SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
_ X _ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED
DECEMBER 31, 1994
_ _ _ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD _ _ _ TO _ _ _
Commission File Number 0-17366
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SHARED TECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
Delaware 87-0424558
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
100 Great Meadow Road, Suite 104
Wethersfield, Connecticut 06109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(203) 258-2400
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.004 par value
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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
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes_ _ X _ _ No _ _ _ _
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held
by nonaffiliates as of April 13, 1995 was approximately
$14,029,058, based on the average of the closing bid and asked
prices as reported on such date in the over-the-counter market.
Indicate the number of shares outstanding of each of the
registrant's classes of Common Stock, as of April 13, 1995
7,624,412 shares of Common Stock
$.004 par value
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The following document is hereby incorporated by reference into
Part III of this Form 10-K: The registrant's Proxy Statement for
its Annual Meeting of Stockholders to be held on May 23, 1995 to
be filed with the Securities and Exchange Commission in
definitive form on or before April 28, 1995.
<PAGE>
PART I
Item 1.
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Business
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(a) General Development of Business - Shared Technologies
Inc., which was incorporated on January 30, 1986, its
subsidiaries and affiliated partnerships (collectively, the
"Company") are engaged in providing shared tenant services
("STS") to tenants of modern, multi-tenant office buildings. As
an STS provider, the Company generally obtains the exclusive
right from a building owner (the "Owner/Developer") to install an
on-site communications system, called a private branch exchange
("PBX"), or an off-site communications system, called centrex,
and to market telecommunications and office automation services
and equipment to tenants.
In May 1991, the Company acquired the stock of Boston
Telecommunications Company (BTC), a provider of STS in the Boston
area. The Company paid $1,097,000 consisting of acquisition cost
less cash received of $197,000, stock purchase warrants valued at
$300,000 and a $600,000 promissory note payable. In May 1989,
the Company acquired interests in four entities providing STS in
the greater Chicago area from Shared Services, Inc. and I.S.E.,
Inc. for $180,000. Additionally, in February 1989, the Company
purchased the stock of Multi-Tenant Services, Inc. (MTS) a former
division of BellSouth Corporation for $4,048,000 of which
$391,000 was paid in cash and in payment of the balance the
Company assumed existing lease obligations. MTS was a provider
of STS in nine metropolitan areas.
The Company is a provider of telecommunications services and
equipment, including basic telephone equipment, local and long-
distance network services and on-site maintenance. The Company
also offers its customers data services, as well as data
processing and office automation equipment, service and support.
Additionally, the Company sells and rents cellular telephones in
several locations both to its existing customers and the general
marketplace.
In December and October 1993 the Company commenced
management and subsequently completed the acquisition of certain
assets and liabilities of Road and Show South, Ltd. and Road and
Show Cellular East, Inc., respectively. The purchase price for
South was $1,261,611 which represents $46,111 cash and an
obligation to issue 221,000 shares of the Company's common stock.
The purchase price for East was $750,245 which represents
$209,245 cash and an obligation to issue 108,200 shares of the
Company's common stock. The number of shares of common stock
-1-<PAGE>
related to these acquisitions was adjusted on December 1, 1994
based on the price of the Company's common stock at that date,
for which an aggregate of 64,966 additional shares will be
issued. As of December 31, 1994, no shares of common stock had
been issued for the East acquisition. The shares in connection
with the South acquisition have been issued, but have not been
delivered pending the outcome of certain claims against, and by,
the former owners of South (see Note 16 of Notes to Consolidated
Financial Statements).
In June 1994, Shared Technologies Inc., completed its
acquisition of the partnership interests of Access
Telecommunication Group, L. P. ("Access") for $9,000,000, subject
to certain post closing adjustments. The $9,000,000 includes
$4,000,000, paid at closing with the proceeds from the private
placement sale of approximately 1,062,000 shares of the Company's
Common Stock, and the issuance to the sellers of 400,000 shares
of Series E Preferred stock, valued at $1,500,000 and 700,000
shares of Series F Preferred stock valued at $3,500,000.
(b) Recent Developments - During 1992, the Company
completed a restructuring due to its working capital deficit and
the maturity of its principal financing arrangements which were
due to the FDIC, as receiver for the Company's principal lender.
The restructuring included Shared Technologies Inc. and all of
its subsidiaries. The restructuring resulted in the Company
recording a gain of $5,162,000 before related expenses of
$1,361,000 for consulting fees related to the restructuring and
income taxes of $45,000. As a result of the restructuring,
approximately $900,000 of vendor payables and $1,500,000 of
capital lease obligations were forgiven and $3,300,000 of vendor
payables were converted to three year non-interest bearing notes
payable (see Note 7 of Notes to Consolidated Financial
Statements). Additionally, a settlement agreement was entered
into with the Federal Deposit Insurance Corporation ("FDIC") as
receiver for the Company's principal lender which resulted in the
Company paying off its term loan and revolving credit
arrangements and recognizing a gain of approximately $2,700,000
(see Note 3 of Notes to Consolidated Financial Statements). In
April 1994 the Company entered into a settlement agreement which
provides for the payment of $750,000 plus interest at 10% which
resulted in an accrued extraordinary loss of $150,000 in 1993.
In connection with the restructuring, the Company also
raised equity capital of approximately $5,780,000 from certain
institutional investors, net of expenses. Such offering was
exempt from registration based upon Regulation S. A firm, one of
whose principals is a director and stockholder of the Company
served as underwriter for the offering. The Company paid this
firm underwriting commissions and expenses totaling $446,750 for
the offering. No other parties to the restructuring were
affiliated with the Company. The Company also entered into
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agreements with Series A and B Preferred Stockholders to convert
their holdings, including $327,920 of the accrued dividends
related thereto, into Series C Preferred Stock. As part of this
conversion, $40,990 of the accrued dividends was forgiven by the
stockholders (see Note 9 of Notes to Consolidated Financial
Statements).
In September 1992 the Company effected a one-for-four
reverse stock split of Common Stock and increased the par value
of Common Stock from $.001 to $.004 per share. All per share
amounts contained herein have been retroactively adjusted to
reflect this split.
(c) Financial Information about Industry Segments - The
Company is engaged in one industry segment, the
telecommunications industry, providing a wide range of
telecommunications and office automation services and equipment.
(d) Narrative Description of Business
(1) (i) Products and Services
Shared Tenant Services (STS)
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As an STS provider, the Company generally obtains the
exclusive right from a building owner (the "Owner/Developer") to
install an on-site communications system, called a private branch
exchange ("PBX"), or an off-site communications system, called
centrex, and to market telecommunications and office automation
services and equipment to tenants. An STS project requires
significant expenditures for capital equipment and installation
costs. The initial cost of capital equipment to establish STS in
a new building ranges from $50,000 to $300,000 with additional
start-up working capital requirements ranging from $10,000 to
$100,000.
The STS provider often leases space within the building for
on-site support staff. STS provides an Owner/Developer with an
important building amenity and provides a tenant with the
availability of one-stop shopping for a wide range of
telecommunications and office automation equipment and services
as well as on-site training, maintenance and support, without any
capital investment.
The Company's services are provided to its customers under
the concept of one-stop shopping for basic telecommunications,
voice and data transmission, and office automation services and
equipment which include:
-Access to cost-effective centralized digital switching
-Broad selection of telephone equipment
-Discounted, quality long-distance service
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-Local telephone service
-System maintenance, management and administration
-Customized call reporting and billing
-Office automation equipment including computer, facsimile
and peripherals
-On-site training and assistance
-Cable and wiring design and maintenance
-Equipment service and support
-Cellular sale and rental
To date, the Company has concentrated primarily on
developing the telephone portion of its business. The Company's
telephone services consist of selecting and installing telephone
equipment on tenants' premises and providing ongoing service to
train tenants, to perform moves, adds and changes, and to
maintain the telephone equipment. Tenants are quoted a monthly
charge for leased equipment which includes a rental fee for the
equipment, a charge for access to the PBX owned by the Company
and installed in the buildings or to the centrex service, and a
local access charge based on the cost of the trunk lines which
connect the building to the central office of the local telephone
company. In addition, tenants are charged for special services
and usage, including IN-WATS lines, dedicated circuits, directory
listings, local message units (where applicable), directory
assistance, credit card calls, third-party billing calls, and
long-distance at a discount from the standard rates charged by
long distance providers.
As the telecommunications business is established in each
building, the Company increases its emphasis on the sale or lease
of personal computers and peripherals, and the marketing of
computer time sharing, voice mail, message centers, local area
networks for computers, voice messaging, facsimile transmission,
copying equipment and data transmission. The Company also sells
computer equipment and peripherals, and sells or rents cellular
phones, to customers who are not tenants in buildings in which it
provides STS.
The Company provides a monthly statement to each customer
delineating all STS charges. The Company bills for the prior
month's usage, installation, moves, adds and changes on the first
of the following month. The statements also include equipment,
local and system access and other special service charges in
advance for the succeeding month. The local access charge
reflects the cost to the Company of the trunk lines connecting
the building to the central office of the local telephone company
and is levied on the Company by the local telephone company. In
general, the Company passes this cost through to tenants.
Customers are billed for all telecommunications usage,
including long-distance calls. Currently, the Company offers a
discount of 15% to 40% from the AT&T direct distance dial
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published rates, which discounts can be changed by the Company on
30 days' notice. The Company currently purchases long-distance
services from many providers. The Company estimates that by
efficiently managing its long-distance network, it can provide
long-distance services at a discount of up to 40% of the AT&T
direct distance dial rates.
Facilities Management Services (FMS)
------------------------------------
The Company provides facilities management services to
customers who have a preference or requirement for a dedicated
PBX system. Certain of these customers own their own equipment,
and the Company provides management and maintenance for that
equipment. The Company also has facilities management contracts
with customers who have leased equipment owned by the Company,
including PBX and handset equipment. The Company's objective
with these customers is to become the provider of choice for all
long distance, local access and system features, if those
services are not part of the initial contract.
Cellular
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Through its subsidiary Shared Technologies Cellular, Inc.,
("STC") the Company is a provider of short-term portable cellular
telephone services in the United States. STC rents portable
cellular telephones, primarily to travelers, persons organizing
and attending special events such as conventions and sporting
events, as well as local businesses and government agencies.
Through the acquisitions (collectively, the "Road and Show
Acquisition") of certain assets from Road and Show Cellular East,
Inc., and Road and Show South, Ltd. (collectively, "Road and
Show"), in December 1993, STC obtained a national distribution
network, including relationships with national car rental
companies and hotels, which STC has significantly expanded since
that date.
STC markets its cellular telephone service principally
through car rental agencies, airlines, hotels and telephone
companies. STC has agreements with the Hertz Corporation
("Hertz") and National Car Rental System Inc. ("National") to
offer its portable telephones at designated car rental locations,
primarily at airport terminals throughout the United States.
These agreements provide that no competing services may be
offered at any location covered. STC's agreements with Hertz and
National are terminable by either party upon 120 and 90 days'
notice, respectively. In addition, the Company markets its
cellular telephone services at conventions and sporting events.
STC has also operated as a direct reseller of cellular
services to corporate and high volume individual customers at
selected locations in Connecticut since 1989 and has provided
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such services in Dallas, Texas as a sales agent for one of the
two local cellular carriers since July 1994.
Equipment
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The Company offers its telecommunications services through
either a PBX or centrex-based system.
A PBX is a telecommunications switch that has the following
characteristics:
-is owned by a private user, not a telephone company
-automatically switches incoming and outgoing calls over
trunk lines so that dedicated telephone lines are not
required
-functions like a telephone company central office, except
that it is under the direct control of its owner
-offers more features than are typically available through
private business lines, key systems or centrex services
-is typically capable of handling from 100 to 2,000 users
The Company owns or leases PBXs and other equipment
manufactured by InteCom Inc., Northern Telecom, AT&T, NEC and
Mitel. This equipment can be acquired from a variety of sources.
The Company employs its own technicians to maintain its PBXs,
which have, on average, an estimated useful life of approximately
eight to twelve years. From time to time, the Company upgrades
its PBXs by adding additional software and hardware which can
increase the capabilities and extend the useful life of a PBX
beyond the ordinary eight to twelve year period.
An alternative to the PBX is digital centrex, a service
offered by the local regulated telephone company. Recently, a
number of local telephone companies have enhanced their digital
centrex offerings to be more competitive with PBXs in terms of
both features and price. In addition, some telephone companies
have petitioned their local regulatory commission to permit them
to negotiate pricing with large users (defined as a company using
over 100 lines), rather than charging tariffed rates. In
response to these developments, the Company has entered into an
arrangement with Illinois Bell to provide service in downtown
Chicago via digital centrex, eliminating the need for a PBX in
each building, and has entered into an exclusive agreement with
the Owner/Developers of two buildings to provide STS/centrex.
Additionally, in 1993 the Company began providing centrex
services in Indianapolis.
The Company offers a full range of customer premise
equipment, including telephones, computers and peripherals, and
facsimile and voice mail equipment compatible with its PBX and
centrex-based systems. The Company has no long-term contracts
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establishing the price at which it acquires equipment, but can
negotiate pricing due to the availability of multiple sources of
supply.
STS Buildings
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As of December 31, 1994, the Company was providing STS to
tenants in 93 buildings located in 15 metropolitan areas. In
those cities where the Company provides STS to tenants in more
than one building, the Company is able to realize significant
operating economies by sharing management, administrative, sales
and technical staff across a number of buildings. The following
table sets forth as of December 31, 1994, on a city-by-city
basis, the Net Leasable Square Feet and the Potential Lines of
Service in each building where the Company provides STS to
tenants as estimated by management.
<TABLE>
<CAPTION>
Net Potential Number of Number
Leasable Lines of Lines in of
City Sq. Ft. Service Service Buildings
----------------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
Atlanta, GA 3,777,000 12,589 3,552 9
Birmingham, AL 1,435,000 1,450 1,157 3
Boston, MA 4,846,000 15,144 2,660 11
Chicago, IL 3,567,000 11,890 3,145 9
Hartford, CT 2,032,000 6,773 3,408 9
Los Angeles, CA 895,000 2,983 212 2
Mahwah, NJ 625,000 1,067 1,069 2
Memphis, TN 320,000 1,067 181 1
Nashville, TN 972,000 3,240 776 2
New Orleans, LA 3,226,000 9,511 3,371 5
Phoenix, AZ 2,484,000 8,280 2,426 12
Indianapolis, IN 1,044,000 3,480 945 9
Seattle, WA 4,482,000 14,940 2,840 8
Dallas, TX 10,125,000 26,591 5,662 11
Myrtle Beach, SC 140,000 155 20 1
---------- ------ ------ --
TOTAL 39,970,000 119,160 31,424 93
---------- ------ ------ --
</TABLE>
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Of the potential 119,160 lines of service, the Company has
under contract 31,424 lines (26.4%). Accordingly, management
believes that the opportunity exists for the Company to increase
penetration and revenues in the buildings to which it currently
provides STS.
Owner/Developer Agreements
--------------------------
In most buildings where it provides STS, the Company or its
assignor has entered into a contractual agreement
("Owner/Developer Agreement") with the building Owner/Developer.
Subject to specific provisions contained in certain
Owner/Developer Agreements, the Owner/Developer Agreements
generally grant the Company the exclusive right to provide STS in
the building and the Owner/Developer is precluded from entering
into a "materially similar arrangement" with a third party. In
addition, the Company is granted a right of first refusal in the
building for the offering of additional STS, such as telephone
answering services, word and data processing, telex, copier
services and certain other STS. The term of the agreement is
generally for ten years and may contain one or two five-year
renewal options.
The Owner/Developer Agreements generally provide for the
payment of royalties to the Owner/Developer which may be based on
a percentage of gross revenues or on a percentage of rental, sale
and service income or net long-distance revenues. Such royalty
payments may commence at the initial service date, at some later
date, typically 18 to 24 months after the Company commences to
provide STS to the building, or at the time the Company achieves
a certain level of market penetration in the building.
The Company is responsible for the costs and expenses
incurred in operating and maintaining the STS equipment in the
building and must obtain the Owner/Developer's approval to make
any modification in the STS equipment which would affect the
building structure. The agreement is assignable by the
Owner/Developer upon the sale of the building. Certain
Owner/Developers also have the right to purchase the Company's
STS equipment in the building at a nominal or fair market price
if the agreement is terminated.
Each Owner/Developer Agreement either contains a lease, or
references a separately executed lease, for the space necessary
for the Company's on-site personnel and equipment. These leases
generally provide for a deferral of rental payments until a
certain occupancy percentage has been obtained in the building,
or a certain period of time, typically 12 to 24 months, after the
Company commences operations.
-8-<PAGE>
Tenant Contracts
----------------
The Company is a party to a Master Shared Tenant Services
Agreement ("Tenant Contract") with substantially all of its
customers. The Tenant Contract contains terms and conditions
governing the provision of STS. Subsequent to signing a Tenant
Contract, tenants submit individual customer orders for specific
equipment rentals and STS. In addition to the typical Tenant
Contracts for STS, the Company has agreements with several
tenants who have their own PBX to maintain the system and manage
the tenant's telephone call billing system, and the Company
receives a monthly fee for its services.
The Company generally signs contracts for a period of five
years or a term coterminous with the customers lease in the
building. The Company has contracts ranging from month to month
to five years. The Company feels it has staggered the contracts
such that there is no time when a material amount of contracts
come due at the same time. Additionally, the Company does not
have any individual contracts which are material.
(ii) Government Regulation
As a provider of telephone services, the Company's
operations are materially affected by regulatory developments on
both a federal and state level. The Federal Communications
Commission ("FCC") regulates interstate communications and the
state public utility commission ("PUCs") regulate intrastate
communications. The FCC has determined that STS providers,
sharing a PBX and related equipment within the same premises,
should be characterized as end users, as opposed to interexchange
carriers for access charge purposes, thereby entitling them to a
more favorable rate structure. Although there is currently no
major effort underway to modify the existing FCC regulatory
scheme with regard to STS providers, any change in the liability
of such providers for access charges or any substantial change
with regard to other regulatory constraints could have a material
adverse effect on the Company's business. PUCs may regulate STS
providers through direct regulatory requirements as well as
through the terms, conditions of service and rates contained in
the tariffs of the underlying local exchange carrier covering
service offerings to STS providers. To date, the Company has, to
some degree, elected to operate in states which maintain a
comparatively favorable regulatory environment for STS providers
sharing a PBX and related equipment. All of the states in which
the Company now operates do not currently require a certification
of or otherwise directly regulate STS providers with the
exception of Alabama, which has granted such certification to the
Company. The Company also has obtained certification to resell
certain intrastate long-distance services in California, which
requires such certification. Although at present none of these
states have any proceeding or other effort underway to materially
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modify their regulatory treatment of such STS providers, no
assurance can be given that such proceedings will not be
initiated in the future. Further, regulatory agencies in many
states have not yet generally addressed the issue of sharing
centrex lines and the regulatory consequences of such operations
are uncertain; however, the Company to date has only engaged in
sharing centrex lines in states (Illinois and Indiana) where
regulatory agencies have expressly permitted such operations.
The Company intends to expand its use of centrex lines to
additional states in the future. It will take appropriate
measures to investigate the regulatory environment in each state
and intends to comply with applicable requirements for sharing of
these lines on a state-by-state basis.
(iii) Marketing
The Company employs a marketing concept involving the
establishment of a hub STS building in close proximity with other
satellite STS buildings which can be managed by one regional
director and which share sales and administrative and technical
personnel.
After an appropriate building has been identified, the
Company begins marketing its services to the Owner/Developer to
obtain the exclusive right to provide STS in the building. On
occasion, an Owner/Developer will issue a formal request for
proposal and seek competitive bids. Once agreement with the
Owner/Developer has been reached, marketing efforts with tenants
are commenced. Tenant marketing occurs during the leasing
process of a building, which is during the planning stage of the
tenant's move. The Company also has the opportunity to increase
penetration in highly leased and popular buildings by:
- When there is a new tenant replacing a moving out
tenant, the Company is invited by the leasing manager
to present the "building's communication amenity
package" provided by the Company.
- When a current tenant who is up for lease renewal, the
leasing manager will again recommend that the tenant
consider using the "building's communication amenity
package" provided by the Company.
In most cases the building management company or the
building owners point out to the perspective lessee or renewal
tenant the cost savings by taking advantage of the "building's
communication amenity package" which can save the perspective
company between $1.25 and $1.75 per square foot.
Typically, the Company's marketing initially concentrates on
working in conjunction with the building's leasing agent to
provide STS to prospective tenants. Once the tenant has
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committed to a lease, marketing efforts are focused on tenant
subscription to the STS offerings within the building.
The Company's customers consist primarily of small to
medium-size tenants, such as brokerage, accounting and law firms.
While the majority of the Company's customers are tenants in STS
buildings, the Company also provides services and sells and
leases equipment to end-users who are not located in STS
buildings.
(iv) Patents, Trademarks, Licenses, Franchises, Concessions
See Item 1(d) (i) - "Owner/Developer Agreements" herein.
Additionally, Shared Technologies Inc. is a registered trademark.
The Company does not operate any franchises. However, the
Company's subsidiary STI Cellular Franchise Corp., is engaged in
franchise operations relating to the rental of portable cellular
telephones.
(v) Seasonality
While the Company's STS business is not generally seasonal,
the Company has experienced, over the last several years, a
reduction in local and long distance revenues in the month of
December which is believed to be associated with the holiday
season.
(vi) Working Capital
To date, the Company has funded its working capital
shortfall through borrowings and sales of its securities. See
Item 1(a) - "General Development of Business"; "Management's
Discussion and Analysis of Results of Operations and Financial
Condition". The Company requires working capital due to the
nature of its business which requires an upfront capital
investment that is recovered over a period of time.
In May 1994, the Company entered into an agreement with a
bank for $5,000,000 in financing. The financing provides for a
$1,000,000 two-year term loan, six months interest only, with
quarterly amortization and a balloon payment of $700,000 and a
$4,000,000 secured revolving credit line for expansion in the
core business, aggregate draws converted semi-annually to a
three-year term loan with level monthly amortization. These
loans bear interest at the bank's prime rate plus 2% and are
secured by certain assets of the Company. The Company has issued
a warrant to the bank for 184,000 shares of Common Stock.
(vii) Dependence on a Single Customer
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No single customer or building accounts for 10% or more of
the Company's revenues. The Company's business is not dependent
upon a single or a few customers.
(viii) Backlog
At any given period the Company maintains new contracts
signed but not yet installed due to the term of the contract
which further adds to this backlog. The number of additional
lines not yet installed related to new contracts cannot be
determined due to changes that occur through the installation
date. Therefore, backlog information cannot be quantified.
(ix) Competition
While the Company competes with other STS providers to
obtain exclusive STS rights from the Owner/Developer of an STS
office building, this competition is not severe due to the number
of office buildings available, their location and the location of
an appropriate STS provider.
The Company believes its competitive advantage is city
based. The Company has operations in some cities where it is the
only STS provider. In this case the competitive advantage is
with the Company. The Company has offices across the country
with many developers and is not dependent on any developer for
any material amount of business.
The sale of telecommunication services is a competitive
business. The major discriminating factors for telecommunication
buyers are price and service. The Company provides on site
technical service to most of its buildings. The Company feels it
can offer a superior level of service to its customers, since the
Company provides all aspects of telecommunication services and
takes responsibility for the complete satisfaction of its
customer. This differs from multi-vendor environments where
responsibility is fragmented.
The Company prices its products in a competitive
environment. Due to this the Company has to remain flexible with
its pricing. The Company's main competitive advantages are the
Company's ability to negotiate a lower per minute rate with long-
distance vendors due to volume discounts and the elimination of
up-front capital expenditures for customers due to equipment
rentals from the Company.
When the Company obtains the exclusive STS rights for a
building, it then must compete with local telephone companies,
long distance telephone service suppliers and equipment/system
suppliers in the solicitation of tenants in the building to
subscribe to its services. Local telephone companies are
regulated and, in the case of the Bell operating companies and
-12-<PAGE>
the general telephone operating companies, cannot sell long-
distance telephone service. Local telephone companies can sell
lines or trunks from their local central office and centrex
service directly to the tenant. Local telephone company services
are subject to tariff regulation and such entities do not
typically offer office automation products. Long-distance
telephone service suppliers (such as AT&T, MCI and Sprint)
typically offer volume discount plans and market to tenants
directly, but do not at this time generally provide local
telephone service.
The Company must also compete with equipment/system
suppliers and distributors who sell PBXs and other office
automation equipment and who provide or arrange for installation,
maintenance and service of such equipment. Major companies such
as AT&T, Northern Telecom, NEC and Siemens compete in this area.
(x) Employees
As of March 15, 1995, the Company employed 278 persons; 17
in management, 79 in administration, 161 in sales and service and
21 in technical positions. The Company's employees are not
represented by a union. The Company regards its relations with
its employees to be good.
Item 2.
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Property
--------
The Company does not own any real estate and has no present
plans to purchase any real estate. The Company's principal
executive offices are leased and are located at 100 Great Meadow
Road, Suite 104, Wethersfield, Connecticut 06109.
The Company leases space for its on-site staff and its PBX
equipment in many of the buildings in which it operates an STS
project. (See Note 14 of Notes to Consolidated Financial
Statements herein for information concerning the Company's leases
at December 31, 1994.) These leases are for offices located in
the following buildings:
ATLANTA MAHWAH, NJ
Atlanta Financial Center Crossroads Corporate Center
Atlanta Plaza
Buckhead Plaza MEMPHIS
Crown Pointe Morgan Keegan Tower
The Terraces
Park Central
NASHVILLE
-13-<PAGE>
BIRMINGHAM Third National
Riverchase Galleria Financial Center
Riverchase Galleria Dominion Tower
Highland Ridge
BOSTON NEW ORLEANS
One International Place Lakeway Center
World Trade Center Boston Metairie Galleria
Rowes Wharf Place St. Charles
Marketplace Center
75 State Street
CHICAGO
Chemical Plaza PHOENIX
North Pier Biltmore Financial Center
Oakbrook Terraces Camelback Esplanade
One Financial Place 24th & Highland
Sherman Place 2600 N. Central Avenue
LaSalle Atrium Paradise Village Office Park
Gateway Chicago
HARTFORD SEATTLE
CityPlace Columbia Seafirst Center
100 Pearl Street Koll Center Bellevue
Putnam Park Koll Market Place Tower
Two Union Square
LOS ANGELES 1000 Second Avenue
Citicorp Center Skyline Tower
Fourth & Blanchard
STAMFORD
Metro Center INDIANAPOLIS
The Pyramids
101 West Ohio Street
DALLAS
Texas Commerce Tower
Texas Commerce Bank-Las Colinas
2121 San Jacinto Street
Maxus Tower
Abrams Center
Bryan Tower
Dallas Market Center
Plaza of the Americas
Preston Sherry Plaza
2001 Ross Avenue
4641 Production Drive
Infomart
Item 3.
-------
Legal Proceedings
-----------------
-14-<PAGE>
In 1993, the Company settled a lawsuit with The New York
State Convention Center Operating Corp. ("CCOC"), which arose in
connection with the Company's operations at the Jacob K. Javits
Convention Center in New York City, which operations were
terminated in December, 1991. However, as part of the
termination of such operations, the Company's departure from the
Convention Center resulted in the termination of its agreement
with Tel-A-Booth Communications, Ltd. ("Tel-A-Booth"), the
payphone service provider for the building.
Tel-A-Booth is currently in a Chapter 7 bankruptcy
proceeding, pursuant to which the Company is listed as a creditor
of Tel-A-Booth in the amount of $300,000.
The Company is named as a co-defendant in a lawsuit brought
by Tel-A-Booth arising out of the termination of its agreement
with the Company. The lawsuit, which was commenced in New York
State Supreme Court, County of New York, on January 10, 1992 is
now proceeding toward trial. Tel-A-Booth has claimed damages of
$10,000,000, primarily for lost profits. The Company has
asserted various counterclaims against the plaintiff. The Company
views that it has substantial defenses to the plaintiff's claims,
and, based on information obtained from discovery, the Company
believes that the plaintiff suffered no recoverable damages.
In addition to the above matters, the Company is a party to
various legal actions, the outcome of which, in the opinion of
management, will not have a material impact on the Company's
financial condition and results of operations (see Notes 14 and
16 of Notes to Consolidated Financial Statements).
Item 4.
-------
Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
PART II
Item 5.
-------
Market for Registrant's Common Stock and Related Stockholder
Matters
-----------------------------------------------------------------
The Company's shares of Common Stock (trading symbol: STCH)
have been quoted and traded in the over-the-counter market since
December 13, 1988. Over-the-counter market quotations reflect
interdealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
-15-<PAGE>
<TABLE>
<CAPTION>
BID ASK
-------------------- ------------------
1994 HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter $4 1/8 $2 7/8 $4 5/8 $3
Second Quarter 3 3/4 3 1/8 4 3 3/8
Third Quarter 5 1/8 2 1/2 5 3/8 2 3/4
Fourth Quarter 4 5/8 3 5/8 5 4
</TABLE>
<TABLE>
<CAPTION>
BID ASK
-------------------- ------------------
1993 HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter $7 $4 $7 1/4 $4 5/8
Second Quarter 4 7/8 3 1/2 5 1/4 4
Third Quarter 5 3/4 2 1/2 6 3
Fourth Quarter 5 5/8 3 1/8 6 3 1/2
</TABLE>
Number of beneficial holders of the Company's Common Stock as of
December 31, 1994 is 1,196.
Item 6.
-------
Selected Financial Data
-----------------------
The following table sets forth the selected financial data of the
Company for each of the last five years. Financial statements
for 1991 and 1990 are not presented in this filing. Such
selected financial data were derived from audited consolidated
financial statements not included herein. The selected financial
data of the Company should be read in conjunction with the
Consolidated Financial Statements and related notes appearing
elsewhere in this Form 10-K. In September 1992 the Company
effected a one-for-four reverse stock split of common stock and
increased the par value of common stock from $.001 to $.004 per
share. Weighted average common shares outstanding and per share
information have been retroactively adjusted to reflect this
split. All amounts, except per share amounts, are in thousands.
-16-<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Data: 1994 1993 1992 1991 1990
---------------------- ------- -------- -------- -------- ----
<S> <C> <C> <C> <C> <C>
Revenue $45,367 $25,426 $24,077 $23,172 $21,804
Gross margin 19,195 10,912 9,254 6,358 5,786
Selling, general
and administrative
expenses 16,972 10,102 9,959 10,717 10,246
Operating income(loss) 2,223 810 (705) (4,359) (4,460)
Interest expense, net (359) (438) (290) (1,268) (950)
Minority interest in
net (inc.)losses of
subsidiaries (128) (82) (37) 4 29
Loss on settlement
agreement - - - - (489)
Extraordinary Item -
Loss) gain on
restructuring - (150) 3,756 - -
Income tax benefits 550 - - - -
Net income (loss) 2,286 140 2,724 (5,623) (5,869)
Net income (loss) per
common share .27 (.04) .59 (1.59) (1.63)
Weighted average common
shares outstanding 6,792 5,132 4,063 3,730 3,601
Cash dividends declared
per preferred share .29 .32 .30 .30 -
Cash dividends paid
per preferred share .29 .32 .38 .18 -
Cash dividends declared - - - - -
or paid per common
share
Balance Sheet Data:
Working capital deficit (3,691) ($ 3,874) ($ 4,506) ($15,615) ($5,751)
Total assets 37,925 20,601 18,752 18,436 14,531
Notes payable,
convertible promissory
notes payable,other
long-term debt (incl.
current portion) and
redeemable preferred
stock 4,727 3,719 4,745 10,030 6,927
Stockholders' equity
(deficit) 20,881 9,302 6,034 (3,148) (999)
</TABLE>
-17-<PAGE>
Item 7.
-------
Management's Discussion and Analysis of Results of Operations and
-----------------------------------------------------------------
Financial Condition
-------------------
Results of Operations
---------------------
Shared Technologies' revenues rose to a record $45,367,000
in 1994, an increase of $19,941,000 or 78% over 1993 revenues of
$25,426,000. This was a substantial increase over the 6% and 4%
increases in 1993 and 1992 respectively. Acquisitions were the
major contributors to revenue growth in 1994 and 1993
respectively.
$8,942,000 of the 1994 revenue increase was attributable to
the June 1994 acquisition of Access Telecommunication Group, L.P.
("Access"). Another $8,017,000 was due to the expanded
operations of the Cellular division. The Cellular division was
dramatically expanded in the fourth quarter of 1993 through the
acquisition of Road and Show East and Road and Show South
nationwide rental phone business ("Road and Show"). The Company
also continued to expand operations at existing locations. The
remaining revenue increase of $2,982,000 was achieved mainly at
existing shared tenant services ("STS") locations.
The Company's revenue of $25,426,000 for the year ended
December 31, 1993 represented an increase of $1,349,000 or 6%,
over the year ended December 31, 1992. Of this increase,
$288,000 was due to an increase in STS revenue and $256,000 was
due to an increase in Facilities Management Services ("FMS")
revenue. The remaining increase of $805,000 was attributable to
the fourth quarter acquisitions of Road and Show.
Gross margin dipped slightly in 1994 to 42.3% of revenues
from 42.9% of revenues in 1993. This drop was the result of
significant changes in the Company's revenue mix in 1994.
The FMS and Cellular Service divisions grew dramatically in
1994 due to the acquisitions mentioned earlier. The FMS division
revenues accounted for 14.3% of the total revenues in 1994 as
compared to 6.0% in 1993, and the Cellular division revenues were
responsible for 22.5% of total revenues in 1994 as compared to
8.7% in 1993. The STS division accounted for 63.2% of total
revenues in 1994 as compared to 85.3% in 1993.
Although the change in sales mix resulted in only a small
change in overall gross margin, each division produced gross
margin at a different rate. STS cost of revenues as a percentage
-18-<PAGE>
of revenue increased slightly in 1994 resulting in gross margin
of 45.2% versus gross margin of 46.4% in 1993. The main reason
for the decrease was the addition of several STS buildings
through the acquisition of Access. These buildings historically
have achieved lower gross margins than those at existing STS
locations The FMS division produced a gross margin of 20.4% in
1994 which is up from 16.9% in 1993. The FMS division focuses on
the sale of long distance services outside the STS buildings, and
operates in a competitive environment which prevents high gross
margin. Improved margin was achieved through increased sales
volume and lower rates negotiated in 1994. The Cellular division
produced a gross margin of 48.2% in 1994 which is up from a 27.1%
gross margin produced in 1993. The rental component of the
Cellular division was greatly expanded through the acquisition of
Road and Show in the fourth quarter of 1993. Cellular rental
revenues produce gross margins near 50%.
Gross margin increased to 42.9% of revenues for the year
ended December 31, 1993 compared to 38.4% of revenues for the
year ended December 31, 1992. This improvement was due almost
entirely to the improved margin on long distance and local access
services as a result of increased volume which enabled the
Company to negotiate better rates with its vendors.
Pretax income increased by $1,446,000 or 499% to a record
$1,736,000 from $290,000 in 1993. This compares to a $1,322,000
increase in 1993 from a pretax loss of $1,032,000 in 1992.
These increases were achieved through increased sales
volume, and reductions in selling, general and administrative
expenses as a percentage of revenue. Selling, general and
administrative expenses as a percentage of revenue, continued to
drop in 1994, down to 37% from 40% in 1993. This improvement was
made through the synergies created with the acquisition of Access
and management's ongoing efforts to contain overhead costs.
Selling, general and administrative expenses as a percentage
of revenue dropped to 40% in 1993 compared to 41% for 1992. The
decrease was achieved despite the addition of 10 new STS
buildings and the acquisition of Road and Show which added
approximately $200,000 of selling general and administrative
expenses. The improvement was due to a decrease in consulting
expenses associated with the settlement of certain obligations of
the Company, settlement of the Javits litigation for less than
previously provided and the capitalization of startup costs
associated with certain new operations.
During 1994 the Company was successful in controlling
interest expense despite the addition of $2,300,000 of new,
interest bearing, debt. Interest expense decreased to $522,000
in 1994 from $529,000 in 1993. Interest expense, net of interest
income, increased $148,000 in the year ended December 31, 1993
-19-<PAGE>
compared to the year ended December 31, 1992 due to approximately
$292,000 accrued related to estimated interest and penalty
payments to taxing authorities that may arise from late payments.
Effective January 1, 1993, the Company implemented Statement
of Financial Accounting Standards No. 109, " Accounting for
Income Taxes", (SFAS 109). This statement requires the adoption
of an asset and liability approach to accounting for income
taxes. The Company's income tax provision is substantially less
than the amount derived by applying the federal statutory rates
to pre-tax income principally due to the availability of net
operating loss carryforwards from prior years. As discussed in
the Notes to the Company's financial statements, for the year
ended December 31, 1994, the Company had recorded a tax benefit
of $550,000, and reserved the balance of approximately $7,357,000
through a valuation allowance.
SFAS No. 109, requires that the Company record a valuation
allowance when it is "more likely than not the some portion or
all of the deferred tax asset will not be realized". The
ultimate realization of this deferred tax asset depends on the
ability to generate sufficient taxable income in the future.
While management believes that the total deferred tax asset may
be fully realized by future operating results together with tax
planning opportunities, the losses in recent years and the desire
to be more conservative makes it appropriate to record a
valuation allowance.
The Company restated its 1993 financial statements to
reflect the write-off of certain startup costs of approximately
$120,000, previously capitalized, related to certain cellular
telephone operations.
In 1992 the Company settled certain obligations to its
lenders and other creditors. This resulted in an extraordinary
gain for the year ended December 31, 1992 of $5,162,000 before
restructuring expenses of $1,361,000 and income taxes of $45,000
and an adjustment to the restructuring gain which resulted in an
extraordinary loss for the year ended December 31, 1993 of
$150,000.
Liquidity and Capital Resources
-------------------------------
During 1994 Shared Technologies continued to effectively
manage a working capital deficit and produce record earnings from
operations. Net cash provided by operations reached a record
$3.0 million in 1994 compared to $2.2 million in 1993 and
$571,000 in 1992. This helped reduce the working capital deficit
to $3,691,000 at December 31, 1994 compared to $3,874,000 for
December 31, 1993.
-20-<PAGE>
The Company continued to focus investing activities on
growth through acquisition and on upgrading telecommunication
equipment at existing locations. Over the past three years Shared
Technologies has invested $7.3 million in equipment purchases to
increase line counts and remain competitive. At the same time,
the Company invested $4.2 million to complete two major
acquisitions; Access in June 1994 and Road and Show in the fourth
quarter of 1993. Both companies have been integrated into the
Company's operations and have produced favorable results.
Financing activities were focused primarily on raising
capital to provide cash for investing activities. In 1994 the
Company entered an agreement with a bank to obtain a $1.0 million
dollar term note and a $4.0 million revolver. During 1994 the
Company borrowed $1.3 million against the revolver to help
finance the current year's equipment purchases. In addition the
Company raised $4.6 million from sales of common stock to help
finance the acquisition of Access. During 1993 and 1992
approximately $7.5 million was raised from sales of common and
preferred stock to help the Company fund operations. During the
past three years the Company has made $8.3 million in repayments
of notes payable, long term debt and capital lease obligations.
Cash requirements for 1995 will include normal ongoing
operations, and capital expenditures. The Company plans to
invest heavily in growth through the addition of several STS
buildings and the expansion of the centrex component of the STS
division. This growth will be financed through cash from
operations and the bank agreement previously mentioned.
Item 8.
-------
Financial Statements and Supplementary Data
-------------------------------------------
Attached.
Item 9.
-------
Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure
------------------------
On January 25, 1995 the Company filed a Form 8K announcing a
change in independent public accountants to Rothstein, Kass &
Company, P.C. from Arthur Andersen LLP for the year end December
31, 1994.
-21-<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
INDEPENDENT AUDITORS' REPORT
ROTHSTEIN, KASS & COMPANY, P.C. F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP F-3
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS F-4
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-6-7
CONSOLIDATED STATEMENTS OF CASH FLOWS F-8-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENT F-10-24
FINANCIAL STATEMENT SCHEDULE:
Schedule VIII Valuation and Qualifying Accounts
for the years ended
December 31, 1994, 1993 and 1992 F-25
Notes:
(a)All other schedules are not submitted because they are not applicable,
not required or because the required information is included in the
consolidated financial statements or notes thereto.
(b)Individual financial statements of the Company have been omitted since
(1) consolidated statements of the Company and its subsidiaries are
filed, and (2) the Company is primarily an operating company and all
subsidiaries included in the consolidated financial statements filed are
majority-owned and do not have a material amount of debt to outside
persons.
F-1<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Shared Technologies Inc.
We have audited the accompanying consolidated balance sheets of Shared
Technologies Inc. and Subsidiaries as of December 31, 1994 and 1993 and the
related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. These consolidated financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Shared
Technologies Inc. and Subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index on
page F-1 is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
Roseland, New Jersey
March 24, 1995, except for Notes 7 and 11
as to which the date is April 11, 1995
F-2<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To Shared Technologies Inc.:
We have audited the accompanying consolidated statements of
operations, stockholders' equity and cash flows of Shared
Technologies Inc. (a Delaware corporation) and subsidiaries
for the year ended December 31, 1992. These financial
statements and the schedule referred to below are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We have conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of
operations and cash flows of Shared Technologies Inc. for
the year ended December 31, 1992 in conformity with
generally accepted accounting principles.
As discussed in Note 14 to the consolidated financial
statements, the Company and others have been named in a
lawsuit seeking damages of approximately $10 million,
including $1.4 million for equipment purchased, for which
no provision has been made in the accompanying consolidated
financial statements. The Company has filed answers to this
complaint denying the material allegations of the claim.
Although the claim is being contested by the Company, the
outcome of this matter is uncertain at this time.
Our audit was made for the purposes of forming an opinion on
the basic financial statements taken as a whole. The
schedule listed in the index on page F-1 is presented for
purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial
statements. The information in the schedule for the year
ended December 31, 1992 has been subjected to the auditing
procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all
material respects the financial data required to be set
forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 23, 1993 (except with respect to the matter discussed
in the second paragraph of Note 14, as to which the date is
April 14, 1994)
F-3<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $172,262 $408,533
Accounts receivable, less
allowance for doubtful
accounts and discounts
of $584,000 in 1994
and $310,000 in 1993 8,532,770 4,614,188
Other current assets 727,375 545,071
Deferred income taxes 550,000
-------------- --------------
Total current assets 9,982,407 5,567,792
-------------- --------------
EQUIPMENT:
Telecommunications 26,222,732 21,298,405
Office and data processing 4,995,191 4,358,275
-------------- --------------
31,217,923 25,656,680
Less accumulated depreciation
and amortization 15,473,023 13,545,303
-------------- --------------
15,744,900 12,111,377
-------------- --------------
OTHER ASSETS:
Intangible assets 11,197,887 2,347,958
Other 1,000,042 573,535
-------------- --------------
12,197,929 2,921,493
-------------- --------------
$37,925,236 $20,600,662
============== ==============
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt and capital lease
obligations $1,840,401 $1,941,876
Accounts payable 8,191,350 4,482,239
Accrued expenses 2,381,736 2,068,771
Advance billings 1,260,158 948,938
-------------- --------------
Total current liabilities 13,673,645 9,441,824
-------------- --------------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less
current portion 2,886,365 1,777,431
-------------- --------------
MINORITY INTERESTS IN NET ASSETS
OF SUBSIDIARIES 101,504 78,971
-------------- --------------
REDEEMABLE PUT WARRANT 383,048
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par
value:
Series C, authorized 1,500,000
shares, outstanding
906,930 shares in 1994 and
987,930 in 1993 9,069 9,879
Series D, authorized 1,000,000
shares, outstanding
456,900 shares in 1994 and
453,158 in 1993 4,569 4,532
Series E, authorized 400,000
shares in 1994 and no shares
in 1993, outstanding 400,000
shares in 1994 4,000
Series F, authorized 700,000
shares in 1994 and no shares
in 1993, outstanding 700,000
shares in 1994 7,000
Common stock, $.004 par
value, authorized 20,000,000
shares, outstanding
6,628,246 shares in 1994 and
5,190,335 in 1993 26,513 20,761
Capital in excess of par value 41,488,128 31,759,048
Accumulated deficit (22,465,105) (24,248,284)
Obligations to issue common stock 1,806,500 1,756,500
-------------- --------------
Total stockholders' equity 20,880,674 9,302,436
-------------- --------------
$37,925,236 $20,600,662
============== ==============
</TABLE>
See accompanying notes to consoloidated financial statements.
F-4<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
<S> <C> <C> <C>
REVENUES: ------------ ------------ ------------
Shared tenant services $28,666,574 $21,683,186 $21,395,125
Facility management services 6,482,637 1,542,893 1,287,452
Cellular telephone services 10,217,300 2,199,727 1,394,387
------------ ------------ ------------
Total revenues 45,366,511 25,425,806 24,076,964
------------ ------------ ------------
COST OF REVENUES:
Shared tenant services 15,716,890 11,627,939 12,727,935
Facility management services 5,161,130 1,282,064 1,082,643
Cellular telephone services 5,293,845 1,604,040 1,011,642
------------ ------------ ------------
Total cost of revenues 26,171,865 14,514,043 14,822,220
------------ ------------ ------------
GROSS MARGIN 19,194,646 10,911,763 9,254,744
OPERATING EXPENSES, selling,
general, and administrative 16,971,416 10,101,985 9,959,366
------------ ------------ ------------
OPERATING INCOME (LOSS) 2,223,230 809,778 (704,622)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (522,112) (529,565) (410,830)
Interest income 162,951 91,889 120,815
Minority interests in net income
of subsidiaries (128,084) (81,928) (37,391)
------------ ------------ ------------
(487,245) (519,604) (327,406)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX
CREDIT AND EXTRAORDINARY ITEM 1,735,985 290,174 (1,032,028)
INCOME TAX CREDIT 550,000
------------ ------------ ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 2,285,985 290,174 (1,032,028)
EXTRAORDINARY ITEM, (loss) gain
on restructuring (in 1992,
net of restructuring expenses
of $1,361,000, and income
taxes of $45,000, after
extraordinary benefit
of utilizing net operating
loss carryforwards of $3,000,000) - (150,000) 3,756,327
------------ ------------ ------------
NET INCOME 2,285,985 140,174 2,724,299
PREFERRED STOCK DIVIDENDS (478,159) (344,650) (334,478)
------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $1,807,826 ($204,476) $2,389,821
============ ============ ============
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before
extraordinary item 0.27 (0.01) (0.33)
Extraordinary item (0.03) 0.92
------------ ------------ ------------
Net income (loss) 0.27 (0.04) 0.59
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,792,277 5,132,296 4,062,710
============ ============ ============
</TABLE>
See accompanying notes to consoloidated financial statements.
F-5
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
Series B Series C Series D
Preferred Stock Preferred Stock Preferred Stock
=============== =============== ===============
Shares Amount Shares Amount Shares Amount
--------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 914,750 $9,147 - $ - - $ -
1, 1992
Dividends on
preferred stock
Conversion of
Series A
Preferred Stock
to Series C 110,000 1,100
Preferred Stock
Conversion of
Series B
Preferred Stock
to Series C (914,750) (9,147) 914,750 9,147
Preferred Stock
Conversion of
preferred stock
dividends
payable to 81,980 820
Series C
Preferred Stock
Proceeds from
sale of common
stock
including
subscriptions of
$162,980
collected
subsequent to
December 31,
1992 and net of
expenses of
$470,000
Common stock
issued in lieu
of
compensation and
other
Exercise of
common stock
options
Exercise of
common stock
warrants
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December 1,106,730 11,067
31, 1992
Dividends on
preferred stock
Proceeds from
sale of Series D
Preferred Stock,
net of expenses
of $411,549 453,158 4,532
Redemption of
Series C
Preferred
Stock (118,800) (1,188)
Common stock to
be issued
for acquisitions
Common stock
issued in lieu
of compensation
Common stock
issued in lieu
of deferred
financing fees
Exercise of
common stock
options
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December 987,930 9,879 453,158 4,532
31, 1993
Preferred stock
dividends
Dividend
accretion of
redeemable put
warrant
Exercise of
common stock
options
and warrants
Proceeds from
sale of Series D
Preferred Stock 3,742 37
Issuances for
acquisitions
Proceeds from
sale of common
stock, net
of expenses of
$371,067
Common stock
issued in lieu of
compensation and
conversion of
Series C (81,000) (810)
Preferred Stock
and other
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December
31, 1994 - $ - 906,930 $9,069 456,900 $4,569
======== ======== ======== ======== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
(CONTINUED)
Series E Series F Common
Preferred Stock Preferred Stock Stock
=============== =============== ===============
Shares Amount Shares Amount Shares Amount
--------- --------- ------------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January - $ - $ - - 3,740,732 $ 14,963
1, 1992
Dividends on
preferred stock
Conversion of
Series A
Preferred Stock
to Series C
Preferred Stock
Conversion of
Series B
Preferred Stock
to Series C
Preferred Stock
Conversion of
preferred stock
dividends
payable to
Series C
Preferred Stock
Proceeds from
sale of common
stock
including
subscriptions of
$162,980
collected
subsequent to
December 31,
1992 and net of 1,250,000 5,000
expenses of
$470,000
Common stock
issued in lieu
of
compensation and 31,985 128
other
Exercise of 53,938 216
common stock
options
Exercise of 15,542 62
common stock
warrants
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December 5,092,197 20,369
31, 1992
Dividends on
preferred stock
Proceeds from
sale of Series D
Preferred Stock,
net of expenses
of $411,549
Redemption of
Series C
Preferred
Stock
Common stock to
be issued
for acquisitions
Common stock
issued in lieu
of compensation 49,345 197
Common stock
issued in lieu
of deferred 13,793 55
financing fees
Exercise of 35,000 140
common stock
options
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December 5,190,335 20,761
31, 1993
Preferred stock
dividends
Dividend
accretion of
redeemable put
warrant
Exercise of
common stock
options
and warrants 26,061 104
Proceeds from
sale of Series D
Preferred Stock
Issuances for 400,000 4,000 700,000 7,000
acquisitions
Proceeds from
sale of common
stock, net
of expenses of 1,328,700 5,315
$371,067
Common stock
issued in lieu of
compensation and
conversion of
Series C 83,150 333
Preferred Stock
and other
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December 400,000 $ 4,000 700,000 $ 7,000 6,628,246 $ 26,513
31, 1994
======== ======== ======== ======== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
(CONTINUED)
Capital in Obligations Total
Excess of Accumulated to Issue Stockholders'
Par Value Deficit Common Stock Equity
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, January $23,261,185 $(26,433,629) $ - $(3,148,334)
1, 1992
Dividends on (334,478) (334,478)
preferred stock
Conversion of 438,900 440,000
Series A
Preferred Stock
to Series C
Preferred Stock
Conversion of
Series B
Preferred Stock
to Series C
Preferred Stock
Conversion of
preferred stock
dividends
payable to 327,100 327,920
Series C
Preferred Stock
Proceeds from
sale of common
stock
including
subscriptions of
$162,980
collected
subsequent to
December 31,
1992 and net of 5,775,000 5,780,000
expenses of
$470,000
Common stock
issued in lieu
of
compensation and 127,558 127,686
other
Exercise of 110,827 111,043
common stock
options
Exercise of 6,155 6,217
common stock
warrants
Net income 2,724,299 2,724,299
--------- --------- --------- ---------
BALANCE, December 30,046,725 (24,043,808) 6,034,353
31, 1992
Dividends on (344,650) (344,650)
preferred stock
Proceeds from
sale of Series D
Preferred Stock,
net of expenses
of $411,549 1,736,601 1,741,133
Redemption of
Series C
Preferred
Stock (384,912) (386,100)
Common stock to
be issued
for acquisitions 1,756,500 1,756,500
Common stock
issued in lieu
of compensation 228,229 228,426
Common stock
issued in lieu
of deferred 49,945 50,000
financing fees
Exercise of 82,460 82,600
common stock
options
Net income 140,174 140,174
--------- --------- --------- ---------
BALANCE, December 31,759,048 (24,248,284) 1,756,500 9,302,436
31, 1993
Preferred stock (478,159) (478,159)
dividends
Dividend (24,647) (24,647)
accretion of
redeemable put
warrant
Exercise of
common stock
options
and warrants 71,320 71,424
Proceeds from
sale of Series D
Preferred Stock (1,511) (1,474)
Issuances for 4,989,000 5,000,000
acquisitions
Proceeds from
sale of common
stock, net
of expenses of 4,556,243 4,561,558
$371,067
Common stock
issued in lieu of
compensation and
conversion of
Series C 114,028 50,000 163,551
Preferred Stock
and other
Net income 2,285,985 2,285,985
--------- --------- --------- ---------
BALANCE, December $41,488,128 $(22,465,105) $1,806,500 $20,880,674
31, 1994
</TABLE>
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
F-7A<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,285,985 $140,174 $2,724,299
Adjustments to reconcile net income to
net cash provided by operating
activities:
Loss (gain) on restructuring 150,000 (5,162,576)
Depreciation and amortization 3,702,004 2,562,024 2,447,925
Provision for doubtful accounts 412,617 253,000
Common stock of subsidiary issued for
services 16,500
Stock options and common stock issued
in lieu of compensation and other 113,551 278,426 127,686
Minority interests 128,084 81,928 37,391
Gain on sale of franchises (202,033)
Deferred income taxes (550,000)
Amortization of discount on note 52,267
Change in assets and liabilities:
Accounts receivable (2,147,159) (990,468) (468,931)
Other current assets (179,462) 131,664 123,015
Other assets (429,835) (243,689)
Accounts payable 1,629,214 963,950 1,504,715
Accrued expenses (1,707,272)(1,211,878) (783,854)
Advance billings (66,679) 91,531 21,826
--------- --------- ---------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 3,057,782 2,206,662 571,496
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, net (3,223,420)(2,034,760) (2,014,182)
Acquisitions of Road and Show South
and East (255,356)
Acquisition of Access (3,947,649)
Long-term deposits (1,557) (296,994)
Proceeds from restricted investments 852,698
Other investments (95,548)
Deferred registration costs (182,135)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (7,353,204)(2,291,673) (1,554,026)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable, long-term
debt and capital lease obligations (2,409,274)(1,895,419) (3,962,571)
Proceeds from borrowings 2,315,075
Proceeds from sales of common and
preferred stock 4,631,509 1,823,733 5,734,280
Redemption of preferred stock (386,100)
Preferred stock dividends paid (478,159) (344,650) (88,538)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 4,059,151 (802,436) 1,683,171
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH (236,271) (887,447) 700,641
--------- --------- ---------
CASH, beginning of year 408,533 1,295,980 595,339
--------- --------- ---------
CASH, end of year $172,262 $408,533 $1,295,980
========= ========= =========
</TABLE>
See accompanying notes to consoloidated financial statements.
F-8<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION,
cash paid during the year
for interest $441,272 $386,134 $401,208
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of accrued expenses to
note payable in connection with
litigation settlement $ - $460,478 $ -
--------- --------- ---------
Obligations to issue common stock
in connection with acquisitions $50,000 $1,756,500 $ -
--------- --------- ---------
Conversion of accounts payable to
long-term debt $ - $ - $3,288,236
--------- --------- ---------
Conversion of preferred stock
dividends payable
to Series C Preferred Stock $ - $ - $327,920
--------- --------- ---------
Issuance of preferred stock in
connection with acquisition $5,000,000 $ - $ -
--------- --------- ---------
Redeemable put warrant issued
in connection with bank financing $358,401 $ - $ -
--------- --------- ---------
Capital lease obligation incurred
for lease of new equipment $63,589 $ - $ -
--------- --------- ---------
Dividend accretion on redeemable
put warrant $24,647 $ - $ -
--------- --------- ---------
Costs of intangible assets
included in accounts payable $202,985 $ - $ -
--------- --------- ---------
Note received for sale of franchise $202,033 $ - $ -
--------- --------- ---------
</TABLE>
See accompanying notes to consoloidated financial statements.
F-9<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND ORGANIZATION:
The Company is in the shared tenant services (STS) and facility
management services (FMS) industry, providing telecommunications and
office automation services and equipment to tenants of office
buildings. One of the Company's subsidiaries, Shared Technologies
Cellular, Inc. (STC), is a provider of short-term portable cellular
telephone services.
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned and majority-owned
subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition - Revenues are recognized as services are
performed. The Company bills customers monthly in advance for
equipment rentals and local telephone access service and defers
recognition of these revenues until the service is provided.
Enhanced office service revenues (included in both STS and FMS
revenues), which consists primarily of product and equipment sales,
is recognized at the time of shipment.
Cash - The Company maintains its cash in bank deposit accounts,
which, at times, may exceed federally insured limits. The Company
has not experienced any losses in such accounts and believes it is
not subject to any significant credit risk on cash.
Equipment - Equipment is stated at cost. Depreciation and
amortization is provided using the straight-line method over the
following estimated useful lives:
Telecommunications equipment 8 years
Office and data processing equipment 3-8 years
Effective January 1, 1992, the Company prospectively changed the
estimated depreciable life of telecommunications equipment purchased
prior to January 1, 1991 from five to eight years. The change
resulted in approximately $933,000 ($.23 per common share) less
depreciation expense for the year ended December 31, 1992 than would
have been recorded using the previous estimated depreciable life of
five years. Excluding the impact of this change, the loss before
extraordinary item per common share for 1992 would have been $.56.
Major renewals and betterments are capitalized. The cost of
maintenance and repairs which do not materially prolong the useful
life of the assets are charged to expense as incurred.
Rent - Certain leases require escalating base rents or provide for
rent abatements for a period of time. The Company is expensing the
rents on a straight-line basis over the terms of the leases.
F-10<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Intangible Assets:
Goodwill - Goodwill represents the excess of the purchase prices over
the fair values of the net assets of businesses acquired. The
Company monitors the profitability of the acquired businesses to
assess whether any impairment of recorded goodwill has occurred.
Goodwill is amortized over periods ranging from 5 years to 40 years.
Deferred Startup Costs - Costs relating to the startup of operations
in certain new locations have been deferred and amortized over one to
two years upon commencement of the related operations.
Software Development Costs - In connection with its cellular
subsidiary (SafeCall) operations, the Company has incurred certain
software development costs relating to the "privacy network" and are
amortized over 5 years starting with the implementation of the
related software.
Other Intangible Assets - Other intangible assets are being amortized
over 5 years.
Deferred Registration Costs - The Company has deferred legal fees,
other fees and costs incurred in connection with a proposed public
offering of a subsidiary. These costs will be charged to capital in
excess of par value upon completion of the offering, otherwise the
costs will be charged to operations. At December 31, 1994,
approximately $182,000 of these costs are included in other assets.
Income Taxes - Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards (SFAS No. 109),
"Accounting for Income Taxes", which requires an asset and liability
approach to financial reporting for income taxes. Deferred income
tax assets and liabilities are computed annually for differences
between financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future,
based on enacted tax laws and rates applicable to the periods in
which the differences are expected to effect taxable income.
Valuation allowances are established, when necessary, to reduce the
deferred income tax assets to the amount expected to be realized.
Prior to adopting SFAS No. 109, the Company accounted for income
taxes using the deferral method as required by Accounting Principles
Board Opinion No. 11. The adoption of SFAS 109 had no material
impact on the Company's financial statements since the Company fully
reserved for the tax benefits flowing from its net operating losses
(Note 13).
Income (Loss) Per Common Share - Primary income (loss) per common
share is computed by deducting preferred stock dividends from net
income in order to determine net income applicable to common stock,
which is then divided by the weighted average number of common shares
outstanding including the effect of options, warrants and obligations
to issue common stock, if dilutive.
Fully diluted income (loss) per common sh are is computed by dividing
net income applicable to common stock by the weighted average number
of common and common equivalent shares and the effect of preferred
stock conversions, if dilutive. Fully diluted income (loss) per
common share is substantially the same as primary income (loss) per
common share for the years ended December 31, 1994, 1993 and 1992.
Reclassifications - Certain reclassifications to prior years
financial statements were made in order to conform to the 1994
presentation.
F-11<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RESTRUCTURING:
During 1992, the Company completed a restructuring which resulted in
recording a gain of $5,162,000 before related expenses of $1,361,000
and income taxes of $45,000. As a result of the restructuring,
approximately $900,000 of vendor payables and $1,500,000 of capital
lease obligations were forgiven and $3,300,000 of vendor payables
were converted into three year non-interest bearing notes payable
(Note 7). Additionally, an agreement was entered into with the
Federal Deposit Insurance Corporation (FDIC), as receiver for the
Company's principal lender, whereby the Company paid off its term and
revolving credit loans for $2,450,000 and recognized a gain of
approximately $2,700,000. Had interest been accrued, the gain on
restructuring and interest expense would have each increased by
approximately $440,000. In connection with settling his guarantee of
these obligations, the Company's president issued to the FDIC a non-
interest bearing promissory note for $675,000 due in 1997 and pledged
100,000 shares of his common stock and his options to purchase 25,000
shares of common stock of the Company as collateral.
As of December 31, 1993, the Company was negotiating the settlement
of a $600,000 promissory note (Note 7), which was settled in 1994 by
issuance of a $750,000 promissory note. Accordingly, for the year
ended December 31, 1993, the Company recorded, as an extraordinary
item, an expense of $150,000 in connection with the completion of the
restructuring.
In connection with the restructuring, the Company sold common stock,
resulting in net proceeds of approximately $5,780,000 (which included
$163,000 of subscriptions receivable as of December 31, 1992) and
entered into agreements with Series A and B Preferred stockholders to
convert their holdings, including $327,920 of accrued dividends
related thereto, into Series C Preferred Stock.
NOTE 4 - ACQUISITIONS:
In December and October 1993, t he Company commenced management of,
and subsequently acquired certain assets and assumed certain
liabilities of Road and Show South, Ltd. (South) and Road and Show
Cellular East, Inc. (East), respectively. The purchase price for
South was $1,261,611, of which $46,111 was paid in cash and the
balance through the issuance of 221,000 shares of the Company's
common stock valued at $1,215,500. The purchase price for East was
$750,245, of which $209,245 was paid in cash and the balance through
the issuance, upon demand, of 108,200 shares of the Company's common
stock valued at $541,000. The number of shares of common stock
related to these acquisitions was adjusted on December 1, 1994 based
on the price of the Company's common stock at that date, for which an
aggregate of 64,966 additional shares will be issued. As of
December 31, 1994, no shares of common stock had been issued for the
East acquisition. The shares in connection with the South
acquisition have been issued, but have not been delivered pending the
outcome of certain claims against, and by, the former owners of South
(Note 16).
In June 1994, the Company acquired all of the partnership interests
in Access Telecommunication Group, L.P. and Access Telemanagement,
Inc. (collectively Access). The purchase price was $9,252,031, of
which $4,252,031 was paid in cash and the balance through the
issuance of 400,000 shares of Series E Preferred Stock valued at
$3.75 per share and 700,000 shares of Series F Preferred Stock valued
at $5.00 per share.
F-12<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS (CONTINUED):
The acquisitions were accounted for as purchases, and the purchase
prices were allocated on the basis of the relative fair market values
of the net assets.
The excess of costs over fair value of the net assets acquired is
recorded as goodwill (aggregating approximately $10,289,000) in the
accompanying consolidated financial statements. Amortization of
goodwill approximated $181,000 and $15,000 in 1994 and 1993,
respectively.
Additional payments may be required for the East acquisition based
upon the attainment of certain future revenues of the Company and
will be charged to goodwill when they become earned.
The following unaudited pro forma statements of operations for 1994
and 1993 give effect to the acquisitions, as if they occurred on
January 1 in each year:
<TABLE>
<CAPTION>
1994 1993
---------- -----------
<S> <C> <C>
Revenues $54,547,694 $47,479,720
Cost of revenues 32,612,238 30,774,241
---------- -----------
Gross margin 21,935,456 16,705,479
Selling, general and
administrative expenses 19,573,151 16,846,048
---------- -----------
Operating income 2,362,305 (140,569)
Other expense, net (459,378) (572,072)
---------- -----------
Income (loss) before income tax
credit and extraordinary item 1,902,927 (712,641)
Income tax credit 550,000
---------- -----------
Income (loss) before
extraordinary item 2,452,927 (712,641)
Extraordinary item (150,000)
---------- -----------
Net income (loss) 2,452,927 (862,641)
Preferred stock dividends (538,159) (464,650)
---------- -----------
Net income (loss) applicable
to common stock $1,914,768 $(1,327,291)
---------- -----------
Net income (loss) per common share:
Income (loss) before
extraordinary item $ .25 $ (.21)
Extraordinary item (.03)
---------- -----------
Net income (loss) $ .25 $ (.24)
---------- -----------
Weighted average number of
common shares outstanding 7,753,409 5,526,492
========== ============
</TABLE>
F-13<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INTANGIBLE ASSETS:
Intangible assets consist of the following at December 31, 1994 and
1993:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Goodwill $11,185,606 $2,307,692
Deferred startup costs 491,246 172,689
Software development costs 186,334 68,000
Other 198,129 175,756
----------- ----------
12,061,315 2,724,137
Accumulated amortization 863,428 376,179
----------- ----------
$11,197,887 $2,347,958
=========== ===========
NOTE 6 - ACCRUED EXPENSES:
Accrued expenses at December 31, 1994 and 1993 consist of the
following:
</TABLE>
<TABLE>
<CAPTION>
1994 1993
--------- ----------
<C> <C> <C>
State sales and excise taxes $ 861,406 $1,194,746
Deferred lease obligations 149,986 153,805
Compensation 416,773 76,787
Property taxes 140,102 72,443
Concession fees 101,835 64,754
Other 711,634 506,236
--------- ----------
$2,381,736 $2,068,771
========== ===========
</TABLE>
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
<TABLE>
<CAPTION>
Long-term debt and capital lease obligations at December 31, 1994 and
1993 consist of the following:
1994 1993
------------ --------
<S> <C> <C>
Revolving $4,000,000 credit line, due in
monthly installments of approximately
$36,500 commencing March 1995 and bearing
interest at 2% above prime rate (10.5% at
December 31, 1994) (Note 8) $1,008,939 $ -
Initial term loan, due in quarterly
installments of $50,000 commencing
November 24, 1994, with final payment
of $700,000 due May 1996 and bearing
interest at 2% above prime rate 950,000 $ -
</TABLE>
F-14<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED):
1994 1993
<S> <C> <C>
Notes payable to vendors, non-interest bearing
due in aggregate quarterly installments of
approximately $249,000 through June 1995 497,595 1,615,490
Promissory note payable in semi-annual
installments through May 31, 1996 and
bearing interest at 10% per annum
(see below) 268,300 750,000
Promissory note, $550,000 original face
amount discounted at 7.75%, payable in
quarterly installments of $25,000 through
March 31, 1999, collateralized by
commitment to issue 106,250 shares of
Series C Preferred Stock 359,193 428,003
Promissory note, $450,000 original face
amount, non-interest bearing, payable in
quarterly installments of $16,071 through
June 30, 1999 289,068 353,353
Capital lease obligations, collateralized
by related telecommunications and data
processing equipment and all of the assets
acquired from Access (Note 4) 1,353,671 572,461
--------- ---------
4,726,766 3,719,307
Less current portion 1,840,401 1,941,876
--------- ---------
$2,886,365 $1,777,431
========== ==========
</TABLE>
In connection with the Company's 1992 restructuring (Note 3),
approximately $3,300,000 of vendor payables were converted to non-
interest bearing notes payable. As part of the restructuring, the
Company also renegotiated the terms of a $450,000 promissory note.
Prior to the restructuring, the note provided for interest at the
prime rate plus 1% and was due in 1990. As of December 31, 1992,
the Company was negotiating the settlement of a $600,000 promissory
note, which was subsequently settled for a $750,000 promissory note,
with interest at 10% per annum. In connection with the
restructuring, approximately $1,500,000 of capital lease obligations
was forgiven. As of December 31, 1992, one settlement requiring a
cash payment of $588,000 had not been completed. A payment of
$588,000 plus penalties and interest of $50,000 was made in 1993.
F-15<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED):
In May 1994, the Company entered into a $5,000,000 financing
agreement with a bank. The agreement provides for a revolving
credit line for a maximum, as defined, of $4,000,000 to be used for
expansion in the shared tenant services business. Aggregate
drawings on the line convert semi-annually, through May 1996, to
three year term loans. In addition, the agreement provides for a
$1,000,000 term loan. The loans are collateralized by certain
assets of the Company. The agreement provides for, among other
things, the Company to maintain certain financial covenants. As of
December 31, 1994, the Company was in violation of certain of these
covenants and on March 31, 1995 received a waiver of those covenants
for the year ended December 31, 1994.
Scheduled aggregate payments on long-term debt and capital lease
obligations are as follows:
<TABLE>
<CAPTION>
Capital Lease
Year ending December 31: Long-Term Debt Obligations
<S> <C> <C>
1995 $1,343,645 $ 596,262
1996 1,279,796 413,471
1997 499,663 332,947
1998 193,540 190,299
1999 56,451 28,278
----------- ----------
$3,373,095 1,561,257
===========
Less amount representing interest 207,586
-----------
Present value of future payments,
including current portion of $496,756 $1,353,671
===========
</TABLE>
Telecommunications and data processing equipment includes assets
acquired under capital leases with a net book value of approximately
$1,534,000 and $514,000 as of December 31, 1994 and 1993,
respectively.
NOTE 8 - REDEEMABLE PUT WARRANT:
In connection with the bank financing agreement, the Company issued
the bank a redeemable put warrant for a number of common shares equal
to 2.25% of the Company's outstanding common stock, subject to anti-
dilution adjustments. The warrant is redeemable at the Company's
option prior to May 1996, and at the bank's option at any time after
May 1997. As defined in the agreement, the Company has guaranteed
the bank a minimum of $500,000 upon redemption of the warrant, and
therefore, has valued the warrant at the present value of the minimum
guarantee discounted at 11.25%. The discount is being amortized on a
straight-line basis over four years.
NOTE 9 - STOCKHOLDERS' EQUITY:
The Company is authorized to issue 10,000,000 shares of preferred
stock, issuable from time to time in one or more series with such
rights, preferences, privileges and restrictions as determined by the
directors. In 1994, the Company increased its authorized number of
shares of common stock to 20,000,000.
F-16<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED):
On August 28, 1992, the Board of Directors approved a one-for-four
reverse stock split of common stock and the par value of common stock
was increased from $.001 to $.004 per share. The applicable number
of common share and per common share information herein have been
retroactively restated to reflect the effect of the reverse split.
In September 1992, the Company completed a private placement to sell
to certain investors 1,250,000 shares of its common stock at $5 per
share. The Company received $5,780,000, net of underwriters'
commissions of $470,000 and including subscriptions totalling
$162,980 collected subsequent to December 31, 1992. A commission of
$446,750 was paid to a firm, one of whose principals is a director
and stockholder of the Company.
In connection with the 1992 restructuring (Note 3), all Series A and
B Preferred Stock, including $327,920 of accrued dividends, were
converted into Series C Preferred Stock. At that time, Series A and
Series B Preferred Stock were eliminated. Series C Preferred Stock
is entitled to a liquidation value of $4 per share and dividends of
$.32 per share per annum payable quarterly in arrears, and the shares
are non-voting. These shares are convertible into common stock, at
the holder's option, on a one share of common stock for two shares of
Series C Preferred Stock basis, at any time, subject to certain anti-
dilution protection for the Preferred Stockholders. At the Company's
option, the Series C Preferred Stock is redeemable, in whole or in
part, at any time after June 30, 1993, at $6 per share plus all
accrued dividends.
In December 1993, the Company commenced a private placement to sell
to certain investors units consisting of one share of Series D
Preferred Stock and one warrant to purchase one share of common
stock. As of December 31, 1994, the Company had sold 456,900 units
for net proceeds of $1,739,659, after deducting expenses of $430,616.
Series D Preferred Stock is entitled to dividends of 5% per annum
payable quarterly and may be redeemed for $7 per share, plus all
accrued dividends, at the option of the Company. The shares are non-
voting and are convertible into shares of the Company's common stock
on a one-for-one basis at the holder's option. The shares rank
senior to all shares of the Company's common stock and junior to
Series C Preferred Stock. The common stock purchase warrants are
exercisable at a per share price of $5.75. In connection with the
offering, the investment banking firm received warrants to purchase
15,600 shares of the Company's common stock at an exercise price of
$5.75 per share. The Company has the right to require the holder to
exercise the warrants, and if not exercised, they will expire in the
event that the Company's common stock trades at or above $8.50 per
share. As of December 31, 1994, no warrants had been exercised.
In May and June 1994, the Company sold, through a private placement
to certain investors, 1,328,700 shares of common stock and an equal
number of warrants, for net proceeds of $4,511,558, after deducting
expenses of $371,067. The warrants are exercisable prior to June 26,
1999 at a per share price of $4.25, subject to certain anti-dilution
protection. As of December 31, 1994, no warrants had been exercised.
The proceeds from this offering were used for the Access acquisition
(Note 4).
In June 1994, the Company issued 400,000 shares of Series E Preferred
Stock, $.01 par value, and 700,000 shares of Series F Preferred
Stock, $.01 par value, in connection with the Access acquisition.
F-17<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED):
Series E Preferred Stock is entitled to a liquidation value of $3.75
per share and dividends of $.30 per share per annum, payable
cumulatively in the form of cash or the Company's common stock, and
the shares are non-voting. The shares rank senior to common stock,
junior to Series C Preferred Stock and on par with Series F
Preferred Stock. The Series E Preferred Stock previously issued was
converted into 400,000 shares of common stock in January 1995. In
addition, upon conversion, the holders received warrants, which
expire on December 31, 1999, to purchase 175,000 shares of common
stock, at an exercise price of $4.25 per share, subject to certain
anti-dilutive provisions.
Series F Preferred Stock is entitled to a liquidation value of $5.00
per share and no dividends. The shares are senior to common stock
and junior to Series C Preferred Stock. These shares are
convertible on July 1, 1995 into common stock at the liquidation
value, as adjusted and defined, and subject to certain anti-dilution
adjustments.
Additionally, the Company issued warrants to the sellers of Access
to purchase 225,000 shares of the Company's common stock at an
exercise price of $4.25 per share, subject to certain anti-dilution
adjustments.
The following table summarizes the number of common shares reserved
for issuance as of December 31, 1994. There were no preferred
shares reserved for issuance as of December 31, 1994.
<TABLE>
<S> <C>
Common stock purchase warrants 2,935,223
Preferred stock 2,134,504
----------
5,069,727
==========
</TABLE>
NOTE 10 - RESTATEMENT OF 1993 FINANCIAL STATEMENTS:
The Company has restated its 1993 financial statements to reflect
the write-off of certain startup costs of approximately $120,000,
previously capitalized, relating to certain cellular telephone
operations.
<TABLE>
<S> <C>
Income before extraordinary item:
As previously reported $410,221
As adjusted 290,174
Net income:
As previously reported 260,221
As adjusted 140,174
Net income (loss) per common share
before extraordinary item:
As previously reported .01
As adjusted (.01)
Net loss per common share:
As previously reported (.02)
As adjusted (.04)
Accumulated deficit:
As previously reported 24,128,237
As adjusted 24,248,284
</TABLE>
F-18<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCK OPTION PLANS:
The Company has non-qualified stock option plans which provide for
the grant of common stock options to officers, directors,
employees and certain advisors and consultants at the discretion
of the Board of Directors (Committee). All options granted are
exercisable at a minimum price equal to the fair market value of
the Company's common stock at the date of grant, and are
exercisable in accordance with vesting schedules set individually
by the Committee. As of December 31, 1994, as amended on April
11, 1995, 1,157,146 shares of common stock are reserved for
options, including options exercised to date, and the term of the
options granted is from five to ten years. The April 11, 1995
amendment is awaiting stockholder approval. The activity in the
plans was as follows:
<TABLE>
<CAPTION>
Exercise Price Per Share
Number of Weighted
Options Range Average
<S> <C> <C> <C>
Balance outstanding, Jan. 1, 1992 368,187 $1.72-24.50 $4.08
Granted 61,375 5.00 5.00
Expired (21,583) 2.84-24.50 17.09
Exercised (53,938) 1.72- 2.84 2.06
---------
Balance outstanding, Dec. 31, 1992 354,041 1.72-12.00 3.77
Granted 173,500 4.00- 5.50 5.32
Expired (28,780) 2.84-12.00 10.19
Exercised (35,000) 1.72- 2.84 2.36
---------
Balance outstanding, Dec. 31, 1993 463,761 1.72-11.00 4.06
Granted 317,000 3.25-4.50 3.60
Expired (59,062) 4.00-5.50 5.43
Exercised (25,000) 2.84 2.84
--------- --------- ---------
Balance outstanding, Dec. 31, 1994 696,699 $1.72-11.00 $3.78
======= ======= =======
</TABLE>
At December 31, 1994, options to purchase 314,695 shares of common
stock were exercisable.
In September 1994, the Board of Directors adopted the 1994 Director
Option Plan (the Director Plan) pursuant to which 250,000 shares of
common stock are reserved for issuance upon the exercise of options
to be granted to non-employee directors of the Company. Under the
Director Plan, an eligible director will automatically receive non-
statutory options to purchase 15,000 shares of common stock at an
exercise price equal to the fair market value of such shares at the
date of the grant. Each option shall vest over a three year
period, but generally may not be exercised more than 90 days after
the date an optionee ceases to serve as a director of the Company,
and expires after ten years from date of grant. As of December 31,
1994, options to purchase 105,000 shares of common stock have been
granted at an exercise price of $4.38. The Plan is awaiting
stockholder approval.
F-19<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - RETIREMENT AND SAVINGS PLAN:
On March 3, 1989, the Company adopted the Shared Technologies Inc.
Savings and Retirement Plan (the Plan). The Plan covers
substantially all of the Company's employees and the Company is
applying for compliance with section 401(k) of the Internal
Revenue Code. Participants in the Plan may elect to make
contributions up to a maximum of 20% of their compensation. For
each participant with one year of service, the Company will make a
matching contribution of one-half of the participant's before and
after tax contributions up to 5% of the participant's
compensation. Matching contributions may be made in the form of
the Company's common stock. Participants vest in the matching
contributions at the rate of 33% per year. The Company's expense
relating to the matching contributions was approximately $163,000,
$116,000 and $51,000 for 1994, 1993 and 1992, respectively.
NOTE 13 - INCOME TAXES:
For 1992, the Company recorded a provision for minimum federal and
state income taxes of $45,000, after the benefit of utilizing net
operating loss (NOL) carryforwards of approximately $3,000,000.
At December 31, 1994, the Company's NOL carryforward for federal
income tax return purposes is approximately $22,700,000 expiring
between 2001 and 2007. NOL's available for state income tax
purposes are less than those for federal purposes and generally
expire earlier than the federal NOL's. Limitations will apply to
the use of NOL's in the event certain changes in Company ownership
occur in the future.
For the years ended December 31, 1994 and 1993, taxes computed at
the statutory federal rate differ from the Company's effective
rate due primarily to the availability of NOL's.
The components of deferred income tax assets (liabilities) as of
December 31, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Tax effect of net operating loss
carryforwards $ 9,011 $ 9,789
Financial reserves not yet tax
deductible 233 130
Equipment (1,200) (1,114)
Goodwill (107)
--------- ---------
Deferred income tax asset 7,937 8,805
Valuation allowance (7,387) (8,805)
--------- ---------
Net deferred tax asset $ 550 $ -
========= =======
</TABLE>
F-20<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - INCOME TAXES (CONTINUED):
At December 31, 1994, the Company's net operating losses of
$22,700,000 are included in the gross deferred income tax asset of
$7,937,000, of which $550,000 was recorded as a deferred tax
asset, and the balance reserved through a valuation allowance of
$7,387,000.
SFAS No. 109, requires that the Company record a valuation
allowance when it is "more likely than not that some portion or
all of the deferred tax asset will not be realized". The ultimate
realization of this deferred tax asset depends on the ability to
generate sufficient taxable income in the future. The Company has
undergone substantial restructuring resulting in a lower and more
competitive cost structure. While management believes that the
total deferred tax asset will be fully realized by future
operating results together with tax planning opportunities, the
losses in recent years and a desire to be conservative make it
appropriate to record a valuation allowance.
NOTE 14 - COMMITMENTS AND CONTINGENCIES:
Contingencies - The Company had been the provider of
telecommunications services at the Jacob K. Javits Convention
Center (the Center) in New York City. Effective January 1, 1992,
as a result of a contractual dispute with the New York Convention
Center Operating Corporation (CCOC), the Company no longer
provided services at the Center. A claim for approximately
$5,400,000 was filed against the Company by CCOC for damages. In
November 1993, the litigation with CCOC was settled and provided
for the Company to pay $25,000 and issue a $550,000 note payable
over five years, with no interest. The present value of the note
was accrued by the Company (Note 7).
While providing services at the Center, the Company licensed the
right to provide certain public pay telephone services at the
Center to Tel-A-Booth Communications, Ltd. (Tel-A-Booth). Tel-A-
Booth has filed a claim against the Company which seeks
$10,000,000 in damages including $1,400,000 for equipment
purchased, for which no amounts have been provided in the
accompanying consolidated financial statements.
Discovery was completed in early 1995 and revealed certain
inconsistencies in plaintiff's claims, which cast in doubt the
bona fides of plaintiff's demand for $10 million on each of its
claims against the Company. Of the $10 million in claimed
damages, all but $1.4 million represents plaintiff's estimation of
lost profits as a result of the Company's alleged breach of
contract. The remaining $1.4 million represents the cost of the
400 telephones which plaintiff purportedly purchased for
installation at The Center, pursuant to the contract, but which
were ultimately not installed.
Furthermore, the Company has asserted that the pertinent contract
between plaintiff and the Company bars plaintiff's recovery of
lost profits. More specifically, the contract provides that "[n]
either party hereto shall be liable, directly or through any
indemnification provision herein, for consequential (including
lost profits) or indirect damages arising in any way out of this
Agreement." Although plaintiff has argued that the language
surrounding this clause limits its application to claims brought
by third parties and thus the clause was not intended to limit
damage claims between plaintiff and the Company, management
believes this is a further defense to the claim.
F-21<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
With respect to the $1.4 million damage claim, discovery has
revealed that plaintiff borrowed this entire amount from a private
lender, using the telephones to be purchased as collateral.
Subsequent to plaintiff's termination at The Center, the lender
took possession of the collateral (which was then sold) and
forgave the entire indebtedness in exchange. Arguably, plaintiff
suffered no direct damage from the alleged breach of contract
since plaintiff was restored to its initial position following
this transaction.
While any litigation contains an element of uncertainty,
management is of the opinion -based on the current status of the
claim - that the ultimate resolution of this matter should not
have a material adverse effect upon either results of operations,
cash flows or financial position of the Company.
The Company's sales and use tax returns in certain jurisdictions
are currently under examination. Management believes these
examinations will not result in a material change from liabilities
provided.
STC is a party to an employment claim which arose prior to STC's
acquisition of South. STC is seeking indemnification from South
(Note 16).
In addition to the above matters, the Company is a party to
various legal actions, the outcome of which, in the opinion of
management, will not have a material adverse effect on the
Company's financial condition and results of operations.
In November 1994, a subsidiary signed a letter of intent with an
investment banking firm for the purpose of underwriting an initial
public offering. If the public offering is successful and
depending on the number of shares sold, the Company's investment
in the subsidiary would be reduced from approximately 85% to
approximately 60%.
Commitments - The Company has entered into operating leases for
the use of office facilities and equipment, which expire through
October 2004. Certain of the leases are subject to escalations
for increases in real estate taxes and other operating expenses.
Rent expense amounted to approximately $1,856,000, $1,700,000 and
$1,676,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
Aggregate approximate future minimum rental payments under these
operating leases are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1995 $1,863,000
1996 1,483,000
1997 1,150,000
1998 988,000
1999 815,000
Thereafter 1,178,000
-----------
$7,477,000
===========
</TABLE>
F-22<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
In January 1994, the Company entered into a consulting agreement
for financial and marketing services, which expires in November
1996. The agreement provides for the following compensation;
$30,000 upon signing, $3,000 per month retainer, and $150,000 upon
the attainment of a specific financial ratio, which as of December
31, 1994 had not been attained. In addition, the consultant was
issued a three year warrant to purchase 300,000 shares of the
Company's common stock at a purchase price of $5.75 and a five
year warrant to purchase 250,000 shares of the Company's common
stock at a purchase price of $7.00 per share. The consultant may
not compete with the Company during the term of this agreement and
for two years thereafter.
The consultant, through its affiliate, acquired from the Company
approximately 1.5% (31,381 shares) of STC's common stock at a
price of $.08 per share.
In connection with the acquisit ion of East, STC entered into a
three year consulting agreement, providing that during the first
two years of the agreement the former owner is to be paid an
annual consulting fee equal to 3% of STC's total cellular
telephone rental revenues in excess of $4,000,000. In addition,
an annual bonus of $100,000 is payable if total cellular telephone
rental revenues exceed $5,000,000 per annum. The former owner may
not engage in any business competing with STC, within a certain
geographical area. For the year ended December 31, 1994,
approximately $203,000 of fees relating to this agreement were
incurred.
In February 1994, the Company entered into a consulting agreement
with a company controlled by the founder of Road and Show. The
agreement, which was amended effective September 1, 1994 and
expires December 31, 1996, provides for compensation of $205,000
and $200,000 for 1995 and 1996, respectively. In addition, the
original agreement provided for the issuance of 31,381 shares of
STC common stock, with a value ascribed thereto of $2,500 ($.08
per share). During the term of the agreement and for two years
thereafter, the consultant may not compete with STC in the
business of renting cellular telephones anywhere in the United
States, Mexico and Canada. The consultant also received options
to purchase 31,381 shares of STC's common stock at an exercise
price, as amended, of $4.20 per share, pursuant to STC's stock
option plan.
In connection with the Access acquisition, the Company has entered
into two employment agreements with former owners of Access. Each
agreement is for three years expiring in June 1997. If terminated
without cause, the Company shall pay all compensation due under
the agreements for the lesser of eighteen months or the time
remaining in the initial term. Aggregate minimum payments under
the agreements during the years ending December 31, 1995, 1996 and
1997 are $330,000, $342,500 and $175,000, respectively.
F-23<PAGE>
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - RELATED PARTY TRANSACTIONS:
In 1992, the Company issued 12,500 shares of common stock to a
Board of Directors member and former shareholder of a Company
acquired (BTC). The shares were issued since the Company was
unable to obtain the release of his guarantee of certain BTC
obligations in connection with the 1992 restructuring (Note 3).
The Company has also agreed to indemnify the individual for any
future amounts incurred by him related to his guarantee. The fair
value of the shares issued was recorded as an expense in 1992.
As of December 31, 1993, approximately $288,000 had been paid for
life insurance premiums made on behalf of the Company's president,
which was to be repaid from the proceeds of a $2,500,000 face
value life insurance policy which was owned by the president. In
January 1994, the beneficiary on the policy was changed to the
Company in order to reduce the premium payments required by the
Company. As of December 31, 1994, the amount due to the Company
for premiums paid exceeded the cash surrender value of the policy
by approximately $135,000. Accordingly, the President has agreed
to reimburse the Company for this amount. The receivable and cash
surrender value are reflected in other assets in the accompanying
consolidated balance sheets.
NOTE 16 - SUBSEQUENT EVENTS:
During January 1995, the Company commenced a private placement to
sell to a certain investor 300,000 shares of common stock at $4.25
per share, pursuant to Regulation S of the Securities Act of 1933.
In connection with this transaction, the underwriter received a
commission of $120,000 and a five year common stock purchase
warrant to acquire 30,000 shares of the Company's common stock for
$5.00 per share.
On January 17, 1995, STC filed a complaint against South (which
includes its affiliates). The complaint alleges that the failure
by South to disclose a certain claim constituted a breach of the
asset purchase agreement. STC seeks damages and a declaratory
judgement that the payment in the Company's common stock to South,
pursuant to the agreement, should be reduced by the amount of any
damages caused to the Company by such breach. In addition, the
Company seeks indemnification from South, including requiring
South to defend the Company from and against such claim.
On January 27, 1995, South commenced an action against STC
alleging, among other things, that STC's failure to deliver to
South the Company's common stock under the asset purchase
agreement constituted a breach of contract and fraud. South is
seeking unspecified actual and punitive damages of not less than
$10,000,000. STC sought a stay of this action and is considering
depositing the Company's common stock with the Court. Although it
has not received an opinion of counsel with regard to this matter,
STC believes it has meritorious defenses to this action. In the
event of an adverse outcome in this action, the Company does not
believe that damages payable would be material unless the market
value of the Company's common stock materially decreases prior to
delivery thereof.
F-24<PAGE>
SCHEDULE VIII
SHARED TECHNOLOGIES INC.
<TABLE>
<CAPTION>
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1994, 1993 AND 1992
Balance at Charged to Charged Balance
Beginning Cost and to Other at End
Description of Year Expenses Accounts Deductions(1) of Year
<S> <C> <C> <C> <C> <C>
December 31, 1992:
Allowance for doubtful
accounts and discounts $291,000 $96,000 $- $ 90,000 $297,000
December 31, 1993:
Allowance for doubtful
accounts and discounts 297,000 253,000 240,000 310,000
December 31, 1994:
Allowance for doubtful
accounts and discounts 310,000 412,617 138,617 584,000
</TABLE>
(1) Represents write off of uncollectible accounts, net of recoveries.
F-25<PAGE>
PART III
Items 10, 11, 12 and 13.
------------------------
The Company incorporates by reference in response to these
items its Proxy Statement for its Annual Meeting of Stockholders
to be held on May 23, 1995 (to be filed with the Securities and
Exchange Commission in definitive form on or before April 28,
1995).
PART IV
Item 14.
--------
Exhibits, Financial Statement Schedules and Reports on Form 10-K
----------------------------------------------------------------
Financial Statements (a)
--------------------
Independent Auditors' Report: Rothstein, Kass & Company, P.C.
Report of Independent Public Accountants: Arthur Andersen LLP
Consolidated Balance Sheets as of December 31, 1994 and 1993.
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flow for the years ended December
31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements
Financial Statements Schedule: Schedule VIII
(b) Reports on Form 8-K
-------------------
On January 25, 1995 the Company filed a Form 8K announcing a
change in independent public accountants to Rothstein, Kass &
Company, P.C. from Arthur Andersen LLP for the year end December
31, 1994.
(c) Exhibits
--------
Exhibit No. Description of Exhibit
=========== ======================
-22-<PAGE>
3.1 Restated Certificate of Incorporation of the
Registrant.
3.2 By-laws of the Registrant, as amended.
4.1 Specimen Certificate for Common Stock, as
amended to reflect the reverse one-for-four
stock split and corresponding change in par
value. Incorporated by reference from
Exhibit 4.1 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1992.
4.2 Certificates of Designation for Series D
Preferred Stock. Incorporated by reference
from Exhibit 4.2 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1993.
4.3 Form of Warrant Certificate associated with
Series D Preferred Stock offering.
Incorporated by reference from Exhibit 4.3 of
the Company's Form 10-K/A Amendment No. 1 for
December 31, 1993.
4.4 Form of Registration Rights Agreement
associated with Series D Preferred Stock
Offering. Incorporated by reference from
Exhibit 4.4 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1993.
10.1 Promissory Note dated June 4, 1990 in the
principal amount of $5,000,000 from
Registrant to Central Bank with Loan and
Security Agreement, Pledge Agreement,
Guaranty Agreement and Collateral Assignment
of Tenant Services Agreement. Incorporated
by reference from Exhibit 10.7 of the
Company's Form 10-K for December 31, 1990.
10.2 Revolving Note dated February 20, 1991 in the
principal amount of $750,000 from Registrant
to Central Bank with Letter Agreement and
Commercial Revolving Loan and Security
Agreement. Incorporated by reference from
Exhibit 10.4 of the Company's Form 10-K for
December 31, 1991.
10.3 Workout Agreement dated July 27, 1992 between
the Registrant and the Federal Deposit
Insurance Corporation in its capacity as
receiver for Central Bank and Trust Company.
-23-<PAGE>
Incorporated by reference from Exhibit 10.5
of the Company's Form 10-K/A Amendment No. 1
for December 31, 1992.
10.4 Form of Non-Bank Creditor Agreement.
Incorporated by reference from Exhibit 10.6
of the Company's Form 10-K/A Amendment No. 1
for December 31, 1992.
10.5 Form of Assent to Plan for a Common Law
Composition of all Non-Bank Creditors of
Registrant. Incorporated by reference from
Exhibit 10.7 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1992.
10.6 Asset purchase agreement by and between Road
and Show East, Inc. and Shared Technologies
Cellular, Inc. Incorporated by reference from
Exhibit 10.8 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1993.
10.7 Asset purchase agreement by and between Road
and Show South, Ltd. acting by Road and Show
South, Inc. and Shared Technologies Cellular,
Inc. Incorporated by reference from Exhibit
10.9 of the Company's Form 10-K/A Amendment
No. 1 for December 31, 1993.
10.8 Revolving Credit and Term Loan Agreement
between State Street Bank and Trust Company
and Shared Technologies Inc., Multi-Tenant
Services, Inc., and Boston Telecommunications
Group, Inc. Incorporated by reference from
Exhibit 10.10 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1993.
10.9 Purchase Agreement between Shared
Technologies Inc. and International Capital
Partners, Inc. and others. Incorporated by
reference from Exhibit 10.11 of the Company's
Form 10-K/A Amendment No. 1 for December 31,
1993.
10.10 Form of Common Stock Purchase Warrant.
Incorporated by reference from Exhibit 10.12
of the Company's Form 10-K/A Amendment No. 1
for December 31, 1993.
10.11 Partnership Interests and Share Purchase
Agreement by and among Access Telemanagement,
Inc., Access Trust, Ronald E. Scott, Kevin
-24-<PAGE>
Schottlaender and Shared Technologies Inc.
dated June 27, 1994. Incorporated by
reference to the Company's Form 8-K dated
June 27, 1994 and filed on July 8, 1994.
10.12 Accounts Security Agreement by and between
Access Telecommunication Group, L.P. and
MARTINET, Inc. for Access Trust, Ronald E.
Scott, Kevin Schottlaender and Trammel S.
Crow. Incorporated by reference to the
Company's Form 8-K dated June 27, 1994 and
filed on July 8, 1994.
10.13 Pledge Agreement between Shared Technologies
Inc. and MARTINET, Inc. for Access Trust,
Ronald E. Scott, Kevin Schottlaender and
Trammel S. Crow. Incorporated by reference
to the Company's Form 8-K dated June 27, 1994
and filed on July 8, 1994.
10.14 Registration Rights Agreement by and among
Shared Technologies Inc., Access Trust,
Ronald E. Scott and Kevin Schottlaender.
Incorporated by reference to the Company's
Form 8-K dated June 27, 1994 and filed on
July 8, 1994.
10.15 Form of Common Stock Purchase Warrant.
Incorporated by reference to the Company's
Form 8-K dated June 27, 1994 and filed on
July 8, 1994.
10.16 Consulting Agreement between Shared
Technologies Inc. and Vertical Financial
Holding.
11 Computation of Earnings Per Share and
Weighted Average Number of Shares
Outstanding.
21 List of subsidiaries of the Registrant.
-25-<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SHARED TECHNOLOGIES INC.
------------------------
(Registrant)
By /s/ Anthony D. Autorino
----------------------------------
Anthony D. Autorino
President, Principal Executive
Officer and Director
Date: April 11, 1995
By /s/ Vincent DiVincenzo
------------------------------
Vincent DiVincenzo
Senior Vice President - Finance and
Administration, Treasurer, Chief
Financial Officer and Director
Date: April 11, 1995
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ Anthony D. Autorino By /s/ William A. DiBella
---------------------------- ---------------------------
Anthony D. Autorino William A. DiBella,
President, Principal Executive Director
Officer and Director Date: April 11, 1995
Date: April 11, 1995
By /s/ James D. Rivette By /s/ Jo McKenzie
--------------------------- ------------------------
James D. Rivette, Director Jo McKenzie, Director
Date: April 11, 1995 Date: April 11, 1995
By_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ By /s/ Thomas H. Decker
--------------------------
Lewis M. Rambo, Ph.D., Director Thomas H. Decker, Director
Date: April 11, 1995 Date: April 11, 1995
-26-<PAGE>
By /s/ Ajit Hutheesing By_ _ _ _ _ _ _ _ _ _ _ _ _
---------------------
Ajit Hutheesing, Herbert L. Oakes, Jr.
Director Director
Date: April 11, 1995 Date: April 11, 1995
By /s/ Edward J. McCormack, Jr. By /s/ Vincent DiVincenzo
------------------------------- -------------------------
Edward J. McCormack, Jr. Vincent DiVincenzo,
Director Director
Date: April 11, 1995 Date: April 11, 1995
/s/ Ronald E. Scott By
--------------------------
Ronald E. Scott
Director
Date: April 11, 1995
-27-<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
SHARED TECHNOLOGIES INC.
INTRODUCTION. SHARED TECHNOLOGIES INC. was originally
incorporated under the name of Balcon, Inc. by Certificate of
Incorporation filed on September 23, 1987. By a Plan and
Agreement of Merger dated March 8, 1988, Balcon, Inc. merged with
Shared Technologies Inc., survived the merger, and changed its
name to Shared Technologies Inc. This restatement only restates
and integrates, and does not further amend, the provisions of the
Corporation's Restated Certificate of Incorporation as heretofore
amended or supplemented, and there is no discrepancy between the
provisions thereof and of this Restated Certificate of
Incorporation. This Restated Certificate of Incorporation was
duly adopted pursuant to Section 245 of the Delaware General
Corporation Law by the Board of Directors.
FIRST. The name of this corporation shall be:
SHARED TECHNOLOGIES INC.
SECOND. Its registered office in the State of Delaware is
to be located at 1013 Centre Road, in the City of Wilmington,
County of New Castle 19805, and its registered agent at such
address is CORPORATION SERVICE COMPANY.
THIRD. The purpose of the corporation shall be:
To engage in any lawful act or activity for which
corporations may be organized under the Delaware General
Corporation Law.
FOURTH. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is (i)
20,000,000 shares of Common Stock, $.004 par value per share
("Common Stock"), and (ii) 10,000,000 shares of Preferred Stock,
$.01 par value per share.
A. Common Stock. Shares of Common Stock shall have the
following voting powers, rights and preferences:
1. Voting Rights. Except as otherwise required by Statute
or as otherwise provided in this Restated Certificate of
Incorporation, the holders of shares of Common Stock shall be
entitled to vote on all matters at all meetings of the
29<PAGE>
stockholders of the Corporation, and shall be entitled to one
vote for each share of Common Stock entitled to vote at such
meeting, voting together, as one class, with the holders of any
shares of Preferred Stock who are entitled to vote, except to the
extent that a class vote for any class or series of stock is
required by statute.
2. Dividends. Subject to any preferential dividend rights
applicable to shares of Preferred Stock, the holders of shares of
Common Stock shall be entitled to receive such dividends as may
be declared by the Board of Directors.
3. Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, after distribution in full of the preferential
amounts to be distributed to the holders of shares of Preferred
Stock, the holders of shares of Common Stock shall be entitled to
receive all of the remaining assets of the Corporation available
for distribution to the holders of Common Stock, ratably in
proportion to the number of shares of Common Stock held by them.
B. Preferred Stock. Shares of Preferred Stock shall have
the following voting powers, rights and preferences.
Preferred Stock may be issued from time to time in one or
more series, each of such series to have such terms as stated or
expressed herein and in the resolution or resolutions providing
for the issue of such series adopted by the Board of Directors of
the Corporation as hereinafter provided. Any shares of any
series of Preferred Stock which may be redeemed, purchased or
acquired by the Corporation may be reissued as shares of the same
series or as shares of one or more other series of Preferred
Stock except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different
classes of shares for the purpose of voting by classes unless
expressly provided.
Authority is hereby expressly granted to the Board of
Directors from time to time to issue the Preferred Stock in one
or more series, and in connection with the creation of any such
series, by resolution or resolutions providing for the issue of
the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special
rights, and qualifications, limitations or restrictions thereof,
including without limitation dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be
stated and expressed in such resolutions, all to the full extent
now or hereafter permitted by the Delaware General Corporation
Law. Without limiting the generality of the foregoing, the
resolutions providing for issuance of any series of Preferred
30<PAGE>
Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series
to the extent permitted by law.
Designation of Series C Preferred Stock
---------------------------------------
1. Designation; Rank. The series of Preferred Stock
designated and known as "Series C Preferred Stock" shall consist
of 5,000,000 shares, par value $.01 per share. Shares of the
Series C Preferred Stock shall, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank
senior and prior to the Common Stock, par value $.004 per share
(the "Common Stock") of the Corporation and to any other class or
series of capital stock of the Corporation hereafter issued (all
of such equity securities of the Corporation to which the Series
C Preferred Stock ranks prior, including all classes of Common
Stock, are at times collectively referred to herein as the
"Junior Securities").
2. Dividends.
----------
(a) The holders of the Series C Preferred Stock shall be
entitled to receive, out of any funds legally available therefor,
dividends in cash at the annual rate of $.32 per share (subject
to appropriate adjustment for stock splits, stock dividends,
combinations or other similar recapitalizations affecting such
shares), and no more, in equal quarterly payments in arrears on
March 31, June 30, September 30 and December 31 in each year
(each such date is referred to as a "Dividend Payment Date")
commencing on September 30, 1992, payable in preference and
priority to any payment of any cash dividend on Common Stock or
any other shares of capital stock of this Corporation. Such
dividends shall be paid to the holders of record at the close of
business on the date specified by the Board of Directors of the
Corporation at the time such dividend is declared. If the
Dividend Payment Date is not a business day, the Dividend Payment
Date shall be the next succeeding business day.
(b) Each of such quarterly dividends shall be fully
cumulative and shall accrue, whether or not earned or declared,
without interest, from the first day of the quarter in which such
dividend may be payable as herein provided, except that with
respect to the first quarterly dividend, such dividend shall
accrue from September 15, 1992.
(c) No dividends shall be declared or paid or set apart for
payment on the Junior Securities, or on the Preferred Stock of
any series ranking, as to dividends, junior to the Series C
Preferred Stock, for any period unless full cumulative dividends
have been or contemporaneously are declared and paid (or declared
31<PAGE>
and a sum sufficient for the payment thereof set apart for such
payment) on the Series C Preferred Stock for all dividend payment
periods ending on or prior to the date of payment of such full
cumulative dividends. Unless full cumulative dividends on the
Series C Preferred Stock have been paid, no other distribution
shall be made upon the Junior Securities or upon any other such
series of Preferred Stock.
(d) In the event that the Corporation shall have
cumulative, accrued and unpaid dividends outstanding immediately
prior to, and in the event of a conversion of any shares of
Series C Preferred Stock as provided in Section 5 hereof, the
Corporation shall, at the option of the holder of such shares,
pay in cash to such holder the full amount of any such dividends
or allow such dividends to be converted into Common Stock in
accordance with, and pursuant to the terms specified in, Section
5 hereof, except that the Conversion Price (as that term is
defined in Section 5(a)) for such purpose shall be the then fair
market value of the Common Stock as determined by the Board of
Directors of the Corporation.
3. Liquidation, Dissolution or Winding Up.
---------------------------------------
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the
holders of shares of Series C Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, after and subject
to the payment in full of all amounts required to be distributed
to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the
Series C Preferred Stock (collectively referred to as "Senior
Preferred Stock"), but before any payment shall be made to the
holders of any Junior Securities by reason of their ownership
thereof, an amount equal to $4 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such
shares). If upon any such liquidation, dissolution or winding up
of the Corporation the remaining assets of the Corporation
available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series C Preferred
Stock the full amount to which they shall be entitled, the
holders of Series C Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation
in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such
shares were paid in full.
(b) After the payment of all preferential amounts required
to be paid to the holders of Senior Preferred Stock and Series C
32<PAGE>
Preferred Stock upon the dissolution, liquidation or winding up
of the Corporation, the holders of shares of Junior Securities
then outstanding shall be entitled to receive the remaining
assets and funds of the Corporation available for distribution to
its stockholders.
(c) Written notice of such liquidation, dissolution or
winding up, stating a payment date and the place where said
payments shall be made, shall be given by mail, postage prepaid,
or by telex to non-U.S. residents, not less than 20 days prior to
the payment date stated therein, to the holders of record of the
Series C Preferred Stock, such notice to be addressed to each
such holder at its address as shown by the records of the
Corporation.
(d) Whenever the distribution provided for in this Section
3 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the
Corporation.
(e) For the purposes of this Section 3, neither the
voluntary sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with one or
more other corporations shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, unless such
voluntary sale, conveyance, exchange or transfer shall be in
connection with a plan of liquidation, dissolution or winding up
of the business of the Corporation.
4. Voting
-------
(a) Except as may be otherwise provided in these terms of
the Series C Preferred Stock or by law, the Series C Preferred
Stock shall not be entitled to vote.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series C
Preferred Stock so as to affect adversely the Series C Preferred
Stock, without the written consent or affirmative vote of the
holders of a majority of the then outstanding shares of Series C
Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class.
For this purpose, without limiting the generality of the
foregoing, the authorization or issuance of any series of Series
Preferred Stock with preference or priority over the Series C
Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall be deemed to affect adversely the Series
33<PAGE>
C Preferred Stock, and the authorization or issuance of any
series of Series Preferred Stock on a parity with Series C
Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall not be deemed to affect adversely the
Series C Preferred Stock. The number of authorized shares of
Series C Preferred Stock may be increased or decreased (but not
below the number of shares then outstanding) by the affirmative
vote of the holders of a majority of the then outstanding shares
of the Common Stock, Series C Preferred Stock and all other
classes or series of stock of the Corporation entitled to vote
thereon, voting as a single class.
5. Optional Conversion. The holders of the Series C
Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series C Preferred
Stock shall be convertible, at the option of the holder thereof,
at any time and from time to time, into such number of fully paid
and nonassessable shares of Common Stock as is determined by
dividing $4.00 by the Conversion Price (as defined below) in
effect at the time of conversion. The conversion price at which
shares of Common Stock shall be deliverable upon conversion of
Series C Preferred Stock without the payment of additional
consideration by the holder thereof (the "Conversion Price")
shall initially be $8.00. Such initial Conversion Price, and the
rate at which shares of Series C Preferred Stock may be converted
into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a notice of redemption of any shares of
Series C Preferred Stock pursuant to Section 6 hereof, the
Conversion Rights of the shares designated for redemption shall
terminate at the close of business on the fifth full day
preceding the date fixed for redemption, unless the redemption
price is not paid when due, in which case the Conversion Rights
for such shares shall continue until such price is paid in full.
In the event of a liquidation of the Corporation, the Conversion
Rights shall terminate at the close of business on the first full
day preceding the date fixed for the payment of any amounts
distributable on liquidation to the holders of Series C Preferred
Stock.
(b) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of the Series C Preferred
Stock. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Corporation shall pay cash equal
to such fraction multiplied by the then effective Conversion
Price.
34<PAGE>
(c) Mechanics of Conversion.
(i) In order for a holder of Series C Preferred Stock
to convert shares of Series C Preferred Stock into shares of
Common Stock, such holder shall surrender the certificate or
certificates for such shares of Series C Preferred Stock at
the office of the transfer agent for the Series C Preferred
Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any
number of the shares of the Series C Preferred Stock
represented by such certificate or certificates. Such
notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If
required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in a form
satisfactory to the Corporation, duly executed by the
registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and
notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall,
as soon as practicable after the Conversion Date, issue and
deliver at such office to such holder of Series C Preferred
Stock, or to his or its nominees, a certificate or
certificates for the number of shares of Common Stock to
which such holder shall be entitled, together with cash in
lieu of any fraction of a share.
(ii) The Corporation shall at all times when the
Series C Preferred Stock shall be outstanding, reserve and
keep available out of its authorized but unissued stock, for
the purpose of effecting the conversion of the Series C
Preferred Stock, such number of its duly authorized shares
of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding Series C Preferred
Stock. Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par
value of the shares of Common Stock issuable upon conversion
of the Series C Preferred Stock, the Corporation will take
any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may
validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any accrued and unpaid
dividends on the Series C Preferred Stock surrendered for
conversion or on the Common Stock delivered upon conversion.
35<PAGE>
(iv) All shares of Series C Preferred Stock which
shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all
rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease
and terminate on the Conversion Date, except only the right
of the holders thereof to receive shares of Common Stock in
exchange therefor and payment of any accrued and unpaid
dividends thereon. Any shares of Series C Preferred Stock
so converted shall be retired and canceled and shall not be
reissued, and the Corporation may from time to time take
such appropriate action as may be necessary to reduce the
authorized Series C Preferred Stock accordingly.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this
Subsection 5(d), the following definitions shall apply:
(A) "Option" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire
Common Stock or Convertible Securities, excluding options
granted to employees or consultants of the Corporation
pursuant to an option plan adopted by the Board of Directors
(subject to appropriate adjustment for any stock dividend,
stock split, combination or other similar recapitalization
affecting such shares).
(B) "Original Issue Date" shall mean the date on
which a share of Series C Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any
evidences of indebtedness, shares or other securities
directly or indirectly convertible into or exchangeable for
Common Stock.
(D) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued (or, pursuant to
Subsection 5(d)(iii) below, deemed to be issued) by the
Corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable:
(I) upon conversion of shares of Series C
Preferred Stock outstanding on the Original Issue Date;
(II) as a dividend or distribution on Series
C Preferred Stock;
(III) by reason of a dividend, stock split,
split-up or other distribution on shares of Common
36<PAGE>
Stock excluded from the definition of Additional Shares
of Common Stock by the foregoing clauses (I) and (II)
or this clause (III); or
(IV) upon the exercise of options excluded
from the definition of "Option" in Subsection
5(d)(i)(A).
(ii) No Adjustment of Conversion Price. No adjustment
in the number of shares of Common Stock into which the
Series C Preferred Stock is convertible shall be made by
adjustment in the applicable Conversion Price thereof: (a)
unless the consideration per share (determined pursuant to
Subsection 5(d)(v)) for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less
than the applicable Conversion Price in effect on the date
of, and immediately prior to, the issue of such Additional
Shares, or (b) if prior to such issuance, the Corporation
receives written notice from the holders of at least a
majority of the then outstanding shares of Series C
Preferred Stock agreeing that no such adjustment shall be
made as the result of the issuance of Additional Shares of
Common Stock.
(iii) Issue of Securities Deemed Issue of Additional
Shares of Common Stock. If the Corporation at any time or
from time to time after the Original Issue Date shall issue
any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of
securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of
Common Stock (as set forth in the instrument relating
thereto without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon
the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been
fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per
share (determined pursuant to Subsection 5(d)(v) hereof) of
such Additional Shares of Common Stock would be less than
the applicable Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the
case may be, and provided further that in any such case in
which Additional Shares of Common Stock are deemed to be
issued:
37<PAGE>
(A) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of
such Options or conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise,
for any increase in the consideration payable to the
Corporation, or decrease in the number of shares of Common
Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(C) no radjustment pursuant to clause (B) above
shall have the effect of increasing the Conversion Price to
an amount which exceeds the lower of (i) the Conversion
Price on the original adjustment date, or (ii) the
Conversion Price that would have resulted from any issuance
of Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(D) upon the expiration or termination of any
unexercised Option, the Conversion Price shall not be
readjusted, but the Additional Shares of Common Stock deemed
issued as the result of the original issue of such Option
shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Price; and
(E) in the event of any change in the number of
shares of Common Stock issuable upon the exercise,
conversion or exchange of any Option or Convertible
Security, including, but not limited to, a change resulting
from the antidilution provisions thereof, the Conversion
Price then in effect shall forthwith be readjusted to such
Conversion Price as would have been obtained had the
adjustment which was made upon the issuance of such Option
or Convertible Security not exercised or converted prior to
such change been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of
Common Stock upon the exercise or conversion of any such
Option or Convertible Security.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the
Corporation shall at any time after the Original Issue Date
38<PAGE>
issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued
pursuant to Subsection 5(d)(iii), but excluding shares
issued as a dividend or distribution as provided in
Subsection 5(f) or upon a stock split or combination as
provided in Subsection 5(e)), without consideration or for a
consideration per share less than the applicable Conversion
Price in effect on the date of and immediately prior to such
issue, then, and in such event, such Conversion Price shall
be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying
such Conversion Price by a fraction, (A) the numerator of
which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2) the
number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total
number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price; and (B) the denominator
of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number
of such Additional Shares of Common Stock so issued;
provided that, for the purpose of this Subsection 5(d)(iv),
all shares of Common Stock issuable upon conversion of
shares of Series C Preferred Stock outstanding immediately
prior to such issue shall be deemed to be outstanding, and
immediately after any Additional Shares of Common Stock are
deemed issued pursuant to Subsection 5(d)(iii) (other than
shares excluded from the definition of "Additional Shares of
Common Stock" by virtue of clause (IV) of Subsection
5(d)(i)(D)), such Additional Shares of Common Stock shall be
deemed to be outstanding.
Notwithstanding the foregoing, the applicable
Conversion Price shall not be so reduced at such time if the
amount of such reduction would be an amount less than $.05,
but any such amount shall be carried forward and reduction
with respect thereto made at the time of and together with
any subsequent reduction which, together with such amount
and any other amount or amounts so carried forward, shall
aggregate $.05 or more.
(v) Determination of Consideration. For purposes of
this Subsection 5(d), the consideration received by the
Corporation for the issue of any Additional Shares of Common
Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be
computed at the aggregate of cash received by the
39<PAGE>
Corporation, excluding amounts paid or payable for
accrued interest or accrued dividends;
(II) insofar as it consists of property other
than cash, be computed at the fair market value thereof
at the time of such issue, as determined in good faith
by the Board of Directors; and
(III) in the event Additional Shares of
Common Stock are issued together with other shares or
securities or other assets of the Corporation for
consideration which covers both, be the proportion of
such consideration so received, computed as provided in
clauses (I) and (II) above, as determined in good faith
by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued
pursuant to Subsection 5(d)(iii) relating to Options and
Convertible Securities shall be determined by dividing (x)
the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount
of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such
Convertible Securities, by (y) the maximum number of shares
of Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon
the exercise of such Options or the conversion or exchange
of such Convertible Securities.
(e) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the
Original Issue Date for a series of Preferred Stock effect a
subdivision of the outstanding Common Stock, the Conversion Price
then in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time
or from time to time after the Original Issue Date for a series
of the Preferred Stock combine the outstanding shares of Common
Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment
under this paragraph shall become effective at the close of
40<PAGE>
business on the date the subdivision or combination becomes
effective.
(f) Adjustment for Certain Dividends and Distributions. In
the event the Corporation at any time, or from time to time after
the Original Issue Date for a series of Preferred Stock shall
make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in additional shares of Common Stock, then
and in each such event the Conversion Price for such series of
Preferred Stock then in effect shall be decreased as of the time
of such issuance or, in the event such a record date shall have
been fixed, as of the close of business on such record date, by
multiplying the Conversion Price for such series of Preferred
Stock then in effect by a fraction:
(i) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business
on such record date, and
(ii) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business
on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution;
provided however, if such record date shall have been fixed
and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Conversion
Price for such series of Preferred Stock shall be recomputed
accordingly as of the close of business on such record date
and thereafter the Conversion Price for such series of
Preferred Stock shall be adjusted pursuant to this paragraph
as of the time of actual payment of such dividends or
distributions.
(g) Adjustments for Other Dividends and Distributions. In
the event the Corporation at any time or from time to time after
the Original Issue Date for a series of Preferred Stock shall
make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in securities of the Corporation other than
shares of Common Stock, then and in each such event provision
shall be made so that the holders of such series of Preferred
Stock shall receive upon conversion thereof in addition to the
number of shares of Common Stock receivable thereupon, the amount
of securities of the Corporation that they would have received
had their Preferred Stock been converted into Common Stock on the
date of such event and had thereafter, during the period from the
date of such event to and including the conversion date, retained
such securities receivable by them as aforesaid during such
41<PAGE>
period giving application to all adjustments called for during
such period, under this paragraph with respect to the rights of
the holders of the Preferred Stock.
(h) Adjustment for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon the conversion
of the Preferred Stock shall be changed into the same or a
different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in
each such event the holder of each such share of Preferred Stock
shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification,
or other change, by holders of the number of shares of Common
Stock into which such shares of Preferred Stock might have been
converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as
provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case
of any consolidation or merger of the Corporation with or into
another corporation or the sale of all or substantially all of
the assets of the Corporation to another corporation (other than
a consolidation, merger or sale which is treated as a liquidation
pursuant to Subsection 3(a)), each share of Series C Preferred
Stock shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series C Preferred Stock
would have been entitled upon such consolidation, merger or sale;
and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application
of the provisions in this Section 5 set forth with respect to the
rights and interest thereafter of the holders of the Series C
Preferred Stock, to the end that the provisions set forth in this
Section 5 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the
conversion of the Series C Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment
of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the
42<PAGE>
carrying out of all the provisions of this Section 5 and in the
taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the
Series C Preferred Stock against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant
to this Section 5, the Corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of Series C
Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series C
Preferred Stock, furnish or cause to be furnished to such holder
a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if
any, of other property which then would be received upon the
conversion of Series C Preferred Stock.
(1) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock payable in Common
Stock or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock
of the Corporation (other than a subdivision or combination
of its outstanding shares of Common Stock or a stock
dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with
another corporation, or of the sale of all or substantially
all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal
office or at the office of the transfer agent of the Series C
Preferred Stock, and shall cause to be mailed to the holders of
the Series C Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least
ten days prior to the record date specified in (A) below or
twenty days before the date specified in (B) below, a notice
stating
43<PAGE>
(A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is
not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as
of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution
or winding up.
6. Optional Redemption.
(a) At any time and from time to time after June 30, 1993,
the Corporation may, at the option of its Board of Directors,
redeem the Series C Preferred Stock, in whole or in part, by
paying $6 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations or other similar
recapitalization affecting such shares) in cash for each share of
Series C Preferred Stock then redeemed (hereinafter referred to
as the "Redemption Price").
(b) In the event of any redemption of only a part of the
then outstanding Series C Preferred Stock, the Corporation shall
effect such redemption pro rata among the holders thereof based
on the number of shares of Series C Preferred Stock held by such
holders on the date of the Redemption Notice (as defined below).
(c) `At least 30 days prior to the date fixed for any
redemption of Series C Preferred Stock (hereinafter referred to
as the "Redemption Date"), written notice shall be mailed, by
first class or registered mail, postage prepaid, to each holder
of record of Series C Preferred Stock to be redeemed, at his or
its address last shown on the records of the transfer agent of
the Series C Preferred Stock (or the records of the Corporation,
if it serves as its own transfer agent), notifying such holder of
the election of the Corporation to redeem such shares, specifying
the Redemption Date and the date on which such holder's
Conversion Rights (pursuant to Section 5 hereof) as to such
shares terminate and calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, his, her
or its certificate or certificates representing the shares to be
redeemed (such notice is hereinafter referred to as the
"Redemption Notice"). On or prior to the Redemption Date, each
holder of Series C Preferred Stock to be redeemed shall surrender
his, her or its certificate or certificates representing such
44<PAGE>
shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate shall be canceled.
In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the
Redemption Date, unless there shall has been a default in payment
of the Redemption Price, all rights of the holders of the Series
C Preferred Stock designated for redemption in the Redemption
Notice as holders of Series C Preferred Stock of the Corporation
(except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates)
shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the Corporation or
be deemed to be outstanding for any purpose whatsoever.
(d) Subject to the provisions hereof, the Board of
Directors of the Corporation shall have authority to prescribe
the manner in which Series C Preferred Stock shall be redeemed
from time to time. Any shares of Series C Preferred Stock so
redeemed shall permanently be retired, shall no longer be deemed
outstanding and shall not under any circumstances be reissued,
and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series C
Preferred Stock accordingly. Nothing herein contained shall
prevent or restrict the purchase by the Corporation, from time to
time either at public or private sale, of the whole or any part
of the Series C Preferred Stock at such price or prices as the
Corporation may determine, subject to the provisions of
applicable law.
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45<PAGE>
Designation of Series D Preferred Stock
---------------------------------------
1. Designation; Rank. The series of Preferred Stock
designated and known as "Series D Preferred Stock" shall consist
of 1,000,000 shares, par value $.01 per share. Shares of the
Series D Preferred Stock shall, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank
senior and prior to the Common Stock, par value $.004 per share
(the "Common Stock") of the Corporation and junior to the Series
C Preferred Stock.
2. Dividends.
---------
(a) The holders of the Series D Preferred Stock shall be
entitled to receive, when declared by the Directors out of any
funds legally available therefor, dividends in cash at the annual
rate of $0.2375 per share (subject to appropriate adjustment for
stock splits, stock dividends, combinations or other similar
recapitalizations affecting such shares), and no more, in equal
quarterly payments in arrears on March 31, June 30, September 30
and December 31 in each year (each such date is referred to as a
"Dividend Payment Date") commencing on March 31, 1994, payable in
preference and priority to any payment of any cash dividend on
Common Stock and junior in preference and priority to any payment
of any cash dividend to the holders of Series C Preferred Stock.
Such dividends shall be paid to the holders of record at the
close of business on the date specified by the Board of Directors
of the Corporation at the time such dividend is declared;
provided, however, that the amount payable to shareholders for
the first such dividend due on March 31, 1994, shall be pro-rated
on a daily basis from the date of issue. If the Dividend Payment
Date is not a business day, the Dividend Payment Date shall be
the next succeeding business day.
(b) Each of such quarterly dividends shall be fully
cumulative and shall accrue, whether or not earned or declared,
without interest, from the date of issue of the Series D
Preferred Stock.
(c) No dividends shall be declared or paid or set apart for
payment on the Common Stock, or on the Preferred Stock of any
series ranking, as to dividends, junior to the Series D Preferred
Stock, for any period unless full cumulative dividends have been
or contemporaneously are declared and paid (or declared and a sum
sufficient for the payment thereof set apart for such payment) on
the Series D Preferred Stock for all dividend payment periods
ending on or prior to the date of payment of such full cumulative
dividends. (The Common Stock and any such series of Preferred
Stock are referred to hereinafter as "Junior Securities".)
Unless full cumulative dividends on the Series D Preferred Stock
46<PAGE>
have been paid, no other distribution shall be made upon or in
respect of the Junior Securities.
(d) In the event that the Corporation shall have cumulative,
accrued and unpaid dividends outstanding immediately prior to,
and in the event of a conversion of any shares of Series D
Preferred Stock as provided in Section 5 hereof, the Corporation
shall, at its option, pay in cash to such holder the full amount
of any such dividends or allow such dividends to be converted
into Common Stock and the conversion price for such purpose shall
be the then fair market value of the Common Stock as determined
by the Board of Directors of the Corporation.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the
holders of shares of Series D Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, after and subject
to the payment in full of all amounts required to be distributed
to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the
Series D Preferred Stock, (collectively referred to as "Senior
Preferred Stock") but before any payment shall be made to the
holders of any Junior Securities by reason of their ownership
thereof, an amount equal to $4.75 per share (subject to
appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting
such shares). If upon any such liquidation, dissolution or
winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series D
Preferred Stock the full amount to which they shall be entitled,
the holders of Series D Preferred Stock shall share ratably in
any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon
such distribution if all amounts payable on or with respect to
such shares were paid in full.
(b) After the payment of all preferential amounts required
to be paid to the holders of Senior Preferred Stock and Series D
Preferred Stock upon the dissolution, liquidation or winding up
of the Corporation, the holders of shares of Junior Securities
then outstanding shall be entitled to receive the remaining
assets and funds of the Corporation available for distribution to
its stockholders.
(c) Written notice of such liquidation, dissolution or
winding up, stating a payment date and the place where said
47<PAGE>
payments shall be made, shall be given by mail, postage prepaid,
or by telecopier to non-U.S. residents, not less than 20 days
prior to the payment date stated therein, to the holders of
record of the Series D Preferred Stock, such notice to be
addressed to each such holder at its address as shown by the
records of the Corporation.
(d) Whenever the distribution provided for in this Section 3
shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the
Corporation.
(e) For the purposes of this Section 3, neither the
voluntary sale, conveyance, exchange or transfer (for case,
shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with one or
more other corporations shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, unless such
voluntary sale, conveyance, exchange or transfer shall be in
connection with a plan of liquidation, dissolution or winding up
of the business of the Corporation.
4. Voting.
(a) Except as may be otherwise provided in these terms of
the Series D Preferred Stock or by law, the Series D Preferred
Stock shall not be entitled to vote.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series D
Preferred Stock so as to affect adversely the Series D Preferred
Stock, without the written consent or affirmative vote of the
holders of a majority of the then outstanding shares of Series D
Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class.
For this purpose, without limiting the generality of the
foregoing, the authorization or issuance of any series of
Preferred Stock with preference or priority over the Series D
Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall be deemed to affect adversely the Series
D Preferred Stock, and the authorization or issuance of any
series of Preferred Stock on a parity with Series D Preferred
Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the
Corporation shall be deemed not to affect adversely the Series D
Preferred Stock. The number of authorized shares of Series D
Preferred Stock may be increased or decreased (but not below the
number of shares then outstanding) by the affirmative vote of the
48<PAGE>
holders of a majority of the then outstanding shares of the
Common Stock, Series D Preferred Stock and all other classes or
series of stock of the Corporation entitled to vote thereon,
voting as a single class.
5. Optional Conversion. The holders of the Series D
Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series D Preferred
Stock shall be convertible, at the option of the holder thereof,
at any time, into one share of fully paid and nonassessable
Common Stock (subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar
recapitalization affecting such shares).
In the event of a notice of redemption of any shares of
Series D Preferred Stock pursuant to Section 6 hereof, the
Conversion Rights of the shares designated for redemption shall
terminate at the close of business on the fifth full day
preceding the date fixed for redemption, unless the redemption
price is not paid when due, in which case the Conversion Rights
for such shares shall continue until such price is paid in full.
In the event of a liquidation of the Corporation, the Conversion
Rights shall terminate at the close of business on the first full
day preceding the date fixed for the payment of any amounts
distributable on liquidation to the holders of Series D Preferred
Stock.
(b) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series D Preferred Stock.
In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by the then effective Conversion Price.
(c) Mechanics of Conversion.
----------------------
(i) In order for a holder of Series D Preferred Stock
to convert shares of Series D Preferred Stock into shares of
Common Stock, such holder shall surrender the certificate or
certificates for such shares of Series D Preferred Stock at
the office of the transfer agent for the Series D Preferred
Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any
number of the shares of the Series D Preferred Stock
represented by such certificate or certificates for shares
of Common stock to be issued, provided however, that the
holder shall pay any transfer taxes arising from the
issuance of the Common Stock to any person or entity other
than the holder. If required by the Corporation,
49<PAGE>
certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of
transfer, in a form satisfactory to the Corporation, duly
executed by the registered holder or his or its attorney
duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date").
The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such
holder of Series D Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be
entitled, together with cash in lieu of any fraction of a
share.
(ii) The Corporation shall at all times when the Series
D Preferred Stock shall be outstanding, reserve and keep
available out of is authorized but unissued stock, for the
purpose of effecting the conversion of the Series D
Preferred Stock, such number of its duly authorized shares
of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding Series D Preferred
Stock.
(iii) All shares of Series D Preferred Stock which
shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all
rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease
and terminate on the Conversion Date, except only the right
of the holders thereof to receive shares of Common Stock in
exchange therefor and payment of any accrued and unpaid
dividends thereon. Any shares of Series D Preferred Stock
so converted shall be retired and canceled and shall not be
reissued, and the Corporation may from time to time take
such appropriate action as may be necessary to reduce the
authorized Series D Preferred Stock accordingly.
(d) Adjustment for Reclassification, Exchange, or
Substitution. If the Common Stock issuable upon the conversion
of the Series D Preferred Stock shall be changed into the same or
a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock
dividend provided for above in section 5(a) hereof, or a
reorganization, merger, consolidation, or sale of assets provided
for below in Section 5(e) hereof), then and in each event the
holder of each such share of Series D Preferred Stock shall have
the right thereafter to convert such share of Series D Preferred
Stock into the kind and amount of shares of stock and other
50<PAGE>
securities receivable upon such reorganization, reclassification,
or other change by a holder of the number of shares of Common
Stock into which such shares of Series D Preferred Stock might
have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as
provided herein.
(e) Adjustment for Merger or Reorganization, etc. In case
of any consolidation or merger of the Corporation with or into
another corporation or the sale of all or substantially all of
the assets of the Corporation to another corporation (other than
a consolidation, merger or sale which is treated as a liquidation
pursuant to Subsection 3(a)), each share of Series D Preferred
Stock shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series D Preferred Stock
would have been entitled upon such consolidation, merger or sale;
and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application
of the provisions in this Section 5 with respect to the rights
and interest thereafter of the holders of the Series D Preferred
Stock, to the end that the provisions set forth in this Section 5
shall thereafter be applicable, as nearly as reasonably may be,
in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series D Preferred Stock.
(f) No Impairment. The Corporation will not, by amendment
of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this section 5 and in the
taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the
Series D Preferred Stock against impairment.
(g) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock payable in Common
Stock or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of
the Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock or a stock dividend
51<PAGE>
or stock distribution thereon), or of any consolidation or
merger of the Corporation into or with another corporation,
or of the sale of all or substantially all of the assets of
the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal
office or at the office of the transfer agent of the Series D
Preferred Stock, and shall cause to be mailed to the holders of
the Series D Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least
ten days prior to the record date specified in (A) below or
twenty days before the date specified in (B) below, a notice
stating
(A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is
not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as
of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution
or winding up.
6. Optional Redemption.
(a) At any time and from time to time, the Corporation may,
at the option of its Board of Directors, redeem the Series D
Preferred Stock, in whole or in part, by paying $7 per share
(subject to appropriate adjustment for stock splits, stock
dividends, combinations or other similar recapitalizations
affecting such shares) in cash for each share of Series D
Preferred Stock then redeemed (hereinafter referred to as the
"Redemption Price").
(b) In the event of any redemption of only a part of the
then outstanding Series D Preferred Stock, the Corporation shall
effect such redemption pro rata among the holders thereof based
on the number of shares of Series D Preferred Stock held of
record by such holders on the date of the Redemption Notice (as
defined below).
52<PAGE>
(c) At least 30 days prior to the date fixed for any
redemption of Series D Preferred Stock (hereinafter referred to
as the "Redemption Date"), written notice shall be mailed, by
first class mail, postage prepaid, to each holder of record of
Series D Preferred Stock to be redeemed, at his or its address
last shown on the records of the transfer agent of the Series D
Preferred Stock (or the records of the Corporation, if it serves
as its own transfer agent), notifying such holder of the election
of the Corporation to redeem such shares specifying the
Redemption Date and the date on which such holder's Conversion
Rights (pursuant to Section 5 hereof) as to such shares terminate
and calling upon such holder to surrender to the Corporation, in
the manner and at the place designated, his, her or its
certificate or certificates representing the shares to be
redeemed (such notice is hereinafter referred to as the
"Redemption Notice"). On or prior to the Redemption Date, each
holder of Series D Preferred Stock to be redeemed shall surrender
his, her or its certificate or certificates representing such
shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate shall be canceled.
In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the
Redemption Date, unless there shall have been a default in
payment of the Redemption Price, all rights of the holders of the
Series D Preferred Stock designated for redemption in the
Redemption Notice as holders of Series D Preferred Stock of the
Corporation (except the right to receive the Redemption Price
without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose
whatsoever.
(d) Subject to the provisions hereof, the Board of Directors
of the Corporation shall have authority to prescribe the manner
in which Series D Preferred Stock shall be redeemed from time to
time. Any shares of Series D Preferred Stock so redeemed shall
permanently be retired, shall no longer be deemed outstanding and
shall not under any circumstances be reissued, and the
Corporation may from time to time take such appropriate action as
may be necessary to reduce the authorized Series D Preferred
Stock accordingly. Nothing herein contained shall prevent or
restrict the purchase by the Corporation, from time to time
either at public or private sale, of the whole or any part of the
Series D Preferred Stock at such price or prices as the
Corporation may determine, subject to the provisions of
applicable law.
53<PAGE>
Designation of Series E Preferred Stock
1. Designation; Rank. The series of Preferred Stock
designated and known as "Series E Preferred Stock" shall consist
of 400,000 shares, par value $.01 per share. Shares of the
Series E Preferred Stock shall, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank
senior and prior to the Common Stock, par value $.004 per share
(the "Common Stock") of the Corporation, junior to the Series C
Preferred Stock and on a parity with the Series D Preferred Stock
and Series F Preferred Stock.
2. Dividends.
----------
(a) The holders of the Series E Preferred Stock shall be
entitled to receive, when declared by the Directors out of any
funds legally available therefor, dividends in cash or, at the
Corporation's option, in Common Stock, at the annual rate of
$0.30 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations or other similar
recapitalizations affecting such shares), and no more, on the
earlier to occur of (i) the Conversion Date (as hereinafter
defined) and (ii) the Redemption Date (as hereinafter defined)
(the "Dividend Payment Date"), payable in preference and priority
to any payment of any cash dividend on Common Stock, junior in
preference and priority to any dividend payment to the holders of
Series C Preferred Stock and on a parity with any dividend
payment to the holders of Series D Preferred Stock and Series F
Preferred Stock. Such dividends shall be paid to the holders of
record at the close of business on the Dividend Payment Date. If
the Dividend Payment Date is not a business day, the Dividend
Payment Date shall be the next succeeding business day. If the
Corporation elects to pay such dividends in Common Stock, the
conversion price per share (the "Conversion Price") shall be the
lesser of (i) $3.75 and (ii) the closing price per share of the
Common Stock on the principal national securities exchange on
which the Common Stock is then listed or admitted to trading or,
if not then listed or admitted to trading on any such exchange,
on the NASDAQ National Market System, or if not then listed or
traded on any such exchange or system, the bid price per share on
the NASDAQ Small-Cap Market, averaged over the 30 trading days
immediately preceding the Conversion Date (subject to appropriate
adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such
shares).
(b) Dividends shall be fully cumulative and shall accrue,
whether or not earned or declared, without interest, from the
date of issue of the Series E Preferred Stock.
54<PAGE>
(c) No dividends shall be declared or paid or set apart for
payment on the Common Stock, or on the Preferred Stock of any
series ranking, as to dividends, junior to or on a parity with
the Series E Preferred Stock, for any period unless full
cumulative dividends have been or contemporaneously are declared
and paid (or declared and a sum sufficient for the payment
thereof set apart for such payment) on the Series E Preferred
Stock for all dividend payment periods ending on or prior to the
date of payment of such full cumulative dividends. (The Common
Stock and any such series of Preferred Stock are referred to
hereinafter as "Junior Securities".) Unless full cumulative
dividends on the Series E Preferred Stock have been paid, no
other distribution shall be made upon or in respect of the Junior
Securities.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the
holders of shares of Series E Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, after and subject
to the payment in full of all amounts required to be distributed
to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the
Series E Preferred Stock, (collectively referred to as "Senior
Preferred Stock") but before any payment shall be made to the
holders of any Junior Securities by reason of their ownership
thereof, and on a parity with any dividend payment to the holders
of Series D Preferred Stock and Series F Preferred Stock, an
amount equal to $3.75 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such
shares). If upon any such liquidation, dissolution or winding up
of the Corporation the remaining assets of the Corporation
available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series E Preferred
Stock the full amount to which they shall be entitled, the
holders of Series E Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation
in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such
shares were paid in full.
(b) After the payment of all preferential amounts required
to be paid to the holders of Senior Preferred Stock and Series E
Preferred Stock upon the dissolution, liquidation or winding up
of the Corporation, the holders of shares of Junior Securities
then outstanding shall be entitled to receive the remaining
55<PAGE>
assets and funds of the Corporation available for distribution to
its stockholders.
(c) Written notice of such liquidation, dissolution or
winding up, stating a payment date and the place where said
payments shall be made, shall be given by mail, postage prepaid,
or by telecopier to non-U.S. residents, not less than 20 days
prior to the payment date stated therein, to the holders of
record of the Series E Preferred Stock, such notice to be
addressed to each such holder at its address as shown by the
records of the Corporation.
(d) Whenever the distribution provided for in this Section 3
shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the
Corporation.
(e) For the purposes of this Section 3, neither the
voluntary sale, conveyance, exchange or transfer (for case,
shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with one or
more other corporations shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, unless such
voluntary sale, conveyance, exchange or transfer shall be in
connection with a plan of liquidation, dissolution or winding up
of the business of the Corporation.
4. Voting.
-------
(a) Except as may be otherwise provided in these terms of
the Series E Preferred Stock or by law, the Series E Preferred
Stock shall not be entitled to vote.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series E
Preferred Stock so as to affect adversely the Series E Preferred
Stock, without the written consent or affirmative vote of the
holders of a majority of the then outstanding shares of Series E
Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class.
For this purpose, without limiting the generality of the
foregoing, the authorization or issuance of any series of
Preferred Stock with preference or priority over the Series E
Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall be deemed to affect adversely the Series
E Preferred Stock, and the authorization or issuance of any
series of Preferred Stock on a parity with Series E Preferred
Stock as to the right to receive either dividends or amounts
56<PAGE>
distributable upon liquidation, dissolution or winding up of the
Corporation shall be deemed not to affect adversely the Series E
Preferred Stock. The number of authorized shares of Series E
Preferred Stock may be increased or decreased (but not below the
number of shares then outstanding) by the affirmative vote of the
holders of a majority of the then outstanding shares of the
Common Stock, Series E Preferred Stock and all other classes or
series of stock of the Corporation entitled to vote thereon,
voting as a single class.
5. Conversion.
-----------
(a) Mandatory Conversion. On January 1, 1995 (the
"Conversion Date"), each share of Series E Preferred Stock shall
automatically and without further action on the part of any
holder of Series E Preferred Stock be converted into the number
of shares of fully paid and nonassessable Common Stock derived by
dividing $3.75 by the Conversion Price. Upon such conversion,
each share of Series E Preferred Stock shall be canceled and not
subject to reissuance. On or before September 30, 1994, the
Corporation shall provide written notice (the "Conversion
Notice") to the holders hereof of the Corporation's intention not
to exercise the redemption option provided for in Section 6
hereof and to allow the Series E Preferred Stock to automatically
convert pursuant to this Section 5(a). The immediately preceding
sentence notwithstanding, the Corporation shall not be deemed to
have waived its right to redeem the Series E Preferred Stock
pursuant to Section 6 hereof by virtue of the issuance of the
Conversion Notice."
(b) Delivery of Stock Certificates. The holder of any
shares of Series E Preferred Stock converted pursuant to Section
5(a) hereof, shall deliver to the Corporation during regular
business hours at the office of the transfer agent of the
Corporation for the Series E Preferred Stock, or at such other
place as may be designated by the Corporation, the certificate or
certificates for the shares so converted, duly endorsed or
assigned in blank to the Corporation. As promptly as practicable
thereafter, the Corporation shall issue and deliver to such
holder, at the place designated by such holder, a certificate or
certificates for the number of shares of Common Stock to which
such holder is entitled. The person in whose name the
certificate for such Common Stock is to be issued shall be deemed
to have become a stockholder of record on the Conversion Date
unless the transfer books of the Corporation are closed on that
date, in which event he shall be deemed to have become a
stockholder of record on the next succeeding date on which the
transfer books are open.
(c) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series E Preferred Stock.
57<PAGE>
In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by the Conversion Price.
(d) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the date
on which a share of Series E Preferred Stock was first issued
("Original Issue Date") effect a subdivision of the outstanding
Common Stock, the Conversion Price then in effect immediately
before that subdivision shall be proportionately decreased. If
the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common
Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment
under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes
effective.
(e) Adjustment for Certain Dividends and Distributions. In
the event the Corporation at any time, or from time to time after
the Original Issue Date shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the
Conversion Price for the Series E Preferred Stock then in effect
shall be decreased as of the time of such issuance or, in the
event such a record date shall have been fixed, as of the close
of business on such record date, by multiplying the Conversion
Price for the Series E Preferred Stock then in effect by a
fraction:
(i) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business
on such record date, and
(ii) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business
on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed
and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Conversion
Price for the Series E Preferred Stock shall be recomputed
accordingly as of the close of business on such record date
and thereafter the Conversion Price for the Series E
Preferred Stock shall be adjusted pursuant to this paragraph
as of the time of actual payment of such dividends or
distributions.
58<PAGE>
(f) Adjustments for Other Dividends and Distributions. In
the event the Corporation at any time or from time to time after
the Original Issue Date shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities
of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of
the Series E Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation
that they would have received had their Preferred Stock been
converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and
including the conversion date, retained such securities
receivable by them as aforesaid during such period giving
application to all adjustments called for during such period,
under this paragraph with respect to the rights of the holders of
the Preferred Stock.
(g) Adjustment for Reclassification, Exchange, or
Substitution. If the Common Stock issuable upon the conversion
of the Series E Preferred Stock shall be changed into the same or
a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock
dividend provided for in Sections 5(d), (e) and (f) hereof, or a
reorganization, merger, consolidation, or sale of assets provided
for in Section 5(h) hereof), then and in each event the holder of
each such share of Series E Preferred Stock shall have the right
thereafter to convert such share of Series E Preferred Stock into
the kind and amount of shares of stock and other securities
receivable upon such reorganization, reclassification, or other
change by a holder of the number of shares of Common Stock into
which such shares of Series E Preferred Stock might have been
converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as
provided herein.
(h) Adjustment for Merger or Reorganization, etc. In case
of any consolidation or merger of the Corporation with or into
another corporation or the sale of all or substantially all of
the assets of the Corporation to another corporation (other than
a consolidation, merger or sale which is treated as a liquidation
pursuant to Subsection 3(a)), each share of Series E Preferred
Stock shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series E Preferred Stock
would have been entitled upon such consolidation, merger or sale;
and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application
59<PAGE>
of the provisions in this Section 5 with respect to the rights
and interest thereafter of the holders of the Series E Preferred
Stock, to the end that the provisions set forth in this Section 5
shall thereafter be applicable, as nearly as reasonably may be,
in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series E Preferred Stock.
(i) No Impairment. The Corporation will not, by amendment
of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the
taking of all such action as may be necessary or appropriate in
order to protect the holders of the Series E Preferred Stock
against impairment of their conversion rights.
(j) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock payable in Common
Stock or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of
the Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock or a stock dividend
or stock distribution thereon), or of any consolidation or
merger of the Corporation into or with another corporation,
or of the sale of all or substantially all of the assets of
the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal
office or at the office of the transfer agent of the Series E
Preferred Stock, and shall cause to be mailed to the holders of
the Series E Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least
ten (10) days prior to the record date specified in (A) below or
twenty (20) days before the date specified in (B) below, a notice
stating
(A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is
not to be taken, the date as of which the holders of Common
60<PAGE>
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as
of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution
or winding up.
(k) Optional Conversion. Except as set forth in
Section 5(a) hereof, the holders of the Series E Preferred Stock
shall not have the right to convert their shares of Series E
Preferred Stock into Common Stock.
6. Optional Redemption.
(a) At any time and from time to time on or before December
31, 1994, the Corporation may, at the option of its Board of
Directors, redeem the Series E Preferred Stock, in whole or in
part, by paying $3.75 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations or
other similar recapitalizations affecting such shares) in cash
for each share of Series E Preferred Stock then redeemed
(hereinafter referred to as the "Redemption Price").
(b) In the event of any redemption of only a part of the
then outstanding Series E Preferred Stock, the Corporation shall
effect such redemption pro rata among the holders thereof based
on the number of shares of Series E Preferred Stock held of
record by such holders on the date of the Redemption Notice (as
defined below).
(c) At least ten (10) days prior to the date fixed for any
redemption of Series E Preferred Stock (hereinafter referred to
as the "Redemption Date"), written notice shall be mailed, by
first class mail, postage prepaid, to each holder of record of
Series E Preferred Stock to be redeemed, at his or its address
last shown on the records of the transfer agent of the Series E
Preferred Stock (or the records of the Corporation, if it serves
as its own transfer agent), notifying such holder of the election
of the Corporation to redeem such shares specifying the
Redemption Date and calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, his, her
or its certificate or certificates representing the shares to be
redeemed (such notice is hereinafter referred to as the
"Redemption Notice"). On or prior to the Redemption Date, each
holder of Series E Preferred Stock to be redeemed shall surrender
61<PAGE>
his, her or its certificate or certificates representing such
shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate shall be canceled.
In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after the
Redemption Date, unless there shall have been a default in
payment of the Redemption Price, all rights of the holders of the
Series E Preferred Stock designated for redemption in the
Redemption Notice as holders of Series E Preferred Stock of the
Corporation (except the right to receive the Redemption Price
without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose
whatsoever.
(d) Subject to the provisions hereof, the Board of Directors
of the Corporation shall have authority to prescribe the manner
in which Series E Preferred Stock shall be redeemed from time to
time. Any shares of Series E Preferred Stock so redeemed shall
permanently be retired, shall no longer be deemed outstanding and
shall not under any circumstances be reissued, and the
Corporation may from time to time take such appropriate action as
may be necessary to reduce the authorized Series E Preferred
Stock accordingly. Nothing herein contained shall prevent or
restrict the purchase by the Corporation, from time to time
either at public or private sale, of the whole or any part of the
Series E Preferred Stock at such price or prices as the
Corporation may determine, subject to the provisions of
applicable law.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
62<PAGE>
Designation of Series F Preferred Stock
1. Designation; Rank. The series of Preferred Stock
designated and known as "Series F Preferred Stock" shall consist
of 700,000 shares, par value $.01 per share. Shares of the
Series F Preferred Stock shall, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank
senior and prior to the Common Stock, par value $.004 per share
(the "Common Stock") of the Corporation, junior to the Series C
Preferred Stock and on a parity with the Series D Preferred Stock
and Series E Preferred Stock.
2. Dividends. The holders of the Series F Preferred Stock
shall not be entitled to receive dividends.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the
holders of shares of Series F Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, after and subject
to the payment in full of all amounts required to be distributed
to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the
Series F Preferred Stock, (collectively referred to as "Senior
Preferred Stock") but before any payment shall be made to the
holders of Common Stock and any series of Preferred Stock ranking
on liquidation junior to the Series F Preferred Stock ("Junior
Securities") by reason of their ownership thereof, and on a
parity with any dividend payment to the holders of Series D
Preferred Stock and Series E Preferred Stock, an amount equal to
$5.00 per share (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares). If upon any such
liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for distribution to
its stockholders shall be insufficient to pay the holders of
shares of Series F Preferred Stock the full amount to which they
shall be entitled, the holders of Series F Preferred Stock shall
share ratably in any distribution of the remaining assets and
funds of the Corporation in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by
them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) After the payment of all preferential amounts required
to be paid to the holders of Senior Preferred Stock and Series F
Preferred Stock upon the dissolution, liquidation or winding up
of the Corporation, the holders of shares of Junior Securities
63<PAGE>
then outstanding shall be entitled to receive the remaining
assets and funds of the Corporation available for distribution to
its stockholders.
(c) Written notice of such liquidation, dissolution or
winding up, stating a payment date and the place where said
payments shall be made, shall be given by mail, postage prepaid,
or by telecopier to non-U.S. residents, not less than 20 days
prior to the payment date stated therein, to the holders of
record of the Series F Preferred Stock, such notice to be
addressed to each such holder at its address as shown by the
records of the Corporation.
(d) Whenever the distribution provided for in this Section 3
shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors of the
Corporation.
(e) For the purposes of this Section 3, neither the
voluntary sale, conveyance, exchange or transfer (for case,
shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with one or
more other corporations shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, unless such
voluntary sale, conveyance, exchange or transfer shall be in
connection with a plan of liquidation, dissolution or winding up
of the business of the Corporation.
4. Voting.
(a) Except as may be otherwise provided in these terms of
the Series F Preferred Stock or by law, the Series F Preferred
Stock shall not be entitled to vote.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series F
Preferred Stock so as to affect adversely the Series F Preferred
Stock, without the written consent or affirmative vote of the
holders of a majority of the then outstanding shares of Series F
Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class.
For this purpose, without limiting the generality of the
foregoing, the authorization or issuance of any series of
Preferred Stock with preference or priority over the Series F
Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall be deemed to affect adversely the Series
F Preferred Stock, and the authorization or issuance of any
series of Preferred Stock on a parity with Series F Preferred
64<PAGE>
Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the
Corporation shall be deemed not to affect adversely the Series F
Preferred Stock. The number of authorized shares of Series F
Preferred Stock may be increased or decreased (but not below the
number of shares then outstanding) by the affirmative vote of the
holders of a majority of the then outstanding shares of the
Common Stock, Series F Preferred Stock and all other classes or
series of stock of the Corporation entitled to vote thereon,
voting as a single class.
5. Conversion.
(a) Mandatory Conversion. On July 1, 1995 (the "Conversion
Date"), each share of Series F Preferred Stock shall
automatically and without further action on the part of any
holder of Series F Preferred Stock be converted into the number
of shares of fully paid and nonassessable Common Stock derived by
dividing the number 1 by a fraction, the denominator of which is
$5.00 and the numerator of which is ninety percent (90%) of the
closing price per share of the Common Stock on the principal
national securities exchange on which the Common Stock is then
listed or admitted to trading or, if not then listed or admitted
to trading on any such exchange, on the NASDAQ National Market
System, or if not then listed or traded on any such exchange or
system, the bid price per share on the NASDAQ Small-Cap Market,
averaged over the 30 trading days immediately preceding the
Conversion Date. Upon such conversion, each share of Series F
Preferred Stock shall be canceled and not subject to reissuance."
(b) Delivery of Stock Certificates. The holder of any
shares of Series F Preferred Stock converted pursuant to Section
5(a) hereof, shall deliver to the Corporation during regular
business hours at the office of the transfer agent of the
Corporation for the Series F Preferred Stock, or at such other
place as may be designated by the Corporation, the certificate or
certificates for the shares so converted, duly endorsed or
assigned in blank to the Corporation. As promptly as practicable
thereafter, the Corporation shall issue and deliver to such
holder, at the place designated by such holder, a certificate or
certificates for the number of shares of Common Stock to which
such holder is entitled. The person in whose name the
certificate for such Common Stock is to be issued shall be deemed
to have become a stockholder of record on the Conversion Date
unless the transfer books of the Corporation are closed on that
date, in which event he shall be deemed to have become a
stockholder of record on the next succeeding date on which the
transfer books are open.
(c) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series F Preferred Stock.
65<PAGE>
In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by $5.00.
(d) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the date
on which a share of Series F Preferred Stock was first issued
("Original Issue Date") effect a subdivision of the outstanding
Common Stock, the Conversion Price then in effect immediately
before that subdivision shall be proportionately decreased. If
the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common
Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment
under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes
effective.
(e) Adjustment for Certain Dividends and Distributions. In
the event the Corporation at any time, or from time to time after
the Original Issue Date shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the
Conversion Price for the Series F Preferred Stock then in effect
shall be decreased as of the time of such issuance or, in the
event such a record date shall have been fixed, as of the close
of business on such record date, by multiplying the Conversion
Price for the Series F Preferred Stock then in effect by a
fraction:
(i) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business
on such record date, and
(ii) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business
on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed
and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Conversion
Price for the Series F Preferred Stock shall be recomputed
accordingly as of the close of business on such record date
and thereafter the Conversion Price for the Series F
Preferred Stock shall be adjusted pursuant to this paragraph
as of the time of actual payment of such dividends or
distributions.
66<PAGE>
(f) Adjustments for Other Dividends and Distributions. In
the event the Corporation at any time or from time to time after
the Original Issue Date shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities
of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of
the Series F Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation
that they would have received had their Preferred Stock been
converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and
including the conversion date, retained such securities
receivable by them as aforesaid during such period giving
application to all adjustments called for during such period,
under this paragraph with respect to the rights of the holders of
the Preferred Stock.
(g) Adjustment for Reclassification, Exchange, or
Substitution. If the Common Stock issuable upon the conversion
of the Series F Preferred Stock shall be changed into the same or
a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock
dividend provided for in Sections 5(d), (e) and (f) hereof, or a
reorganization, merger, consolidation, or sale of assets provided
for in Section 5(h) hereof), then and in each event the holder of
each such share of Series F Preferred Stock shall have the right
thereafter to convert such share of Series F Preferred Stock into
the kind and amount of shares of stock and other securities
receivable upon such reorganization, reclassification, or other
change by a holder of the number of shares of Common Stock into
which such shares of Series F Preferred Stock might have been
converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as
provided herein.
(h) Adjustment for Merger or Reorganization, etc. In case
of any consolidation or merger of the Corporation with or into
another corporation or the sale of all or substantially all of
the assets of the Corporation to another corporation (other than
a consolidation, merger or sale which is treated as a liquidation
pursuant to Subsection 3(a)), each share of Series F Preferred
Stock shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series F Preferred Stock
would have been entitled upon such consolidation, merger or sale;
and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application
67<PAGE>
of the provisions in this Section 5 with respect to the rights
and interest thereafter of the holders of the Series F Preferred
Stock, to the end that the provisions set forth in this Section 5
shall thereafter be applicable, as nearly as reasonably may be,
in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series F Preferred Stock.
(i) No Impairment. The Corporation will not, by amendment
of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the
taking of all such action as may be necessary or appropriate in
order to protect the holders of the Series F Preferred Stock
against impairment of their conversion rights.
(j) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock payable in Common
Stock or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of
the Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock or a stock dividend
or stock distribution thereon), or of any consolidation or
merger of the Corporation into or with another corporation,
or of the sale of all or substantially all of the assets of
the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal
office or at the office of the transfer agent of the Series F
Preferred Stock, and shall cause to be mailed to the holders of
the Series F Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least
ten (10) days prior to the record date specified in (A) below or
twenty (20) days before the date specified in (B) below, a notice
stating
(A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is
not to be taken, the date as of which the holders of Common
68<PAGE>
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as
of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution
or winding up.
(k) Optional Conversion. Except as set forth in
Section 5(a) hereof, the holders of the Series F Preferred Stock
shall not have the right to convert their shares of Series F
Preferred Stock into Common Stock.
6. Redemption. The Corporation shall not have any right
to redeem the Series F Preferred Stock.
FIFTH. The Board of Directors shall have the power to
adopt, amend or repeal the by-laws.
SIXTH. No director shall be personally liable to the
Corporation or its stockholders for monetary damages for any
breach of fiduciary duty by such director as a director.
Notwithstanding the foregoing sentence, a director shall be
liable to the extent provided by applicable law, (i) for breach
of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the
director derived an improper personal benefit. No amendment to
or repeal of this Article Sixth shall apply to or have any effect
on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
SEVENTH. The number of directors constituting the entire
Board of Directors shall be as set forth in or pursuant to the
by-laws of the Corporation. The Board of Directors shall be
divided into three classes, designated Classes I, II and III,
which shall be as nearly equal in number as possible. Initially,
directors of Class I shall be elected to hold office for a term
expiring at the annual meeting of stockholders in 1995, directors
of Class II shall be elected to hold office for a term expiring
at the annual meeting of stockholders in 1996 and directors of
Class III shall be elected to hold office for a term expiring at
the annual meeting of stockholders in 1997. At each annual
69<PAGE>
meeting of stockholders following such initial classification and
election, the respective successors of each class shall be
elected for three-year terms.
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be affixed hereto and this Restated Certificate of
Incorporation to be signed by its President and attested by its
Secretary this day of June, 1994.
SHARED TECHNOLOGIES INC.
ATTEST
By: _ _ _ _ _ _ _ _ _ _ _ _ By:_ _ _ _ _ _ _ _ _ _ _ _
Kenneth M. Dorros, Secretary Anthony D. Autorino
President
[Corporate Seal]
70<PAGE>
<EX-3.2>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
SHARED TECHNOLOGIES INC.
(Effective as of June 15, 1994)
ARTICLE I
Identification
---------------
Section 1. Name. The name of the corporation is SHARED
TECHNOLOGIES INC. (the "Corporation").
Section 2. Principal Office and Place of Business. The
principal office of the Corporation shall be located at such
location, within or without the State of Delaware, as the board
of directors shall designate from time to time. The board of
directors shall have the power and authority to establish and
maintain branch or subordinate offices at any other locations
within or without the State of Delaware. The registered office
of the Corporation shall be 1013 Centre Road in Wilmington,
Delaware. The registered agent in Delaware shall be the
Corporation Service Company.
ARTICLE II
Shareholders
-------------
Section 1. Place of Meetings. Annual and special meetings
shall be held at the principal office of the Corporation or at
such other place within or without the State of Delaware, as may
be determined by the board of directors and designated in the
notice of the meeting. A waiver of notice signed by all
shareholders entitled to vote at a meeting may designate any
other place as the place for holding such meeting.
Section 2. Annual Meeting. The annual meeting for the
election of directors, and for the transaction of such other
business of the shareholders as may properly be brought before
the meeting, shall be held on the third Tuesday in May at such
place and at such time as may be designated by the board of
directors. If the annual meeting of the shareholders is not
held as herein prescribed, the existing slate of directors shall
remain in office and the election of directors may be held at
any meeting thereafter called pursuant to these bylaws or
otherwise lawfully held.
71<PAGE>
Section 3. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise
prescribed by law, may be called at any time by the Chairman of
the board of directors. The Chairman shall call a special
meeting of the shareholders upon written request of the
shareholders entitled to cast not less than ten percent (10%) of
all the issued and outstanding shares of the Corporation
entitled to vote for the purposes specified in such request. If
the Chairman does not within fifteen (15) days after the receipt
of such shareholders request call such meeting, the shareholders
may call the same. The general purpose or purposes for which a
special meeting is called shall be stated in the notice thereof
and no other business shall be transacted at the meeting, unless
all shareholders entitled to vote are present and consent
thereto.
Section 4. Notice of Meeting. Written or printed notice
stating the place, day, and hour of any shareholders' meeting
and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than
ten (10) nor more than sixty (60) days before the date of the
meeting, unless a greater period of notice is required by law in
a particular case, either personally or by mail, to each
shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid;
provided, however, that in the case of shareholders who are
employees of the Corporation delivery at the office address of
such employee shall be sufficient. Any matter relating to the
affairs of the Corporation may be brought up for action at the
annual meeting of shareholders, whether or not stated in the
notice of the meeting; provided, however, that unless stated in
the notice of the meeting, no bylaw may be brought up for
adoption, amendment or repeal and no matter, other than the
election of directors, may be brought up which expressly
requires the vote of shareholders.
Section 5. Waiver of Notice. Notice of any shareholders'
meeting may be waived in writing by any shareholder either
before or after the time stated therein and, if any person
present at a shareholders' meeting does not protest, prior to or
at the commencement of the meeting, the lack of proper notice,
such person shall be deemed to have waived notice of such
meeting.
Section 6. Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of
shareholders, or any adjournment thereof, or shareholders
72<PAGE>
entitled to receive payment of any dividend, or in order to make
a determination of such shareholders for any other proper
purpose, the directors of the Corporation shall fix in advance a
date as the record date for any such determination of
shareholders, which date shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting of
shareholders, nor more than sixty (60) days prior to any other
action. If no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a
distribution, the date on which notice of the meeting is mailed
or the date on which the resolution of the directors declaring
such distribution is adopted, shall be the record date for such
determination of shareholders. The record date is effective as
of the close of business on such date. When a determination of
shareholders entitled to vote at any meeting of shareholders has
been made as provided in this section, such determination shall
apply to any adjournment thereof which is thirty (30) days or
less.
Section 7. Voting Lists and Inspection. The officer of the
Corporation having responsibility for the share transfer books
shall make, or cause to be made, at least ten (10) days before
each meeting of shareholders, a complete list or other
equivalent record of the shareholders entitled to vote at such
meeting, arranged in alphabetical order, with the address of,
and the number and class of shares held by, each. Such list or
other equivalent record shall, for a period of ten (10) days
prior to such meeting, be kept on file at the principal office
of the Corporation and shall be subject to inspection by any
shareholders during usual business hours for any proper purpose
in the interest of the shareholder or of the Corporation. Such
list or equivalent record shall also be produced and kept open
to such inspection during the whole time of the meeting. The
original share transfer book shall be prima facie evidence as to
the shareholders entitled to inspect such list or other
equivalent record.
Section 8. Quorum and Adjournment of Shareholders'
Meetings. At any meeting of shareholders at least one-third of
the outstanding shares of the Corporation entitled to vote at
such meeting, and represented in person or by proxy, shall
constitute a quorum of the shareholders, unless the
representation of a larger number shall be required by law, and,
in that case, the representation of the number so required shall
constitute a quorum. If a larger number shall be required by
law and less than said number of the outstanding shares are
represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without
further notice until a quorum is present or represented, at
which time any business may be transacted which might have been
73<PAGE>
transacted at the meeting as originally notified; provided,
however, that the adjournment does not exceed thirty (30) days.
The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding
the withdrawal of any shareholders, unless the absence of a
quorum is specifically noted, by the chairman of the meeting.
Section 9. Voting. At each meeting of the shareholders,
every shareholder entitled to vote shall have one vote for each
share of stock registered in his or her name as of the record
date for said meeting. Upon the demand of any shareholder, the
vote upon any question before the meeting shall be by written
ballot; provided, however, that the election of the board of
directors shall not be by written ballot. All questions shall
be decided by majority vote except as otherwise provided by
these bylaws, the certificate of incorporation, or laws of the
State of Delaware.
Section 10. Proxies. Each shareholder entitled to vote at
a meeting of shareholders may authorize another person or
persons to act for him by proxy. All proxies shall be in
writing and shall be filed with the Secretary of the Corporation
before being voted. A proxy shall not be voted or acted upon
after three (3) years from its date of execution unless it
specifies a longer length of time for which it is to continue in
force or limits its use to a particular meeting not yet held.
A duly executed proxy shall be irrevocable if it states that
it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable
power. A proxy may be irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock
itself or an interest in the Corporation generally.
Section 11. Shareholders' Action Without Meeting. Any
action which is required or permitted to be taken at any meeting
of shareholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting
forth the action so taken is signed by the holders of
outstanding stock having not less than the minimum number of
votes that would be necessary to take such action at a meeting
at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of corporate action without
a meeting by less than unanimous written consent shall be given
to those shareholders who have not consented in writing to such
action.
The Secretary of the Corporation shall file such consent or
consents, or certify the tabulations of such consents and file
such certificate with the minutes of the shareholders.
74<PAGE>
Section 12. Irregular Shareholders' Meetings. Actions taken at
any meeting of shareholders, however called and with whatever
notice, if any, are as valid as though taken at a meeting duly
called and held with notice if:
(a) all shareholders entitled to vote were present in
person or by proxy and no objection to holding the meeting was
made by any shareholder; or
(b) a quorum was present, either in person or by proxy,
and no objection to holding the meeting was made by any
shareholder entitled to vote and not present, and if, either
before or after the meeting, each of the persons entitled to
vote, not present in person or by proxy, signs a written waiver
of notice, or a consent to the holding of the meeting, or an
approval of the action taken as shown by the minutes thereof.
All such waivers, consents or approval shall be filed with the
corporate records or be made a part of the minutes. The absence
from the minutes of any indication that a shareholder objected
to holding the meeting shall prima facie establish that no such
objection was made.
Section 13. Order of Business. The order of business at
the annual meeting of the shareholders and, insofar as
practical, at all other meetings of shareholders, shall be
established by the Chairman.
ARTICLE III
Board of Directors
------------------
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by the board of directors. The
board of directors shall be divided into three classes,
designated Classes I, II and III, which shall be as nearly equal
in number as possible. The initial directors of Class I shall be
elected to hold office for a term expiring at the annual meeting
of stockholders in 1995, the initial directors of Class II shall
be elected to hold office for a term expiring at the annual
meeting of stockholders in 1996, and the initial directors of
Class III shall be elected to hold office for a term expiring at
the annual meeting of stockholders in 1997. At each annual
meeting of stockholders following such initial classification and
election, the respective successors of each class shall be
elected for three-year terms.
Section 2. Number, Election and Term of Office. The number
of directors shall be fixed from time to time by resolution of
the board of directors, but shall not be less than three (3) nor
more than eleven (11). In case of any increase in the number of
75<PAGE>
directors in advance of an annual meeting of stockholders, each
additional director shall be elected by the directors then in
office, although less than a quorum, to hold office until the
next election of the class for which such director shall have
been chosen, and until his successor shall have been duly elected
and qualified (subject to Section 3 of this Article III). No
decrease in the number of directors shall shorten the term of any
incumbent director. Any newly-created or eliminated
directorships resulting from an increase or decrease shall be
apportioned by the board of directors among the three classes of
directors so as to maintain such classes as nearly equal as
possible. It shall not be a qualification of office that the
directors be residents of the State of Delaware or stockholders
of the Corporation.
Section 3. Vacancies. In case of any vacancy in the board
of directors through death, resignation, retirement, removal,
disqualification or other cause, the remaining directors, by vote
of a majority thereof, shall elect a successor to hold office for
the unexpired portion of the term of office of the class for
which such vacancy occurs, and until the election of his
successor. Any director elected by the remaining board of
directors to fill a vacancy created by any of the foregoing
reasons or by an increase in the number of directors constituting
the entire board of directors must subsequently be approved or
confirmed by the holders of a majority of the shares of common
stock of the Corporation present in person, or represented by
proxy, and entitled to vote at the next annual meeting of
stockholders. If the director elected to fill such vacancy by
the board of directors is not subsequently approved by the
stockholders, and if another candidate is not elected at the
annual meeting of stockholders in accordance with federal
securities laws and these bylaws, then the number of directors
constituting the entire board of directors will automatically be
reduced and, if necessary, the number of directors serving in
each class will be reapportioned so that the number of directors
serving in each class will be as nearly equal as possible.
Section 4. Meetings. The board of directors shall meet
each year following the annual meeting of the shareholders and
shall hold regular meetings on the third Tuesday of January,
March, May, July, September and November. Meetings of the board
of directors, regular or special, may be held either within or
without the State of Delaware. Regular meetings may be held
with or without notice. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting need be
specified in the notice or waiver of notice, unless otherwise
provided by law, the certificate of incorporation or these
bylaws.
76<PAGE>
One or more directors, or a member of a committee of the
board of directors, may participate in a meeting of the board of
directors or such committee by means of a conference telephone
or similar communications equipment enabling all directors
participating in the meeting to hear one another, and such
participation in a meeting shall constitute presence in person
at such meeting.
Section 5. Special Meetings. Special meetings of the board
of directors may be called by or at the request of the Chairman
or any three (3) directors. At least two (2) days' written or
oral notice of special meetings of the directors shall be given
to each director.
Section 6. Notice and Waiver. The attendance of a director
at a meeting shall constitute a waiver of notice of such
meeting, except when a director attends a meeting for the
express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 7. Quorum and Voting. A majority of the authorized
number of directors shall constitute a quorum for the
transaction of business. If, at any meeting of the board of
directors, less than a quorum is present, a majority of those
directors present may adjourn the meeting from time to time
without further notice. The act of a majority of the directors
present at a duly called meeting at which a quorum is present at
the time of the act shall be the act of the board of directors.
The affirmative vote of the directors holding a majority of the
directorships shall be required for action by the board of
directors on any matter whatsoever.
Section 8. Action Without Meeting. Any action which is
required or permitted to be taken at any meeting of the board of
directors, or a committee thereof, may be taken without such a
meeting; provided, however, that all of the directors or all of
the members of a committee thereof, as the case may be,
severally or collectively consent in writing to such action
before or after the time such action is taken. The Secretary of
the Corporation shall file such consents with the minutes of the
meeting of the board of directors.
Section 9. Presumption of Assent. A director of the
Corporation who is present at a meeting of the directors at
which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless a dissent shall be
entered in the minutes of the meeting or unless he shall file a
written dissent to such action with the person acting as the
clerk of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary of the
Corporation within five days after the adjournment of the
77<PAGE>
meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 10. Executive Committee. The board of directors
shall designate three (3) directors to constitute an executive
committee. The executive committee shall have and may exercise
all of the authority of the board of directors subject, however,
to any limitations the board of directors may place on such
authority from time to time by resolution.
Section 11. Audit Committee. The board of directors shall
designate three (3) directors to constitute an audit committee.
The audit committee shall have and may exercise such authority
and perform such acts as the board of directors may from time to
time direct by resolution and/or as required by applicable law.
Section 12. Compensation Committee. The board of directors
shall designate four (4) directors to constitute a compensation
committee. The compensation committee shall set the
compensation of the President and review, from time to time, the
compensation policies and procedures of the Corporation. The
compensation committee shall have and may exercise such other
authority and perform such other acts as the board of directors
may, from time to time, direct by resolution.
Section 13. Ad Hoc Committees. The board of directors may
designate one (1) or more directors to constitute such ad hoc
committees as the board of directors shall deem necessary or
appropriate. Each such committee shall have and may exercise
all such authority of the board of directors as shall be
provided in the resolution establishing such committee, subject
to the provisions of the certificate of incorporation.
Section 14. Committee Minutes. Each committee shall keep
minutes of its proceedings, copies of which shall be provided to
each and every member of the board of directors.
Section 15. Alternate Committee Members. The board of
directors may designate one (1) or more directors to serve as
alternate members of any committee. An alternate may replace
any disqualified or absent member of the committee with respect
to which he was designated to serve as an alternate member;
provided, however, that in the event of the death or resignation
of any permanent committee member the board of directors must
designate a replacement and the alternate may not act in such
member's place.
Section 16. Compensation of Directors. The board of
directors shall determine the compensation, if any, to be paid
to the directors for their services as directors, including
reasonable allowance for expenses actually incurred in
78<PAGE>
connection with their duties. Nothing herein contained shall be
construed to preclude any director from serving the Corporation
in any other capacity and receiving compensation thereof when
properly authorized.
Section 17. [Intentionally Omitted.]
Section 18. Resignation. A director may resign at any time
by giving written notice to the board of directors, the
Chairman, or the Secretary of the Corporation. Unless otherwise
specified in the notice, the resignation shall be effective
immediately upon receipt thereof by the Corporation, and the
acceptance of the resignation shall not be necessary to make it
effective.
Section 19. Interested Directors. A contract or other
transaction between the Corporation and a director or a member
of his immediate family or between the Corporation and any other
corporation, firm, association or entity in which a director of
the Corporation and members of his immediate family have an
interest shall not be either void or voidable and such director
shall not incur any liability, merely because such director is a
party thereto or because of such family relationship or interest
if: (i) such family relationship or such interest, if it is a
substantial interest, is fully disclosed and the contract or
transaction is not unfair as to the Corporation and is
authorized by (a) directors or other persons who have no
substantial interest in such contract or transaction in such
manner as to be effective without the vote, assent or presence
of the director concerned or (b) the written consent of all the
directors who have no substantial interest in such contract or
transaction, whether or not such directors constitute a quorum
of the Board of directors; or (ii) such family relationship or
such interest, if it is a substantial interest, is fully
disclosed and the contract or transaction is approved by the
affirmative vote of the holders of a majority of the voting
power of the shares entitled to vote; or (iii) the contract or
transaction is not with the director or a member of his
immediate family and any such interest is not substantial or
(iv) the contract or transaction is fair as to the Corporation.
A contract or other transaction between a director or a member
of his immediate family with a third party which might otherwise
have been entered into by the Corporation and such third party
shall be deemed authorized if effected in compliance with this
section.
In the absence of fraud (without giving effect to the
meaning of that term under the applicable Federal or state
securities law), no director engaging in a transaction
authorized under the provisions hereof shall be liable to the
Corporation or to any shareholder or creditor thereof, or to any
79<PAGE>
other person for any loss incurred by it under or by reason of
such contract or transaction, nor shall any such director be
accountable for any gains or profits realized therefrom.
Section 20. Determination of Terms and Conditions of
Additional Classes of Stock. The board of directors is
authorized to fix and determine terms, limitations and relative
rights and preferences of any preferred or special class of
shares.
ARTICLE IV
Officers
---------
Section 1. Officers. The Board of Directors shall appoint
as officers of the Corporation a President, a Secretary, a
Treasurer and any number of Vice Presidents. The board of
directors may elect a Chairman of the board of directors and
may, in its discretion, appoint such other officers and
assistant officers as the business of the Corporation may
require. Any individual may hold more than one office;
provided, however, that no one individual may hold the offices
of President and Secretary.
Section 2. Election and Term of Office. The officers of
the Corporation shall be appointed or elected by the board of
directors in such manner as they may prescribe. Each officer
shall hold office for a term of one (1) year and until a
successor is elected and qualified, or until the death,
resignation or removal of such officer.
Section 3. Removal. Any officer or agent may be removed by
the board of directors at any time, with or without cause and
with or without notice or hearing. Such removal shall be
without prejudice to the contract rights, if any, of the person
so removed.
Section 4. Vacancies. A vacancy in any office because of
death, resignation, removal or otherwise, may be filled by the
board of directors for the unexpired portion of the term.
Section 5. Chairman. The Chairman shall preside at all
meetings of shareholders and directors and shall have such
powers as may be conferred from time to time by the board of
directors. He shall be a member of all committees of the board
of directors.
Section 6. President. The President shall be the chief
executive officer of the Corporation; he shall have general and
active management of the business of the Corporation, shall see
80<PAGE>
that all orders and resolutions of the board of directors are
carried into effect, subject, however, to the right of the board
of directors to delegate any specific powers, except as may be
exclusively conferred on the President by law, to the Chairman
or any other officer of the Corporation. He shall execute
bonds, mortgages and other contracts requiring a seal under the
seal of the Corporation. He shall be an EX-OFFICIO member of
all committees of the Board of Directors except when the office
of Chairman and President are held by the same individual, and
shall have the general power and duties of supervision and
management usually vested in the office of President of a
corporation.
Section 7. Vice Presidents. In the absence of the
President or in the event of the inability or refusal to act of
the President, the Vice-President, if one is appointed, or if
there shall be more than one Vice-President, the Vice Presidents
in the order designated by the directors (or if there be no such
designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties
and have such other powers as the board of directors may from
time to time prescribe.
Section 8. Secretary. The Secretary shall attend all
meetings of the board of directors and all meetings of the
shareholders and act as clerk thereof, and record all votes of
the directors and shareholders and the minutes of all
proceedings of the directors and shareholders in a book to be
kept for that purpose and shall perform like duties for the
committees of the board of directors when required. The
Secretary shall give, or cause to be given, all notices required
by law or these bylaws, and shall perform such other duties as
may be prescribed by the board of directors or President, under
whose supervision he shall be. The Secretary shall have custody
of the corporate seal of the Corporation and he, or an Assistant
Secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested
by his signature or by the signature of an Assistant Secretary.
The board of directors may give general authority to any other
officer to affix the corporate seal of the Corporation and to
attest to the affixing by his signature.
Section 9. Assistant Secretary. The Assistant Secretary,
if one shall be appointed, or if there be more than one, the
Assistant Secretaries in the order determined by the board of
directors (or if there be no such determination, then in the
order of their election) shall, in the absence of the Secretary
or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Secretary and shall
81<PAGE>
perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
Section 10. Treasurer. The Treasurer shall have charge and
custody of and be responsible for all funds and securities of
the Corporation, keep full and accurate accounts of receipts and
disbursements and other customary financial records of the
Corporation, deposit all monies and valuable effects in the name
and to the credit of the Corporation in depositories designated
by the board of directors, disburse the funds of the Corporation
as may be ordered by the board of directors or the President,
taking proper vouchers for such disbursements, render to the
board of directors or the President whenever they request an
accounting of all of his transactions as Treasurer or of the
financial condition of the Corporation and, in general, perform
such other duties as may from time to time be assigned to him by
the board of directors or by the President or as are incident to
the office of Treasurer.
Section 11. Assistant Treasurer. The Assistant Treasurer,
if one shall be appointed, or if there shall be more than one,
the Assistant Treasurers in the order determined by the board of
directors (or if there be no such determination, then in the
order of their election) shall, in the absence of the Treasurer
or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
Section 12. Absence or Disability of Officers. In the case
of the absence or disability of any officer of the Corporation
and of any person hereby authorized to act in his place during
his absence or disability, the board of directors may by
resolution delegate the powers and duties of such officer to any
other officer, or to any director, or to any other person whom
it may select.
ARTICLE V
Issue and Transfer of Stock
---------------------------
Section 1. Certificate for Shares. Certificates
representing shares of the Corporation shall be in such form as
shall be determined by the board of directors. Such
certificates shall be signed by the President and by the
Secretary or by such other officers authorized by law and by the
board of directors. All certificates for shares of each class
shall be consecutively numbered or otherwise identified and
sealed with the seal of the Corporation. The names and
addresses of the shareholders, the number of shares, and dates
82<PAGE>
of issue shall be entered on the stock transfer books of the
Corporation.
If the Corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the
certificate which the Corporation shall issue to represent such
class or series of stock; provided, however, that, except as
otherwise provided in Section 202 of the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of
stock, a statement that the Corporation will furnish without
charge to each shareholder who so requests the powers,
designations, preferences and relative participating, optional
or other special rights of each class of stock or series thereof
and the qualifications, limitations or restrictions of such
preferences and/or rights.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the Corporation shall send to the
registered owner thereof a written notice containing the
information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the General
Corporation Law of Delaware or a statement that the corporation
will furnish without charge to each shareholder who so requests
the powers, designations, preferences and relative
participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Any or all of the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a
certificate shall cease to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by
the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 2. Subscriptions for Stock. Unless otherwise
provided for in the subscription agreement, subscriptions for
shares shall be paid in full at such time, or in such
installments and at such times as shall be determined by the
board of directors. Any call made by the board of directors for
payment on subscriptions shall be uniform as to all shares of
the same class or as to all shares of the same series. In case
of default in the payment of any installment or call when such
83<PAGE>
payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation;
provided, however, that such subscription is in writing and
signed by the subscriber.
Section 3. Issuance of Stock. The board of directors is
hereby authorized and empowered to issue from time to time all
or any part of the shares of its unissued authorized capital
stock, as then constituted, for such consideration, in money or
other property, as the board of directors may deem advisable;
and all shares of the capital stock of this Corporation when
issued shall be deemed fully paid and nonassessable and the
holders of such shares shall not be liable thereunder to this
Corporation or its creditors.
Section 4. Transfer of Shares.
--------------------
a. Upon surrender to the Corporation or the transfer
agent(s) of the Corporation, if any, of a certificate for shares
duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the
Corporation or the transfer agent(s) of the Corporation, if any,
to issue a new certificate to the person entitled thereto, and
cancel the old certificate; every such transfer shall be entered
on the transfer book of the Corporation which shall be kept at
its principal office or the office of its transfer agent.
b. All certificates surrendered to the Corporation for
transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares
shall have been surrendered and canceled.
c. The Corporation shall be entitled to treat the holder
of record of any share as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any
other person whether or not it shall have express or other
notice thereof, except as expressly provided by law.
Section 5. Lost, Destroyed and Stolen Certificates. Unless
otherwise restricted by law, the Corporation may refuse to issue
a certificate in place of any certificate alleged to have been
lost, destroyed, stolen, or mutilated except on production of
such terms and indemnification to the Corporation as the
directors may prescribe.
ARTICLE VI
Fiscal Year
------------
84<PAGE>
The fiscal year of the Corporation shall be designated by
the board of directors.
ARTICLE VII
Seal
----
The corporate seal of this Corporation shall be a circular
seal and shall have inscribed thereon the Corporation's name and
state of incorporation.
ARTICLE VIII
Amendments
-----------
Section 1. By Directors or Shareholders. The bylaws of the
Corporation may be altered, amended or repealed at any validly
called and convened meeting of the shareholders by the
affirmative vote of the holders of a majority of the voting
power of shares entitled to vote thereon represented at such
meeting in person or by proxy and at any validly called and
convened meeting of the board of directors by the affirmative
vote of a majority of the directors; provided, however, that the
notice of such meeting shall state that such alteration,
amendment or repeal will be proposed.
Section 2. Record of Changes. Whenever a bylaw is amended
or repealed or a new bylaw is adopted, such action and the date
on which it was taken shall be noted on the original bylaws in
the appropriate place or a new set of bylaws shall be prepared
incorporating such changes.
Section 3. Inconsistencies with Certificate of
Incorporation. If any provisions of these bylaws shall be found
to be inconsistent with any provisions of the certificate of
incorporation, as presently existing, or as from time to time
amended, the latter shall constitute the controlling authority.
ARTICLE IX
Miscellaneous
-------------
Section 1. Inspection of Corporate Records. The
Corporation shall keep correct and complete books and records of
account and shall also keep minutes of all meetings of
shareholders and directors. Additionally, a record shall be
kept at the principal executive office of the Corporation,
giving the names and addresses of all shareholders, and the
85<PAGE>
number and class or classes of shares held by each. The
original or a copy of the certificate of incorporation and
bylaws of the Corporation, as amended, or otherwise altered to
date, and certified by the Secretary of the Corporation, shall
at all times be kept at the principal office of the Corporation
and shall be open to inspection by all shareholders of record or
holders of voting trust certificates at all reasonable times
during the business hours of the Corporation.
At intervals of not more than twelve (12) months, the
Corporation shall prepare a balance sheet showing the financial
condition of the Corporation as of a date not more than four (4)
months prior thereto and a profit and loss statements respecting
its operation for the twelve months preceding such date. The
balance sheet and a profit and loss statement shall be deposited
at the principal office of the Corporation and kept for at least
ten years from such date.
Any shareholder of record shall, upon written request under
oath to the Corporation stating the purpose thereof, have the
right to conduct an examination in person, or by agent or
attorney, at any reasonable time, for a specified, reasonable
and proper purpose, of the Corporation's stock transfer books, a
list of its shareholders and the board of directors, these
bylaws, its minutes of the meetings of shareholders and the
board of directors, and its other books and records, and to make
copies and extracts thereof. A specified, reasonable and proper
purpose shall mean a purpose reasonably related to such person's
interest as a shareholder. In every instance, where an attorney
or other agent shall be the person who seeks the right to
inspection, the demand under oath shall be accompanied by a
power of attorney or such other writing which authorizes the
attorney or other agent to so act on behalf of the shareholder.
Section 2. Notices. Whenever, under the provisions of
applicable law, the certificate of incorporation or these
bylaws, notice is required to be given to any director or
shareholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to
such director or shareholder, at his address as it appears on
the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the
same shall be deposited in the United States mail; provided,
however, that in the case of shareholders which are employees of
the Corporation delivery at the office address of such employee
shall be sufficient. Notice to directors may also be given by
telegram, and, where specifically provided for herein, orally.
Section 3. Waiver of Notice. Unless otherwise provided by
law, whenever any notice is required to be given to any
shareholder or director of the Corporation under the provisions
86<PAGE>
of these bylaws or under the provisions of the certificate of
incorporation, a waiver thereof in writing, signed by the person
or persons entitled to such notice shall be deemed equivalent to
the giving of such notice. Attendance in person at any meeting
shall constitute waiver of notice unless such attendance is for
the purpose of contesting proper notice of the meeting.
ARTICLE X
Certification
---------------
These amended and restated bylaws have been prepared
pursuant to a resolution duly adopted by the board of directors
and the stockholders dated June 8, 1994, and are the true and
correct bylaws of the Corporation as of the effective date.
In Witness Whereof, the undersigned, Kenneth M. Dorros,
Secretary of the Corporation has set his hand and seal of the
Corporation as of the 15th day of June, 1994.
-------------------------------
Kenneth M. Dorros
Secretary
87<PAGE>
<EX-10.16>
Exhibit 10.16
AGREEMENT
AGREEMENT dated as of January 10, 1994 between Shared
Technologies Inc., (the "Company") and Vertical Financial Holding
("Vertical").
W I T N E S S E T H:
WHEREAS, the Company desires to receive advisory services in
connection with (a) structuring equipment leases for potential
customers, (b) marketing the Company's products outside the
United States, (c) arranging additional financing, including debt
facility arrangements with prospective banks to enhance the
Company's working capital, and (d) structuring and negotiating
the prospective acquisition of Access Telecommunication Group,
LP. ("Access") as well as arranging and/or assisting the Company
in obtaining financing for such acquisition, in each case for the
further growth of the Company's business, collectively, the
"Objectives"); and
WHEREAS, Vertical has established its expertise in, among
other things, assisting companies in marketing their products
internationally, structuring leasing transactions and assisting
companies in their mergers & acquisitions activities, including
but not limited to, structuring such transactions, as well as
providing the financing for such transactions.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements, and upon the terms and subject to the conditions
hereinafter set forth, the parties do hereby covenant and agree
as follows:
VERTICAL ENGAGEMENT. THE COMPANY ENGAGES VERTICAL, AND
VERTICAL ACCEPTS SUCH ENGAGEMENT, SUBJECT TO THE TERMS AND
CONDITIONS OF THIS AGREEMENT.
SERVICES. (A) AT SUCH TIMES AS ARE MUTUALLY CONVENIENT
TO VERTICAL AND THE COMPANY DURING THE TERM (AS DEFINED BELOW),
VERTICAL SHALL USE ITS BEST EFFORTS TO ASSIST THE COMPANY IN
CONNECTION WITH EACH OF THE OBJECTIVES, INCLUDING THE
PRESENTATION OF A PROPOSAL FOR THE FORMATION OF A POSSIBLE JOINT
VENTURE BETWEEN THE PARTIES FOR THE PURPOSES OF MARKETING ITS
PRODUCTS INTERNATIONALLY.
88<PAGE>
IN CONNECTION WITH ANY PROPOSAL
MADE BY VERTICAL PURSUANT TO THIS AGREEMENT, THE
COMPANY SHALL EXERCISE ITS GOOD FAITH IN CONSIDERING
SUCH PROPOSAL BUT SHALL NOT BE OBLIGATED TO ACCEPT SUCH
PROPOSAL.
(c) Vertical shall exercise its obligations under the
Agreement in a highly prompt manner, particularly with respect to
the financing of the prospective acquisition of Access.
COMPENSATION. FOR SERVICES RENDERED BY VERTICAL PURSUANT
TO THIS AGREEMENT, THE COMPANY SHALL:
PAY VERTICAL $150,000, WHICH SHALL
BE PAID IN FULL WITHIN FOUR MONTHS OF THE CONSUMMATION
OF THE PROSPECTIVE ACQUISITION OF ACCESS, PROVIDED
HOWEVER, THAT IN THE EVENT THAT THE RATIO (THE "RATIO")
OF THE COMPANY'S CURRENT ASSETS AND CURRENT LIABILITIES
EXCEEDS 1:1, SUCH PAYMENT SHALL BE DEFERRED UNTIL SUCH
TIME AS THE COMPANY ACHIEVES THIS RATIO AS OF THE END
OF ANY CALENDAR MONTH.
ISSUE TO VERTICAL (I) A THREE-YEAR
WARRANT TO PURCHASE 300,000 SHARES OF COMMON STOCK OF
THE COMPANY AT A PURCHASE PRICE OF $5.75 PER SHARE, AND
A FIVE-YEAR WARRANT (II) TO PURCHASE 250,000 SHARES OF
COMMON STOCK OF THE COMPANY AT A PURCHASE PRICE OF
$7.00 PER SHARE (COLLECTIVELY, THE "WARRANTS"). THE
WARRANTS SHALL CONTAIN STANDARD ANTI-DILUTION
PROVISIONS AND ONE DEMAND AND UNLIMITED PIGGYBACK
REGISTRATION RIGHTS, SUBJECT TO CUSTOMARY PROVISIONS
(AT THE COMPANY'S EXPENSE, EXCEPT FOR UNDERWRITING
COMMISSIONS).
DURING THE TERM, PAY VERTICAL A
RETAINER OF $3,000 PER MONTH FOR SERVICES RENDERED
HEREUNDER.
UPON EXECUTION OF THIS AGREEMENT,
PAY VERTICAL $30,000, WHICH FEE SHALL BE IN ADDITION TO
ALL FEES RECEIVED PURSUANT TO SECTIONS 3(A) AND 3(C)
HEREOF.
Section 4. Subscription of Stock. The parties agree that
Vertical, through its affiliate, General Capital Holdings, Ltd.,
shall have the right to acquire from the Company shares of Common
89<PAGE>
Stock of Shared Technologies Cellular, Inc. ("STC") held by the
Company, equal to approximately 1.5% of STC total outstanding
stock at a price equal to $54.06 per share.
Section 5. Expenses. The Company shall pay Vertical, on a
monthly basis, all reasonable costs and out-of-pocket expenses
incurred by Vertical in connection with its obligations and
duties under this Agreement; provided, however, that Vertical
shall obtain the prior written consent of the Company for any
single item of expense in excess of $1,000. The Company's
consent hereunder shall not be unreasonably withheld or delayed.
Vertical shall furnish receipts for all such expenses.
Section 6. Non-Competition. Vertical acknowledges that in
the course of its engagement it will become familiar with trade
secrets and other confidential information ("Confidential
Information") concerning the Company and that its services will
be special, unique and extraordinary to the Company. Subject to
the limitations set forth herein, Vertical agrees that during the
Term (as defined below) and for a period of two years thereafter,
it shall not directly or indirectly, through its affiliates,
including Jacob Agam and companies which are controlled by Mr.
Agam (the "Vertical Group"), or otherwise, own, manage, control,
participate in, consult with, render services to, or in any
manner engage in any business competitive with the business of
the Company as such business exists within any geographical area
in which the Company then conducts business. In addition, the
Vertical Group shall not solicit, interfere with or conduct
business with any vendors, customers or employees of the Company
during the Term of this Agreement and for a period of two years
thereafter. In the event the Company breaches its duties or
obligations under this Agreement (including Sections 3 and 4
hereof), the Company agrees that the Vertical Group shall not be
bound by the provisions of this Section 5, except for the
provisions of the immediately following sentence. The Vertical
Group agrees that it shall not disclose to any third party any
Confidential Information and shall not use any Confidential
Information for any purpose other than the performance of
Vertical's duties under this Agreement. Vertical acknowledges
that the violation of this agreement may cause irreparable harm
to the Company, its subsidiaries or affiliates, and monetary
damages will not be an adequate remedy in the event of a breach
and accordingly, the Company will be entitled to seek appropriate
injunctive and other equitable relief.
Section 7. Term. This Agreement shall be for a term
commencing on the date hereof and ending on November 10, 1996
(the "Term").
Section 8. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the internal laws of the
90<PAGE>
State of New York. Any dispute between the parties hereto
arising from or relating to the terms of this Agreement shall be
submitted to arbitration in New York, New York under the auspices
of the American Arbitration Association.
Section 9. Entire Agreement; Amendments. This Agreement
contains the entire agreement and understanding between the
parties and supersedes and preempts any prior understandings or
agreements, whether written or oral. The provisions of this
Agreement may be amended or waived only with the prior written
consent of the Company and Vertical.
Section 10. Successors and Assigns. This Agreement shall
be binding upon, inure to the benefit of, and shall be
enforceable by Vertical and the Company and their respective
successors and assigns; provided, however, that the rights and
obligations of Vertical under this Agreement (with the exception
of those rights in Section 3 hereof) shall not be assignable.
Section 11. Indemnification. The Company hereby expressly
agrees to indemnify and hold harmless Vertical, its officers and
employees against and from any and all loss, liability, suits,
claims, costs, damages and expenses (including attorneys' fees)
arising from their performance hereunder, except as a result of
their negligence or misconduct.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
SHARED TECHNOLOGIES INC.
By:-----------------------------
Name:
Title:
VERTICAL FINANCIAL HOLDING
By:------------------------------
Name:
91<PAGE>
Title:
92<PAGE>
<EX-11>
EXHIBIT 11
Page 1 of 3
<TABLE>
<CAPTION>
SHARED TECHNOLOGIES INC.
Computation of Earnings Per Share and
Weighted Average Number of Shares Outstanding
For the Period Ended December 31, 1992
Percentage
Shares of Year Weighted
Date Issued Issued Outstanding Average
--------------- --------------------------------------
<S> <C> <C> <C>
January 1, 1992.....3,740,732 100.00% 3,740,732
------------
3,740,732
April 8, 1992....... 19,014 73.22 13,922
------------
3,759,745
May 22, 1992....... 471 61.20 288
------------
3,760,217
September, 22, 1992. 80,000 27.60 22,077
------------
3,840,217
September 23, 1992.. 466,250 27.32 127,391
------------
4,306,467
September 24, 1992.. 306,750 27.05 82,973
------------
4,613,217
September 25, 1992.. 100,000 26.78 26,776
-------------
4,713,217
September 30, 1992.. 151,850 25.41 38,585
-------------
4,865,067
October 1, 1992.... 1,313 25.14 330
-------------
4,866,379
October 15, 1992.... 2,625 21.31 559
-------------
4,869,004
November 25, 1992.. 28,042 10.11 2,835
-------------
4,897,046
November 30, 1992... 12,554 8.74 1,098
-------------
4,909,600
December 14, 1992.. 100,000 4.92 4,918
-------------
4,009,600
December 31, 1992... 82,596 0.27 226
-------------
5,092,197
</TABLE>
93<PAGE>
Weighted Average Common Shares Outstanding 4,062,710
Net Income Per Common Share:
Net Income Applicable to Common Stock
For the Year Ended
December 31, 1992 $2,389,821
---------- = $.59
Weighted Average Number of Shares Outstanding 4,062,710
The above shares reflect the September 1992 one-for-four reverse
stock split.
94<PAGE>
EXHIBIT 11
Page 2 of 3
<TABLE>
<CAPTION>
SHARED TECHNOLOGIES INC.
Computation of Earnings Per Share and
Weighted Average Number of Shares Outstanding
For the Period Ended December 31, 1993
Percentage
Shares of Year Weighted
Date Issued Issued Outstanding Average
---------------- --------------------------------------
<S> <C> <C> <C>
January 1, 1993.... 5,092,197 100.00% 5,092,197
----------
5,092,197
January 15, 1993 .. 5,000 96.16 4,808
----------
5,097,197
April 22, 1993...... 10,000 69.59 6,959
----------
5,107,197
June 18, 1993...... 34,152 53.97 18,432
----------
5,141,349
September 15, 1993.. 9,467 29.59 2,801
----------
5,150,816
October 5, 1993..... 13,793 24.11 3,325
----------
5,164,609
October 29, 1993.... 20,000 17.53 3,507
----------
5,184,609
December 15, 1993... 5,728 4.66 267
---------- --------
5,190,337 5,132,296
</TABLE>
Net Income Per Common Share:
Net Loss For the Period Ended
December 31, 1993 $ (204,476)
----------- = $(.04)
Weighted Average Number of
Shares Outstanding 5,132,296
95<PAGE>
EXHIBIT 11
Page 3 of 3
<TABLE>
<CAPTION>
SHARED TECHNOLOGIES INC.
Computation of Earnings Per Share and
Weighted Average Number of Shares Outstanding
For the Period Ended December 31, 1994
Percentage
Shares of Year Weighted
Date Issued Issued Outstanding Average
--------------- --------------------------------------
<S> <C> <C> <C>
January 1, 1994.... 5,666,699 100.00% 5,666,699
---------
5,666,699
February 7, 1994... 1,061 89.86 953
----------
5,667,760
May 27, 1994... 307,139 60.00 184,283
----------
5,974,899
June 13, 1994...... 11,354 55.34 6,284
---------
5,986,253
June 27, 1994..... 1,762,033 51.51 907,568
---------
7,748,286
August 1, 1994..... 8,215 41.92 3,444
----------
7,756,501
August 15, 1994.... 25,000 38.08 9,521
-----------
7,781,501
September 28, 1994. 51,589 26.03 3,427
-----------
7,833,090
December 29, 1994.. 11,992 .82 99
-----------
7,845,082 6,792,277
========== =========
</TABLE>
Net Income (Loss) Per Common Share:
Net Loss Applicable to Common Stock
For the Year Ended
December 31, 1994 1,807,826
--------- = $.27
Weighted Average Number of
Shares Outstanding 6,792,277
96<PAGE>
The above shares have been restated to reflect the September 1992
one-for-four reverse stock split.
97<PAGE>
<EX-21>
Exhibit 21
The following table indicates the subsidiaries and
partnerships owned by the Company.
Shared Technologies Cellular, Inc.+......................a
Delaware corporation
Multi-Tenant Services, Inc. ++...........................a
Delaware corporation
SafeCall, Inc.+..........................................a
Delaware corporation
Financial Place Communications Company*.........an Illinois
general partnership
Boston Telecommunications Group, Inc. ++
d/b/a Boston Telecommunications Company........a
Massachusetts corporation
STI Cellular Franchise Corp.**...........................a
Delaware corporation
Access Communication Group, L.P. +++................a Texas
limited partnership
Access Telemanagement, Inc. ++..............................a
Texas corporation
Access Network Services, Inc. ***...........................a
Texas corporation
_ _ _ _ _ _ _ _ _ _ _
+ a majority-owned subsidiary of Shared Technologies Inc.
++ a wholly-owned subsidiary of Shared Technologies Inc.
* 99% owned by the Company
** a wholly-owned subsidiary of Shared Technologies Cellular,
Inc.
+++ 99% owned by the Company and 1% owned Access Telemanagement,
Inc.
*** a wholly-owned subsidiary of Access Communication Group, L.P.
98<PAGE>
