proceeds from the sales of Shares of
Common Stock or A Warrants by the holders of such Securities listed herein under
the caption "Selling Securityholders" (the "Selling Securityholders"). The
Securities may be offered from time to time by the Selling Securityholders,
through ordinary brokerage transactions in the over-the-counter market, in
negotiated transactions or otherwise, at market prices prevailing at the time of
sale or negotiated prices. See "Selling Securityholders."
The Selling Securityholders maybe deemed to be "underwriters" as defined in
the Securities Act of 1933, as amended (the "Securities Act"). If any
broker-dealers are used by the Selling Securityholders, any commissions paid to
broker-dealers and, if broker-dealers purchase any Selling Securityholders'
Securities as principals, any profits received by such broker-dealers on the
resale of the Selling Securityholders' Securities may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Securityholders, may be deemed to be
underwriting commissions. All costs, expenses and fees in connection with the
registration of the Selling Securityholders' offered by Selling Securityholders
will be borne by the Company. Brokerage commission, if any, attributable to the
sale of the Selling Securityholders' Securities will be borne by the Selling
Securityholders.
No underwriting arrangements have been entered into by the Selling
Securityholders. The distribution of the A Warrants and Common Stock by the
Selling Securityholders, may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
dealers for resale of such shares as principals, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders, in connection with
sale of the Securities.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" APPEARING ON PAGES 13-27.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS .
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, NW, Room 1204, Washington, DC 20549; at 500 West Madison Street, Suite
1400, Chicago, IL 60661-2511; and at 75 Park Place, Suite 1400, New York, NY
10007. Copies of such material also may be obtained at prescribed rates from the
Public Reference Section of the Commission, 450 Fifth Street, NW, Judiciary
Plaza, Washington, DC 20549. In addition, material filed by the Company can be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, NW, Washington, DC 20002.
REPORTS TO SECURITYHOLDERS
The Company furnishes its stockholders with annual reports containing
financial statements audited by independent certified public accountants.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in this Registration
Statement and made a part hereof:
(a) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995;
(b) The Company's Amended Annual Report on Form 10-KSB/A-1 for the fiscal
year ended December 31,1995;
(c) The Company's Amended Annual Report on Form 10-KSB/A-2 for the fiscal
year ended December 31, 1995;
(d) The Company's Amended Annual Report on Form 10-KSB/A-3 for the fiscal
year ended December 31, 1995;
(e) The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1996;
(f) The Company's Amended Quarterly Report on Form 10-QSB/A-1 for the
quarter ended March 31, 1996;
(g) The Company's Quarterly Report on Form 10-QSB for the quarter ended June
30, 1996;
(h) The Company's Amended Quarterly Report on Form 10-QSB/A-1 for the
quarter ended June 30, 1996;
(i) The Company's Prospectus filed pursuant to Rule 424(b) on May 15, 1995
as part of Registration No. 33-89336;
(j) The Company's Form 8-K dated June 28, 1996;
(k) The Company's Amended Form 8-K/A-1 dated June 28, 1996;
(l) The Company's Amended Form 8-K/A-2 dated June 28, 1996;
(m) The Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1996;
(n) The Company's Amended Quarterly Report on Form 10-QSB/A-1 for the
quarter ended September 30, 1996; and
2
<PAGE>
(o) All other documents filed by the Company after the date of this
Registration Statement under Section 13(a), 13(c), 14 and 15(d) of the
Securities Exchange Act of 1934, prior to the filing of a post-effective
amendment to the Registration Statement which indicates that all
securities offered have been sold or which deregisters all securities
then remaining in the Registration Statement and to be part thereof from
the date of filing of such documents.
Any person receiving a copy of this Prospectus may obtain without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (unless such
exhibits are specifically incorporated by reference into the documents which
this Prospectus incorporates). Requests should be directed to Brenda Taylor,
Corporate Secretary, Electronics Communications Corp., 10 Plog Road, Fairfield,
New Jersey 07004, telephone number (201) 808-8862.
Any statement made in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that such statement is replaced or modified by a statement contained in a
subsequently dated document incorporated by reference or contained in this
Prospectus. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH
RESPECT TO THEIR SOLICITATION OF OFFERS TO PURCHASE THE SECURITIES OFFERED
HEREBY.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS.
THE COMPANY
The Company intends to continue to mature as a full-service, regional,
telecommunications company, which management believes is positioned to take
advantage of the rapidly emerging wireless telecommunications marketplace
through its advanced technologies and services. The Company operates its own
United States Federal Communications Commission ("FCC") licensed,
state-of-the-art, Glenayre 900 Mhz Flex-TM- Paging Network, covering
metropolitan New York, New Jersey, lower Connecticut and downtown Philadelphia,
a trunked radio paging network, is a reseller of airtime on third-party paging
networks, and acts as an agent in the solicitation of activation of cellular
telephone numbers and service. Significantly, the Company is also engaged in the
development and construction of facilities for a Personal Communications
Services ("PCS") network, as a predicate to becoming an operating company to
provide PCS services pursuant to licenses ("PCS Licenses") recently acquired at
FCC auction, covering nearly 1.5 million POPs (points of population). The
Company's PCS licenses cover the following markets: Bangor/Lewiston--
Auburn/Waterville--Augusta, Maine; Burlington/Rutland--Bennington, Vermont; and
Elmira--Corning--Hornell, New York (the "PCS License Area"). The new PCS
technology utilizes higher radio frequencies auctioned by the FCC, and
substantially reduces static and improves reliability as compared to existing
non-digital cellular telephones. The advanced PCS phones will also offer many
features unavailable on current cellular telephones, such as paging, fax, E-mail
and Caller I.D. capabilities.
The Company's principal source of revenue is currently derived from its
activities as an agent for Bell Atlantic NYNEX Mobile, Inc. ("BANMC"), with
respect to the sale of cellular telephone service and related equipment. The
Company believes it is one of only two active "Master Agents" for BANMC,
pursuant to separate agreements with BANMC's component companies, "NYNEX" with
respect to the sale of cellular service in the New York Metropolitan Area, and
with "Bell Atlantic", with respect to New Jersey. (See "Business of the
Company--The Company and its Subsidiaries--Trade Zone Distributors, Inc.") These
contractual relationships, which are subject to periodic renewal, enable the
Company to appoint subagents to serve as part of its dealer network and direct
sales force to re-sell cellular service in the New York Metropolitan Area, all
of New Jersey and in Philadelphia.
The Company's emergence as a wireless telecommunications carrier will
represent a material change in the focus and direction of the Company's
operations, which previously centered upon the Company's role as a distributor
of communications, consumer, and business-oriented electronics products. Those
operations, which were principally carried on by the Company's wholly owned
subsidiary, Free Trade Distributors, Inc., have been substantially eliminated or
reduced, so that the Company could take on its new focus within the
telecommunications arena. (See "Business of the Company").
The Company's offices are located at 10 Plog Road, Fairfield, NJ 07004. Its
telephone number is (201) 808-8862.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered by Selling
Securityholders............................ 104,145
A Warrants being offered by Selling
Securityholders............................ 800,000
A Warrants Outstanding....................... 6,260,000
Common Stock Outstanding assuming no exercise
of outstanding A Warrants.................. 12,195,515
Series B Preferred Non-Voting Convertible
Stock...................................... 4,000,000
NASDAQ Symbols for:
Common Stock............................... "ELC"
A Warrants................................. "ELCCW"
Boston Stock Exchange Symbols for:
Common Stock............................... "ELCC"
A Warrants................................. "ELCW"
Description of A Warrants.................... Each A Warrant is exercisable during the
period from May 12, 1995 to May 12, 1999.
Each A Warrant entitles the holder to
purchase one share of Common Stock at a price
of $5.00. The A Warrants are redeemable by
the Company at $.001 per A Warrant under
certain conditions. See "Description of
Securities".
Risk Factors................................. An investment in the Securities offered
hereby involves a high degree of risk.
Prospective investors should review carefully
and consider the factors described in "Risk
Factors".
</TABLE>
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table set forth certain summary consolidated financial data of
the Company and its subsidiaries at the dates and for the periods indicated.
These summary consolidated financial data do not purport to be complete and
should be read in conjunction with the consolidated financial statements and
notes thereto set forth in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, as amended, which financial statements are
incorporated herein by reference, and in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained therein.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30
----------------------------------------- ----------------------------
1995 1994 1993 1996 1995
------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENTS OF OPERATIONS DATA:
Revenue................................. $ 8,736,515 $ 9,423,964 $ 6,377,425 $ 6,393,442 $ 5,377,510
Gross Profit............................ 1,172,421 1,241,277 470,523 1,255,439 1,059,653
Operating Income (Loss)
Before Other Expenses and Income
Taxes............................... (1,967,823) 125,460 (242,847) (2,930,389) (1,021,148)
Income (Loss) Before Income Taxes..... (2,628,959) 34,093 (296,626) (3,103,368) (1,659,186)
Net Income (Loss)....................... (2,628,959) 29,819 (296,626) (3,103,368) (1,659,186)
Earnings (Loss) Per Share, Fully
Diluted............................... (1.11) .02 (.25) (.52) (.06)
Weighted Average Common Shares and
Equivalent Shares Outstanding, Fully
Diluted............................... 2,368,809 1,506,227 1,176,086 5,722,563 5,722,563
</TABLE>
<TABLE>
<CAPTION>
SEPT. 30,
DECEMBER 31, 1995 DECEMBER 31, 1994 1996
ACTUAL ACTUAL UNAUDITED
----------------- ----------------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets.............................................. $ 5,428,434 $ 2,309,894 $ 2,941,626
Total Assets................................................ 6,246,658 3,231,332 33,447,780
Working Capital (Deficit)................................... 1,724,852 (615,872) (2,849,840)
Total Liabilities........................................... 3,782,383 2,925,766 28,783,442
Stockholders' Equity........................................ 2,464,275 305,566 4,664,338
</TABLE>
6
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Statements of Operations for the year
ended December 31, 1995 and the period ended September 30, 1996 gives effect to
the Company's acquisition of 51% of Threshold Communications, Inc. ("TCI"), and
the acquisition by TCI of General Communications and Electronics, Inc. ("GCE")
and General Towers of America, Inc. ("GTA") as if this transaction occurred in
the beginning of the periods specified. The Unaudited Pro Forma Consolidated
Statements of Operations are for the periods ending December 31, 1995 and
September 30, 1996. All of the entities presented have either historically or
pro forma used calendar year ends for reporting purposes.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPT. 30, 1996
----------------- ------------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sales................................................. $ 11,097,096 $ 7,528,806
Gross Profit.......................................... 2,259,454 1,769,725
Operating Income (Loss)
Before Other Expenses and Income Taxes.............. (1,655,980) (2,876,898)
Income (Loss) Before Income Taxes................... (2,652,769) (3,254,362)
Net Income............................................ (2,652,769) (3,254,362)
Earnings (Loss) Per Share, Fully Diluted.............. (0.81) (0.57)
Weighted Average Common Shares and Equivalent Shares
Outstanding, Fully Diluted.......................... 3,267,657 5,772,563
</TABLE>
7
<PAGE>
RECENT SIGNIFICANT DEVELOPMENTS
On July 21, 1995, the Company entered into an Advertising and Promotional
Services Agreement, pursuant to which the Company agreed to issue 200,000 shares
of its Common Stock, $.05 par value, in exchange for services previously
provided to the Company. These services included analysis, advice, advertising
and promotional ideas and a marketing campaign in connection with the Company's
development of its distribution of cellular products in South America. The
Company issued the stock to the consultant on August 8, 1995.
On June 28, 1996, the Company completed the acquisition of 51% of the issued
and outstanding stock of TCI for an aggregate purchase price of $1,114,000.
Previously, the Company loaned TCI an aggregate of $725,000, which in addition
to 194,500 shares of the Company's Common Stock (at the time was $2.00 per
share) represented the consideration paid by the Company. TCI is a recently
formed corporation engaged in the radio paging business. Prior to the
acquisition, TCI acquired a paging subscriber base, associated paging hardware
and a paging carrier agreement with Skytel, a company that provides nationwide
paging, voice messaging and related messaging services to subscribers and
others. In addition, TCI owns a 900 megahertz FCC paging license in the Paging
Service Area and holds a long-term lease for a paging transmission site.
On March 22, 1996 TCI acquired substantially all of the assets and assumed
certain liabilities of GCE. As part of the transaction with GCE, TCI, became a
paging reseller with a subscriber base of approximately 9,000 persons. TCI
offers paging service primarily through various paging carriers in the New York
metropolitan area. TCI offers national paging service through a sales and
distribution agreement with Skytel. Under this agreement, TCI pursues regional
and national accounts through its present dealer network in the paging service
area (the "Paging Service Area"). TCI also has the necessary infrastructure to
operate a paging operation, including but not limited to a full service
technical shop and repair facility, engineering capability, marketing and sales
force, billing and collection systems and ancillary product support capability
for paging related products.
TCI was formed to engage in the radio paging business shortly before its
acquisition of GCE. Prior the Company's acquisition of a 51% ownership interest
in TCI, TCI had acquired a paging subscriber base, associated paging hardware
and a paging carrier agreement with Skytel, a company that provides nationwide
paging, voice messaging and related messaging services to subscribers and
others. In addition, TCI owns a 900 megahertz FCC paging license in the Paging
Service Area and holds a long term lease for a paging transmission site. Joseph
P. Albanese, Sr., the founder of TCI, arranged for the acquisition of a paging
transmission site in West Orange, New Jersey, the proximity of which to certain
telephone company switching facilities represented substantial economies of
scale if incorporated into the Company's business, and arranged for the purchase
of a 2,000 customer base from Skytel. After the Company was unsuccessful, Mr.
Albanese was able to consummate a transaction for the purchase of GCE, at a
substantially reduced aggregate consideration than was offered by the Company in
a failed bid to acquire GCE, and its valuable FCC 900 MHz paging license.
On January 16, 1996 the Company consummated a private placement offering of
69,430 shares of the Company's $.05 par value common stock at a price of $2.25
per share. The total offering resulted in gross proceeds of $156,218. The
proceeds of this offering were utilized as general working capital. Each
subscriber, in addition to the shares, received demand registration rights,
which require the Company to file a registration statement upon request of 25%
or more of the shares sold in the offering at anytime during the 18 month period
commencing 30 days from the closing date.
In March 1996, the subscribers demanded that the Company file a registration
statement covering their shares. The Company at that time was unable to comply
with the request. In order to avoid potential litigation for failing to file a
registration statement on a timely basis, the Company issued an aggregate of
34,715 additional shares to the subscribers. These shares along with the
original 69,430 shares are being registered for possible sale pursuant to this
Prospectus.
On February 29, 1996, the Company entered into a financing arrangement with
a corporation in the amount of $134,000. The proceeds of this loan were utilized
as general working capital. Interest is payable
8
<PAGE>
at a rate of 10% in monthly installments of $1,117. The loan becomes due on
February 28, 1997. As additional consideration, the Company issued the
corporation 800,000 A warrants with 90 day registration rights and "piggy back"
registration rights with any other offering of the Company. These A Warrants are
being registered for possible sale pursuant to this Prospectus.
At approximately the same time, the Company also experienced a cash
shortfall and was unable to post the required deposit to be entitled to bid at
the FCC auction. To assist the Company in obtaining financing to facilitate its
bid, William S. Taylor, Les Winder, Brenda Taylor and Robert DePalo guaranteed
loans by the Company in the sum of approximately $1,150,000 and posted certain
cash collateral. In consideration for this loan and guarantee accommodation, and
the posting of cash collateral, the board of directors authorized the purchase
of 24 shares by such persons (six (6) shares each) of Personal Communications
Network, Inc. ("PCN") sole class of authorized and issued common stock and the
grant of 2,300,000 A Warrants. The purchase of the PCN stock and delivery of the
A Warrants were subject to certain conditions relating to the grant of the PCS
Licenses, and delivery of the FCC notes (the "FCC Notes") and related security
agreements by the Company. As a result, the closing of those transactions is not
scheduled to occur until in or about mid-February, 1997.
On March 21, 1996, the Company entered into a letter of intent with an
investment banking firm (the "Placement Agent"), pursuant to which the Company
offered up to $6,000,000 principal amount of the Company's Subordinated
Convertible Debentures (the "Debentures"). The Company sold an aggregate of
$2,990,000 of the Debentures in two tranches after which the Company and
Placement Agent agreed to terminate the offering. The principal amount of the
Debentures was convertible into shares of the Company's Common Stock at the
option of the holder, 41 day after issuance, at a price equivalent to 25%
discount from the average high closing bid price for five days prior to the
conversion or $1.50, whichever is less. The Debenture bears interest at the rate
of 5% per annum payable on April 1 of each year commencing April 1, 1997. The
Debentures are redeemable and callable for conversion under certain
circumstances. The Company paid the Placement Agent a placement fee equal to 10%
of the gross proceeds, a 2% non-accountable expense allowance and 200,000
warrants to purchase the Company's Common Stock at $2.25 per share. The Company
used the proceeds of this offering pay its downpayment for the licenses it won
in the recently concluded PCS auction (the "PCS Auction"), build out its paging
system and general working capital purposes. The Debentureholders converted
their Debentures into shares of the Company's Common Stock from June 25, 1996 to
September 9, 1996 (the "Conversion Period"). The average price at which the
Debentures were converted was $0.52 per share of Common Stock. The average bid
price of the Company's Common Stock during the Conversion Period was $0.65 per
share. The highest conversion price was $1.50 per share of Common Stock on June
25, 1996 (the average closing bid price for the preceding five days was $1.87)
and the lowest conversion price was $0.3984 per share of Common Stock (the
average bid price for the preceding five days was $0.50). The conversion of the
Debentures was not induced by the Company. The holders of the Debentures
exercised the conversion feature contained in the Debentures, which provided for
conversion at the sole option of the holder. As of the date hereof, all
$2,990,000 principal amount of the Debentures has converted into an aggregate of
5,706,822 shares of the Company's Common Stock.
On May 8, 1996, the Company won six PCS Licenses. The total winning bids
amounted to $26,452,200, after the 25% discount provided to small business which
the Company qualifies for, under the terms of the auction. The Company has
deposited $2,645,220 with the FCC which equals 10% of the cost of the licenses.
Subsequently, on October 7, 1996, the Company entered into an agreement with
Emerging Technologies Inc. ("EGT") for consulting, investment banking, financial
planning and strategy, and business introduction services, for purposes of,
among other things, introducing the Company to various third party strategic
partners. Management believed that it could not have obtained these services and
introductions without the assistance of EGT, and believes that EGT, through the
unique contacts and resources of its principals, valuable business contacts and
resources could substantially assist the Company in its long and short term
goals. Accordingly, in the absence of adequate capital, and unable to negotiate
an alternative
9
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which management considered as adequate, the Company consented to EGT's demand
for the immediate transfer of 10% of PCN's authorized and outstanding common
stock, its sole class of stock, although some of the services were prospective
in nature.
On September 17, 1996, the FCC officially awarded the six PCS Licenses to
the Company. In connection therewith, the Company entered into six separate
Installment Payment Plan Notes ("Plan Notes") with the FCC in the aggregate
amount of $23,807,010. Interest only is due commencing December 31, 1996, with
the first payment of $479,400.84 and subsequent payments in equal consecutive
quarterly installments of $416,622.16 ($1,666,488.64 annually) until September
30, 2002. Commencing December 31, 2002, the Company shall pay principal and
interest in equal quarterly installments of $1,718,853.88 ($6,875,415.52
annually) until September 30, 2006 ("Maturity Date").
The entire unpaid principal amount, together with accrued and unpaid
interest on the Plan Notes and all remaining obligations thereunder, shall be
due and payable on the Maturity Date.
On September 20, 1996, the Company entered into a loan agreement with the
Marrotta Group ("Marrotta"), pursuant to which the Company borrowed $500,000.
This loan, which was obtained to provide the Company with the ability to meet
its additional shortfalls on a further deposit with the FCC, was arranged by
Robert DePalo, a director, pursuant to a personal and business relationship with
the Marrotta Group, and one or more of its principal shareholders. The loan
bears interest at the rate of 10% per annum, and becomes due and payable on or
before June 20, 1997; however, the Company may request an automatic three (3)
month extension on the due date. As additional consideration for making the
loan, the Company agreed to issue to Marrotta 200,000 shares of the Company's
Common Stock, and 400,000 A Warrants, with demand and piggyback registration
rights.
On September 4, 1996, the Company entered into a Client Service Agreement
with Great Deals, Inc. ("Great Deals"). Pursuant to the terms of this agreement,
Great Deals was hired as a financial public relations consultant, to promote the
Company's business to the financial community. The term of the agreement is for
two years. In consideration of the services to be performed by Great Deals, the
Company issued 2,300,000 shares of the Company's Common Stock to Great Deals. In
addition, the Company registered these shares on an S-8 registration statement.
On October 9, 1996, the Company entered into a loan with Robert DePalo, a
director of the Company, pursuant to which the Company borrowed $180,000. This
loan bears interest at the rate of 10% per annum. The loan is due upon three
days written demand. The Company used the proceeds of this loan for general
corporate purposes.
On October 21, 1996 the Company entered into a loan agreement with Strategic
Marketing Int'l Inc. ("Strategic"), pursuant to which the Company borrowed
$200,000. This loan bears interest at the rate of 10% per annum, and becomes due
and payable on October 21, 1997. As additional consideration for making the
loan, the Company agreed to issue to Strategic 80,000 shares of the Company's
Common Stock and 160,000 A Warrants, with demand and piggy back registration
rights. The Company used the proceeds of the loan for general corporate
purposes.
On September 12, 1996 the board of directors of the Company authorized a 20%
increase in the annual salaries of each William Taylor and Les Winder, and an
annual salary of $75,000 for Brenda Taylor. Each of William Taylor and Les
Winder have agreed to defer their respective increases in salary until the
Company's cash flow improves. Additionally, due to cash flow shortfalls, each of
Messrs. Taylor, Winder, DePalo and Brenda Taylor deferred payment of their
salary from the beginning of November, 1996 to the beginning of January 1997.
Decisions to reinstate such amount lie within the discretion of such individuals
as management of the Company.
On May 22, 1996 the Company sold an aggregate of 500,000 shares of its
Common Stock for $625,000 or $1.25 per share to three unrelated parties. On May
22, 1996 the Company's Common Stock was trading at $2.00, the Company sold the
stock at a discount to market due to the fact the stock was restricted, and the
large quantity of shares made the stock relatively illiquid in comparison to the
Company's average daily volume prior to May 22, 1996. The Company received net
proceeds from this sale of $543,750. The Company utilized the proceeds generated
by this issuance of stock for general working capital purposes.
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On March 4, 1996 the Company commenced an action entitled Electronics
Communications Corp. as Plaintiff against Toshiba America Consumer Products,
Inc. ("Toshiba") and Audiovox Corporation ("Audiovox"), case number 96 Civ. 1565
in the United States District Court, Southern District of New York. The
complaint asserts claims for antitrust, breach of contract, tortious
interference with contract and tortious interference with prospective economic
advantage and business relations. The complaint seeks damages in excess of
$5,000,000. This action was commenced because the Company expended significant
monies and resources including the issuance of 200,000 shares of the Company's
Common Stock to a consultant in anticipation of a South American cellular
telephone program which the Company was to undertake exclusively on behalf of
Toshiba. Immediately prior to the commencement of the program, Toshiba
discontinued manufacturing the line of cellular telephones that the program was
designed to offer. This unilateral decision has caused significant damages to
the Company and the Company will vigorously prosecute this claim.
The defendants Toshiba and AudioVox moved to dismiss a portion of the case,
claiming that the Company had not pled a cognizable antitrust cause of action,
and that the remaining claims should be dismissed for lack of supplemental
jurisdiction. On August 12, 1996 the Court ruled in favor of the motion of the
defendants, Toshiba and AudioVox, and the case was dismissed on such date. The
Company has appealed the Court ruling and anticipates filing its Brief on Appeal
shortly.
On July 23, 1996 the board of directors of the Company at a Special Meeting
of the Board of Directors authorized the issuance of an aggregate of 4,000,000
Series B Preferred Shares of the Company to Brenda Taylor (1,000,000) and
Messrs. Taylor (1,000,000), Winder (1,000,000) and DePalo (1,000,000) in return
for their personal guarantees of approximately $3,000,000 of the Company's
Subordinated Convertible Debentures. On September 1, 1996 the Company issued
these shares to the aforementioned officers and directors. Each share of the
Series B Preferred Stock is valued at $1.50 per share and convertible into 1.50
shares of Common Stock. The Series B Preferred Shares are payable by a three
year promissory note bearing interest at the rate of 7% per annum, with interest
accruing, but not payable until the securities are sold. The promissory notes
are immediately extended for additional one-year terms. The Series B Preferred
Shares are fully paid and non-assessable. The promissory notes are non-recourse,
but are collateralized by a pledge of the Series B Preferred Shares.
These Series B Preferred Shares are subject to a three (3) year vesting
period pursuant to which one-third of the shares will vest immediately, and
thereafter, on July 23, 1997, if Brenda Taylor and Messrs. Taylor, Winder and
DePalo are still employed by or a director of the Company at such time, an
additional one-third shall vest and thereafter on July 23, 1998, if the
aforementioned individuals are still employed by, or a director of the Company
at such time, the balance shall vest.
On July 23, 1996, the Company reserved 6,000,000 shares of Common Stock for
issuance upon the conversion of these Series B Preferred Shares.
On October 17, 1996, at the Annual Meeting of Shareholders, shareholders
voting in person and by proxy, voted to approve "Proposal No. 3" described in
the Company's Notice of Annual Meeting and Proxy Statement , which ratified the
Board of Directors aforementioned issuance of 4,000,000 Series B Preferred
Shares.
In December, 1996 the Company offered for sale a maximum of 2,200,000, and a
minimum 700,000 units (the "Units"), at a price of $1.50 per Unit. Each Unit
consists of one share of the Company's Common Stock, and one and one-half (1.5)
A Warrants, entitling the purchaser, as holder of each A Warrant to purchase one
share of Common Stock, at $5.00 per share, at any time prior to May 12, 1999,
subject to prior redemption by the Company.
The Company will offer and sell the Units through selling arrangements
between the Company and participating registered NASD Broker-Dealers and, where
permitted by law, through offeree representatives and others, in connection with
sales of Units solicited by them (collectively, the "Placement Agents"). The
Placement Agents will receive in the aggregate a selling commission of up to ten
(10%) percent of the aggregate amount of the Unit offering, plus a 1%
non-accountable due diligence allowance, and an outright grant of 750,000 A
Warrants (assuming the maximum offering is achieved) (featuring the same
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terms as the A Warrants included in the Units), which shall be allocated and
distributed to the Placement Agents PRO RATA, based on the number and percentage
of Units placed by such Placement Agent(s), and the aggregate amount of sale
proceeds generated.
As of January 22, 1997 the Company had not consummated the sale of any of
the Units.
The Company has recently redirected its operations and business away from
acting principally as a distributor of consumer, home and office electronics
products, such as electronic organizers, telecopier and photocopy machines,
telephones, etc. and has committed to operations as a multi-faceted wireless
telecommunications company. At the present time, the Company derives most of its
revenue from cellular telephone commissions relating to the Company's direct
sales and solicitations for subscriptions for mobile cellular telephone
activations. It is anticipated that in the future, the majority of the Company's
revenues will be derived from its paging and PCS operations.
The change in the direction and focus of the Company was precipitated by the
anticipated continued growth and profit potentials in the rapidly emerging
market and utilization of wireless communications, and concomitantly by a
deteriorating and shrinking market for electronics products distribution,
accentuated by the concentration of large retailers such as The Wiz, Circuit
City, and others, serving in a dual role and capacity as both distributor and
retailer.
The Company's transition to the wireless telecommunications arena was most
specifically enhanced and facilitated by: (i) the Company's successful build-out
of its new, state-of-the-art, digital Glenayre 900 MHz, satellite-based,
Flex-TM- Paging Network (the "Paging Network"), serving customers in New York,
New Jersey, Connecticut and Philadelphia, which became operational on or about
November 10, 1996; (ii) the development and acquisition of a trunked two-way
radio system, covering New York and New Jersey; and (iii) the Company's
successful bid at FCC auction for six PCS Licenses, covering the PCS License
Area.
Although the Company completed its build-out during 1996 and has commenced
operation of its Paging Network, utilizing 18 of its 36 ground transmitters
(with the balance anticipated to go on-line by year-end), it has just begun to
develop a customer base and it may be some time before substantial income is
derived from this activity. Moreover, very substantial capital expenditures will
be required to build-out the infrastructure necessary to operate the Company's
PCS system in its PCS License Area. Therefore, despite a prior operating
history, due to its recent change in direction, and anticipated substantial
additional capital and development requirements, the Company may be considered
to be at the developmental stage, and prior results of operations may bear
little relationship to future operations and anticipated results of operations.
The Company intends to act as a full-service regional telecommunications
company which management believes is well-positioned to take advantage of the
rapidly emerging wireless marketplace with state-of-the-art technologies. The
Company believes that there is and will be a growing demand for accessibility
and portability, among both business and individual customers and users, and
increasing reliance on "anywhere-anytime" wireless communication, creating a
growing market for users who need and will require integrated, discrete and
elegant wireless solutions compatible with vastly expanding work-days and
workplaces, creating an evolving "working lifestyle."
To facilitate the required buildout of its PCS services, and to expand its
capabilities, reach and scope in the emerging PCS segment of the wireless
communications market, the Company, through PCN, entered into a strategic resale
agreement with Next Wave Telecom, Inc. ("NextWave"), believed by management to
be the nation's third largest licensee of PCS licenses.
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Therefore, it is the Company's strategy and intention to finance and build a
wireless communications network, and to provide wireless residential, business
and commercial telephone service, with the ability to transition into the mobile
environment utilizing one telephone number. Thus, it is the Company's marketing
and distribution strategy to make it simple and convenient for businesses and
consumers to take advantage of the latest wireless products and services by
providing one-stop shopping by phone. The Company is positioning itself to be
the telemarketing, channel-dominate wireless product sales and service operation
in the northeast.
RISK FACTORS
The Securities being offered by this Prospectus involve a high degree of
risk. They should be purchased only by a person who can afford to lose his or
her entire investment. Therefore, each prospective investor should, prior to
purchase, consider carefully the following risk factors, together with other
information in this Prospectus.
DEVELOPMENT STAGE COMPANY; FUTURE OPERATING LOSSES AND NEGATIVE CASH FLOW FROM
OPERATIONS
Due to its recent change in focus and direction from an electronics
distribution company to a multi-faceted wireless telecommunications company, and
its anticipated required large additional capital and development needs, the
Company must be deemed to be as if it were at an early stage of development. As
of the date of this prospectus , the Company has had a very limited commercial
operation of its Paging Network, and no commercial PCS operations. Consequently,
the Company may be deemed to have limited relevant historical financial
information upon which a prospective investor could perform an evaluation, other
than with respect to its mobile cellular telephone operations. The Company will
continue to incur significant expenses in advance of generating revenues, and is
expected to realize significant operating losses and significant negative cash
flow over at least the next four quarters, or more. The Company's cash flow and
results from operations could be more adversely affected if its agency with
BANMC were terminated or reduced, based on, among other considerations,
competing PCS operations.
Although the Company is well settled and satisfied with the adequacy of its
premises, and has a management team and equipment in place, the Company may
nevertheless be deemed to be subject to many risks typically associated with a
start-up entity. These risks will include the Company's ability to implement its
strategic plan for two-way radio, paging and PCS operations, including
continuing to attract and retain qualified individuals and the ability to raise
appropriate financing as necessary. As such, no assurance can be given as to the
timing and extent of revenue receipts and expense disbursements or the Company's
ability to successfully complete all the tasks associated with developing and
maintaining a successful enterprise. In addition, there can be no assurance that
the Company will be able to successfully manage its new PCS operations.
The Company believes that its future operating results over both the short
and long term will be subject to annual and quarterly fluctuations due to
several factors, some of which are outside the control of the Company. These
factors include the very substantial cost of building its PCS networks
(including any unanticipated costs associated therewith), fluctuating market
demand for the Company's services, establishment of a market for PCS, pricing
strategies for competitive services, delays in the introductions of the
Company's services, new offerings of competitive services, changes in the
regulatory environment, the cost and availability of PCS infrastructure and
subscriber equipment and general economic conditions.
The Company has incurred cumulative net losses through September 30, 1996 of
approximately $3.1 million. These losses resulted primarily from expenditures
associated with development and marketing of the Company's paging and two-way
radio systems, and the Company's move to more suitable premises. The Company
expects to continue to incur significant operating losses and to generate
negative cash flow from operating activities while it develops and constructs
its PCS networks and builds its customer base for both paging and PCS
operations. The Company cannot accurately determine the extent to which such
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operating losses will be offset by revenues generated from its Paging Network
and cellular activations, and operation of its PCS networks may be several years
away. There can be no assurance that the Company will achieve or sustain
profitability or positive cash flow from operating activities in the future. If
the Company cannot achieve operating profitability or positive cash flow from
operating activities in a timely manner, it may not be able to meet its debt
service or working capital requirements.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT TO FCC
As of the date of this Prospectus, the Company is highly leveraged. The
indebtedness to the FCC alone, in connection with the award of PCS Licenses, is
approximately $23,806,980, with annual interest payments of approximately $1.7
million (assuming an interest rate of 7% per annum), payable in quarterly
installments for the first six (6) years and then principal and interest in
years seven through ten. The Company may incur substantial financial penalties,
license revocation or other enforcement measures at the FCC's discretion in the
event that the Company becomes unable to make timely payments on the FCC Notes.
In the event that the Company anticipates defaulting on any required payment, it
may request a three to six month grace period before the FCC cancels its
license. In the event of default by the Company, the FCC could reclaim the
licenses, reauction them, and subject the Company to a penalty comprised of the
difference between the price at which it acquired its license and the amount of
the winning bid at the reauction, plus an additional penalty of three percent of
the subsequent winning bid. There can be no assurance that the Company will
submit all of the required payments pursuant to the FCC's installment payment
plan in a timely manner. The Company has undertaken to raise up to a maximum of
$3,300,000 in a private placement of its Securities, (See "Recent Significant
Developments"). Assuming the sale of the "maximum" Units thereunder, the Company
will only have available capital for the next four quarterly payments of
interest on the FCC Notes, and will most assuredly require additional financing
or capital thereafter. There can be no assurance that the Company will obtain
such additional financing or capital.
As of September 30, 1996, the Company's total indebtedness to the FCC was
$23,806,980, or approximately 66% of its total capitalization, and its
stockholders' equity was $7.5 million. In addition, the Company intends to enter
into secured financing agreements with equipment manufacturers and other vendors
during the next 12 to 18 months in connection with the build-out of its PCS
networks. The Company's total indebtedness and debt service requirements will be
substantially increased as a result of such additional financings, and the
Company will continue to be subject to significant financial restrictions and
limitations.
The Company's leverage could have important consequences on the following:
(i) the Company's vulnerability to general economic and industry conditions;
(ii) the Company's ability to obtain financing to fund future anticipated and
unknown capital requirements, capital expenditures or other general corporate
purposes; (iii) the application of a substantial portion of the Company's cash
flow from operations to the payment for principal of and interest on
indebtedness; (iv) the possibility that the Company will not have sufficient
funds to pay interest on the indebtedness or to repay the indebtedness at
maturity; and (v) the ability to effectively compete with better and larger
capitalized companies.
NEED FOR ADDITIONAL FINANCING
The development, construction and initial start-up phase associated with
construction of the Company's PCS networks will require substantial capital
investment. The Company is offering Units in a private placement with a maximum
offering price of $3,300,000 and estimated maximum aggregate net proceeds to the
Company of $2,819,000. Assuming the Company completes the maximum offering, the
net proceeds from the offering, together with anticipated revenue from
operations over the next four quarters, will not be sufficient to fund the
initial network build-out of the Company's PCS markets, and service its debt
through the end of 1997. In fact, the maximum offering purports only to finance
the next four installments of interest under the FCC Notes, and certain
advertising and capital needs for 1997 only. If only the minimum offering is
completed (estimated net proceeds of approximately $934,000), unless monies are
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provided from cash flow, there will not be sufficient monies to pay the next two
quarterly installments on the FCC Notes, and there will be markedly reduced
amounts for working capital. In addition, the estimated cost of build-out is
sixty million dollars, the source of which can not yet be identified or assured,
and which must be deemed uncertain. The Company anticipates that it will require
significant additional capital to complete its network build-out beyond 1997,
irrespective of the proceeds from private placement.
Pursuant to its strategic relationship with NextWave, the Company is hopeful
that NextWave may assist the Company with respect to various introductions to
institutional lending sources or equipment leasing or other vendor financing
arrangements for the build-out of its PCS system. However, NextWave itself is
highly leveraged, and anticipates requiring approximately $1.3 billion to
build-out its PCS networks. There is no assurance that NextWave will obtain its
necessary financing or that it will survive start-up, or that it will enter into
any binding arrangements to assist the Company. Other sources of additional
capital may include additional vendor financing and public and private equity
and debt financings by the Company or its subsidiaries. The Company currently
has limited sources of income. There can be no assurance that additional
financing will be available to the Company or, if available, that it can be
obtained on terms acceptable to the Company and within any limitations that may
be imposed on the Company. Failure to obtain such financing could result in the
delay or abandonment of some or all of the Company's development and expansion
plans and could have a material adverse effect on the Company's financial
condition and continued viability.
PCS SYSTEM IMPLEMENTATION AND OPERATION RISKS; LACK OF IN-HOUSE ENGINEERING
In marked contrast to the build-out of its Paging Network, the Company does
not plan to perform design and systems engineering with respect to the build-out
of its PCS system and network. The Company does not presently have either the
engineering acumen or expertise, nor sufficient available capital to accomplish
this. Accordingly, the Company will rely on consultants such as NextWave. There
can be no assurance that the design and systems engineering teams retained by
the Company will be successful in implementing its PCS networks, or that such
networks will perform as well or better than PCS networks designed by
infrastructure equipment vendors. In addition, the Company will need to hire
additional engineering personnel and make extensive use of outside contractors
to deploy its PCS networks. There can be no assurance that the Company will be
able to locate and hire such additional engineering resources. The failure to do
so could have a material adverse effect on the Company's timely deployment of
its PCS networks and its financial condition and results of operations.
The successful construction of the Company's PCS networks will depend, to a
significant degree, on the Company's ability to lease or acquire sites for the
location of its base station transmitter equipment. The site selection process
will require the negotiation of lease or acquisition agreements for
approximately 240 sites for the Company's PCS networks, and may require the
Company to obtain zoning variances or other governmental approvals or permits in
rural areas, which may be resistant to technological change. The Company intends
to retain consultants to provide site identification and acquisition services in
each of its markets. The Company expects that the site acquisition process will
continue throughout the construction of the Company's PCS networks. Each stage
of the process involves various risks and contingencies, many of which are not
within the control of the Company and any of which could adversely affect the
construction of the Company's PCS networks.
There can be no assurance that the Company will be able to construct its PCS
networks in any particular market within its PCS Licenses, in accordance with
any construction plan and schedule for implementation of PCS that is developed.
If the Company is not able to implement its construction plan, the Company may
not be able to provide services comparable to those provided by the cellular and
other PCS operators in its PCS markets, and, as a result, the Company's growth
may be limited. In addition, each of the Company's licenses is subject to an FCC
requirement that the Company construct network facilities that offer coverage to
at least one-third of the population in each such PCS market within five years
of the
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grant of the applicable license, and to at least two-thirds of the population
within ten years of the grant. Failure to comply with these requirements could
result in the revocation or forfeiture of the Company's licenses or the
imposition of fines on the Company by the FCC. The construction of the Company's
PCS networks is subject to successful completion of the design of the networks,
site and facility acquisitions, the purchase and installation of the networks'
equipment, testing of the networks and satisfactory relocation or other
accommodation of microwave users currently using the spectrum. Winners of the
A-Block and B-Block PCS Licenses, which were granted their licenses in June
1995, have a significant head-start in constructing their networks. Most
cellular licensees have at least a five to ten-year time advantage over PCS
licensees and are currently upgrading their networks to digital technology.
Therefore, delays in implementation could have a material adverse effect on the
Company.
In addition, the implementation of any construction plan is subject to the
availability of the Code Division Multiple Access ("CDMA") infrastructure
equipment that the Company plans to use. There is considerable demand for PCS
infrastructure equipment, manufacturers of such equipment have substantial
backlogs or orders and lead times for delivery of such equipment are long. The
Company intends to enter into additional agreements for the supply of
infrastructure and/or subscriber equipment. However, there can be no assurance
that the Company will be able to purchase equipment on terms favorable to the
Company, or at delivery dates required by the Company to construct its PCS
networks in a timely manner. In addition, there are certain risks in the
Company's strategy of building-out its networks in phases. There can be no
assurance that the Company will be able to successfully deploy its initial
networks to achieve maximum population coverage in its targeted markets within
the expected time frame and an acceptable construction budget.
The Company's success in the implementation and operation of its system is
subject to other factors beyond the Company's control. These factors include,
without limitation, changes in general and local economic conditions,
availability of equipment necessary to operate the PCS system, changes in
communications service rates charged by others, changes in the supply and demand
for PCS, and the commercial viability of PCS systems as a result of competition
with wireline and wireless operators in the same geographic area, demographic
changes that might affect negatively the potential market for PCS, changes in
the federal and state regulatory scene affecting the operation of PCS systems
(including the enactment of new statutes and the promulgation of changes in the
interpretation or enforcement of existing or new rules and regulations), changes
in technology that have the potential of rendering obsolete the Company's
technology and equipment, and the myriad of external forces and conditions with
respect to which the Company may have no control, such as labor unrest, acts of
nature, and other circumstances related to construction. In addition, such
demand, which is anticipated to increase the extent of the potential demand for
PCS, cannot be estimated with any degree of certainty.
There can be no assurance that one or more of these factors will not have
significant adverse effects on the Company's financial condition and results of
operations.
UNCERTAINTY OF CDMA COMMERCIAL OPERATIONS; ABILITY TO OFFER ROAMING SERVICES;
HANDSET AVAILABILITY
CDMA technology has not been implemented on a wide commercial scale in the
United States and has been used internationally on a limited basis. The first
commercial use of CDMA began in October 1995 in Hong Kong. As of the end of
April 1996, the Hong Kong network had 20,000 subscribers. There can be no
assurance that CDMA technology will be successful in a broader market. In
addition, certain networks implementing CDMA have experienced problems in their
early trials including poor hand-offs (the transfer of a subscriber from one
cell to another as the subscriber travels through geographic areas) and problems
with analog interference with dual-mode CDMA handsets for 800 MHz cellular
operations. While the Company believes that some of the problems are unique to
800 MHz cellular operations and solutions for other problems have been
identified and are in the process of being resolved, there can be no assurance
that the Company will not encounter the same or other technological problems, or
that the proposed resolutions of existing problems will be successful.
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A risk associated with the Company's selection of CDMA technology is the
ability of the Company to offer PCS roaming service to its customers'
subscribers when they are in other markets. In order for the Company's
subscribers to roam in other wireless markets (and vice versa), at least one PCS
licensee in the other market must utilize CDMA technology and roaming
arrangements must be agreed upon between the Company and such other PCS
licensee, or the subscribers must use a dual-band phone that would permit the
subscriber to use the cellular system existing in the other market. The Company
has been advised that such dual-band phones are not expected to be available
until 1997 at the earliest. Based on public announcements by A-Block and B-Block
licensees and winning bidders in the C-Block auction, the Company believes that
CDMA will be widely deployed in the U.S. Nevertheless, such PCS licensees are
under no obligation to use any particular access technology. There can be no
assurance that PCS licensees planning to use CDMA technology will not elect to
use time division multiple access ("TDMA"), global system for mobile
communications ("GSM") or some other technology of the future. Accordingly,
although the Company has made a preliminary determination to utilize CDMA
technology, the Company will continue to assess the market and may alter its
technology plans. There can be no assurance that one of the other three
technologies will not also pose problems.
Currently there are very few suppliers of CDMA handsets. Additional
suppliers are scheduled to deliver CDMA handsets commencing in the second
quarter of 1997. There can be no assurance, however, that those suppliers will
commence production or, if they do commence production, that they will be able
to deliver quality handsets in sufficient quantities and at desirable prices.
Handsets used for PCS systems cannot currently be used with analog cellular
systems and vice versa. While the Company believes that dual-band handsets will
allow a user to access both PCS systems and analog cellular networks will be
commercially available in 1997, there can be no assurance that such handsets can
be successfully manufactured or that consumers can obtain such handsets at
competitive prices. In addition, dual-band full digital handsets are expected to
be larger and more expensive than single-mode handsets. The lack of
interoperability or the comparatively higher cost of such handsets may impede
the Company's ability to attract potential new wireless communications
resellers.
LICENSE TRANSFER RESTRICTIONS
The FCC has also promulgated regulations restricting transfer of C-Block
licenses. Most notably, transfer of C-Block licenses is not permitted within the
first five years of grant of the license unless the transfer is to another
entity eligible to be a C-Block licensee, such as another small business. After
five years, licenses are freely transferable providing FCC approval prior to the
transfer has been obtained. All transfers during the first ten-year license term
are subject to unjust enrichment penalties.
In addition, the FCC is considering whether to allow PCS licenses to
"partition" their licensed geographic areas and to permit "spectrum
disaggregation" in their frequency blocks. Partitioning and disaggregation would
allow licensees to spin off discrete portions of their licensed areas and/or
frequencies to third parties. While the Company may benefit from the ability to
transfer unwanted portions of its licenses, other PCS licensees and future
wireless communications services ("WCS") licensees with whom the Company will
compete will also have that ability, thereby increasing the number of
competitors the Company may face in a given market.
COMPETITION
Competition in the wireless industry in intense. There can be no assurance
that the Company will be able to compete successfully or that new technologies
and products that are more commercially effective than the Company's
technologies and products will not be developed. In addition, many of the
Company's competitors have substantially greater financial, technical,
marketing, sales and distribution resources that those of the Company. Some
competitors are expected to market other services, such as cable television
access, landline telephone service and Internet access with their wireless
telecommunications service offerings. Several of the Company's competitors are
operating, or planning to operate, through joint
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ventures and affiliation arrangements with wireless telecommunications networks
that cover most of the United States.
The FCC issued PCS licenses to the A-Block and B-Block license winners in
June 1995. Accordingly, the holders of the A-Block and B-Block PCS licenses in
the Company's basic trading area ("BTA") have a significant time-to-market
advantage over the Company. There can be no assurance that such time-to-market
advantage will not have a material adverse effect on the Company successfully
implementing its marketing strategy. In addition, the increase in the number of
PCS competitors in each of the Company's markets is expected to lead to
substantial increases in the capacity of wireless minutes of use ("MOU")
available in such markets. Many cellular providers currently sell MOUs on a
wholesale basis to other carriers as well as on a retail basis to consumers. The
Company anticipates that such cellular providers, as well as new PCS providers,
will compete with the Company in the future, and offer to wholesale MOUs for
digital wireless services.
The Company expects to compete with other communications technologies that
now exist, such as paging (including two-way digital paging), enhanced
specialized mobile radio ("ESMR") and domestic and global mobile satellite
service ("MSS"). In the future, cellular service and PCS will also compete more
directly with traditional landline telephone service providers, energy
utilities, local multipoint-distribution service and cable operators who expand
into the offering of traditional communications services over their cable
systems and utilities seeking to offer communications services by leveraging
their existing infrastructure. In addition, the Company may face competition
from technologies that may be introduced in the future, such as WCS.
LIMITED PCS OPERATING HISTORY IN THE UNITED STATES; SIGNIFICANT CHANGE IN THE
WIRELESS INDUSTRY
PCS systems have limited operating history in the United States and there
can be no assurance that operation of these systems will become profitable. In
addition, the extent of potential demand for PCS in the Company's markets cannot
be estimated with any degree of certainty. The wireless telecommunications
industry is experiencing significant technological changes, as evidenced by the
increasing pace of digital upgrades in existing analog wireless services,
evolving industry standards, ongoing improvements in the capacity and quality of
digital technology, shorter development cycles for new products and
enhancements, and changes in end-user requirements and preferences. There is
also uncertainty as to the extent of customer demand as well as the extent to
which airtime and monthly access rates may continue to decline. As a result, the
future prospects of the industry and the Company and the success of PCS and
other competitive services remain uncertain.
GOVERNMENT REGULATION
The licensing, construction, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by state regulatory agencies, the FCC, Congress and the courts. There
can he no assurance that the FCC, Congress, the courts or state agencies having
jurisdiction over the Company's business will not adopt or change regulations or
take other actions that would adversely affect the Company's financial condition
or results of operations. Many of the FCC's rules for the C-Block auction and
the PCS licenses acquired thereunder have not been tested by the courts and are
subject to being changed by Congressional action. In addition, FCC licenses to
provide PCS services are subject to renewal and revocation. The Company's PCS
Licenses have ten year renewable terms. There can be no assurance that the
Company's PCS Licenses will be renewed.
The Telecommunications Act of 1996 (the "1996 Act") mandates significant
changes in existing regulation of the telecommunications industry to promote
competitive development of new service offerings, to expand public availability
of telecommunications services and to streamline regulation of the industry.
Included in these mandates are requirements that the local exchange carriers
("LECs".) must: (i) permit other competitive carriers, which may include PCS
licensees, to interconnect to their networks;
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(ii) establish reciprocal compensation agreements with competitive carriers to
terminate traffic on each other's networks; and (iii) offer resale of its local
loop facilities. The implementation of these mandates by the FCC and state
authorities potentially involves numerous changes in established rules and
policies which could adversely affect the Company's financial condition and
results of operation.
The FCC has proceedings in process which could open up other frequency bands
for wireless telecommunications and PCS-like services. The FCC also is
considering, in a pending rulemaking proceeding, the ability of PCS licensees to
offer a variety of fixed services. The FCC is also considering flexible spectrum
use for PCS and for future spectrum allocations, such as WCS. There can be no
assurance that these proceedings would not adversely affect the Company and the
Company's ability to offer a full range of PCS services.
The Company's broadband PCS operations are expected to use microwave
communications facilities to "backhaul" its telecommunications traffic between
fixed points in its service areas. Under rules that became effective in August
1996, new microwave licenses carry a 10-year license term. The FCC has recently
proposed to auction certain fixed microwave licenses, some of which the Company
may seek to use. If adopted, this proposal would increase the Company's
microwave license acquisition costs.
Under existing law, the FCC can refuse or revoke certain licenses, including
PCS licenses, if it finds that it would not be in the public interest for more
than 25% of the capital stock of the parent of an FCC licensee to be owned,
directly or indirectly, or voted by non-U.S. citizens or their representatives,
by a foreign government or its representatives or by a foreign corporation.
Although the Company's "long-form" license application filed with the FCC after
the completion of the C-Block auction indicates that the Company is in
compliance with the FCC rules, if the foreign ownership of the Company, as the
parent of FCC-licensed subsidiaries, were to exceed 25%, the FCC could revoke
the FCC licenses of its subsidiaries if the FCC found the public interest would
be served thereby, although the Company could seek a declaratory ruling from the
FCC that more that more than 25% foreign ownership was in the public interest,
or take action to reduce the Company's foreign ownership percentage in order to
avoid the loss of its licenses. The restrictions on foreign ownership could also
adversely affect the ability of the Company to attract additional equity
financing from entities that are, or are owned by, non-U.S. entities.
FINANCIAL AFFILIATION RULES
To be financially eligible as an entrepreneur and/or small business
applicant for C-Block PCS licenses, the gross revenues and assets of the
applicant's "financial affiliates," are counted towards (or "attributed to") the
applicant's total gross revenues and total assets. Financial affiliation can
arise from common investments, familial or spousal relationships, contractual
relationships, voting trusts, joint venture agreements, stock ownership, stock
options, convertible debentures and agreements to merge. Affiliates of
noncontrolling investors with ownership interests that do not exceed the
applicable FCC "passive" investor ownership thresholds are not attributed to
C-Block applicants for purposes of determining whether such applicants
financially qualify for the applicable C-Block auction preferences. In case the
Company changes its equity structure, no passive investor would be permitted to
own more than 25% of the Company's total equity or voting stock on a fully
diluted basis.
In addition, if an entity makes bona fide loans to a C-Block applicant, the
assets and revenues of the creditor would not be attributed to the applicant
unless the creditor is otherwise deemed an affiliate of the applicant, or the
loan is treated by the FCC as an equity investment and such treatment would
cause the creditor/investor to exceed the applicable ownership interest
thresholds (for purposes of both the financial affiliation and foreign ownership
rules). Although the FCC permits a creditor/investor to use standard terms to
protect its investment in C-Block applicants, such as covenants, rights of first
refusal, and supermajority voting rights on specified issues, the FCC has stated
that it will be guided, but not bound by criteria used by the Internal Revenue
Service to determine whether a debt investment is bona fide debt. The Company
may seek loans by various creditor/investors or vendors, some of which may be
alien (non-
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U.S.) entities. These can be no assurance that the FCC will not treat such debt
financings as equity, and that such treatment would not cause the Company to
exceed the applicable foreign ownership thresholds.
MANAGEMENT OF GROWTH
As the Company's business expands, the Company will need to implement
enhanced operational and financial systems and will require additional employees
and management, operational and financial resources. There can be no assurance
that the Company will successfully implement and maintain such operational and
financial systems, or successfully obtain, integrate and utilize the required
employees and management, operational and financial resources to manage a
developing and expanding business. Failure to implement such systems,
successfully obtain, integrate and utilize the required employees and
management, operational, and financial systems, or successfully obtain,
integrate and utilize the required employees and management, operational and
financial resources to manage a developing and expanding business, failure to
implement such systems successfully and use such resources effectively could
have a material adverse effect on the Company's results of operations and
financial viability.
RAPID TECHNOLOGICAL CHANGE
The wireless PCS products industry is embryonic and, as such, is
experiencing very rapid technological change. To remain competitive, the
Company's business must develop or gain access to new technologies in order to
increase product performance and functionality and increase cost-effectiveness.
Given the emerging nature of the wireless PCS industry, there can be no
assurance that the Company's products or technology, such as its selection of
CDMA, will not be rendered obsolete by alternative technologies. The development
of new wireless PCS products is highly complex and the Company could experience
delays in developing and introducing its equipment. Alternative technological
and service advancements could materialize in the future which could prove both
viable and competitive to those employed by the Company in offering wireless
services.
RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE
Media reports have suggested that radio frequency ("RF") emissions from
wireless handsets may be linked to various health concerns, including cancer,
and may interfere with various electronic medical devices, including hearing
aids and pacemakers. Other health concerns may materialize over a longer period
of time. Concerns over RF emissions may have the effect of discouraging the use
of wireless handsets, which could have an adverse effect on the Company's
business. On August 1, 1996, the FCC adopted rules which update the guidelines
and methods it uses for evaluating RF emissions from radio equipment, including
wireless handsets. While the adopted rules impose more restrictive standards on
RF emissions from lower power devices such as wireless handsets, it is believed
that all wireless handsets to be marketed and to be used by the Company's
subscribers, comply with such new standards. Studies performed by wireless
telephone equipment manufacturers have rebutted these allegations, and a major
industry trade association and certain governmental agencies have stated
publicly that the use of such phones poses no undue health risk. Regardless of
the truth of these allegations, their very existence could have an adverse
effect on the Company, and could have future substantial adverse impacts on the
mobile cellular telephone and PCS markets. Although CDMA handsets operate at
lower power than other wireless handsets, and therefore would comply with the
proposed standards, if adopted, the same concerns about RF emissions could
remain present with CDMA handsets. These concerns could have an adverse effect
on the Company's financial condition and the results of its operations.
In addition, digital wireless telephones have been shown to cause
interference to some electronic devices, such as hearing aids and pacemakers.
Industry trade associations, together with the University of Oklahoma Center for
the Study of Wireless Electromagnetic Compatibility and other interested
parties, currently are studying the extent of, and possible solutions to, this
interference.
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RELOCATION OF INCUMBENT FIXED MICROWAVE LICENSEES
In an effort to balance the competing interests of 2GHz microwave incumbents
and newly authorized PCS licensees in that spectrum band, the FCC has adopted:
(i) a transition plan to relocate fixed microwave operators that currently are
operating in the 2GHz band, and (ii) a cost sharing plan so that if the
relocation of an incumbent benefits more than one PCS licensee, the benefitting
PCS licensees will help defray the costs of the relocation. PCS licensees will
only be required to relocate fixed microwave incumbents if they cannot share the
same spectrum. The transition and cost sharing plans expire on April 4, 2005, at
which time remaining incumbents in the PCS spectrum will be responsible for
their costs to relocate to alternate spectrum locations.
Relocation generally involves a PCS operator compensating an incumbent for
costs associated with system modifications and new equipment required to move to
alternate, readily available spectrum. This transition plan allows most
microwave users to operate in the PCS spectrum for a two-year voluntary
negotiation period and an additional one-year mandatory negotiation period. For
public safety entities dedicating a majority of their system communications for
police, fire, or emergency medical service operations, the voluntary negotiation
period is three years. The FCC currently is considering whether to shorten the
voluntary negotiation period by one year. Parties unable to reach agreements
within these time periods may refer the matter to the FCC for resolution, but
the existing microwave user is permitted to continue its operations until final
FCC resolution of the matter.
The FCC's cost-sharing plan allows PCS licensees that relocate fixed
microwave links outside of their license areas to receive reimbursements from
later-entrant PCS licensees that benefit from the clearing of their spectrum.
Recently, the FCC designated two non-profit associations to serve as
clearinghouses to administer the cost-sharing plan.
The Company has not yet done an in-depth analysis of the microwave
installations in its PCS License Area, but does not believe that its relocation
expenditures will exceed $350,000.
RENEWAL OF CONTRACTUAL RELATIONSHIP WITH BANMC
During 1995/96, the Company received 100% of its cellular service income
from BANMC. In the event BANMC elects to terminate, or fails to renew either
part of its relationship with the Company (through NYNEX or Bell Atlantic), this
would have a severe immediate impact on the short-term business and cash flow of
the Company. In such a case, management would attempt to replace BANMC with
another cellular carrier or wireless service provider. However, the Company's
efforts in this regard could be substantially limited by the terms of certain
non-competition provisions in its agreement with BANMC.
HISTORY OF LOSSES
For the nine months ended September 30, 1996, the Company had a net loss
from sales of $3,103,368 from sales of $6,393,442, as compared to a net loss of
$1,659,186 from sales of $5,377,510 for the same period ending September 30,
1995. The Company had a net loss of $2,628,959 from sales of $8,736,515 for the
year ended December 31, 1995. During the years ended December 31, 1994 and 1993,
the Company's sales were $9,423,964 and $6,377,425 and the Company incurred net
income (losses) of $29,819 and ($296,626) ,respectively. The Company intends to
continue to invest in domestic paging systems, wireless telephone systems and
other telecommunications products, which may not be profitable for extended
periods of time, if at all, and which are capital intensive. The Company also
intends to continue its cellular agency business. There can be no assurance that
revenues from the operation of the Company's Paging Network, plus activation and
residual income from its cellular agency business will be sufficient, alone or
together with additional capital raising or financing efforts and mechanisms,
which may not be feasible without a short or long-term prospect of profit, and
which may not be accomplished for other reasons beyond the Company's control, to
meet the Company's financial needs and there can be no assurance of
profitability.
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DEPENDENCE UPON EXTERNAL SUPPLIERS
The company does not manufacture either its cellular, paging or PCS-related
wireless equipment or accessories. Cellular equipment utilized by the Company is
supplied by a variety of vendors such as BANMC, NYNEX, Ericsson, Motorola,
Samsung, NEC America, Inc. and others.
There are over 20 companies worldwide that are licensed to manufacture and
supply CDMA network equipment, including Lucent Technologies, Hughes Network
Systems, Hyundai Electronics, LG InfoComm ("LGIC"), Motorola, NEC, Northern
Telecom and Samsung Electronics to manufacture and sell CDMA network equipment.
In addition, Alps Electric, AT&T, Fujitsu, Hyundal Electronics, LGIC, Maxom
Electronics, Mitsubishi, Motorola, NEC, NOKIA Mobile Phones, OK/Electric,
Matsushita (Panasonic), Nippon Denzo, QUALCOMM, Samsung Electronics, SONY
Electronics and SANYO Electric are licensed to manufacture and sell CDMA
subscriber equipment. The Company intends to deploy equipment from multiple
vendors in its networks. However, shortage of supply for CDMA handsets and other
equipment is anticipated in 1997 and 1998.
The Company will be relying upon these external sources of supply, none of
which are currently bound to supply the company with its requirements. There can
be no assurance that a suitable supply of equipment will be available at such
times as the Company may require.
TECHNOLOGICAL OBSOLESCENCE
The telecommunications industry in general, and wireless communications in
particular, are undergoing rapid and significant technological change. The
Company will need access to improving technology in order to remain competitive.
There can be no assurance that the Company can obtain access to such new
technology through licensing agreements, joint ventures or otherwise.
Consequently, the Company may invest time and financial resources in new
technology, such as PCS, with no assurance that the Company will be successful
in accessing new technology and, even if the Company is successful in its
development efforts, that the technology will be commercially viable or will be
competitive with the then existing technology.
LACK OF PROPRIETARY TECHNOLOGY
Although the Company is protected by its FCC paging and PCS Licenses in
their respective license areas, those licenses are subject to renewal at the end
of ten (10) years, and in the case of the PCS License, to the Company's ability
to make timely payment of the installment under the FCC Notes, and to meet
developmental time deadlines and requirements. The failure to obtain renewal of
its licenses could substantially erode the value of its respective investment in
paging and PCS network infrastructure. Moreover, the Company does not have, nor
does it presently intend to develop, proprietary communications technology. As
noted above, the Company's participation in the telecommunications industry is
dependent upon it obtaining access to technology for new products and services
through purchase of equipment and services from large suppliers. Large
manufacturers dominate technological development in the wireless communications
industry and changes in their methods of distributing such products could reduce
access to technology and harm its growth prospects.
MAINTENANCE OF CUSTOMER BASE
During the year ended December 31, 1995, approximately 43% of the Company's
revenues were derived from activation and residual payments from cellular
carriers. While the Company presently has a customer base of approximately
40,000 subscribers for which it receives monthly residual payments from the
cellular carriers, these subscribers have no long-term contracts and they can
terminate their service at any time. Although the residual payments received by
the Company as agent for BANMC typically continue for a period not to exceed
three years, the payments can terminate for various reasons at any time,
including upon expiration of the agreements, and there can be no assurance that
a substantial
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number of subscribers will continue to buy cellular telephone service through
the Company. The Company's agreement with NYNEX reached the end of its term of
November 1, 1996 and the Bell Atlantic agreement terminates January 31, 1998.
NYNEX has extended its agreement on a month-to-month basis, pending submission
and agreement on a new agreement. However, there can be no assurance that the
Company and NYNEX will agree on the terms of a new agreement. Moreover, because
BANMC and the Company will be competitors for PCS, there can be no assurance
that agreements will be renewed in the future. In addition, the Bell Atlantic,
but not the NYNEX agreement, prohibits the Company from offering PCS in the
territory covered by the Bell Atlantic agreement with the Company (i.e., New
Jersey) There can be no assurance that the proposed new NYNEX agreement will not
contain a similar proscription with respect to Metropolitan New York. Moreover,
each of the NYNEX and Bell Atlantic agreements contain non-competition and
non-solicitation provisions of customers secured by the Company for a period of
two years from termination to expiration. If a significant percentage of these
subscribers are lost, there can be no assurance that the Company will be able to
replace its customer base from other services.
DEPENDENCE UPON KEY PERSONNEL
The Company is highly dependent upon the personal efforts and abilities of
its President and Chief Executive Officer, William S. Taylor, and its Executive
Vice President and Treasurer, Les Winder. The loss of the services of Mr. Taylor
and/or Mr. Winder could have a material adverse effect on the Company. The
Company has entered into five-year employment agreement with Mr. Taylor and Mr.
Winder, which expire in October, 1999 and April, 2000 respectively, and which
are renewable at the option of Messrs. Taylor and Winder for a successive
three-year term. The agreements include non-disclosure and non-competition
provisions. The Company has obtained key-person insurance on the lives of
Messrs. Taylor and Winder in the amount of $1,000,000 and $500,000,
respectively, the proceeds of which are payable to the Company.
VOTING CONTROL BY OFFICERS, DIRECTORS AND RELATED ENTITIES
The Company's officers and directors and persons which may be considered
affiliates of, or related to, such officers and directors initially will
beneficially own approximately 43.2% of the Company's outstanding Common Stock,
and securities convertible into Common Stock, and other securities of the
Company. If they voted in the same manner, such stockholders would represent a
significant portion of the votes required to elect the entire board of directors
of the Company and, in general, to determine the outcome of matters submitted to
the stockholders for approval.
TRANSACTIONS WITH AFFILIATES; TWO INDEPENDENT DIRECTORS
The Company has engaged in several transactions with affiliates, which the
Company believes are on terms at least as favorable to the Company as could be
obtained with unaffiliated third parties under the circumstances of such
transactions and arrangements. The Company's board of directors has adopted a
policy that the Company will not enter into any further transactions with
affiliates unless the Company first obtains approval of the board of directors,
and a majority of its independent directors. The Company presently has two
independent directors. Accordingly, both directors must agree to approve such
transactions.
ABSENCE OF CASH DIVIDENDS
The board of directors does not anticipate paying cash dividends on the
Common Stock, preferred stock or other securities of the Company in the
foreseeable future, and intends to retain all future earnings, if any, to
finance the growth of the Company's business, including its capital needs with
respect to PCS operations. Payment of dividends, if any, will depend, among
other factors, on earnings, capital requirements and the general operating and
financial condition of the Company.
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RIGHTS OF COMMON STOCKHOLDERS MAY BE MATERIALLY LIMITED OR QUALIFIED BY RIGHTS
OF PREFERRED STOCKHOLDERS
The Company is authorized to issue 8,000,000 shares of Preferred Stock,
$0.01 par value ("Preferred Stock"). On September, 1996, the Company issued an
aggregate of 4,000,000 Series B Preferred Non-Voting Convertible Stock to the
following officers and directors of the Company: Brenda Taylor (1,000,000) and
Messrs. William Taylor (1,000,000), Les Winder (1,000,000) and Robert Depalo
(1,000,000) "See Description of Securities". The Preferred Stock 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. The rights, preferences and limitations of a separate series of
Preferred Stock may differ with respect to such matters as may be determined by
the board of directors, including without limitation, the rate of dividends,
methods and nature of payment of dividends, terms of redemption, amounts payable
on liquidation, sinking fund provisions (if any), conversion rights (if any),
and voting rights. Any and all such rights that may be granted to preferred
stockholders may be in preference to common stockholders and to common
stockholders' detriment. In general, additional shares of Preferred Stock may be
issued by the board of directors without stockholder approval. In the event of
issuance, the Preferred Stock could be utilized under certain circumstances as a
method of discouraging, delaying or preventing a change in control of the
Company. This may have the effect of discouraging third party bidders from ever
making a bid, may reduce any premium that such bid could yield to holders of
Common Stock over market value and may have a depreciative effect on the price
of the Company's Common Stock. Although the Company has no present intention to
issue any additional shares of its Preferred Stock, there can be no assurance
that the Company will not do so in the future. The Company may not publicly
offer or sell any shares of Preferred Stock without the consent of the
Representative, Inc. for a period ending May 12, 1998.
POSSIBLE ADVERSE MARKET EFFECT OF EXERCISE OF WARRANTS AND LIMITATION ON FUTURE
FINANCING
Assuming the exercise of the A Warrants currently outstanding and being
offered by the Selling Securityholders, there will be a 6,260,000 share increase
in the number of outstanding shares of Common Stock to a total of approximately
18,455,515 shares. If such exercise occurs within a reasonably short period of
time, this increase in the amount of Common Stock in any trading market could
cause a substantial reduction in the price of the Common Stock. The A Warrants
give the respective holders the opportunity to benefit from an increase in the
market price of the Common Stock at nominal cost to them. While the A Warrants
are outstanding, the terms on which the Company may obtain additional financing
may be adversely affected.
POSSIBLE INCREASE IN SHARES ELIGIBLE FOR FUTURE SALE
As of the date hereof, 1,298,675 of the 11,195,515 shares of issued and
outstanding Common Stock are "restricted securities," as that term is defined
under Rule 144 promulgated under the Securities Act, which will become eligible
for sale under Rule 144 beginning in or about May, 1997, through in or about
March, 1998.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the company (or persons whose shares are aggregated), who owns restricted shares
of Common Stock which have been held for a period of at least two years after
the later of the acquisition of such shares from the issuer or from an affiliate
of the issuer is entitled to sell, within any three-month period, a number of
shares that does exceed the greater of 1% of the total number of outstanding
shares of the same class or, if the Common Stock is listed on an exchange or
quoted on NASDAQ, the average weekly trading volume during the four calendar
weeks preceding the sale. A person who has not been an affiliate of the company
of at least the three months preceding the sale and who owns shares of Common
Stock which have been held for a period of at least three years after the later
of the acquisition of such shares from the issuer or from an affiliate of the
issuer is entitled to sell such shares
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under Rule 144 without regard to the volume limitations described above. An
increase in the number of shares of Common Stock offered for sale by existing
holders and prospective investors, can have an adverse effect on the market
price of the Company's securities.
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ OR BOSTON STOCK EXCHANGE
The NASD imposes stringent criteria for continued listing of securities on
the NASDAQ Small-Cap Market. To maintain the listing of its securities on the
NASDAQ Small-Cap Market, the Company must have, among other things, total assets
of $2,000,000 (it currently has more than $3 million), capital and surplus of
$1,000,000 (it currently has $4 million) and, in certain circumstances, a
minimum bid price for its common stock of $1.00 per share (recent bid prices
have ranged at or about $1.75). In the event the Common Stock or A Warrants are
delisted from the NASDAQ Small-Cap Market as a result of losses or otherwise,
trading, if any, would thereafter be conducted in the over-the-counter market in
the so-called "pink sheets" or the NASD's Electronic Bulletin Board. The Boston
Stock Exchange ("BSE") imposes similar continuing listing requirements. As a
consequence of delisting, an investor could find it more difficult to dispose
of, or to obtain accurate quotations as to the price of, the Company's
securities. The Company could also suffer a loss of news coverage, and
information relating to the Company may become more difficult to obtain, which
could in turn result in a decline in the market for the Company's securities and
make it more difficult for the Company to obtain additional financing.
On November 6, 1996, the Board of Directors of NASDAQ approved certain
changes in NASDAQ rules to strengthen both the quantitative and qualitative
standards for issuers on NASDAQ. These proposed changes are in the "public
comment" stage and may be adopted in the near term, upon filing with the
Commission. The following is a summary of certain rule changes which could
affect the Company; (i) elimination of the alternative to a $1.00 bid
requirement; (ii) application of the National Market corporate governance
standards to SmallCap issuers, which would require: (a) a minimum of two
independent directors; (b) an Audit Committee, a majority of which are
independent directors; (c) an annual shareholder meeting: and (d) shareholder
approval for certain corporate actions. The Company believes it currently
satisfies all of these additional requirements; (iii) certain accounting changes
relating to computation of net tangible assets, as a result of accounting for
good will associated with various merger and acquisition activities, or as in
the case of telecommunications companies, such as the Company, significant
depreciation changes. (It is believed that these proposed changes will benefit
the Company); and (iv) peer review of auditors for NASDAQ companies.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure, relating to the market for penny stocks, in connection
with trades in any stock defined as a penny stock. The Commission recently
adopted regulations that generally define a penny stock to be an equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include any equity security listed on the NASDAQ
Small-Cap Market and any equity security listed by an issuer that has: (i) net
tangible assets of at least $2,000,000, if such issue has been in continuous
operation for three years, (ii) net tangible assets of at least $5,000,000, if
such issuer has been in continuous operation for less than three years, or (iii)
average annual revenue of at least $6,000,000, if such an issuer has been in
operation for less than three years. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated therewith.
In addition, if the Company's securities are not quoted on the NASDAQ
Small-Cap Market, or the Company does not have $2,000,000 in net tangible
assets, trading in the Company's securities would be covered by Rule 15g-9
promulgated under the Securities Exchange Act of 1934 for non-NASDAQ and
non-exchange listed securities. Under such rule, broker/dealers who recommend
such securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities also are exempt from this rule if the market price is at
least $5.00 per share.
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Although the Company's Common Stock and A Warrants will, as of the date of
this memorandum, be outside the definitional scope of a penny stock, as they
will be listed on the NASDAQ Small-Cap Market, in the event the Common Stock and
A Warrants were subsequently to become characterized as a penny stock, the
market liquidity for the Company's Securities could be severely adversely
affected. In such event, the regulations on penny stocks could limit the ability
of broker/dealers to sell the Company's securities and thus the ability of
holders of the company's securities to sell their securities in the secondary
market.
RISK OF REDEMPTION BY THE COMPANY OF THE A WARRANTS
The Company may redeem the A Warrants offered hereunder for $0.01 per A
Warrant, at any time after the closing inside bid quotation for the Common Stock
on NASDAQ is at least $8.00 for 30 consecutive trading days, ending ten (10)
days prior to the notice of redemption. Notice of redemption of the A Warrants
could cause the holders thereof to exercise the A Warrants and to pay the
exercise price at a time when it may be disadvantageous for the holders to do
so; to sell the A Warrants at the current market price when they might otherwise
wish to hold the A Warrants; or to accept the redemption price, which is likely
to be less than the market value of the A Warrants at the time of redemption.
(See "Description of Securities.")
INVESTORS MAY BE UNABLE TO EXERCISE A WARRANTS
For the life of the A Warrants, the Company has agreed to maintain a current
effective registration statement with the Commission relating to the shares of
Common Stock issuable upon exercise of the A Warrants. If the Company is unable
to maintain a current registration statement, the A Warrant holders will be
unable to exercise the A Warrants and the A Warrants may become valueless.
Although during this offering the A Warrants will not knowingly be sold in any
jurisdiction in which they are not registered or otherwise qualified, a
purchaser of the A Warrants may relocate into a jurisdiction in which the shares
of Common Stock underlying the A Warrants are not registered or qualified. If
the Company is unable or chooses not to register or qualify or maintain the
registration or qualification of the shares of Common Stock underlying the A
Warrants for sale in all of the states in which the A Warrant holders reside,
the Company would not permit such A Warrants to be exercised and A Warrant
holders in those states may have no choice but to either sell their A Warrants
or let them expire. Prospective investors and other interested persons who wish
to know whether or not the Common Stock may be issued upon the exercise of A
Warrants in a particular state should consult with the securities department of
the state in question or send a written inquiry to the Company.
CORPORATE TAKEOVER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (the Company did not make such an election); (ii) the business
combination was approved by the board of directors of the corporation before the
other party to the business combination became an interested stockholder; (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to render or vote stock held by
the plan); or, (v) the business combination was approved by the board of
directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain
26
<PAGE>
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. Section 203 could
prohibit or delay a merger, takeover or other change in control of the Company
and therefore could discourage attempts to acquire the Company.
CERTAIN CHARTER AND BY-LAWS PROVISIONS
The Company's certificate of incorporation, as amended, and by-laws, limit
the liability of directors and officers to the maximum extent permitted by
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, including gross negligence, except liability for: (i) breach of the
director's duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law; (iii) the
unlawful payment of a dividend or unlawful stock purchase or redemption; and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not permit a corporation to eliminate a director's
duty of care, and this provision of the Company's Certificate of Incorporation
has no effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
The Company's certificate of incorporation, as amended, authorizes the
Company to purchase and maintain insurance for the purposes of indemnification.
The Company intends to apply for directors' and officers' insurance, although
there can be no assurance that the Company will be able to obtain such insurance
on reasonable terms, or at all. At present, there is no pending litigation or
proceeding involving any director, officer, employee or agent for which
indemnification will be required or permitted under the certificate of
incorporation, as amended, or by-laws. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
LEGAL PROCEEDINGS
On March 4, 1996 the Company commenced an action entitled Electronics
Communications Corp. as Plaintiff against Toshiba America Consumer Products,
Inc. and Audiovox Corporation, case number 96 Civ. 1365 in the United States
District court, Southern District of New York. The complaint asserts claims for
antitrust, breach of contract,, tortious interference with contract and tortious
interference with prospective economic advantage and business relations. The
complaint seeks damages in excess of $3,000,000. This action was commenced
because the Company expended significant monies and resources including the
issuance of 200,000 shares of the Company's Common Stock to a consultant in
anticipation of a South American cellular telephone program which the company
was to undertake exclusively on behalf of Toshiba. Immediately prior to the
commencement of the program, Toshiba discontinued manufacturing the line of
cellular telephones that the program was designed to offer. This unilateral
decision has caused significant damages to the Company and the Company will
vigorously prosecute this claim.
The defendants Toshiba and AudioVox moved to dismiss a portion of the case,
claiming that the Company had not pled a cognizable antitrust cause of action,
and that the remaining claims should be dismissed for the lack of supplemental
jurisdiction. On August 12, 1996 the Court ruled in favor of the motion of
defendants, Toshiba and AudioVox, and the case was dismissed on such date. The
Company has appealed the Court's ruling and anticipates filing its Brief on
Appeal shortly.
27
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the A
Warrants by the Selling SecurityHolders. The Company will apply any amounts paid
to the Company by the Selling Securityholders upon exercise of their A Warrants
to the Company's working capital.
DILUTION
As of September 30, 1996, the net tangible book deficit of the Company's
Common Stock, after deduction of $40,000 of liquidation preference related to
4,000,000 shares of Series B Preferred Stock, was $(23,341,967) or $(1.95).
Accordingly, purchasers of shares of the Company's Common Stock in the open
market, assuming a market price of $1.75 would suffer immediate dilution of
$3.80 per share. The principal transaction which results in the Company's
significant net tangible book deficit was the Company's purchase of the PCS
Licenses, which are intangible, at the FCC's auction for $26,829,482 and the
issuance of a note payable to the FCC which has a balance due at September 30,
1996 of $23,806,980. In addition, the Company's results of operations, and
accordingly net worth were impacted by the issuance of 2,300,000 shares to
various parties which resulted in a non-cash expense of $1,437,500.
The foregoing does not include the dilutive effect of the possible issuance
of 6,000,000 shares of Common Stock issuable upon the conversion of the Series B
Preferred Stock solely to officers and directors at the equivalent of $1.00 per
share of Common Stock.
CERTAIN MARKET INFORMATION
Prior to May 12, 1995, the Company's Common Stock was traded
over-the-counter on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") Stock Market's Electronic Bulletin Board (the
"OTC Bulletin Board").
The Common Stock and A Warrants are currently traded in the NASDAQ Stock
Market's SmallCap Stock Market (the "NASDAQ SmallCap Market") under the
respective symbols "ELC" and "ELCCW" and on the Boston Stock Exchange, under the
respective symbols "ELCC" and "ELCCW".
The following table sets forth the range of high and low bid quotations of
the Common Stock and A Warrants, as reported on the OTC Bulletin Board or the
NASDAQ SmallCap Market, for the periods indicated, as adjusted to reflect the 1
for 5 reverse stock split in the second quarter of 1995. These quotations
represent inter-dealer quotations, do not include retail mark-ups, mark-downs or
commissions, and do not necessarily represent actual transactions
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
<S> <C> <C>
LOW HIGH
--------- ---------
1994
Second Quarter (beginning June 1, 1994)........................................................ $ 5.312 $ 8.75
Third Quarter.................................................................................. $ 2.50 $ 5.312
Forth Quarter.................................................................................. $ 1.25 $ 5.00
1995
First Quarter.................................................................................. $ 2.00 $ 4.25
Second Quarter (through May 12, 1995).......................................................... $ 0.75 $ 4.75
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
A WARRANTS
-------------------- --------------------
LOW HIGH LOW HIGH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1995
Second Quarter (beginning May 15,1995).................................... $ 4.75 $ 5.50 $ 1.25 $ 1.375
Third Quarter............................................................. $ 4.75 $ 6.16 $ 1.12 $ 1.81
Fourth Quarter............................................................ $ 2.00 $ 4.75 $ .50 $ 1.1875
1996
First Quarter............................................................. $ 1.875 $ 2.375 $ .375 $ .6875
Second Quarter............................................................ $ 1.50 $ 2.593 $ .375 $ 1.156
Third Quarter............................................................. $ .50 $ 1.56 $ .375 $ .625
Fourth Quarter............................................................ $ 1.281 $ 2.25 $ .531 $ 1.062
</TABLE>
On January 22, 1997, the closing bid prices of the Common Stock and A
Warrants as reported on the NASDAQ SmallCap Market were $1.75 and $.625
respectively. On January 22, 1997, there were 452 record holders of the Common
Stock and 26 record holders of the A Warrants. The Company believes that there
are in excess of 1000 beneficial holders of the Common Stock and A Warrants.
SELLING SECURITYHOLDERS
This Prospectus relates to the sale of shares of Common Stock and A Warrants
by the Selling Securityholders, as well as for the Sale by the Company of shares
of Common Stock upon the exercise of A Warrants. The following table sets forth
as of the date hereof certain information with respect to the persons for whom
the Company is registering the securities for sale to the public. None of such
persons has held any position or office with the Company within the past three
years. The Company will not receive any of the proceeds from the sale of the
Securities by Selling Securityholders.
A WARRANTS
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
------------------------ ----------------------------
<S> <C> <C> <C> <C> <C>
A WARRANTS
NAME OF SELLING SECURITYHOLDER A WARRANTS PERCENTAGE OFFERED A WARRANTS PERCENTAGE
- -------------------------------------------------- ----------- ----------- ----------- --------------- -----------
Technics In Design & Manufacturing, Inc........... 800,000 18.7% 800,000 -0- 0.0%
</TABLE>
COMMON STOCK
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
---------------------- ------------------------
<S> <C> <C> <C> <C> <C>
SHARES
NAME OF SELLING SECURITYHOLDER SHARES PERCENTAGE OFFERED SHARES PERCENTAGE
- ------------------------------------------------------------- --------- ----------- --------- ----------- -----------
Steven W. Machan............................................. 9,999 .03% 9,999 -0- 0.0%
Joseph Amedure............................................... 6,666 .02% 6,666 -0- 0.0%
Ann Marie DeMarco............................................ 3,333 .01% 3,333 -0- 0.0%
Richard G. Fishman........................................... 6,666 .02% 6,666 -0- 0.0%
Joseph P. Meyer.............................................. 3,333 .01% 3,333 -0- 0.0%
Nancy H. Scher............................................... 37,500 1.2% 37,500 -0- 0.0%
Alan DeFabbio................................................ 13,332 .04% 13,332 -0- 0.0%
Angelina Lombardo............................................ 6,666 .02% 6,666 -0- 0.0%
Nicole Raineri............................................... 16,650 .05% 16,650 -0- 0.0%
</TABLE>
29
<PAGE>
PLAN OF DISTRIBUTION
The Selling Securityholders have advised the Company that sales of the
Securities may be effected from time to time by themselves, in transactions
(which may include transactions in the over-the-counter market), in negotiated
transactions, through the writing of options on the Common Stock or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Securityholders may effect such transactions by selling the Securities
directly to purchasers or through broker-dealers that may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders or the
purchasers of the Securities for whom such broker-dealers may act as agents or
to whom they sell as principals, or both (which compensation as to a particular
broker-dealer must be in excess of customary commissions).
The Selling Securityholders, and any broker-dealers that act in connection
with the sale of the Securities as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act and any commissions
received by them and any profit on the resale of the Securities as principals
might by deemed to be underwriting discounts and commissions under the
Securities Act. The Selling Securityholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of the
Securities against certain liabilities, including liabilities arising under the
Securities act. The Company will not receive any proceeds from the sales of the
securities but will receive proceeds from the exercise of A Warrants. Sales of
the Securities, or even the potential of such sales, would likely have an
adverse effect on the market price of the Common Stock and A Warrants.
DESCRIPTION OF SECURITIES
The following description relating to the Common Stock and A Warrants of the
Company is a summary and is qualified in its entirety by the provisions of the
Company's certificate of incorporation, as amended, and by-laws, copies of which
are available from the Company upon written request.
COMMON STOCK
The shares of Common Stock (i) have equal ratable rights to dividends from
funds legally available therefore, when, as and if declared by the board of
directors of the Company are subject to the preference given to holders of
Preferred Stock; (ii) are entitled to share ratable in all of the assets of the
Company available for distribution to holders of Common Stock upon liquidation,
dissolution or winding up of the affairs of the Company; (iii) are not subject
to pre-emptive, subscription or conversion rights and there are no redemption or
sinking fund provisions applicable thereto, and (iv) are entitled to one
non-cumulative vote per share on all matters which stockholders may vote on at
all meetings of stockholders. All outstanding shares of Common Stock are, and
the shares of Common Stock to be sold in this offering when issued and paid for
will be, fully paid and non-assessable.
The Company has paid no cash dividends and it is not anticipated that any
cash dividends will be paid in the foreseeable future. In all events, the
declaration of cash dividends will depend upon future earnings, if any, the
financial needs of the Company, and other pertinent factors.
The Company intends to furnish its stockholders with annual reports of its
operations, containing audited financial statements and with additional
information concerning the business and affairs of the Company whenever deemed
appropriate by the board of directors.
SERIES B PREFERRED STOCK
On July 23, 1996 the board of directors of the Company at a Special Meeting
of the Board of Directors authorized the issuance of an aggregate of 4,000,000
Series B Preferred Shares of the Company to Brenda Taylor (1,000,000) and
Messrs. Taylor (1,000,000), Winder (1,000,000) and DePalo (1,000,000) in
30
<PAGE>
return for their personal guarantees of approximately $3,000,000 of the
Company's Subordinated Convertible Debentures. Each share of the Series B
Preferred Stock is valued at $1.50 per share and convertible into 1.50 shares of
Common Stock. The Series B Preferred Shares are payable by a three year
promissory note bearing interest at the rate of 7% per annum, with interest
accruing, but not payable until the securities are sold. The promissory notes
are immediately extended for additional one-year terms. The Series B Preferred
Shares are fully paid and non-assessable. The promissory notes are non-recourse,
but are collateralized by a pledge of the Stock.
These Series B Preferred Shares are subject to a three (3) year vesting
period pursuant to which 1/3 of the shares will vest immediately, and
thereafter, on July 23, 1997, if Brenda Taylor and Messrs. Taylor, Winder and
DePalo are still employed by or a director of the Company at such time, an
additional one-third shall vest and thereafter on July 23, 1998, if the
aforementioned individuals are still employed by or a director of the Company at
such time, the balance shall vest.
On July 23, 1996, the Company reserved 6,000,000 common shares for issuance
upon the conversion of these Series B Preferred Shares.
On October 17, 1996, at the Annual Meeting of Shareholders, shareholders
voting in person and by proxy, voted to approve "Proposal No. 3" described in
the Company's Notice of Annual Meeting and Proxy Statement, which ratified the
issuance of the Series B Preferred Shares.
A WARRANTS
The A Warrants are governed by and subject to the terms of a warrant
agreement as amended (the "Warrant Agreement") between the Company and American
Stock Transfer and Trust Company, New York, New York, as the warrant agent (the
"Warrant Agent"). The following statements are brief summaries of certain
provisions of the Warrant Agreement. Copies of the Warrant Agreement may be
obtained from the Company or the Warrant Agent and have been filed with the
Commission as an exhibit to the Registration Statement of which this Prospectus
is a part. See "Additional Information."
As of the date hereof, there are 6,260,000 A Warrants issued and
outstanding. The Company has reserved an equivalent number of shares of Common
Stock for issuance upon the exercise of the A Warrants.
The Company may redeem the A Warrants with the consent of the Representative
at any time after May 12, 1996 at a price of $0.001 per A Warrant upon 45 days'
prior written notice if the closing bid quotation of the Common Stock on NASDAQ
has been at least $8.00 during the 20 consecutive trading days ending on the
third day prior to the day on which notice of redemption is given.
Each A Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $5.00 per share exercisable until May 12, 1999. The A
Warrants contain anti-dilution provisions that protect the Class A
warrantholders against dilution by adjustment of the exercise price in certain
events including, but not limited to, stock dividends, stock splits,
reclassifications or mergers. Class A warrantholders will not possess any rights
as a stockholder of the Company. The shares of Common Stock, when issued upon
the exercise of the A Warrants in accordance with the terms thereof, will be
fully paid and non-assessable.
During the time when the A Warrants are exercisable, the Company is required
to have a current registration statement on file with the Commission and to
effect appropriate qualifications under the laws and regulations of the states
in which the holders of A Warrants reside in order to comply with applicable
laws in connection with the exercise of the A Warrants and the resale of the
Common Stock issued upon such exercise. So long as the A Warrants are
outstanding, the Company has undertaken to file all post-effective amendments to
the registration statement required to be filed under the Securities Act, and to
take appropriate action under Federal and state securities laws to permit the
issuance and resale of Common Stock issuable upon exercise of the A Warrants.
However, there can be no assurance that the
31
<PAGE>
Company will be in a position to effect such action under the federal and
applicable state securities laws, and the failure of the Company to effect such
action may cause the exercise of the A Warrants and the resale or other
disposition of the Common Stock issued upon such exercise to become unlawful.
The Company may amend the terms of the A Warrants but only by extending the
termination date or lowering the exercise price thereof. The Company has no
present intention of amending such terms.
B WARRANTS
The Company has authorized the issuance of B Warrants to purchase a maximum
of 1,000,000 shares of Common Stock, and has reserved an equivalent number of
shares of Common Stock for issuance upon the exercise of such B Warrants. As of
the date hereof 990,000 B Warrants have been issued. No fractional shares will
be issued upon the exercise of the B Warrants, the Company will pay cash in lieu
of fractional shares.
The Company may redeem the B Warrants at a price of $.001 per warrant at any
time after May 12, 1996 upon 45 days' prior written notice if the closing bid
quotation of the Common Stock has been at least $8.00 on all 20 of the trading
days ending on the third day prior to the day on which notice of redemption is
given. Each B Warrant entitles the holder thereof to purchase one share of
Common Stock at a price of $5.00 per share until the fourth anniversary of the
Effective Date. On January 20, 1995, the Company agreed to reduce the exercise
price of 300,000 B Warrants from $5.00 to $2.50 and amended the exercise period
of these 300,000 B Warrants so that they are not exercisable until February 1,
1996. The B Warrants contain provisions that protect the B Warrantholders
against dilution by adjustment of the exercise price in certain events
including, but not limited to, stock dividends, stock splits, reclassifications
or mergers. B Warrantholders will not possess any rights as a shareholder of the
Company. The shares of Common Stock, when issued upon the exercise of the B
Warrants in accordance with the terms thereof, will be fully paid and
non-assessable. The Company may amend the terms of the B Warrants. The Company
has no present intention of amending such terms.
TRANSFER AND WARRANT AGENT
The Company's transfer agent and Warrant Agent is American Stock Transfer &
Trust Company, 40 Wall Street, 46th Floor, New York, NY 10005.
LEGAL MATTERS
The validity of the shares of Securities offered hereby will be passed upon
for the Company by the Sommer & Schneider LLP, 600 Old Country Road, Suite 535,
Garden City, NY 11530. A partner of the firm of Sommer & Schneider LLP owns
10,000 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of Electronics Communications Corp. at
December 31, 1995 and 1994 and for the years then ended incorporated by
reference in this prospectus and the registration statement have been examined
by Stetz, Belgiovine CPAs, P.C. independent public accountants, as of and for
the periods indicated whose report thereon appears elsewhere in the prospectus.
Such financial statements have been included in reliance upon the report of
Stetz, Belgiovine CPAs, P.C. given upon their authority as experts in accounting
and auditing.
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY
OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH
PERSON TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Information by Reference......................... 2
Prospectus Summary........................................................ 4
The Offering.............................................................. 5
Summary Consolidated Financial Data....................................... 6
Pro Forma Consolidated Financial Data..................................... 7
Recent Significant Developments........................................... 8
Risk Factors.............................................................. 13
Use of Proceeds........................................................... 28
Dilution.................................................................. 28
Certain Market Information................................................ 28
Plan of Distribution...................................................... 30
Description of Securities................................................. 30
Legal Matters............................................................. 32
Experts................................................................... 32
</TABLE>
ELECTRONICS
COMMUNICATIONS CORP. INC.
---------------------
PROSPECTUS
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution of the
Securities to be registered are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission.............................. $1,737.80
Accounting...................................................... 2,000.00
Printing........................................................ 2,000.00
Legal Fees and Disbursements.................................... 15,000.00
Miscellaneous................................................... 1,000.00
---------
$21,737.80
---------
---------
</TABLE>
The Selling Securityholders will not bear any portion of the expenses of
this Offering. The Company will therefore bear all expenses of this Offering.
ITEM 15. INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Pursuant to the Company's certificate of incorporation, as amended, and
bylaws, filed as exhibits hereto, the Company shall indemnify its directors,
officers, employees and agents to the fullest extent permissible under the
General Corporation Law of the State of Delaware, as effective from time to
time, or any other applicable law.
Under Section 145 of the Delaware General Corporation Law, the Company has
the power to indemnify directors, officers, employees and agents under certain
prescribed circumstances against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which any of them is a party by reason of
his being a director, officer, employee or agent of the Company if it is
determined that he acted in accordance with the applicable standard of conduct
set forth in such statutory provisions.
The Company's certificate of incorporation, as amended, and by-laws provide
that no director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of his or her fiduciary duty as a
director, except: (i) for any breach of the director's duty of loyalty to the
Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
paying a dividend or approving a stock repurchase which was illegal under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper benefit.
The foregoing provisions may provide indemnification against liabilities
arising under the Securities Act. Insofar as indemnification for liabilities
arising under Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY
NO. DESCRIPTION REFERENCE TO
- ----------- ---------------------------------------------------------------------------------------- -------------------
<C> <S> <C>
4.2 Form of Warrant Certificate (1)
4.3 Form of Warrant Agreement (2)
5.1 Opinion of Sommer & Schneider, LLP including consent (3)
23.1 Consent of Stetz, Belgiovine CPAs, P.C. (4)
23.2 Consent of Sommer & Scheider, LLP (included in Exhibit 5.1) (3)
24 Power of Attorney (5)
99.1 Loan Agreement between the Company and Strategic Marketing, Int'l Inc. dated October 21,
1996. (4)
99.2 Loan Agreement between the Company and Marrotta Group dated September 20, 1996. (4)
</TABLE>
- ------------------------
(1) Incorporated by reference to Amendment No. 1 to Registration Statement on
Form SB-2 (File No. 33-89336).
(2) Incorporated by reference to initial Registration Statement on Form SB-2
(File No. 33-89336).
(3) Filed as part of Amendment No. 2 to this Registration Statement.
(4) Filed herein.
(5) Filed as part of the initial filing of this Registration Statement.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to any charter provision, bylaw, contract arrangements,
statute, or otherwise, the registrant has been advised that in the opinion of
the Commission such indemnification is against policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other that the payment by the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement, and
II-2
<PAGE>
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) for determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement at the
time the SEC declared it effective, and
(5) for determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that is has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fairfield, State of New Jersey, on January 29, 1997.
Electronics Communications Corp.
By: /s/ LES WINDER
-----------------------------------------
Les Winder,
EXECUTIVE VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Chairman of the Board, January 29, 1997
- ------------------------------ Chief Executive Officer,
William S. Taylor President (Principal
Executive and Financial
Officer)
/s/ LES WINDER Executive Vice President January 29, 1997
- ------------------------------ and Treasurer
Les Winder
* Director and Secretary January 29, 1997
- ------------------------------
Brenda Taylor
* Controller January 29, 1997
- ------------------------------
Andrew A. Miller
Director January , 1997
- ------------------------------
Mal Gurian
Director January , 1997
- ------------------------------
Ira J. Tabankin
* Director January 29, 1997
- ------------------------------
Robert Depalo
/s/ LES WINDER
- ------------------------------
*By Les Winder, pursuant to a
power of attorney
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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated March 25, 1996 accompanying the financial
statements of Electronics Communications Corp. appearing in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995 and accompanying the
Company's Prospectus filed pursuant to Rule 424(b) on May 15, 1995 as part of
Registration No. 33-89336 which are incorporated by reference in the
Registration Statement of the aforementioned reports and the use of our name as
it appears under the "Experts."
STETZ, BELGIOVINE CPAs, P.C.
Montclair, New Jersey
January 29, 1997
<PAGE>
EXHIBIT 99.1
LOAN AGREEMENT
THIS AGREEMENT, dated October 21, 1996 by and between Electronics Communications
Corp., with offices located at 10 Plog Road, Fairfield, New Jersey 07004
hereinafter referred to as "Borrower" or "The Company" and Strategic Marketing
Int'l Inc., 11 Stewart Avenue, Huntington, NY 11743 hereinafter referred to as
"Lender".
WHEREAS, the Borrower has requested that the Lender make a loan to the Borrower
in the principal amount of Two Hundred Thousand ($200,000) Dollars for general
corporate purposes, and
WHEREAS, subject to the terms and conditions hereinafter set forth, the Lender
is willing to make such loan to Borrower,
NOW THEREFORE, in consideration of the promises and the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
Section 1. THE LOAN
1.1 LOAN. The Lender agrees, subject to the terms and conditions
hereinafter set forth, to loan to Borrower the aggregate principal amount of Two
Hundred Thousand ($200,000) Dollars. The aggregate principal amount borrowed
from the lender is herein called the "Loan". The Lender agrees to lend to the
Borrower and the Borrower agrees to borrow from the Lender the sum of Two
Hundred Thousand ($200,000) Dollars which shall hereinafter be classified as
Senior Collateralized Debt payable by the Borrower to the Lender, with all
rights attendant thereto.
1.2 COLLATERAL. The Loan shall be secured by all of the company's current
account receivable as well as all equipment and fixtures owned by the company or
it's subsidiaries.
1.3 PROMISSORY NOTE. The Loan shall be made and evidenced by a promissory note
of the Borrower substantially in the form annexed hereto ("Promissory Note").
1.4 INTEREST. Interest shall be paid at the rate of ten (10%) percent per
annum and will be payable annually starting on November 9, 1996.
1.5 PRINCIPAL. The aggregate principal amount of the Loan and Promissory Note
is Two Hundred Thousand ($200,000) Dollars.
1.6 PAYMENT. Payment of the loan and Promissory Note shall be due One (1) year
for date of loan or upon any offer done by the company or outside party for the
company's benefit, all notices shall be sent via United States Postal Service
Certified Mail Return Receipt Requested.
1.7 CONFESSION OF JUDGMENT. In the event of a default which is not cured
within five (5) business days of written notice of default, the company
irrevocably submits and consents to allow the Lender to enter a judgment and
levy on the same.
1.8 USE OF PROCEEDS. The borrower agrees that the proceeds of the Loan shall
be used fully and exclusively for general corporate purposes.
1.9 OTHER CONSIDERATION. In further consideration for making the Loan, in
addition to the foregoing repayment terms, Borrower shall issue to Lender, or
its assignee or assigns, 80,000 shares of the Company's common stock with Demand
and Piggy Back Registration Rights and 160,000 Class A
<PAGE>
warrants that the shares and warrants received under the terms of this Agreement
may not be sold to any foreign entity or person whatsoever.
Section 2. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents and warrants that:
2.1 CORPORATION EXISTENCE, POWER AND AUTHORITY OF THE BORROWER. The
Borrower is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation of formation and
is duly licensed or qualified in each jurisdiction where the charter of the
property owned by it or the nature of the business transacted by it requires
such licensing or qualification. The borrower has all requisite power,
authority and legal right to conduct business as it is now being conducted
and to enter into, consummate and perform all the provisions of this
Agreement, and any instrument, agreement or document referred to herein to
which the Borrower is or shall be a party, have been duly authorized by all
corporate and other required actions.
2.2 NO CONFLICTS. The execution, delivery and performance by the Borrower of
this Agreement, the Promissory Note or any other instrument, agreement, or
document, referred to herein does not and will not result in any violation of,
or be in conflict with, any terms or provision of the Articles of Incorporation
or by-law's of the Borrower, or any statute, governmental regulation or order,
judgment, decree, agreement, indenture or instrument applicable to any thereof.
2.3 AUTHORIZATIONS. All governmental approvals, licenses, authorizations,
consents, filings and registrations, if any, required for the delivery and
execution of this Agreement and any applicable instrument, agreement or document
referred to herein have been obtained or made, and are final and are not subject
to review or appeal or, to the knowledge or belief of the Borrower, the subject
of any pending or threatened attack or appeal to direct proceedings or
otherwise.
Section 3. JURISDICTION
3.1 New York Jurisdiction. The Borrower hereby irrevocably submits to the
jurisdiction of the Supreme Court of the State of New York, County of Queens
in any action, suit, or proceeding brought against the Borrower and related
to or in connection with this Agreement or any other instrument, agreement or
document referred to herein or any transaction contemplated hereby.
In Witness Whereof, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
Electronics Communications Corp.
By: /s/ William S. Taylor
--------------------------------
William S. Taylor, President
By: /s/ Les Winder
--------------------------------
Les Winder, Executive Vice President
<PAGE>
/s/ Michele Greene
- -------------------------
Michele Greene
Strategic Marketing Int'l Inc.
<PAGE>
EXHIBIT 99.2
LOAN AGREEMENT
THIS AGREEMENT, dated September 20, 1996 by and between Electronics
Communications Corp., with offices located at 10 Plog Road, Fairfield, New
Jersey 07004 hereinafter referred to as "Borrower" or "the Company" and Marrotta
Group, with offices located at 203-20 Rock Hill Road, Bayside, New York 11361
hereinafter referred to as "Lender."
WHEREAS, the Borrower has requested that the Lender make a loan to the
Borrower in the principal amount of Five Hundred Thousand ($500,000) Dollars for
general corporate purposes, and
WHEREAS, subject to the terms and conditions hereinafter set forth, the
Lender is willing to make such loan to Borrower,
NOW THEREFORE, in consideration of the promises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
Section 1. THE LOAN
1.1 LOAN. The Lender agrees, subject to the terms and conditions
hereinafter set forth, to loan to Borrower the aggregate principle
amount of Five Hundred Thousand ($500,000) Dollars. The aggregate
principle amount borrowed by the borrower from the Lender is herein
called the "Loan." The Lender agrees to lend to the Borrower and the
Borrower agrees to borrow from the Lender the sum of Five Hundred
Thousand ($500,000) Dollars which shall hereinafter be classified as a
Senior Debt payable by the Borrower to the Lender, with all rights
attendant thereto.
1.2 PROMISSORY NOTE. The Loan shall be made and evidenced by a promissory
note of the Borrower substantially in the form annexed hereto
("Promissory Note").
1.3 INTEREST. Interest shall be paid at the rate of ten (10%) percent per
annum and will be payable on the first anniversary of the Loan, or at
such time prior to the first anniversary of the Loan should the
Borrower make full payment to the Lender. All interest payments by
the Borrower to the Lender shall be in cash or the common stock of the
Company, the choice of which shall be at the sole discretion of the
Company.
1.4 PRINCIPLE. The aggregate principle amount of the Loan and Promissory
Note is Five Hundred Thousand ($500,000) Dollars.
1.5 PAYMENT. Payment of the loan and Promissory Note shall be made on or
before June 20, 1997. At such time as payment becomes due from
Borrower to Lender, the Borrower may request and the Lender shall be
bound to grant a three (3) month extension of the Loan in which case
full payment shall be due no later than September 20, 1997. Upon the
occurrence of a change in control of the Company or upon a change in
the management of the Company, the Loan shall immediately become due
upon demand of the Lender.
1
<PAGE>
1.6 USE OF PROCEEDS. The borrower agrees that the proceeds of the Loan
shall be used fully and exclusively for general corporate purposes.
1.7 OTHER CONSIDERATION. In further consideration for making the Loan, in
addition to the foregoing repayment terms, Borrower shall issue to
Lender, or its assignees or assigns, 200,000 shares of the Company's
common stock with Demand and Piggy Back Registration Rights and
400,000 class A warrants of the Company with Demand and Piggy Back
Registration Rights. Lender represents and warrants that the shares
and warrants received under the terms of this Agreement may not be
sold to any foreign entity or person whatsoever.
Section 2. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents and warrants that:
2.1 CORPORATE EXISTENCE, POWER AND AUTHORITY OF THE BORROWER. The
Borrower is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation of
formation, and is duly licensed or qualified in each jurisdiction
where the character of the property owned by it or the nature of the
business transacted by it requires such licensing or qualification.
The borrower has all requisite power, authority and legal right to
conduct business as it is now being conducted and to enter into,
consummate and perform all the provisions of this Agreement, and any
instrument, agreement or document referred to herein to which the
Borrower is or shall be a party, have been duly authorized by all
corporate and other required actions.
2.2 NO CONFLICTS. The execution, delivery and performance by the Borrower
of this Agreement, the Promissory Note or any other instrument,
agreement or document, referred to herein does not and will not result
in any violation of, or be in conflict with, any terms or provision of
the Articles of Incorporation or By-Laws of the Borrower, or any
statute, governmental regulation or order, judgment, decree,
agreement, indenture or instrument applicable to any thereof.
2.3 AUTHORIZATIONS. All governmental approvals, licenses, authorizations,
consents, filings and registrations, if any, required for the delivery
and execution of this Agreement, and any applicable instrument,
agreement or document referred to herein have been obtained or made,
and are final and are not subject to review or appeal or, to the
knowledge or belief of the Borrower, the subject of any pending or
threatened attack or appeal to direct proceedings or otherwise.
Section 3. JURISDICTION
3.1 New York Jurisdiction. The Borrower hereby irrevocably submits to the
jurisdiction of the Supreme Court of the State of New York, County of
Nassau in any action, suit, or proceeding brought against the Borrower
and related to or in connection with this Agreement or any other
instrument, agreement or document referred to herein or any
transaction contemplated hereby.
2
<PAGE>
In Witness Whereof, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
Electronics Communications Corp.
By: /s/ William S. Taylor
--------------------------------
William S. Taylor, President
Marrotta Group
By: /s/ Gregg Marcus
--------------------------------
Gregg Marcus, President
3
