SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [__]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential. For use of the Commission only (as permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
APPLIED CELLULAR TECHNOLOGY, INC.
--------------------------------------------
(Name of Registrant as specified in its charter)
--------------------------------------------
(Name of person(s) filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
<PAGE>
APPLIED CELLULAR TECHNOLOGY
[GRAPHIC OMITTED]
Richard J. Sullivan
Chairman of The Board and
Chief Executive Officer
May 14, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
which will be held on June 13, 1998, at 9:00 a.m. Eastern Daylight Time, at the
Ritz Carlton Hotel, 100 South Ocean Boulevard, Manalapan, Florida 33462.
The enclosed Notice and Proxy Statement contain details concerning the
business to come before the meeting. You will note that the Board of Directors
of the Company recommends a vote "FOR" the election of five Directors to serve
their respective terms and a vote "FOR" each of the other proposals described in
the enclosed Notice and Proxy Statement.
Since it is important that your shares be represented at the meeting
whether or not you plan to attend in person, please indicate on the enclosed
proxy your decision about how you wish to vote. Then please sign, date and
return the proxy promptly in the envelope provided. If you find it possible to
attend the meeting and wish to vote in person, you may withdraw your proxy at
that time. Your vote is important, regardless of the number of shares you own.
Sincerely,
Richard J. Sullivan
<PAGE>
APPLIED CELLULAR TECHNOLOGY
[GRAPHIC OMITTED]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE OWNERS OF COMMON STOCK
OF APPLIED CELLULAR TECHNOLOGY, INC.
The 1998 Annual Meeting of Shareholders of Applied Cellular Technology,
Inc., a Missouri corporation (the "Company"), will be held at the Ritz Carlton
Hotel, Manalapan, Florida on June 13, 1998, at 9:00 a.m. Eastern Daylight Time,
for the following purposes:
1. To elect five Directors, two to hold office until the 1999 Annual Meeting
of Shareholders, one to hold office until the 2000 Annual Meeting of
Shareholders and two to hold office until the 2001 Annual Meeting of
Shareholders, or in each case until their respective successors have been
elected or appointed;
2. To ratify the appointment of Rubin, Brown, Gornstein & Co., LLP as
independent auditors of the Company to serve for the 1998 fiscal year;
3. To approve an increase in the number of authorized shares of common stock
from 40,000,000 to 80,000,000;
4. To approve an increase in the number of shares of common stock reserved for
issuance under the Company's 1996 Non-Qualified Stock Option Plan from
5,000,000 to 10,000,000; and
5. To transact such other business as may properly come before the meeting and
any adjournments or postponements thereof.
Only shareholders of record on the books of the Company at the close of business
on May 14, 1998 are entitled to notice of, and to vote at, the meeting and any
adjournments or postponements thereof. A list of shareholders entitled to vote
will be available for inspection during normal business hours at the offices of
the Company, Suite 5, James River Professional Center, Highway 160 & CC, Nixa,
Missouri 65714 for ten days prior to the meeting.
By Order of the Board of Directors
RICHARD J. SULLIVAN, Secretary
Nixa, Missouri
May 14, 1998
EACH SHAREHOLDER IS URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY
PROMPTLY. IN THE EVENT A SHAREHOLDER DECIDES TO ATTEND THE MEETING, HE OR SHE
MAY, IF SO DESIRED, REVOKE THE PROXY AND VOTE THE SHARES IN PERSON.
<PAGE>
APPLIED CELLULAR TECHNOLOGY
[GRAPHIC OMITTED]
Suite 5, James River Professional Center, Highway 160 & CC
Nixa, Missouri 65714
May 14, 1998
PROXY STATEMENT
FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 13, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Applied Cellular Technology,
Inc., a Missouri corporation (the "Company"), to be voted at the Annual Meeting
of Shareholders of the Company to be held at the Ritz Carlton Hotel, Manalapan,
Florida, on June 13, 1998, at 9:00 a.m. Eastern Daylight Time, and at any
adjournments or postponements thereof (the "Meeting"). This Proxy Statement and
the accompanying form of proxy were first mailed to the shareholders of the
Company on or about May 14, 1998.
Voting and Revocability of Proxies
When proxies are properly dated, executed and returned, the shares they
represent will be voted at the Meeting in accordance with the instructions of
the shareholder. If no specific instructions are given, the shares will be voted
FOR the election of the directors as set forth herein, FOR ratification of the
appointment of auditors, FOR the amendment to increase the number of authorized
shares of common stock and FOR the amendment to the Company's 1996 Non-Qualified
Stock Option Plan. In addition, if other matters come before the Meeting, the
persons named in the accompanying form of Proxy will vote in accordance with
their best judgment with respect to such matters. A shareholder submitting a
proxy has the power to revoke it at any time prior to its exercise by voting in
person at the Meeting, by giving written notice to the Company's Secretary
bearing a later date than the proxy or by giving a later dated proxy. Any
written notice revoking a proxy should be sent to: Proxy Services Corporation,
777 Jersey Avenue, Jersey City, New Jersey 07310. Broker non-votes and shares as
to which proxy authority has been withheld with respect to any matter are not
deemed to be present or represented for purposes of determining whether
shareholder approval of a matter has been obtained. Approval of proposals 1, 2
and 4 will require the favorable vote of a majority of the shares represented
and entitled to vote at the Meeting. Approval of proposal 3 regarding the
amendment of the Company's Restated Articles of Incorporation to increase of the
number of authorized shares of Common Stock of the Company will require the
favorable vote of a majority of the outstanding shares entitled to vote at the
Meeting.
Record Date and Share Ownership
Only shareholders of record on the books of the Company at the close of
business on May 14, 1998 will be entitled to vote at the Meeting or adjournments
or postponements thereof. Each owner of record on the record date is entitled to
one vote for each share of Common Stock of the Company so held. As of the close
of business on April 30, 1998, there were 25,439,785 shares of Common Stock
outstanding.
1
<PAGE>
ELECTION OF DIRECTORS
(Proposal 1)
Board of Directors
The Company's Amended and Restated By-Laws provide for a classified Board
of Directors under which there are three classes of Directors, all of which are
as equal in number as possible. The class to which each Director has been
assigned is designated as Group A, Group B or Group C. Upon their election at
the 1998 Annual Meeting, the term of office for the Group A Directors shall
expire at the 1999 Annual Meeting, the term of office for the Group B Directors
shall expire at the 2000 Annual Meeting and the term of the office for the Group
C Directors shall expire at the 2001 Annual Meeting. Following these initial
terms, the Directors shall be elected to hold office for a term of three years
or, in each case, until his or her successor is elected and qualified, and at
each Annual Meeting of Shareholders, the successor to the Class of Directors
whose terms shall then expire shall be elected for a term expiring at the third
succeeding Annual Meeting after that election. The Board intends to nominate at
the 1998 Annual Meeting the five persons listed as nominees below, all of whom
are incumbent Directors, to hold the class of directorship listed below beside
such director's name. The Company's basic philosophy mandates the inclusion of
directors who will be representative of management, employees and the minority
shareholders of the Company. Directors may only be removed for "cause."
Cumulative voting does not apply in the election of Directors. Unless
otherwise indicated, the shares represented by this proxy will be voted for each
nominee named below. Should any one or more of these nominees become unable to
serve for any reason, or for good cause will not serve, which is not
anticipated, the Board of Directors may, unless the Board by resolution provides
for a lesser number of Directors, designate substitute nominees, in which event
the persons named in the enclosed proxy will vote proxies that would otherwise
be voted for all named nominees for the election of such substitute nominee or
nominees.
The Board of Directors recommends a vote FOR the election of each of the
nominees listed below.
Name Class Age Position/Committees Position Held Since
- ------------------- --------------- ----------------------- --------------------
Daniel E. Penni Group A 50 Director (1,2,3) March 1995
Angela M. Sullivan Group A 38 Director (1,2) April 1996
Arthur F. Noterman Group B 56 Director (1,3) February 1997
Richard J. Sullivan Group C 58 Chairman, CEO (1,2) May 1993
Garrett A. Sullivan Group C 63 Director, President, COO(1,3) March 1995
- ------------------------------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Company Directors to be elected as Group A Directors
Daniel E. Penni: Mr. Penni has served as a Director since March 1995. He is
currently a Senior Vice President and General Manager for Arthur J. Gallagher &
2
<PAGE>
Co., an insurance company. He has worked in many sales and administrative roles
in the insurance business since 1969. He was President of the Boston Insurance
Center, Inc., an insurance company, until 1988. Mr. Penni was founder and
President of BIC Equities, Inc., a broker/dealer registered with the NASD. Mr.
Penni graduated with a Bachelor of Sciences degree in 1969 from the Boston
College School of Management.
Angela M. Sullivan: Ms. Sullivan was elected to the Board of Directors in
April 1996. From 1988 to the present, Ms. Sullivan has been a partner in the Bay
Group, a private merger and acquisition firm; President of Great Bay Technology,
Inc., an affiliate of the Company; and President of Spirit Saver, Inc. Ms.
Sullivan received a Bachelor of Science degree in Business Administration in
1980 from Salem State College. Ms. Sullivan is married to Richard J. Sullivan.
Company Director to be elected as a Group B Director
Arthur F. Noterman: Mr. Noterman, a Chartered Life Underwriter, was
appointed in February 1997 as a Director of the Company to fill a vacancy and is
Chairman of the Audit Committee. Since 1965, Mr. Noterman has represented
various national insurance companies in assisting primarily high net worth
individuals and smaller companies in determining appropriate insurance and
investment strategies. An operator of his own insurance agency, Mr. Noterman is
a registered NASD broker affiliated with a Chicago, Illinois registered
broker/dealer. Mr. Noterman attended Northeastern University from 1965 to 1975
and obtained the Chartered Life Underwriters Professional degree in 1979 from
The American College, Bryn Mawr, Pennsylvania. Mr. Noterman is a licensed Life
and Health Insurance Broker and holds NASD Series 6, 7 and 63 licenses.
Company Directors to be elected as Group C Directors
Richard J. Sullivan: Mr. Sullivan was elected to the Board of Directors and
named the Company's Chief Executive Officer in May 1993. He is also Chairman of
the Executive and Compensation Committees of the Company's Board of Directors
and was appointed Secretary of the Company in March 1996. Mr. Sullivan is
currently Chairman of Great Bay Technology, Inc., an affiliate of the Company.
From August 1989 to December 1992, Mr. Sullivan was Chairman of the Board of
Directors of Consolidated Convenience Systems, Inc., in Springfield, Missouri.
He has been the Managing General Partner of The Bay Group, a successful merger
and acquisition firm in New Hampshire since February 1985. Mr. Sullivan was
formerly Chairman and Chief Executive Officer of Manufacturing Resources, Inc.,
an MRP II software company in Boston, Massachusetts, and was Chairman and CEO of
Encode Technology, a "Computer-Aided Manufacturing" Company in Nashua, New
Hampshire, from February 1984 to August 1986. Mr. Sullivan is married to Angela
M. Sullivan.
Garrett A. Sullivan: Mr. Sullivan was named President, Secretary and Acting
Chief Financial Officer in March 1995. He was elected to the Board of Directors
in August 1995. He was an Executive Vice President of Envirobusiness, Inc., an
environmental consulting firm, from 1993 to 1994. From 1988 to 1993, he served
as president and chief operating officer of two medium sized companies in the
electronics and chemical industries which were owned by Philips North America.
He was previously a partner in the Bay Group, a merger and acquisition firm in
New Hampshire from 1988 to 1993. Mr. Sullivan was President of Granada Hospital
Group, Burlington, Massachusetts, the world's largest television system
supplier, from 1981 to 1988. Mr. Sullivan received a Bachelor of Arts degree
from Boston University in 1960 and obtained an MBA from Harvard University in
1962.
3
<PAGE>
Directorships
No director holds a directorship in any other company which has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or subject to the requirements of Section
15(d) of such Act or any company registered as an investment company under the
Investment Company Act of 1940.
Board Committees and Meetings
The Company has standing Executive, Audit and Compensation Committees of
the Board of Directors. The members of the committees are identified with the
list of Board nominees on the preceding pages.
The Audit Committee recommends for approval by the Board of Directors a
firm of certified public accountants whose duty it is to audit the consolidated
financial statements of the Company for the fiscal year in which they are
appointed, and monitors the effectiveness of the audit effort, the Company's
internal and financial accounting organization and controls and financial
reporting. The audit committee held two meetings during 1997.
The Compensation Committee administers the Company's 1996 Non-Qualified
Stock Option Plan, including the review and grant of stock options to officers
and other employees under such plan. The Compensation Committee also reviews and
approves various other Company compensation policies and matters and reviews and
approves salaries and other matters relating to the executive officers of the
Company. The Compensation Committee reviews all senior corporate employees after
the end of each fiscal year to determine compensation for the subsequent year.
Particular attention is paid to each employee's contributions to the current and
future success of the Company along with their salary level as compared to the
market value of personnel with similar skills and responsibilities. The
Compensation Committee also looks at accomplishments which are above and beyond
management's normal expectations for their positions. The Compensation Committee
met four times during 1997.
Prior to 1996, Richard J. Sullivan, the Company's Chairman and Chief
Executive Officer, did not receive direct compensation from the Company.
Starting in 1996, Mr. Sullivan's compensation has been determined taking into
account the factors identified in the preceding paragraph. See also "Executive
Compensation-Compensation Committee Report on Executive Compensation."
The Board of Directors held 58 meetings during 1997 and acted by written
consent three times during 1997. During the year, all Directors attended 75% or
more of the Board of Directors' meetings and the Board Committees to which they
were assigned.
4
<PAGE>
Ownership of Equity Securities in the Company
The following table sets forth information regarding beneficial ownership
of the Company's Common Stock by each Director and the Directors and Executive
Officers as a group as of March 31, 1998:
<TABLE>
<CAPTION>
Aggregate Number Percent of
Of Shares Outstanding
Name Beneficially Owned Shares
- ----------------------------------------------------------------------------
<S> <C> <C>
Richard J. Sullivan 2,297,501 (1) 9.4%
Garrett A. Sullivan 500,000 (2) 2.0%
Daniel E. Penni 169,865 (3) *
Angela M. Sullivan 65,000 (3) *
Arthur F. Noterman 65,000 (3) *
All Directors and Executive
Officers as a group (Six)
3,347,366 (4) 13.7%
- ---------------
</TABLE>
* Represents less than 1% of the issued and outstanding shares of Common
Stock of the Company.
1. Includes 193,265 shares owned by The Bay Group, 371,127 shares owned by
Great Bay Technology, Inc., and 1,630,000 shares which may be acquired upon
the exercise of options, 630,000 of which are now exercisable and 1,000,000
of which are not now exercisable. The Bay Group is controlled by Richard J.
Sullivan and Angela M. Sullivan. Great Bay Technology, Inc. is controlled
by Richard J. Sullivan, Angela M. Sullivan and Stephanie Sullivan.
2. Includes 350,000 shares which may be acquired upon the exercise of options
which are not now exercisable.
3. Includes 60,000 shares which may be acquired upon the exercise of options
of which 25,000 are now exercisable and 35,000 are not now exercisable.
4. Includes 2,310,000 shares which may be acquired upon the exercise of
options, 705,000 of which are now exercisable and 1,605,000 of which are
not now exercisable.
5
<PAGE>
The following table sets forth information concerning warrants to purchase
shares of the Company's Common Stock which are owned beneficially by the named
Directors and Executive Officers of the Company individually and as a group as
of March 31, 1998:
<TABLE>
<CAPTION>
Class of Number of Percent of Exercise Price
Name Warrants Warrants (1) Class Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard J. Sullivan (2) Class K 250,000 100.00% $ 5.31
Class N 600,000 75.00% $ 3.00
Garrett A. Sullivan Class H 100,000 22.22% $ 2.00
Class N 100,000 12.50% $ 3.00
Daniel E. Penni -- -- -- --
Angela M. Sullivan -- -- -- --
Arthur F. Noterman -- -- -- --
All Directors and Executive
Officers as a group (Six)
Class H 100,000 22.22% $ 2.00
Class K 250,000 100.00% $ 5.31
Class N 700,000 87.50% $ 3.00
- --------------------
</TABLE>
(1) Pursuant to Rule 13(d)(3) under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the voting) and/or sole
or shared investment power (including the power to dispose or direct a
disposition) with respect to a security whether through a contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, each person indicated above has sole power to vote, or dispose
or direct the disposition of all shares beneficially owned, subject to
applicable community property laws.
(2) Represents warrants owned by Great Bay Technology, Inc. Great Bay
Technology, Inc. is controlled by Richard J. Sullivan, Angela M. Sullivan
and Stephanie Sullivan.
Principal Shareholders
Set forth in the table below is information as of December 31, 1997
with respect to persons known to the Company (other than Executive Officers and
Directors shown in the preceding table) to be the beneficial owners of more than
five percent of the Company's issued and outstanding Common Stock:
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address Beneficially Owned Of Class
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
James M. Shaver (1) 1,433,600 6.9%
1811 Center Point Circle #111
Naperville, Illinois 60563
- -----------
</TABLE>
(1) Mr. Shaver is the President of Advanced Telecommunications, Inc., an 80%
owned subsidiary of the Company.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
total remuneration paid or accrued by the Company, to or on behalf of the
Company's Chief Executive Officer and the one other executive officer of the
Company whose annual salary and bonus exceeded $100,000 during 1997:
<TABLE>
Summary Compensation Table
--------------------------
<CAPTION>
Long-Term
Annual Compensation Awards Compensation Payouts
------------------- ------ --------------------
Other Restricted
Name and Annual Stock Options/ LTIP All Other
Principal Position (1) Year Salary Bonus Compensation Awards SAR's(3) Payouts Compensation
- ---------------------- ---- ------ ----- ------------------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard J. Sullivan 1997 $116,668 140,000 $ 3,623 - 1,000,000 - $ -
Chairman, CEO and 1996 $ - $ - $ 68,816 - 1,130,000 - $ -
Secretary 1995 $ - $ - $ - - - - $ -
Garrett A. Sullivan (2) 1997 $105,499 $75,000 $811 - 350,000 - $ -
Director, President 1996 $113,966 $25,000 $ - - 150,000 - $ -
And COO 1995 $27,745 $ - $ - - - $ -
- ----------------
</TABLE>
(1) No executive officer served pursuant to an employment contract through the
1996 fiscal year. See "Termination of Employment and Change of Control
Arrangement" below for agreements entered into subsequent to December 31,
1996.
(2) Mr. Sullivan was Secretary until March 1996 and Acting Chief Financial
Officer until February 1997.
(3) Indicates number of securities underlying options.
7
<PAGE>
Option Grants in Last Fiscal Year
The following table contains information concerning the Company's grant of
Stock Options under the Company's 1996 Non-Qualified Stock Option Plan to the
named Executive Officers during 1997:
<TABLE>
Option Grants In Last Fiscal Year
Individual Grants
-----------------
<CAPTION>
Number of % of Total
Securities Options Grant Date
Underlying Granted to Exercise Present
Options Employees Price Grant Expiration Value (2)
Name (1) Granted in 1997 ($/Sh) Date Date ($)
- -------- ------- ------- ------ ---- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Richard J. Sullivan 500,000 20.10% $3.93 August, 97 August, 03 $765,000
500,000 20.10% $5.58 November, 97 November, 03 $765,000
Garrett A. Sullivan 200,000 8.00% $3.93 August, 97 August, 03 $306,000
150,000 6.00% $5.58 November, 97 November, 03 $229,500
</TABLE>
(1) Options granted under the 1996 Non-Qualified Stock Option Plan were granted
at an exercise price equal to 85% of the fair market value of the Company's
common shares on the grant date. These options are exercisable over a
five-year period beginning with the first anniversary of the grant date.
(2) Based on the grant date present value of $1.53 per option share which was
derived using the Black-Scholes option pricing model in accordance with
rules and regulations of the Securities Exchange Commission and is not
intended to forecast future appreciation of the Company's common share
price. The Black-Scholes model was used with the following assumptions:
dividend yield of 0%; expected volatility of 44.03 percent; risk-free
interest rate of 8.5%; and expected lives of 5 years.
8
<PAGE>
Option Exercises and Fiscal Year-End Values
The following table sets forth information with respect to the named
Executive Officers concerning the exercise of options during 1997 and
unexercised options held on December 31, 1997:
<TABLE>
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
---------------------------------
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The-Money Options at
Acquired On Value Options at Year End 1997 (#) Year End 1997 ($) (1)
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ -------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard J. Sullivan 500,000 $2,125,000 630,000 1,000,000 $2,835,000 $2,250,000
Garrett A. Sullivan 150,000 $637,500 - 350,000 $ - $ 900,000
________________
</TABLE>
(1) Based on the closing price of the Company's Common Stock on the Nasdaq
SmallCap Market, as published in the Wall Street Journal on December 31,
1997 ($4.50).
Compensation Pursuant to Plans
Other than as disclosed above, the Company has no plans pursuant to which
cash or non-cash compensation was paid or distributed during the last fiscal
year or is proposed to be paid or distributed in the future, to the individuals
described above.
Compensation of Directors
Directors of the Company who are not employees of the Company may receive a
fee of $250 per meeting for their attendance at meetings of the Company's Board
of Directors and are entitled to reimbursement for reasonable travel expenses.
Compensation Committee Interlocks and Insider Participation
Richard J. Sullivan, the Chief Executive Officer of the Company, is
Chairman of the Compensation Committee.
Termination of Employment and Change of Control Arrangement
The Company has entered into employment agreements with Richard J.
Sullivan, Chairman; Garrett A. Sullivan, President; and David A. Loppert, Chief
Financial Officer. The agreements are for five-year, three-year and two-year
terms, commence June 1, 1997, June 1, 1997 and December 1, 1997 and end May 31,
2002, May 31, 2000 and November 30, 1999, respectively. At the expiration of
their respective terms, these agreements automatically renew for successive
one-year terms on each anniversary of the employee's employment beginning with
the June/December 1, 1998 anniversary date. In the event of a "change in
control", at the employee's option, he may terminate his employment under the
agreement at any time within one year after such change of control. The Company
shall pay to the employee a severance payment equal to the maximum amount which
would not result in such payment being an excess parachute payment as defined in
the Internal Revenue Code. Additionally, upon termination of employment for any
reason other than for breach under the agreement, the employee shall be entitled
to receive from the Company 36 equal monthly payments of 8.333% of his
9
<PAGE>
compensation from the Company over the 12-month period for which his
compensation was the greatest. Mr. Richard Sullivan's agreement provides that he
may elect to receive a percentage of his salary for each 12-month period in
shares of the Company's Common Stock. For the 12-month period commencing June 1,
1997, Mr. Sullivan has elected to receive all of his compensation in stock.
Indebtedness of Management
David A. Loppert, Chief Financial Officer, has executed a promissory note
in favor of the Company in the amount of $260,000. The promissory note is
non-interest bearing and was executed as consideration for the purchase by Mr.
Loppert of 100,000 shares of the Company's Common Stock. The entire amount due
on such note was outstanding on March 1, 1998.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Committee of the Board
The Compensation Committee is composed of two non-employee, independent
members of the Board of Directors and Richard J. Sullivan, Chairman and Chief
Executive Officer of the Company. It is the Compensation Committee's
responsibility to review, recommend and approve changes to the Company's
compensation policies and programs. It is also the Committee's responsibility to
review and approve all compensation actions for the executive officers of the
Company and various other Company compensation policies and matters and
administer the Company's Stock Option Plan, including the review and approval of
stock option grants to the executive officers of the Company.
General Compensation Philosophy
The Company's executive compensation programs are designed to enable the
Company to attract, retain and motivate the executives of the Company and its
subsidiaries. The Company's general compensation philosophy is that total cash
compensation should vary with the performance of the Company in attaining
financial and non-financial objectives and that any long-term incentive
compensation should be closely aligned with the interests of shareholders. Total
cash compensation for the majority of the Company's employees, including its
executive officers, consists of a base salary and a cash bonus based on the
profitability of the Company and its individual subsidiaries. Long-term
incentive compensation is realized through the granting of stock options to most
employees, at the discretion of individual subsidiary company presidents, as
well as eligible executive officers.
Setting Executive Compensation
In setting the base salary and individual bonuses (hereafter together
referred to as "BSB") for executives, the Compensation Committee reviews
information relating to executive compensation of US based companies that are of
the same size as the Company. While there is no specific formula that is used to
set compensation in relation to this market data, executive officer BSB is
generally set below the median salaries for comparable jobs in the market place.
However, when specific financial and non-financial goals are met, additional
compensation in the form of either cash compensation or long-term incentive
compensation may be paid to the executive officers of the Company.
10
<PAGE>
Base Salary
The Compensation Committee reviews the history and proposals for the
compensation package of each of the executive officers, including base salary.
Increases in base salary are governed by three factors: merit (an individuals
performance); market parity (to adjust salaries based on the competitive
market); and promotions (to reflect increases in responsibility). In assessing
market parity, the Company relies on market surveys of similarly sized publicly
traded companies and generally pays below the median of these companies. The
guidelines are set each year and vary from year to year to reflect the
competitive environment and to control the overall cost of salary growth.
Individual merit increases are based on performance and can range from 0% to
100%.
The salary guidelines for all presidents of the Company's subsidiaries are
generally based upon individually negotiated employment agreements. Merit
increases are submitted by the President of the Company to the Compensation
Committee for approval based upon individual performance and the performance of
the subsidiary. Merit increases for non-executive employees are at the
discretion of the presidents of the individual subsidiary companies.
Cash and Stock Incentive Compensation Programs
To reward performance, the Company provides its executive officers, and the
executive officers of subsidiary companies with additional compensation in the
form of a cash bonus and/or stock awards. No fixed formula or weighting is
applied by the Compensation Committee to corporate performance versus individual
performance in determining these awards. The amounts of such awards are
determined by the Committee acting in its discretion. Such determination, except
in the case of the award for the Chairman, is made after considering the
recommendations of the Chairman and President and such other matters as the
Committee deems relevant. The Committee, acting in its discretion, may determine
to pay a lesser award than the maximum specified. The amount of the total
incentive is divided between cash and stock at the discretion of the Committee.
Stock Options
The Stock Option Plan is a long-term plan designed to link rewards with
shareholder value over time. Stock options are granted to aid in the retention
of employees and to align the interests of employees with shareholders. Stock
options have value for an employee only if the price of the Company's stock
increases above the fair market value on the grant date and the employee remains
in the Company's employ for the period required for the stock option to be
exercisable, thus providing an incentive to remain in the Company's employ.
The Company has a 1996 Non-Qualified Stock Option Plan for use for all
employees of the Company, including executive officers. Grants to executive
officers of the Company and to officers of the Company's subsidiaries are made
at the discretion of the Compensation Committee. The Committee may also make
available a pool of options to each subsidiary to be granted at the discretion
of such subsidiary's president.
In 1997, stock options for the executive officers were granted upon the
recommendation of management and approval of the Compensation Committee based on
their subjective evaluation of the appropriate amount for the level and amount
of responsibility for each executive officer.
11
<PAGE>
Decisions on 1997 Compensation
The Company's compensation program is leveraged towards the achievement of
corporate and business objectives. This pay-for-performance program is most
clearly exemplified in the compensation of the Company's Chief Executive
Officer, Richard J. Sullivan. Mr. Sullivan's compensation awards were made based
upon the Compensation Committee's assessment of the Company's financial and
non-financial performance. The results were evaluated based on the overall
judgment of the Compensation Committee. Prior to June, 1997, Mr. Sullivan did
not receive a salary from the Company. Effective as of June 1, 1997, Mr.
Sullivan's base salary was set at $200,000 per annum, which Mr. Sullivan elected
to receive in shares of the Company's common stock. Mr. Sullivan's base salary
is considerably below market for similarly sized publicly traded companies. Mr.
Sullivan was awarded two stock option grants in 1997; one in August 1997 and one
in November 1997 to provide Mr. Sullivan with total cumulative stock option
grants which were more consistent with the competitive marketplace.
The Compensation Committee is pleased to submit this report to the
shareholders with regard to the above matters.
Compensation Committee:
Richard J. Sullivan, Chairman
Daniel E. Penni
Angela M. Sullivan
Stock Price Performance
The following performance graph compares the changes, for the period
indicated, in the cumulative total value of $100 hypothetically invested in each
of (a) the Company's Common Stock, (b) the Nasdaq Stock Market, (c) the Russell
2000 Stock Index and (d) a group of publicly-traded companies which the Company
considers to be in its peer group. Such peer group companies are Cerplex Group,
Inc., Comdisco, Inc., Innovative Tech Systems, Inc., Glenayre Technologies,
Inc., Thermo Voltek Corp. and Telecomm Industries Corp.
12
<PAGE>
<TABLE>
Cumulative Total Return
Based on Investment of $100
December 31, 1995-December 31, 1997
[GRAPH OMITTED]
Dollar Value of $100 Investment at
----------------------------------
<CAPTION>
12/31/95 12/31/96 12/31/97
-------- -------- --------
<S> <C> <C> <C>
The Company................. $100.00 $ 97.58 $105.82
The Nasdaq Stock Market
Total Return Index........ $100.00 $123.00 $150.93
The Russell 2000 Index ..... $100.00 $116.49 $142.54
Peer Group ................. $100.00 $ 96.63 $ 32.11
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Conversion of Preferred Stock
Effective January 1, 1997, the Company entered into agreements with Bruce
Reale and Vincent A. Lo Castro, under which the Company agreed to pay consulting
fees to each of them in the amount of $96,000 per calendar quarter, in lieu of
dividends otherwise payable in respect of shares of preferred stock of the
Company owned Mr. Lo Castro and by a trust affiliated with Mr. Reale. Effective
June 30, 1997, the Company exchanged an aggregate of 650,000 shares of its
common stock for 48,000 shares of such preferred stock held by Mr. Lo Castro,
and in exchange for certain related warrants. The Company's obligation to pay
the consulting fees to Mr. Lo Castro described above was terminated as part of
such exchange. Effective September 30, 1997, the Company exchanged an aggregate
of 704,167 shares of its common stock for 52,000 shares of such preferred stock
held by Mr. Reale and Capital Alliance Corporation. The Company's obligation to
pay the consulting fees to Mr. Reale and Capital Alliance Corporation described
above were terminated as part of such exchange.
Changes in Control
There are no arrangements, known to the Company, including any pledge by
any person of securities of the Company, the operation of which may at a
subsequent date result in a change of control of the Company.
Potential Conflicts of Interests
Mr. Richard J. Sullivan, the Chief Executive Officer of the Company, is
also Chairman of Great Bay Technology, Inc. and Managing General Partner of the
Bay Group. Both of these companies conduct business with the Company and receive
compensation from the Company for various services, including assistance in
identifying potential acquisition candidates and in negotiating acquisition
transactions. The relationships among such companies, Mr. Sullivan and the
Company may involve conflicts of interest. For services rendered in connection
with acquisitions which took place in 1997, 1996 and 1995, the Company paid The
Bay Group, $473,750, $457,152 and $126,500, respectively, for investment banking
services.
Consulting Agreements
On October 16, 1996, the Company entered into a Consulting Agreement
("Agreement") with Joseph, Brian & Christopher Associates, a Pennsylvania
partnership ("Consultant"). The Company engaged the Consultant to render
acquisition advice to the Company and to ACT Communications, Inc., a wholly
owned subsidiary of the Company. The term of the Agreement is for a period of
three years ending September 30, 1999 and the consulting fee is $10,000 per
13
<PAGE>
month. Thereafter, the Agreement may be extended by mutual agreement. The
general partners of the Consultant are the selling shareholders of ATI
Communications, a company that was acquired by the Company effective as of
September 1, 1996.
Earnout Agreements
The Company has entered into various earnout arrangements with the selling
shareholders of certain acquired subsidiaries. These arrangements provide for
additional consideration to be paid in future years if certain earnings levels
are met.
Put Options
The Company has entered into put options with the selling shareholders of
various companies in which the Company acquired 80% interests. These options
provide for the Company to acquire the 20% it does not own after periods ranging
from four to five years from the dates of acquisition at amounts generally equal
to 20% of the average annual earnings of the company before income taxes for the
two year period prior to the put multiplied by a multiple ranging from four to
five.
Employment Agreements
At the time the Company acquires a particular company, the Company
generally enters into employment agreements with the key selling
shareholder/officers of the acquired company. The agreements are for periods of
two to five years, and some provide for bonus arrangements based on the earnings
of the subsidiary.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the officers and directors of the Company and persons who own more than 10% of
the Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and to furnish copies of all such
reports to the Company.
The Company believes, based on its stock transfer records and other
information available to the Company, that all reports required under Section
16(a) were timely filed.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(Proposal 2)
The Board of Directors of the Company, at the recommendation of the Audit
Committee, has appointed Rubin, Brown, Gornstein & Co., LLP ("RBG") to serve as
independent auditors of the Company for the calendar year ending December 31,
1998, subject to ratification by the shareholders of the Company. RBG has served
as independent auditors of the Company for many years and is considered by
management of the Company to be well qualified.
Audit services of RBG in 1997 included the examination of the consolidated
financial statements of the Company, certain services relating to filings with
the Securities and Exchange Commission as well as certain services relating to
the Company's consolidated quarterly reports. Additionally, RBG provided certain
14
<PAGE>
non-audit services for the Company during 1997. Such services were approved by
management. In approving the services, management determined that the nature of
the services and the estimated fees to be charged would have no adverse affect
on the independence of RBG.
A representative of RBG is expected to be present at the Meeting and will
have an opportunity to make a statement if he or she so desires. The
representative will also be available to respond to appropriate questions from
shareholders.
The Board of Directors recommends a vote FOR ratification of the
appointment of Rubin, Brown, Gornstein & Co., LLP as independent auditors for
the 1998 fiscal year. Unless a contrary choice is specified, proxies solicited
by the Board of Directors will be voted FOR ratification of the appointment.
INCREASE IN AUTHORIZED NUMBER OF COMMON SHARES
(Proposal 3)
The Company's Restated Articles of Incorporation authorize the Company to
issue up to 40,000,000 Common Shares, par value $.001 per Common Share. There
were 25,439,785 shares of Common Stock outstanding as of the close of business
on April 30, 1998. Currently, 1,486,500 shares are reserved for issuance
pursuant to outstanding Warrants, 4,306,100 shares are reserved for issuance
pursuant to the Company's 1996 Non-Qualified Stock Option Plan and 630,000
shares are reserved pursuant to an option granted to the Company's Chairman and
Chief Executive Officer in 1996.
The Board of Directors proposes that the Company's Restated Articles of
Incorporation be amended to increase the authorized number of shares of Common
Stock to 80,000,000. The Board of Directors believes that the availability of
additional authorized but unissued shares will provide the Company with the
flexibility to issue Common Stock for other proper corporate purposes which may
be identified in the future, such as to raise equity capital, and to acquire
entities through the issuance of Common Stock of the Company as consideration.
Holders of the Company's Common Stock are entitled to cast one vote for
each share held at all shareholders meetings for all purposes, including the
election of directors, and to share equally on a per share basis in such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Upon liquidation or dissolution, each outstanding share of
Common Stock will be entitled to share equally in the assets of the Company
legally available for distribution to shareholders after the payment of all
debts and other liabilities. The Common Stock is not redeemable, has no
conversion rights and does not have preemptive rights. Thus, should the Board of
Directors elect to issue additional shares of Common Stock, existing
shareholders would not have any preferential rights to purchase such shares. Any
such issuance could have a dilutive effect on the earnings per share, voting
power, and shareholdings of current shareholders.
Although the Company expects to continue its acquisition program and to
issue additional shares of Common Stock in such acquisitions, the Company has no
current plan or intention to issue any of the additional shares of Common Stock
which would be authorized under this proposal.
The Board of Directors recommends a vote FOR the proposal to increase the
number of authorized shares of Common Stock from 40,000,000 to 80,000,000.
Unless a contrary choice is specified, proxies solicited by the Board of
Directors will be voted FOR the proposal.
15
<PAGE>
APPROVAL OF AN AMENDMENT TO THE
1996 NON-QUALIFIED STOCK OPTION PLAN
(Proposal 4)
In August 1996, the Company's shareholders approved the Company's 1996
Non-Qualified Stock Option Plan (the "Option Plan") to aid the Company in
attracting, motivating and rewarding management, employees and directors by the
granting of stock options. The Option Plan was amended at the 1997 Annual
Meeting of Shareholders.
The Board of Directors has concluded that in order to accomplish the goals
of the Option Plan, it is advisable to amend the Option Plan to increase the
number of shares authorized for issuance thereunder from 5,000,000 to
10,000,000.
The essential features of the Option Plan are outlined below:
The Board of Directors approved the 1996 Non-Qualified Stock Option Plan in
July 1996. Pursuant to the terms of the Option Plan, 5,000,000 shares of the
Company's Common Stock are reserved for issuance thereunder. The Plan will
terminate on March 15, 2006, and no option may be granted pursuant to the Option
Plan thereafter. The Board of Directors of the Company has the sole right and
power to amend the Option Plan at any time and from time to time; provided,
however, that the Board of Directors may not amend the Option Plan, without the
approval of the shareholders of the Company, in a manner which would violate
applicable law.
Options are granted only to persons who are employees of the Company or a
subsidiary of the Company (including any subsidiary which may be organized or
acquired subsequent to adoption of the Option Plan) who agree to remain in the
employ of, and render services to, the Company or a subsidiary of the Company
for a period of at least one (1) year from the date of the granting of the
option. The term "employees" includes officers, directors, executives and
supervisory personnel, as well as other employees of the Company or a subsidiary
corporation of the Company.
The purchase price under each option issued is determined by a Committee
(of not less than three members, at least one of whom shall be a Director of the
Company), at the time the option is granted. In no event, however, shall the
purchase price under an option be less than 85 percent of the fair market value
of the Company's Common Stock on the date of the grant. All options issued under
the Option Plan shall be for such period as the Committee shall determine, but
for not more than ten years from the date of grant thereof.
The benefits or amounts that will be received by or allocated under the
Option Plan cannot be determined at this point. At the end of each fiscal year,
the Compensation Committee will determine who shall receive options. The
Compensation Committee, which is composed of three members of the Board of
Directors, will review all compensation offered an employee at the end of each
fiscal year. Particular attention is paid to each employee's contribution to the
current and future success of the Company along with their salary level as
compared to the market value of personnel with similar skills. The Compensation
Committee also looks at accomplishments which are above and beyond management's
normal expectations for their position.
16
<PAGE>
The Board of Directors recommends a vote FOR approval of the amendment to
the Option Plan. Unless a contrary choice is specified, proxies solicited by the
Board of Directors will be voted for approval of the amendment to the Option
Plan.
SHAREHOLDER PROPOSALS
Pursuant to the applicable rules under the Exchange Act, some shareholder
proposals may be eligible for inclusion in the Company's 1999 Proxy Statement.
Proposals by shareholders intended to be presented at the 1999 Annual Meeting of
Shareholders must be submitted in writing to the Secretary of the Company no
later than November 20, 1998. Shareholders interested in submitting such a
proposal are advised to contact knowledgeable counsel with regards to the
detailed requirements of such securities rules.
OTHER MATTERS
Financial Statements. The Company's consolidated financial statements for
the year ended December 31, 1997 are included in the Company's 1997 Annual
Report to Shareholders. Copies of the Annual Report are being sent to the
Company's shareholders concurrently with the mailing of this Proxy Statement.
Other Matters. At the date hereof, there are no other matters which the
Board of Directors intends to present or has reason to believe others will
present at the Meeting. If other matters come before the Meeting, the persons
named in the accompanying form of proxy will vote in accordance with their best
judgment with respect to such matters.
Proxy Solicitation. The expense of solicitation of proxies will be borne by
the Company. The Company has retained Proxy Services Corporation to solicit
proxies. Proxies may also be solicited by certain of the Company's directors,
officers and other employees, without additional compensation, personally or by
written communication, telephone or other electronic means. The Company is
required to request brokers and nominees who hold stock in their name to furnish
the Company's proxy material to beneficial owners of the stock and will
reimburse such brokers and nominees for their reasonable out-of-pocket expenses
in so doing.
The form of proxy and this Proxy Statement have been approved by the Board
of Directors and are being mailed and delivered to shareholders by its
authority.
RICHARD J. SULLIVAN
Secretary
Nixa, Missouri
May 14, 1998
17
<PAGE>
ANNEX
FORM OF PROXY
THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS OF APPLIED CELLULAR TECHNOLOGY, INC.
Richard J. Sullivan and Garrett A. Sullivan, and each of them, are
appointed by the undersigned as proxies, each with power of substitution, to
represent and vote the shares of stock of Applied Cellular Technology, Inc. (the
"Company") which the undersigned would be entitled to vote at the Annual Meeting
of Shareholders of the Company to be held on June 13, 1998 and at any
postponements or adjournments thereof (the "Annual Meeting") as if the
undersigned were present and voting at the meeting.
1. Election of Directors
Note: Unless otherwise indicated, the shares represented by this proxy will
be voted for each nominee named below.
NOMINEES:
Daniel E. Penni, Angela M. Sullivan, Arthur F. Noterman, Richard J.
Sullivan and Garrett A. Sullivan
FOR all nominees (except as written on the line below) [_]
WITHHOLD AUTHORITY TO VOTE for all nominees listed above [_]
(INSTRUCTIONS: To withhold authority to vote for any individual nominees
write the nominee's name on the line below.)
- -------------------------------------------------------------------
2.Ratification of Rubin, Brown, Gornstein & Co., LLP as independent
auditors of the Company for the 1998 fiscal year.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Approval of an amendment to the Restated Articles of Incorporation of
the Company to increase the authorized number of shares of common stock from
40,000,000 to 80,000,000.
FOR [_] AGAINST [_] ABSTAIN [_]
4. Approval of an amendment to the Company's 1996 Non-Qualified Stock
Option Plan to increase the number of shares available for issuance thereunder
from 5,000,000 to 10,000,000.
FOR [_] AGAINST [_] ABSTAIN [_]
5. In their discretion, on any other business that may properly come before
the Meeting.
The shares represented hereby will be voted in accordance with the
directions set forth above and, where no directions are given, such shares will
be voted for the nominees for Director named above and for each proposal
referred to above.
Dated _______________, 1998
___________________________
Signature
___________________________
Signature
Please sign, date and return this proxy in the enclosed envelope. Joint
Owners should each sign this proxy. Attorneys-in-fact, executors,
administrators, trustees, guardians or corporation officers, should give their
full title.
