SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended May 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period of _________________to ______________
Commission file number:0-18700
PRIME CELLULAR, INC.
(exact name of Registrant as specified in its charter)
Delaware 13-3570672
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 First Stamford Pl., Stamford, CT 06902
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (203)327-3620
Securities registered pursuant to Section 12(b) of the Act
None.
Securities registered pursuant to Section 12(g) of the Act
Common Stock, $.01 par value
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.[X]
On August 29, 1997, the aggregate market value of the shares of voting stock of
the Registrant held by non-affiliates was approximately $2,597,081.81 based on
the average of the bid and ask prices as reported by the OTC Bulletin Board of
$0.4375.
As of August 29, 1997, 5,936,187 shares of the Registrant's common stock were
outstanding.
Documents incorporated by reference: Certain portions of the Registrant's
definitive Proxy Statement relating to the Registrant's 1996 Annual Meeting of
Stockholders, to be filed pursuant to Regulation 14A of the Securities Exchange
Act of 1934 with the Securities and Exchange Commission, are incorporated by
reference into Part III of this Report.
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TABLE OF CONTENTS
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PART I PAGE
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Item 1 Business .........................................................................
Item 2 Properties .......................................................................
Item 3 Legal Proceedings ................................................................
Item 4 Submission of Matters to a Vote of Stockholders...................................
PART II
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Item 5 Market for Registrant's Common Stock and
Related Stockholder Matters ...............................................
Item 6 Selected Financial Data ..........................................................
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................................
Item 8 Financial Statements and Supplementary Data ......................................
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ....................................
PART III
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Item 10 Directors and Executive Officers of the Registrant...............................
Item 11 Executive Compensation ..........................................................
Item 12 Security Ownership of Certain Beneficial Owners and Management...................
Item 13 Certain Relationships and Related Transactions...................................
PART IV
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Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K .................
Exhibit Index ............................................................................
Signatures ...............................................................................
Index to Consolidated Financial Statements ............................................... F-1
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Item 1. BUSINESS
Prime Cellular, Inc. ("Prime" and, together with its wholly-owned
subsidiaries, herein referred to as "the Company") was organized in May 1990 to
provide management services, including business planning, marketing,
engineering, design and construction consulting services, to rural service area
("RSA") cellular telephone licensees. Preferences of owners of construction
permits and the deterioration in general economic conditions subsequent to the
Company's initial public offering in early August 1990 negatively impacted the
Company's business plan and the Company soon determined that it was prudent for
it to explore other uses for the Company's funds.
The Company initially analyzed potential investments in debt and equity
instruments of entities involved in either the cellular or related industries
and subsequently expanded its search to include entities involved in
non-cellular operations. Since 1991, the Company has retained an outside
consultant, who is also a shareholder, under an agreement renewable each July to
assist it in finding new business opportunities for the Company. Fees paid to
this consultant included in general and administrative costs totaled $70,000 for
the year ended May 31, 1997. The consultant was elected President of the Company
in June 1994 and serves as a board member as well.
On June 11, 1996 (the "Closing"), the Company's wholly-owned subsidiary
Prime Cellular Acquisition Corp. (the "Subsidiary"), consummated the merger with
Bern Associates, Inc. ("Bern") pursuant to that certain Merger Agreement, dated
May 14, 1996 (the "Merger Agreement"), by and among Prime, Subsidiary, Bern and
all of the stockholders of Bern (the "Bern Stockholders"). Bern was merged with
and into the Subsidiary (the "Merger") and all of the outstanding shares of
common stock of Bern were converted into an aggregate of 4,100,000 shares
(subsequently reduced by Amendment to 1,586,187 shares) of the Common Stock, par
value $.01 per share, of Prime, representing approximately 48.5% (subsequently
reduced by amendment to 26.7%) after consummation of the transaction of the
outstanding Common Stock of Prime (the "Merger Shares"). Following the Merger,
the Subsidiary changed its name to "Bern Communications, Inc." ("Bern
Communications"). This transaction was accounted for as a reverse acquisition
whereby Bern Communications is the acquirer for financial reporting purposes.
Bern Communications was the sole operating entity of the Company.
Bern Communications' business consisted principally of designing,
installing, maintaining, servicing and supporting computer systems to enable
regional telephone companies to provide Internet access to their subscribers as
well as developing Internet software. Bern Communications offered its customers
an integrated Internet access solution comprised of off-the-shelf computer
hardware and accessories, systems integration, billing software and twenty-four
hour subscriber support. Bern Communications also provided network management
services to regional telephone companies already offering Internet access.
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After the Merger, the Company and certain Bern Stockholders (the "Amending
Bern Stockholders"), holding approximately 80% of the Merger Shares, entered
into an amendment to the Merger Agreement, dated as of June 11, 1996 (the
"Amendment"), which Amendment provided for a reduction by seventy-five percent
(75%) of the aggregate number of Merger Shares issued to the Amending Bern
Stockholders in the Merger. The Company released and discharged such Amending
Bern Stockholders from any damages or losses incurred by the Company resulting
from any breach of the representations and warranties of the Bern Stockholders
under the Merger Agreement.
The Merger Shares received from the Amending Bern Stockholders, consisting
of an aggregate of 3,075,000 shares, are held by the Company as authorized but
unissued common stock. The Company has pursued its claims against the
individuals owning approximately 20% of the Merger Shares issued in the
acquisition (and currently held in escrow) who have not executed the Amendment.
Under the Amendment, four Amending Bern Stockholders and employees of Bern
Communications (the "Employee Stockholders") also agreed to amend their
employment agreements to reduce their compensation to $95,000 per year and to
extend the terms of their agreements to three years from June 11, 1996. In
addition, each of these Employee Stockholders was granted three-year options to
purchase 256,250 shares of the Common Stock of Prime at an exercise price of
$8.00 per share.
On August 28, 1997, the Company entered into a settlement (the
"Settlement") with the Amending Bern Stockholders with respect to disputes
concerning the operations and direction of the business of Bern Communications.
In connection with the Settlement, the Company purchased substantially all of
the Merger Shares held by the Amending Bern Stockholders, at a purchase price of
$.50 per share (which in the aggregate amounted to 676,937 shares for a total
amount of $338,469), transferred to the Employee Stockholders all right and
title to the intellectual property rights with respect to the computer software
program WEBSITENOW and certain computer hardware used in the development of such
software program, and terminated the employment agreements and option agreements
with the Employee Stockholders. Both the Company and the Amending Bern
Stockholders executed a mutual release as well.
As a result of the Settlement, Bern Communications ceased soliciting
further opportunities or engaging in any further consulting services in
connection with its integrated Internet service business. Moreover, all sales of
computer hardware and/or software of Bern Communications were discontinued
effective as of the Settlement. Bern Communications will nevertheless continue
to provide help desk functions as well as to provide network management services
pursuant to its existing contractual arrangements.
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CUSTOMERS
Bern Communications focused its initial marketing efforts on regional
telephone companies. To those companies that did not yet offer a Internet
solution to their subscribers, Bern Communications offered its design and
installation services. To those regional telephone companies which already
provided Internet access or who were just entering that business, Bern
Communications offered its network management and help desk services.
As of the Settlement, Bern Communications will continue only to provide
help desk service for the benefit of its existing telephone companies pursuant
to contracts entered into with these customers as well as to provide network
management services to one customer pursuant to an existing contractual
arrangement.
Currently Bern Communications has two contracts to provide Internet help
desk services and one contract to provide network management services. Two of
these contracts are with Century Supply Group, Inc. ("Century"). Approximately
88% of Bern Communications' revenues for the year ended May 31, 1997 were
attributable to Century.
MARKETING AND DISTRIBUTION
Prior to the Settlement, Bern Communications focused on providing Internet
service business to regional telephone companies, providing regional telephone
companies with total solutions to Internet access as well as state of the art
network management and help desk services. Bern Communications marketed and sold
its products and services through its employees during the 1997 fiscal year.
On or about July 18, 1997, the Company determined to stop funding ongoing
operations of Bern Communications. In connection with this decision, Bern
Communications discontinued all sales of computer hardware and/or software. Bern
Communications will continue to provide help desk functions as well as network
management services for its existing customer base through the expiration or
earlier termination of its current contractual arrangements with such telephone
companies.
SUPPLIER
Bern Communications had no key suppliers; its design solutions for Internet
access utilized off-the-shelf hardware and software as well as Bern
Communication's billing software.
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EMPLOYEES
Prime has one employee at August 31, 1997. Bern Communications employed
three (3) employees full-time and one (1) part-time, of which 3 were employees
of the help desk.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are: (i) Joseph K. Pagano, President
and Chairman of the Board and (ii) Robert A. Reinhart, Chief Financial Officer,
Vice-President, Treasurer and Secretary.
Mr. Pagano is 51 years old and has been President of the Company since June
1995. He also served as Chief Financial Officer from June 1994 until Mr.
Reinhart's engagement. Prior thereto, Mr. Pagano was, and continues to be, a
consultant to the Company. Mr. Pagano has been a private investor for more than
the last 5 years.
Robert A. Reinhart is 47 years old, is a certified public accountant and
has served as the Chief Financial Officer since July 1996, and as
Vice-President, Treasurer and Secretary since May 1997. Prior to his employment
by the Company, Mr. Reinhart served as the Chief Operating Officer and Chief
Financial Officer of DeBoles Nutritional Foods, Inc. ("DeBoles"). Prior to being
engaged by DeBoles in 1992, Mr. Reinhart was a senior manager/engagement
executive with a certified public accounting firm located in Long Island, New
York.
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<PAGE>
At August 31, 1997, the officers of Bern Communications consist of Joseph
K. Pagano, President and Robert A. Reinhart, Vice-President, Chief Financial
Officer, Treasurer and Secretary. Prior to Mr. Pagano serving as President, Mr.
Reinhart served as President of Bern Communications from March 1997. Prior to
March 1997, Rafael Collado, an Employee Stockholder, served as President.
Item 2. PROPERTIES
The Company's executive offices are located at 100 First Stamford Place,
Third Floor, Stamford, CT 06902. The Bern Communications help desk is currently
located in Teaneck, New Jersey pursuant to a month-to-month lease in the amount
of $1,000 per month.
Item 3. LEGAL PROCEEDINGS
On or about December 20, 1996, Prime commenced an action in New York
against a former employee of Bern Communications and others. The complaint
alleges that such former employee made false and fraudulent representations in
connection with the Merger and breached her obligations as an employee by, among
other things, various acts of dishonesty, breaches of fiduciary duty and
corporate waste. In the action, Prime seeks an unspecified amount of damages
from the defendants and Prime seeks rescission to recover the Merger Shares
issued to such defendants pursuant to the Merger. The former employee has filed
a counterclaim that seeks unspecified amounts for alleged breach of her
employment agreement. Discovery in the action has recently commenced.
On or about December 20, 1996, Bern Communications commenced an action in
New Jersey against a former employee, seeking unspecified damages. The Complaint
alleges that such former employee breached his obligations as an employee of
Bern Communications by, among other things, various acts of dishonesty, breaches
of fiduciary duty and corporate waste. Bern Communications also seeks a
declaration that the former employee's employment agreement is invalid because
it was not properly authorized. The former employee has filed a separate action
against Bern Communications and Prime, which has been consolidated with Bern
Communications' action, and which seeks unspecified amounts pursuant to the
purported employment agreement of the former employee. Discovery in the action
has recently commenced.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board under the
symbol PCEL. Until August 18, 1994, the Company's Common Stock was quoted by the
NASDAQ Small-Cap Market System. Effective August 18, 1994, NASDAQ delisted the
Company's common stock from its NASDAQ Small-Cap Market System. As of August 31,
1997, there were 5,936,187 shares of Common Stock outstanding held of record by
approximately 39 stockholders. The following table sets forth, for the periods
indicated, the high and low bid quotations for the Company's Common Stock for
the last two fiscal years as reported on the OTC Bulletin Board. The quotations
reflect prices among dealers, do not reflect retail markups, markdowns or other
fees or commissions, and do not necessarily represent actual transactions.
Year High Low
- ---- ---- ---
Fiscal 1997
First quarter 8.75 3.50
Second quarter 3.75 2.25
Third quarter 3.75 2
Fourth quarter 4.75 2
Year High Low
- ---- ---- ---
Fiscal 1996
First quarter 2 1/2 1 5/16
Second quarter 2 1 1/2
Third quarter 2 1 5/8
Fourth quarter 8 1/2 1
On August 29, 1997 the average of the bid and ask prices for the Company's
Common Stock was $0.4375 as reported by the OTC Bulletin Board.
The payment of dividends on the Common Stock is within the discretion of
the Company's Board of Directors. The Company has not paid cash dividends on its
Common Stock and does not expect to declare cash dividends on the Common Stock
in the foreseeable future.
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Item 6. SELECTED FINANCIAL DATA
The following table sets forth certain financial data for the years ended
May 31, 1997, 1996 and for the period February 22, 1995 (Inception) to May 31,
1995. This information should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Form 10-K.
<TABLE>
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February 22, 1955
Year Ended May 31, (Inception)
to May 31, 1995
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1997 1996 1995
<S> <C> <C> <C>
Statement of Operations Data:
Total revenues $1,792,948 $2,331,174 $12,000
Net (loss) (474,120) (324,000) ( 18,542)
Net (loss) per
common share ($.08) ($.20) ($.01)
Weighted average number
of shares outstanding 5,892,730 1,586,187 1,586,187
Balance Sheet Data:
Total Assets 6,093,951 881,308 22,363
Stockholders' Equity 5,689,863 (310,278) (8,538)
</TABLE>
The 1996 and 1995 financial data is that of Bern Associates, Inc. in
accordance with the accounting treatment of the merger as a reverse acquisition
as discussed in Note 1 of the Financial Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On June 11, 1996, Prime consummated the Merger with Bern. Bern merged with
an inactive subsidiary of Prime which was formed to complete the Merger and
simultaneously with the consummation of the Merger, the subsidiary changed its
name to Bern Communications, Inc. ("Bern Communications"). Under the Merger
Agreement, all of the outstanding shares of common stock of Bern were exchanged
for 1,586,187 shares of Prime. This transaction was accounted for as a reverse
acquisition whereby Bern was the acquirer for accounting purposes. The
historical financial statements prior to June 1, 1996 are therefore those of
Bern.
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In connection with the Merger, the Company entered into a Settlement
Agreement on August 28, 1997 with certain former Shareholders of Bern
Associates, Inc. as a result of claims made by the Company for possible breaches
of certain representations and warranties of the Bern stockholders with respect
to the Merger and otherwise.
As a result of the Settlement, Bern Communications ceased soliciting
further opportunities or engaging in any further consulting services in
connection with its integrated Internet access services. Moreover, all sales of
computer hardware and/or software of Bern Communications were discontinued
effective as of the Settlement. Bern Communications will continue to provide
help desk services as well as network management services pursuant to its
existing contractual arrangements.
The Company has retained an outside Consultant (since 1991) who is also a
shareholder, under an agreement, to assist it in finding a new business
opportunity for the Company.
1997 vs. 1996
Revenue decreased $538,226 for the year ended May 31, 1997 as compared to
the year ended May 31, 1996. This decrease was due to a large equipment sale
which occurred during the year ended May 31, 1996 which was not duplicated in
the year ended May 31, 1997. Furthermore, the Company did not generate any
equipment sales for the fourth quarter ended May 31, 1997.
Gross profit increased $809,828 for the year ended May 31, 1997 as compared
to the year ended May 31, 1996. This increase resulted from the low gross profit
realized on the large equipment sale made during the year ended May 31, 1996 as
compared to multiple equipment sales, at relatively higher margins, generated
during the year ended May 31, 1997. For the year ended May 31, 1996, the
Company's help desk and network management services were still in a start-up
phase, distinguished by numerous costs and no associated revenue stream.
Selling, general and administrative expenses increased $1,266,736 for the
year ended May 31, 1997 as compared to the year ended May 31, 1996. This
increase resulted from Prime's selling, general and administrative costs of
$380,198 which were not present for the year ended May 31, 1996, as well as
expenses of $886,538 incurred to increase equipment sales and revenue for the
year ended May 31, 1997. Interest income increased as a result of acquiring
significant cash and investments from Prime following the Merger in June 1996.
1996 vs 1995
Bern was incorporated on February 22, 1995 and had little operating
activity for the period ended May 31, 1995. Operations of Bern commenced during
the year ended May 31, 1996 when significant contracts and revenue were
received. Selling, general and administrative expenses increased $477,462 for
the year ended May 31, 1996 as compared to the inception period ended
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May 31, 1995. This increase was due to the increased costs incurred in order to
secure Bern's first major contracts as well as the costs associated with
servicing these customers and developing an internal organization.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1997 the Company had approximately $5,750,000 in cash and
investments and working capital of approximately $5,500,000.
Net cash used by operating activity aggregated $261,899 and $279,089 for
the years ended May 31, 1997 and 1996, respectively. The decrease in cash used
by operating activities was attributable to a large decrease in accounts payable
and an additional net loss, offset by a large decrease in accounts receivable
and inventory.
Net cash used in investing activity was $857,992 and $131,336 for the years
ended May 31, 1997 and 1996, respectively. This increase was primarily due to
cash of $960,223 acquired from Prime in connection with the June 1996 merger.
Cash flow from financing activities increased to $6,397,700 from $583,785
for the year ended May 31, 1997 as compared to the year ended May 31, 1996. The
increase resulted from the Merger as well as proceeds, in the amount of $62,520,
from the sale of stock and payments, in the amount of $76,561, made with respect
to officers' loans to the Company.
Inflation has not historically had a material impact on the Company's
operations.
SEASONALITY
The operations of the Company are not considered to be seasonal.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required pursuant to this Item are included herein
commencing on Page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 28, 1997, the Company dismissed BDO Seidman, LLP ("BDO") as its
principal independent accountant and engaged Marcum & Kliegman LLP ("Marcum") as
its principal independent accountants to audit and report on the financial
statements of the Company for the fiscal year ending May 31, 1997. The decision
to change accountants was approved by the Company's Board of Directors.
BDO's reports on the financial statements of the Company for the fiscal
years ended May 31, 1996 or May 31, 1995 were unqualified with a modification
paragraph addressing the Company's ability to continue as a going concern.
During the fiscal years ended May 31, 1996 and May 31, 1995 and during the
period from June 1, 1996 through July 28, 1997, there were no disagreements with
BDO on any matter of accounting
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principles or practices, financial statement disclosure or auditing scope or
procedure or any reportable event.
Additional information with respect to matters set forth in Item 304 of
Regulation S-K is incorporated herein by reference to the report dated July 25,
1997 filed on Form 8-K pursuant to Section 13 of the Securities Exchange Act of
1934.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information contained under the heading "Proposal No. 1 - Election of
Directors" in the Company's definitive Proxy Statement (the "Proxy Statement")
relating to the Company's Annual Meeting of Stockholders to be held on or about
November 10, 1997, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, is
incorporated herein by reference. For information concerning the executive
officers of the Company, see "Executive Officers of the Registrant" in Part I of
this Report.
Item 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive Compensation" in the
Company's Proxy Statement is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information contained under the heading "Beneficial Ownership of Common
Stock" in the Company's Proxy Statement is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain Relationships and
Related Transactions" in the Company's Proxy Statement is incorporated herein by
reference.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) (1) Financial Statements - See list of Financial Statements on F-1.
(2) Schedules - Not applicable.
(b) Reports on Form 8-K
The Company filed two reports on Forms 8-K dated each of June 11, 1996 and
July 25, 1997, which reports concerned the acquisition of Bern Associates, Inc.
and the change of the Company's accountants, respectively.
(c) Exhibits
2.1 Merger Agreement, dated as of May 14, 1996, by and among the
Company, the Subsidiary, Bern Associates and the Bern
Stockholders.**
2.2 List of Omitted Schedules/Exhibits to Merger Agreement.**
3.1 Certificate of Incorporation of the Company*
3.2 By-laws of the Company*
10.1 Consulting Agreement dated July 2, 1991 among the Company, Prime
Cellular of Florida, Inc. and Joseph K. Pagano*
10.2 Amendment to Consulting Agreement*
10.3 Stock Option Plan*
10.6 Registration Rights Agreement, dated June 10, 1996, between
Registrant and the Bern Stockholders.**
10.7 Escrow Agreement, dated June 10, 1996, between Registrant and the
Bern Stockholders.**
10.8 Indemnification Agreement, dated June 10, 1996 between Registrant and
the Bern Stockholders.*
10.9 Form of Amendment to Merger Agreement, dated as of June 11, 1997.
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10.10 Form of Settlement Agreement, dated August 28, 1997 (with Exhibits)
21 Subsidiaries of the Registrant
27 Financial Data Schedule
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* Previously filed with the Securities and Exchange Commission as Exhibits
to, and incorporated herein by reference from, the Company's Annual Report on
Form 10-K for the years ended May 31, 1995, May 31, 1994, May 31, 1993, May 31,
1992 or May 31, 1991.
** Previously filed with the Securities and Exchange Commission as Exhibits
to, and incorporated herein by reference from, the Company's Report on Form 8-K
dated June 11, 1996.
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<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.
PRIME CELLULAR, INC.
September 15, 1997 By: /s/ Joseph K. Pagano
-----------------------------------
Joseph K. Pagano, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the date
indicated.
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<CAPTION>
Signature Title Date
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<S> <C> <C>
/s/ Joseph K. Pagano Director, President & September 15, 1997
- ------------------------- (principal executive officer)
Joseph K. Pagano
/s/ Robert A. Reinhart Chief Financial Officer, Treasure, September 15, 1997
- ------------------------ Secretary and vice President (principal
Robert A. Reinhart financial officer)
/s/ Director September __, 1997
- ------------------------
Frederick R. Adler
/s/ Samuel Rozzi Director September 15, 1997
- -------------------------
Samuel Rozzi
</TABLE>
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<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARIES
CONTENTS
Page
REPORTS OF INDEPENDENT ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Balance Sheets F-4
Statements of Operations F-5
Statements of Stockholders' Equity (Deficit) F-6
Statements of Cash Flows F-7
NOTES TO FINANCIAL STATEMENTS F-9
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are either not required
under the related instructions or are inapplicable, and therefore have been
omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders of
Prime Cellular, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Prime Cellular,
Inc. and Subsidiaries as of May 31, 1997, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of Prime
Cellular, Inc. and Subsidiaries as of May 31, 1996 and 1995 include the
historical accounts solely of Bern Communications, Inc., as a result of the
reverse acquisition which occurred on June 11, 1996 as discussed in Note 1 and
were audited by other auditors whose report dated August 14, 1996 expressed an
unqualified opinion on those statements with a modification paragraph addressing
the Company's ability to continue as a going concern.
We 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Prime Cellular, Inc.
and Subsidiaries as of May 31, 1997 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
Marcum & Kliegman LLP
Woodbury, New York
September 5, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders of
Bern Communications, Inc.
Teaneck, New Jersey
We have audited the accompanying balance sheets of Bern Communications, Inc.
(formerly Bern Associates, Inc.) as of May 31, 1996 and the related statements
of operations, stockholders' deficit, and cash flows for the year ended May 31,
1996 and the period February 22, 1995 (inception) to May 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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
misstatements. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Bern Communications, Inc.
(formerly Bern Associates, Inc.) at May 31, 1996 and the results of its
operations and its cash flows for the year ended May 31, 1996 and the period
February 22, 1995 (inception) to May 31, 1995, in conformity with generally
accepted accounting principles.
The financial statements referred to above have been prepared assuming that the
Company will continue as a groing concern. The Company has suffered losses since
inception and has a net working capital deficit and a capital deficit. These
conditions raise substantial doubt as to the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Valhalla, New York BDO Seidman, LLP
August 14, 1996
F-3
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARIES
BALANCE SHEETS
May 31, 1997 and 1996
ASSETS
------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(Consolidated)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 779,216 $ 184,684
Investments 4,969,512 -0-
Accounts receivable, net of allowance
of $3,500 and $15,000 as of May 31, 1997
and 1996 respectively 44,744 294,196
Inventory -0- 268,707
Notes and other receivables 120,102 11,136
----------- -----------
Total Current Assets 5,913,574 758,723
PROPERTY & EQUIPMENT, Net 176,777 119,153
OTHER ASSETS 3,600 3,432
----------- -----------
TOTAL ASSETS $ 6,093,951 $ 881,308
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 366,450 $ 615,025
Deferred revenue 37,638 -0-
Note payable, related party -0- 500,000
Due to officers -0- 76,561
----------- -----------
TOTAL LIABILITIES 404,088 1,191,586
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 20,000,000 shares authorized,
5,936,187 shares issued and outstanding in 1997 and 400
shares authorized, issued and outstanding in 1996 59,362 4
Additional paid-in capital 6,447,163 32,260
Accumulated deficit (816,662) (342,542)
----------- -----------
TOTAL STOCKHOLERS EQUITY (DEFICIT) 5,689,863 (310,278)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 6,093,951 $ 881,308
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
For the Year For the Year February 22, 1995
Ended Ended (Inception) to
May 31, 1997 May 31, 1996 May 31, 1995
------------ ------------ -------------
(Consolidated)
<S> <C> <C> <C>
REVENUES
Equipment $ 1,219,529 $ 1,767,737 $ -0-
Service 573,419 563,437 12,000
----------- ----------- -----------
TOTAL REVENUES 1,792,948 2,331,174 12,000
----------- ----------- -----------
COST OF REVENUES
Equipment 588,988 1,567,436 -0-
Service 231,222 600,828 21,094
----------- ----------- -----------
TOTAL COST OF REVENUES 820,210 2,168,264 21,094
----------- ----------- -----------
GROSS PROFIT (LOSS) 972,738 162,910 (9,094)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,753,646 486,910 9,448
----------- ----------- -----------
OPERATING LOSS (780,908) (324,000) (18,542)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Dividend and interest income 309,155 -0- -0-
Interest expense (2,367) -0- -0-
----------- ----------- -----------
TOTAL OTHER INCOME 306,788 -0- -0-
----------- ----------- -----------
NET LOSS $ (474,120) $ (324,000) $ (18,542)
=========== =========== ===========
LOSS PER SHARE OF COMMON STOCK $ (.08) $ (.20) $ (.01)
=========== =========== ===========
WEIGHTED AVERAGE COMMON STOCK
OUTSTANDING 5,892,730 1,586,187 1,586,187
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
PRIME CELLULAR, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
$.01 Par Value
Common Stock Additional
---------------------- Paid-In Accumulated Unearned
Shares Amount Capital Deficit Compensation Total
------ ------ ---------- ----------- ------------ -----
BALANCE - February 22, 1995
<S> <C> <C> <C> <C> <C> <C>
(Inception) -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Issuance of stock 400 4 32,260 32,264
Contribution of Capital -
stock subcription receivable (22,260) (22,260)
Net loss for the period February 22,
1995 (inception) to May 31, 1995 (18,542) (18,542)
--------- ------- ---------- --------- ------- ----------
BALANCE - May 31, 1995 400 4 32,260 (18,542) (22,260) (8,538)
Satisfaction of stock subscription
receivable 22,260 22,260
Net loss for the year ended
May 31, 1996 (324,000) (324,000)
--------- ------- ---------- --------- ------- ----------
BALANCE - May 31, 1996 400 4 32,260 (342,542) -0- (310,278)
Exercise of stock options 50,000 500 74,500 75,000
Issuance of stock resulting from
merger 1,586,187 15,862 (15,862) -0-
Recapitalization resulting from
merger 4,299,600 42,996 6,356,265 6,399,261
Net loss for the year ended
May 31, 1997 (474,120) (474,120)
--------- ------- ---------- --------- ------- ----------
BALANCE - May 31, 1997
(Consolidated) 5,936,187 $59,362 $6,447,163 $(816,662) $ -0- $5,689,863
--------- ------- ---------- --------- ------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
For the Year For the Year February 22, 1995
Ended Ended (Inception) to
May 31, 1997 May 31, 1996 May 31, 1995
------------ ------------ -------------
(Consolidated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(474,120) $(324,000) $(18,542)
--------- --------- --------
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 33,891 12,240 -0-
Compensation recognized in satisfaction
of stock subscription receivable -0- 22,260 -0-
Reserve for doubtful accounts -0- 15,000 -0-
Decrease (increase) in accounts
receivable 249,452 (309,196) -0-
Decrease (increase) in inventory 268,707 (268,707) -0-
(Increase) in other receivables (108,966) -0- -0-
Decrease (increase) in prepaid expenses
and other assets 12,717 (13,586) (1,039)
(Decrease) increase in accounts payable
and accrued expenses (281,218) 586,900 28,125
Increase in deferred revenue 37,638 -0- -0-
--------- --------- --------
TOTAL ADJUSTMENTS 212,221 44,911 27,086
--------- --------- --------
NET CASH (USED IN) PROVIDED
BY OPERATING ACTIVITIES (261,899) (279,089) 8,544
--------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase in property and equipment, net (91,515) (131,336) -0-
Increase in investments, net (10,716) -0- -0-
Cash acquired in connection with the
merger 960,223 -0- -0-
--------- --------- --------
NET CASH PROVIDED BY (USED
IN) INVESTING ACTIVITIES $ 857,992 $(131,336) $-0-
--------- --------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS, Continued
<TABLE>
<CAPTION>
For the Period
For the Year For the Year February 22, 1995
Ended Ended (Inception) to
May 31, 1997 May 31, 1996 May 31, 1995
------------ ------------ -------------
(Consolidated)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
(Decrease) increase in due to officers $ (76,561) $ 73,785 $ 2,776
Proceeds from sale of stock 75,000 -0- 4
Proceeds from note payable, related party -0- 500,000 -0-
Proceeds from stock subscriptions -0- 10,000 -0-
---------- --------- ---------
NET CASH (USED IN) PROVIDED
BY OPERATING ACTIVITIES (1,561) 583,785 2,780
---------- --------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 594,532 173,360 11,324
CASH AND CASH EQUIVALENTS -
Beginning 184,684 11,324 -0-
---------- --------- ---------
CASH AND CASH EQUIVALENTS -
Ending $ 779,216 $ 184,684 $ 11,324
========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the periods for:
Interest $2,367 $-0- $-0-
Noncash investing and financing activities:
Capital Stock Issued for Stock
Subscription Receivable and unearned compensation -0- -0- $ 32,260
In connection with the merger on June 11, 1996, the following assets
(liabilities) were acquired by the acquiring entity for accounting
purposes:
Cash $ 960,223
Investment in U.S. Treasury bonds 4,958,796
Other current assets 512,885
Accounts payable and accrued expenses (32,643)
----------
$6,399,261
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
Nature of Business
Prime Cellular, Inc. ("Prime") was incorporated in Delaware on May 10, 1990
to provide management and consulting services to rural service area
cellular telephone licensees. Prime is no longer in the development stage
as a result of a merger with Bern Associates, Inc.
Business Combination
On June 11, 1996, Prime consummated a merger with Bern Associates, Inc.
Bern Associates, Inc. merged with Prime Cellular Acquistion Corp.
("Acquisition Corp.")an inactive subsidiary of Prime which was formed to
complete the merger and simultaneously Acquisition Corp. changed its name
to Bern Communications, Inc. ("Bern"). Under the merger agreement, all of
the outstanding shares of common stock of Bern were exchanged for 1,586,187
shares of Prime. This transaction was accounted for as a reverse
acquisition whereby Bern was the acquirer for accounting purposes. The
historical financial statements prior to June 1, 1996 are those of Bern
Associates, Inc.
Bern designs, installs, maintains, services and supports computer systems
to enable companies to provide Internet access to their subscribers as well
as develops Internet software. Bern is the sole operating entity of Prime
Cellular, Inc. and subsidiaries (collectively the "Company").
In connection with the merger, the Company entered into a settlement
agreement on August 28, 1997 with certain former shareholders as a result
of claims made by the Company for possible breaches of certain
representations and warranties of the Bern Associates Inc. stockholders
with respect to the merger and otherwise (see Note 9).
Proforma Operating Results (unaudited)
The following are proforma results for the year ended May 31, 1996, as if
the acquisition as described above had occurred on June 1, 1995.
For the Year Ended
May 31, 1996
------------------
TOTAL REVENUES $ 2,690,039
NET LOSS $ (343,780)
LOSS PER SHARE
STOCK OUTSTANDING $ (.22)
WEIGHTED AVERAGE COMMON
STOCK OUTSTANDING 1,586,187
The pro forma results or operations are not necessarily indicative of the
actual operating results that would have occurred had the merger been
consumated at the beginning of the year.
Principles of Consolidation
The accompanying consolidated financial statements for the year ended May
31, 1997 include the accounts of Prime Cellular, Inc. and its wholly-owned
subsidiaries, Bern Communications, Inc. and Prime Cellular of Florida,
Inc., an inactive subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation. For the year ended May
31, 1996, and the period February 22, 1995 (inception) to May 31, 1995, the
accompanying financial statements reflect the accounts of Bern Associates,
Inc., prior to the merger.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to
be cash equivalents.
Inventory
Inventory, which consists of computer equipment, is stated at the lower of
cost or market. Cost is determined using the first-in, first-out (FIFO)
method.
Property and Equipment
Property and equipment are stated at cost and are being depreciated or
amortized using accelerated and straight-line methods over the estimated
useful lives of the related assets.
F-9
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies, continued
Revenue Recognition
Equipment revenue is recognized upon delivery to and acceptance by the
customer. Service revenue consists of consulting and help desk revenue.
Consulting revenue is recognized ratably over the applicable contract
period. Help desk revenue is recognized as earned on a monthly basis.
Fair Value of Financial Instruments
The carrying amount of financial instruments including cash and cash
equivalents, other receivables, and accounts payable approximated fair
value as of May 31, 1997 and 1996 because of the relatively short maturity
of these instruments.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash
investments and trade accounts receivable with companies primarily located
in the United States. The Company's cash investments are placed with high
credit quality financial institutions and may exceed the amount of federal
deposit insurance. The Company reviews a customer's credit history before
extending credit. The Company establishes an allowance for possible losses
based on factors surrounding the credit risk of specific customers
historical trends and other information.
Income Taxes
Deferred income taxes, when applicable, are provided on differences between
the financial reporting and income taxes bases of assets and liabilities
based upon statutory tax rates enacted for future periods.
Per Share Data
Loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding throughout the period. For the year
ended May 31, 1996 and the period February 22, 1995 (inception) to May 31,
1995, loss per share of common stock is based on the shares issued by Prime
as a result of the Merger (see Note 1). Common stock equivalents consisting
of shares subject to stock options and warrants do not have a significant
impact on net loss per share.
Stock-Based Compensation
In October 1995, Financial Accounting Standards Board issued Statements of
Financial Accounting Standards. No. 123 "Accounting for Stock Based
Compensation" ("SFAS No. 123"). SFAS No. 123 requires compensation expense
to be recorded (i) using the new fair value method or (ii) using existing
accounting rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations with pro forma disclosure of what net income and earnings
per share would have been had the Company adopted the new fair value
method. The Company intends to continue to account for its stock based
compensation plans in accordance with the provision of APB 25. Had the
Company elected to recognize compensation costs based on the fair value of
the options at the date of grant as prescribed by SFAS No. 123, there would
be no material effect from that recognized under APB 25 for the years ended
May 31, 1997, 1996 and for the period February 22 (inception) to May 31,
1995.
Advertising
Advertising costs are expensed as incurred.
Software Development
All costs associated with internally developed software are expensed as
incurred.
Reclassifications
Certain amounts have been reclassified in the 1996 and 1995 Financial
Statements to be comparable to the Financial Statements presented for 1997.
F-10
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies, continued
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - Investments
The Company's investments were classified as held-to-maturity and reported
at amortized cost which approximates fair value. Investments
held-to-maturity are summarized as follows:
Gross
Amortized Unrealized Fair
Cost Gains Value
---------- ---------- ----------
May 31, 1997:
Debt securities issued by the
U.S. Treasury $4,969,512 $ 8,613 $4,978,125
NOTE 3 - Property and Equipment
Property and equipment at May 31, 1997 and 1996 consist of the following:
Estimated
1997 1996 Useful Lives
---------- ---------- ------------
Computer equipment $222,342 $130,827 5-7 years
Furniture and fixtures 509 509 5-7 years
---------- ----------
222,851 131,336
Less: accumulated depreciation 46,074 12,183
---------- ----------
Total Property and Equipment, Net $176,777 $119,153
========== ==========
Depreciation expense amounted to $33,891 and $12,183 for the years ended
May 31, 1997 and 1996, respectively.
F-11
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - Note Payable, Related Party
On May 15, 1996, Bern Communications, Inc. entered into a revolving credit
agreement with Prime Cellular, Inc. in the amount of $1,000,000, payable on
demand at the prime rate. At May 31, 1996 the balance outstanding under
this note was $500,000. Subsequent to the merger which took place on June
11, 1996, the note was converted to contributed capital and accordingly,
has been eliminated in consolidation at May 31, 1997.
NOTE 5 - Stock Options
The 1990 Stock Option Plan (the "Plan") provides for the granting of either
stock options intended to qualify as "incentive stock options" under the
Internal Revenue Code or "non-statutory stock options" for up to an
aggregate of 1,000,000 shares of common stock. Options may be granted for
terms of up to ten years and are exercisable as determined by the Company's
Board of Directors (the "Board"). The option price under the plan must be
no less than fair market value of the shares on date of grant, except that
the term of an incentive stock option granted under the Plan to a
stockholder owning more than 10% of the outstanding common stock may not
exceed five years and its exercise price may not be less than 110% of the
fair market value of the common stock on the date of the grant.
On June 12, 1996, the Company granted options to purchase 40,000 shares at
$2.50 per share and on July 5, 1996 granted options to purchase an
aggregate of 1,025,000 shares at $8.00 per share. The options granted on
July 5, 1996 were subsequently canceled pursuant to the Settlement
Agreement signed on August 28, 1997 (see Note 9).
The following is a summary of transactions for shares under option as of
May 31, 1997:
Amount Exercise
of Shares Price
---------- --------------
Outstanding, beginning of year 267,000 $1.50 to $1.67
Granted during the year 1,065,000 $2.50 to $8.00
Canceled (see Note 9) (1,025,000) $8.00
Exercised during the year (50,000) $1.50
----------
Outstanding, end of year 257,000
==========
At May 31, 1997 there were 50,000 shares reserved for future grants.
F-12
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - Income Taxes
Deferred income taxes are provided for temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. As of May 31, 1997 and 1996, the Company had gross deferred
tax assets of $277,000 and $110,000, respectively. These amounts represent
the approximate tax effects of net operating losses that give rise to the
Company's deferred tax assets. A valuation allowance has been recognized
for the entire deferred tax assets at May 31, 1997 and 1996.
As of May 31, 1997 and 1996 the Company had net operating loss carry
forwards of approximately $794,000 and $320,000, respectively which expire
at various dates through 2012.
NOTE 7 - Commitments and Contingencies
Leasing Commitments
The Company occupies office premises in Stamford, Connecticut; Aspen,
Colorado and Teaneck, New Jersey through various leasing arrangements.
Lease commitments, under non-cancellable lease agreements in the aggregate,
under such leasing arrangements, are as follows:
Year Ending
May 31, Amount
1998 $10,000
=======
Rent expense for the years ended May 31, 1997 and May 31, 1996 and for the
period February 22, 1995 (inception) to May 31, 1995 is $40,607, $12,000
and -0-, respectively.
Litigation
The Company is presently in litigation against former employees seeking
unspecified damages. In December 1996, the Company commenced an action
against one former employee alleging the former employee breached his
obligations as an employee of the Company by, among other things, various
acts of dishonesty, breaches of fiduciary trust and corporate waste. The
former employee filed a separate action against the Company seeking
unspecified amounts pursuant to the purported employment agreement.
In December 1996, Bern commenced an action against a former employee and a
relative of the former employee, alleging false and fraudulent
representations in connection with the merger of Bern and Bern Associates,
Inc. and breach of her obligations as an employee of Bern by, among other
things, various acts of dishonesty, breaches of fiduciary duty and
corporate waste. In the action, Bern is seeking an unspecified amount of
damages and seeks rescission to recover the shares of the Company issued to
the defendants pursuant to the merger. This former employee filed a
counterclaim that seeks unspecified amounts for alleged breach of her
employment agreement.
F-13
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - Commitments and Contingencies, continued
Litigation, continued
The Company believes the claims of such former employees are without merit
and that it will prevail in these actions. However, the ultimate outcome of
these matters cannot presently be determined. Accordingly, no provision for
any liability that may result therefrom has been made in the accompanying
financial statements.
NOTE 8 - Economic Dependency
The Company sells a substantial portion of its services and products to one
major customer. Sales to major customers which exceed 10% of sales in the
aggregate and accounts receivable from such customer are as follows:
1997 1996
---------- ----------
Sales to major customers $1,574,000 $2,004,000
Accounts receivable from major customers $ 39,000 $249,000
NOTE 9 - Subsequent Events
Settlement Agreement
On August 28, 1997, pursuant to a Settlement Agreement between Prime,
Prime's wholly-owned subsidiary, Bern and certain former stockholders of
Bern Associates, Inc. (the "Settling Shareholders"), an agreement was
reached whereby Prime purchased all of the shares of common stock from each
Settling Shareholder which in the aggregate amounted to 676,937 shares at
$.50 per share for a total amount of $338,469. In addition, Prime and Bern
transferred their rights, title and interest in certain computer software
programs and certain computer equipment to the Settling Shareholders who
were both former stockholders of Bern Associates, Inc. and officers of
Bern. In exchange, the Settling Shareholders signed a general release with
respect to previous employment contracts, confirmed prior resignations as
officers and/or directors of Prime and/or Bern, as applicable, and the
termination of any options to purchase securities of Prime or Bern.
In connection with the Settlement, Bern ceased soliciting further
opportunities or engaging in any further consulting services in connection
with its integrated Internet access service business. Moreover, all sales
of computer hardware and/or software of Bern were discontinued effective as
of the Settlement. Bern Communications will continue to provide help desk
functions as well as network management services pursuant to its existing
contractual arrangements.
F-14
AMENDMENT TO MERGER AGREEMENT
AMENDMENT made as of June 11, 1996 (the "New Effective Date") by and among
Prime Cellular, Inc., a Delaware corporation ("Prime"), Bern Communications,
Inc., a Delaware corporation and wholly-owned subsidiary of Prime ("Bern
Communications") and the individual or entity executing this agreement below
(each, a "Releasing Stockholder").
W I T N E S S E T H :
WHEREAS, Prime acquired all of the shares of capital stock of Bern
Associates, Inc., a New Jersey corporation ("Bern"), on June 11, 1996 (the
"Merger") pursuant to that certain merger agreement dated May 14, 1996 (the
"Merger Agreement") by and among Prime, Prime Cellular Acquisition Corp. (the
predecessor of Bern Communications), Bern and all of the stockholders of Bern
(the "Bern Stockholders"); and
WHEREAS, the Bern Stockholders received, as consideration under the Merger
Agreement, an aggregate amount of 4,100,000 shares of the common stock, par
value $.01 per share, of Prime (the "Merger Stock"), which consideration was
based, in great part, upon the representations and warranties made by the Bern
Stockholders to Prime and Bern Communications (such representations and
<PAGE>
warranties, whether written or oral, express or implied, shall hereinafter be
referred to as the "Merger Representations"); and
WHEREAS, the Bern Stockholders executed an Escrow Agreement and
Indemnification Agreement whereby the Merger Stock was pledged to secure the
obligations of the Bern Stockholders under the Indemnification Agreement; and
WHEREAS, subsequent to the closing of the Merger, Prime has discovered
various breaches of the Merger Representations; and
WHEREAS, the parties desire to avoid the cost and expense of any litigation
that may arise regarding the assessment and calculation of damages and losses
that Prime and/or Bern Communication may have suffered as a result of certain
breaches of the Merger Representations, and, accordingly, have agreed to, among
other things, modify the terms relating to the conversion of Bern Shares to
Prime Stock.
NOW, THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and
-2-
<PAGE>
subject to the conditions set forth herein, the parties hereto agree as follows:
1. Unless otherwise indicated to the contrary, all capitalized terms
contained herein shall have the same meaning as ascribed to such terms in the
Merger Agreement.
2. Subsection 1.7(a) of the Merger Agreement is hereby amended to reduce
the Exchange Ratio of Bern Shares to Prime Stock from 1:10,250 to 1:2,562.50,
reflecting a reduction in the aggregate number of shares of Prime Stock issued
upon conversion of Bern Shares at the Effective Time from 4,100,000 to
1,025,000.
3. As a result, the initial pro rata portion of Merger Stock to be received
by each Releasing Stockholder is as set forth on Exhibit A hereto, and stock
certificates evidencing such pro rata interest shall be delivered to the
Releasing Stockholder within thirty (30) days after the date hereof.
The remaining 3,075,000 Shares of Prime Stock being held in Escrow and not
being distributed to the Bern Stockholders (specifically, the portion thereof
allocable to each Releasing Stockholder and not distributed to such Releasing
Stockholder) shall be distributed to Prime and shall remain authorized but
unissued stock of Prime. Neither Prime nor Prime Acquisition
-3-
<PAGE>
Subsidiary shall have any further obligation to the Bern Stockholders with
respect to such Prime Stock.
4. It is hereby agreed and acknowledged that the Releasing Stockholder,
without admitting or denying the extent or amount of any damages and losses that
Prime or Bern Communications may have incurred or suffered as a result of any
breaches of the Merger Representations, has agreed to enter into this Amendment
with Prime and Bern Communications subject to receipt of a complete release and
discharge of any liability to Prime or Bern Communications arising from the
breach of the Merger Representations by any Bern Stockholder. Accordingly, Prime
and Bern Communications hereby forever release and discharge the Releasing
Stockholder of and from any and all actions, claims, causes of action, suits,
controversies, debts, agreements, commitments, offers, damages, obligations,
liabilities, judgments, executions, demands, of any kind whatsoever, now
existing or hereafter arising, whether known, or unknown, foreseen or
unforeseen, which Prime and Bern Communications, their subsidiaries, affiliates,
stockholders, respective successors and assigns, ever had, now have or hereafter
may have in connection with, arising out of, or in any way related to any breach
of the Merger Representations by the Bern Stockholders and/or Bern under
Articles II, IV and VI of the Merger Agreement and Sections 1, 3, 4, 5 and 8 of
the Indemnification Agreement; provided, however,
-4-
<PAGE>
that nothing contained in this paragraph 6 shall be deemed to release and
discharge Ellen Kirschenbaum, Joan Hadsall, Bernard Kirschenbaum and Andrew
Mitchell from any liability or indemnification obligations under the Merger
Agreement and the Indemnification Agreement.
5. Notwithstanding anything to the contrary in the Merger Agreement and
Indemnification Agreement regarding survival, on and after the date hereof, the
Merger Representations, including, without limitation, the representations,
warranties, obligations and covenants of the Bern Stockholders and/or Bern under
Articles II, IV and VI of the Merger Agreement and Sections 1, 3, 4, 5 and 8 of
the Indemnification Agreement shall no longer survive or have any further force
and effect, at law or equity, with respect to the Releasing Stockholder.
6. All of the Prime Stock owned by the Releasing Stockholder shall be
released from Escrow and the Escrow Agreement shall be deemed effectively
terminated, and without any further force and effect, with respect to such
Releasing Stockholder.
7. Notwithstanding the foregoing, the Releasing Stockholder acknowledges
that this Amendment shall have no force and effect and shall be deemed null and
void in the event that less than all of the Bern Stockholders sign this
Amendment; provided,
-5-
<PAGE>
however, that it is agreed and acknowledged by Prime and Bern Communications
that the execution of this Amendment will not be required from Ellen
Kirschenbaum, Joan Hadsall, Bernard Kirschenbaum and Andrew Mitchell.
8. The parties hereby acknowledge their belief that the breaches of the
Merger Representations were made directly or indirectly by Ellen Kirschenbaum,
Joan Hadsall, Bernard Kirschenbaum and Andrew Mitchell each (except for Joan
Hadsall and Bernard Kirschenbaum) a former employee of Bern Communications, and
a Bern Stockholder. Because of the actions of Ellen Kirschenbaum, Joan Hadsall,
Bernard Kirschenbaum and Andrew Mitchell, each Releasing Stockholder has
suffered a loss as evidenced by the terms of this Amendment. Accordingly, the
parties hereby acknowledge that the shares of Prime Stock belonging to such
individuals shall continue to remain in escrow under the Escrow Agreement, and
agrees to assist each other in bringing the legal action or exercising any
rights to recovery and remedies against Ellen Kirschenbaum, Joan Hadsall,
Bernard Kirschenbaum and Andrew Mitchell. Any recovery from such individuals
(whether Prime Stock or cash) shall be paid to each Releasing Stockholder (pro
rata).
9. The parties hereby agree and acknowledge that Rafael Collado and Michael
Islek are deemed the Bern Designees and the Shareholders' Representatives, as
such terms are referred to in the
-6-
<PAGE>
Merger Agreement (as amended hereby) and the Registration Rights Agreement,
respectively.
10. The parties hereby agree and acknowledge that the Merger Agreement has
been amended to restructure they payment terms in accordance with the terms
hereof, and such an amendment shall not be deemed the result of any exercise of
rights and remedies by any party under the Indemnification Agreement and Escrow
Agreement.
11. This Amendment to the Merger Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
12. Except as set forth herein the Merger Agreement remains in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have signed this Amendment to the
Merger Agreement the day and year first above written.
PRIME CELLULAR, INC.
By: ______________________________________________
BERN COMMUNICATIONS, INC.
By: ______________________________________________
[signature page continued]
-7-
<PAGE>
[signature page continued]
______________________________________________
Rafael Collado, a Releasing Stockholder
______________________________________________
Ellen Kirschenbaum, a Releasing
Stockholder
______________________________________________
William Josuva, a Releasing Stockholder
______________________________________________
Michael Islek, a Releasing Stockholder
______________________________________________
Suhail Nanji, a Releasing Stockholder
______________________________________________
Neil Levine, a Releasing Stockholder
______________________________________________
Atalanta Fund #6 Limited Partnership, a
Releasing Stockholder
______________________________________________
Andrew Mitchell, a Releasing Stockholder
______________________________________________
Joanne Witt, a Releasing Stockholder
______________________________________________
Richard Neville, a Releasing Stockholder
-8-
<PAGE>
[signature page continued]
______________________________________________
Bernard Kirschenbaum, a Releasing
Stockholder
______________________________________________
Louise Northcutt, a Releasing
Stockholder
______________________________________________
Kathy Diaz, a Releasing Stockholder
______________________________________________
Rafael Collado, Sr., a Releasing
Stockholder
______________________________________________
Joan Hadsall, a Releasing Stockholder
-9-
<PAGE>
EXHIBIT A
Name Percentage Interest
---- -------------------
Rafael Collado 13.25%
Ellen Kirschenbaum 13.5%
William Josuva 15.5%
Michael Islek 15.5%
Suhail Nanji 15.5%
Neil Levine 11%
Atalanta Fund #6 Limited Partnership 6%
Andrew Mitchell 2%
Joanne Witt 1%
Richard Neville 2%
Bernard Kirschenbaum 2.5%
Louise Northcutt 1%
Kathy Diaz 0.5%
Rafael Collado, Sr 0.5%
Joan Hadsall 0.25%
-10-
SETTLEMENT AGREEMENT
AGREEMENT dated August 28, 1997 among Prime Cellular, Inc., a Delaware
corporation ("Prime"), Bern Communications, Inc., a Delaware corporation and a
wholly-owned subsidiary of Prime ("Bern"), and the individuals set forth below
(the "Settling Shareholders").
W I T N E S S E T H:
WHEREAS, there have been and exist various disagreements between Prime and
Bern on the one hand and each of the Settling Shareholders on the other hand
with respect to certain rights and obligations of Bern and such Settling
Shareholders;
WHEREAS, the parties have determined that it is in their best interest to
settle any and all disagreements as between them and to confirm certain other
arrangements, as set forth herein;
NOW, THEREFORE, the parties hereto, in consideration of the mutual premises
set forth above and, such other consideration, the receipt and sufficiency of
which are hereby acknowledged, agree as follows:
1. Simultaneous herewith, Prime and each of the Settling Shareholders are
entering into an Agreement substantially in the form of Exhibit A hereto (the
"Stock Purchase Agreement"), providing for the purchase by Prime of all of the
shares of Prime common stock from each Settling Shareholder in the amount set
forth on Exhibit A-1, and which shares of Prime Common Stock are now owned by
each of the Settling Shareholders (as identified therein), at a purchase price
of $.50 per share.
<PAGE>
2. Prime and Bern hereby assign, transfer and convey, without recourse, as
full satisfaction and settlement of certain expenses incurred by the Settling
Shareholders on behalf of Bern and past due and owing by Bern to the Settling
Shareholders, to Rafael Collado, Suhail Nanji, Michael Islek and William Josuva
(collectively, the "Employee Shareholders") all of their right, title and
interest in and to the computer software program known as WEBSITENOW and all
copyrights, trademarks, tradenames, domain names and goodwill associated
therewith, such transfer to include all of Prime and Bern's right, title and
interest in all subsequently developed additions and versions, modifications of
the WEBSITENOW software program. Prime and Bern agree that they shall no longer
retain any right, license or privilege to use the WEBSITENOW software program or
any derivative thereof, and agree to take all actions and execute and deliver
such documents and other instruments necessary for the consummation of the
transaction contemplated by this Section 2. Bern shall also transfer to the
Employee Shareholders the computer and any other equipment used to design and
maintain WEBSITENOW as set forth on Exhibit B. Each Employee Shareholder
represents and warrants that except for the equipment being transferred pursuant
to this Paragraph 2, he is not in possession of any material property of the
Company.
3. Simultaneous herewith, Prime and Bern and certain other parties on the
one hand, and each of the Settling Shareholders on the other hand, will execute
and deliver general releases in the form attached hereto as Exhibit C (the
"Release").
4. Each of the Employee Shareholders confirm their prior resignations as
directors and as officers of Prime and/or Bern and the termination of any
options to purchase securities of Prime or Bern.
2
<PAGE>
5. Each of Bern and the Employee Shareholders acknowledge and agree that
the Employment Agreements (the "Employment Agreements") dated August 1, 1995,
between Bern (as successor to Bern Associates, Inc.) and each of the Employee
Shareholders, as amended, and the undated, Employee Confidential Information and
Invention Agreements, between Bern (as successor to Bern Associates, Inc.) and
each of the Employee Shareholders (the "Confidentiality Agreements") are all
hereby terminated and shall be of no further force and effect whatsoever; such
termination to include, without limitation, the termination of any and all
obligations on the part of (a) Bern or Prime to make any payments to the
Employee Shareholders (whether for past activities, current obligations or
future obligations, such as royalties) or to continue or otherwise provide any
benefits (such as, for example only, health insurance or disability) to any of
the Employee Shareholders and (b) on the part of such Employee Shareholders to
Bern or Prime under the Employment Agreements (including, without limitation,
the termination of any non-compete provision of the Employment Agreements and/or
the Confidentiality Agreements), except as otherwise set forth herein. The
Employee Shareholders confirm and warrant that neither Bern nor Prime shall on
and after the date hereof owe any payments to any of them based on past or
future revenues or for past or future services rendered (including, without
limitation, with respect to any existing contracts between Bern and any
customer) except as may be set forth in a written agreement executed after the
date hereof.
6. Neither Prime nor Bern on the one hand nor any of the Settling
Shareholders on the other hand shall, directly or indirectly, disparage the
commercial, business or financial reputation of the other party.
7. Each of the Settling Shareholders agree not to voluntarily appear or
testify in any court action, arbitration or administrative action relating to
Prime or Bern without Prime's
3
<PAGE>
prior written consent, except pursuant to court order or a valid subpoena. Each
of the Settling Shareholders agree that if any of them receive a subpoena or
order requesting his or her appearance or testimony in connection with any court
action, arbitration or administrative proceeding relating to Prime or Bern, they
shall promptly notify Prime in writing prior to such testimony or appearance to
afford Prime the right to challenge the subpoena; provided, however, that Prime
shall fully indemnify and hold the Settling Shareholders harmless from any
actions, causes of action, claims, liabilities and demands of whatsoever kind or
nature arising out of or resulting from Prime's exercise of its right to
challenge the subpoena on the Settling Shareholders. In addition, each of the
Employee Shareholders and all of the other Settling Shareholders agree, subject
to the terms of the last sentence of this Section 7, that upon Prime's or Bern's
request, he or she will voluntarily appear or testify at the request of Prime or
Bern and otherwise participate in connection with any court action, arbitration
or administrative proceeding by or against Prime or Bern in whatever
jurisdiction such matter shall be pending, whether now existing or hereinafter
instituted. All pre-approved, out-of-pocket costs (including lost wages)
incurred by the Settling Shareholders in connection with the immediately
preceding sentence (including attorney's fees and expenses) shall be paid or
reimbursed by Bern or Prime.
8. This Agreement may not be amended except by an instrument in writing
executed by the parties hereto.
9. Any party hereto may, but shall not be obligated to, (a) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, and (b) waive compliance with any of the agreements or conditions
contained herein. Any such extension or waiver shall only be valid if set forth
in an instrument in writing signed by the party or parties to be bound thereby.
4
<PAGE>
10. All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made as of
the date delivered or mailed if delivered personally, by overnight courier or
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice, except that notices of changes
of address shall be effective upon receipt):
if to Prime or Bern:
Prime Cellular, Inc.
100 First Stamford Place
Stamford, Connecticut 06902
with a copy to:
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Robert J. Mittman
Fax: (212) 885-5001
5
<PAGE>
if to Settling Shareholders:
to: the address set forth on Exhibit D
11. If any term or other provision of this Agreement is deemed or held by a
court of competent jurisdiction to be invalid, illegal or incapable of being
enforced by any rule of law, or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the greatest extent possible.
12. This Agreement (together with all Exhibits referenced herein including,
without limitation, the Stock Purchase Agreement and the Release) constitute the
entire agreement, and supersede all prior agreements and undertakings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
13. This Agreement shall not be assigned by operation of law or otherwise.
14. This Agreement shall be governed by, and construed in accordance with,
the law of the State of New York.
15. The parties (i) agree that any legal suit, action or proceeding arising
out of or relating to this Agreement shall be instituted exclusively in New York
State Supreme
6
<PAGE>
Court, located in New York County or the United States District Court for the
Southern District of New York to the exclusion of any other jurisdiction or
venue, (ii) waive any objection either of them have now or hereafter may have
based upon jurisdiction, forum non conveniens or to the venue of any such suit,
action or proceeding, and (iii) irrevocably consent to the jurisdiction of the
New York State Supreme Court located in New York County, or in the United States
District Court for the Southern District of New York in any such suit, action or
proceeding. The parties further agree to accept and acknowledge service of any
and all process in the New York State Supreme Court located in New York County
or in the United States District Court for the Southern District of New York and
agree that service of process upon either party, mailed by certified mail to
either party's address set forth above will be deemed in every respect effective
service of process upon such party, in any suit, action or proceeding. In the
event that any suit, action or proceeding is commenced with respect to this
Agreement, the prevailing party's costs and expenses incurred in connection with
such suit, action or proceeding (including reasonable attorneys fees and
expenses) shall be paid by the other party.
16. This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be original, but all of which taken together shall
constitute one and the same Agreement.
17. Each Settling Shareholder, severally and not jointly, warrants to the
Prime and Bern that it has the right, power, legal capacity and authority to
enter into this Agreement and to carry out his obligations hereunder, and this
Agreement constitutes the valid and binding obligation of such shareholder
enforceable against such shareholder, in accordance with its terms.
7
<PAGE>
18. Prime and Bern represent and warrant to each Settling Shareholder that
it has the full corporate power, right, legal capacity and authority to enter
into this Agreement and to carry out its obligations hereunder, and this
Agreement, having been duly and validly authorized by all necessary corporate
action, constitutes the valid and binding obligation of Prime and Bern
enforceable against Prime and Bern, in accordance with its terms.
19. Prime agrees to take such actions and to authorize third parties
(including Prime's legal counsel) to take such actions, consistent with
applicable laws and regulations, to permit the sale of any Prime Stock which
will be owned by any Settling Shareholder after the consummation of the
transaction contemplated hereby.
8
<PAGE>
IN WITNESS WHEREOF, the Undersigned have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
PRIME CELLULAR, INC.
By:__________________________________________
BERN COMMUNICATIONS, INC.
By:__________________________________________
_____________________________________________
Rafael Collado, a Settling Stockholder
_____________________________________________
William Josuva, a Settling Stockholder
_____________________________________________
Michael Islek, a Settling Stockholder
_____________________________________________
Suhail Nanji, a Settling Stockholder
_____________________________________________
Neil Levine, a Settling Stockholder
_____________________________________________
Louise Northcutt, a Settling Stockholder
9
<PAGE>
(Signature page continued)
_____________________________________________
Kathy Diaz, a Settling Stockholder
_____________________________________________
Rafael Collado, Sr., a Settling Stockholder
_____________________________________________
Joanne Witt, a Settling Stockholder
10
<PAGE>
EXHIBIT A-1
NAME NUMBER OF SHARES
---- ----------------
RAFAEL COLLADO 135,812
WILLIAM JOSUVA 80,000
MICHAEL ISLEK 158,875
SUHAIL NANJI 158,875
NEIL LEVINE 112,750
LOUISE NORTHCUTT 10,250
KATHY DIAZ 5,125
RAFAEL COLLADO, SR 5,125
JOANNE WITT 10,125
11
<PAGE>
EXHIBIT A
PRIME CELLULAR INC.
100 First Stamford Place
Stamford, Connecticut 06902
Gentlemen:
This letter is to confirm our agreement that Prime Cellular, Inc. (the
"Purchaser") hereby purchases from [Name of Seller] (the "Seller") ________
shares of the common stock, par value $.01 per share, of the Purchaser (the
"Shares") owned by the Seller for a purchase price of $.50 per share , upon the
terms and conditions hereinafter set forth.
1. Purchase Price In full consideration for the transfer of the Shares, the
Purchaser hereby delivers to the Seller upon execution of this letter by the
Seller, and delivery of certificates representing the Shares (together with
stock powers duly endorsed), free and clear of any liens, claims or encumbrances
of any nature whatsoever, duly endorsed for transfer to the Purchaser, its
certified check, dated the date hereof, in the amount of $_________.
2. Representations and Warranties of the Seller. The Seller represents and
warrants to the Purchaser that:
a. The Seller has the right, power, legal capacity and authority to
enter into this Agreement and to carry out his obligations hereunder, and
this Agreement constitutes the valid and binding obligation of the Seller,
enforceable against such Seller, in accordance with its terms;
b. The sale of the Shares to the Purchaser by the Seller will not
conflict with or constitute an event of default under or breach of any
agreement, document or instrument to which the Seller is a party, or any
law, rule or regulation or court order applicable to the Seller;
c. The Seller is the record and beneficial owner
<PAGE>
of the Shares and has good and marketable title to such Shares, free and
clear of any and all liens, claims, security interest, pledges, charge and
encumbrances of any nature whatsoever (the "Liens"). The Seller has
complete and unrestricted power and the unqualified right to sell, assign,
transfer and deliver the Shares to the Purchaser, and upon delivery to the
Purchaser of the certificates representing the Shares, either endorsed in
blank for transfer or together with appropriately executed stock powers
with respect thereto, the Purchaser shall acquire good and marketable title
to the Shares, free and clear of any Liens; and
d. The Seller has had a reasonable opportunity to review all public
filings and reports, press releases and similar disclosure documents filed
or published by the Purchaser, and to ask questions of and receive answers
from the Purchaser concerning the Purchaser, and all such questions, if
any, have been answered to the full satisfaction of the Seller; and
e. None of the representations or warranties made by the Seller in
this Agreement are false or misleading with respect to any fact, or omit to
state any fact necessary in order to make the statements herein contained
not misleading.
3. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Seller that it is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full corporate power, right, legal capacity and authority to enter into
this Agreement and to carry out its obligations hereunder, and this Agreement,
having been duly and validly authorized by all necessary corporate action,
constitutes the valid and binding obligation of the Purchaser enforceable
against the Purchaser, in accordance with its respective terms; and
4. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York without regard to its choice
of law principles. The parties (i) agree that any legal suit, action or
proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, located in New York County or the
United States District Court for the Southern District of New York to the
exclusion of any other jurisdiction or venue, (ii) waive any objection either of
them have now or hereafter may have based upon jurisdiction, forum non
conveniens or to the venue of any such suit, action or proceeding, and (iii)
irrevocably consent to the jurisdiction of the New York State Supreme Court
located in New York County, or in the United States District Court for the
Southern District of New York in any such suit, action or proceeding. The
parties further agree to accept and acknowledge service of any and all process
in the New York State Supreme Court located in New York County or in the United
States District Court for the Southern District of New York and agree that
service of process upon either party, mailed by certified mail to either
<PAGE>
Page 3
party's address set forth above will be deemed in every respect effective
service of process upon such party, in any suit, action or proceeding. In the
event that any suit, action or proceeding is commenced with respect to this
Agreement, the prevailing party's costs and expenses incurred in connection with
such suit, action or proceeding (including reasonable attorneys fees) shall be
paid by the other party.
5. Miscellaneous. This Agreement (i) may only be modified by a written
instrument executed by the party to be charged with such modification; (ii) sets
forth the entire agreement of the parties hereto with respect to the subject
matter hereof; and (iii) shall inure to the benefit of, and be binding upon, the
parties hereto and their respective heirs, legal representatives, successors and
assigns.
6. Counterparts. This Agreement may be executed in one or more
counterparts.
[end of page]
<PAGE>
Page 4
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth below.
PRIME CELLULAR, INC.
Dated: ____________ By:_____________________________
Name:
Title:
Dated: ____________ By:_____________________________
[Name of Seller]
<PAGE>
EXHIBIT B
System 1
- --------
1 SUN SPARCStation 10 Computer System(1)
1 19" SUN Computer Monitor(1)
1 SUN CD-ROM(1)
SUN Keyboard, Mouse and Mouse PAD(1)
System 2
- --------
1 SUN SPARCStation 10 Computer System(2)
1 19" Sun Computer Monitor(2)
1 SUN CD-ROM(2)
SUN Keyboard, Mouse and Mouse PAD(2)
System 3
- --------
1 ABS Mini Tower Pentium 166 MHz 32 MB(3)
With CD-ROM and CD-Recordable ROM(3)
Keyboard, Mouse and Speakers(3)
Mag Innovision 17" Monitor(3)
System 4
- --------
1 NEC Ready 9522 Mini Tower(1)
With CD-ROM, 2 Speakers, Mouse and Cables(3)
1 NEC XV15 Monitor(3)
System 5
- --------
DEC Alpha 400 with Keyboard mouse and Cables and (3)
Misc Documentation(3)
1 DEC 17" Monitor(3)
1 4 Slot Disk Bay(3)
4GB SCSI Hard Disk(3)
System 6
- --------
1 SUN SPARCStation 10 Computer System(3)
1 19" SUN Computer Monitor(3)
1 SUN CD-ROM(3)
SUN Keyboard, Mouse and Mouse PAD(3)
System 7
- --------
1 Web TV System, Keyboard and remote(3)
Support Contract
- ----------------
1 SUN Software Service Contract that expires Nov-Dec 1997
Transferred and assigned to the Settling Shareholders
Employee Shareholders will install Caldera Rev 1.0 UNIX Operating System, Apache
WEB Server, and the Caldera mail server onto an existing PC system from BERN
help desk (herein after "Replacement Server"). In addition, the user accounts,
and BERN help desk web pages currently on System 6 will be transferred to the
Replacement Server by the Employee Shareholders. The Employee Shareholders agree
to service the Replacement Server for three month period after the date of the
Settlement Agreement.
- --------------------------------------------------------------------------------
(1) In William Josuva's possession.
(2) In Michael Islek's possession.
(3) Currently at BERN help desk in Teaneck, NJ
<PAGE>
EXHIBIT C
MUTUAL RELEASE
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Rafael Collado (the "Individual Party"), for himself,
his heirs, administrators, executors, successors, and assigns, hereby fully and
forever releases, acquits, and discharges Prime Cellular, Inc., Bern
Communications, Inc., Joseph K. Pagano, Frederick Adler and Samuel Rozzi, their
respective officers, directors, shareholders, affiliates, subsidiaries, heirs,
administrators, successors, agents, attorneys, and assigns (collectively, the "
Prime Parties"), from any and all actions, causes of action, claims,
obligations, liabilities, past due expenses and demands of whatsoever kind or
nature, known or unknown, foreseen or unforeseen, at law or in equity, civil,
criminal, or administrative, including, without limitation, such claims and
defenses as fraud, mistake, and duress, which the Individual Party ever had, may
have had, now have, or might hereafter have, against the Prime Parties,
including, but not limited to, claims arising on account of any and all known or
unknown losses and damages to the Individual Party or to the Individual Party's
property sustained or received as a result of or arising out of the Individual
Party's employment by, or being a shareholder, option holder, director or
officer of, any of the Prime Parties (as the case may be), including, without
limitation, arising out of or in connection with the Employment Agreement
between the Individual Party and Bern Communications, Inc. (as successor to Bern
Associates, Inc.) ("Bern"), dated as of August 1, 1995, as amended, and
<PAGE>
the undated Employee Confidential Information and Invention Agreement, between
Bern and the Individual Party (as the case may be) (collectively, the
"Employment Agreement").
The Prime Parties, for each of themselves, their respective heirs,
administrators, successors, agents, and assigns, hereby fully and forever
release, acquit, and discharge the Individual Party, and their respective heirs,
administrators, successors, agents, attorneys, and assigns, from any and all
actions, causes of action, claims, obligations, liabilities, past due expenses
and demands of whatsoever kind or nature, known or unknown, foreseen or
unforeseen, at law or in equity, civil, criminal, or administrative, including,
without limitation, such claims and defenses as fraud, mistake, and duress,
which each of the Prime Parties ever had, may have had, now have, or might
hereafter have against the Individual Party, including, but not limited to,
claims arising on account of any and all known or unknown losses and damages to
the Prime Parties sustained or received as a result of or arising out of the
Individual Party's employment with, or being an officer, option holder, director
or shareholder of, any of the Prime Parties (as the case may be), including
without limitation, arising out or in connection with the Employment Agreement.
It is expressly understood and agreed that, this Mutual Release is intended
to cover and does cover not only all now known loss or damage, but any future
loss and damage not now known or anticipated but which may later develop or be
discovered from the existing state of things, including all of the effects and
consequences thereof.
If any provision of this Mutual Release, or if any construction or
application of any provision of this Mutual Release, is held to be unenforceable
or invalid for any reason, then the validity of all the remaining provisions
shall not be affected and the validity of any remaining construction or
application of such provision shall not be affected, and the
-2-
<PAGE>
rights or obligations of each of the parties shall be construed and enforced as
if the Mutual Release did not contain such invalid provision or, as the case may
be, invalid construction or application of such provision; provided, however,
that such resulting construction and enforcement shall be generally consistent
with the basic purpose of this Mutual Release. For purposes of the foregoing,
"provision" refers to any word, phrase, term, sentence, paragraph, or any other
part of this Mutual Release.
This Mutual Release shall be governed by the laws of the State of New York.
The parties hereto acknowledge, covenant, and agree that each of them has
read this Mutual Release and understands its terms, including the legal
consequences thereof, and that in offering to make, and in making, executing,
and delivering this Mutual Release, none of them was acting under any duress,
undue influence, misapprehension, or misrepresentation by any party hereto or
any agent, attorney, or representative of any party and that this Mutual Release
was made, executed, and delivered as the free and voluntary act of each party
and was given in good faith on the part of each party with full knowledge of all
relevant facts and circumstances.
The Prime Parties represent and warrant to the Individual Party that each
of them has the power, right, legal capacity and authority to enter into this
Agreement and to carry out its obligations hereunder, and this Agreement, having
been duly and validly authorized by all necessary corporate action (in the case
of a corporate Prime Party), constitutes the valid and binding obligation of the
Prime Parties enforceable against the Prime Parties, in accordance with its
terms.
The Individual Party represents and warrants to the Prime Parties that it
has the power, right, legal capacity and authority to enter into this Agreement
and to carry out
-3-
<PAGE>
its obligations hereunder, and this Agreement, constitutes the valid and binding
obligation of the Individual Party in accordance with its terms.
Except as otherwise provided, this document contains the entire agreement
between the parties hereto and no representations or promises, other than those
contained or referred to herein, have been made by any party to any other party
to secure the execution of this Mutual Release.
Dated: August 28, 1997
The Prime Parties:
Prime Cellular, Inc.
By:________________________________
Name:
Title:
Bern Communications, Inc.
By:________________________________
Name:
Title:
-----------------------------------
Joseph K. Pagano
-----------------------------------
Frederick Adler
-4-
<PAGE>
-----------------------------------
Samuel Rozzi
Individual Party
-----------------------------------
-5-
<PAGE>
EXHIBIT D
NAMES AND ADDRESSES OF SETTLING SHAREHOLDERS
Rafael Collado, Jr.
93 Walling Road
Warwick, New York 10990
Michael Islek
27 Chestnut Lane
Woodbury, New York 11797
William Josuva
170 Northfield Avenue
West Orange, New Jersey 07052
Neil Levine
2352 Linwood Avenue
Fort Lee, New Jersey 07024
Rafael Collado, Sr.
3 Demarest Road
Teaneck, New Jersey 07666
Louis Northcutt
26 Little Brooklyn Road
Warwick, New York 10990
Kathy Diaz
31-A Tanager Road
Monroe, New York 10950
Joanne Witt
128 Sugarberry Circle
Houston, Texas 77024
Suhail Nanji
7929 Greenhollow Lane
Dallas, Texas 75240
Exhibit 21
Subsidiaries of Prime Cellular, Inc.
Bern Communications, Inc.
Prime Cellular of Florida, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-K AT MAY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 779,216
<SECURITIES> 4,969,512
<RECEIVABLES> 48,244
<ALLOWANCES> 3,500
<INVENTORY> 0
<CURRENT-ASSETS> 5,913,574
<PP&E> 222,851
<DEPRECIATION> 46,074
<TOTAL-ASSETS> 6,093,951
<CURRENT-LIABILITIES> 404,088
<BONDS> 0
0
0
<COMMON> 59,362
<OTHER-SE> 5,630,501
<TOTAL-LIABILITY-AND-EQUITY> 6,093,951
<SALES> 1,792,948
<TOTAL-REVENUES> 1,792,948
<CGS> 820,210
<TOTAL-COSTS> 2,573,856
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,367
<INCOME-PRETAX> (474,120)
<INCOME-TAX> 0
<INCOME-CONTINUING> (474,120)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (474,120)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
