As filed with the Securities and Exchange Commission on July 17,1997
------------------------
SEC File No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
Registration Statement
Under
The Securities Act of 1933
ELECTRONICS COMMUNICATIONS CORP.
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2649088
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
10 Plog Road, Fairfield, New Jersey 07004
(Address of principal executive offices) (Zip Code)
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BAY STATE DEVELOPMENT TRUST CONSULTING AGREEMENT
(Full title of the plan)
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William S. Taylor, President
ELECTRONICS COMMUNICATIONS CORP.
10 Plog Road
Fairfield, New Jersey 07004
(Name and address of agent for service)
(201) 808-8862
(Telephone number, including area code, of agent for service)
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Copies to:
Jeffrey L. Rosenberg, Esq.
ROSENBERG & FEIN
767 Third Avenue, 38th Floor
New York, New York 10017
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Offering Aggregate Amount of
Securities to be Amount to be Price Per Offering Registration
Registered Registered Share Price Fee
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Class A Common Stock, 50,000 Shares $.4125 (1) $20,624 $6.25
par value $.05
</TABLE>
(1) Estimated solely for the purposes of calculating the Registration Fee
pursuant to Rule 457 under the Securities Act of 1933. Amount of fee based
on the highest average sales price of the registrant's Class A Common Stock
as quoted on NASDAQ for the five trading days preceding the date of this
Prospectus.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP.
CROSS-REFERENCE SHEET REQUIRED BY ITEM 501(b) OF REGULATION S-K
Form S-8 Item Number
and Caption Caption in Prospectus
----------- ---------------------
1. Forepart of Registration Statement Facing Page of Registration
and Outside Front Cover Page of Statement and Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Cover Page of Prospectus and
Pages of Prospectus Outside Cover Page of Prospectus
3. Summary Information, Risk Factors and Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Plan of Distribution Plan of Distribution
8. Selling Securityholders Selling Securityholders
9. Description of Securities to be Description of Securities; Bay State
Registered Development Trust Consulting
Agreement; Selling Securityholders
10. Interests of Named Experts and Counsel Interests of Named Experts and
Counsel
11. Material Changes Not applicable
12. Incorporation of Certain Information Incorporation of Certain Documents
by Reference by Reference
13. Disclosure of Commission Position on Indemnification
Indemnification for Securities Act
Liabilities
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PROSPECTUS
ELECTRONICS COMMUNICATIONS CORP.
50,000 SHARES OF COMMON STOCK
($.05 PAR VALUE)
This Prospectus is part of a Registration Statement which registers an
aggregate of 50,000 shares of Common Stock, $.05 par value ("Common Stock") of
Electronics Communications Corp. (the "Company") which may be sold, as set forth
herein, by Bay State Development Trust "Bay State"), a consultant to the Company
(the "Bay State Shares"). The Bay State Shares were issued under the Bay State
Development Trust Consulting Agreement (the "Consulting Agreement") (Bay State
may sometimes hereinafter be referred to as the "Consultant" or the "Selling
Securityholder"). Bay State has represented and committed to the Company that it
will not sell the Bay State Shares for a period of forty-five (45) days after
the filing and effectiveness of this Registration Statement (the "Restricted
Period"). Thereafter, it may sell all or a portion of the Bay State Shares from
time to time in the over-the-counter market, at prices obtainable at the time of
sale, or in privately negotiated transactions at prices determined by
negotiation. The Consultant may effect such transactions by selling the Bay
State Shares to or through securities broker/dealers, and such broker/dealers
may receive compensation in the form of discounts, concessions or commissions
from the Consultant and/or the purchasers of the shares for whom such
broker/dealers may act as agent or to whom they sell as principals, or both
(which compensation as to a particular broker/dealer may be in excess of
customary commissions). The Consultant, and the brokers and dealers through whom
sales of the shares may be made, may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
any profits realized by them on the sale of the shares may be considered to be
underwriting compensation.
The Company will not receive any of the proceeds from the sale of the Bay
State Shares by the Consultant. Additionally, pursuant to an agreement between
the Company and the Consultant, the cost of registering the shares offered
hereby, estimated to be $15,000, is being paid by the Company. The Consultant
will, however, pay the other costs related to the sale of their shares,
including discounts, commissions and transfer fees.
The Company's Common Stock is traded in over-the-counter market and quoted
on NASDAQ. Prior to this Offering, however, the public market for the Company's
Common Stock has been illiquid, and there can be no assurance that a more viable
public market will develop in the future. On July 14, 1997, the bid and ask
price of the Company's Common Stock, as quoted on NASDAQ, were $.50 and $.375,
respectively.
There can be no assurance that a market for the Common Stock will continue
in the future. The Company has no arrangements with broker-dealers concerning
the maintenance of the trading market for the Common Stock.
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No person has been authorized by the Company 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. Neither the delivery of this Prospectus nor any
distribution of the shares of Common Stock shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus does not constitute an offer to sell or the solicitation
of any offer to buy any security other than the securities covered by this
Prospectus, nor does it constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not qualified to do so, or
to any person to whom it is unlawful to make such offer or solicitation.
The date of this Prospectus is July 15, 1997.
Additional Information Available
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 filings may and
should be inspected and/or copied at the Company's offices, or at the public
information facilities maintained by the Commission at: (i) Judiciary Plaza, 450
Fifth Street NW, Room 1204, Washington, DC 20549; (ii) 500 West Madison Street,
Suite 1400, Chicago, IL 60661-2511; and (iii) at 75 Park Place, Suite 1400, New
York, NY 10007. Copies of such materials 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.
A copy of the Company's most recent Annual Report, as amended, on Form
10-KSBA, for the year ended December 31, 1996, and the Company's most recent
Quarterly Report on Form 10-QSB, for the quarter and three (3) months ended
March 31, 1997, as filed with the Commission, are available upon request to the
Company, 10 Plog Road, Fairfield, New Jersey 07004, Attention: Les Winder.
Additionally, a copy of the Company's Business and Marketing Plan,
entitled: "ECC: Bringing the Future to Market Today," is available by mail. In
considering this document, however, it should be recognized that the Business
Plan serves as a forward-looking, optimistic, sales tool, and any information
contained therein should not be relied upon in connection with
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a decision to purchase the Debentures offered herein, other than as background,
as projections, optimistic forward views, which may reflect the opinion or views
of Management, but which may be without any substantive support. In addition, it
should be recognized that projections are inherently unreliable. The foregoing
is even more significant because such projections address an emerging and
untested market and a new technology; and substantial additional financing is
necessary to accomplish the goals and purposes of that Business Plan, which may
not be available to the Company when needed. Moreover, during the past 18
months, or more, the Company has suffered recurring losses from operations, and
has a net working capital deficiency which, in the aggregate, raises substantial
doubt about its ability to continue as a going concern. (See Report of the
Company's Independent Certified Public Accountants and Note 21 to the Financial
Statements appearing in the Company's Annual Report on Form 10- KSB/A, for the
year ended December 31, 1996).
The Company has filed with the Commission Pre-Effective Amendment No. 5 to
its Registration Statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), relating to 384,515 shares of
Common Stock, 1,360,000 Class A Redeemable Common Stock Purchase Warrants (the
"'A' Warrants") and 1,360,000 shares of Common Stock issuable upon the exercise
of the A Warrants. This Prospectus does not contain all of the information set
forth in that Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the shares of the Common Stock and A
Warrants offered by the Prospectus included in that Registration Statement on
Form S-3, reference is made to the Registration Statement, including the
exhibits thereto. Statements in this Prospectus as to any document are not
necessarily complete, and where any such document is an exhibit to the
Registration Statement or is incorporated by reference herein, each such
statement is qualified in all respects by the provisions of such exhibit or
other document, to which reference is hereby made, for a full statement of the
provisions thereof. A copy of the Registration Statement, with exhibits, may be
obtained from the Commission's office in Washington, D.C. (at the above address)
upon payment of the fees prescribed by the rules and regulations of the
Commission, or examined there without charge.
In addition to examining the above-referenced information relating to the
Company, each Selling Securityholder and his, her, or its professional and/or
offeree representatives may, during normal business hours: (a) have access to
the same kind of information with respect to the Company as specified in Part I
of a Registration Statement on Form SB-2 filed under the Act; and (b) ask
questions of the Officers of the Company with respect to the terms and
conditions of this Offering, and request additional information which the
purchaser or his, her or its representatives deem necessary to verify
information concerning the Company. Inquiries relating to information concerning
the Company may be made to the Company, at the offices of the Company located at
10 Plog Road, Fairfield, New Jersey 07004, or by telephone at (201) 808- 8862,
Attention: William S. Taylor, President, or Les Winder, Executive Vice
President.
The Company is a Delaware corporation, formed in 1984.
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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 FCC
licensed, state-of-the-art, Glenayre 900 MHz FlexTM "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 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 current source of revenue is derived from its
activities as a subagent for AT&T agents and dealers, with respect to the
solicitation and sale of cellular telephone service and related equipment, its
solicitations for activations for PCS as an agent for OmniPoint, in the New York
Metropolitan Area and from the operation of its proprietary Paging Network. (See
"Business of the Company -- The Company and its Subsidiaries")
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, in light of a longer-term view regarding profitability and diminishing
margins; and so that the Company could focus on activities 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.
5
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RISK FACTORS
These securities involve a high degree of risk, and no one should invest
in these securities who cannot afford a complete loss of his or her investment.
Several risk factors regarding these securities are set forth below. However,
the investor is cautioned that this list is not necessarily complete and that
the investor should consult with his or her professional advisors prior to
investing in these securities.
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,
with substantial uncertainty about its future. As of the date of this
Prospectus, the Company has had a limited commercial operation of its Paging
Network, and no commercial PCS Network 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. As discussed in the "Report of
Independent Certified Public Accountants," dated February 17, 1997, and in Note
"21" to the Financial Statements appearing in the Company's 10-KSB/A, for the
year ended December 31, 1996, the Company has suffered recurring losses from
operations during its transition period, and has a net working capital
deficiency that raises substantial doubt about its ability to continue as a
going concern.
Although the Company is settled in 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 in the manner set
forth herein, 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 attract sufficiently skilled labor to build out, operate and 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
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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 December 31, 1996
of approximately $6 million. These losses resulted primarily from expenditures
associated with development and marketing of the Company's paging and two-way
radio systems, the Company's move to more suitable premises, circumstances
relating to its successful bid on PCS Licenses, and the transition away from its
agency relationship with BANMC. 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 operating losses will be offset by revenues
generated from its Paging Network and cellular solicitations and activations,
and other related sales and services. Moreover, profitable operation of its PCS
networks may be several years away; and 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 and it may be unable to pay off the Debentures, and underlying
Common Stock may, as a result, have little or no value.
Substantial Leverage; Ability to Service Debt to FCC
The Company should be considered to be 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. Notwithstanding the current FCC Interest Moratorium, 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 its FCC Notes. If required to resume
its quarterly installments at the present time, the Company would not have
sufficient funds from this Offering, the Prior Regulation D Offering, and from
near-term operations or cash flow to make such payments. Therefore, the Company
would be required to obtain additional financing on short notice, which may not
be available, or only available on terms which may not favor the Company.
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. As indicated above, 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. Irrespective of the proceeds
received from this Offering, the Company will not have sufficient available
capital for any of the next four quarterly payments of interest
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on the FCC Notes, or with respect to any other such installments; and will most
assuredly require additional financing or capital thereafter, at such time as
the Interest Moratorium is lifted or modified. There can be no assurance that
the Company will obtain such additional financing or capital.
As of December 31, 1996, after giving pro forma effect to its recent
Offering of $4,970,334.00 of 8% Cumulative Convertible Debentures, and the award
of the PCS licenses, the Company's total indebtedness would have been
approximately $33,970,236, or approximately 93% of its total capitalization, and
its stockholders' equity would have been approximately $2.2 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. Although the Offering
facilitates the Company's entry into the PCS business and is expected to improve
the Company's financial flexibility for the succeeding three to four quarters,
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 most recently offered the 8% Convertible Debentures with
estimated maximum aggregate net proceeds to the Company of $1,990,000, net of
transaction costs and fees. The net proceeds from that Offering, which is still
pending, 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, or to service its debt through the end of 1997. Unless
cash flows are better than anticipated, or the FCC Interest Moratorium on the
Company's Notes in connection with the award of its PCS License, is extended
until a time when the Company's cash flows are expected to substantially improve
(i.e., mid-1998), there will not be sufficient monies to pay the next successive
quarterly installments on the FCC Notes, and there will be markedly reduced
amounts for working capital, or working capital shortfalls. In addition, the
estimated cost of build-out of the Company's PCS Network is sixty million
dollars, the source of which can not yet be identified or assured, and which
must be deemed uncertain.
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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, 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, but is separately exploring a
public or private financing of its PCN subsidiary for these purposes. There can
be no assurance that additional financing will be available to the Company or
its PCN subsidiary, or, if available, that it can be obtained on terms
acceptable to the Company (including acceptable dilution), 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, or others who may finance PCN development or operations. 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 may be required 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 or otherwise secure 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.
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There can be no assurance that the Company will be able to construct its
PCS networks in any particular market within the purview of 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 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 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 Network
and 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
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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 is anticipated to increase the extent of the potential demand for PCS,
but 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.
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, and thereafter. 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
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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 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 is 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 than 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 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 BTAs 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's successfully implementing its marketing
strategy. In addition, the increase in the number of PCS competitors
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in each of the Company's markets is expected to lead to substantial increases in
the capacity of wireless MOUs 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 be 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 will have ten year renewable terms. There can be no assurance that the
Company's licenses will be renewed.
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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; (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 new rules that become 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
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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-U.S.) entities. There 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, including more
sophisticated financial and operational personnel. 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
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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.
Dependence on Key Management
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 terms. 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. In addition,
certain key managers of the Company have yet to be identified and any delay in
identifying and any difficulty in hiring such key managers could negatively
affect the Company.
In addition, on May 28, 1997, the Board of Directors approved in principal
the cancellation of certain indebtedness owed to the Company by Messrs. Taylor,
Winder and DePalo, and Brenda Taylor, in connection with the issuance of the
Series B Preferred Stock. The Notes due from such persons to the Company are due
upon conversion and are automatically extended year to year. This approval was
given subject to anticipated structuring of the transaction so as to minimize
the expense to the Company and income to the Series B Preferred Shareholders. It
is anticipated that when such structuring is achieved and presented by counsel,
this matter will be resubmitted to the Board of Directors for final approval,
and will be announced at the Company's Special Meeting of Shareholders to be
noticed and called for July/August 1997, in connection with a Shareholder vote
to amend the Articles of Incorporation to add voting rights to the Class B
Preferred Stock. In the event that this matter is finally approved by the Board,
such persons may realize pro rata up to $6,000,000 in income in or with respect
to 1997, without any accompanying receipt of cash. As a result, such individuals
may be unable to meet their financial and tax obligations with respect to such
transaction, which may have other impacts on their overall financial condition,
and on their ability to perform on behalf of the Company. The Company may
realize a corresponding amount of expense. This circumstance involves tax issues
which may not be without uncertainty, including issues relating to the valuation
of the Preferred Stock, and the timing of the payment of the Notes. Such persons
and the Company are consulting with their respective tax advisors.
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
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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.
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
benefiting 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 agreement
within these time
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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.
Termination of Contractual Relationship With BANMC
During 1995/96, the Company received 100% of its cellular service and
solicitation income from BANMC, and for the first three months of 1997 (through
March 31, 1997) averaged approximately $52,000 per month in such income. The
Company and BANMC have terminated their agency relationship (through NYNEX or
Bell Atlantic). This had a substantial immediate impact on the short-term
business and cash flow of the Company, resulting in higher than expected cash
flow shortfalls during the period January through May, 1997. Management has
attempted to replace commission income derived from BANMC with income to be
derived from a combination of AT&T Wireless, as a cellular carrier or wireless
service provider, and by entering into a dealer relationship with OmniPoint in
the New York Metropolitan Area. Absent this arrangement to terminate the BANMC
relationship, the Company's efforts to implement and undertake action and
activities in pursuance of its view that PCS is the future of wireless
communications would have been substantially limited by the terms of certain
non-competition provisions in its Agreement with BANMC.
History of Losses
For the twelve months ended December 31, 1996, the Company had a net loss
of $6,031,090 from sales of $7,357,437, as compared to a net loss of $2,628,959
from sales of $7,564,094 for the same period ending December 31, 1995. During
the years ended December 31, 1994 and 1993, the Company's sales were $9,423,964
and $6,377,425, respectively, and the Company incurred net income (losses) of
$125,460 and ($242,847), 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, Hyundai Electronics, LGIC, Maxom
Electronics, Mitsubishi, Motorola, NEC, NOKIA Mobile Phones, OKI 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. The
Company does not intend to allocate any significant portion of the proceeds of
this Offering to research and development. 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 it
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
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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, 1996, approximately 46.1% of the
Company's revenues were derived from activation and residual payments from
cellular carriers. While the Company had a customer base of approximately 40,000
subscribers for which it received monthly residual payments from the cellular
carriers, those subscribers had no long-term contracts and they could terminate
their service at any time. Moreover, upon the termination of the Company's
relationship with BANMC, these residuals were discontinued; and there are no
arrangements for residual payments under the Company's new arrangements as an
AT&T sub-agent. Specifically, as part of its "Settlement and Separation
Agreement" with BANMC, the Company obtained a release from any restrictions
otherwise prohibiting the solicitation of its prior customer base. The Company
believes this customer base may be exploited for new business, especially with
respect to the emerging new PCS service.
Voting Control by Officers, Directors and
Related Entities; New Voting Rights
Upon consummation of the Company's pending Debenture Offering, it is
expected that 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% of the Company's outstanding Common
Stock, and securities convertible into Common Stock, and other securities of the
Company, without consideration of the conversion of the Debentures into Common
Stock. 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. In addition, on May 28, 1997, the Board of
Directors voted to amend the Company's Articles of Incorporation to add voting
rights for the four million Class "B" Preferred Shares held by Messrs. Taylor,
Winder and DePalo (which are convertible into Common Stock at an exchange rate
of one-and-one-half common shares for each Class "B" Preferred). The voting
rights would attribute one vote for each share of Class B Stock, although the
conversion of such Preferred Stock would allow the four million Series B
Preferred Shares to vote at the rate of 6 million Common Shares. This matter
will be submitted to a vote by the Company's Shareholders, at a meeting
anticipated to be noticed for and held in July/August, 1997. The affirmative
vote of the Company's Shareholders is necessary to effect this change. If this
change is accomplished, such officers, directors and affiliates will have
substantially enhanced voting rights, without the necessity of first converting
their existing Preferred Stock into Common Stock.
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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. Although 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.
Further Dilution; Demand Registration
The Company currently has pending concurrent Regulation D and Regulation S
Offerings with respect to its 8% Cumulative Convertible Debentures. The
Regulation D, but not the Regulation S, Investors in that Offering will have
certain "Demand Registration" and "Piggyback Registration" rights. Exercise of
these Registration Rights involves a substantial expense to the Company, and may
impede future financing, when it may be crucial to the Company. In addition,
prior to the date hereof, the Company has issued an aggregate of 4,000,000
shares of Preferred stock convertible into Common Stock, 5,700,000 Class A and B
Warrants, and has also issued Stock Options. Exercise of such Warrants and other
convertible securities and options of the Company will result in a reduction of
the ownership interest of the Company's stockholders. The holders of the
Warrants may be expected to exercise them at a time when the Company may, in all
likelihood, be able to obtain needed capital on more favorable terms.
No Escrow for Proceeds Allocated to PCS Installments
Pursuant to the Company's Prior Regulation D Offering, made at December 6,
1996, the Company allocated approximately $1,729,267.32 of the net proceeds of
that Offering for the payment of its quarterly installments of interest only on
its FCC Notes, payable through September 30, 1997, in connection with the PCS
License Fee, but did not plan to, and did not, escrow or otherwise segregate
those funds apart from the Company's General Funds. As written, the FCC Notes
require interest only payments on a quarterly basis, requiring the initial
payment of $479,400.84 on December 31, 1996, and the payment of $416,622.16 on
each of March 31, June 30 and September 30, 1997. The December, 1996 installment
was paid from the proceeds of the Prior Regulation D Offering; however, other
uses, caused by higher than anticipated cash flow shortfalls, caused the Company
to expend the remaining proceeds so that there were no funds available for
subsequent interest payments. Fortunately, as a result of the circumstances
described above, the FCC put in place the Interest Moratorium with respect to
such payments, and no further installments have been required to date. Since
monies were not reserved from the Prior Regulation D Offering, and since it is
not anticipated or provided that monies will be segregated or allocated for this
purpose from the current Offering, in the event management does not reserve or
provide enough capital for this purpose from operations, or obtain monies for
such purposes from additional financing, and if the FCC Interest Moratorium
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on such payments is not continued by the FCC, the Company may be unable to pay
the FCC Notes, and may be penalized or sanctioned; or it may lose its PCS
Licenses.
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.
Possible Increase in Shares Eligible for Future Sale
As of the date hereof, 1,298,675 of the 14,659,508 (calculated prior to
this Offering) shares of the Company's issued and outstanding Common Stock are
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act, which became 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 one year (as
effective April, 1997) (previously it was two (2) 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 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.
Limited Prior Public Market; Possible Volatility
of Stock Price; Effect of Cessation of Operations of Market-Maker
Prior to the date of this Prospectus, the Common Stock has traded on a
limited basis "over-the-counter" through the NASD's Electronic Bulletin Board
and on the Boston Stock Exchange and there has been a limited public market for
the Company's previously issued Class A Warrants. There can be no assurance that
an active trading market will continue to develop, or subsist, or that
purchasers of the Debentures will be able to sell their Common Stock when and if
converted or registered, or pursuant to Rule 144, or otherwise, at prices equal
to, or
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greater than, the Conversion Price, or at the prices on which the Company's
stock has traded. The market prices of the Company's Common Stock and the Class
A Warrants may be significantly affected by factors such as announcements by the
Company, or its competitors, as well as variations in the Company's results of
operations and market conditions in the telecommunications industry in general.
The market prices may also be affected by movements in prices of stocks in
general. Although the Common Stock and the Class A Warrants have been approved
for quotation on the NASDAQ Small-Cap Market and the BSE, there is no assurance
that they will remain eligible to be included on NASDAQ or the BSE.
Moreover, on April 29, 1997, First Cambridge Securities Corp., the
Company's primary market-maker, ceased doing business due to its failure to meet
capital requirements and certain transactional occurrences which the Company
believes are under investigation. This had an adverse effect on the maintenance
of the market in the Company's stock. The Company is attempting to replace this
relationship.
Although no prediction can be made about the effect, if any, that market
sales of the Common Stock or Class A Warrants, or the availability of Common
Stock or Class A Warrants for sale will have on the market prices prevailing
from time to time, sales of substantial amounts of the Common Stock and/or the
Class A Warrants in the public market may have an adverse impact on the market
prices for the Common Stock and the Class A Warrants.
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 (as at March 31, 1997 it had only approximately $2,139,656 of
current assets, as reported on the Company's quarterly report as filed with the
Commission on Form 10-QSB, for the quarter ended March 31, 1997), capital and
surplus of $1,000,000 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
$.56). In the event the Common Stock or Class 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 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
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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; (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.
Although the Company's Common Stock and Class A Warrants will, as of the
date of this Prospectus, 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 Class 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.
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Corporation 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 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.
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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. ("Toshiba") and Audiovox Corporation, as Defendants, case number 96 Civ.
1565, pending in the United States District Court for the 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, and treble damages of more than $16,000,000. 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, based on certain
reliance on Toshiba, and the withdrawal of Toshiba's commitment based on an
unlawful conspiracy with Audiovox. Immediately prior to the commencement of the
program, Toshiba discontinued manufacturing the line of cellular telephones that
the program was designed to offer. This decision, which the Company believes was
coerced by Audiovox, has caused significant damages to the Company.
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, which could then be prosecuted in the State Courts.
On August 12, 1996 the Court ruled in favor of the motion of defendants, Toshiba
and Audiovox, and the cause was dismissed on such date. The Company appealed the
Court's ruling, filing its Brief on Appeal on February 21, 1997. On March 12,
1997, Toshiba and Audiovox served their responsive brief, and oral argument
before the United States Court of Appeals for the Second Circuit was scheduled
for, and held on May 22, 1997. This matter has now been fully argued and
submitted, and the parties are awaiting the Court's decision. If the Company is
successful with respect to its contention that it has stated "antitrust" claims,
rather than merely contract claims, exhaustive discovery and trial preparation
will ensue.
On or about March 11, 1997, the Company was served with a Summons and
Complaint in an action entitled: "Daily News, L.P. v. Free Trade a/k/a Free
Trade Distributors, Inc. and Electronics Communications Corp.," pending in the
United States District Court for the Southern District of New York. The
Plaintiff, The Daily News, claims breach of a certain Advertising Contract, in
that the Company's subsidiary failed to pay for certain advertising and failed
to
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meet the minimum advertising expenditures set forth therein, resulting in the
imposition of a "short rate" with higher payment requirements. As a result,
Plaintiff claims damages aggregating $156,284.87. The Company believes it has an
excellent working relationship with The Daily News, and that this suit resulted
from a misunderstanding between the respective principals of the parties, which
remained unclarified due to the illness of an officer of the Company, and which
concerned the dependency of the level of the Company's advertising on the
continuation of the Company's agency relationship with BANMC. Counsel for the
Company and The Daily News have conferred, and stipulated to extend the
Company's time to answer or move with respect to the Complaint, so that the
principals might confer.
As a result of those discussions, an Agreement in Principle regarding
settlement was reached. Counsel for the parties are now drafting appropriate
settlement documents for submission to the Court. In substance, the agreement
provides for the payment of $75,000 by the Company in sequential payments
through in or about March, 1998, with a resumption of advertising in The Daily
News at such times and in such amounts as the Company may determine. If The
Daily News is satisfied that the business relationship has been restored to its
satisfaction as at December 31, 1997, it shall waive all additional payments and
the matter shall be settled for $75,000. If for any reason The Daily News elects
to proceed, the Company retains all defenses to the payment of any amounts in
excess of $75,000.
On or about July 11, 1997 the Company was served with a Summons and
Complaint in an action entitled: Brightpoint, Inc. v. Free Trade Distributors,
Inc. and Electronics Communications Corp., pending in the United States District
Court for the Southern District of Indiana, Indianapolis Division. Brightpoint
is a former supplier of the Company, and claims that the Company owes it
approximately $400,000 plus interest for merchandise delivered, consisting
principally of cellular telephones. Prior to this suit, counsel for the Company
advised the potential claimant that the Company believes it has valid and
compelling counterclaims which equal or exceed Brightpoint's claims for payment.
The Company has not answered yet, but intends to deny the essential allegations
of the Complaint and to assert counterclaims in excess of Brightpoint's claims.
Since this litigation is at its incipient stage, it is too early to fully assess
the likely outcome, or any ability to achieve alternative resolution.
CONSULTATION AGREEMENTS
The Company and Bay State entered into the Consulting Agreement as of June
27, 1997. Under the terms of the Consulting Agreement, Bay State has agreed to
consult with and advise the Company and render written recommendations with
respect to:
(a) the Company's need for enhancement of its internal financial and
accounting systems and statements and personnel;
(b) the Company's need for specific criteria, procedures, mechanisms and
facilities to project and forecast the Company's costs, expenses and other
expenditures, and its income
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stream and payables with respect to payment and billing cycles and cash flow
needs and availabilities;
(c) the Company's need for and availability with respect to various
forms of funding, including various forms of vendor financing or other forms of
lending, both current and long-term, in connection with the Company's buildout
of its PCS network, and the expansion, continued development, promotion and
commercial exploitation of its PCS and proprietary paging system and networks;
all with a view to thereafter meeting with executive management of the Company
to consider, refine and analyze the Consultant's recommendations, and for the
purposes of adopting and implementing improved internal financial, accounting,
forecasting and other mechanisms, facilities and methodologies with respect to
the Company's continuing evolution into and emergence in the wireless
telecommunications arena.
In consideration for providing such consulting services, the Company has
agreed to issue Bay State an aggregate of 50,000 shares of the Company's Common
Stock as and after registration on SEC Registration Form S-8. From and after the
registration hereunder, these securities will be freely tradable. Nonetheless,
Bay State has represented and covenanted with the Company that it will not sell
or otherwise dispose of the Bay State Shares sooner than 45 days after the
effectiveness of this Registration Statement.
FEDERAL INCOME TAX EFFECTS
The Consultant is required to pay all applicable taxes which are assessed
against it as a result of its receipt of compensation under the Consultation
Agreement, and the Company is not withholding any such taxes from the
compensation paid to the Consultant. The Consultant shall indemnify and hold
harmless the Company, together with its officers and directors, with respect to
any such taxes or other assessments which may be due and payable as a result of
the payment or receipt of compensation under the Consultation Agreement.
PLAN OF DISTRIBUTION
This Prospectus covers the registration and future sale by the Consultant
of the Bay State Shares issued pursuant to the Bay State Consulting Agreement
with the Company. The Company has been advised that Bay State will hold the Bay
State Shares and shall not sell or transfer such shares for a period of 45 days
from the registration date of this Prospectus.
From and after the effectiveness of this Registration Statement, the
Consultant may distribute or resell the Bay State Shares offered hereby to the
public on the OTC market at prices and at terms prevailing on the date of sale
or in negotiated transactions or otherwise. The Consultant may also pay
customary brokerage commissions on sales.
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The Consultant and any brokers or dealers through whom sales of the Common
Stock are made may be deemed "underwriters" within the meaning of the Securities
Act, and any profits realized on the sale may be deemed underwriting
compensation. The Consultant has undertaken to the Company to comply with Rule
10(b)6 under the Securities Act of 1934, as amended, in connection with any
distribution of the Company's securities.
The shares of Common Stock are offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act.
The Company has agreed to indemnify the Consultant against certain
liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act.
The Company has agreed to pay all expenses incurred in connection with the
registration of the shares offered hereby. The Consultant shall be exclusively
liable to pay any and all commissions, discounts and other payments to
broker-dealers in connection with a sale of its Shares.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Bay
State Shares by the Consultant. Additionally, pursuant to an agreement between
the Company and the Consultant, the cost of registering the shares offered
hereby, estimated to be $6.25, is being paid by the Company. The Consultant
will, however, pay the other costs related to the sale of its shares, including
discounts, commissions and transfer fees.
SELLING SECURITYHOLDERS
To the knowledge of the Company, the Selling Securityholders have not had
any material relationship with the Company within the past three years. More
specifically, Bay State has not had any relationship with the Company prior to
the execution of the Consulting Agreement
DESCRIPTION OF SECURITIES OF THE COMPANY
The total authorized capital stock of the Company consists of 40,000,000
shares of Common Stock, par value $.05 per share, 4,000,000 shares of Series A
Preferred Stock, par value $.01, and 8,000,000 shares of Series B Preferred
Stock, par value $.01.
The following description relating to the Capital Stock of the Company, is
a summary only 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.
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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 subject to the preference shares of Preferred Stock,
and holders of Common Stock have no right to receive dividends until dividends
have been paid to holders of Series A Stock and unless such dividends have been
declared; (ii) are entitled to share ratably 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 preemptive, 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 shares of Common Stock now outstanding are
fully paid and non-assessable.
Since the Common Stock of the Company does not have cumulative voting
rights, the holders of more than 50% of the outstanding shares, can elect all of
the Directors, if they choose to do so, in which event the holders of the
remaining shares cannot elect any Directors. Accordingly, since the presently
existing Officers, Directors and a control person or persons own more than 50%
of the outstanding shares, they will continue to be able to elect all of the
Directors.
The Company has paid no cash or 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.
As at November 30, 1996, there were 40,000,000 shares of the Common Stock
authorized for issuance. Of that amount, 11,915,515 shares were issued and
outstanding. Upon the Maximum Offering, the Company will issue 2,200,000 shares
of Common Stock, and will reserve the additional sum of 4,050,000 shares of
Common Stock for issuance upon the conversion of the Class A Warrants, including
the Class A Warrants granted to the Placement Agents.
Series B Preferred
(a) Designation. The number of authorized shares constituting the Series B
Preferred Stock is 8,000,000, which may be increased or reduced by further
resolution duly adopted by the Board of Directors and the filing of a
certificate pursuant to the provisions of the General Corporation Law of the
State of Delaware.
(b) Voting. The holders of shares of Series B Preferred Stock shall not be
entitled to any notice of meeting of stockholders, nor any vote, except as
required by the Delaware General Corporation Law.
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(c) Liquidation Rights.
(1) Upon the dissolution, liquidation or winding up of the
Company, the holders of the Series B Preferred Stock shall be
entitled to receive and to be paid out of the assets of the
Company available for distribution to its stockholders, before
any payment or distribution shall be made on the Common Stock,
or any other class of Capital Stock ranking junior to the
Series B Preferred Stock upon such liquidation, dissolution or
winding up, an amount equal to $0.01 per share of Series B
Preferred Stock.
(2) After the payment to the holders of the shares of Series B
Preferred Stock of the full preferential amounts provided for
in Paragraph (c)(1), the holders of the Series B Preferred
Stock as such shall not be entitled to receive any additional
distribution.
(3) In the event the assets of the Company available for
distribution to the holders of shares of Series B Preferred
Stock upon any dissolution, liquidation or winding up of the
Company, whether voluntary or involuntary, shall be
insufficient to pay in full all amounts to which such holders
are entitled pursuant to Paragraph (c)(1) above, no such
distribution shall be made on account of any shares of any
other class or series of Capital Stock of the Company ranking
on a parity with the shares of this Series upon such
dissolution, liquidation or winding up unless proportionate
distribution amounts shall be paid on account of the shares of
Series B Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all parity shares
are respectively entitled upon such dissolution, liquidation
or winding up.
(d) Conversion. Each share of Series B Preferred Stock shall be
convertible at any time after October 1, 1996 at the option of the holder
thereof into one and one-half (1 1/2) shares of Common Stock (the "Conversion
Rate"). The Conversion Rate shall be subject to adjustment from time to time in
certain instances as provided in the Company's Articles of Incorporation
(e) Ranking. No Capital Stock of any class or series shall be deemed to
rank prior to the shares of Series B Preferred Stock upon any liquidation,
dissolution or winding up of the Company. Any Capital Stock of any class or
series of the Company shall be deemed to rank as follows:
(1) on a parity with shares of Series B Preferred Stock upon the
liquidation, dissolution or winding up of the Company, as the
case may be, if the holders of such Capital Stock shall be
entitled to the receipt of amounts distributable upon such
liquidation, dissolution or winding up in proportion to their
respective liquidation prices, without preference or priority,
one over the
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other, as between the holders of such Capital Stock and
holders of the Series B Preferred Stock.
(2) junior to shares of Series B Preferred Stock upon such
liquidation, dissolution or winding (the "Junior Stock"), if
such capital stock shall be Common Stock, or if the holders of
the shares of Series B Preferred Stock shall be entitled to
the receipt of amounts distributable upon such liquidation,
dissolution or winding up of the Company in preference or
priority to the holders of shares of such Capital Stock.
(f) No Other Rights. The shares of Series B Preferred Stock shall not
have any relative, participating, optional or other special rights
and powers other than as set forth above in this certificate of
Designation and the Certificate of Incorporation.
A Warrants
The Company has previously issued Class A Warrants, some of which are
registered, and some of which are not. The Class A Warrants previously issued in
registered form, are governed by and subject to the terms of a warrant agreement
between the Company and American Stock Transfer and Trust Company, New York, New
York, as the warrant agent (the "Warrant Agent").
Upon the consummation of the Company's Regulation D Offering, at or about
December 6, 1996, the Company issued and/or was obligated to issue 3,705,501
Class A Warrants to purchase an equal number of shares of Common Stock, and
reserved an equivalent number of shares of Common Stock for issuance upon
exercise of such Class A Warrants. No fractional shares will be issued upon the
exercise of the A Warrants. The Company will pay cash in lieu of fractional
shares. However, pursuant to the terms of a subsequent Regulation D Offering,
all participants in the December 6, 1996 Regulation D Offering were offered the
opportunity to exchange all of their Units (consisting of one (1) share of
Common Stock and one and one-half (1 1/2) Class A Warrants to purchase a like
amount of Common Stock), which Units sold for $1.00, for the Company's to be
issued 8% Cumulative Convertible Debentures, due June 30, 2000. The aggregate
amount of Units sold pursuant to the Regulation D Offering made in December,
1996 was $2,470,334. If, as expected, all of the Prior Regulation D Investors
exercise their right to exchange their Units for Debentures, all of the
3,705,501 Class A Warrants will be cancelled.
Apart from the terms of this Exchange Offering, the Company may redeem the
previously issued Class A Warrants (in certain circumstances with the
underwriter Representative's prior consent) at any time after May, 1996 at a
price of $0.01 per Class A Warrant upon forty-five (45) days prior written
notice if the closing inside bid quotation of the Common Stock on NASDAQ has
been at least $8.00 during the twenty (20) consecutive trading days ending on
the third day prior to the day on which notice of redemption is given.
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Each Class A Warrant entitles the holder thereof to purchase one (1) share
of Common Stock at a price of $2.25 per share, exercisable until May 12, 2000.
Some of the Class 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 Class A Warrants in accordance with the terms thereof, will
be fully paid and non-assessable.
During the time when the Class 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 the Class A Warrants reside, in order to comply
with applicable laws in connection with the exercise of the Class A Warrants and
the resale of the Common Stock issued upon such exercise. So long as the Class A
Warrants are outstanding, the Company has undertaken to file all post-effective
amendments to the Registration Statement 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 the exercise of the Class
A Warrants. However, there can be no assurance that the 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 Class 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 had been issued, but after
various transfers and exchanges, only 300,000 may be deemed outstanding. (See
"Executive Compensation - Note (6)"; "Certain Related or Other Transactions.")
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 $.01 per warrant at
any time after the first anniversary of the Effective Date upon 45 days prior
written notice if the closing bid quotation of the Common Stock has been at
least $8.00 on all twenty (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 May 12, 2000. 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
33
<PAGE>
exercise price in certain events including, but not limited to, stock dividends,
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.
8% Cumulative Convertible Debentures Due June 30, 2000
Pursuant to concurrent Regulation D and Regulation S Offerings, as at June
20, 1997, the Company is offering a maximum of $4,970,334 principal amount of
its 8% Cumulative Convertible Debentures, due June 30, 2000. Those Offerings
continue to run concurrent with this Registration. The Debentures are
convertible into the Company's $.05 par value Common Stock (the "Common Stock")
by Regulation S Investors at any time after forty-one (41) days after the date
of issuance of the Debentures pursuant to the Registration S Offering (the
"Restricted Period"), and by the Regulation D Investors at any time after one
hundred and eighty (180) days after the date of issuance of the Debentures
pursuant to the Regulation D Offering (the "Exercise Hold Period"), at a
conversion price equal to a thirty (30%) percent discount off of the five (5)
day average daily closing bid price, as reported on NASDAQ (the primary exchange
on which the Common Stock is listed and is traded), for the five (5) trading
days immediately preceding the applicable Conversion Date (the "Conversion
Price"). Additionally, at any time after one hundred and twenty (120) days after
the issuance of the Debentures pursuant to the respective "Regulation S" and
"Regulation D Exchange Offerings," the Company shall have the right to convert
the Debentures into Common Stock, upon not less than ten (10) days notice to
such respective Holders, on the same basis, determined by the Conversion Price;
and all of such Debentures are subject to a mandatory, thirty-six (36) month
conversion feature, measured from the date of issuance, or on or after June 30,
2000, upon the expiration of which (the "Mandatory Conversion Date") all
Debentures then outstanding, together with accrued interest thereon, will be
converted by the Company at the Conversion Price. Except as to Prior Regulation
D Investors, who may purchase the Debentures in amounts or lots equal to their
subscription amount pursuant to the Prior Regulation D Offering (i.e., in an
amount equal to the aggregate cost of the Units purchased thereunder),
Debentures will be sold and issued only in even multiples of $10,000.00.
The Prior Regulation D Investors, but not the Regulation S Investors, will
have certain "Demand Registration" rights with respect to the Common Stock
underlying the Debentures, and separate and additional "Piggyback Registration
Rights," which substantially track and mirror the registration rights afforded
such Investors with respect to the Common Stock comprising and underlying the
Units. In substance, the Regulation D Investors as Holders of the Debentures,
shall have Demand and Piggyback Registration Rights exercisable upon notice to
the Company from and after the Exercise Hold Period, and for a period of five
hundred and forty-five (545) days thereafter (the "Registration Rights Period")
to require the Company to file a Registration Statement with respect to the
Common Stock underlying the Debentures, to register such shares under ss.5 of
the Act, and to include such shares in a Registration Statement which the
Company is otherwise filing with the Commission. In this connection, the Company
intends to further
34
<PAGE>
amend the Company's Registration Statement on Form S-3, currently filed with and
pending before the Commission, and intends to include therein for registration
all Common Stock underlying the Debentures held by the Regulation D Investors
only in a "Shelf Registration," so that upon conversion of the Debentures, the
Common Stock to be received by the Regulation D Investors will be registered and
freely tradeable. To the extent that the Company further amends its Registration
Statement on Form S-3, and includes the registration of such Common Stock
underlying the Debentures purchased by all Regulation D Investors, it shall be
deemed to have satisfied all Demand Registration and Piggyback Registration
Rights to which the Regulation D Investors are otherwise entitled. (See "Terms
of the Offering.")
Anti-Takeover/Authorized but Unissued Stock
Upon the completion of this Offering, and assuming that all of the Prior
Regulation D Investors elect to exchange all of their Units for Debentures, and
therefore tender all Common Stock and Class "A" Warrants previously purchased
for cancellation, and assuming the Conversion Price is $.35 at conversion,1 the
Company's authorized but unissued and unreserved capital stock will consist of
8,000,000 shares of Preferred Stock and approximately 1,903,530 shares of Common
Stock. One of the effects of the existence of authorized by unissued capital
stock may be to enable the Board of Directors to render more difficult, or to
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby to protect the continuity
of the Company's management. If in the due exercise of its fiduciary
obligations, for example, the Board of Directors were to determine that a
takeover proposal was not in the Company's best interests, such shares could be
issued by the Board of Directors without stockholder approval in one or more
private placements or other transactions that might prevent or render more
difficult or costly the completion of the takeover transaction by diluting the
voting or other rights of the proposed acquiror or insurgent stockholder or
stockholder group, by creating a substantial voting block in institutional or
other hands that might undertake to support the position of the incumbent Board
of Directors, by effecting an acquisition that might complicate or preclude the
takeover, or otherwise. In this regard, the Company's Certificate of
Incorporation grants the Board of Directors broad power to establish the rights
and preferences of the authorized and unissued Preferred Stock, one or more
series of which could be issued entitling holders to vote separately as a class
on any proposed merger or share exchange, to convert Preferred Stock into a
large number of shares of Common Stock or other securities, to demand redemption
at a specified price under prescribed circumstances related to a change in
control, or to exercise other rights designed to impede a takeover.
In the foregoing connection, it is reiterated that the Board of Directors
of the Company, at a meeting held on May 28, 1997, voted unanimously to
implement and facilitate a 12-1 reverse stock split with respect to the
Company's Common Stock, and a 3-1 reverse stock split with respect to the
Company's Series B Preferred Stock. It is anticipated that such measures
- --------
1 This is intended as a hypothetical example, with the purpose of choosing a set
of circumstances highlighting a higher than anticipated number of common shares
than the Company believes is likely to result.
35
<PAGE>
will be submitted to the Shareholders for a vote at a Special Meeting of
Shareholders, to be noticed for and held in or about July, 1997. This meeting
will be called principally to vote on, ratify, affirm and approve the Board of
Directors' decision and vote also had at the May 28, 1997 Board of Directors
meeting to amend the Company's Articles of Incorporation to add voting rights to
the Series B Preferred Stock, at the rate of one vote for each share of
Preferred Stock, although the ratio of conversion of the Preferred Stock into
Common Stock of the Company is one for one and one-half shares of Common Stock.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Rosenberg & Fein.
EXPERTS
The financial statements of the Company as of December 31, 1996 and for
the years ended December 31, 1995 and December 31, 1994 have been incorporated
by reference in this Prospectus and Registration Statement in reliance upon the
report of Stetz, Belgiovine CPAs, P.C., independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
Item 3. Incorporation of Documents 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, 1996;
(b) The Company's Amended Annual Report on Form 10-KSB/A for the year
ended December 31, 1996;
(c) The Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1997;
(d) The Company's Periodic Report on Form 8-K, dated May 17, 1997;
(e) The Company's Registration Statement on Form S-3 (Pre-Effective
Amendment No. 5), as filed on July 17, 1997, as part of Registration
No. 333-4748;
(f) 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
36
<PAGE>
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.
Item 4. Description of Securities.
Not applicable.
Item 5. Interests of Named Experts and Counsel.
None.
Item 6. Indemnification of Directors and Officers.
Pursuant to the Company's certificate of incorporation, as
amended, and by-laws, 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 the Securities Act may
be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the
37
<PAGE>
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 be 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 competent jurisdiction the question whether such
indemnification by it is against public policy.
Item 7. Exemption from Registration Claimed.
Not Applicable.
Item 8. Exhibits.
Number Description
------ -----------
4.1 Consulting Agreement dated June 27, 1997 between the
Company and Bay State Development Trust.
5.1 Opinion of Rosenberg & Fein regarding the legality of
the securities being registered.
23.1 Consent of Stetz, Belgiovine CPAs, P.C., as Independent
Certified Public Accountants.
Item 9. Undertakings.
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:
(a) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933.
(b) To reflect in the prospectus any fact 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
38
<PAGE>
(c) 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.
Provided, however, that paragraphs (1)(a) and
(1)(b) do not apply if the registration statement
is on Form S-3 or Form S-8 and the information
required to be included in a post-effective
amendment by this paragraph is contained in
periodic reports filed by the registrant pursuant
to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by
reference 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 become unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the
registration statement 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.
(5) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual
report to security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934;
and, where interim financial information required to be presented by
Item 310(b) of Registration S-B is not set forth in the prospectus,
to deliver, or cause to be delivered, to each person to whom the
prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide
such interim financial information.
39
<PAGE>
(6) To deliver or cause to be delivered with the prospectus to each
employee to whom the prospectus is sent or given, a copy of the
registrant's annual report to stockholders for its last fiscal year,
unless such employee otherwise has received a copy of such report,
in which case the registration shall state in the prospectus that it
will promptly furnish, without charge, a copy of such report on
written request of the employee. If the last fiscal year of the
registrant has ended within 120 days prior to the use of the
prospectus, the annual report of the registrant for the preceding
fiscal year may be so delivered, but within such 120-day period the
annual report for the last fiscal year will be furnished to each
such employee.
(7) To transmit or cause to be transmitted to all employees
participating in the Plans who do not otherwise receive such
material as stockholders of the registrant, at the time and in the
manner such material is sent to its stockholders, copies of all
reports, proxy statements and other communications distributed to
its stockholders generally.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 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 July 14, 1997.
ELECTRONICS COMMUNICATIONS CORP.
s/ William S. Taylor
----------------------------
William S. Taylor, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
s/ William S. Taylor Chairman of the Board, Chief Executive
- ------------------------------ Officer, President (Principal Executive
William S. Taylor and Financial Officer) July 14, 1997
s/ Les Winder Executive Vice President, Treasurer
- ------------------------------ and Director July 14, 1997
Les Winder
s/ Brenda Taylor Director and Secretary July 14, 1997
- ------------------------------
Brenda Taylor
s/ Andrew A. Miller Controller July 14, 1997
- ------------------------------
Andrew A. Miller
/s Robert DePalo Director July 14, 1997
- ------------------------------
Robert DePalo
</TABLE>
41
EXHIBIT 4.1
CONSULTING AGREEMENT
AGREEMENT, effective as of the 27th day of June, 1997, by and between
Electronics Communications Corp, "NASDAQ SYMBOL ELCC," with its principal
executive offices located at 10 Plog Road, Fairfield, New Jersey 07004
(hereinafter referred to as the "Company") and Bay State Development Trust, with
its principal offices located at 210 Dartmouth Street, Pawtucket, Rhode Island
02906 (hereinafter referred to as the "Consultant").
W I T N E S S E T H:
WHEREAS, Consultant is in the business of [describe Bay State's business]
to include financial advisory and other services related to the services to be
provided below; and
WHEREAS, the Company has recently substantially and materially
reconstituted and redirected its entire operations from a wholesale distributor
of consumer and business electronics products to a full-service wireless
communications company in connection with the development and exploitation of
its licenses to operate a paging system and a personal communications services
network in the northeastern United States; and
WHEREAS, the Company has experienced very substantial and material
additional demands on various of its executives, officers and directors in
connection with this reconstitution and redirection which has adversely impacted
on the availability of such individuals to attend to and implement various
internal controls, accounting procedures and other facilities in connection with
the Company's expanding environment; and
WHEREAS, the Company requires a review and analysis of its policies,
procedures and facilities, including and especially those relating to the need
for additional officers and/or employees to implement and oversee internal
forecasting, projections and oversight.
NOW, THEREFORE, in consideration of mutual promises contained herein, the
parties hereto hereby agree as follows:
1. Term. Consultant hereby agrees to act as consultant on behalf of the
Company for a twelve (12) month term commencing on the date hereof ("Effective
Date") and terminating on the twelfth (12th) month anniversary of the Effective
Date, and as such will provide the consulting services described herein.
2. Consulting Services. Consultant shall promptly, upon the execution of
this Agreement, undertake a full review and analysis of the Company's financial
condition, including its cash flow, present and anticipated operations, and
capital requirements, and its continuing development and evolution as a
full-service wireless telecommunications company. In such connection, Consultant
shall preliminarily review and analyze the Company's Annual Report on Form
10-KSB/A for the year ended December 31, 1996, its most recent Regulation
D/Regulation S Confidential Offering Memorandum, and its Registration Statement
on Form S-3 with respect to which the last filing was made pursuant to
Pre-Effective Amendment No. 5, which Registration Statement is currently pending
before the Securities Exchange Commission.
Thereafter, Consultant shall meet with such executives, officers and
directors as it determines are necessary to supplement the foregoing review and
analysis, with a view to a better and fuller understanding of the Company's need
for improved forecasting, projection capabilities, budgets and internal
financial ordering and maintenance controls, with respect to present and
anticipated operations.
<PAGE>
Thereafter, Consultant shall submit written reports and analyses regarding
its findings and proposals, including, but not limited to, the following topics
and considerations:
(a) the need for enhancement of its internal financial and
accounting statements and personnel;
(b) the need for specific criteria, procedures, mechanisms and
facilities to project and forecast the Company's costs, expenses and other
expenditures, and its income stream and payables with respect to payment and
billing cycles and cash flow needs and availabilities;
(c) the Company's need for and availability with respect to various
forms of funding, including various forms of vendor financing or other forms of
lending, both current and long-term, in connection with the Company's buildout
of its PCS network, and the expansion, continued development, promotion and
commercial exploitation of its PCS and proprietary paging system and networks.
Thereafter, Consultant shall meet with the executive management, officers
and directors of the Company to further consider, analyze, refine and thereafter
implement those aspects of the Company's written proposals as management of the
Company determines are most beneficial and efficacious with respect to the
Company.
Thereafter, Consultant shall monitor the implementation of such proposals,
mechanisms, features, plans and personnel with a view to, and for the purpose
of, fine-tuning, revising and/or modifying such plans, methodologies and
procedures during the term of this Agreement, it being the expectation of the
parties that the success of the Company's proposals and analysis will or would
be reflected in increased efficiencies, earnings and profitability of the
Company, and the concomitant enhancement of the Company's value and stock price.
3. Compensation. In consideration for Consultant entering into this
Agreement, Consultant will receive 50,000 freely tradable non-dilutive shares of
the Company's common stock registered under an S-8 registration (the "Shares")
upon the payment of the par value of $.001 per share. The Consultant
acknowledges that (a) he is a sophisticated investor having substantial
knowledge and experience in purchasing and selling securities (both in private
and public offerings); and (b) the Shares are registered under the Securities
Act of 1933 (the "Act") and as a result may be sold at any time in compliance
with the Act.
4. Conflicts. Consultant shall be an independent contractor and shall have
no right or authority to assume or create any obligation or responsibility,
express or implied, on behalf of or in the name of the Company, unless
specifically authorized in writing by the Company. No provision of this
Agreement shall be construed to preclude Consultant, or an agent, associate,
affiliate or employee of Consultant from engaging in any activity whatsoever,
with any person or entity, participating in any corporation, partnership, trust
or other business entity or from receiving compensation or profit therefor.
5. Standard of Care. Consultant (including an person or entity acting for
or on behalf of Consultant) shall not be liable for any mistakes of fact, errors
of judgment, for losses sustained by the Company for any acts or omissions of
any kind, unless caused by gross negligence or intentional misconduct of
Consultant or any person or entity acting for or on behalf of Consultant.
6. Entire Agreement; Waivers. This Agreement supersedes any and all
agreements, arrangements and understandings relating to the matters provided for
herein, entered into or reached
<PAGE>
prior to the date hereof. No amendment, waiver or discharge of any provisions
hereof shall be effective unless in writing signed by the parties hereto. This
Agreement shall inure to the successors and assigns of the parties hereto. This
Agreement may not be assigned by any party hereto without the prior written
consent of the other party hereto.
7. Headings. The headings of this Agreement are for purposes of reference
only and shall not be considered in construing this Agreement.
8. Governing Law. This Agreement shall be governed and interpreted in
accordance with the laws of the State of New Jersey, without regard to conflict
of laws principles thereof, or the actual domiciles of the parties hereto. In
addition, Bay State Development Corp. represents and acknowledges that it is a
sole proprietor corporation and eligible to receive stock under an S-8 filing.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed and delivered in its name and on its behalf, all effective as of
the date first written above.
ELECTRONICS COMMUNICATIONS CORP. BAY STATE DEVELOPMENT TRUST
By: /s/ William S. Taylor By: /s/ Sloan Sherman
--------------------------- ---------------------------
William S. Taylor, President Sloan Sherman, Trustee
EXHIBIT 5.1
July 14, 1997
Electronics Communications Corp.
10 Plog Road
Fairfield, NJ 07004
Re: S.E.C. Registration Statement on Form S-8
Gentlemen:
We have acted as counsel to Electronics Communications Corp. (the
"Company") in connection with a Registration Statement to be filed with the
United States Securities and Exchange Commission, Washington, D.C., pursuant to
the Securities Act of 1933, as amended, covering the registration of an
aggregate of 50,000 shares of the Company's $.05 par value common stock (the
"Common Stock") which may be sold by Bay State Development Trust, a consultant
to the Company ("Bay State"), issued under the ECC/Bay State Consulting
Agreement (the "Bay State Agreement"). In connection with such representation of
the Company, we have examined such corporate records, and have made such inquiry
of government officials and Company officials and of the Company's Independent
Certified Public Accountants, on whose advisements as to financial and
capitalization matters we have relied on, and have made such examination of the
law as we deemed appropriate in connection with delivering this opinion.
Based upon the foregoing, we are of the opinion as follows:
1. The Company has been duly authorized and organized under the laws of
the State of Delaware and is validly existing as a corporation in good standing
under the laws of that state.
2. As at March 31, 1997, and subject to the subsequent effects of the
completion of the Company's Regulation S and Regulation D Offerings, presently
in process but not yet completed, the Company's capitalization is as follows:
Short Term Debt . . . . . $6,606,920
Long-Term Debt . . . . . 24,531,236
Minority Interest . . . . . 424,542
Stockholders' Equity
Preferred Stock, $.01 par value;
8,000,000 B Non-Voting Convertible
Authorized; 4,000,000 issued and
and outstanding . . . . . . . . . . 40,000
<PAGE>
Common Stock, $.05 par value;
40,000,000 shares authorized; 12,189,174
shares outstanding; 14,115,515 shares
outstanding, as adjusted . . . . . 609,460
Subscription Receivable. . . . . . . . (6,000,000.)
Notes Receivable arising from prior sale
of Common Stock Purchase Warrants. . (25,701.)
Additional Paid-in Capital . . . . . . 18,295,820
Retained (Deficit) . . . . . . . . . . (10,723,068.)
Total Stockholders' Equity . . . . . . 2,216,511
Total Capitalization . . . . . . . . . $33,779,209
3. The 50,000 shares of the Company's Common Stock issued pursuant to the
Consulting Agreement which Bay State proposes to sell will be, as and when
issued, duly and validly authorized, legally issued, fully paid and
non-assessable.
Sincerely,
ROSENBERG & FEIN
By: /s/ Jeffrey L. Rosenberg
----------------------------
Jeffrey L. Rosenberg
JLR/kw
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 17, 1997, relating to the
financial statements of Electronics Communications Corp. for the year ended
December 31, 1996, appearing in the Company's Amended Annual Report on Form
10-KSB/A, including an explanatory note regarding the Company's ability to
continue as a going concern (see Note 21), accompanying the Company's Amended
Annual Report for the period December 31, 1996, on Form 10-KSB/A. Such reports
have been incorporated by reference in this Registration Statement. We consent
to the incorporation by reference in this Registration Statement on Form S-8 of
the aforementioned reports and to the use of our name as it appears under the
caption "Experts."
STETZ, BELGIOVINE CPAs, P.C.
Montclair, New Jersey
July 15, 1997
