<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 December 31, 1998
OR
_ _ _ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________ to ________
Commission File Number 1-13732
SHARED TECHNOLOGIES CELLULAR, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1386411
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Great Meadow Road, Suite 104
Wethersfield, Connecticut 06109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(860) 258-2500
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]
The aggregate market value of the registrant's Common Stock held by
nonaffiliates as of March 29, 1999 was approximately $51,060,000 based on the
average of the closing bid and asked prices as reported on such date in the
over-the-counter market.
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of March 29, 1999
7,650,107 shares of Common Stock $.01 par value
The following document is hereby incorporated by reference into Part III of this
Form 10-K: The registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on May 20, 1999 to be filed with the Securities and
Exchange Commission in definitive form on or before April 30, 1999.
<PAGE> 2
PART I
ITEM 1.
BUSINESS
(a) General Development of Business - Shared Technologies Cellular, Inc. ("STC"
or the "Company"), a Delaware corporation incorporated in 1989, is a national
cellular service provider offering rental, prepaid and activation services in
over 690 of approximately 750 Cellular Geographical Service Areas ("CGSA")
within the United States. The Company rents cellular telephones to business and
leisure travelers and to individuals at sporting events or in government
agencies. As a reseller or agent for cellular and PCS carriers, the Company
offers cellular service to approximately 96% of the U.S. population. STC also
performs nationwide cellular activation services through a variety of retail and
commercial outlets. The Company has expanded the scope of its prepaid (debit)
cellular service to include a national activation, customer service and
collection service operation through major mass merchants.
Through the acquisitions of certain assets from Road and Show Cellular East,
Inc., Road and Show South Ltd. and Road and Show Pennsylvania, Inc.
(collectively "Road and Show"), in December 1993, the Company obtained a
national distribution network, including relationships with national car rental
companies and hotels, which the Company has significantly expanded since that
date. Immediately following the Road and Show acquisitions, the Company had
approximately 1,300 portable cellular telephones available to rent at
approximately 60 distribution outlets. As of December 31, 1998, the Company had
approximately 4,000 cellular telephones available to rent at approximately 300
distribution outlets.
In April 1995, the Company completed its initial public offering. Prior to the
offering, the Company was an approximately 86%-owned subsidiary of Shared
Technologies Fairchild Inc., ("STFI"). The Company sold 950,000 shares of its
common stock, $0.01 par value ("Common Stock") for $5.25 per share, which
generated net proceeds of approximately $3,562,000 after underwriters'
commissions and offering expenses. In conjunction with the Company's initial
public offering, $1,184,000 of the amount due to STFI was contributed to the
Company's capital in excess of par value.
In May 1995, the Company commenced management of, and subsequently acquired the
outstanding capital stock of Cellular Hotline, Inc., ("Hotline"), a cellular
telephone activation service provider. The purchase price was $1,329,000
comprised of $217,000 in cash, the assumption of $712,000 of accounts payable,
the issuance of a promissory note of $150,000 and the balance through the
issuance of 50,000 shares of the Company's Common Stock, valued at $5.00 per
share. At the discretion of the former Hotline stockholders, in September 1995,
STC was required to repurchase all of the Common Stock issued to the former
Hotline stockholders for $5.00 per share. Additionally, at closing, STC issued
options to purchase 50,000 additional shares, exercisable at $7.50 per share for
three years. The options to purchase 50,000 additional shares expired, without
being exercised, in May 1998.
In November 1995, the Company completed its acquisition of substantially all of
the assets of PTC Cellular, Inc. ("PTCC"), one of the largest in-car cellular
telephone providers in the United States. The purchase price was $3,725,000,
comprised of $300,000 in cash, $1,200,000 in assumed accounts payable, a
five-year promissory note in the principal amount of $2,000,000 and the issuance
of 100,000 shares of Common Stock, valued at $2.25 per share.
In December 1995, the Company sold its resale business to SNET Mobility, Inc.
The sale included the Company's customer accounts relating to the resale
business and the corresponding accounts receivable, for approximately $1.1
million in cash.
In December 1995, the Company completed a $3 million private placement of equity
with International Capital Partners, Inc., ("ICP"), a Stamford, Connecticut
based investment firm, two of whose principals are currently directors of the
Company. The $3 million offering proceeds, net of commissions, was used
primarily for the acquisition of certain assets of PTCC and to provide
additional working capital. Under the terms of the offering, STC issued 300,000
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shares of its Series A Convertible Preferred Stock, $.01 par value per share
(the "Series A Stock"). Each preferred shareholder was entitled to receive
dividends equal to 10% per annum for the first twelve month period, payable in
additional shares of Series A Stock. In addition, the Company issued to ICP a
five-year warrant to purchase 150,000 shares of the Company's Common Stock at an
exercise price of $2.50. In May 1996, all of the outstanding Series A Stock,
including 11,260 shares received as dividends, were converted into 1,146,450
shares of Common Stock. In August 1996 the Company's' stockholders voted to
cancel the Company's' authority to issue additional shares of the Series A
Stock.
In April 1996, the Company completed its acquisition of substantially all of the
assets of its only franchisee, Summit Assurance Cellular, Inc. and certain other
parties (collectively "Summit") The purchase price was approximately $3,563,000
comprised of $335,000 in cash, the assumption of $669,000 of accounts payable
and $656,000 of notes payable, the issuance of a promissory note for $953,000,
and the issuance of 300,000 shares of Common Stock, valued at $3.125 per share
and three-year warrants each to purchase 100,000 shares of the Company's Common
Stock at prices of $3.00, $4.00 and $5.00 per share, respectively. These
warrants were valued at $13,000. In April 1998, the Company, Summit and Craig
Marlar, who was an officer and director of Summit and was a director of the
Company until his resignation in April 1998, entered into a settlement of
litigation arising out of the acquisition of certain assets of Summit, whereby
the Company received from Summit 100,000 shares of the Company's common stock.
The stock received was in exchange for the assumption by the Company of $150,000
to a vendor on behalf of Summit, a one-year extension of the expiration date of
the warrants issued in connection with the acquisition, the issuance to Summit
of a warrant to purchase 100,000 shares of the Company's common stock at an
exercise price of $5.00 per share, and forgiveness of all amounts due, including
accrued interest, on a note receivable from Summit in the principal amount of
$180,000. The effect of this transaction on the Company's results of operations
was immaterial.
In August 1996, the Company completed a $5 million private placement with ICP
and STFI for 500,000 shares of Series B Preferred Stock, $.01 par value per
share (the "Series B Stock"). The Company received gross proceeds from the
offering of $5 million, including the cancellation of $1,200,000 of preexisting
debt to STFI. A commission of $125,000 was paid to ICP. In August 1997, all of
the outstanding Series B Stock was converted into 1,667,000 shares of the
Company's Common Stock and the shareholders received warrants to purchase an
equal number of Common Stock at an exercise price of $3.00 per share.
Separately, the Company engaged the services of ICP to provide certain financial
advisory services to the Company for a period of one year. In consideration for
such services, the Company issued a five-year Common Stock Warrant to ICP for
the purchase of 240,000 shares of Common Stock at an exercise price of $3.00 per
share and on terms substantially the same as those provided for in the Common
Stock Warrants issued to the purchasers of the Series B Stock.
In December 1996, the Company entered into an agreement (the "Purchase
Agreement") with RHI Holdings, Inc. ("RHI") pursuant to which the Company sold
to RHI 500,000 common stock units ("Units") with each Unit consisting of one
share of Common Stock, and one warrant to purchase an additional share of Common
Stock at $3.00 per share. The Company received proceeds of $1,469,000, net of
certain transactional expenses, from the sale of such Units. The Purchase
Agreement provided for STC to use its best efforts to cause the Board of
Directors of STC to include at least one member designated by RHI so long as RHI
owns capital stock (or the rights to purchase capital stock) comprising 5% or
more of the voting power in STC, and at least two members designated by RHI so
long as RHI owns capital stock (or the rights to purchase capital stock)
comprising 10% or more of the voting power in STC. To date, no RHI-designated
directors have joined the Board of Directors. The Company used the proceeds
received from the sale of the Units for working capital.
In August and September 1997, the Company sold an additional 407,000 Units
through a private placement that included various members of the Company's
management. The sale generated proceeds of $1,220,000.
In April 1998, the Company secured debt financing in the principal amount of
$4,000,000 from four lenders, in connection with which the Company issued
warrants to purchase an aggregate of 400,000 shares of the Company's Common
Stock. Pursuant to credit agreements entered into in April 1998, the Company
borrowed $1,000,000 from Anthony D. Autorino, the Company's Chairman and Chief
Executive Officer; $500,000 from ICP; $2,000,000 from Salomon Brothers Holding
Company Inc. ("Salomon"); and $500,000 from a private investor. The credit
agreements had a maturity date of July 1999 and a floating interest rate of 2.5%
above a rate comparable to the prime rate. The Company used a portion of the
proceeds raised in February 1999 (see below) to repay the $4,000,000 of debt. In
connection with the April 1998 debt financing, the Company issued to Mr.
Autorino, ICP, Salomon and the private
<PAGE> 4
investor warrants for the purchase of 100,000, 50,000, 200,000 and 50,000 shares
of Common Stock, respectively. The warrants are exercisable at $5.00 per share,
and expire April 15, 2003. The warrants were valued at $100,000. In connection
with the financing, the Company paid a facility fee of $25,000 to ICP
Investments, Inc. with respect to the funding by ICP and the private investor,
and paid a facility fee of $50,000 to Salomon.
In May 1998, the Company issued to nine investors through a nonpublic offering,
5% convertible notes in the aggregate principal amount of $2,400,000 (the
"Notes"). The Company relied on the exemption provided by Regulation D
promulgated under the Act. Purchasers of the Notes included an affiliate of ICP,
International Capital Partners Profit Sharing Trust, which purchased a Note in
the amount of $200,000. The Notes have a term of seven years and are convertible
at any time at the option of the noteholder into shares of the Company's Common
Stock at a rate of $5.00 per share, subject to certain antidilution adjustments.
The Company has the right to force conversion of the Notes after three years, in
the event that the Company's Common Stock trades at or above $10 per share for
at least five consecutive trading days.
In February 1999, the Company closed a $15 million private placement of
equity with 20 investors, led by Marshall Capital Management, Inc., an affiliate
of Credit Suisse First Boston, and a number of European-based institutional
investors. Oakes, Fitzwilliams & Co. S.A. of London acted as placement agent for
the Company in connection with the sales to the European investors. Pursuant to
a Securities Purchase Agreement entered into between the Company and the
investors (the "Securities Purchase Agreement"), the Company issued an aggregate
of 15,000 shares of a new Series C Convertible Preferred Stock, $.01 per share,
and Warrants to purchase an aggregate of 300,000 shares of Common Stock, $.01
par value, of the Company. Each share of Series C Convertible Preferred Stock is
convertible into Common Stock of the Company (See Item 14, Reports on Form 8-K).
(b) Financial Information about Industry Segments - The Company is engaged in
three industry segments within the telecommunications industry; providing a wide
range of services including, debit cellular phone services, short-term cellular
phone rentals and activation of cellular phones.
(c) Narrative Description of Business
(1)(i) Products and Services
DEBIT SERVICES
The significant revenue growth of the cellular industry has been accompanied by
an equally significant increase in carrier bad debt expense. Carrier response to
this problem has been the imposition of increasingly stringent credit
requirements on potential customers, which have resulted in the rejection of
approximately 35% of those applying for cellular service.
To allow these customers access to cellular communications, STC has developed a
program that allows subscribers an easy, pay-as-you-go option for cellular
service. Debit, or prepaid, cellular service provides a solution to credit
problems and affords businesses more control over their cellular expenses. STC
is pursuing prepaid cellular aggressively, as it represents a substantial and
relatively untapped segment of the cellular marketplace.
STC has entered the prepaid cellular market in a number of ways. First, is
CellEase(R), which makes prepaid service available to customers at select
retailers and electronic shopping networks. Currently, customers can choose one
of several handsets and purchase CellEase(R) airtime usage. The Company's back
office capabilities are comprehensive, providing the tracking, customer service,
collection services, marketing, and reporting functions required to support the
growing customer demand for prepaid cellular service.
In February, 1999, STC signed an agreement appointing MCI WorldCom as a
distribution channel for its prepaid cellular offering. MCI WorldCom will market
STC's prepaid cellular offering to national retail accounts under the MCI
WorldCom name, although promotional materials and airtime usage cards also will
carry the CellEase(R) logo.
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STC's other product, It's About Choices(TM), allows customers to choose between
prepaid and postpaid (traditional) cellular service. Sold as a "phone-in-a-box,"
It's About Choices(TM) is a true consumer electronics product with a single SKU
(stock keeping unit) number nationwide. The customer purchases the phone and
usage cards, returns home, charges the battery, and calls STC to initiate
service. Customers electing traditional cellular service must pass a credit
check and sign a one-year service contract before the phone is activated. If the
customer does not meet credit standards, the phone may be activated on a prepaid
basis.
STC also makes its prepaid offering available on a private-label basis. Dealers
interested in entering the fast-growing prepaid cellular market need only to
contract with STC to obtain nationwide service and the necessary back office
systems. Customers face no credit checks, security deposits, monthly access
fees, or long-term contracts when they obtain this service.
CELLULAR PHONE RENTALS
The Company markets its cellular telephone rental services principally through
car rental agencies, international airlines and hotels. The Company has
agreements with the Hertz Corporation ("Hertz"), National Car Rental System,
Inc., ("National"), Budget Rent-A-Car Corporation ("Budget"), Avis Rent-A-Car
Systems, Inc. ("Avis"), and Alamo Rent-A-Car, Inc. ("Alamo"), as well as car
rental company licensees, to offer its portable cellular telephones at
designated car rental locations. The Company's phones are located primarily in
airport terminals (rental car locations) in approximately 70 cities throughout
the United States.
In addition, the Company markets its cellular telephone services at conventions
and sporting events. For example, the Company has rented cellular telephones at
the NCAA basketball tournament for the last four years, the 1996 Summer Olympics
in Atlanta, and the 1996 and 1995 New York Marathon. The Company also rents
cellular telephones on site following emergency and disaster situations through
arrangements with telecommunications carriers, the Federal Emergency Management
Agency and other governmental agencies.
ACTIVATION SERVICES
With the acquisition of Hotline, STC became one of the largest providers of
nationwide cellular phone activation services. The Company acts as an agent
linking retail points of sale to more than 690 cellular markets, using its 1,200
individual carrier contracts nationwide. The Company maintains contracts and
relationships with most cellular carriers in the United States, and can provide
the necessary administrative services to permit a customer in a store within the
United States to purchase a phone with activated cellular service. In addition
to charging a service fee to the national distribution partner, the Company also
derives revenues from the cellular carrier in the form of commissions, residual
payments, and other revenue sharing.
The Company offers its activation services to the cellular carriers under its
"MOVE/Customer Retention Program". This program is a nationwide subscriber
retention/relocation program which offers a carrier's customers the ability to
exit from existing contracts and establish service at the new location with one
phone call. The old carrier benefits as it receives a portion of the activation
fee from the new cellular carrier via the Company, while the customer is allowed
to terminate its existing contract without paying the contract's early
cancellation fee.
(iv) PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS
The Company, through its wholly-owned subsidiary, The Cellular Hotline, Inc.,
holds a patent for point-of-sale programming of cellular phones that is utilized
in connection with phone activations. In addition, the Company has certain
technology licenses, including agreements with Telemac Corporation, US
Intellicom, Boston Communications Group, and JRC International. "Shared
Technologies Cellular" is a registered trademark that is owned by STFI. STC has
a royalty-free license to use such mark for 15 years. The Company has registered
the trademark "CellEase" and is currently using "It's About Choices", which it
is contemplating registering.
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(v) SEASONALITY
The Company has experienced a reduction of revenues from phone rentals in the
winter months due to the reduction in business travel during the holiday season
and inclement weather.
(vi) WORKING CAPITAL
Since its inception as a subsidiary of STFI, and through its initial public
offering in April 1995, the Company's losses were substantially funded by STFI
and private placements of debt and equity. In addition, STFI funded the purchase
price paid for the Company's Road and Show acquisitions. In January 1997 and in
April 1996, STFI contributed to the Company's capital in excess of par value
approximately $1,700,000 and $1,184,000, respectively, of the Company's
indebtedness to STFI. See Item 1(a) - "General Development of Business",
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and "Notes to Consolidated Financial Statements" herein.
(vii) DEPENDENCE ON CERTAIN CUSTOMERS
Approximately 24%, 12%, 19% and 10% of the Company's revenues for 1998 were
attributable to SmarTalk TeleServices, Inc. ("SmarTalk"), Thorn Americas, Inc.,
Hertz and Avis, respectively. The Company's relationship with SmarTalk was
terminated in the fourth quarter of 1998 (See "Legal Proceedings"). STC's
distributor relationship with Thorn Americas, Inc. ended in November 1998. The
Company has enjoyed its relationship with Hertz and Avis for several years.
Nevertheless, the longevity of these relationships is generally subject to
contractual termination provisions that are effective upon relatively short
notice.
(viii) BACKLOG
At any given time the Company maintains approximately 4,000 portable cellular
telephones available for short-term rentals. Due to the varying utilization of
the telephones, backlog information for the portable rental business cannot be
quantified.
(ix) GOVERNMENT REGULATION
From time to time, legislation and regulations that could potentially affect the
Company, either beneficially or adversely, have been proposed by federal and
state legislators and regulators. Management is not aware of any current pending
or proposed legislation or regulations which, if adopted, would have a material
adverse impact on the Company's operations.
(x) COMPETITION
The telecommunications industry in general, and the cellular telephone industry
in particular, are highly competitive. Competitive factors include price,
customer service, geographical coverage and the ability to increase revenues
through marketing. The Company's short-term portable service competes with
local, regional and national cellular service companies, some of which have
substantially more experience and greater financial, technical and other
resources than the Company.
Other cellular providers in the debit market include: Boston Communications
Group, USCI, Inc., national carriers such as MCI, GTE, AT&T, and local
resellers. In addition, Topp Telecom, Inc., an alternative technology provider,
offers a turnkey solution similar to the STC CellEase program. In the activation
business, the Company faces competition mainly from other resellers, mass
merchants, carriers and agents, many of which may have substantially more
experience and greater financial, marketing, technical and other resources than
the Company.
(xiii) EMPLOYEES
As of March 26, 1999, the Company had 312 employees; 10 in management, 21 in
administration, 268 in sales and service and 13 in technical positions. The
Company's employees are not represented by a labor union. The Company believes
its relations with its employees are satisfactory.
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ITEM 2.
PROPERTY
The Company does not own any real estate and has no present plans to purchase
any real estate. The Company's principal executive office is leased and is
located at 100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109.
The Company's executive office currently occupies approximately 23,000 square
feet pursuant to a five-year lease agreement, as amended in July 1998, expiring
in 2001 (the "Term"). The Company pays a monthly rent of approximately $35,000
during the remainder of the Term. In addition, the Company leases an aggregate
of approximately 26,000 square feet in various locations nationwide for the
purpose of direct sales by its sales force, for a total monthly rent of
approximately $25,000. Each of the leased properties is, in management's
opinion, generally well maintained and is suitable to support the Company's
business.
ITEM 3.
LEGAL PROCEEDINGS
In January 1999, the Company filed a lawsuit against SmarTalk and certain
individuals in the U.S. District Court for the District of Connecticut. The
Company's complaint includes allegations of breach of contract and fraud in
connection with various agreements between SmarTalk and the Company. SmarTalk
subsequently filed for federal bankruptcy protection. The Company's complaint
seeks recovery of $25 million in damages, and the Company has filed a proof of
claim with the bankruptcy court (U.S. Bankruptcy Court, District of Delaware)
for $14.4 million. The Company intends to aggressively prosecute its claim,
although due to SmarTalk's impaired financial condition, the amount of any
recovery against SmarTalk is questionable.
The Company is not involved in any other litigation which, individually or in
the aggregate, if resolved against the Company, would be likely to have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
fiscal quarter ended December 31, 1998.
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's shares of common stock (trading symbol: STCL) have been quoted and
traded in the over-the-counter market since April 21, 1995. Over-the-counter
market quotations reflect interdealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions. During 1998
and 1997, the quarterly high and low closing prices were as follows:
<TABLE>
<CAPTION>
1998 1998 1997 1997
----- ----- ------- -------
High Low High Low
<S> <C> <C> <C> <C>
First Quarter 5 3 1/4 2 21/32 1 3/8
Second Quarter 8 1/8 4 1/4 2 3/8 1 3/16
Third Quarter 7 3/8 5 1/8 6 1/4 1 15/16
Fourth Quarter 7 3 3/4 5 3/4 3 1/8
</TABLE>
<PAGE> 8
Number of beneficial holders of the Company's common stock as of March 15, 1999
was 677.
ITEM 6.
SELECTED FINANCIAL DATA
The following table sets forth the selected financial data of the Company for
each of the last five years. Financial statements for 1995 and 1994 are not
presented in this filing. Such selected financial data were derived from audited
financial statements not included herein. The selected financial data of the
Company should be read in conjunction with the Consolidated Financial Statements
and related notes appearing elsewhere in this Form 10-K. All amounts, except per
share amounts, are in thousands.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations-Data:
Revenues $ 28,200 $ 24,198 $ 20,914 $ 13,613 $ 10,217
Gross margin 10,835 10,667 7,285 5,026 4,923
Total operating expenses 21,523 14,120 14,173 8,015 4,272
Income (loss) from operations (10,688) (3,453) (6,888) (2,989) 651
Gain on sale of division -- -- -- 689 --
Loss on discontinued affiliate -- -- -- (364) --
Loss on contract cancellation -- -- (980) -- --
Interest expense, net 952 232 906 136 49
Net income (loss) before income
taxes (11,640) (3,685) (8,774) (2,800) 602
Income taxes (6) (10) (22) (48) --
Net income (loss) (11,646) (3,695) (8,796) (2,848) 602
Preferred stock dividends -- -- (112) -- --
Net income (loss) applicable to
common stock $(11,646) $ (3,695) $ (8,908) $ (2,848) $ 602
Net income (loss) per common
share, basic and diluted $ (1.58) $ (0.63) $ (2.18) $ (1.04) $ 0.28
Weighted average number of
shares outstanding 7,375 5,900 4,082 2,748 2,185
Balance Sheet Data:
Working deficit $(16,099) $ (6,955) $ (8,975) $ (1,851) $ (920)
Total assets 13,487 11,536 14,262 14,378 5,452
Notes payable (including current
portion) 7,331 1,487 2,578 2,000 --
Other liabilities 14,840 7,832 8,768 6,290 2,449
Indebtedness to STFI 1,411 1,052 59 985 2,434
Accumulated deficit (28,354) (16,708) (13,013) (4,105) (1,256)
Stockholders' equity (deficit) $(10,095) $ 1,165 $ 2,857 $ 5,102 $ 569
</TABLE>
<PAGE> 9
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION:
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues for 1998 were $28,200,000, compared to $24,198,000 for 1997, an
increase of $4,002,000 (17%). This increase was due to the expansion of the
debit (prepaid) services, which grew by over 100%. The loss from operations,
excluding non-recurring charges, was $4,194,000 in 1998 and $1,416,000 in 1997.
The net loss for 1998 was $11,646,000, compared to a net loss of $3,695,000 for
1997. The basic and diluted loss per common share was $1.58 for 1998, compared
to $0.63 for 1997.
Revenues
Debit, or prepaid, operations had revenues of $12,737,000 for 1998, compared to
$6,299,000 for 1997. The increase in revenues of $6,438,000 (102%) was due to a
new end-user program being marketed under the CellEase brand name. The Company
experienced significant revenue growth from CellEase beginning in April 1998.
The increase in the CellEase program was partially offset by a $2,796,000
reduction in revenues from a major distributor due to a price reduction given in
order to keep the distributor competitive with the CellEase program. In
addition, during the fourth quarter of 1998, the distributor transitioned its
prepaid cellular phone business customers over to the Company's CellEase
end-user program, which negatively impacted revenues.
For the fourth quarter of 1998, revenues from the CellEase program were below
Company expectations. This was a direct result of the deterioration of the
Company's relationship with its main distributor, SmarTalk TeleServices, Inc.
("SmarTalk"). In the fourth quarter, SmarTalk introduced a new prepaid cellular
phone to retailers that did not utilize the Company's' cellular service, which
the Company has alleged in a lawsuit against SmarTalk was in violation of
SmarTalk's contract with STC (see "Legal Proceedings"). Retailers were confused
by conflicting directives, resulting in significant lost revenues to the
Company, which was particularly detrimental to the Company's sales for the
year-end holiday period. In January 1999, SmarTalk filed for bankruptcy.
Cellular telephone rental operations had revenues of $14,037,000 for 1998,
compared to $15,242,000 for 1997. The decrease in revenues of $1,205,000 (8%)
was attributable to the Company de-emphazising the Special Events and Airlines
programs due to local competition and the high costs to generate revenues from
such operations. Revenues from the car rental companies were flat for the two
years. However, during the second half of 1998, the Company changed its emphasis
to be more of a sales-oriented business and less of a service-oriented business.
As a result, revenues from the car rental companies for the last six months of
1998, compared to the last six months of 1997, increased 6%.
Activation operations had revenues of $1,426,000 for 1998, compared to
$2,657,000 for 1997. The decrease of $1,231,000 (46%) was mainly attributable to
the discontinuance of operations at military bases in late 1997. In addition,
the Company closed its Texas activation location in November 1997.
Gross Margin
Gross margin was 38% of revenues for 1998, compared to 44% of revenues for 1997.
The decrease in gross margin was mainly due to a change in the revenue mix. The
following table summarizes the change in the revenue mix and the corresponding
gross margin for the two years:
<TABLE>
<CAPTION>
1998 1997
Revenues Gross margin Revenues Gross margin
<S> <C> <C> <C> <C>
Debit 45% 27% 26% 43%
Rental 50% 48% 63% 46%
Activation 5% 45% 11% 37%
100% 38% 100% 44%
</TABLE>
<PAGE> 10
The gross margin for the debit operations decreased as a result of a price
reduction given to a major distributor and due to the end-user CellEase program
having a lower margin than the distributor program. The distributor program
accounted for most of the 1997 debit revenues. The gross margin for portable
cellular rental operations improved slightly due to a slight reduction in
carrier costs. The gross margin for the activation operations improved
significantly due to a change in the product mix to more retail activations,
which generally provided higher commissions to the Company than activations
performed at the military bases.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("S,G&A") were $15,029,000 for
1998, compared to $12,083,000 for 1997, an increase of $2,946,000. As a
percentage of revenues, S,G&A increased to 53% for 1998, compared to 50% for
1997. The percentage increase was attributable to additional corporate overhead
incurred following the March 1998 acquisition of Shared Technologies Fairchild
Inc. ("STFI") by Intermedia Communications, Inc. STFI, the former parent of the
Company, had been providing certain support and management services to the
Company under a management agreement. Such additional expenses included payroll
for certain former employees of STFI who had not previously received direct
compensation from the Company. Field S,G&A, as a percentage of revenues,
decreased slightly to 41% in 1998, compared to 42% in 1997. As previously
discussed, the Company did not achieve the anticipated fourth quarter 1998
CellEase revenues, even though the Company increased its S,G&A in anticipation
of the additional revenues.
Loss on Distributor Contract
In December 1998 the Company terminated its relationship with SmarTalk and filed
a lawsuit against SmarTalk (see "Legal Proceedings"). SmarTalk subsequently
filed for bankruptcy protection. As a result, the Company recognized a one-time
$6,494,000 charge related to the termination of its agreement with SmarTalk. The
charge included approximately $1,975,000 of receivables owed by SmarTalk. An
additional $3,121,000 pertains to the unamortized portion of prepaid assets
relating to a subsidy the Company paid SmarTalk for cellular phone sales to
retailers. The Company had been amortizing the subsidy against future revenues
generated from end users. An additional $1,398,000 related to expenses incurred
by the Company in the fourth quarter of 1998 in connection with the Company's
contract with SmarTalk, including the addition of a new call center in Hartford
and expansion of the existing call center in St. Louis. In addition, the Company
purchased several thousand new cellular lines in anticipation of an increase in
volume. Most of the new lines required significant minimum commitment periods.
The Company also incurred losses from the cost of lines for existing customers
that could not purchase airtime as a result of the problems with SmarTalk.
Interest Expense
Interest expense was $952,000 for 1998, compared to $232,000 for 1997. Interest
expense was mainly due to debt from acquisitions made in prior years, debt to
STFI, and debt financing completed in May 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for 1997 were $24,198,000, an increase of $3,284,000 (16%) over
revenues for 1996. This increase was primarily due to the expansion of the debit
business and the April 1996 purchase of the operations of the Company's sole
franchisee, both of which were partially offset by the elimination of the in-car
cellular rental operations. The loss from operations, excluding non-recurring
charges, was $1,416,000 in 1997 and $6,888,000 in 1996. The net loss for 1997
was $3,695,000, compared to a net loss of $8,796,000 for 1996. The improvement
was a result of the change in the revenue mix to more profitable lines of
business and a reduction in operating expenses. The basic and diluted loss per
common share was $0.63 for 1997, compared to $2.18 for 1996.
Revenues
The cellular telephone rental operations had revenues of $15,242,000 for 1997,
compared to $16,339,000 for 1996. The decrease of $1,097,000 (7%) was
attributable to two non-recurring sources of revenue in 1996. In 1996, the
in-car operation generated revenues of $3,143,000; such line of business was
discontinued in 1997. In the third quarter of 1996, the Company generated
revenues of $1,434,000 from the summer's Olympic Games. These decreases for 1997
<PAGE> 11
were offset by $2,259,000 in additional revenues in 1997 from the Summit
acquisition. The remaining balance of the increase was mainly due to the
addition of Avis, which allowed the Company to increase its penetration within
existing portable cellular rental market areas.
The debit operations had revenues of $6,299,000 for 1997, compared to $1,516,000
for 1996. This significant increase was due to the rapid expansion into the
debit business in the first quarter of 1997. The Company increased the number of
cellular prepaid lines with Rent A Center from 5,000 to 15,000 during that
period.
The activation operations had revenues of $2,657,000 for 1997, compared to
$3,059,000 for 1996. This decrease was mainly due to a reduction in activation
revenues by the Company's Texas location that was closed in November 1997. In
addition, several national retailers ceased to offer cellular telephone
activations through the Company in 1996. These revenue losses were offset by
activations done at various retail locations.
Gross Margin
Gross margin increased to 44% of revenues for 1997, from 35% of revenues for
1996. This improvement was mainly due to significant changes in revenue mix. The
in-car operations represented 15% of 1996 revenues but had no gross margin,
compared to no revenues in 1997. As previously discussed, the in-car operations
were discontinued in 1997. The gross margin for both the portable cellular
rental and the debit operations improved due to a reduction in carrier costs as
a result of better line management and lower carrier usage costs. As a
percentage of revenue, the debit business increased from 7% in 1996 to 26% in
1997. The activation operations had a small reduction in gross margin due to
lower activation commissions received from carriers.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased $2,090,000
(15%), to $12,083,000 for 1997 from $14,173,000 for 1996. As a percentage of
revenues, SG&A decreased to 50% for 1997, compared to 68% for 1996. This
decrease was due to several factors. In the latter part of fiscal year 1996, the
Company made a concerted effort to reduce its operating expenses. The Company
consolidated its Special Events operation into its portable rental business, it
transitioned its in-car cellular telephone rental operation to its portable
cellular telephone rental business, and implemented other cost-cutting measures,
such as staff reductions, office closings and travel restrictions that resulted
in an overall decrease in SG&A. The Company was also able to include the
revenues from the Summit acquisition with minimal amounts of additional SG&A,
which helped to reduce SG&A as a percentage of revenues.
Loss on Discontinued Product Line
During 1997, the Company completed the transition of its in-car rental accounts
to portable rentals. In conjunction with this transition, the Company attempted
to develop alternate uses for the in-car cellular telephones, as well as the
capitalized software development costs associated with the in-car cellular
rental business. Although management believes that there are viable uses for
such assets, the probability that such usage will be successful is not known. As
a result, the Company recognized a $2,037,000 writedown to reduce the in-car
cellular phones and the capitalized software development costs to net realizable
value and classified them on the balance sheet as assets held for disposition.
Interest Expense
Interest expense was $232,000 for 1997, compared to $906,000 for 1996. Interest
expense in 1997 was mainly due to debt relating to the PTCC acquisition in
November 1995 and the Summit acquisition in April 1996.
LIQUIDITY AND CAPITAL RESOURCES:
The Company had a working capital deficit of $16,099,000 at December 31, 1998,
compared to a deficit of $6,955,000 at December 31, 1997. Stockholders' deficit
at December 31, 1998 was $10,095,000, compared to stockholders' equity of
$1,165,000 at December 31, 1997.
<PAGE> 12
Net cash used in operations for the year ended December 31, 1998 was $4,941,000.
This was mainly due to the operating loss for the period, offset by delayed
payments to carriers and other vendors.
Net cash used in investing activities for the year ended December 31, 1998 was
$1,133,000. This was mainly attributable to the purchase of cellular phones for
rental operations, computer and office equipment to support the CellEase
program, and deposit requirements by carriers for additional lines.
During the year ended December 31, 1998, the Company received $6,400,000 of debt
financing, as previously discussed. The Company continued to make required
payments on its existing debt.
The Company will require additional funds in order to satisfy existing
obligations arising from completed acquisitions, and to fund current expansion
plans. In February 1999, the Company closed on a $15 million private placement
of equity with 20 investors (See Item 14, Reports on Form 8-K). Also, in March
1999, the Company signed a letter of intent with a financial institution the
Company currently does business with to establish a $10 million credit facility,
subject to the financial institution's satisfactory completion of a due
diligence review of the Company. Management believes that ongoing operations,
together with the equity financing and the credit facility, will provide the
Company with sufficient funds to finance operations and planned expansion for at
least the next 12 months, and long-term liquidity will depend on the Company's
ability to attain profitable operations.
YEAR 2000 COMPLIANCE:
The Company has conducted a review of its computer systems and believes that the
majority of its systems are properly adapted to avoid a Year 2000 problem. The
Company believes that all its computer systems will be Year 2000 compliant by
the end of the second quarter of 1999. The Company further intends to conduct
extensive testing of its systems to assure that it is Year 2000 compliant by the
end of the second quarter. The expense incurred by the Company to achieve
compliance has not been material. The Company is currently working with outside
vendors to obtain assurances that they are Year 2000 compliant. However, there
can be no assurance that all of the Company's vendors, including carriers, will
achieve compliance on a timely basis. In the event of any such noncompliance by
vendors, a material adverse effect to the Company's operations and financial
results could occur. The Company has not developed any contingency plan to
address the possibility of vendor-related Year 2000 problems.
1999 COMPANY OUTLOOK
The Company expects to show revenue growth in each of its operations in 1999.
The wireless industry continues to diversify and expand with abundant
opportunities. PCS, GSM and other wireless carriers are now entering the
marketplace. Subscription growth continues to be double-digit as new products
and services, such as pre-paid cellular, have been launched. The Company
believes it is positioned to take advantage of these opportunities; offering
travelers a communication device throughout the United States, offering pre-paid
cellular and activation services through national retailers, and working with
wireless carriers to offer their customers, who are relocating, a more
economical activation process.
The debit operations are expected to show considerable revenue growth in 1999.
In February 1999, the Company signed an agreement with MCI WorldCom for the
retail distribution of the Company's prepaid cellular services under the MCI
WorldCom brand name, utilizing MCI WorldCom's extensive network of retail
distribution locations.
The cellular phone rental operations are expected to have moderate revenue
growth in 1999. To achieve this, STC intends to refocus the car rental partner's
efforts in soliciting more customers through training and improved policies and
procedures, by improving awareness through marketing programs, and by
penetrating the premiere traveler programs (e.g. Avis Preferred, Hertz Gold). In
addition, the Company is in the process of analyzing a new product (handset),
pricing structure and partner contribution in the solicitation of the cellular
rental program.
The activation operations are expected to have moderate revenue growth. The
Company is working with various carriers to implement its MOVE/Customer
Retention Program, which provides activation services for carriers' customers
who are in the process of relocating. The Company has automated the activation
process by establishing an activation Internet site, which should make the
Program more attractive to carriers.
<PAGE> 13
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: THE MANAGEMENT'S DISCUSSION AND ANALYSIS MAY INCLUDE FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN ANY
FORWARD-LOOKING STATEMENT. SUCH RISKS AND UNCERTAINTIES MAY INCLUDE, WITHOUT
LIMITATION, TECHNOLOGICAL OBSOLESCENCE, PRICE AND INDUSTRY COMPETITION,
FINANCING CAPABILITIES, DEPENDENCE ON MAJOR CUSTOMERS AND RELATIONSHIPS,
DEPENDENCE ON RELATIONSHIPS WITH TECHNOLOGY LICENSORS AND TELECOMMUNICATIONS
CARRIERS, AND THE COMPANY'S ABILITY TO EFFECTIVELY EXECUTE ITS BUSINESS PLAN
WITH RESPECT TO SIGNIFICANT PROJECTED GROWTH IN ITS DEBIT SERVICES DIVISION, IN
PARTICULAR, WITH RESPECT TO ITS VENTURE WITH MCI WORLDCOM.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
<PAGE> 14
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE (ITEM 8)
Page
FINANCIAL STATEMENTS:
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficiency) F-5
Consolidated Statements of Cash Flows F-6-7
Notes to Consolidated Financial Statements F-8-20
FINANCIAL STATEMENT SCHEDULE (A):
Schedule II - Valuation and Qualifying Accounts for the
Years Ended December 31, 1998, 1997 and 1996 S-1
NOTE:
(a) All other schedules are not submitted because they are either not
applicable, not required or the required information is included in the
consolidated financial statements or notes thereto.
F-1
<PAGE> 15
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Shared Technologies Cellular, Inc.
We have audited the accompanying consolidated balance sheets of Shared
Technologies Cellular, Inc. and Subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows and financial statement schedule for each of the
three years in the period ended December 31, 1998. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Shared
Technologies Cellular, Inc. and Subsidiary as of December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
March 5, 1999
F-2
<PAGE> 16
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 229,000 $ 294,000
Accounts receivable, less allowance for doubtful
accounts of $896,000 in 1998 and $991,000 in 1997 1,169,000 1,637,000
Carrier commissions receivable, less unearned income 992,000 163,000
Inventories 234,000 131,000
Current portion of note receivable 107,000
Prepaid expenses and other current assets 2,030,000 127,000
------------ ------------
Total current assets 4,654,000 2,459,000
------------ ------------
TELECOMMUNICATIONS AND OFFICE EQUIPMENT, net 1,125,000 985,000
------------ ------------
OTHER ASSETS:
Intangible assets, net 6,993,000 7,551,000
Deposits 715,000 326,000
Note receivable, less current portion 62,000
Assets held for disposition 153,000
------------ ------------
7,708,000 8,092,000
------------ ------------
$ 13,487,000 $ 11,536,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of notes payable $ 5,913,000 $ 530,000
Accounts payable 7,439,000 3,876,000
Accrued expenses and other current liabilities 6,153,000 3,912,000
Deferred revenues 1,248,000 44,000
Due to former parent 1,052,000
------------ ------------
Total current liabilities 20,753,000 9,414,000
------------ ------------
NOTES PAYABLE, less current portion 2,829,000 957,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $.01 par value, authorized 5,000,000
shares, no shares issued or outstanding
Common stock, $.01 par value, authorized 20,000,000
shares, issued and outstanding 7,567,000 shares in
1998 and 7,216,000 shares in 1997 76,000 72,000
Capital in excess of par value 18,183,000 17,801,000
Accumulated deficit (28,354,000) (16,708,000)
------------ ------------
Total stockholders' equity (deficiency) (10,095,000) 1,165,000
------------ ------------
$ 13,487,000 $ 11,536,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 17
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ 28,200,000 $ 24,198,000 $ 20,914,000
COST OF REVENUES 17,365,000 13,531,000 13,629,000
------------ ------------ ------------
GROSS MARGIN 10,835,000 10,667,000 7,285,000
------------ ------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 15,029,000 12,083,000 14,173,000
LOSS ON DISCONTINUED PRODUCT LINE 2,037,000
LOSS ON DISTRIBUTOR CONTRACT 6,494,000
------------ ------------ ------------
21,523,000 14,120,000 14,173,000
------------ ------------ ------------
LOSS FROM OPERATIONS (10,688,000) (3,453,000) (6,888,000)
------------ ------------ ------------
OTHER EXPENSE:
Interest expense (952,000) (232,000) (906,000)
Loss on contract cancellation (980,000)
------------ ------------ ------------
(952,000) (232,000) (1,886,000)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES
(11,640,000) (3,685,000) (8,774,000)
INCOME TAXES
(6,000) (10,000) (22,000)
------------ ------------ ------------
NET LOSS
(11,646,000) (3,695,000) (8,796,000)
PREFERRED STOCK DIVIDENDS
(112,000)
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $(11,646,000) $ (3,695,000) $ (8,908,000)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (1.58) $ (.63) $ (2.18)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,375,000 5,900,000 4,082,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 18
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock
----------------------------- -------------------------------
Shares Amount Shares Amount
-------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
BALANCES, January 1, 1996 300,000 3,000 - $ -
ISSUANCE OF COMMON STOCK
ISSUANCE OF PREFERRED STOCK 500,000 5,000
PREFERRED STOCK DIVIDEND 11,000
CONVERSION OF PREFERRED STOCK (311,000) (3,000)
ISSUANCE OF COMMON STOCK FOR ACQUISITIONS
COMMON STOCK SUBSCRIPTION
NET LOSS
-------------- ------------- --------------- --------------
BALANCES, December 31, 1996 - - 500,000 5,000
ISSUANCE OF COMMON STOCK
CONVERSION OF PREFERRED STOCK (500,000) (5,000)
NET LOSS
-------------- ------------- --------------- --------------
BALANCES, December 31, 1997 - - - -
ISSUANCES OF COMMON STOCK AND WARRANTS
EXERCISE OF WARRANTS AND OPTIONS
CANCELLATION OF COMMON STOCK
NET LOSS
-------------- ------------- --------------- --------------
BALANCES, December 31, 1998 - - - $ -
============== ============= =============== ==============
</TABLE>
<TABLE>
<CAPTION>
Common Stock Common Capital in
------------------------------- Stock Excess of
Shares Amount Subscription Par Value
--------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C>
BALANCES, January 1, 1996 3,089,000 $ 31,000 $ 5,000 $ 9,173,000
ISSUANCE OF COMMON STOCK 264,000 3,000 760,000
ISSUANCE OF PREFERRED STOCK 4,828,000
PREFERRED STOCK DIVIDEND 112,000
CONVERSION OF PREFERRED STOCK 1,147,000 11,000 (8,000)
ISSUANCE OF COMMON STOCK FOR ACQUISITIONS 300,000 3,000 947,000
COMMON STOCK SUBSCRIPTION 63,000 1,000 (5,000) 4,000
NET LOSS
--------------- -------------- ------------- -----------------
BALANCES, December 31, 1996 4,863,000 49,000 - 15,816,000
ISSUANCE OF COMMON STOCK 686,000 7,000 1,996,000
CONVERSION OF PREFERRED STOCK 1,667,000 16,000 (11,000)
NET LOSS
--------------- -------------- ------------- -----------------
BALANCES, December 31, 1997 7,216,000 72,000 - 17,801,000
ISSUANCES OF COMMON STOCK AND WARRANTS
271,000 3,000 201,000
EXERCISE OF WARRANTS AND OPTIONS
180,000 2,000 547,000
CANCELLATION OF COMMON STOCK (100,000) (1,000) (366,000)
NET LOSS
--------------- -------------- ------------- -----------------
BALANCES, December 31, 1998 7,567,000 $ 76,000 $ - $ 18,183,000
=============== ============== ============= =================
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Accumulated Note Equity
Deficit Receivable (Deficiency)
----------------- -------------- ----------------
<S> <C> <C> <C>
BALANCES, January 1, 1996 $ (4,105,000) $ (5,000) $ 5,102,000
ISSUANCE OF COMMON STOCK 763,000
ISSUANCE OF PREFERRED STOCK 4,833,000
PREFERRED STOCK DIVIDEND (112,000) -
CONVERSION OF PREFERRED STOCK -
ISSUANCE OF COMMON STOCK FOR ACQUISITIONS 950,000
COMMON STOCK SUBSCRIPTION 5,000 5,000
NET LOSS (8,796,000) (8,796,000)
----------------- -------------- ----------------
BALANCES, December 31, 1996 (13,013,000) - 2,857,000
ISSUANCE OF COMMON STOCK 2,003,000
CONVERSION OF PREFERRED STOCK -
NET LOSS (3,695,000) (3,695,000)
----------------- -------------- ----------------
BALANCES, December 31, 1997 (16,708,000) - 1,165,000
ISSUANCES OF COMMON STOCK AND WARRANTS 204,000
EXERCISE OF WARRANTS AND OPTIONS 549,000
CANCELLATION OF COMMON STOCK (367,000)
NET LOSS (11,646,000) (11,646,000)
----------------- -------------- ----------------
BALANCES, December 31, 1998 $ (28,354,000) $ - $ (10,095,000)
================= ============== ================
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 19
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(11,646,000) $ (3,695,000) $ (8,796,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accretion of interest on notes payable 75,000 30,000
Write-off of assets held for disposition 153,000 2,037,000
Depreciation and amortization 1,332,000 1,292,000 1,684,000
Common stock issued for compensation
and services 104,000 71,000 40,000
Accrued interest, note receivable (11,000)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable 468,000 (16,000) (429,000)
Carrier commissions receivable (829,000) (110,000) 400,000
Inventories (103,000) (51,000) (31,000)
Prepaid expenses and other current assets (1,903,000) 6,000 339,000
Accounts payable and other current liabilities 6,204,000 (980,000) 2,124,000
Deferred revenues 1,204,000 44,000 (404,000)
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES: (4,941,000) (1,413,000) (5,043,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses (336,000)
Purchases of equipment (744,000) (318,000) (953,000)
Payments for intangible assets (514,000)
(Increase) decrease in deposits (389,000) 47,000 (231,000)
Collection of receivable from sale of assets 1,078,000
Collections of note receivable 45,000
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,133,000) (271,000) (911,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 6,400,000
Payments for debt issuance costs (171,000)
Payments on notes payable (530,000) (1,091,000) (1,080,000)
Advances from (payments to) former parent (239,000) 993,000 274,000
Issuance of common and preferred stock 1,932,000 4,362,000
Exercise of warrants and options 549,000
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,009,000 1,834,000 3,556,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (65,000) 150,000 (2,398,000)
CASH, beginning of year 294,000 144,000 2,542,000
------------ ------------ ------------
CASH, end of year $ 229,000 $ 294,000 $ 144,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 20
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 863,000 $ 379,000 $ 280,000
========= ========= ==========
Income taxes $ 6,000 $ 10,000 $ 20,000
========= ========= ==========
SUPPLEMENTAL SCHEDULES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Cost of intangible assets included in accounts
payable $ -- $ -- $ 88,000
========= ========= ==========
Issuance of common stock for acquisitions $ -- $ -- $ 950,000
========= ========= ==========
Note payable incurred for acquisition of assets $ -- $ -- $1,139,000
========= ========= ==========
Issuance of Series B Convertible Preferred Stock in
exchange for amount due to parent $ -- $ -- $1,200,000
========= ========= ==========
Preferred stock issued for preferred stock dividend $ -- $ -- $ 112,000
========= ========= ==========
Cancellation of common stock to settle
outstanding receivable $ 367,000 $ -- $ --
========= ========= ==========
Issuance of warrants in connection with certain
promissory notes $ 100,000 $ -- $ --
========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 21
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
Shared Technologies Cellular, Inc. (STC) together with its
subsidiary (collectively the "Company") is a nationwide provider
of short-term cellular telephone services, activation services and
debit telephone services in the United States.
The Company's operations are subject to regulation by the Federal
Communications Commission (FCC), which has generally preempted the
regulatory jurisdiction of state agencies with respect to the
business in which the Company is engaged.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of STC
and its wholly-owned subsidiary. All material intercompany
accounts and transactions have been eliminated in consolidation.
Cash
The Company maintains its cash in bank deposit accounts which at
times may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not
subject to any significant credit risk on cash.
Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities which
qualify as financial instruments under Statement of Financial
Accounting Standards No. 107 approximates the carrying amounts
presented in the consolidated balance sheets.
Carrier Commissions Receivable
Carrier commissions receivable are due from cellular carriers for
new cellular telephone line activations done by the Company. The
commissions are earned only after the cellular telephone user has
remained on the cellular telephone network for a specified period
of time (vesting period). The Company records an allowance, as a
reduction to carrier commissions receivable, for estimated
cancellations of cellular service by the user prior to the end of
the aforementioned vesting period. Although there is a short-term
vesting period for which the Company must wait in order to receive
its commission, the Company believes that the revenue process has
been completed and recognizes the revenue over the estimated life
of the phone line, typically twelve months.
F-8
<PAGE> 22
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories, consisting of telecommunications equipment and parts
expected to be sold to customers, are valued at the lower of cost,
on the first-in, first-out (FIFO) method, or market.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, such as
telecommunications and office equipment, identifiable intangibles
and goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may
not be fully recoverable. To determine the recoverability of its
long-lived assets, the Company evaluates the probability that
future undiscounted net cash flows will be less than the carrying
amount of the assets. Impairment is the amount by which the
carrying value of the asset exceeds its fair value.
Telecommunications and Office Equipment
Telecommunications and office equipment are stated at cost. The
Company records depreciation on the straight-line method over the
estimated useful lives of the assets as follows:
Telecommunications equipment 2-5 years
Office equipment 3-5 years
Intangible Assets
Goodwill represents the excess of cost over the fair market value
of net assets of acquired businesses and is amortized over periods
ranging from 15 to 20 years from the respective acquisition dates.
The Company monitors the cash flows of the acquired operations to
assess whether any impairment of recorded goodwill has occurred.
The Company amortizes the cost to obtain exclusive agreements to
provide cellular telephone rentals at specific locations on the
straight-line basis over the life of the respective agreements,
generally five to six years.
Debt Issuance Costs
Costs incurred relating to the issuance of debt are deferred and
are being amortized over the life of the related debt. The
amortization of debt issuance costs included in interest expense
was $83,000, nil and nil in 1998, 1997 and 1996, respectively.
Revenue Recognition
Revenues related to providing cellular telephone services are
recognized as the service is provided. Debit card revenue is
recognized over the estimated period in which the Company provides
debit telephone service to its customers.
F-9
<PAGE> 23
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising Costs
The Company expenses costs of advertising and promotions as
incurred. Advertising expenses included in selling, general and
administrative expenses for the years ended December 31, 1998,
1997 and 1996 were approximately $308,000, $132,000 and $153,000,
respectively.
Income Taxes
The Company filed its federal income tax returns on a consolidated
basis with its former parent through April 1996, the date of its
initial public offering ("IPO"). Subsequent to April 1996, the
Company's income tax returns are being filed separately.
The Company complies with Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes",
which requires an asset and liability approach to financial
reporting for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future, based on enacted
tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce the deferred
tax assets to the amount expected to be realized.
Use of Estimates
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.
Loss Per Common Share
Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings
Per Share". SFAS No. 128 requires dual presentation of basic and
diluted earnings per share for all periods presented. Basic
earnings per share excludes dilution and is computed by dividing
loss applicable to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
entity. Prior period loss information has been restated as
required by SFAS No. 128. Diluted loss per common share is the
same as basic loss per common share for the years ended December
31, 1998, 1997 and 1996. Unexercised stock options to purchase
699,000, 365,000 and 281,000 shares of the Company's common stock
as of December 31, 1998, 1997 and 1996, respectively, were not
included in the computations of diluted earnings per share because
their effect would have been antidilutive as a result of the
Company's losses.
F-10
<PAGE> 24
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LIQUIDITY
The Company has incurred cumulative net losses of approximately
$28,350,000 through December 31, 1998 and has a working capital
deficit of approximately $16,100,000 at December 31, 1998. In
February 1999, the Company completed a $15,000,000 private
placement of equity issuing an aggregate of 15,000 shares of
Series C Convertible Preferred Stock (Note 19). Long-term
liquidity is dependent on the Company's ability to attain
profitable operations.
NOTE 4 - ACQUISITIONS
In April 1996, the Company completed its acquisition of
substantially all of the assets of its only franchisee, Summit
Assurance Cellular Inc. and its subsidiaries and affiliates
(Summit). The purchase price was $3,563,000, comprised of $335,000
in cash, the assumption of $669,000 of accounts payable and
$656,000 of notes payable, the issuance of a promissory note for
$953,000, the issuance of 300,000 shares of the Company's common
stock valued at fair market value of $3.125 per share and warrants
to purchase an aggregate of 300,000 shares of the Company's common
stock at prices of $3.00, $4.00 and $5.00 per share, respectively,
for each 100,000 shares. These warrants were valued at $13,000,
which represents the excess of the fair market value of the common
stock over the exercise price on the date of issuance. The
warrants vested immediately and expire in 2000.
In 1998, the Company received 100,000 shares of its common stock
which was issued in the Summit acquisition and assumed a $150,000
liability of Summit, in payment for the remaining balance of the
note receivable from Summit. In addition, the Company issued to
Summit a warrant for the purchase of 100,000 shares exercisable at
$5 per share and expiring in 2001.
The following unaudited pro forma condensed consolidated statement
of operations for 1996 gives effect to the acquisition of Summit
as if it had occurred on January 1, 1996:
<TABLE>
<S> <C>
Revenues $ 21,784,000
============
Net loss $ (9,269,000)
============
Net loss applicable to common stockholders $ (9,382,000)
============
Basic and diluted loss per common share $ (2.25)
============
</TABLE>
NOTE 5 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current asset consist of the following
at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Prepaid telephone line charges $ 732,000 $ 88,000
Prepaid access fees 878,000 33,000
Marketable securities 408,000
Other 12,000 6,000
---------- ----------
$2,030,000 $ 127,000
========== ==========
</TABLE>
F-11
<PAGE> 25
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - TELECOMMUNICATIONS AND OFFICE EQUIPMENT
Telecommunications and office equipment consist of the following
at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Telecommunications equipment $2,504,000 $2,341,000
Office equipment 1,411,000 835,000
---------- ----------
3,915,000 3,176,000
Accumulated depreciation 2,790,000 2,191,000
---------- ----------
$1,125,000 $ 985,000
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997
and 1996 was $604,000, $650,000 and $902,000, respectively.
NOTE 7 - INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Goodwill $8,426,000 $8,426,000
Covenant not to compete 142,000 142,000
Rental car agreement 520,000 520,000
Debt issuance costs 171,000
---------- ----------
9,259,000 9,088,000
Accumulated amortization 2,266,000 1,537,000
---------- ----------
$6,993,000 $7,551,000
========== ==========
</TABLE>
Amortization expense for the years ended December 31, 1998, 1997
and 1996 was $619,000, $642,000 and $782,000, respectively.
NOTE 8 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the
following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Sales and other taxes $4,428,000 $3,174,000
Payroll and payroll taxes 124,000 137,000
Commissions 222,000 166,000
Other 1,379,000 435,000
---------- ----------
$6,153,000 $3,912,000
========== ==========
</TABLE>
F-12
<PAGE> 26
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - NOTES PAYABLE
Notes payable consist of the following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Promissory note bearing interest at 8% per annum and
payable in semi-annual principal installments of
$225,000 through May 2000. The note is collateralized by
certain of the Company's assets. $ 675,000 $ 1,125,000
Promissory notes bearing interest at 10%
per annum and payable in monthly installments
of $8,500 through March 2002. 281,000 362,000
Promissory notes bearing interest at prime rate (7.75%
at December 31, 1998) plus 2.50% per annum and payable
on or before July 1, 1999. The notes include
warrants to purchase 400,000 shares of the Company's common
stock at $5.00 per share through April 2003. 3,975,000
Convertible debt bearing interest at 5% per annum.
Interest is payable quarterly, with principal, due
in May 2005. The debt may be converted into
shares of the Company's common
stock, at $5.00 per share. 2,400,000
Promissory note, to former parent, bearing interest at
Prime (7.75% at December 31, 1998) plus 2% per annum
payable quarterly, with principal, due in November 1999. 1,411,000 --
------------------ -------------------
8,742,000 1,487,000
Less current portion 5,913,000 530,000
------------------ -------------------
$ 2,829,000 $ 957,000
================== ===================
</TABLE>
F-13
<PAGE> 27
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - NOTES PAYABLE (CONTINUED)
Aggregate future principal payments are as follows:
Year Ending December 31,
1999 $ 5,913,000
2000 310,000
2001 94,000
2002 25,000
2003
Thereafter 2,400,000
-------------------
$ 8,742,000
===================
NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIENCY)
The Company has reserved for issuance 3,316,000 shares of its
common stock relating to common stock purchase warrants
outstanding as of December 31, 1998, at prices ranging from $2.50
to $7.09 per share.
In August and September 1997, the Company sold an aggregate of
407,000 units, at $3.00 per unit, through a private placement that
included various members of the Company's management. Each unit
consists of one share of common stock and one warrant to purchase
one share of common stock at $3.00 per share. During December
1996, the Company entered into an agreement to sell an aggregate
of 500,000 units, at $3.00 per unit, through a private placement.
In December 1996, 250,000 units were sold, and the remaining
250,000 units were sold in January 1997.
In August 1996, the Company sold 500,000 shares of Series B
Convertible Preferred Stock (Series B) for $10 per share through a
private placement, including 250,000 shares purchased by its
former parent, Shared Technologies Fairchild Inc. (STFI). Each
share of Series B, which pays no dividends was convertible into a
minimum of 2.50 shares and a maximum of 3.33 shares of the
Company's common stock, subject to certain adjustments. In
addition, in 1996, the Company paid $125,000 and issued warrants
to purchase 240,000 shares of common stock, at an exercise price
of $3.00 per share, to a firm which provided advisory services to
the Company. This advisory firm in which two of its principals are
directors of the Company, was a party to the sale of 250,000
shares of Series B. During 1997, the Series B stockholders
converted their shares into an aggregate of 1,667,000 shares of
the Company's common stock. Upon conversion of the Series B
shares, the holders received one warrant per common share to
purchase an additional share of the Company's common stock at an
exercise price of $3.00 per share.
F-14
<PAGE> 28
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCK OPTION PLANS
The Board of Directors adopted, and the Company's stockholders
approved, as amended, a stock option plan (the Plan) pursuant to
which 825,000 shares of the Company's common stock are reserved
for issuance upon the exercise of options granted to officers,
employees, consultants and directors of the Company. Options
issued under the Plan are nonqualified stock options (NSO's) and
the Board of Directors (Committee) will grant NSO's at an exercise
price which is not less than the fair market value on the date
such options are granted. The Plan further provides that the
maximum period in which stock options may be exercised will be
determined by the Committee, except that they may not be
exercisable after ten years from the date of grant. At December
31, 1998, options to purchase 657,000 shares of common stock were
outstanding.
The Board of Directors adopted, and the stockholders approved, the
Company's 1994 Director Option Plan (the Director Plan), as
amended, pursuant to which 100,000 shares of the Company's common
stock are reserved for issuance upon the exercise of options to be
granted to non-employee directors of the Company. Under the
Director Plan, an eligible director will automatically receive, at
the commencement of the Director's one-year term, nonstatutory
options to purchase 4,000 shares of the Company's common stock at
an exercise price equal to the fair market value of such shares at
the time of grant. Each such option vests ratably over a one-year
period following the grant and is exercisable within the ten years
from the date of grant, but generally may not be exercised more
than 90 days after the date the director ceases to serve as a
director of the Company. At December 31, 1998, options to purchase
42,000 shares of the Company's common stock were outstanding under
the Director Plan.
The activity in the Plan and the Director Plan are as follows:
<TABLE>
<CAPTION>
Exercise Price Per Share
Number of Weighted
Options Range Average
--------------- ----------------- -------------
<S> <C> <C> <C>
Balance outstanding, January 1, 1996 231,000 $ 1.63-5.00 $ 3.45
Granted 55,000 2.75-4.75 3.69
Expired (5,000) 3.68 3.68
--------------- ----------------- -------------
Balance outstanding, December 31, 1996 281,000 1.63-5.00 3.33
Granted 93,000 2.13-2.50 2.15
Expired (9,000) 3.68-5.00 4.22
--------------- ----------------- -------------
Balance outstanding, December 31, 1997 365,000 1.63-4.75 3.01
Granted 380,000 5.56-7.13 5.60
Exercised (28,000) 2.13-4.75 2.75
Expired (18,000) 2.13-6.50 4.10
--------------- ----------------- -------------
Balance outstanding, December 31, 1998 699,000 $ 1.63-7.13 $ 4.38
=============== ================= =============
Exercisable, December 31, 1998 292,000 $ 1.63-7.13 $ 3.36
=============== ================= =============
</TABLE>
F-15
<PAGE> 29
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCK OPTION PLANS (CONTINUED)
The Company has adopted the disclosure requirements of Statement
of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation". The Company applies
Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. Had compensation cost
for the Company's stock-based compensation plans been determined
based on the fair value at the grant dates, consistent with SFAS
No. 123, the Company's net loss and net loss per share would have
been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported $ (11,646,000) $ (3,695,000) $ (8,908,000)
Pro forma (12,009,000) (3,770,000) (8,920,000)
Net loss per share applicable to common stockholders:
As reported (1.58) (.63) (2.18)
Pro forma (1.63) (.64) (2.19)
</TABLE>
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1998,
1997 and 1996, respectively: risk-free interest rate of 5%, 6% and
6%, respectively; no dividend yield; expected lives of 3 to 10
years; and expected volatility of 91%, 64% and 62%, respectively.
NOTE 12 - LOSS ON DISCONTINUED PRODUCT LINE
During 1997, the Company completed the transition of the existing
in-car rental accounts to portable rentals. In conjunction with
this transition, the Company attempted to develop alternate uses
for the in-car cellular telephones as well as the capitalized
software associated with the in-car cellular rental business.
Although management believes that there are viable uses for such
assets, the probability that such uses will be successful is not
known. As a result, the Company reduced the in-car cellular phones
and the capitalized software to net realizable value and
classified them on the balance sheet as assets held for
disposition. The company wrote-off the balance of the in-car
cellular phones during the year ended December 31, 1998.
NOTE 13 - SAVINGS AND RETIREMENT PLAN
In June 1996, the Company formed a savings and retirement plan
(the Plan) which covers substantially all eligible employees.
Participants in the Plan may elect to make contributions up to a
maximum of 20% of their compensation. For each participant, the
Company will make a matching contribution of one-half of the
participant's contributions, up to 5% of the participant's
compensation. Matching contributions may be made in the form of
the Company's common stock and are vested at the rate of 33% per
year based on years of employment. Prior to the formation of the
Plan, the Company participated in a plan maintained by its former
parent STFI. Matching contributions in STFI's plan were made in
STFI common stock. For the years ended December 31, 1998, 1997 and
1996, the Company's matching contributions were $104,000, $71,000
and $40,000, respectively.
F-16
<PAGE> 30
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - INCOME TAXES
A reconciliation of income tax benefit, to the federal statutory
rate follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax benefit on reported pretax
loss at federal statutory rate (34.0)% (34.0)% (34.0)%
State net operating losses (6.0) (6.0) (6.0)
Net operating loss carryforward not recognized 40.0 40.0 40.0
---- ---- ----
Income taxes 0.0% 0.0% 0.0%
==== ==== ====
</TABLE>
At December 31, 1998 and 1997, the Company recorded net deferred
tax assets of approximately $9,702,000 and $5,511,000,
respectively, and valuation allowances in the same amounts. The
valuation allowances were increased by $4,191,000, $1,111,000 and
$3,296,000, respectively, for the years ended December 31, 1998,
1997 and 1996, respectively. SFAS No. 109 requires that the
Company record a valuation allowance when it is "more likely than
not that some portion or all of the deferred tax asset will not be
realized". The ultimate realization of the deferred tax asset
depends on the Company's ability to generate sufficient taxable
income.
The net deferred tax assets and liabilities as of December 31,
1998 and 1997 are as follows:
1998 1997
Deferred tax assets:
Net operating loss carryforwards $ 9,289,000 $ 5,164,000
Allowance for doubtful accounts 367,000 390,000
Asset basis difference, intangible assets 57,000
----------- -----------
9,713,000 5,554,000
----------- -----------
Deferred tax liabilities, asset basis
difference for equipment and intangible assets (11,000) (43,000)
----------- -----------
Deferred tax asset, net 9,702,000 5,511,000
Valuation allowance for deferred tax asset (9,702,000) (5,511,000)
----------- -----------
$ -- $ --
=========== ===========
At December 31, 1998, the Company has federal net operating loss
carryforwards of approximately $23,223,000, which can be utilized
against future taxable income and expire through the year 2018.
Net operating losses available for state income tax purposes are
less than those for federal purposes and generally expire earlier.
F-17
<PAGE> 31
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Company has leases for office facilities and equipment, which
expire in various years through December 2002. Future aggregate
minimum annual rental payments as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Year ending December 31
<S> <C>
1999 $ 696,000
2000 688,000
2001 662,000
2002 112,000
</TABLE>
Rent expense for the years ended December 31, 1998, 1997 and 1996
was approximately $558,000, $352,000 and $418,000, respectively.
Leased equipment expense for the year ended December 31, 1998 was
approximately $61,000.
The Company, in the ordinary course of business, is a party to
various legal actions, the outcome of which, in the opinion of
management, will not have a material adverse effect on results of
operations, cash flows or financial position of the Company.
In connection with a vendor's requirement, the Company has a
standby letter of credit with a bank in the amount of $400,000.
This letter of credit expires March 29, 1999 and is collateralized
by certain assets of the Company.
NOTE 16 - DEPENDENCE UPON KEY RELATIONSHIPS AND MAJOR CUSTOMERS
Approximately 24% and 12%, related to the debit segment, and 19%
and 10%, related to the rental segment, of the Company's revenues
for 1998 were attributable to four customers. Approximately 26%,
related to the debit segment, and 24%, 13% and 11%, related to the
rental segment, of the Company's revenues for 1997 were
attributable to four customers. Approximately 21%, 16%, and 13%,
related to the rental segment of the Company's revenues for 1996
were attributable to three customers. The agreements with these
companies are terminable with cause and require written
notification, typically effective upon relatively short notice.
The termination of any one of these agreements would have a
material adverse effect on the Company. In 1998, certain of the
agreements relating to 36% and 26% of the Company's revenues in
1998 and 1997, respectively, were terminated.
NOTE 17 - LOSS ON CONTRACT CANCELLATION
In 1996, in connection with the transition of the in-car cellular
phone service to portable rentals, the Company recognized a loss
of approximately $980,000 relating to the cancellation of a
contract for the production of certain in-car telecommunications
equipment.
F-18
<PAGE> 32
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - LOSS ON DISTRIBUTOR CONTRACT
During 1998, the Company entered into an agreement with SmarTalk
TeleServices, Inc. ("SmarTalk") which designated the Company as
the exclusive nationwide cellular service provider for SmarTalk's
prepaid cellular phone program with respect to certain retail
distributor channels, including nationwide retail stores and
television infomercials. The agreement required SmarTalk to
provide the cellular phone to the customer and the Company to
provide all services relating to the activation of the phone,
including, but not limited to, the maintenance of all individual
phone lines. Subsequent to the inception of the nationwide
program, SmarTalk incurred financial difficulties and eventually
filed for bankruptcy protection. Prior to the filing, STC entered
into a new agreement (the "Transition Agreement") pursuant to
which the Company and SmarTalk agreed to terminate their
relationship through a brief transition period.
Subsequent to signing of the Transition Agreement, SmarTalk failed
to pay to the Company all amounts due under such agreement. As a
result of its problems with SmarTalk, the Company elected to take
a write-off of certain assets in 1998. In addition, the Company
reclassified expenses incurred during the fourth quarter of 1998,
in connection with the SmarTalk problems.
NOTE 19 - SUBSEQUENT EVENT
On February 5, 1999, the Company completed a $15 million private
placement, issuing an aggregate of 15,000 shares of a new Series C
Convertible Preferred Stock, $.01 par value, and warrants to
purchase an aggregate of 300,000 shares of common stock, at $9 per
share. Each share of Series C Convertible Preferred Stock is
convertible into common stock of the Company based upon certain
formulas and limitations. The warrants expire in February 2004 and
are subject to mandatory exercise, subject to certain conditions.
The Company has the right to require conversion of all of the
outstanding shares of Series C Convertible Preferred Stock at any
time after February 5, 2000, if the closing bid price for the
Company's common stock is greater than $15 for fifteen consecutive
trading days. The Series C Convertible Preferred Stock may be
redeemed by the holder upon certain events.
NOTE 20 - SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards
No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise
and Related Information," effective January 1, 1998. SFAS 131
requires disclosures of segment information on the basis that is
used internally for evaluating segment performance and deciding
how to allocate resources to segments.
Segment information listed below reflects the three principal
business units of the Company (as described in Note 1). Each
segment is managed according to the products which are provided to
the respective customers and information is reported on the basis
of reporting to the Company's Chief Operating Decision Maker
(CODM). The Company's CODM uses segment information relating to
the operations of each segment, however, segment balance sheet
data is not prepared or used by the CODM.
F-19
<PAGE> 33
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - SEGMENT INFORMATION (CONTINUED)
Operating segment information for 1998, 1997, and 1996 is
summarized as follows:
<TABLE>
<CAPTION>
RENTAL DEBIT ACTIVATION CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C> <C>
1998
Revenues $ 14,037,000 $ 12,737,000 $ 1,426,000 $ -- $ 28,200,000
============ ============ ============ ============ ============
Operating loss $ (777,000) $ (5,942,000) $ (365,000) $ (3,604,000) $(10,688,000)
Interest expense (952,000) (952,000)
------------ ------------ ------------ ------------ ------------
Loss before
income taxes $ (777,000) $ (5,942,000) $ (365,000) $ (4,556,000) $(11,640,000)
============ ============ ============ ============ ============
RENTAL DEBIT ACTIVATION CORPORATE CONSOLIDATED
1997
Revenues $ 15,242,000 $ 6,299,000 $ 2,657,000 $ -- $ 24,198,000
============ ============ ============ ============ ============
Operating income (loss) $ (965,000) $ 1,471,000 $ 86,000 $ (4,045,000) $ (3,453,000)
Interest expense (232,000) (232,000)
------------ ------------ ------------ ------------ ------------
Income (loss) before
income taxes $ (965,000) $ 1,471,000 $ 86,000 $ (4,277,000) $ (3,685,000)
============ ============ ============ ============ ============
RENTAL DEBIT ACTIVATION CORPORATE CONSOLIDATED
1996
Revenues $ 16,339,000 $ 1,516,000 $ 3,059,000 $ -- $ 20,914,000
============ ============ ============ ============ ============
Operating loss $ (2,920,000) $ (96,000) $ (160,000) $ (3,712,000) $ (6,888,000)
Interest expense (906,000) (906,000)
Other expense (980,000) (980,000)
------------ ------------ ------------ ------------ ------------
Loss before
income taxes $ (3,900,000) $ (96,000) $ (160,000) $ (4,618,000) $ (8,774,000)
============ ============ ============ ============ ============
</TABLE>
F-20
<PAGE> 34
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End
Description of Year Expenses Deductions (1) of Year
----------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $ 991,000 $ 1,579,000 $ 1,674,000 $ 896,000
=============== =============== =============== ===============
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $ 1,392,000 $ 1,341,000 $ 1,742,000 $ 991,000
=============== =============== =============== ===============
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts $ 685,000 $ 1,772,000 $ 1,065,000 $ 1,392,000
=============== =============== =============== ===============
</TABLE>
(1) Represents write off of uncollectible accounts, net of recoveries.
S-1
<PAGE> 35
PART III
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.
The Company incorporates by reference items 10, 11, 12, and 13 in its Proxy
Statement for its Annual Meeting of Stockholders to be held on May 20, 1999 (to
be filed with the Securities and Exchange Commission on or before April 30,
1999).
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Operations for the years ended December 31, 1998,
1997 and 1996.
Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996.
Notes to Consolidated Financial Statements.
Financial Statement Schedules: Schedule II.
(b) REPORTS ON FORM 8-K
On February 12, 1999, the Company filed a report on Form 8-K, Item 5,
detailing that the Company entered into an agreement on February 5, 1999 to
close on a $15 million private placement of equity with 20 investors, led by
Marshall Capital Management, Inc., an affiliate of Credit Suisse First Boston,
and a number of European-based institutional investors. Oakes, Fitzwilliams &
Co. S.A. of London acted as placement agent for the Company in connection with
the sales to the European investors.
Pursuant to a Securities Purchase Agreement entered into between the
Company and the investors (the "Securities Purchase Agreement"), the Company
issued an aggregate of 15,000 shares of a new Series C Convertible
<PAGE> 36
Preferred Stock, $.01 per share, and Warrants to purchase an aggregate of
300,000 shares of Common Stock, $.01 par value, of the Company. Each share of
Series C Convertible Preferred Stock is convertible into Common Stock of the
Company in accordance with the formula described below. The Company intends to
use the proceeds from the offering to repay approximately $5.5 million of
outstanding indebtedness and for general corporate purposes.
Description of Series C Convertible Preferred Stock. The following
description of the rights and preferences of the Series C Convertible Preferred
Stock is a summary, and is qualified in its entirety by reference to the entire
text of the Certificate of Designations, Preferences and Rights of the Series C
Convertible Preferred Stock (the "Certificate of Designation"), which is
attached as an exhibit to this Current Report on Form 8-K.
Voting. The holders of shares of Series C Convertible Preferred Stock
are not entitled to vote with respect to the business, management or affairs of
the Company.
For so long as any shares of Series C Convertible Preferred Stock are
outstanding, the following matters, however, will require the approval of the
holders of at least two-thirds of the then-outstanding shares of Series C
Convertible Preferred Stock:
(i) altering, changing, modifying or amending the terms of the
Series C Convertible Preferred Stock or the terms of any other stock
of the Company so as to adversely affect the Series C Convertible
Preferred Stock;
(ii) creating any new class or series of capital stock having a
preference over or ranking pari passu with the Series C Convertible
Preferred Stock as to redemption or distribution of assets upon a
Liquidation Event (as defined in the Certificate of Designation) or
any other liquidation, dissolution or winding up of the Company;
(iii) increasing the authorized number of shares of Series C
Convertible Preferred Stock;
(iv) reissuing any shares of Series C Convertible Preferred Stock
which have been converted or redeemed in accordance with the terms of
the Certificate of Designation;
(v) issuing any Pari Passu Securities or Senior Securities (each
as defined in the Certificate of Designation) (other than
non-convertible debt securities or debt securities which are
convertible into or exchangeable for Common Stock of the Company or
any other equity or convertible security of the Company junior to the
Series C Convertible Preferred Stock);
(vi) redeeming, declaring, paying or making any provision for any
dividend or distribution with respect to the Common Stock of the
Company or any other capital stock of the Company ranking junior to
the Series C Convertible Preferred Stock as to the distribution of
assets upon liquidation, dissolution or winding up of the Company; and
(vii) issuing any Series C Convertible Preferred Stock except
pursuant to the terms of the Securities Purchase Agreement, a copy of
which is filed as an exhibit to this Current Report on Form 8-K.
Dividends. The Series C Convertible Preferred Stock will not bear
dividends.
Liquidation. Upon the liquidation, dissolution or winding up of the
Company, the holders of Series C Convertible Preferred Stock, before any
distribution to the holders of Junior Securities (as defined in the Certificate
of Designation) but after payment to holders of Senior Securities, will be
entitled to receive an amount equal to the Stated Value (defined below) plus the
Premium (defined below) accrued on its Series C Convertible Preferred Stock in
accordance with the terms of the Certificate of Designation (the "Liquidation
Preference").
Conversion. Each share of Series C Convertible Preferred Stock is
convertible into shares of Common Stock of the Company in accordance with the
following formula:
<PAGE> 37
Number of Shares of Stated Value plus accrued Premium
= -----------------------------------
Common Stock Issuable Conversion Price
The "Stated Value" is equal to $1,000 per share. The "Premium" is equal to 6%,
payable in Common Stock or cash, at the Company's option (subject to certain
conditions), upon conversion. The "Conversion Price" is equal to the lesser of
$7 and the Variable Conversion Price. The "Variable Conversion Price" is equal
to the average of the lowest Closing Bid Prices (as defined in the Certificate
of Designation) for the Common Stock of the Company on any five (5) consecutive
trading days during the period of fifteen (15) trading days immediately prior to
the conversion date. If the Company's Common Stock trades above $11 per share
(subject to adjustment upon the occurrence of certain events, including but not
limited to a stock split or dividend or a merger or consolidation of the
Company) for ten (10) consecutive days, and if at all times during such period,
certain conditions set forth in the Certificate of Designation are satisfied,
the Conversion Price will be equal to $7 thereafter.
If, following conversion, the Company fails to deliver shares of its
Common Stock to an investor in accordance with the Certificate of Designation,
it may incur monetary and other penalties (including, in certain circumstances,
mandatory redemption of the Series C Convertible Preferred Stock).
On February 5, 2004, all shares of Series C Convertible Preferred
Stock then outstanding will be automatically converted into shares of Common
Stock at the then-prevailing Conversion Price.
Conversion Limitations. The number of shares of Common Stock issued
upon conversion of all outstanding shares of Series C Convertible Preferred
Stock may not exceed the following amounts during the periods specified (each, a
"Conversion Limit Amount"):
<TABLE>
<CAPTION>
Conversion
Period Limit Amount
<S> <C>
During the 1st Year Following the Issue Date 3,975,000
During the 2nd Year Following the Issue Date 4,200,000
During the 3rd Year Following the Issue Date 4,425,000
During the 4th Year Following the Issue Date 4,650,000
Following the 4th Anniversary of the Issue Date 4,875,000
</TABLE>
The Conversion Limit Amount is subject to adjustment in accordance with the
terms of the Certificate of Designation. In addition, until the Company obtains
the approval of the holders of a majority of the Company's outstanding Common
Stock, the number of shares of Common Stock issued upon conversion of Series C
Convertible Preferred Stock or exercise of the Warrants may not exceed 19.99% of
the number of shares of Common Stock outstanding on February 5, 1999, or
1,512,661 shares. The Company has agreed to seek such stockholder approval (the
"Stockholder Approval") at a meeting of stockholders to be held no later than
May 31, 1999. As of the date of this Current Report, but for the limitation
described in the second preceding sentence, the 15,000 shares of Series C
Convertible Preferred Stock would be convertible into approximately 2,142,857
shares of Common Stock of the Company, or 28% of the total number of shares of
Common Stock issued and outstanding on February 5, 1999. Further, the total
number of shares of Common Stock issuable upon conversion of the Series C
Convertible Preferred Stock and exercise of the Warrants as of the date of this
Current Report, but for the aforementioned limitation, would be approximately
2,442,857 shares, or 32% of the total number of shares of Common Stock issued
and outstanding on February 5, 1999.
Mandatory Conversion. The Company has the right to require conversion
of all of the outstanding shares of Series C Convertible Preferred Stock at any
time after February 5, 2000 if the Closing Bid Price for the Company's Common
Stock is greater than $15.00 for fifteen (15) consecutive trading days, subject
to satisfaction of certain conditions set forth in the Certificate of
Designation.
Mandatory Redemption. Each purchaser of Series C Convertible Preferred
Stock will have the right upon the occurrence of a Mandatory Redemption Event
(as such term is defined in the Certificate of Designation, which term includes,
among other things, failure to receive the Stockholder Approval by May 31, 1999
), to require the Company to redeem all or any part of such purchaser's Series C
Convertible Preferred Stock for a price (the
<PAGE> 38
"Mandatory Redemption Price") equal to the greater of (a) the Liquidation
Preference of the shares being redeemed multiplied by 115% and (b) an amount
calculated on the basis of the applicable Conversion Price and the price at
which the Common Stock of the Company is then trading.
If the Corporation fails to pay the Mandatory Redemption Price within
ten (10) business days of the mandatory redemption date, the holder of Series C
Convertible Preferred Stock shall have the right to regain its rights as such a
holder and, upon written notice to such effect from the holder, the Company
shall return to such holder the certificates representing the Series C
Convertible Preferred Stock delivered to the Company in connection with the
mandatory redemption. In such event, the Conversion Price otherwise applicable
to future conversions of the Series C Convertible Preferred Stock shall be
reduced by one percent for each day beyond such tenth business day in which the
failure to pay continued, until the date of such notice, but the maximum
reduction of the Conversion Price shall be fifty percent.
Optional Redemption. The Company will have the right, upon the
satisfaction of certain Optional Redemption Conditions (as defined in the
Certificate of Designation), to redeem any Series C Convertible Preferred Stock
submitted for conversion at a Conversion Price that is less than $7 (subject to
adjustment upon the occurrence of certain events set forth in the Certificate of
Designation) for a price equal to an amount representing an annualized return of
110% on the Stated Value of the Series C Convertible Preferred Stock being
redeemed, plus accrued Premium.
Preemptive Rights. Pursuant to the Securities Purchase Agreement, each
purchaser of the Series C Convertible Preferred Stock will have the right, upon
the issuance of certain equity securities by the Company, to either purchase a
pro rata share of such securities or, at the option of such purchaser, to
exchange all or any part of such purchaser's shares of Series C Convertible
Preferred Stock for an equal amount of such securities.
Description of the Warrants. Pursuant to the Securities Purchase
Agreement, each investor received a Warrant for the purchase of 20,000 shares of
Common Stock of the Company for each $1 million of Series C Convertible
Preferred Stock issued. The Warrants are exercisable at $9 per share (subject to
adjustment upon the occurrence of certain events set forth in the Warrants). The
Warrants will expire five (5) years after the date of issuance, and are subject
to mandatory exercise, subject to certain conditions set forth therein, if the
Company's Common Stock trades at or above $18 per share (subject to adjustment
upon the occurrence of certain events set forth in the Warrants) for five (5)
consecutive trading days. Cashless exercise is permitted under the terms of the
Warrants and is required for any exercise after February 5, 2001.
If, following exercise of the Warrants, the Company fails to deliver
shares of its Common Stock to an investor in accordance with the terms of the
Warrants, it may incur monetary and other penalties.
Description of the Registration Rights Agreement. In accordance with the
Securities Purchase Agreement, the Company entered into a Registration Rights
Agreement with the investors, pursuant to which the Company is required, within
thirty (30) days after February 5, 1999, to file with the Securities and
Exchange Commission a registration statement on Form S-3 covering the resale of
the Common Stock issuable upon conversion of the Series C Convertible Preferred
Stock and exercise of the Warrants. The Company may incur monetary and other
penalties (including in certain circumstances mandatory redemption of the Series
C Convertible Preferred Stock) in the event that such registration statement is
not filed within such 30-day period or declared effective in accordance with the
terms of the Registration Rights Agreement, or if such registration statement
becomes unavailable for the resale of shares of Common Stock of the Company and
such unavailability continues for a period set forth in the Registration Rights
Agreement.
The Company included exhibits 4.1, 4.2, 4.3 and 4.4, in accordance with form
8-K, item 5. The exhibits included the Certificate of Designations, Preferences
and Rights of the Series C Convertible Preferred Stock, the Securities Purchase
Agreement, the Registration Rights Agreement and the Form of Warrant to Purchase
Common Stock of the Company, all dated January 28, 1999.
<PAGE> 39
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
3.(i) Second Restated Certificate of Incorporation, dated June 25, 1998.
3.(ii) Restated By-laws. Incorporated by reference from Exhibit 3.(ii) to the
Company's Quarterly Report on Form 10-Q dated May 15, 1998.
4.1 Specimen of Common Stock Certificate. Incorporated by reference from
exhibit 4.2 to the Company's Registration Statement of Form SB-2 filed
with Amendment No. 3 to such Registration Statement dated January 27,
1995.
4.2 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of Shared Technologies Cellular, Inc.
dated August 19, 1996. Incorporated by Reference from Exhibit 4.1 to
the Company's Form 8-K dated August 19, 1996 and filed September 5,
1996.
4.3 Series B Convertible Preferred Stock Purchase Agreement by and between
International Capital Partners, Inc. and the Company dated August 19,
1996 (agreement between STFI and the Company is substantially the
same), including form of Common Stock Warrant. Incorporated by
Reference from Exhibit 4.2 to the Company's Form 8-K dated August 19,
1996 and filed September 15, 1996.
4.4 Equity Holders Agreement by and among International Capital Partners,
Inc., Zeisiger Capital Group, LLC and Shared Technologies Fairchild
Inc. dated August 19, 1996. Incorporated by Reference from Exhibit 4.3
to the Company's Form 8-K dated August 19, 1996 and filed September
15, 1996.
4.5 Purchase Agreement, Common Stock Warrant Certificate and Option
Agreement by and among RHI Holdings, Inc., and the Company dated
December 27, 1996. Incorporated by Reference from Exhibit 4.1, 4.2,
4.3 respectively to the Company's Form 8-K dated December 27, 1996,
and filed January 22, 1997.
4.6 Pledge Agreement, dated as of April 15, 1998, by and between Shared
Technologies Cellular, Inc., as Pledgor, Anthony D. Autorino and
Salomon Brothers Holding Company Inc. as Lenders and Salomon Brothers
Holding Company Inc. as Collateral Agent. Incorporated by Reference
from Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q dated
May 15, 1998.
4.7 Form of Registration Rights Agreement dated as of April 15, 1998,
between Shared Technologies Cellular, Inc., and Salomon Brothers
Holding Company Inc. Incorporated by Reference from Exhibit 4.4 to the
Company's Quarterly Report on Form 10-Q dated May 15, 1998.
4.8 Form of Warrant Purchase Agreement, dated as of April 15, 1998,
between Shared Technologies Cellular, Inc., and Salomon Brothers
Holding Company Inc. Incorporated by Reference from Exhibit 4.5 to the
Company's Quarterly Report on Form 10-Q dated May 15, 1998.
4.9 Form of Shared Technologies Cellular, Inc., Common Stock Purchase
Warrant, dated April 15, 1998, in favor of Salomon Brothers Holding
Company Inc. or its registered assigns. Incorporated by Reference from
Exhibit 4.6 to the Company's Quarterly Report on Form 10-Q dated May
15, 1998.
4.10 Form of Subscription Agreement dated May 1998 between Shared
Technologies Cellular, Inc., and the Purchasers (as defined therein),
including form of Convertible Note. Incorporated by Reference from
Exhibit 4.7 to the Company's Quarterly Report on Form 10-Q dated May
15, 1998.
4.11 Certificate of Designations, Preferences and Rights of the Series C
Convertible Preferred Stock of Shared Technologies Cellular, Inc.
dated January 28, 1999. Incorporated by Reference from Exhibit 4.1 to
the Company's Form 8-K dated February 5, 1999 and filed February 12,
1999.
</TABLE>
<PAGE> 40
<TABLE>
<S> <C>
4.12 Securities Purchase Agreement among the Company and the Purchasers
dated as of January 28, 1999. Incorporated by Reference from Exhibit
4.2 to the Company's Form 8-K dated February 5, 1999 and filed
February 12, 1999.
4.13 Registration Rights Agreement among the Company and the Purchasers
dated as of January 28, 1999. Incorporated by Reference from Exhibit
4.3 to the Company's Form 8-K dated February 5, 1999 and filed
February 12, 1999.
4.14 Form of Warrant to Purchase Common Stock of the Company issued to the
Purchasers. Incorporated by Reference from Exhibit 4.4 to the
Company's Form 8-K dated February 5, 1999 and filed February 12, 1999.
10.1 Agreement by and between the Hertz Corporation and the Company dated
October 1, 1996. Incorporated by reference from Exhibit 10.1 to the
Company's Form 10-K dated March 27, 1997.
10.2 Agreement by and between National Car Rental System, Inc. and the
Company dated July 1, 1996. Incorporated by reference from Exhibit
10.2 to the Company's Form 10-K dated March 27, 1997.
10.3 Lease Agreement by and between Putnam Park Associated and the Company
dated January 1, 1995. Incorporated by reference from Exhibit 10.10 to
the Company's Registration Statement on Form SB-2 filed with Amendment
No. 1 to such Registration Statement dated January 4, 1995.
10.4 Sample Customer Service Agreement. Incorporated by reference from
Exhibit 10.15 to the Company's Registration Statement on Form SB-2
filed with Amendment No. 1 to such Registration Statement dated
January 4, 1995.
10.5 Sample Customer Service Agreement. Incorporated by reference from
Exhibit 10.16 to the Company's Registration Statement on Form SB-2
filed with Amendment No. 1 to such Registration Statement dated
January 4, 1995.
10.6 Shared Technologies Cellular, Inc. Savings and Retirement Plan,
Effective as of April 1, 1996. Incorporated by reference from Exhibit
10.15 to the Company's Form 10-K dated March 27, 1997.
10.7 Agreement by and between Budget Rent A Car Corporation and the Company
dated July 28, 1997. Incorporated by reference form Exhibit 10.16 to
the Company's Form 10-K dated March 31, 1998.
10.8 Agreement by and between Thorn Americas, Inc. and the Company dated
December 1, 1996. Incorporated by reference form Exhibit 10.17 to the
Company's Form 10-K dated March 31, 1998.
10.9 1994 Stock Option Plan, as amended, November 11, 1998.
10.10 1994 Director Option Plan, as amended, November 11, 1998.
10.11* Prepaid Cellular Reseller Agreement by and between the Company and MCI
Telecommunications Corporation and WorldCom Technologies, Inc. dated
February 19, 1999.
21 List of subsidiary of the registrant.
27 Financial Data Schedule
</TABLE>
- ----------
* Confidential treatment as to certain portions has been
requested until April 1, 2004. The copy filed as an exhibit omits the
information subject to the confidentiality treatment.
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SHARED TECHNOLOGIES CELLULAR, INC.
(Registrant)
By
\s\ Anthony D. Autorino
Anthony D. Autorino
Chief Executive Officer and Director
Date: March 30, 1999
By
\s\ Vincent DiVencenzo
Vincent DiVincenzo
Chief Financial Officer and Director
Date: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ Anthony D. Autorino By: /s/ William A. DiBella
Anthony D. Autorino William A. DiBella
Chief Executive Officer Director
and Director Date: March 30, 1999
Date: March 30, 1999
By: /s/ Ajit G. Hutheesing By: /s/ Thomas H. Decker
Ajit G. Huthessing Thomas H. Decker
Director Director
Date: March 29,1999 Date: March 29, 1999
By: /s/ Vincent DiVincenzo By: /s/ Nicholas E. Sinacori
Vincent DiVincenzo Nicholas E. Sinacori
Chief Financial Officer Director
and Director Date: March 29, 1999
Date: March 30,1999
By: /s/ Bruce Carswell
Bruce Carswell
Director
Date: March 29, 1999
<PAGE> 1
Exhibit 3
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
SHARED TECHNOLOGIES CELLULAR, INC.
---------------------------------------
Pursuant to Section 245 of the General Corporation
Law of the State of Delaware
-----------------------------------------
SHARED TECHNOLOGIES CELLULAR, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify as follows:
1. The name of Corporation is Shared Technologies Cellular, Inc.
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on March 14, 1989. A
Restated Certificate of Incorporation was filed with the Secretary of State on
October 6, 1994.
3. This Second Restated Certificate of Incorporation was duly adopted
in accordance with the provisions of Section 245 of the General Corporation Law,
as amended, of the State of Delaware (the "GCL") by the written consent of the
Board of Directors of the Corporation in accordance with Section 141(f) of the
GCL.
4. This Second Restated Certificate of Incorporation hereby restates
and integrates, but does not further amend, the provisions of the Corporation's
Restated Certificate of Incorporation, as amended to date, so that the same
shall read in its entirety as follows:
FIRST: The name of the Corporation is Shared Technologies Cellular,
Inc. (hereinafter, the "Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County
of Castle, Delaware 19801. The name of the Corporation's registered agent at
such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law, as amended, of the State of Delaware (the "GCL"), as set forth in Title 8
of the Delaware Code.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 25,000,000 shares, of which 5,000,000 shall be
Preferred Stock with a par value of $.01 per share and 20,000,000 shares shall
be Common Stock with a par value of $.01 per share.
<PAGE> 2
The Preferred Stock is to be issued in one or more series, with each
series to have such designations, preferences, and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions provided for the issue of each series adopted by the Board of
Directors of the Corporation, subject to the limitations prescribed by law and
in accordance with the provisions hereof, the Board of Directors being hereby
expressly vested with authority to adopt any such resolution or resolutions.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, the determination or fixing of the
following:
(1) The number of shares to constitute the series and the
distinctive designation thereof;
(2) The amount or rate of dividends on the shares of the
series, whether dividends shall be cumulative and, if so, from what
date or dates;
(3) Whether the shares of the series shall be redeemable and,
if redeemable, the terms and provisions upon which the shares of the
series may be redeemed and the premium, if any, and any dividends
accrued thereon which the shares of the series shall be entitled to
receive upon the redemption thereof;
(4) Whether the shares of the series shall be subject to the
operations of a retirement or sinking fund to be applied to the
purchase or redemption of the shares for retirement and, if such
retirement or sinking fund be established, the annual amount thereof
and the terms and provisions relative to the operation thereof;
(5) Whether the shares of the series shall be convertible into
shares of any class or classes, with or without par value, or of any
other series of the same class, and if convertible, the conversion
price or prices or the rate at which the conversion may be made and the
method, if any, of adjusting the same;
(6) The rights of the shares of the series in the event of the
voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation;
(7) The restrictions, if any, on the payment of the dividends
upon, and the making of distributions to, any class of stock ranking
junior to the shares of the series, and the restrictions, if any, on
the purchase or redemption of the shares of any such junior class;
(8) Whether the series shall have voting rights in addition to
the voting rights provided by law, and, if so, the terms of such voting
rights; and
(9) Any other relative rights, preferences, and limitations of
that series.
- 2 -
<PAGE> 3
The holders of the Common Stock shall be entitled to one vote for each
share of Common Stock held.
FIFTH: The Board of Directors has heretofore created and reserved a
series of the Corporation's Preferred Stock with a par value of $.01, known and
designated as "Series B Convertible Preferred Stock" (hereinafter, "Series B
Preferred"), such series of stock consisting of One Million Two Hundred Fifty
Thousand (1,250,000) shares. The powers, preferences and relative,
participating, optional or other rights, and the qualifications, limitations and
restrictions of the Series B Preferred are as follows:
1. Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of each share of Series B Preferred shall be
entitled to receive, prior and in preference to any distribution of any
of the assets or surplus funds of the Corporation to the holders of any
other class or series of the Corporation's capital stock by reason of
their ownership thereof, an amount per share equal to the sum of (a)
the price at which such share was originally issued by the Corporation
(the "Original Issue Price"), plus (b) an amount equal to a rate of
return on such holder's investment for the period commencing on the
Original Issue Date therefor and ending on the date full payment shall
be tendered to the holders of the Series B Preferred with respect to
such liquidation, dissolution, or winding up, equal to the product of
(1) the Original Issue Price therefor and (2) Twelve Percent (12%) per
annum. If the assets or surplus funds to be distributed to the holders
of the Series B Preferred are insufficient to permit the payment to
such holders of their full preferential amount, the assets and surplus
funds legally available for distribution shall be distributed ratably
among the holders of the Series B Preferred in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
All of the preferential amounts to be paid to the holders of
the Series B Preferred pursuant to this Section 1 of Article FIFTH
shall be paid or set apart for payment before the payment or setting
apart for payment of any amount for, or the distribution of any assets
of the Corporation to, the holders of any other class or series of the
Corporation's capital stock in connection with such liquidation,
dissolution or winding up.
2. Conversion. The holders of the Series B Preferred shall
have conversion rights as follows (the "Conversion Rights"):
a. Right to Convert. Each share of Series B Preferred
shall be convertible at the option of the holder thereof at
any time from the date of first issuance of such shares of
Series B Preferred (the "Original Issue Date") and without the
payment of any additional consideration therefor into that
number of fully paid and non-assessable shares of Common Stock
as is determined by dividing Ten Dollars and No/100 ($10.00)
by the Conversion Price (determined as hereinafter provided)
in effect at the time of conversion. The
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<PAGE> 4
Conversion Price at which shares of Common Stock shall be
deliverable upon conversion (the "Conversion Price") shall be
the lesser of: (i) Four and No/100 Dollars ($4.00) (this
amount, as from time to time adjusted in the manner
hereinafter provided, being referred to as the "Maximum
Conversion Price"), or (ii) One Hundred Per Cent (100%) (this
percentage, as from time to time adjusted in the manner
hereinafter provided, being referred to as the "Adjusting
Percentage") of the average closing bid price of the Common
Stock quoted on the NASDAQ Stock Market or any exchange on
which the Common Stock is listed (or the closing bid price of
the Common Stock quoted in the Over-the-Counter Market Summary
if not on the NASDAQ system or an exchange) for the forty (40)
consecutive trading days preceding the date of conversion (the
"Closing Price"). In no event shall the Conversion Price be
less than Three and No/100 Dollars ($3.00) (this amount, as
from time to time adjusted in the manner hereinafter provided,
being referred to as the "Minimum Conversion Price"). The
Maximum and Minimum Conversion Prices and the Adjusting
Percentage shall be subject to adjustment (in order to adjust
the number of shares of Common Stock into which the Series B
Preferred is convertible) as hereinafter provided.
b. Mechanics of Conversion. In the event that a
holder of shares of Series B Preferred shall elect to convert
the same into shares of Common Stock, such holder shall give
written notice of such election (a "Conversion Notice") to the
Corporation at the office of the Corporation. Such Conversion
Notice shall state therein the holder's name or the names of
the holder's nominees in which he wishes the certificate or
certificates for shares of Common Stock to be issued, together
with the applicable federal taxpayer identification number.
Such conversion shall be deemed to have been made on the date
that the holder has given the Corporation a Conversion Notice,
and the person or persons entitled to receive the shares of
Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of
Common Stock on such date. A holder who has given a Conversion
Notice shall promptly thereafter surrender the certificate or
certificates evidencing the shares of Series B Preferred that
have been converted, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series B
Preferred, but the failure to promptly surrender such
certificate or certificates shall in no way effect the right
or time of conversion. The Corporation shall, as soon as
practicable after receipt of the certificate or certificates
evidencing the shares of Series B Preferred that have been
converted, issue and deliver to the holder of Series B
Preferred who has given such Conversion Notice, or to his
nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which he shall be
entitled.
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<PAGE> 5
c. Adjustments to Conversion Price for Diluting
Issues.
(1) Special Definitions. For purposes of
this Subsection 2.c., the following definitions shall
apply:
(a) "Option" shall mean rights,
options or warrants to subscribe for, purchase or
otherwise acquire either Common Stock or Convertible
Securities.
(b) "Original Issue Date" shall mean
the date on which the first share of Series B
Preferred was issued.
(c) "Convertible Securities" shall
mean any evidences of indebtedness, shares (other
than Series B Preferred) or other securities directly
or indirectly convertible into or exchangeable for
Common Stock.
(d) "Additional Shares of Common
Stock" shall mean all shares of Common Stock issued
(or deemed to be issued) by the Corporation after the
Original Issue Date.
(e) "Dilutive Issue" shall mean the
issuance by the Corporation of Additional Shares of
Common Stock (including Additional Shares of Common
Stock deemed to be issued) without consideration or
for a consideration per share less than the
Conversion Price in effect on the date of and
immediately prior to such issue and for which no
adjustment is made pursuant to Subsection 2.c.(5).
(2) Issue of Options and Convertible
Securities Deemed Issue of Additional Shares of
Common Stock. In the event the Corporation at any
time or from time to time after the Original Issue
Date shall issue any Options or Convertible
Securities or shall fix a record date for the
determination of holders of any class of securities
entitled to receive any such Options or Convertible
Securities and the consideration per share to be paid
upon exercise or conversion of such Options or
Convertible Securities is less than the Conversion
Price in effect on the date of, and immediately prior
to the issue of such Options or Convertible
Securities, then the maximum number of shares of
Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the
time of such issue or, in case such a record date
shall have been fixed, as of the close of business on
such record date, provided that in any such case in
which Additional Shares of Common Stock are deemed to
be issued no further
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<PAGE> 6
adjustment in the Conversion Price shall be made upon
the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible
Securities.
(3) Adjustment of Conversion Price Upon
Issuance of Additional Shares of Common Stock in a
Dilutive Issue. In the event of a Dilutive Issue, the
following adjustments shall be made:
If the percentage determined by
dividing the consideration per share received by the
Corporation in the Dilutive Issue by the then Closing
Price (the "Test Percentage") is less than the then
effective Adjusting Percentage, the Adjusting
Percentage shall be reduced to the Test Percentage
and such percentage shall be the basis for all future
adjustments. Upon such adjustment the Maximum and
Minimum Conversion Prices shall be reduced by the
dollar amount equal to the difference between the
Conversion Price on the date of the Dilutive Issue
and the consideration received by the Corporation in
such Dilutive Issue.
The foregoing notwithstanding, no
adjustment shall be made under this Subsection
2.c.(3):
(a) upon the conversion or exchange
of shares of Series B Preferred into any other
instrument or shares of capital stock prior to
January 1, 1998;
(b) upon the exercise of Warrants
held by holders of Series B Preferred;
(c) upon the issuance of up to ten
percent (10%) of the then issued and outstanding
shares of Common Stock of the Corporation pursuant to
Options granted to officers, directors or employees
of, or consultants to, the Corporation under any
stock option, incentive, bonus or compensation
program;
(d) for which adjustment is made in
the Conversion Price pursuant to Subsection 2.c.(5);
or
(e) if the amount of such reduction
would be an amount less than $.05, but any such
amount shall be carried forward and reduction with
respect thereto made at the time of and together with
any subsequent reduction which, together with such
amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
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<PAGE> 7
(4) Determination of Consideration. For
purposes of this Subsection 2.c., the consideration
received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed
as follows:
(a) Cash and Property: Such
consideration shall: (A) insofar as it consists of
cash, be computed at the aggregate amount of cash
received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
and (B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the
time of such issue, as determined in good faith by
the Board of Directors.
(b) Options and Convertible
Securities. The consideration per share received by
the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection
2.c.(2), relating to Options and Convertible
Securities, shall be determined by dividing (x) the
total amount, if any, received or receivable by the
Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without
regard to any provision contained therein for a
subsequent adjustment of such consideration) payable
to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible
Securities or in the case of Options for Convertible
Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange
of such Convertible Securities, by (y) the maximum
number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any
provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such
Convertible Securities.
(5) Adjustment for Dividends, Distributions,
Subdivisions, Combinations or Consolidation of Common
Stock.
(a) Stock Dividends, Distributions
or Subdivisions. In the event the Corporation at any
time or from time to time after the Original Issue
Date shall declare or pay any dividend, or make any
other distribution on the Common Stock, payable in
Common Stock or effect a subdivision of the
outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a
dividend in Common Stock), then and in any such
event, the Minimum and Maximum Conversion Prices
shall be proportionately decreased to reflect such
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<PAGE> 8
dividend, distribution or subdivision as of: (A) in
the case of any such dividend or distribution,
immediately after the close of business on the record
date for the determination of holders of any class of
securities entitled to receive such dividend or
distribution, or (B) in the case of any such
subdivision, at the close of business on the date
immediately prior to the date upon which such
corporation action becomes effective.
(b) Combinations or Consolidations.
In the event the outstanding shares of Common Stock
shall be combined or consolidated, by
reclassification or otherwise, into a lesser number
of shares of Common Stock, the Minimum and Maximum
Conversion Prices in effect immediately prior to such
combination or consolidation shall, concurrently with
the effectiveness of such combination or
consolidation, be proportionately increased.
(6) Adjustment for Reclassification or
Reorganization. In case of any capital reorganization
or reclassification of the capital stock of the
Corporation (other than a reclassification covered in
Subsection 2.c.(5)(b)), each share of Series B
Preferred shall thereafter be convertible into the
number of shares of stock or other securities or
property to which a holder of the number of shares of
Common Stock of the Corporation deliverable upon
conversion of such Series B Preferred would have been
entitled upon such reorganization or
reclassification. In any such case, appropriate
adjustment (as determined by the Board of Directors)
shall be made in the application of these provisions
set forth with respect to the rights and interest
thereafter of the holders of the Series B Preferred,
to the end that these provisions (including
provisions with respect to changes in and other
adjustments of the Conversion Price) shall thereafter
be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property
thereafter deliverable upon the conversion of the
Series B Preferred.
(7) No Impairment. The Corporation will not,
by amendment, of its Certificate of Incorporation or
through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by
the Corporation but will at all times in good faith
assist in the carrying out of all the provisions of
this Section 2 of Article FIFTH and in the taking of
all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders
of the Series B Preferred against impairment.
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<PAGE> 9
(8) Certificate as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the
Adjusting Percentage and the Minimum and Maximum
Conversion Prices pursuant to this Section 2 of
Article FIFTH, the Corporation at its expense shall
promptly compute such adjustment or readjustment in
accordance with these terms and furnish to each
holder of Series B Preferred a certificate setting
forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon
the written request at any time of any holder of
Series B Preferred, furnish or cause to be furnished
to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Minimum
and Maximum Conversion Prices and the Adjusting
Percentage at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if
any, of other property which at the time would be
received upon the conversion of Series B Preferred.
(9) Notices of Record Date. In the event of
(i) any taking by the Corporation of a record date of
the holders of any class of securities for the
purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash
dividend which is the same as cash dividends paid in
previous quarters) or other distribution, or (ii) any
capital reorganization of the Corporation, any
reclassification or recapitalization of the capital
stock of the Corporation, any merger or consolidation
of the Corporation, and any transfer of all or
substantially all of the assets of the Corporation to
any other corporation, or any other entity or person,
or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Series B
Preferred at least twenty (20) days (thirty (30) days
in the case of an acquisition of the Corporation
through a merger or consolidation of the Corporation
or the sale of all or substantially all of its assets
and properties) prior to the record date specified
therein, a notice specifying (A) the date on which
any such record is to be taken for the purpose of
such dividend or distribution and a description of
such dividend or distribution, (B) the date on which
any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (C)
the time, if any, that is to be fixed, as to when the
holders of record of Common Stock (or other
securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for
securities or other property deliverable upon such
reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or
winding up.
(10) Common Stock Reserved. The Corporation
shall reserve and keep available out of its
authorized but unissued Common Stock
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<PAGE> 10
such number of shares of Common Stock as shall be
sufficient to effect conversion of the Series B
Preferred. The number of shares so reserved shall be
determined and revised twice a year, as of January 1
and June 30.
d. Additional Adjustments to Conversion Price. In the
event that within the period beginning on the day after the
date that shares of the Series B Preferred are first issued,
and ending on and including the one hundred eighty-first
(181st) day following the date that shares of the Series B
Preferred are first issued, the Corporation fails to obtain an
aggregate of Five Million and No/100 Dollars ($5,000,000.00)
in Qualified Capital (as hereinafter defined) the Minimum
Conversion Price and the Maximum Conversion Price shall be
reduced by Fifty Cents ($0.50). As used herein, the term
"Qualified Capital" shall mean any combination of the
following: (1) the proceeds (net of commissions and selling
expenses) from the sale of capital stock of the Corporation
and (2) up to Two Million Five Hundred Thousand and No/100
($2,500,000.00) in aggregate principal amount of a revolving
loan facility entered into with an institutional lender,
provided that such facility (A) commences during the aforesaid
period ending on the one hundred eighty-first (181st) day
following the date that the shares of Series B Preferred are
first issued, (B) has an expiration date of no less than
twelve (12) months from the date such facility first commences
(the "Available Period") and (C) shall entitle the Corporation
to borrow, repay and reborrow such principal amount during the
Available Period under terms and conditions usual for such
facilities.
3. Voting Rights. Except as otherwise expressly provided
herein or as required by law, each holder of Series B Preferred shall
be entitled to vote on all matters submitted to the stockholders of the
Corporation for a vote, as though the Common Stock and the Series B
Preferred constituted a single class of stock, provided that the holder
of a share of Series B Preferred shall be entitled to vote together
with the Common Stock as if such holder held four (4) of shares of
Common Stock for each of his shares of Series B Preferred then
convertible in accordance with Section 2 above.
4. Dividend Rights. There shall be no dividends payable on the
Series B Preferred.
5. Board Participation. The Board of Directors shall consist
of not more than seven (7) members, four (4) of which shall be elected
by holders of Series B Preferred as a class. At least two (2) of the
director(s) elected by holders of Series B Preferred as a class shall
be mandatory member(s) of the Compensation Committee of the Board of
Directors.
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<PAGE> 11
6. Optional Redemption.
a. Election. At any time after August 19, 1997, in
the event that the closing bid price for the Common Stock
quoted on the NASDAQ Stock Market or any exchange on which the
Common Stock is listed (or the closing bid price of the Common
Stock quoted in the Over-the-Counter Market Summary if not on
the NASDAQ system or an exchange) exceeds Seven and No/100
Dollars ($7.00) per share for forty (40) consecutive trading
days, the Corporation may redeem all but not less than all of
the shares of Series B Preferred that are then issued and
outstanding, at a redemption price equal to the Original Issue
Price therefor, upon sending written notice of such redemption
to each holder of the Series B Preferred in the manner set
forth herein on the day immediately following such forty (40)
consecutive trading days. The Corporation may not redeem any
shares of Series B Preferred unless funds are then legally
available for the redemption of all shares of the Series B
Preferred. Holders of shares of the Series B Preferred shall
continue to be entitled to convert such shares into Common
Stock prior to the Optional Redemption Date (as hereinafter
defined).
b. Notice. Notice of redemption shall be sent by
certified or registered mail (return receipt requested),
postage prepaid to each holder of record of shares of Series B
Preferred at such holder's address as it appears on the
records of the Corporation. Such notice shall specify the date
set for redemption (the "Optional Redemption Date"), which
date shall be at least thirty-five (35) days following the
date upon which the Corporation has sent notice of redemption
and no greater than forty-five (45) days following the date
upon which the Corporation has sent notice of redemption. Any
holder of shares of Series B Preferred who converts such
shares during any period in which there is notice of
redemption outstanding under this Section 6 of Article FIFTH
shall be deemed, for all purposes, to have reduced the number
of shares of Series B Preferred to be redeemed from him by the
number of shares so converted. In the event that a notice of
redemption is given under this Section 6 of Article FIFTH, the
Corporation shall be obliged to redeem all of the shares of
the Series B Preferred on the Optional Redemption Date by
payment of the Original Issue Price or Original Issue Prices
therefor as provided herein, subject to such shares being
previously converted by the holder as provided above. Upon
such redemption and payment as provided herein, the holder of
the shares of Series B Preferred shall have no further right
or interest in such shares.
c. Rights Following Redemption. If, on or before the
Optional Redemption Date the funds necessary for such
redemption shall have been set aside by the Corporation and
deposited with a bank or trust company, in trust for the pro
rata benefit of the holders of the shares of Series B
Preferred, then, notwithstanding that any certificates for
such shares shall not have been
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<PAGE> 12
surrendered for cancellation, the shares represented thereby
shall no longer be deemed outstanding from and after the
Optional Redemption Date, and all rights of holders of such
shares shall forthwith, after the Optional Redemption Date,
cease and terminate, excepting only the right to receive the
redemption funds therefor to which they are entitled, but
without interest. Any interest accrued on funds so deposited
and unclaimed by stockholders entitled thereto shall be paid
to the Corporation from time to time. In case the holders of
shares of Series B Preferred shall not, within six years after
the Optional Redemption date, claim the amounts so deposited
with respect to the redemption thereof, any such bank or trust
company shall, upon demand, pay over to the Corporation such
unclaimed amounts and thereupon such bank or trust company
shall be relieved of all responsibility in respect thereof to
such holder and such holder shall look only to the Corporation
for the payment thereof. Any funds so deposited with a bank or
trust company which shall not be required for such redemption
by reason of the exercise subsequent to the date of such
deposit of the right of conversion thereof, or otherwise,
shall be returned to the Corporation forthwith.
d. Rights Upon Failure to Redeem. If the Corporation
for any reason fails to redeem any of the shares of Series B
Preferred in accordance with this Section 6 of Article FIFTH
on the Optional Redemption Date, then notwithstanding anything
to the contrary contained in this Certificate of
Incorporation, all shares of Series B Preferred then
outstanding shall continue to be entitled to the conversion
and other rights, preferences and privileges of the Series B
Preferred until such shares have been redeemed and the
Optional Redemption Price has been paid or otherwise set aside
with respect thereto.
7. Mandatory Redemption.
a. Election. In the event that the sum of the
Corporation's EBITDA (as hereinafter defined) for the years
ended December 31, 1996 and December 31, 1997 is less than
Five Million and No/100 Dollars ($5,000,000.00), each holder
of the Series B Preferred shall have the right to require the
Corporation to redeem such holder's shares at a per share
redemption price (the "Mandatory Redemption Price") equal to
the sum of (i) the Original Issue Price therefor, plus (ii) a
rate of return on investment for the period commencing on the
Original Issue Date therefor and ending on the Mandatory
Redemption Date (as hereinafter defined), equal to the product
of (1) the Original Issue Price therefor and (2) Twelve
Percent (12%) per annum. Each holder desiring to require the
Corporation to redeem such holder's shares of Series B
Preferred shall give written notice thereof to the Corporation
at its principal office at least ten (10) days before the
requested date of redemption (the "Mandatory Redemption
Date"). Upon the Mandatory Redemption Date, such holder shall
surrender the certificate or certificates for his shares of
the Series B Preferred, duly endorsed, at the office of the
Corporation in exchange
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<PAGE> 13
for payment of the Mandatory Redemption Price. Upon redemption
and payment as provided herein, such holder shall have no
further interest in the Series B Preferred.
b. Available Funds. If at the time at which
redemption is demanded sufficient funds are not legally
available for such redemption on the Mandatory Redemption Date
to redeem all of the shares of Series B Preferred then
required to be redeemed, any and all such unredeemed shares
shall thereafter be promptly redeemed, at such time and to the
extent that funds of the Corporation become legally available
therefor. The shares of the Series B Preferred that are
subject to redemption but have not been redeemed and as to
which the Mandatory Redemption Price is not paid due to
insufficient legally available funds, or otherwise, shall
continue to be entitled to the conversion and other rights,
preferences and privileges of the Series B Preferred until
such shares have been redeemed and the Mandatory Redemption
Price has been paid with respect thereto. In the event that
insufficient funds are legally available on any Mandatory
Redemption Date to redeem all shares of Series B Preferred for
which the holders thereof have required redemption, the number
of shares to be redeemed of each holder of shares of Series B
Preferred that has requested redemption on such Mandatory
Redemption Date shall be determined by the Board of Directors,
acting in good faith, considering the funds available for
redemption and the Original Issue Prices of the shares to be
redeemed, and with the intent to redeem a pro rata number of
shares from each holder upon the aggregate number of shares
held by such holder.
c. EBITDA. As used herein the term "EBITDA" means the
sum of the Corporation's (i) net income (or net loss) from
continuing operations (excluding extraordinary items of income
or expense), plus (ii) all interest expense, plus (iii) income
tax expense, plus (iv) depreciation expense, plus (v)
amortization expense. All calculations shall be in accordance
with generally accepted accounting principles (as in effect
from time to time in the United States of America),
consistently applied, and shall be based upon the
Corporation's audited year-end financial statements for the
years for which such calculations are being made.
8. Other Rights and Privileges. So long as any shares of
Series B Preferred shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the
holders of more than fifty (50%) percent of the then outstanding shares
of Series B Preferred:
a. alter, change or amend the preferences, rights,
privileges or powers of, or the restrictions provided for the
benefit of, the Series B Preferred generally;
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<PAGE> 14
b. authorize, create or issue any other class of
stock or series of Preferred Stock or other equity securities
having any preference or priority as to dividends or assets
upon liquidation superior to or on a parity with any such
preference or priority of Series B Preferred;
c. merge into another corporation or entity with the
result that the holders of capital stock of the Corporation
after giving effect to the exercise of all then exercisable
Options and Convertible Securities would own less than fifty
(50%) percent of the capital voting stock of the surviving
entity or sell all or substantially all of the assets of the
Corporation;
d. pay or declare any dividend or distribution on any
shares or Common Stock or other securities of the Corporation;
e. increase or decrease the number of directors
constituting the Board of Directors;
f. apply any of its assets to the redemption,
retirement, purchase or other acquisition directly or
indirectly, through subsidiaries, if any, or otherwise, of any
shares of its capital stock; or
g. effect a recapitalization or reorganization or
reclassification of the capital stock of the Corporation.
SIXTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt,
amend or repeal the By-Laws of the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this
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<PAGE> 15
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
EIGHTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director for any act or omission; provided, however, that the
foregoing shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty or loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the GCL, or
(iv) for any transaction from which the director derived an improper personal
benefit. If the GCL is hereafter amended to permit further elimination or
limitation of the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the GCL as so amended. Any repeal or modification of this Article
EIGHTH by the stockholders of the Corporation or otherwise shall not apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omission of such director
occurring prior to such amendment or repeal.
NINTH: (a) The Corporation shall, to the fullest extent permitted by
Section 145 of the GCL, indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) against any and all
of the expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement actually or reasonably incurred by such person by reason of having
been an officer, director, employee or agent at the request of the Corporation,
any subsidiary of the Corporation or of any other corporation, partnership,
joint venture, trust or other enterprise for which any and all persons who acted
as officer, director, employee or agent at the request of the Corporation, if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the Corporation, and with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
- 15 -
<PAGE> 16
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in sections (a) and (b) of this Article
NINTH, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under sections (a) and (b) of this Article
NINTH (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in sections (a) and (b) of
this Article NINTH. Such determination shall be made (1) by the Board by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article NINTH. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the Board deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article NINTH shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent
- 16 -
<PAGE> 17
of another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify a person against such liability
under this Article NINTH.
(h) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article NINTH shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(i) If a claim for indemnification pursuant to this Article NINTH is
not paid in full by the Corporation within thirty (30) days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expenses of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the applicable standard of conduct
set forth in the GCL for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of such action that indemnification of the claimant is proper
in the circumstances because he or she has met the applicable standard of
conduct set forth in the GCL, nor an actual determination by the Corporation
(including its Board, independent legal counsel or stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
TENTH: The Corporation reserves the right to rescind, amend, alter,
change, or repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, SHARED TECHNOLOGIES CELLULAR, INC. has caused this
Restated Certificate of Incorporation to be signed by Anthony D. Autorino, its
Chairman and Chief Executive Officer, this _____ day of _________, 1998.
SHARED TECHNOLOGIES CELLULAR, INC.
By: ____________________________________
Anthony D. Autorino
Chairman and Chief Executive Officer
46869_1C.DOC/s1
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<PAGE> 18
CERTIFICATE OF CORRECTION FILED TO CORRECT
CERTAIN ERRORS IN THE
RESTATED CERTIFICATE OF INCORPORATION OF
SHARED TECHNOLOGIES CELLULAR, INC.
Filed in the Office of the Secretary of State of Delaware
on October 6, 1994
SHARED TECHNOLOGIES CELLULAR, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the Corporation is Shared Technologies Cellular, Inc.
(the "Corporation").
2. That the Corporation filed a Restated Certificate of Incorporation
with the Secretary of State of Delaware on October 6, 1994 and that said
Restated Certificate of Incorporation requires correction as permitted by
Section 103(f) of the General Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Restated Certificate of
Incorporation to be corrected is as follows:
(a) Section (a) of Article NINTH is corrected to read as follows, with
the language to be corrected and/or inadvertently omitted underscored herein for
reference:
"(a) The Corporation shall, to the fullest extent permitted by
Section 145 of the GCL, indemnify any person was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation) against any and all of the expenses (including attorneys'
fees), judgment, fines and amounts paid in settlement actually or
reasonably incurred by such person by reason of having been an officer,
director, employee or agent at the request of the Corporation, any
subsidiary of the Corporation or of any other corporation, partnership,
joint venture, trust or other enterprise for which any and all persons
who acted as officer, director, employee or agent at the request of the
Corporation, if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that the person's
conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement,
<PAGE> 19
conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself, create a presumption that the person did not act in
good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the Corporation, and with
respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful."
(b) The last sentence of section (i) of Article NINTH is corrected to
read as follows, with the language inadvertently omitted underscored herein for
reference:
"Neither the failure of the Corporation (including its Board,
independent legal counsel or stockholders) to have made a determination
prior to the commencement of such action that indemnification of the
claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the GCL, nor an actual
determination by the Corporation (including its Board, independent
legal counsel or stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct."
IN WITNESS WHEREOF, said Shared Technologies Cellular, Inc. has caused
this Certificate of Correction to be executed by Anthony D. Autorino, its
Chairman and Chief Executive Officer, this _____ day of _________, 1998.
____________________________________
Anthony D. Autorino
Chairman and Chief Executive Officer
46869_1C.DOC/s2
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<PAGE> 20
SHARED TECHNOLOGIES CELLULAR, INC.
UNANIMOUS WRITTEN CONSENT OF DIRECTORS
JUNE __, 1998
The undersigned, constituting all of the members of the Board of
Directors of SHARED TECHNOLOGIES CELLULAR, INC., a Delaware corporation (the
"Corporation"), acting pursuant to the provisions of Sections 103, 141(f) and
245 of the Delaware General Corporation Law, do hereby approve and adopt the
following resolutions, without notice or the holding of a meeting of the Board
of Directors, which resolutions shall take effect as though adopted at a meeting
duly called and held, at which a quorum was present and acting throughout:
WHEREAS, the Corporation filed its original Certificate of
Incorporation with the Delaware Secretary of State on March 14, 1989; and
WHEREAS, the Corporation filed a Restated Certificate of Incorporation
on October 6, 1994 (the "Restated Certificate"), and has amended and
supplemented such Original Restated Certificate a number of times since that
date; and
WHEREAS, the Restated Certificate as filed with the Delaware Secretary
of State contained typographical errors and inadvertent language omissions
which, in the view of this Board of Directors, need to be corrected to avoid
confusion; and further
RESOLVED, that this Board of Directors hereby deems it advisable to
restate and integrate all provisions of the Corporation's Restated Certificate
of Incorporation, as amended and supplemented to date, into one complete
certificate.
NOW, THEREFORE, be it
RESOLVED, that the errors and omissions contained in the Corporation's
Restated Certificate be corrected by the filing of a Certificate of Correction
in the form attached hereto as Exhibit A (the "Certificate of Correction"); and
further
RESOLVED, that provisions of the Restated Certificate, as amended and
supplemented to date, be restated and integrated to read as set forth in the
Second Restated Certificate of Incorporation attached hereto as Exhibit B (the
"Restated Certificate"); and further
<PAGE> 21
RESOLVED, that the proper officers of the Corporation be, and each of
them hereby is, authorized and empowered, in the name and on behalf of the
Corporation, to execute and file with the Delaware Secretary of State the
Certificate of Correction and the Restated Certificate, and to pay any and all
fees in connection therewith; and further
RESOLVED, that the proper officers of the Corporation be, and each of
them hereby is, authorized and directed to take or cause to be taken any and all
such further actions as they or any of them shall deem necessary, desirable or
convenient to carry out the intent of the foregoing resolutions.
IN WITNESS WHEREOF, the undersigned directors have executed this
Consent as of the date set forth above, and hereby direct that this Consent be
inserted in the minute book of the Corporation with the proceedings of the Board
of Directors' meetings.
__________________________________ ___________________________________
Anthony D. Autorino Ajit G. Hutheesing
__________________________________ ___________________________________
Thomas H. Decker Vincent DiVincenzo
__________________________________ ___________________________________
William A. DiBella Nicholas E. Sinacori
46867_1C.DOC/s1
- 2 -
<PAGE> 1
Exhibit 10.9
SHARED TECHNOLOGIES CELLULAR, INC.
1994 STOCK OPTION PLAN
As amended, November 11, 1998
1. Purpose. The Shared Technologies Cellular, Inc. 1994 Stock Option
Plan (the "Plan") is intended to encourage the ownership of stock of Shared
Technologies Cellular, Inc., a Delaware corporation (the "Company"), by
qualified and competent persons who are key to the success of the Company and
its direct and indirect subsidiaries (the "Subsidiaries") and to provide
additional incentive for them to promote the growth, development and financial
success of the Company and its Subsidiaries business as determined by a
committee consisting of two or more members of the Board of Directors of the
Company (the "Board"), as appointed pursuant to Section 2 hereof, by offering
them an opportunity to increase their proprietary interest in the Company
through the grant of nonqualified stock options (the "Options") to purchase
shares of Common Stock of the Company, par value $0.01 per share (the "Common
Stock"). Consistent with these objectives, the Plan authorizes the granting of
Options to acquire shares of Common Stock pursuant to the terms and conditions
hereinafter set forth. The Options are not intended to qualify as "Incentive
Stock Options" within the meaning of Section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
2. Administration of the Plan.
a. Members of the Committee. The Plan shall be administered by a
committee (the "Committee") duly appointed by the Board which shall consist of
at least two members of the Board, each of whom shall be a "Non-Employee
Director" as defined in subsection (b)(3)(i) of Rule 16b-3 ("Rule 16b-3") under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Members of
the Committee shall serve at the pleasure of the Board of Directors of the
Company.
b. Authority of the Committee. The Committee shall adopt such rules
as it may deem appropriate in order to carry out the purposes of the Plan.
Subject to the provisions of this Plan, the Committee shall have the complete
authority, in its discretion, to make the following determinations with respect
to each Option to be granted by the Company: (A) the person to receive the
Option; (B) the time of granting the Option; (C) the number of shares subject
thereto; (D) the Option Price (as defined in Section 5(b) hereof); and (E) the
Option Period (as defined in Section 5(d) hereof). In making such determinations
the Committee may take into account the nature of the services rendered by the
person, their present and potential contributions to the success of the Company
and its Subsidiaries, and such other factors as the Committee in its discretion
shall deem relevant. Subject to the provisions of this Plan, all questions of
interpretation, administration, and application of the Plan shall be determined
by a majority of the members of the Committee then in office, except that the
Committee may
<PAGE> 2
authorize any one or more of its members, or any officer of the
Company, to execute and deliver documents on behalf of the Committee. The
determination of such majority shall be final and binding in all matters
relating to the Plan or all persons concerned. No member of the Committee shall
be liable for any act done or omitted to be done by such member or by any other
member of the Committee in connection with the Plan, except for such member's
own willful misconduct or as expressly provided by statute.
3. Persons to Whom Options May be Granted. Options may be granted, at the
discretion of the Committee:
a. To one or more persons who are employees or employees and
directors of the Company or of any of its present or future Subsidiaries, or any
employee of a Parent Corporation (within the meaning of Code Section 424(e))
(collectively, an "Employee");
b. To one or more persons who provides services to the Company or of
any of its present or future Subsidiaries as a consultant or otherwise in the
capacity of an independent contractor and who is not otherwise an Employee.
4. Stock Subject to the Plan. The shares subject to the Plan shall consist
of 825,000 shares of Common Stock, subject to adjustment pursuant to Section
5(h) hereof, which shares may be either authorized but unissued shares or
previously issued shares of Common Stock reacquired and held by the Company as
treasury shares, not reserved for any other purpose. The Company shall at all
times during the term of this Plan and of the Options granted hereunder reserve
and keep available such number of shares of the Company's stock as will be
sufficient to satisfy the requirements of this Plan and shall pay all fees and
expenses necessarily incurred by the Company in connection therewith. If any
outstanding Option under the Plan for any reason expires or is canceled or
otherwise terminated without having been exercised in full, the shares of Common
Stock allocable to the unexercised portion of such Option shall (unless the Plan
shall have been terminated) become available for subsequent grants of Options
under the Plan.
5. Terms and Conditions of Options. Each Option granted pursuant to the
Plan shall be evidenced by a written agreement (the "Option Agreement") between
the Company and the person to whom such Option is awarded (the "Optionee"),
which Option Agreement shall comply with and be subject to the following terms
and conditions:
a. Number of Shares. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.
b. Option Price. Each Option Agreement shall state the option price,
which shall not be less than seventy percent (70%) of the Fair Market Value (as
defined below) of the shares of Common Stock on the date of grant of the Option
(the "Option Price"). The term "Fair Market Value" of a share of Common Stock
shall mean (i) if the shares of Common Stock are then traded on an
over-the-counter
2
<PAGE> 3
market, the average of the closing bid and asked prices for the shares of Common
Stock in such over-the-counter market for the last preceding date on which there
was a sale of such Common Stock in such market, (ii) if the shares of Common
Stock are then listed on a national securities exchange, the closing sales price
per share for the last preceding date on which there was a sale of such Common
Stock on such exchange, or (iii) if the shares of Common Stock are not then
traded in an over-the-counter market or listed on a national securities
exchange, such value as the Committee in its discretion may determine. The
Option Price shall be subject to adjustment as provided in Section 5(h) hereof.
c. Payment of Option Price.
(i) Shares of Common Stock shall be issued to the Optionee upon
payment in full either in cash (or cash equivalent) or by an exchange of shares
of Common Stock of the Company previously owned by the Optionee, or a
combination of both, in an amount or having a combined value equal to the
aggregate purchase price for the shares subject to the Option or portion thereof
being exercised. The value of the previously owned shares of Common Stock
exchanged in full or partial payment for the shares purchased upon the exercise
of an Option shall be equal to the aggregate Fair Market Value of such shares on
the date of the exercise of such Option.
(ii) Whenever shares of Common Stock are to be issued under the Plan,
the Company shall have the power to require the recipient of the Common Stock to
remit to the Company an amount sufficient to satisfy federal, state and local
withholding tax requirements prior to issuance of the certificate for shares of
Common Stock. The Option Agreement may provide that an Optionee shall be
entitled to elect to pay all or a portion of all federal, state or local
withholding taxes arising in connection with the exercise of an Option by
electing to (1) have the Company withhold shares of Common Stock, or (2) deliver
other shares of Common Stock previously owned by the Optionee having a Fair
Market Value equal to the amount to be withheld; provided, however, that the
amount to be withheld shall not exceed the Optionee's estimated total federal,
state and local tax obligations associated with the transaction. The election
shall be made in writing and shall be made according to such rules and in such
form as the committee shall from time to time determine. The Fair Market Value
of fractional shares remaining after payment of the withholding taxes shall be
paid to the Optionee in cash.
d. Terms and Exercise of Options. Options shall be exercisable over
the exercise period as and at the times and upon such conditions as the
committee may determine, as reflected in the Option Agreement, including the
authority to accelerate the exercisability of any outstanding Option at such
time and under such circumstances as it, in its sole discretion, deems
appropriate (the "Option Period"), provided however, that the Option period
shall not exceed ten (10) years from the date of grant of such Option. The
Option Period shall be subject to earlier termination as provided in Sections
5(e) and 5(f) hereof. An Option may be exercised, as to any or all full shares
of Common Stock as to which the Option has become exercisable, by giving written
notice of such exercise to the Committee or to such individual(s) as the
Committee may from time to time designate.
3
<PAGE> 4
e. Termination of Employment Other than for Death, Disability or
Retirement In the event that the employment of an Optionee shall terminate
(other than by reason of death, disability or retirement), all Options of such
Optionee that are exercisable at the time of such termination may, unless
earlier terminated in accordance with their terms, be exercised within three (3)
months after such termination; provided, however, that if the employment of an
Optionee shall terminate for Cause (as defined herein), all options theretofore
granted to such Optionee shall, to the extent not theretofore exercised,
terminate immediately. The term "Cause" means for purposes of whether and when
an Optionee has incurred a termination of employment for Cause any act or
omission which permits the Company or the Parent Corporation to terminate the
written agreement or arrangement between such Optionee and the Company or the
Parent Corporation, as the case may be; Cause as defined in such agreement or
arrangement, or in the event there is no such agreement or arrangement or the
agreement or arrangement does not define the term "Cause", than Cause shall mean
(a) the conviction of the Optionee for committing a felony under Federal law or
the law of the state in which such action occurred or (b) the willful or
negligent failure on the part of such Optionee to perform his duties to the
Company or the Parent Corporation, as the case may be.
f. Termination of Employment Due to Death, Disability or Retirement
of Optionee. If an Optionee shall die while employed by the Company, its
Subsidiaries or the Parent Corporation, or within three (3) months after the
termination of such Optionee's employment other than for Cause, or if the
Optionee's employment shall terminate by reason of Disability (within the
meaning of Section 22(e)(3) of the Code) or retirement, all Options theretofore
granted to such Optionee (to the extent otherwise exercisable at the time of
death or termination of employment) may, unless earlier terminated in accordance
with their terms, be exercised by the Optionee or by the Optionee's estate or by
a person who acquired the right to exercise such Option by bequest or
inheritance or otherwise by reason of death or disability of the Optionee, at
any time within six months (or such longer period as may be determined by the
Committee in its sole discretion) after the date of any such death, disability
or retirement of the Optionee.
g. Nontransferability of Options. Options granted under the Plan
shall not be transferable otherwise than by will or by the laws of descent and
distribution, and Options may be exercised, during the lifetime of the Optionee,
only by the Optionee or by his guardian or legal representative.
h. Effect of Certain Changes.
(i) If there is any change in the number or class of shares of Common
Stock through the declaration of stock or cash dividends, or, recapitalization
resulting in stock splits, or combinations or exchanges of such shares, the
number or class of shares of Common Stock available for Options, the number or
class of such shares covered by outstanding Options, and the exercise price per
share of such Options may be proportionately adjusted by the Committee in its
sole discretion to reflect any such
4
<PAGE> 5
change in the number or class of issued shares of Common Stock; provided,
however, that any fractional shares resulting from any such adjustment shall be
eliminated. In the event of any other extraordinary corporate transaction,
including but not limited to distributions of cash or other property to the
Company's shareholders, the Committee may equitably adjust outstanding Options
as it deems appropriate in its sole discretion.
(ii) In the event of the proposed dissolution or liquidation of the
Company, in the event of any corporate separation or division, including, but
not limited to, split-up, split-off or spin-off, or in the event of a merger or
consolidation of the Company with another corporation, the Committee may provide
that the holder of each Option then exercisable shall have the right to exercise
such Option (at its then Option Price) solely for the kind and amount of shares
of stock and other securities, property, cash or any combination thereof
receivable upon such dissolution, liquidation or corporate separation or
division, or merger or consolidation by a holder of the number of shares of
Common Stock for which such option might have been exercised immediately prior
to such dissolution, liquidation, or corporate separation or division, or merger
or consolidation.
(iii) Paragraph (ii) of this Section 5(h) shall not apply to a merger
or consolidation in which the Company is the surviving corporation and shares of
Common Stock are not converted into or exchanged for stock, securities of any
other corporation, cash or any other thing of value. Notwithstanding the
preceding sentence, in case of any consolidation or merger of another
corporation into the Company in which the Company is the surviving corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from par value to no par value, or as a result of
a subdivision or combination, but including any change in such shares into two
or more classes or series of shares), the Committee may provide that the holder
of each Option then exercisable shall have the right to exercise such Option
solely for the kind and amount of shares of stock and other securities
(including those of any new direct or indirect parent of the Company), property,
cash or any combination thereof receivable upon such reclassification, change,
consolidation or merger by the holder of the number of shares of Common Stock
for which such Option might have been exercised.
(iv) In the event of a change in the Common Stock of the Company as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be the Common Stock within the meaning of the Plan.
(v) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive.
5
<PAGE> 6
(vi) Except as expressly provided in this Section 5(h), the Optionee
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another corporation; and any issue by the Company of shares of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to the Option. The grant of
any Option pursuant to the Plan shall not affect in any way the right or power
of the Company to make adjustments, reclassification, reorganizations or changes
of its capital or business structures or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or part of its business or assets.
i. Rights as a Stockholder. An Optionee or a transferree of an Option
shall have no rights as a stockholder with respect to any shares covered by the
Option until the date of the issuance of a stock certificate to him or her for
such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distribution of
other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 5(h) hereof.
j. Employment. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Optionee's employment at any
time, nor confer upon any Optionee any right to continue in the employ of the
Company, nor will anything in the Plan require an Optionee to continue in the
employ of the Company.
k. Other Provisions. The Option Agreements authorized under the Plan
shall contain such other provisions not inconsistent with this Plan, including,
without limitation, the imposition of restrictions upon the exercise of an
Option as the Committee shall deem advisable.
l. Change of Control.
(i) In the event of a Change of Control of the Company, subject to the
condition set forth in Section 5(l)(ii) below, all restrictions and conditions
applicable to Options then outstanding shall be deemed satisfied, and such
Options shall be deemed to be fully vested, as of the date of the Change of
Control. For purposes of this Plan, a Change in Control shall be deemed to occur
if the persons who were directors of the Company shall cease to constitute a
majority of the Board of the Company in connection with any of the following
transactions: (A) the acquisition by a third person, including a "person" as
defined in Section 13(d)(3) of the Exchange Act, of beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of
securities of the Company representing twenty-five percent (25%) or more of the
total number of votes that may be cast for the election of the directors of the
Company; or (B) as the result of, or in connection with, any tender or exchange
offer, merger, consolidation or other business combination, sale of assets, or
any combination of the foregoing transactions.
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<PAGE> 7
(ii) Notwithstanding the occurrence of any Change of Control, an
Option shall only receive the benefit of the removal of restrictions and
accelerated vesting, as provided by Section 5(l)(i) above, if such Option is
held by an employee of the Company and such employee's employment with the
Company's terminates, for any reason, following such Change of Control. For the
purposes hereof, termination shall include any reduction in compensation,
geographic relocation of the employee, or any material diminution in job status
or responsibilities.
(iii) In the case of any tender or exchange offer, merger,
consolidation or other business combination or sale of all or substantially all
of the assets of the Company, which does not constitute a Change in Control, or
in the case of a reorganization or liquidation of the Company, the Committee, or
the board of directors of any corporation assuming the obligations of the
Company hereunder shall, as to outstanding Options, (A) make appropriate
provision for the protection of any such outstanding Options by the substitution
on an equitable basis of appropriate stock of the Company or of the merged,
consolidated or otherwise reorganized corporation which will be issuable in
respect of the shares of Company Stock, or (B) upon written notice to the
Participants, provide that the Company or the merged, consolidated or otherwise
reorganized corporation shall have the right, upon the effective date of any
such merger, consolidation, sale of assets or reorganization, to purchase all
Options held by each Participant as to which restrictions have not lapsed as of
that date at an amount equal to the aggregate fair market value on such date of
the shares, such amount to be paid in cash or, if stock of the merged,
consolidated or otherwise reorganized corporation is issuable in respect of the
shares of the Common Stock of the Company, then, in the discretion of the
Committee, in stock of such merged, consolidated or otherwise reorganized
corporation equal in fair market value to the aforesaid amount. In any such case
the Committee shall, in good faith, determine fair market value. The Committee
may, in its discretion, advance the lapse of restrictions and conditions
applicable to Options outstanding as of the date of the merger, consolidation,
sale of assets or reorganization.
6. Term of Plan. Options under this Plan may be granted pursuant to the
Plan from time to time within a period of ten (10) years from the date the Plan
is adopted by the Board, or the date the Plan is approved by the stockholders of
the Company, whichever is earlier.
7. Amendment. The Board may at the time and from time to time alter,
amend, suspend, or terminate the Plan in whole or in part; provided, however,
that no amendment which requires shareholder approval in order for the
exemptions available under Rule 16b-3 to be applicable to the Plan and the
Optionees, shall be effective unless the same shall be approved by the
stockholders of the Company entitled to vote thereon on or before the effective
date of the amendment. Such approval shall be obtained in such manner as is
required by the Company's Certificate of Incorporation, its By-Laws, and the
laws of the State of Delaware as in effect at the time of such approval.
Notwithstanding the foregoing, no amendment shall affect adversely any of the
rights or
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obligations of any Optionee, without such Optionee's consent, under any Option
theretofore granted under the Plan.
8. Headings. The headings of sections and subsections herein are included
solely for convenience of reference and shall not affect the meaning of any of
the provisions of the Plan.
9. Governing Law. The Plan and all rights hereunder shall be construed in
accordance with and governed by the laws of the State of Delaware.
Dated as of November 11, 1998
____________________________________
Anthony D. Autorino
Chairman and Chief Executive Officer
8
<PAGE> 1
Exhibit 10.10
SHARED TECHNOLOGIES CELLULAR, INC.
1994 DIRECTOR OPTION PLAN
As amended November 11, 1998
1. PURPOSE
The purpose of this 1994 Director Option Plan (The "Plan") of Shared
Technologies Cellular, Inc., a Delaware corporation (the "Company"), is to
encourage ownership in the Company by outside directors of the Company whose
continued services are considered essential to the Company's future progress and
to provide them with a further incentive to remain as directors of the Company.
2. ADMINISTRATION
The Board of Directors shall supervise and administer the Plan. Grants
of stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic and nondiscretionary in accordance with Section 5.
However, all questions of interpretation of the Plan or of any options issued
under it shall be determined by the Board of Directors and such determination
shall be final and binding upon all persons having an interest in the Plan.
3. DIRECTORS ELIGIBLE FOR PARTICIPATION
Each director of the Company who is not an employee of the Company or
any Subsidiary, or affiliate of the Company shall be eligible to participate in
the Plan.
4. STOCK SUBJECT TO THE PLAN
(a) The maximum number of shares which may be issued under the Plan
shall be 100,000 shares of the Company's Common Stock. $.01 par value per share
("Common Stock")
(b) If any outstanding option under the Plan for any reason expires or
is terminated without having been exercised in full, the shares allocable to the
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options
not entitled to special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended to date and as may be amended from time to time (the
"Code").
<PAGE> 2
5. TERMS, CONDITIONS AND FORMS OF OPTIONS
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) Option Grant Dates. Each eligible director will automatically
receive an option to purchase 4,000 thousand shares of Common Stock at the
commencement of such director's one (1) year term. All options granted under the
Plan will be immediately vest and become exercisable at the rate of one-twelfth
(1/12) per full month of service from the date of grant, with full vesting as of
the one-year anniversary following the date of grant.
(b) Option Exercise Price. The option exercise price per share for
each option granted under the Plan shall be equal to: (i) if the Common Stock is
then traded on the over-the-counter market, the average of the Closing bid and
ask prices for the shares of Common Stock in such over-the-counter market for
the last preceding date on which there was a sale of such Common Stock in such
market; (ii) if the Common Stock is then listed on a national securities
exchange, the closing sales price per share for the last preceding date on which
there was a sale of such Common Stock on such exchange; or (iii) if, on the
relevant date, the Common Stock is not publicly traded or reported as described
in (i) or (ii), the value determined in good faith by the Board of Directors.
(c) Options Non-Transferable. Each option granted under the Plan by
its terms shall not be transferable by the optionee otherwise than by will, or
by the laws of descent and distribution, and shall be exercised during the
lifetime of the optionee only by him. No option or interest therein may be
transferred, assigned, pledged or hypothecated by the optionee during his
lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.
(d) Exercise Period. Except as otherwise provided in the Plan, each
option may be exercised fully on the date of grant of such option, provided
that, subject to the provisions of Section 5(e), no option may be exercised more
than ninety (90) days after the optionee ceases to serve as a director of the
Company. No option shall be exercisable after the expiration of ten (10) years
from the date of grant or prior to approval of the Plan by the stockholders of
the Company, whichever is earlier.
(e) Exercise Period Upon Disability or Death. Notwithstanding the
provisions of Section 5(d), any option granted under the Plan:
(i) may be exercised in full by an optionee who becomes disabled
(within the meaning of Section 22(e)(3) of the Code or any successor provision
thereto)
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while serving as a director of the Company; or (ii) may be exercised
(x) in full upon the death of an optionee while serving as a
director of the Company, or
(y) to the extent then exercisable upon the death of an optionee
within ninety (90) days of ceasing to serve as a director of the Company,
by the person to whom it is transferred by will, by the laws of descent and
distribution, or by written notice filed pursuant to Section 5(h);
in each such case within six months (or such longer period as may be determined
by the Board of Directors in its sole discretion) after the date the optionee
ceases to be such a director; provided, that in no option shall be exercisable
after the expiration of ten (10) years from the date of grant.
(f) Exercise Procedure. Options may be exercised only by written
notice to the Company at its principal office accompanied by payment of the full
consideration for the shares as to which they are exercised.
(g) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price (i) by delivery of cash (or cash
equivalent) in an amount equal to the exercise price of such options or, (ii) to
the extent provided in the applicable option agreement, by delivery to the
Company of shares of Common Stock then owned by the optionee having a fair
market value equal in amount to the exercise price of the options being
exercised, or (iii) by any combination of such methods of payment. The fair
market value of any shares of Common Stock or other non-cash consideration which
may be delivered upon exercise of an option shall be determined by the Board of
Directors.
(h) Exercise by Representative Following Death of Director. A
director, by written notice to the Company, may designate one or more persons
(and for time to time change such designation) including his legal
representative, who, by reason of his death, shall acquire the right to exercise
all or a portion of the option. If the person or persons so designated wish to
exercise all or a portion of the option, they must do so within the term of the
option as provided herein. Any exercise by a representative shall be subject to
the provisions of the Plan.
(i) Change of Control.
(i) In the event of a Change of Control of the Company, subject
to the condition set forth in Section 5(i)(ii) below, all restrictions and
conditions applicable to Options then outstanding shall be deemed satisfied, and
such Options shall be deemed to
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<PAGE> 4
be fully vested, as of the date of the Change of Control. For purposes of this
Plan, a Change in Control shall be deemed to occur if the persons who were
directors of the Company shall cease to constitute a majority of the Board of
the Company in connection with any of the following transactions: (1) the
acquisition by a third person, including a "person" as defined in Section
13(d)(3) of the Exchange Act, of beneficial ownership (as defined in Rule 13d-3
under the Exchange Act) directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the total number of votes that
may be cast for the election of the directors of the Company; or (2) as the
result of, or in connection with, any tender or exchange offer, merger,
consolidation or other business combination, sale of assets, or any combination
of the foregoing transactions.
(ii) Notwithstanding the occurrence of any Change of Control, an
Option shall only receive the benefit of the removal of restrictions and
accelerated vesting, as provided by Section 5(i)(i) above, if such Option is
held by a director of the Company and such director's service on the Company's
Board of Directors terminates, for any reason, following such Change of Control.
(iii) In the case of any tender or exchange offer, merger,
consolidation or other business combination or sale of all or substantially all
of the assets of the Company, which does not constitute a Change in Control, or
in the case of a reorganization or liquidation of the Company, the Committee, or
the board of directors of any corporation assuming the obligations of the
Company hereunder shall, as to outstanding Options, (i) make appropriate
provision for the protection of any such outstanding Options by the substitution
on an equitable basis of appropriate stock of the Company or of the merged,
consolidated or otherwise reorganized corporation which will be issuable in
respect of the shares of Company Stock, or (ii) upon written notice to the
Participants, provide that the Company or the merged, consolidated or otherwise
reorganized corporation shall have the right, upon the effective date of any
such merger, consolidation, sale of assets or reorganization, to purchase all
Options held by each Participant as to which restrictions have not lapsed as of
that date at an amount equal to the aggregate fair market value on such date of
the shares, such amount to be paid in cash or, if stock of the merged,
consolidated or otherwise reorganized corporation is issuable in respect of the
shares of the Common Stock of the Company, then, in the discretion of the
Committee, in stock of such merged, consolidated or otherwise reorganized
corporation equal in fair market value to the aforesaid amount. In any such case
the Committee shall, in good faith, determine fair market value. The Committee
may, in its discretion, advance the lapse of restrictions and conditions
applicable to Options outstanding as of the date of the merger, consolidation,
sale of assets or reorganization.
6. ASSIGNMENTS
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The rights and benefits under the Plan may not be assigned except for
the designation of a beneficiary as provided in Section 5.
7. LIMITATION OF RIGHTS
(a) No Right to Continue as a Director. Neither the Plan, nor the
granting of an option not any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time.
(b) No Stockholders' Right for Options. An optionee shall have no
rights as a stockholder with respect to the shares covered by his options until
the date of the issuance to him of a stock certificate therefor, and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such certificate is issued.
8. CHANGES IN CAPITAL STOCK
(a) If (x) the outstanding shares of Common Stock are increased,
decreased or exchanged for a different number or kind of shares or other
securities of the Company, or (y) additional shares of Common Stock or new or
different shares of Common Stock or other securities of the Company or other
non-cash assets are distributed with respect to such shares or other securities,
through or as a result of any merger, consolidation, sale of all or
substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction with respect to such shares or other
securities, an appropriate and proportionate adjustment shall be made in (i) the
maximum number and kind of shares reserved for issuance under the Plan, and (ii)
the number and kind of shares or other securities subject to any then
outstanding options under the Plan, and (iii) the price for each share subject
to any then outstanding options under the Plan without changing the aggregate
purchase price for each share subject to any then outstanding options under the
Plan, without changing the aggregate purchase price as to which such options
remain exercisable. No fractional shares will be issued under the Plan on
account of any such adjustments. Notwithstanding the foregoing, no adjustment
shall be made pursuant to this Section 8 if such adjustment would cause the Plan
to fail to comply with Rule 16b-3 or any successor rule promulgated pursuant to
Section 16 of the Securities Exchange Act of 1934.
(b) In the event that the Company is merged or consolidated into or
with another corporation (in which consolidation or merger, the stockholders of
the Company receive distributions of cash or securities of another issuer as a
result thereof), or in the event that all or substantially all of the assets of
the Company are acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the Board of Directors of any corporation
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<PAGE> 6
assuming the obligations of the Company, shall, as to outstanding options, take
one or more of the following actions; (i) provide that such options shall be
assumed, or equivalent options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof), (ii) upon written notice to
the optionees, provide that all unexercised options will terminate immediately
prior to the consummation of such transaction unless exercised by the optionee
within a specified period following the date of such notice, or (iii) if, under
the terms of a merger transaction, holders of the Common Stock of the Company
will receive upon consummation thereof a cash payment for each share surrendered
in the merger (the "Merger Price"), make or provide for a cash payment to the
optionees equal to the difference between (A) the Merger Price times the number
of shares of Common Stock subject to such outstanding options (to the extent
then exercisable at prices not in excess of the Merger Price) and (B) the
aggregate exercise price of all such outstanding options in exchange for the
termination of such options.
9. AMENDMENT OF THE PLAN
The Board of Directors may suspend or discontinue the Plan or review or
amend it in any respect whatsoever; provided, however that without approval of
the stockholders of the Company no revision or amendment shall change the number
of shares subject to the Plan or the number of shares issuable to any director
of the Company under the Plan (except as provided in Section 8), change the
designation of the class of any directors eligible to receive options, or
materially increase the benefits accruing to participants under the Plan. The
Plan may not be amended more than once in any six-month period.
10. WITHHOLDING
Prior to issuance of shares of Common Stock upon exercise of an Option,
the Optionee shall pay or make adequate provision for any federal or local taxes
or any kind required by law to be withheld by the Company with respect to any
shares issued upon exercise of options under the Plan.
11. EFFECTIVE DATE AND DURATION OF THE PLAN
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors and approved by the Company's stockholders. Amendments to the
Plan not requiring stockholder approval shall become effective when adopted by
the Board of Directors; amendments requiring stockholder approval shall become
effective when adopted by the Board of Directors, but no option granted after
the date of such amendment shall become exercisable (to the extent that such
amendment to the Plan was required to enable the Company to grant such option to
a particular optionee) unless and until such amendment shall have been approved
by the Company's stockholders. If such stockholder approval is not obtained
within twelve months of the Board's adoption of
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<PAGE> 7
such amendment, any options granted on or after the date of such amendment shall
terminate to the extent that such amendment to the Plan was required to enable
the Company to grant such option to a particular optionee.
(b) Termination. Unless sooner terminated in accordance with Section 9,
the Plan shall terminate upon the close of business on the day next preceding
the tenth anniversary of the date of its adoption by the Board of Directors.
12. COMPLIANCE WITH RULE 16b-3
Transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successor promulgated pursuant to Section 16 of
the Securities Exchange Act of 1934. To the extent any provision of the Plan or
action by the Board of Directors in administering the Plan fails to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Board of Directors.
13. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
14. SUCCESSORS AND ASSIGNS
This Plan shall inure to the benefit of and be binding upon each
successor and assign of the Company. All obligations imposed upon a optionee,
and all rights granted to the Company hereunder, shall be binding upon the
optionee's heirs, legal representatives and successors.
15. ENTIRE AGREEMENT
This Plan and the written agreement with respect to each option granted
under this Plan constitute the entire agreement with respect to the subject
matter hereof and thereof, provided that in the event of any inconsistency
between the Plan and such written agreement, the terms and conditions of this
Plan shall control.
Dated as of November 11, 1998
____________________________________
Anthony D. Autorino
Chairman and Chief Executive Officer
7
<PAGE> 1
Exhibit 10.11
PREPAID CELLULAR RESELLER AGREEMENT
This Prepaid Cellular Reseller Agreement (the "Agreement") is made as of the
19th day of February, 1999, by and between Shared Technologies Cellular, Inc., a
Delaware corporation, having its principal place of business at 100 Great Meadow
Road, Suite 102, Wethersfield, CT 06109 ("STC"), and MCI Telecommunications
Corporation and WorldCom Technologies, Inc. and their respective affiliates
(collectively, "MCI WORLDCOM").
WHEREAS, STC provides certain prepaid cellular communications services, which
include the utilization of certain third-party relationships with technology
providers and cellular service carriers, automated audit and billing systems, an
interactive voice response ("IVR") platform, activation of Phones, sale and
redemption of PINs, and related End User service. Such prepaid cellular services
to be provided to End Users pursuant to the terms of this Agreement are herein
referred to as the "Services." As used herein, the term "End Users" refers to
end users of the Services.
WHEREAS, MCI WORLDCOM is engaged in the business of selling prepaid
long-distance cards and services through direct distribution and major retail
outlets across the U.S.;
WHEREAS, this Agreement provides for a program, pursuant to which MCI WORLDCOM
and STC will market and sell the Services to End Users under an MCI WorldCom
brand name, pursuant to which MCI WORLDCOM will have responsibility for
distribution development, marketing, merchandising and brand management, and
pursuant to which STC will be responsible for providing the Services,
back-office service administration and End User service for the Services; and
WHEREAS, under the program, End Users will purchase MCI WorldCom branded prepaid
cellular phone and airtime kits for use of the Services (a "Phone Kit"),
pursuant to the terms hereof. Such Phone Kits may include initial airtime or
require a separate airtime purchase for service activation, with additional
airtime available by purchase of additional cards through retail and by purchase
of PINs by phone from STC.
NOW, THEREFORE, in consideration of the promises and covenants contained herein,
the receipt and adequacy of which are acknowledged, the parties agree as
follows.
1. GENERAL DESCRIPTION OF PROGRAM.
(a) Scope. MCI WORLDCOM and STC are entering into this Agreement for the purpose
of marketing and providing Services to End Users under an MCI WorldCom brand
name through the MCI WORLDCOM retail accounts listed on the attached Exhibit A
(the "Retailers"), and short-form direct response TV advertising by STC
consistent with the terms of this Agreement, with additional usage available to
End Users by purchase from the Retailers and by phone from STC's interactive
voice response system ("IVR").
(b) Phone Kits, PINs and Cards. Retail sales of the Services will include the
sale of Phone Kits
<PAGE> 2
by MCI WORLDCOM through the Retailers and by STC through direct-response
television advertisements. Each Phone Kit will include one cellular prepaid
phone programmed or enabled with software and/or other technology obtained by
STC from its technology partner(s), to enable the phone to utilize the Services
(a "Phone"). In addition, each Phone Kit may include initial airtime or require
a separate airtime card (a "Card") purchase for service activation. As used
herein, the term "Card" refers to a plastic (or comparable material) card that
has a personal identification number ("PIN") printed on it for use of the
Services. Airtime (i.e. usage) of the Services is obtained through the
redemption of PINs by End Users. After an End User purchases a Phone Kit, and
separate Card if required, the End User must call STC to activate the Phone. The
additional purchase of airtime from a Retailer consists of an End User
purchasing a Card (which contains a PIN). Alternatively, the additional purchase
of airtime directly from STC consists of the purchase of another PIN only by
means of the End User calling STC's IVR, the phone number for which shall appear
on all Cards.
(i) Card Denominations. Cards shall be in face value denominations of
$30, $50 and $75.
(ii) PIN Expirations. All PINs will be valid for a period of 60 days
from the date that they are redeemed (see "Redemption" below). However, in the
event that an End User purchases and redeems another PIN within 30 days after
the expiration of a prior PIN, STC will reinstate for 60 days the amount of
unused airtime that had been remaining on the expired PIN (a "PIN Recharge").
(iii) Activation. In order for an End User to use his or her Phone, the
End User must initially activate the Phone. Activation is accomplished when an
End User redeems (see "Redemption" below) the PIN on the initial Card included
in the Phone Kit or on a Card purchased separately. A minimum of $30 of airtime
must be redeemed in order to activate a Phone. At the same time, the End User
also needs to provide STC with the electronic serial number ("ESN") that appears
on that particular Phone. STC then assigns a MIN to the Phone. The term "MIN"
means mobile identification number. A MIN is equivalent to a phone number. Once
activated, in order for a MIN to remain active an End User must redeem a PIN at
least once every 60 days.
(iv) Redemption. There are two ways for an End User to supply airtime
to a Phone; by purchasing a Card from a Retailer and calling STC with the PIN,
or by purchasing a PIN directly from STC. With respect to Cards, a Card's PIN
may be redeemed by an End User by calling STC's IVR, whereby the End User gives
STC the PIN from the Card. The PIN appears on the Card in a secured manner. In
response, STC gives the End User an airtime control code ("ACC"), which the End
User inputs into the Phone's keypad. This loads the Phone for airtime.
Similarly, with respect to PINs purchased directly from STC, a End User calls
STC's IVR, purchases a PIN, and STC provides the End User with an ACC (see
Section 7(i), "Accepted Payment Methods"). Redemption is deemed to occur when
STC gives the ACC to the End User, both for Card PIN redemptions and PIN
purchases directly from STC.
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2. TERM. This Agreement shall commence as of the date first written above and
have an initial term of two (2) years. The term hereof shall automatically renew
for successive one (1) year terms unless either party gives notice of
termination at least 120 days prior to the end of the term then in effect.
3. TERMINATION.
(a) Both parties shall have the right to terminate this Agreement by reason of
an uncured default of the other party in accordance with Section 3 hereof.
(b) Both parties shall have the right to terminate this Agreement for
convenience with 120 days' notice, subject to the following. The term "for
convenience" shall mean for any reason other than an uncured default of the
other party.
(i) In the event that MCI WORLDCOM elects to terminate this Agreement
for convenience, MCI WORLDCOM agrees to implement one of the following options,
A) that, for a period of one (1) year (inclusive of the notice period required
by Paragraph 3(b) hereof) following the effective date of such termination, MCI
WORLDCOM shall continue to offer and promote only the Services, to the exclusion
of other prepaid cellular services, to all Retailers from which MCI WORLDCOM had
taken orders for the Services during the term of this Agreement or, B) MCI
WORLDCOM may choose to pay a buyout equal to $___ for each End User with an
active MIN, with respect to End Users that became users of the Services through
one of the Retailers. In the event of a termination for convenience, either by
MCI WORLDCOM pursuant to this Section 3(b)(i) or by STC pursuant to Section
3(b)(ii) below, no sales of Cards or PINs to End Users shall occur after the
effective date of such termination and no PIN Recharges shall occur following
such termination effective date. STC shall continue to honor all PINs during the
sixty (60) day period following such termination effective date.
(ii) In the event that STC elects to terminate this Agreement for
convenience, STC agrees to implement one of the following options, A) that, for
a period of one (1) year (inclusive of the notice period required by Paragraph
3(b) hereof) following the effective date of such termination, STC shall
continue to provide all Services to MCI WORLDCOM , or B), STC may choose to pay
a buyout equal $___ for each End User with an active MIN, with respect to End
Users that became users of the Services through one of the Retailers.
(c) In the event that MCI WORLDCOM elects not to renew this Agreement, then for
a period of one (1) year following the expiration of this Agreement, MCI
WORLDCOM shall continue to offer and promote the Services, on a non-exclusive
basis, to all of the Retailers to which it had offered the Services immediately
prior to such termination.
(d) In the event that STC elects not to renew this Agreement, then for a period
of one (1) year
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following the expiration of this Agreement, STC shall continue to make available
to MCI WORLDCOM all services to support the provision of Services.
4. EXCLUSIVITY.
[redacted]
5. PRICING. Suggested retail pricing ("SRP") for the Services, on a per-minute
basis, inclusive of telecommunications taxes, is as follows.
(a) Local service: $____
(b) Long-distance: $____
(c) Roaming: $____
(d) Local service airtime pertains to calls made by an End User that originate
and terminate within the local cellular service area of the End User's MIN
("Local Area"). Local service rates also apply to airtime for all incoming calls
received by an End User within such End User's Local Area, regardless of from
where they originate. Long-distance service airtime pertains to all calls made
by an End User that originate within the End User's Local Area and terminate
outside of such Local Area. Roaming applies to all calls made or received by an
End User outside of the Local Area.
(e) The parties agree to use commercially reasonable efforts to maintain
competitive pricing levels, with respect to other national providers. Any
reductions of SRP shall be by mutual written agreement between the parties, and
shall become implemented within approximately 30 days of such agreement. The
parties shall consider the following factors in determining what constitutes
such competitive pricing: end user pricing for activation, redemption, access,
local airtime, long distance and roaming services; and whether pricing is on a
tiered basis, in which case such comparison shall be made using a blended rate.
(f) Returned Phones. MCI WORLDCOM shall provide weekly reports to STC detailing
all Phone returns by End Users and Retailers, which reports shall include the
ESN of each such Phone. If a Phone has not been activated, then STC shall not
charge MCI WORLDCOM for the $10 of initial airtime. If a Phone has been
activated, STC will promptly deactivate the Phone and refund to MCI WORLDCOM the
wholesale cost of the usage associated with the initial Card.
6. DISCOUNTS AND COMMISSIONS.
(a) Card PIN Discount to MCI WORLDCOM. STC agrees to sell PINs to MCI WORLDCOM
for Cards at a base discount of __% off of the SRP of such PINs ("Base
Discount"). For example,
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<PAGE> 5
STC will charge MCI WORLDCOM $__ for a PIN that is used on a Card with an SRP of
$___. For initial airtime (included in the Phone Kit), STC will charge MCI
WORLDCOM $____ for such $___ of initial airtime. STC shall furnish PINs to MCI
WORLDCOM to enable MCI WORLDCOM to produce Cards bearing PINs, which PINs shall
be provided in sufficient quantities as reasonably required by MCI WORLDCOM.
However, the actual sale of each PIN shall be deemed to occur only when such PIN
is redeemed by an End User from STC.
(b) Average Monthly Usage Commission to MCI WORLDCOM. STC agrees to pay a
commission to MCI WORLDCOM based on a percentage of the average monthly usage of
End Users using the Services ("Average Monthly Usage Commission"). Such Average
Monthly Usage Commission shall be based on the aggregate dollar amount (based on
SRPs) of PINs redeemed by all End Users each month during the term of this
Agreement, divided by the total number of active MINs during such month
("Average Monthly Usage"). The Average Monthly Usage Commission shall be an
amount representing ___% for each dollar that the Average Monthly Usage exceeds
$___, multiplied by the aggregate dollar amount (based SRPs) of PINs redeemed by
all End Users during such month. The Average Monthly Usage Commission will be
reported monthly to MCI WORLDCOM by the 15th of the following month, with
payment from STC net 30 from the date of the report.
(i) For example, if Average Monthly Usage were $____ for a particular
month in which an aggregate of $1,000,000 of PINs were redeemed by End Users,
then STC would pay MCI WORLDCOM an Average Monthly Usage Commission of $______
(i.e. ____% x $1,000,000). Average Monthly Usage Commissions shall be payable by
the last day of the month following the month in which they accrue.
(c) Commissions on Direct PIN Sales by STC. With respect to sales of MCI
WORLDCOM branded PINs made by STC directly to End Users, STC agrees to pay MCI
WORLDCOM a monthly commission in the amount of __% of the SRP of each such PIN
sold ("PIN Commissions"). STC shall be responsible for collecting from End Users
the purchase price of such PINs and paying PIN Commissions to MCI WORLDCOM
within 30 days from the end of the month in which the PIN sales occurred.
(d) MIN Activation Commissions on Phone Kit Sales by STC. When STC generates an
MCI WORLDCOM branded Phone Kit sale, STC shall pay to MCI WORLDCOM an activation
commission (an "Activation Commission"), which shall accrue at the time the
Phone is activated. Activation Commissions shall be based on ___ percent (_%) of
the sales price of the Phone Kit excluding the wholesale value of the PIN for
the initial Card. Such commissions shall be payable by the last day of the month
following the month in which they accrue. The wholesale value of the initial
Card PIN for Phone Kit sales generated by STC shall be the SRP of the Card less
MCI WORLDCOM's Base Discount.
(i) For example, if STC were to generate a Phone Kit sale for $____
(including an initial
5
<PAGE> 6
$__ Card), then, upon activation of the Phone, STC would become obligated to pay
an Activation Commission to MCI WORLDCOM in the amount of $_____ (i.e. % x
[$____ - $____]).
(e) STC agrees to provide MCI WORLDCOM with PIN discounts and sales commissions
equal to or greater than those given to any other distributor or agent of STC
that purchases comparable volumes of services from STC. STC further agrees that
its pricing shall remain competitive with the prepaid cellular services
industry.
7. STC'S RESPONSIBILITIES. Without in any way limiting the responsibilities of
STC elsewhere stated in this Agreement, STC shall have the following additional
responsibilities:
(a) Services. STC agrees to provide the Services to End Users pursuant to the
terms hereof.
(b) Carrier Relations. STC shall be responsible for maintaining agreements with
cellular carriers as necessary to provide the Services in the cellular markets
identified in Exhibit A. MCI WORLDCOM shall have no responsibility or liability
with respect to such carriers, except to the extent arising out of MCI
WORLDCOM's act or negligence. STC will be the customer of record with such
carriers and shall be responsible for payment of all charges billed to STC for
the Services. STC shall indemnify and hold MCI WORLDCOM harmless with respect to
any claims by such carriers or End Users against MCI WORLDCOM arising in
connection with the Services, except to the extent that any such claim arises
out of MCI WORLDCOM's act or negligence, subject to the obligation of MCI
WORLDCOM to insert language in its standard End User agreements to the effect
that MCI WORLDCOM provides no warranties, express or implied, with respect to
the Services. This indemnification expressly excludes claims relating to Phones
and related goods sold by or on behalf of MCI WORLDCOM. STC and MCI WORLDCOM
agree to work together in performing a market analysis with respect to
optimizing wireless wholesale costs.
(c) Fraud/Cloning. STC shall be responsible for all charges that may result from
the cloning of MINs or ESNs relating to the Services, except to the extent
caused by the act or negligence of MCI WORLDCOM. STC shall provide monthly
reports to MCI WORLDCOM detailing incidents of such cloning.
(d) Regulatory Approvals. To the extent that any regulatory approvals may be
required in order for STC to provide the Services, all such approvals,
including, without limitation, tariff filings, permits, certifications,
authorizations and licenses, shall be the responsibility of STC.
(e) Use of MCI WORLDCOM Long-Distance Services. STC agrees to to select MCI
WORLDCOM, or an MCI WORLDCOM affiliate, as the long-distance carrier for the
Services, when at all possible, subject to STC's reasonable discretion with
respect to the terms on which such long-distance services are offered to STC.
(f) Response Times for Order Fulfillment.
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<PAGE> 7
(i) Activations. STC will use its reasonable efforts to activate Phones
(i.e. provide them with an active MIN) and provide ESN changes within, on
average, ___ hours of STC's receipt of End Users' telephonic activation orders.
STC will make available sufficient blocks of MINs for all major cellular service
markets in the U.S.
(ii) PINs. STC shall provide Card PINs to MCI WORLDCOM within three (3)
business days of STC's receipt of MCI WORLDCOM's written or electronic purchase
orders.
(iii) End User Service Levels. STC shall maintain a monthly average
response time to End User service calls such that the average time on hold for
End Users calling the toll-free service number during hours of operation shall
be ___ seconds, and End Users calling the IVR system shall have unrestricted
access with no time on hold. STC shall further maintain a monthly average call
abandonment rate not to exceed ______ percent (_%). In addressing End User
calls, STC will endeavor to provide a complete answer or problem resolution in
the course of each End User's call, while generally taking no more than ____ ( )
____ to resolve most Service issues, except in the case of Service problems that
affect a significant number of End Users, in which case STC will prioritize its
response to such problems in order to try to provide a more rapid resolution. In
the event that STC fails to meet the standards set forth in this Subparagraph
7(f)(iii), STC shall be entitled to a thirty (30) day cure period to cure such
default. Additional performance and service level criteria shall be added as
reasonably requested by MCI WORLDCOM and agreed to by STC in writing.
(g) IVR System. STC shall maintain an interactive voice response ("IVR") system
for End Users to obtain activation for their Phones and to purchase and redeem
PINs. The IVR system shall be operative 24 hours a day, seven days a week.
(h) Toll-Free End User Service Number. STC shall provide a toll-free telephone
number for End Users to call for activations, redemptions and Services support.
STC shall provide staffing for such End User support line seven days a week,
from 8:00 a.m. to 12:00 a.m. Eastern time Monday through Saturday and 8:00 a.m.
to 6:00 p.m. Eastern time on Sunday, with the exception of New Years Day, Easter
Sunday, Thanksgiving Day and Christmas Day at which time the operator center is
closed. Additionally, operator center(s) will close at 2:00 p.m. Eastern time on
Christmas Eve and New Years Eve.
(i) Accepted Payment Methods. STC agrees to accept payment by End Users for PINs
by means of all major credit cards and by automatic check handling payments
against U.S. bank accounts, subject to STC's reasonable discretion with respect
to such transactions.
(j) Payment Terms for PINs. STC shall invoice MCI WORLDCOM monthly for PINs, as
follows. Certain Retailers shall be equipped with technology that will enable
Cards with magnetic strips to be run through a card swipe device when a Card is
purchased from such Retailer. The PIN on that Card will only then become enabled
for redemption (herein referred to as "POS-Enabled PINs"). This process is
intended to reduce theft problems. STC shall invoice MCI WORLDCOM
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<PAGE> 8
for POS-Enabled PINs in the month following the month in which such PINs are
redeemed. In other instances, MCI WORLDCOM will sell Cards to Retailers with
Non-POS-Enabled PINs, both on a consignment basis and on a non-consignment
basis. With respect to Non-POS-Enabled PINs sold to Retailers by MCI WORLDCOM on
a consignment basis, STC shall invoice MCI WORLDCOM for such PINs in the month
following the month in which such PINs are redeemed. With respect to
Non-POS-Enabled PINs sold to Retailers by MCI WORLDCOM on a non-consignment
basis, STC shall invoice MCI WORLDCOM for such PINs when the Cards bearing such
PINs are shipped by MCI WORLDCOM to the Retailers. MCI WORLDCOM shall notify STC
at the time that it ships such Cards. MCI WORLDCOM shall pay all invoices within
30 days of the invoice date.
(k) Taxes. STC shall be responsible for the payment of all federal
telecommunications taxes applicable to the sale of the Services.
(l) Reporting. STC shall provide the following information to MCI WORLDCOM on a
weekly basis, (i) An activations report, by Retailer showing both new PIN
redemptions and reactivations of previously expired PINs, (ii) a redemption
report, by retailer/channel (with STC being a channel), showing redemptions by
Card denomination. STC shall also provide the following information to MCI
WORLDCOM on a monthly basis, a) a summary of activations report with ESNs, b)
summary of redemptions report by control numbers, and (iii) an average
commissions report (by the 15th of the following month), with detail to
illustrate the number of End Users, by MIN, and aggregate PIN redemptions (based
on SRPs) broken out by new and existing End Users. STC shall also provide other
reports as mutually determined to be necessary.
(m) Phones and Programming.
(i) Technology Rights/Systems. STC shall be responsible for maintaining
agreements with technology providers for licensing applicable technology(ies),
generating PINs and providing programming for Phones, and will provide full
indemnification to MCI WORLDCOM for any and all claims brought against MCI
WORLDCOM in connection therewith, including, without limitation, any such claims
for patent infringement. STC also shall purchase, maintain and operate systems
necessary for PIN generation. STC further agrees to use its reasonable efforts
to secure additional technology rights with respect to new technologies relating
to the Services, as such technologies become available.
(ii) Access to Programming Information. STC agrees to make available to
MCI WORLDCOM and its authorized agents such information as reasonably required
to enable MCI WORLDCOM, and such agents, to program Phones in order that such
Phones will function properly with the Services.
(iii) Phone Kit Fulfillment Option. MCI WORLDCOM shall have the option
of delegating to STC the responsibility for preparing Phones for retail sale,
for a fee of $____
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<PAGE> 9
per Phone, payable on a net 30-day basis. Such preparation of Phones would
include:
(A) programming (sometimes referred to as "flashing") the
Phones with the technology necessary to enable the
Phones to function properly with the Services;
(B) packaging the Phones in Phone Kits (using materials
provided by MCI WORLDCOM), including packing, shrink
wrapping and labeling for retail distribution; and
(C) providing monthly reports to MCI WORLDCOM, in a
mutually agreeable format, detailing such Phone Kit
fulfillments.
(n) Direct Response TV Sales. STC shall establish a direct response television
advertising program to market and sell the Services, as follows:
(i) Commissions Payable to MCI WORLDCOM. MCI WORLDCOM shall be entitled
to receive commissions on all sales of MCI WORLDCOM branded Phone Kits by STC
directly to End Users that call the toll-free number appearing in STC's
television advertisements, in accordance with Section 6(d) hereof.
(ii) Phone Kits. STC shall be solely responsible for all fulfillment
associated with Phone Kits sold through STC's direct-response TV advertisements.
These Phone Kits shall have the same appearance as Phone Kits sold by MCI
WORLDCOM through the Retailers. STC shall have no responsibility with respect to
the sale of Phone Kits through the Retailers, which shall be the sole
responsibility of MCI WORLDCOM.
(iii) Pricing. STC agrees to adhere to the same pricing guidelines for
its direct-response TV ad sales as otherwise applicable to the sale of the
Services, as set forth in Section 5.
(iv) MCI WORLDCOM's Ad Law Dept. Approval. Reference is made to
Paragraph 9(b) hereof with respect to the need for MCI WORLDCOM's Advertising
Law Department to review the content of all television advertisements that
contain any reference to Mark(s) of MCI WORLDCOM.
(o) STC Support of MCI WORLDCOM Switch-Based Programs. STC shall support
programs of MCI WORLDCOM that provide debit cellular services via
non-handset-debit-technolog(ies), in accordance with Exhibit C hereof.
8. MCI WORLDCOM'S RESPONSIBILITIES. Without in any way limiting the
responsibilities of MCI WORLDCOM elsewhere stated in this Agreement, MCI
WORLDCOM shall have the following additional responsibilities:
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<PAGE> 10
(a) Marketing and Distribution of Services. MCI WORLDCOM shall market, promote
and sell the Services through the Retailers, using its commercially reasonable
efforts to effectively promote such sales to the same degree as it would any of
its other major products and services. Such efforts shall include, without
limitation, facilitating in-store Retailer promotions and advertising in
Retailers circulars, which may be accomplished through co-op advertising or
market development fund programs offered by MCI WORLDCOM to the Retailers.
(b) Production of Cards. MCI WORLDCOM shall be responsible for production of all
Cards, which shall describe in reasonable detail the procedures for activation
and redemption of PINs for use of the Services, and shall conform to the
requirements set forth in Section 8(c) below. MCI WORLDCOM shall produce such
quantity of Cards as reasonably required to sufficiently satisfy End User
demand. MCI WORLDCOM shall maintain inventory control of its Cards by means of
control numbers for each PIN, which will be provided to MCI WORLDCOM by STC.
Such control numbers are necessary because the PIN is concealed until an End
User purchases the Card and reveals the PIN. It should be noted that not all
Cards will have a scratch-off area for the concealment of PINs.
(c) Point of Sale Materials. MCI WORLDCOM shall be responsible for production of
all point of sale ("POS") materials, including product packaging, labeling,
instructions, coverage maps, signage, and marketing materials such as retail
displays and product brochures. Such POS materials shall be subject to STC's
prior approval as to form and content, which approval shall not be unreasonably
withheld or delayed.
(i) STC Service Provider. All POS materials, with the exception of
materials related to Phone Kits and Phones, shall clearly display the
CellEase(R) logo and shall indicate: "Also redeemable by CellEase(R) customers"
and shall display only STC's toll-free number for End Users to call. STC shall
provide MCI WORLDCOM with language and logo requirements for POS materials for
the purpose of identifying the technology partner(s) associated with the
Services.
(ii) PIN Purchase Requirement. All POS materials shall prominently and
clearly indicate that End Users must redeem one PIN at least every 60 days in
order to maintain Service.
(d) Programming of Phones/Transmittal of Data to STC. MCI WORLDCOM shall be
responsible for the programming of Phones prior to shipment to the Retailers,
unless such task is delegated to STC pursuant to Section 7(m)(iii) hereof.
Phones shall be programmed with STC-authorized prepaid cellular technology(ies),
and shall be configured for STC-approved rate plans. When programming Phones,
MCI WORLDCOM shall utilize data supplied to MCI WORLDCOM through STC's carrier
activation terminal system. STC shall provide MCI WORLDCOM with remote access to
STC's carrier activation terminal. MCI WORLDCOM also shall transmit, or cause to
be transmitted by Retailers, to STC all data reasonably required by STC to track
ESNs and PINs
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<PAGE> 11
electronically, except that to the extent that a Retailer does not have
electronic data capabilities then such data shall be transmitted by such other
means as practicable. Such data shall be reported in a mutually agreeable
format.
(e) Retailer Interface with STC's Systems. MCI WORLDCOM shall use its reasonable
efforts to advise and recommend to the Retailers that they establish automated
POS activation systems that utilize either MCI WORLDCOM's or STC's POS
activation system. In the event that any Retailer(s) utilize MCI WORLDCOM's POS
activation system, then MCI WORLDCOM shall electronically transmit to STC all
data received from such Retailer(s) immediately upon MCI WORLDCOM's receipt of
such data.
(f) Reporting. MCI WORLDCOM shall provide monthly reports to STC, in a mutually
agreeable format, detailing sales data by each Retailer for Phone Kits and
Cards, and other related information, including ESNs and control numbers as
shipped to each Retailer. For returns, MCI WORLDCOM will send STC the ESNs for
all returned Phones in a timely manner.
(g) Taxes. MCI WORLDCOM shall be responsible for advising the Retailers that
they are responsible for charging, collecting and remitting all sales and use
taxes and governmental and quasi-governmental surcharges on sales of Phones and
Cards.
9. TRADEMARKS/SERVICE MARKS USAGE.
(a) Neither party nor either party's subdistributors or agents shall use any
trademarks, service marks, tradenames or other intellectual property
(collectively, "Marks") of the other in any manner, except as expressly
authorized in writing or in this Agreement by the owning party, all of which
Marks shall remain the exclusive property of the owner, without any right of
implied license pursuant to this Agreement. Upon termination of this Agreement,
the parties shall return to each other all marketing and sales materials then in
their possession that contain any Marks of the other party, and shall
immediately cease any and all use of any Marks of the other party, except that
each party shall have the right to continue to use POS materials and television
advertisements containing Marks of the other party for such time after
termination of this Agreement until its inventory of such POS materials are
substantially depleted and until a new television advertisement can be produced,
but in no case beyond 90 days following the termination of this Agreement.
(b) Without in any way limiting the foregoing, it is expressly understood and
agreed that all uses by STC of MCI WORLDCOM Marks, including, without
limitation, in television ads, require submission by MCI WORLDCOM to its
Advertising Law Department for prior approval, which approval shall not be
unreasonably withheld or delayed.
(c) STC hereby represents and warrants that CellEase(R) is a registered
trademark of STC, and such falls within the definition of the term Mark, as used
herein.
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<PAGE> 12
(d) The parties hereby mutually represent to each other that each of them has
all right, title and interest in and to all Marks to be used in connection with
the Services, that use of any such Mark shall not violate any trademark, service
mark, copyright, trade secret, proprietary right or publicity right of any third
party. In the event that the use of any party's Mark in connection with the
Services becomes the subject of a claim of infringement against the other party
hereto, then the party whose Mark is alleged to have caused such infringement
shall indemnify and hold harmless the other party hereto with respect to such
claim. If a Mark becomes unusable due to such a claim, then the party whose Mark
is the subject of such claim shall provide a noninfringing replacement Mark for
use in connection with this Agreement, as reasonably required.
10. PUBLICITY. Any press releases concerning this Agreement shall be subject to
prior mutual review and approval, which approval shall not be unreasonably
withheld or delayed.
11. RELATIONSHIP OF THE PARTIES.
(a) The relationship between STC and MCI WORLDCOM arising from this Agreement
does not in any way constitute a joint venture, partnership, general agency, or
employment relationship.
(b) Neither party shall make any unauthorized representations or warranties
concerning the products or services of the other.
12. DEFAULT. Except as otherwise provided in this Agreement, in the event either
party fails to perform any of its obligations under this Agreement and such
failure continues for more than ten (10) business days, or, in the case of a
non-monetary default, thirty (30) days, following written notice of such
default, then the non-defaulting party shall have the right to terminate this
Agreement immediately upon written notice to the other party, without limiting
any other remedies available hereunder or at law or in equity.
13. LIMITATIONS OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER,
DIRECTLY OR OTHERWISE, FOR INCIDENTAL, CONSEQUENTIAL (INCLUDING LOST PROFITS),
INDIRECT, PUNITIVE OR SPECIAL DAMAGES ARISING IN ANY WAY IN CONNECTION WITH THIS
AGREEMENT.
14. NOTICE. Whenever any notice is required to be given hereunder, such notice
shall be given in writing and personally delivered or sent by certified or
registered mail, return receipt requested, or by overnight courier. Notice shall
be deemed to have been given at the time of receipt, if personally delivered, or
three (3) days after mailing if sent by certified or registered mail, or upon
delivery if sent by overnight courier. Either party may change its notice
address by giving notice of the change to the other party pursuant to this
Section.
If sent by MCI WORLDCOM to STC, such notice shall be addressed to:
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<PAGE> 13
Shared Technologies Cellular, Inc.
100 Great Meadow Road, Suite 102
Wethersfield, CT 06109
Attention: Legal Department
If sent by STC to MCI WORLDCOM, such notice shall be addressed to:
MCI Telecommunications Corporation
Legal Department, 2nd Floor
Three Ravina Drive
Atlanta, GA 30346-2102
All notices relating to matters that require the approval of the Advertising Law
Department of MCI WORLDCOM, pursuant to Section 8(b) hereof, shall include a
copy of the applicable notice to be sent to:
Advertising Group Law & Public Policy
MCI Communications Corporation
2nd Floor
1133 19th Street, N.W.
Washington, D.C. 20036
Attn: Assoc. Litigation Counsel
Fax: 202-736-6471
15. ASSIGNMENT. Neither party may assign this Agreement to any third party
without the prior written consent of the other party, such consent not to be
unreasonably withheld or delayed. This Agreement shall be valid and binding upon
all heirs, successors and permitted transferees or assigns of the parties
hereto.
16. EXCUSE OF PERFORMANCE. Either party shall be relieved from liability for
non-performance due to any cause beyond the reasonable control of the party to
be excused, including delays of suppliers or carriers. In the event of such
cause for delay, the party so affected shall take commercially reasonable steps
to avoid or remove such cause of non-performance and both parties shall
recommence performance as soon as such cause is removed or ceases, but in no
event longer than 30 days following the first date of such non-performance. The
party claiming such delay shall give the other party notice of the delay as soon
as reasonably practicable.
17. AUDIT RIGHTS. The parties each shall have audit rights, limited to two
audits per year, with respect to the other's records reasonably related to each
party's obligations hereunder, including, without limitation, sales and revenue
records, billing data, activation and redemption data, and information
concerning commissions and discounts.
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<PAGE> 14
18. ARBITRATION. Any dispute or disagreement arising between the parties in
connection with this Agreement, which is not settled to the mutual satisfaction
of the parties within thirty (30) days (or such longer period as may be mutually
agreed upon) from the date that either party informs the other in writing that
such dispute or disagreement exists, shall be settled by arbitration in
accordance with the J.A.M.S./ENDISPUTE Arbitration Rules and Procedures, as
amended by this Agreement. The cost of the arbitration, including the fees and
expenses of the arbitrator(s), will be shared equally by the parties unless the
award otherwise provides. Each party shall bear the cost of preparing and
presenting its case. The parties agree that this provision and the arbitrator's
authority to grant relief shall be subject to the United States Arbitration Act,
9 U.S.C. 1-16 et seq. ("USAA"), the provisions of this Agreement, and the
AVA-AAA Code of Ethics for Arbitrators in Commercial Disputes. The parties agree
that the arbitrator(s) shall have no power or authority to make awards or issue
orders of any kind except as expressly permitted by this Agreement, and in no
event shall the arbitrator(s) have the authority to make any award that provides
for punitive or exemplary damages. The decision of the arbitrator(s) shall
follow the plain meaning of the relevant documents, and shall be final and
binding upon the parties. The award may be confirmed and enforced in any court
of competent jurisdiction. All post-award proceedings shall be governed by the
USAA.
19. GENERAL.
(a) This Agreement shall be governed by the laws of the State of New York,
without giving effect to any principle of conflict-of-laws that would require
the application of the law of any other jurisdiction.
(b) This Agreement, including any exhibits or addenda attached hereto,
constitutes the entire understanding between the parties relating to the subject
matter hereof and supersedes any and all prior discussions, proposals or
agreements, whether oral or written.
(c) No modification, addition or waiver to this Agreement shall be valid unless
made in writing signed by the parties hereto.
(d) In the event of a dispute arising out of this Agreement, the prevailing
party shall be entitled to recovery of its reasonable legal fees and expenses.
(e) The waiver of any provision of this Agreement shall not be construed as a
continuing waiver of such breach or of other breaches of the same or of other
provisions hereof. (f) The section headings of this Agreement are for reference
purposes only and shall not constitute a part hereof or affect the meaning or
interpretation of this Agreement. Whether defined terms are stated in the
singular or plural shall not affect their construction as defined terms.
(g) All payment obligations, provisions relating to limitations of liability,
post-termination obligations and any other provisions that by sense and context
are intended to survive the termination of this Agreement shall so remain in
effect after the termination hereof.
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<PAGE> 15
(h) Each party represents that it has full power and authority to enter into and
perform this Agreement and knows of no impediment to its performance.
The parties acknowledge that they have each read this Agreement in its entirety,
understand it and agree to be bound by its terms and conditions.
[Remainder of page intentionally left blank.]
15
<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives as of the date first written above.
SHARED TECHNOLOGIES CELLULAR, INC. MCI TELECOMMUNICATIONS CORPORATION
By:_______________________________ By:_______________________________
Date: February ___, 1999 Date: February ___, 1999
[all exhibits redacted]
16
<PAGE> 1
Exhibit 21
Shared Technologies Cellular, Inc.
List of subsidiary of the registrant.
The Cellular Hotline, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 229
<SECURITIES> 408
<RECEIVABLES> 2065
<ALLOWANCES> 896
<INVENTORY> 234
<CURRENT-ASSETS> 4654
<PP&E> 3872
<DEPRECIATION> 2747
<TOTAL-ASSETS> 13487
<CURRENT-LIABILITIES> 20753
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> (10171)
<TOTAL-LIABILITY-AND-EQUITY> 13487
<SALES> 28200
<TOTAL-REVENUES> 28200
<CGS> 17365
<TOTAL-COSTS> 17365
<OTHER-EXPENSES> 21523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 952
<INCOME-PRETAX> (11640)
<INCOME-TAX> 6
<INCOME-CONTINUING> (11646)
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<NET-INCOME> (11646)
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