<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_________ TO___________
COMMISSION FILE NUMBER 1-12571
INTELLICELL CORP.
Delaware 95-4467726
(State of incorporation or organization) (IRS Employer Identification No.)
9314 Eton Ave., Chatsworth, California 91311
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 709-2300
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes _X_ No ___
As of April 29, 1999 there were 6,914,893 shares of the Registrant's Common
Stock outstanding.
Page
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTELLICELL CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------------------ --------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 362,000 $ 1,495,000
Accounts receivable, net of allowance for doubtful
accounts of $251,000 and $367,000 2,155,000 2,567,000
Inventories, net of reserves of $592,000 and $420,000 837,000 518,000
Notes receivable, net of allowance for doubtful
notes of $1,521,000 and $662,000 - -
Deposits for purchase of inventory 254,000 170,000
Prepaid expenses and other current assets 211,000 473,000
------------------------ --------------------
Total current assets 3,819,000 5,223,000
Property and equipment, net of accumulated
depreciation of $242,000 and $283,000 359,000 340,000
------------------------ --------------------
Total assets $ 4,178,000 $ 5,563,000
------------------------ --------------------
------------------------ --------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts Payable $ 1,150,000 $ 2,027,000
Accrued Expenses 179,000 181,000
------------------------ --------------------
1,329,000 2,208,000
Commitments and contingencies - -
Stockholders' equity
Preferred stock -$.01 par value, 1,000,000 shares
authorized and none issued
Common stock -$.01 par value, 15,000,000 shares
authorized 4,415,902 and 6,914,893 shares
issued and outstanding 59,000 69,000
Additional paid-in capital 11,379,000 12,368,000
Accumulated deficit (8,589,000) (9,082,000)
------------------------ --------------------
------------------------ --------------------
Total stockholders' equity 2,849,000 3,355,000
------------------------ --------------------
Total liabilities and stockholders' equity $ 4,178,000 $ 5,563,000
------------------------ --------------------
------------------------ --------------------
</TABLE>
See accompanying notes to financial statements
Page
<PAGE>
INTELLICELL CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1998 1999
----------------- ----------------
<S> <C> <C>
Net sales $ 9,931,000 $ 6,666,000
Cost of sales 9,557,000 6,201,000
----------------- ----------------
Gross profit 374,000 465,000
Selling, general and administrative expenses 1,477,000 953,000
----------------- ----------------
Loss from operations (1,103,000) (488,000)
Other income (expense):
Interest expense (84,000) -
Other Income (expense) 12,000 (5,000)
----------------- ----------------
Loss before income tax expense (1,175,000) (493,000)
Income tax expense - -
----------------- ----------------
Net loss $ (1,175,000) $ (493,000)
----------------- ----------------
----------------- ----------------
Basic loss per share $ (0.27) $ (0.08)
----------------- ----------------
----------------- ----------------
Diluted loss per share $ (0.27) $ (0.08)
----------------- ----------------
----------------- ----------------
Weighted average number of common shares outstanding 4,415,902 6,093,500
----------------- ----------------
----------------- ----------------
</TABLE>
See accompanying notes to financial statement
Page
<PAGE>
INTELLICELL CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-----------------------------------------
1998 1999
---------------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,175,000) $ (493,000)
Adjustments to reconcile net loss to net cash
Provided by operating activities
Depreciation and amortization 47,000 47,000
Non cash compensation expense 67,000 -
Provision for doubtful accounts receivable 18,000 (116,000)
Provision for inventory reserves 123,000 (172,000)
Provision for doubtful notes receivable (60,000) -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 2,234,000 (296,000)
Decrease in inventories 1,269,000 147,000
Decrease in deposits for purchases of inventory 269,000 84,000
(Increase) decrease in prepaid expenses and other current assets 204,000 (262,000)
Increase (decrease) in accounts payable and accrued expenses (1,818,000) 877,000
---------------------- -------------------
Net cash provided by operating activities 1,178,000 156,000
---------------------- -------------------
Cash flows from investing activities:
Repayment of notes receivable 310,000 -
Acquisition of fixed assets (259,000) (22,000)
---------------------- -------------------
Net cash provided by investing activities 51,000 (22,000)
---------------------- -------------------
Cash flows from financing activities:
Bank overdraft (payments) (250,000) -
Deferred financing costs (109,000) -
Advances under credit facility 14,324,000 -
Repayment under credit facility (14,841,000) -
Proceeds for the sale of common stock - 999,000
---------------------- -------------------
Net cash provided by (used in) financing activities (876,000) 999,000
---------------------- -------------------
Net increase in cash 353,000 1,133,000
Cash - beginning of period - 362,000
---------------------- -------------------
Cash - end of period $ 353,000 $ 1,495,000
---------------------- -------------------
---------------------- -------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 84,000 $ -
Income taxes $ - $ -
</TABLE>
See accompanying notes to financial statements
Page
<PAGE>
INTELLICELL CORP.
Notes to Financial Statements
(Unaudited)
1. COMPANY'S QUARTERLY REPORT UNDER FORM 10-Q
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and with the instructions set forth in the Securities and Exchange Commission's
regulations. In the opinion of Management, the accompanying financial statements
include all adjustments consisting of normal recurring accruals necessary to
present fairly the financial statements of Intellicell Corp. (the "Company") for
the periods presented. The accompanying financial information should be read in
conjunction with the audited financial statements contained in the Company's
Annual Report on Form 10-K, for the year ended December 31, 1998. Footnote
disclosures that substantially duplicate those in the Company's Form 10-K.
including significant accounting policies, have been omitted. The results of
operations for the three months ended March 31, 1999 are not necessarily
indicative of the results to be expected for the full fiscal year.
2. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
In November 1998, the Company consummated a private placement (the "Offering")
with an investor group (the "Investor Group"). In conjunction with the Offering,
the Company issued $1,500,000 of unsecured, subordinated convertible notes
bearing interest of 2% per annum (the "Notes"). The Notes were convertible, at
the option of the Company and upon ratification of the Offering by the Company's
shareholders, into 1,500,000 units (the "Units") and the Notes were so converted
on December 30, 1998. Each Unit consists of one common share plus one warrant to
purchase two-thirds of a share of common stock at an exercise price of $1 per
share, or a total of 1,500,000 million shares and warrants to purchase 1,000,000
shares (the "Offering Warrants").
In March 1999, the Investor Group exercised, in full, the Offering Warrants. A
total of 600,000 options were issued pursuant to the terms of the Offering to a
finder and the Company's new interim Chief Executive Officer and a new director
and upon exercise of the Offering Warrants, these 600,000 options became fully
vested.
In February 1999, the Company entered into employment contracts with two new
employees. The three-year agreements call for annual compensation of no less
than $120,000 and $150,000, respectively, and a one-time signing bonus of
$35,000 for one of these employees, together with bonuses in the form of cash or
options to purchase common stock and compensation adjustments as deemed
appropriate by the Board of Directors. In addition, these employees received
options to purchase 50,000 and 100,000 shares of common stock, respectively, at
the commencement of their employment. The Company also provided a loan to one
employee for $120,000. This short term loan bearing interest at 7% per annum is
secured by marketable securities held by the employee and is accounted for on
the accompanying balance sheet as other assets.
3. SUBSEQUENT EVENTS
On April 21, 1999, the Company and Ben Neman, its founder, President and
Chairman of the Board entered into an agreement whereby Mr. Neman resigned as
the Company's Chairman of
Page
<PAGE>
the Board and President, effective April 21, 1999. The parties terminated Mr.
Neman's existing employment agreement, the Company paid Mr. Neman $250,000
upon signing of the termination agreement, and the Company will make 24
monthly payments to Mr. Neman of $14,583, with the first payment commencing
on May 1, 1999. These monthly payments will be accelerated in the event the
Company fails to comply with any of the provisions of the agreement or if the
parties are unable to complete a private sale by Mr. Neman of 146,264 of his
shares of the Company's common stock held by Mr. Neman by approximately May
11, 1999. The termination agreement also provides for certain limitations on
Mr. Neman's public sales of the balance of his shares of the Company's common
stock.
On April 30, 1999, Mr. Stephen Jarrett resigned as an Executive Vice
President and from the Board of Directors. The parties terminated Mr.
Jarrett's employment agreement, and the Company paid Mr. Jarrett $68,750 upon
signing of the termination agreement. The Company also agreed to accelerate
vesting of Mr. Jarrett's options to purchase 100,000 shares of the Company's
common stock, which Mr. Jarrett immediately exercised for $68,750. The
Company will be required to lend $30,000 to Mr. Jarrett, with the loan to be
secured by his common stock. This loan will not bear interest and will be
payable in May 2000. The parties further agreed to certain limitations on Mr.
Jarrett's sales of his shares of the Company's common stock.
On April 27, 1999, the Company's Board of Directors appointed Michael Hedge to
be the Company's Chief Executive Officer and President and a member of the Board
of Directors and appointed John Swinehart to be the Company's Chairman of the
Board and Chief Operating Officer.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: THE STATEMENTS CONTAINED IN THIS REPORT WHICH ARE NOT HISTORICAL FACTS ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING BUT
NOT LIMITED TO, THE NEED FOR ADDITIONAL WORKING CAPITAL, POSSIBLE DELAYS IN THE
COMPANY'S EXPANSION EFFORTS, CHANGES IN WIRELESS COMMUNICATIONS MARKETS AND
TECHNOLOGIES, THE NATURE OF POSSIBLE SUPPLIER OR CUSTOMER ARRANGEMENTS WHICH MAY
BECOME AVAILABLE TO THE COMPANY IN THE FUTURE, POSSIBLE PRODUCT OBSOLESCENCE,
UNCOLLECTIBLE ACCOUNTS RECEIVABLE, SLOW MOVING INVENTORY, LACK OF ADEQUATE
FINANCING, INCREASED COMPETITION AND UNFAVORABLE GENERAL ECONOMIC CONDITIONS.
THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN
ANY FORWARD LOOKING STATEMENT.
COMPARISON OF OPERATIONS
Net sales for the three months ended March 31, 1999 decreased $3,265,000, or
32.9%, from the comparable period of the prior year. The decrease in sales is
the result of a reduced sales force in 1999 and the Company's recent inability
to procure digital products or to purchase products when available because of
decreased working capital borrowing capabilities from lenders and vendors,
resulting in both volume and per unit price decreases.
Gross profit increased by $91,000, or 24.3%, for the three months ended March
31, 1999, from
Page
<PAGE>
the prior comparable period. As a percentage of sales, gross profit for the
three months ended March 31, 1999 was 7.0% compared to 3.8% for the three
months ended March 31, 1998. The increased gross profit is reflective of
increased demand for digital product. During the first quarter of 1998, the
Company's inventory and sources of supply were predominately analog causing
the Company to experience significant gross margin deterioration as demand
for analog product declined. Starting in the most recent two quarters, the
Company has made an effort to change its phone handset inventory and related
accessories to digital based product and, as a result, the gross profit
deterioration has been eliminated. The current inventory is balanced between
diminishing analog phone sales and growing digital phone sales.
Selling, general and administrative expenses decreased by 524,000, or 35.5%,
for the three months ended March 31, 1999 as compared to the three months
ended March 31, 1998. The decrease in these expenses from those of the
comparable period of the prior fiscal year was due primarily to lower payroll
and related payroll costs as a result of the Company's cost-cutting efforts,
together with moving costs in 1998 for the Company's new facilities in
Chatsworth and non-cash expenses such as stock options grants to
non-employees in 1998.
For the three months ended March 31, 1999, the Company incurred a loss from
operations of $488,000 and a net loss of $493,000, compared to a loss from
operations and net loss of $1,103,000 and $1,175,000, respectively, for the
comparable period in 1998.
CHANGES IN FINANCIAL CONDITION
For the three months ending March 31, 1999, the Company incurred significant
losses. The Company believes that these losses are primarily attributable to
the growth in the number of major domestic carriers who have chosen to
procure digital phones directly from manufacturers and have utilized other
distributors for logistic services such as inventory management, product
fulfillment and activities for end users. This change in distribution
paradigm has greatly impacted the Company's ability to procure digital
product. Therefore, the Company believes that reduced sales were caused by
market conditions. Digital product, when available, is mainly available on a
prepaid basis.
Total assets at March 31, 1999 increased by $1,385,000, or 33.1% from
December 31, 1998, primarily as a result of a $412,000, or 19.1%, increase in
accounts receivable and a $1,133,000, or 313.0%, increase in cash, offset by
decreased levels of inventory of $319,000, or 38.1%. The increase in accounts
receivable is the result of increased sales for the three months ending March
31, 1999 versus the three months ending December 31, 1998. The increased
level of cash is the result of an exercise of approximately $999,000 of
warrants in the Company's recent private placement. The decreased levels of
inventory is the result of lower purchases by the Company of product,
reflecting the reduced demand for the Company's products and the Company's
inability to procure significant amounts of digital cellular phone product.
Net assets of the Company increased by $506,000, or 17.8%, from December 31,
1998, reflecting the influx of capital from the exercise of warrants in March
1999, net of losses for the three months ended March 31, 1999.
At March 31, 1999 the Company had a deferred tax asset of $3,592,000,
representing the future
Page
<PAGE>
benefit of net operating losses and timing differences and has established a
valuation allowance of an equal amount reflecting current assessment of
realizability.
Total liabilities increased by $879,000, or 66.1%, from December 31, 1998 to
March 31, 1999. This increase consisted primarily of an increase of $877,000
in accounts payable and was associated with increased levels of business
activity, including purchases of inventory during the three months ending
March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary cash requirements have been to fund
increased levels of inventories and accounts receivable, as well as recent
operating losses. The Company has satisfied its working capital requirements
principally through the issuance of equity securities and borrowings. Working
capital at March 31, 1998 was $3,015,000, compared to working capital of
$2,490,000 at December 31, 1998. This increase in working capital reflects
the funds raised from the exercise of warrants, offset by the losses
sustained by the Company subsequent to December 31, 1998.
Net cash provided by operating activities was $156,000 for three months ended
March 31, 1999 as compared to $1,178,000 for the three months ended March 31,
1998. The cash provided by operating activities for the three months ended
March 31, 1999 was primarily the result of a increase in accounts payable,
decrease in inventory reserves and decreased levels of inventory and deposits
for inventory offset by an increase in accounts receivable and prepaid
expenses. Net cash used by investing activities for the three months ended
March 31, 1999 was $22,000 as compared to $259,000 for the three months ended
March 31, 1998. Net cash used by investing activities for the three months
ended March 31, 1999 was the result of purchase of fixed assets. For the
three months ended March 31, 1998, net cash provided by financing activities
totaled $999,000, which was the result of warrants issued pursuant to the
Company's private placement in November 1998 being exercised in March 1999.
The Company has incurred significant losses, which have materially, adversely
impacted its cash flow and liquidity. The Company currently does not have a
credit facility or available credit through many of its vendors to be able to
maintain or expand the current level of its operations. The Company has
entered into negotiations to secure financing. One such lender has issued the
Company a letter of intent to enter into a credit agreement providing maximum
borrowings of up to $5,000,000 (depending upon the amounts of eligible
inventory and accounts receivables.) The letter of intent is subject to
certain conditions, and there can be no assurance that the lender will
ultimately enter into a formal credit agreement with the Company.
As of September 30, 1998 the Company's tangible net worth was less than
Nasdaq's minimum continued listing requirement of $2,000,000. In January
1999, the Company was notified by Nasdaq that its staff had determined that
the Company had failed to meet the requirements for continued listing by
Nasdaq. However, in March 1999, Nasdaq advised the Company that is was in
compliance with all of Nasdaq's requirements for continued listing.
The Company believes it will require additional working capital to support
its current operations
Page
<PAGE>
and to expand the level of those operations as part of a strategy to generate
operating profits. Although the Company believes its working capital is
sufficient to maintain its current level of operations for at least the next
twelve months, should the Company be unable to procure a line of credit or
other debt or equity financing it will not have adequate working capital for
the Company to meet its objectives, including an expansion of its level of
operations.
YEAR 2000 UPDATE
Overview and Background
The Company has completed most of the elements of a project (the Project)
that addressed the Year 2000 readiness of its information technology as well
as its non-information technology systems (e.g., alarm systems, office
machines, etc.) which have embedded technology (collectively referred to as
Systems). Additionally, the Project includes assessment of the Year 2000
readiness of the Company's significant suppliers and customers, which is the
only major element of the Project not yet completed.
Status of the Project
The Project is divided into four separate phases - Planning and Awareness,
Inventory, Assessment and Renovation.
The Planning and Awareness phase began in November 1998 and was completed in
March 1999. This phase included: (I) development and approval of the Project
charter, (ii) formation of a Project management team to carry out the Project
charter, (iii) identification and assessment of overall Project risks and
(iv) development of a Project budget.
In February 1999, the Company implemented the Inventory phase of the Project,
which involves: (i) identification of significant Systems to be assessed and
(ii) identification of all significant suppliers and customers. Because the
Company does not believe that its customers' Year 2000 compliance issues will
have a significant impact on the Company, the Company plans on conducting
informal conversations about Year 2000 issues with its customers. This phase
is expected to be completed in June 1999.
The Assessment phase began in March 1999 and is expected to be completed in
June 1999. This phase involves (i) contacting vendors of significant Systems
to assess the Year 2000 readiness of those Systems, (ii) testing of the
assertions made by significant Systems vendors, (iii) contacting significant
suppliers, customers and wireless network operators in order to ascertain
their state of Year 2000 readiness, (iv) assessment of assertions made by
significant suppliers and customers, (v) determination of the extent to which
renovation will be required to insure Year 2000 readiness and (vi)
development of contingency plans to the extent considered necessary.
Once the Assessment phase is completed for each System, the Renovation phase
will commence for those Systems identified as not Year 2000 compliant. The
Renovation phase is substantially completed, with final completion schedule
for June 1999. The activities that have been and will be performed during
Renovation include (i) repairing, replacing or reprogramming all significant
Page
<PAGE>
Systems that do not comply with Year 2000 readiness, (ii) testing and
validation of renovated Systems and (iii) establishment and completion of
action plans to address any Year 2000 issues with significant customers and
suppliers.
Costs
The Company will rely primarily on internal resources to implement and fund
the Project. Costs incurred to insure the Company's systems are Year 2000
compliant are not expected to be material to the Company's results of
operations, financial position or cash flows since the Company has already
been in the process of upgrading certain Systems to keep pace with new
computer and software technologies. Project costs are and will be expensed as
incurred.
Risks and Contingencies
The Company believes that the Project will meets its Year 2000 objectives in
a timely manner. The Company has completed most of the significant portions
of the Project. The ability of suppliers and customers with which the Company
transacts to timely convert their systems to be Year 2000 compliant is
uncertain. Lastly, disruptions in the economy generally resulting from Year
2000 issues could also have an adverse affect on the Company's operations.
Such failures could materially and adversely affect the Company's results of
operations, liquidity and financial position.
The Company is dependent on wireless equipment manufacturers for supply of
wireless handsets and accessories. Additionally, demand for the Company's
products (wireless handsets and accessories) by the Company's customers is
dependent on the ability of network operators to provide wireless network
services to the end-users of those products. Failure in the products and/or
systems of the wireless equipment manufacturers or network operators,
including those resulting from a lack of Year 2000 compliance, could have a
material adverse effect on the Company.
The estimated completion dates for the various phases and estimated costs are
dependent upon management's assumptions of certain future events, such as
compliance efforts, the availability of personnel and ability to locate and
renovate all Systems. There can be no assurance that third parties which the
Company significantly relies upon will succeed in their Year 2000 compliance
efforts or that failure by third parties would not have a material adverse
effect on the Company's results of operations or financial condition.
Page
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGE IN SECURITES AND USE OF PROCEEDS
On March 15, 1999, warrants to purchase 998,991 shares of common stock with an
exercise price of $1 per share were exercised yielding $998,991 to the Company.
The warrants were to expire on December 31, 2001. The warrants were issued in
connection with the conversion in December 1998 of $1,500,000 principal amount
of three-year unsecured and subordinated convertible notes that were sold to a
group of seven accredited individual investors in November 1998. On December 31,
1998, the Company exercised its option to convert all of the foregoing notes
into a total of 1,500,000 shares of common stock and the foregoing warrants to
purchase a total of 1,000,000 shares of common stock at an exercise price of $1
per share. The issuance of common stock upon exercise of the foregoing warrants
was made in reliance upon the exemption from registration set forth in section
4(2) of the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)Exhibits
Exhibit 27 Financial Data Schedule
Exhibit 10.22 Agreement regarding termination of employment for
B. Neman
Exhibit 10.23 Amendment to Agreement regarding termination of
employment for Ben Neman
(b) Reports on Form 8-K
February 8, 1999 - regarding Item 5.
Page
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, Intellicell
Corp. has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Intellicell Corp.
By: /s/ David M. Kane Dated: May 14, 1999
- ------------------------------------
David M. Kane
Chief Financial Officer
(and duly authorized officer)
Page
<PAGE>
Exhibit 10.22
AGREEMENT
This Agreement is entered into as of the 21st day of April 1999 by and
between Ben Neman ("Neman") and Intellicell Corp., a Delaware corporation
("Intellicell") with reference to the following facts:
A. Neman served as the Chairman of the Board, President and Chief
Executive Officer of Intellicell from the inception of Intellicell through
November 9, 1998 and has served as Intellicell's Chairman of the Board and
President since that time pursuant to an Employment Agreement dated November
9, 1998 by and between Neman and Intellicell (the "Employment Agreement").
B. In connection with the Employment Agreement, Neman agreed to
certain restrictions on the sale of all of his shares of Intellicell common
stock (the "Neman Shares") and entered into a lock-up agreement, dated
November 10, 1998 (the "Lock-Up Agreement") with respect to the Neman Shares.
C. Neman wishes to resign as Intellicell's Chairman of the Board and
President, and Neman and Intellicell wish to provide for the immediate sale
by Neman of certain of the Neman Shares and for certain restrictions on
transfer of the remaining Neman Shares.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, Neman and Intellicell hereby agree as follows:
1. RESIGNATION. Neman will resign as Intellicell's Chairman of the
Board and President and as a member of Intellicell's Board of Directors,
effective immediately, and upon such resignation shall cease to be an officer
and director of Intellicell.
2. TERMINATION OF PRIOR AGREEMENTS. The Employment Agreement and
Lock-Up Agreement and any other prior agreements between Neman and
Intellicell with respect to any matter (other than any Stock Option
Agreements) shall be canceled effectively immediately, and neither Neman nor
Intellicell shall have any further rights or obligations (including any right
to salary, bonus or severance payments) under any of the canceled agreements.
3. PAYMENTS TO NEMAN. Intellicell shall make the following payments
to Neman in consideration of the various covenants and agreements of Neman
contained in this Agreement:
(a) $250,000 upon the parties signing this Agreement.
(b) 24 monthly payments of $14,583.33 each, with the first payment
commencing on May 1, 1999, and with payments thereafter on the first day of
each month.
(c) Notwithstanding anything to the contrary contained herein,
Intellicell shall immediately pay to Neman all amounts due and unpaid under
(a) and (b) of this paragraph 3 upon the earlier to occur of the following
(i) in the event that Intellicell fails to comply with any of the provisions
of this Agreement and fails to cure such breach within the cure period
provided in paragraph 9(o) hereof, or (ii) if Intellicell merges,
consolidates or is otherwise combined with another entity and is not the
surviving entity.
<PAGE>
4. SALE OF NEMAN SHARES. Intellicell agrees that within 15 days
following the execution of this Agreement (plus the additional five-day cure
period provided by paragraph 9(o) hereof), one or more investors shall
purchase from Neman a total of 200,000 of the Neman Shares at a price of
$2.50 per share (the "Private Placement"). In the event the sale of the
foregoing 200,000 Neman Shares has not been consummated within the foregoing
20-day period following the execution of this Agreement, (a) the 24 monthly
payments of $14,583.33 each to be made pursuant to paragraph 3(b) hereof
shall instead be made as 12 monthly payments of $29,166.66 each, with the
first payment commencing on May 1, 1999 (to the extent the foregoing 20-day
period elapses after May 1, 1999, the $14,583.33 payment made on that date
would, accordingly, then be supplemented with an additional payment of
$14,583.33) and (b) Intellicell shall file within 30 days following the
expiration of such deadline a registration statement under the Securities Act
of 1933 (the "Securities Act") to register all of the Neman Shares, and the
restrictions upon transfer of the Neman Shares set forth in paragraph 5
hereof shall no longer be applicable. In the event the restrictions on
transfer of the Neman Shares set forth in paragraph 5 hereof cease to be
applicable pursuant to the foregoing sentence, Intellicell shall advise its
transfer agent to accept the opinion of Troop Steuber Pasich Reddick & Tobey,
LLP (or other counsel of Neman reasonable acceptable to Intellicell) if
delivered to the transfer agent more than 90 days after the date of execution
of this Agreement to the effect that Neman is no longer an affiliate of
Intellicell for purposes of Rule 144 and Neman agrees that Intellicell shall
be entitled to rely on such opinion.
5. RESTRICTIONS ON TRANSFERS OF NEMAN SHARES. During the one-year
period following the execution of this Agreement, Neman shall not sell,
transfer, pledge or assign any of the Neman Shares, except as follows:
(a) Neman may sell up to 200,000 Neman Shares pursuant to the
Private Placement.
(b) In addition to the Private Placement, Neman may, at any time
prior to a registration statement covering the resale of the Neman Shares
becoming effective, make privately negotiated sales of any of the Neman
Shares, provided that the purchasers of these shares (including Meir Abramov
should he exercise any of his outstanding options to acquire any of the Neman
shares) are bound by operation of law or agree to be bound by the volume
limitations of Rule 144 on their resales of these shares for the one-year
period following their acquisition of these shares, irrespective of whether
Neman was an affiliate of Intellicell at the time of their acquisition of
these shares.
(c) During the first six months following the execution of this
Agreement, Neman shall make no public sales of any of the Neman Shares
pursuant to Rule 144 or otherwise.
(d) During the six-month period commencing after six months
following the execution of this Agreement through one year from the execution
of this Agreement, Neman may publicly sell within each three-month segment of
that six-month period an amount equal to up to 1% of the total number of then
outstanding shares of Intellicell common stock.
(e) During the six-month period commencing after one year
following the execution of this Agreement, Neman may publicly sell within
each three-month segment of that six-month period an amount equal to up to
the greater of (i) 1% of the total number of then outstanding shares of
Intellicell common stock or
<PAGE>
(ii) the average weekly trading volume for the four calendar weeks preceding
the sale of the Neman Shares, as calculated pursuant to Rule 144.
(f) Notwithstanding anything to the contrary contained herein, all
restrictions set forth in (a) through (e) of this paragraph 5 shall terminate
upon the earlier to occur of the following (i) in the event that Intellicell
fails to comply with any of the provisions of this Agreement and fails to
cure such breach within the cure period provided in paragraph 8(o) hereof, or
(ii) if Intellicell merges, consolidates or is otherwise combined with
another entity and is not the surviving entity.
6. REGISTRATION OF NEMAN SHARES. At the option of Neman, Intellicell
agrees to include all of the Neman Shares in the first registration statement
that Intellicell files under the Securities Act covering the resale of any
Intellicell securities by any third party and agrees that such a registration
statement covering the Neman Shares will in no event be filed later than one
year following the execution of this Agreement; PROVIDED, HOWEVER, that
Intellicell shall file a registration statement to register all of the Neman
Shares under the Securities Act within 30 days following a breach of any of
the provisions of this Agreement by Intellicell that remains uncured within
the applicable five-day cure period if Mr. Neman demands such registration.
Any private sales by Neman of Neman Shares made following the effectiveness
of any registration statement shall be subject to the limitations set forth
in paragraph 5(b) hereof unless Intellicell has committed an uncured breach
of this Agreement or Intellicell merges, consolidates or is otherwise
combined with another entity and is not the surviving entity.
7. ADDITIONAL COVENANTS OF THE PARTIES.
(a) INSURANCE. Intellicell shall continue to pay Neman's medical
insurance premiums for the one-year period following the execution of this
Agreement.
(b) LEGAL FEES. Upon execution of this Agreement, Intellicell
shall pay Neman's counsel $5,000 for legal fees in connection with the
negotiation and preparation of this Agreement.
(c) PRESS RELEASE. Intellicell and Neman shall agree to the text
of a press release to be disseminated that describes Neman's resignation as
Intellicell's Chairman of the Board and President, which shall be
substantially in the form attached hereto as Exhibit A.
(d) PROHIBITION ON EMPLOYEE SOLICITATION. Assuming Intellicell is
not in breach of this Agreement beyond the applicable cure period, Neman
agrees that for a six-month period following the execution of this Agreement,
he will not solicit any employee of Intellicell to work for any other
organization or otherwise interfere with Intellicell's contractual or other
employment relationships with any of its employees.
(e) TAXES. Intellicell shall withhold from the payments it makes
to Neman pursuant to paragraph 3 hereof the minimum amounts that Intellicell
determines are required to be withheld to satisfy all applicable tax laws.
8. REPRESENTATIONS AND WARRANTIES.
(a) INDEPENDENT LEGAL ADVICE. Neman and Intellicell each
represents, warrants and agrees that he or it has received independent legal
<PAGE>
advice from his or its attorneys with respect to the advisability of
executing this Agreement.
(b) NO OTHER REPRESENTATION. Neman and Intellicell each
represents, warrants and agrees that, in executing this Agreement, he or it
has relied solely on the statements expressly set forth within this
Agreement. Neman and Intellicell each further represents, warrants and
agrees that, in executing this Agreement, he or it has placed no reliance
whatsoever on any statement, representation or promise of any other party, or
any other person or entity, that is not expressly set forth within this
Agreement, or upon the failure of any other party, or any other person or
entity, to make any statement, representation or disclosure of anything
whatsoever. Neman and Intellicell have included this clause (i) to preclude
any claim that either Neman or Intellicell was without the advice of counsel;
and (ii) to preclude the introduction of parol evidence to vary, interpret,
supplement or contradict the terms of this Agreement.
(c) FACTUAL INVESTIGATION. Neman and Intellicell each represents,
warrants and agrees that he or it has made a sufficient investigation of the
facts pertaining to all matters contained in or related to this Agreement as
he or it deems necessary or desirable.
(d) AUTHORITY. Neman and Intellicell each represents, warrants
and agrees that he or it has the full right, power and authority to execute
this Agreement and that the person executing this Agreement on his or its
behalf has the full right, power and authority to commit and to bind that
party fully to the terms of this Agreement.
(e) NO ASSIGNMENT. Neman and Intellicell each represents,
warrants and agrees that there has been no assignment or transfer, including,
without limitation, by way of subrogation or operation of law or otherwise,
to any person or entity whatsoever of claims released by that party or of any
other claim, right, demand, action or cause of action that the parties may
have had, have or might have arising out of the matters that are the subject
of this Agreement. Neman and Intellicell each, to the extent any particular
party breaches this representation or warranty, agrees to defend, to
indemnify and to hold harmless any nonbreaching party to this Agreement from
and against any and all claims, allegations, demands, liabilities, losses,
obligations, promises, damages, costs, expenses (including, without
limitation, attorneys' fees and costs of investigation), lawsuits, actions
(in law, equity or otherwise), causes of action, rights and privileges
actually incurred as a result of that breach.
(f) Neman represents and agrees that he is not owed any cash,
securities or other amounts by Intellicell in connection with his employment
with Intellicell (including as an officer and director) and is not aware of
any other claims that he may have against Intellicell.
9. GENERAL.
(a) FULL INTEGRATION. Except as set forth hereinbelow, this
Agreement is the final written expression and the complete and exclusive
statement of all of the agreements, conditions, promises, representations and
covenants between Neman and Intellicell with respect to the subject matter of
this Agreement, and replaces and supersedes all prior, former or
contemporaneous agreements, negotiations, understandings, representations,
discussions or warranties between the parties, their respective
representatives, and any other person or entity, with respect to the subject
matter of this Agreement. Any
<PAGE>
modification, alteration or amendment of this Agreement shall be nonbinding,
ineffective or invalid unless it is in writing, specifically refers to this
Agreement and is signed by the party to be charged with the modification,
alteration or amendment or by a duly authorized representative of that party.
(b) NO ADMISSIONS. Neman and Intellicell each expressly
acknowledges and agrees that this Agreement represents a settlement of
disputed claims and is not, in any respect, nor for any purpose, to be deemed
or construed to be an admission or concession of any liability or wrongdoing
by any party whatsoever or of the existence of any claim. Furthermore, this
Agreement shall not be deemed to be for the benefit of, or to confer any
rights of any kind or nature whatsoever upon, any third party (whether a
person or entity).
(c) WAIVER AND SEVERABILITY. No waiver of any term, covenant or
condition of this Agreement shall be construed as a waiver of any other term,
covenant or condition, nor shall any waiver of any default under this
Agreement be construed as a continuing waiver of any term, condition or
covenant or as a waiver of any other default. Furthermore, in the event any
portion of this Agreement is found, judicially or otherwise, to be unlawful,
void or, for any other reason, unenforceable, that provision shall be deemed
severable from this Agreement and the invalidity or lack of enforceability
shall not affect the validity and enforceability of the remaining portions of
this Agreement.
(d) CALIFORNIA LAW GOVERNS. This Agreement shall be construed and
enforced in accordance with, and governed by, the internal, substantive laws
of the State of California. Any lawsuits filed to enforce any provision of
this Agreement by any party hereto shall be filed in the Superior Court for
the State of California, County of Los Angeles.
(e) ATTORNEYS' FEES. Except as otherwise provided in this
Agreement, each side is to bear its own legal expenses and attorneys' fees.
In the event any legal or governmental action or proceeding is commenced
under or pursuant to any other terms and conditions of this Agreement, or to
interpret or enforce the terms of or obligations arising out of this
Agreement, or to recover damages for the breach of this Agreement, the party
prevailing in any such action or proceeding shall be entitled, in addition to
any other relief awarded by the Court or other tribunal, to recover from the
other party all reasonable attorneys' fees, costs and expenses incurred by
the prevailing party. In addition, the prevailing party shall be entitled to
recover from the non-prevailing party post-judgment/award/order attorneys',
fees incurred by the prevailing party in enforcing a judgment, order or award
against the non-prevailing party. Notwithstanding anything in this Agreement
to the contrary, the provisions of the preceding sentence are intended to be
severable from the balance of the Agreement, shall survive any judgment
rendered in connection with the aforesaid legal action, and shall not be
merged into any such judgment, order or award.
(f) COUNTERPARTS, COPIES, FAXED SIGNATURES. This Agreement may be
executed in any number of counterparts by the parties, and, when each party
has signed and delivered at least one counterpart to the other party, each
counterpart shall be deemed an original and, taken together, shall constitute
and be deemed to be one and the same agreement, and shall be binding and
effective as to both of the parties. In addition, true and correct copies
may be used in lieu of the original Agreement for any purpose whatsoever.
Finally, faxed copies of this Agreement and faxed signature pages shall be
binding and effective as to both parties and may be used in lieu of the
original Agreement, and, in particular, in lieu of original signatures, for
any purpose whatsoever.
<PAGE>
(g) HEADINGS. The headings to the paragraphs of this Agreement
are inserted for convenience only and will not be deemed a part of this
Agreement, nor will the heading affect the construction or interpretation of
the provisions contained within this Agreement.
(h) SURVIVAL OF WARRANTIES. All representations and warranties
contained within this Agreement shall survive its execution, effectiveness
and delivery. It is expressly understood and agreed by the parties that none
of the releases or covenants set forth within this Agreement are intended to
or do release or affect any claims or rights specifically arising out of this
Agreement or the breach of it.
(i) FURTHER INSTRUMENTS. Neman and Intellicell each shall execute
and deliver further instruments, documents or papers and shall perform all
acts necessary or proper to carry out and effectuate the terms of this
Agreement as may be required by the terms of the Agreement or as may be
reasonably requested by either party to this Agreement.
(j) NO PRESUMPTION FROM DRAFTING. This Agreement has been
negotiated at arm's-length between persons knowledgeable in the matters set
forth within this Agreement. Accordingly, given that all parties have had
the opportunity to draft, review and/or edit the language of this Agreement,
no presumption for or against any party arising out of drafting all or any
part of this Agreement will be applied in any action relating to, connected
with or involving this Agreement. In particular, any rule of law, including,
but not limited to, Section 1654 of the California Civil Code Section, or any
other statutes, legal decisions, or common law principles of similar effect,
that would require interpretation of any ambiguities in this Agreement
against the party that has drafted it, is of no application and is hereby
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intentions of the parties.
(k) BENEFITS SUCCESSORS. Except as limited by the terms of this
Agreement, this Agreement shall be binding upon and shall inure to the
benefit of each of the parties to this Agreement and to their respective
heirs, executors, administrators, assigns, successors-in-interest,
representatives, trustees, beneficiaries and Related Entities.
(l) ALL TERMS ARE CONTRACTUAL. Each term of this Agreement is
contractual and not merely a recital.
(m) VOLUNTARY EXECUTION OF AGREEMENT. Neman represents that he
has carefully read this entire Agreement and that he knows and understands
its contents. Neman has had the opportunity to receive independent legal
advice from attorneys of his choice with respect to the preparation, review
and advisability of executing this Agreement. Neman further represents and
acknowledges that he has freely and voluntarily executed this Agreement after
independent investigation and without fraud, duress, or undue influence, with
the full understanding of the legal and binding effect of this Agreement and
with the approval of his legal counsel. Neman thereby knowingly waives the
21-day period under the Older Workers Benefits Protection Act to review this
Agreement with his attorney prior to signing.
(n) RIGHT OF REVOCATION. With respect only to claims arising
under the Age Discrimination in Employment Act ("ADEA"), Neman has the right
to revoke this Agreement for any reason within seven days after he signs it.
To be effective, Neman's notice of revocation must be in writing and must be
hand
<PAGE>
delivered or mailed to David Kane, Intellicell Corp., 9314 Eton Avenue,
Chatsworth, California 91311, within the seven-day period. If mailed, the
revocation must be postmarked within the seven-day period, properly addressed
and sent by certified mail, return receipt requested. If hand-delivered, it
must be given to David Kane within the seven-day period.
(o) CURE PERIOD. Intellicell shall have five days following
written notice from Neman to cure any failure to make a required payment to
Neman by Intellicell or any third party as required under this Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have approved and
executed this Agreement as of the date set forth above.
BEN NEMAN
/s/ BEN NEMAN
--------------------------------
Ben Neman
INTELLICELL CORP.
By: /s/ DAVID KANE
--------------------------------
Its: CFO
--------------------------------
APPROVED AS TO FORM:
TROY & GOULD
Professional Corporation
By: /s/ SANFORD J. HILLSBERG
--------------------------------
Sanford J. Hillsberg
Attorneys for Intellicell Corp.
TROOP STEUBER PASICH REDDICK
& TOBEY, LLP
By: /s/ HOWARD J. KERN
--------------------------------
Howard J. Kern
Attorneys for Ben Neman
<PAGE>
[LETTERHEAD]
April 30, 1999
VIA ELECTRONIC MAIL
Sandford J. Hillsberg, Esq.
Troy & Gould
1801 Company Park East # 1600
Los Angeles, CA 90067-2318
Re Amendment to Agreement between Intellicell Corporation and Ben Neman
dated April 21, 1999 (the "Agreement")
Dear Sandy:
The Agreement is amended as follows:
SECTION 4 and SECTION 5(a) of the Agreement are hereby amended to
replace all references "200,000" with "146,764."
Upon execution of each of the parties to the Agreement, this amendment
shall be effective as of the first date of this Agreement.
Sincerely,
/s/ Howard J. Kern
------------------
Howard J. Kern
for Troop Steuber, Pasich
Reddick & Tobey, LLP
cc: Ben Neman
David Kane
<PAGE>
[LOGO] Sandford J. Hillsberg
April 30, 1999
Page 2
Agreed and accepted as of April 21, 1999.
Intellicell Corp.
By: _______________
Its:_______________
___________________
Ben Neman
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS INCLUDED IN THIS QUARTERLY REPORT ON FORM 10-Q, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,495,000
<SECURITIES> 0
<RECEIVABLES> 2,934,000
<ALLOWANCES> 367,000
<INVENTORY> 518,000
<CURRENT-ASSETS> 5,223,000
<PP&E> 623,000
<DEPRECIATION> 283,000
<TOTAL-ASSETS> 5,563,000
<CURRENT-LIABILITIES> 2,208,000
<BONDS> 0
0
0
<COMMON> 69,000
<OTHER-SE> 3,286,000
<TOTAL-LIABILITY-AND-EQUITY> 5,563,000
<SALES> 6,666,000
<TOTAL-REVENUES> 6,666,000
<CGS> 6,201,000
<TOTAL-COSTS> 6,201,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (493,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (493,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (493,000)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>