<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
Shared Technologies Cellular, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
<PAGE> 2
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 3
SHARED TECHNOLOGIES CELLULAR, INC.
100 GREAT MEADOW ROAD
WETHERSFIELD, CONNECTICUT 06109
(860) 258-2500
-----------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1999
-----------------------------
The Annual Meeting of Stockholders of Shared Technologies Cellular, Inc.
(the "Company") will be held at the Company's offices, located at 100 Great
Meadow Road, Suite 104, Wethersfield, Connecticut 06109 on Thursday, May 20,
1998, at 10:00 a.m., for the purpose of considering and acting upon the
following matters:
1. To approve an amendment to the Company's Restated Certificate of
Incorporation establishing a classified Board of Directors and to
make certain necessary conforming changes to the Company's
Amended and Restated Bylaws;
2. To elect the directors;
3. To approve an amendment to the 1994 Stock Option Plan;
4. To approve certain amendments to the 1994 Director Option Plan;
5. To approve the issuance of twenty percent (20%) or more of the
outstanding shares of the Company's Common Stock upon the
conversion of the Series C Convertible Preferred Stock of the
Company and the exercise of certain Warrants to purchase Common
Stock of the Company by the holders thereof, which approval is
necessary in order to comply with the corporate governance rules
of the NASDAQ SmallCap Market;
6. To ratify the appointment of Rothstein, Kass & Company, P.C. as
auditors for the Company; and
7. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Pursuant to the provisions of the Company's Restated Bylaws, the Board
of Directors has fixed the close of business on April 20, 1999 as the record
date for determining the stockholders of the Company entitled to notice of, and
to vote at, the meeting or any adjournment or postponement thereof.
<PAGE> 4
Stockholders who do not expect to be present in person at the meeting
are urged to date and sign the enclosed proxy and promptly mail it in the
accompanying envelope. The proxy will not be used if you attend and vote at the
meeting in person or if you revoke the proxy prior to the meeting.
By Order of the Board of Directors
KENNETH M. DORROS
Senior Vice President, General
Counsel and Secretary
Dated: April 28, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES AT THE ANNUAL MEETING. NO POSTAGE NEED BE
AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE> 5
SHARED TECHNOLOGIES CELLULAR, INC.
100 GREAT MEADOW ROAD
WETHERSFIELD, CONNECTICUT 06109
(860) 258-2500
-----------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1999
-----------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Shared Technologies Cellular, Inc., a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held on May 20, 1999 and at any adjournment or postponement
of that meeting (the "Annual Meeting"). All proxies will be voted in accordance
with the instructions contained therein and, if no choice is specified, the
proxies will be voted in favor of the proposals set forth in the accompanying
Notice of Annual Meeting. Any proxy may be revoked by a stockholder at any time
before it is exercised by giving written notice to that effect to the Secretary
of the Company, by submitting a properly executed proxy bearing a later date or
by voting in person at the Annual Meeting.
The Board of Directors has fixed April 20, 1999 as the record date for
determining stockholders who are entitled to vote at the Annual Meeting. At the
close of business on April 20, 1999, there were outstanding and entitled to vote
[ ] shares of Common Stock of the Company, $.01 par value per share (the
"Common Stock"). Each share of Common Stock is entitled to one vote.
The presence of the holders of at least one-half of the shares of Common
Stock of the Company entitled to vote is necessary to constitute a quorum at the
meeting. Therefore, holders of not less than [ ] shares of Common Stock must
be present in person or by proxy for there to be a quorum. Shares of Common
Stock represented by all proxies received, including proxies that withhold
authority for the election of directors and/or abstain from voting on the other
matters to be presented at the Annual Meeting, as well as "broker non-votes",
count toward establishing the presence of a quorum.
The Company's Annual Report for the fiscal year ended December 31, 1998
is being mailed to stockholders with the mailing of this Notice and Proxy
Statement on or about April 28, 1999.
<PAGE> 6
MATTERS TO BE BROUGHT BEFORE THE ANNUAL MEETING
PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION ESTABLISHING A CLASSIFIED BOARD OF
DIRECTORS AND TO MAKE CERTAIN NECESSARY CONFORMING CHANGES TO
THE COMPANY'S RESTATED BYLAWS
(ITEM 1 ON PROXY CARD)
The Board of Directors is recommending approval of a proposal to amend
the Company's Restated Certificate of Incorporation (the "Certificate") to
provide for the classification of the Board of Directors into three classes,
each of which, after a transitional period commencing on the date of the 1999
Annual Meeting of Stockholders, will serve for three years, with one class being
elected each year. If approved by the stockholders, the amendment will become
effective upon the filing of a certificate of amendment with the Secretary of
State of Delaware, as provided by Delaware law, which filing will be made
promptly following approval by the stockholders.
The Amended and Restated Bylaws of the Company (the "Bylaws") currently
provide that all directors are to be elected annually for a term of one year.
The proposed amendment to the Certificate provides, and the corresponding
necessary amendments to the Bylaws provide, that the Board of Directors shall be
divided into three classes of directors, each class to be as nearly equal in
number as reasonably possible, and that each class is to serve a three-year
term. If the proposed amendment is adopted, two directors will be elected for a
term expiring at the 2000 annual meeting of stockholders, three directors will
be elected for a term expiring at the 2001 annual meeting of stockholders and
three directors will be elected for a term expiring at the 2002 annual meeting
of stockholders (in each case until respective successors are duly elected and
qualified). Starting with the 2000 annual meeting of stockholders and each year
thereafter, one class of directors will be elected for a three year term. In
addition, the Bylaws will be amended to provide that a director elected to fill
a vacancy on the Board of Directors will hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
such director has been elected expires and until such director's successor shall
have been duly elected and qualified. Stockholders are urged to read carefully
the following sections of this Proxy Statement, which describe the classified
board amendment and its purposes and effect, and Exhibits I and II hereto, which
set forth the full text of the proposed amendments to the Company's Certificate
and the Company's Bylaws, respectively, before voting on this proposal.
If at any time the size of the Board of Directors is changed, the
increase or decrease in the number of directors would be apportioned among the
three classes as nearly equal as possible. The Board of Directors has no present
plans, arrangements, commitments or understandings with respect to increasing or
decreasing the size of the Board of Directors or any class of directors.
The classification of the Board of Directors will have the effect of
making it more difficult to alter the composition of the Board of Directors. As
a result of the amendment, it would take at least two annual stockholder
meetings, instead of one, to effectuate a change in the composition of a
majority of the Board of Directors. Although there have been no challenges to
date with respect
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to the continuity or stability of the Board of Directors, the Board of Directors
believes the longer time required to elect a majority of a classified Board of
Directors would promote continuity and stability of the Company's management and
policies, because a majority of the Board of Directors, at any given time, will
most likely have prior experience as members of the Board of Directors. The
classification provision will govern every election of directors, regardless of
whether a more immediate and complete change in the Board of Directors would be
beneficial to the Company or the stockholders.
To the extent that the proposed amendment would make more difficult or
discourage a proposed takeover of the Company, its adoption would increase the
possibility that the term of incumbent directors and management of the Company
would be somewhat extended. However, the proposed amendment should provide
assurance that the Board of Directors, if confronted by an unsolicited proposal
from a stockholder, will have sufficient time to review such proposal, as well
as appropriate alternatives thereto, and thereby will be in a better position to
protect the interests of the Company and its stockholders.
The proposed amendment is intended to encourage persons seeking to
acquire control of the Company to do so through arms' length negotiations with
the Board of Directors and the Company's management. If adopted, however, the
proposed amendment might also have the effect of discouraging a person from
making a tender offer or otherwise attempting to gain control of the Company,
even though such an attempt might be beneficial to the Company and its
stockholders. Additionally, because the proposed amendment may discourage the
accumulation of a large block of the Common Stock by a third party whose
objective is to have the Company repurchase such block at a premium, adoption of
the proposed amendment might dampen the temporary fluctuations in the market
price of the Common Stock which such an accumulation often causes, thereby
depriving stockholders of an opportunity to sell their shares at a potentially
higher market price.
Takeovers or changes in management of the Company that are proposed and
effectuated without prior consultation and negotiation with the Company are not
necessarily detrimental to the Company or its stockholders. The Board of
Directors believes, however, that the benefits of seeking to protect the
Company's ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to take over or to restructure the Company outweigh any
disadvantages of discouraging such a proposal.
Pursuant to the Delaware General Corporation Law and the current Bylaws
of the Company, members of the Board of Directors may be removed, with or
without cause, at any time during their term of office by the holders of a
majority of the shares then entitled to vote at an election of directors, except
that directors elected by the holders of a particular class or series of stock
may be removed without cause only by the vote of the holders of a majority of
the outstanding shares of such class or series. The Delaware General Corporation
Law, however, also provides that directors serving on a classified board of
directors may be removed prior to the expiration of their terms by the holders
of a majority of the shares of the Company's voting stock only for cause, unless
otherwise provided in the certificate of incorporation. Accordingly, in the
absence of a contrary
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<PAGE> 8
provision in the Company's Certificate, the directors serving on the Company's
classified Board of Directors could be removed only for cause.
The Delaware General Corporation Law and the current Bylaws of the
Company provide that a vacancy on the Board of Directors, including a vacancy
created by an increase in the number of directors, may be filled by the
remaining directors or by the stockholders at a special or annual meeting, and
that the newly elected director shall serve until the next annual election. If
the classified board amendments are adopted, the Bylaws will be amended to
provide, among other things, that any vacancy on the Board of Directors
occurring prior to the expiration of the term of office of the class for which
such vacancy occurs, still could be filled by the remaining directors, but not
by the stockholders. However, such Bylaw amendments will also provide that any
director elected to the Board of Directors to fill a vacancy created by removal,
resignation, expansion of the Board of Directors or otherwise would hold office
for the unexpired term of the director he replaced or, in the case of expansion
of the Board of Directors, until the next election for the class to which he was
elected; provided, that such director is subsequently approved or confirmed by
the holders of a majority of the shares of Common Stock present in person, or
represented by proxy, and entitled to vote at the next annual meeting of
stockholders. If the director elected to fill such vacancy by the Board of
Directors is not subsequently approved by the stockholders, and if another
candidate is not elected to fill such vacancy at the annual meeting in
accordance with Federal securities laws and the Company's Bylaws, then the
number of directors constituting the entire Board of Directors will
automatically be reduced and, if necessary, the number of directors serving in
each class will be reapportioned so that the number of directors serving in each
class will be as nearly equal as possible.
The classified board amendment to the Company's Certificate, together
with the related Bylaw amendments, would impede, rather than preclude, a third
party from gaining control of the Board of Directors since it would take at
least two annual stockholder meetings, instead of just one, to effectuate a
change in the composition of a majority of the Board of Directors, in the
absence of the removal of any directors for cause.
VOTE REQUIRED
Assuming the presence of a quorum, an affirmative vote of a majority of
the shares of Common Stock present in person or by proxy and voting will be
required for the creation of a staggered Board of Directors. Abstentions with
respect to voting on this matter will have the effect of a negative vote, and
"broker non-votes" with respect to voting on this matter will have no effect on
the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
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<PAGE> 9
ELECTION OF DIRECTORS
(ITEM 2 ON PROXY CARD)
The Board of Directors currently consists of 7 members. All of the
nominees are currently members of the Board of Directors, except for Victor
Grillo, Sr., who is nominated to serve as the eighth member of the Board of
Directors for a term to expire in 2001. The Company agreed to nominate Mr.
Grillo for election as a director in connection with negotiations by the Company
to acquire a privately held company of which Mr. Grillo is a principal. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" below. The following table and
narrative sets forth information regarding the principal occupation, other
affiliations, committee memberships and age for each of the nominees for
director of the Company. Stockholders who do not wish their shares to be voted
for a particular nominee may so indicate in the space provided on the proxy
card. Management does not contemplate that any of the nominees will be unable to
serve, but in that event, proxies solicited hereby will be voted for the
election of another person or persons to be designated by the Board of
Directors.
BOARD NOMINEES FOR TERM TO EXPIRE IN 2000
CLASS I
<TABLE>
<CAPTION>
DIRECTOR POSITION WITH
DIRECTOR AGE SINCE COMPANY
- -------- --- ----- -------
<S> <C> <C> <C>
Nicholas E. Sinacori (2) ......... 54 1996 Director
Bruce Carswell ................... 69 1998 Director
</TABLE>
BOARD NOMINEES FOR TERM TO EXPIRE IN 2001
CLASS II
<TABLE>
<CAPTION>
DIRECTOR POSITION WITH
DIRECTOR AGE SINCE COMPANY
- -------- --- ----- -------
<S> <C> <C> <C>
William A. DiBella (2) (3).... 56 1993 Director
Vincent DiVincenzo (1)........ 49 1993 Senior Vice President,
Chief Financial Officer,
Treasurer and Director
Victor Grillo, Sr............. 58 -- Nominee for Director
</TABLE>
5
<PAGE> 10
BOARD NOMINEES FOR TERM TO EXPIRE IN 2002
CLASS III
<TABLE>
<CAPTION>
DIRECTOR POSITION WITH
DIRECTOR AGE SINCE COMPANY
- -------- --- ----- -------
<S> <C> <C> <C>
Anthony D. Autorino (1)....... 60 1989 Chairman, Chief Executive
Officer and Director
Thomas H. Decker (2) (3)...... 58 1994 Director
Ajit G. Hutheesing (1)(3) .... 63 1995 Director
</TABLE>
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
ANTHONY D. AUTORINO has been Chairman, President and Chief Executive
Officer of the Company since its formation in 1989. Mr. Autorino is a principal
of CMD Ventures LLC, a private real estate management and development company.
From January 1986 to March 1998, he was Chairman and Chief Executive Officer of
Shared Technologies Fairchild Inc. ("STFI"), which owns 23.6% of the issued and
outstanding Common Stock of the Company, and he was President of STFI from
January 1986 to March 1996. From January 1985 to January 1986, he was Chairman
and Chief Executive Officer of ShareTech, a joint venture between United
Technologies Corporation and AT&T. He was President of United Technologies
Building System Company from 1981 to 1984 and was its Chairman and Chief
Executive Officer from 1984 to 1985. Mr. Autorino joined the Hamilton Standard
Division of United Technologies in 1960, holding the positions of Vice
President, Executive Vice President and President of the Division. Mr. Autorino
was Chairman of the firearms manufacturer Colt's Manufacturing Company, Inc. and
of its parent company, CF Holding Corp. from March 1990 to March 1992. Mr.
Autorino serves on the board of directors of the Connecticut Children's Medical
Center. He also serves on the boards of trustees of The Bushnell Memorial
Theater in Hartford, Connecticut, and St. Joseph's College in West Hartford,
Connecticut. Mr. Autorino is chairman of Global Interactive Communications
Corporation, a private telecommunications services company.
BRUCE CARSWELL was appointed a director of the Company in July 1998.
Mr. Carswell has been a consultant to GTE Corporation since 1995, and has been a
principal in the Cabot Advisory Group, a human resource firm, since June 1998.
In 1995, he retired from GTE, having served in various capacities, including as
Executive Director of the Office of the Chairman, as Senior Vice President of
Human Resources and Administration, and as a member of the Board of Directors.
He chaired one joint-venture Board of GTE, continues to serve as a director of
another such Board, and provides consulting services to GTE. Mr. Carswell is a
noted authority on human resource issues and labor law, with experience that
includes congressional appointments to various commissions concerning business
and labor. Mr. Carswell received a bachelor's degree from Colby College and a
law degree from Cornell University.
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<PAGE> 11
THOMAS H. DECKER has been a director of the Company since September
1994. Since September 1992, Mr. Decker has served as a Senior Vice
President-Investments of Prudential Securities. From 1981 to September 1992, he
served as a Senior Vice President at Tucker Anthony Incorporated.
WILLIAM A. DIBELLA has been a director of the Company since September
1994. Mr. DiBella is currently a lobbyist and is a principal of CMD Ventures
LLC., a private real estate management and development company. From 1981 to
1997, Mr. DiBella served as a Connecticut State Senator, including serving as
Senate Majority Leader and Chairman of the Finance, Revenue and Bonding
Committee. Mr. DiBella was a member of the Hartford City Council from 1971 to
1979 and Deputy Mayor from 1975 to 1977.
VINCENT DIVINCENZO has been Treasurer of the Company since March 1989,
Chief Financial Officer of the Company since February 1994, Senior Vice
President of the Company since March 1998, and a director of the Company since
March 1993. He is a principal of CMD Ventures LLC, a private real estate
management and development company. From 1988 to 1998, Mr. DiVincenzo served
STFI in many capacities, including as its Vice President-Finance from 1988 until
1993, its Senior Vice President-Administration and Finance from 1993 to March
1998, its Treasurer and Chief Financial Officer 1988 to March 1998, and as a
director of STFI from 1992 to March 1998. From 1987 to 1988, Mr. DiVincenzo was
Controller of KCR Technology, Inc., a research and development firm. From 1982
to 1986 he was employed by Lorlin Test Systems, formerly Eaton Corporation, last
serving as Controller. Mr. DiVincenzo is a director of Global Interactive
Corporation.
VICTOR GRILLO, SR. is a nominee for director. Since 1997, Mr. Grillo
has been Chief Executive Officer of DTR Associates Limited Partnership, a
limited partnership engaged in the business of developing, marketing and
distributing consumer products through direct response and retail distribution
channels ("DTR"). From 1991 to 1997, Mr. Grillo was President of DTR.
AJIT G. HUTHEESING has been a director of the Company since December of
1995. Mr. Hutheesing is the founder, Chairman and Chief Executive Officer of
International Capital Partners, Inc. ("ICP"), a private investment management
firm. Prior to starting ICP in 1988, he was Chairman of the Board and Director
of Corporate Finance of The Sherwood Group. Before joining Sherwood, Mr.
Hutheesing was with the J. Henry Schroder Corporation from 1975 to 1987 and held
the position of Vice Chairman from 1982 to 1987. Prior to that time, Mr.
Hutheesing spent ten years with the International Finance Corporation, a private
sector investment banking arm of the World Bank. He also serves as a director of
Counsel Corporation and Officeland, Inc.
NICHOLAS E. SINACORI has been a director of the Company since August,
1996. He has served as Managing Partner of ICP since 1990. From 1985 to 1990,
Mr. Sinacori was President of Westport Management, Inc., a private real estate
investment company. From 1974 to 1985, he was Vice President and Treasurer of
U.S. Industries, an international conglomerate. Mr. Sinacori also
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<PAGE> 12
serves as a director of Ralin, Inc., Cambric Corporation, Beverage Marketing
Technologies, Inc., Arrow Corporation and Tickets.com.
VOTE REQUIRED
Assuming the presence of a quorum, directors of the Company are elected
by plurality vote of the shares of Common Stock present in person or by proxy
and voting on the election of directors. Shares may be voted for or withheld
from each nominee for election as a director. Shares for which the vote is
withheld and "broker non-votes" will be excluded entirely and have no effect on
the election of directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH NOMINEE.
BOARD AND COMMITTEE MEETINGS
The Board of Directors established an Executive Committee, an Audit
Committee and a Compensation Committee in 1995. In 1998, there were no meetings
of the Executive Committee, and there were two meetings of the Compensation
Committee and one meeting of the Audit Committee. The Board does not have a
nominating committee.
The Executive Committee is authorized to act on behalf of the Board of
Directors when the Board is not in session. The Executive Committee is currently
comprised of Messrs. Autorino, DiVincenzo and Hutheesing.
The Audit Committee was established to provide for direct contact
between the Company's independent public accountants and the Board of Directors.
The Audit Committee's duties include reviewing the effectiveness of the auditors
during the annual audit, discussing the Company's internal control policies and
procedures and considering and recommending the selection of the Company's
independent accountants. The Audit Committee is currently comprised of Messrs.
Decker, DiBella and Sinacori.
The Compensation Committee was established to provide recommendations
to the Board regarding compensation programs of the Company. The Compensation
Committee is currently comprised of Messrs. Decker, DiBella and Hutheesing.
During the year ended December 31, 1998, the Board of Directors held 5
meetings. Each of the directors then in office attended at least 75% of all of
the Board meetings held during 1998, with the exception of Mr. Sinacori, who
attended 60% of the meetings. Mr. Carswell attended all of the 1998 Board
meetings held after his appointment to the Board on July 14, 1998.
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<PAGE> 13
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company or its subsidiary receive
cash compensation of $750 per board meeting attended ($400 if attended by
teleconference) and $500 for each committee meeting attended ($400 if attended
by teleconference), plus reimbursement of out-of-pocket expenses for attendance
at each such meeting. Each non-employee director also receives an annual fee of
$10,000, payable quarterly in arrears.
In addition, if the stockholders approve Proposal 4 in this Proxy
Statement, pursuant to the 1994 Director Option Plan, each non-employee director
will receive an option, at the beginning of each three-year term to which he is
elected, to purchase 15,000 shares of the Company's Common Stock. Such options
will have an exercise price equal to the fair market value of the Company's
Common Stock at the time of their grant. Under the 1994 Director Option Plan as
currently in effect, each non-employee director receives an option, at the
beginning of each one-year term to which he is elected, to purchase 4,000 shares
of Common Stock at an exercise price equal to the fair market value of the
Common Stock at the time of the grant.
PROPOSAL TO APPROVE AMENDMENT TO 1994 STOCK OPTION PLAN
(ITEM 3 ON PROXY CARD)
In 1994, the Board of Directors authorized, and the Company's
stockholders approved, the 1994 Stock Option Plan (the "Stock Plan"), pursuant
to which the Company may grant stock options to employees, directors and
consultants of the Company, its subsidiaries and affiliates. In 1998, the
Company's stockholders approved an amendment to the Stock Plan increasing the
number of shares of Common Stock reserved for issuance upon the exercise of
options granted under the Stock Plan from 525,000 to 825,000.
In March 1999, the Board of Directors adopted a further amendment to the
Stock Plan increasing the number of shares of Common Stock issuable under the
Stock Plan by an additional 500,000 shares, to an aggregate of 1,325,000 shares,
subject to approval by the stockholders. At the Annual Meeting, the stockholders
will be asked to approve this amendment to the Stock Plan.
Following adoption of the amendment by the Board of Directors, the
Company's Compensation Committee approved, subject to stockholder approval of
the amendment, the grant of 100,000 options to Anthony D. Autorino and the grant
of 50,000 options to Vincent DiVincenzo, each an executive officer named in the
Summary Compensation Table set forth below. If the amendment to the Stock Plan
is approved by the stockholders, those options will become exercisable as to
one-third of the shares subject to the options on each of the first, second and
third anniversaries of the date of grant, at an exercise price of $9.00, $10.00
and $12.00 per share on each of those respective anniversary dates.
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<PAGE> 14
Approximately 320 employees are eligible to participate under the Stock
Plan. Prior to adoption of the amendment by the Board of Directors, 86,000
shares of Common Stock remained available for future option awards under the
Stock Plan. The Board's Compensation Committee, on behalf of the Company's
management, relies on stock options and other stock awards as an essential part
of the compensation packages necessary for the Company to attract and retain
experienced officers and employees. The Board of Directors believes that the
increase in the number of shares of Common Stock available under the Stock Plan
is essential to permit the Company's management to continue to provide
long-term, equity-based incentives to present and future employees.
During 1998, options to purchase an aggregate of 180,000 shares of
Common Stock were granted to the following Named Executive Officers and groups:
Mr. Autorino (100,000 options), Mr. DiVincenzo (50,000 options), Mr. Hayes
(25,000 options), Mr. Sorenson (5,000 options), all current executive officers
as a group (202,000 options) and all non-executive officers, employees and
consultants as a group (157,500 options). The exercise price of all such options
was equal to or greater than the fair market value of the Common Stock on the
date of the grant, and ranged from $4.50 to $6.50. On April 20, 1999, the
closing sale price of the Company's Common Stock as reported on the NASDAQ
SmallCap Market was $________.
MATERIAL FEATURES OF THE PLAN
The Compensation Committee administers the Stock Plan, which provides
that such committee has the authority to award non-qualified stock options and
to fix all terms of any award or awards granted. Under the Stock Plan, the
Compensation Committee may grant awards to employees, officers, directors and
consultants of the Company or any subsidiary or affiliate.
Option Price and Duration. The exercise price per share in connection
with an option granted under the Stock Plan cannot be less than seventy percent
(70%) of the fair market value of the Common Stock subject to the option on the
date such option is granted. The Stock Plan provides that each option shall
expire on the date specified by the Compensation Committee, but the expiration
date may not be more than ten years from the date of grant.
Exercise of Options. Each option granted under the Stock Plan may either
be fully exercisable at the time of grant or may become exercisable in such
installments as the Compensation Committee may specify. Each option may be
exercised from time to time, in whole or in part, up to the total number of
shares of Common Stock with respect to which it is then exercisable. The
Compensation Committee has the right to accelerate the date of exercise of any
installment of any option.
The option exercise price is payable in cash or previously-owned shares
of Common Stock having a fair market value equal to the exercise price, or a
combination of both, at the election of the option holder. The option holder is
responsible for the payment of any required tax withholding payments. During the
life of the option holder, the option is non-transferable
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<PAGE> 15
and is exercisable only by the option holder. Upon termination of employment,
other than by the Company for cause, the option holder may exercise any option
exercisable upon termination within three months of termination. Upon
termination due to death, disability or retirement, the option may be exercised,
to the extent exercisable at termination, within six months of termination.
Changes in Capitalization and Other Matters. Option holders are
protected against dilution in the event of a stock dividend, recapitalization,
stock split, merger or similar transaction. The Compensation Committee may from
time to time adopt amendments to the Stock Plan (certain of which are subject to
stockholder approval) and may terminate the Stock Plan at any time. A
termination of the Stock Plan by the Compensation Committee shall not affect
options previously granted. If an option granted pursuant to the Stock Plan is,
for any reason, unexercised at the time of its expiration or termination, any
shares of Common Stock subject to such option will be available for future
option grants. Unless terminated sooner, the Stock Plan will terminate ten years
from the date of its adoption, and options may be granted under the Stock Plan
at any time prior to such termination.
In the event of a Change of Control (defined below) of the Company,
subject to certain restrictions described below, all restrictions and conditions
applicable to options granted under the Stock Plan then outstanding will be
deemed satisfied, and the options will be deemed to be fully vested, as of the
date of the Change of Control. For purposes of the Stock Plan, a "Change in
Control" will be deemed to occur if the persons who were directors of the
Company cease to constitute a majority of the Board of Directors 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. An option granted under the Stock Plan will only receive the
benefit of the removal of restrictions and accelerated vesting upon a Change of
Control if it is held by an employee of the Company and such employee's
employment with the Company's terminates, for any reason, following the Change
of Control. The Stock Plan provides that termination includes any reduction in
compensation, geographic relocation of an employee, or any material diminution
in job status or responsibilities.
Federal Tax Considerations. The following general rules are applicable,
under current federal income tax law, to non-qualified options granted under the
Stock Plan:
1. The optionee generally does not realize any taxable income upon the
grant of an option, and the Company is not allowed a business expense deduction
by reason of such grant.
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<PAGE> 16
2. The optionee generally will recognize ordinary compensation income at
the time of exercise of the option in an amount equal to the excess, if any, of
the fair market value of the shares on the date of exercise over the exercise
price.
3. When the optionee sells the shares, he or she generally will
recognize a capital gain or loss in an amount equal to the difference between
the amount realized upon the sale of the shares and his or her basis in the
stock (generally, the exercise price plus the amount taxed to the optionee as
compensation income). If the optionee's holding period for the shares exceeds
one year, such gain or loss will be a long-term capital gain or loss.
4. The Company generally will be entitled to a tax deduction when and in
the amount that compensation income is recognized by the optionee. The Company
will not be entitled to a tax deduction with respect to capital gain recognized
by the optionee.
5. If an optionee exercises a non-qualified option by delivering shares
of Common Stock to the Company in payment of the exercise price, special rules
will apply.
This description of the Stock Plan is subject to and qualified by the
complete text of the Stock Plan, a copy of which is available upon request to
the Company's Legal Department at the Company's address appearing on the front
page of this Proxy Statement.
INTERESTS OF CERTAIN PERSONS
Approval of the amendment to the Stock Plan will benefit Messrs.
Autorino and DiVincenzo as the options granted to such executive officers in
March 1999 are contingent upon approval of the amendment by the stockholders,
and may benefit the executive officers of the Company in the future as all
executive officers are eligible to receive options under the Stock Plan.
VOTE REQUIRED
Assuming the presence of a quorum, an affirmative vote of a majority of
the shares of Common Stock present in person or by proxy and voting will be
required for the approval of the amendment to the 1994 Stock Option Plan.
Abstentions with respect to voting on this matter will have the effect of a
negative vote, and "broker non-votes" with respect to voting on this matter will
have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
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<PAGE> 17
PROPOSAL TO APPROVE AMENDMENTS TO 1994 DIRECTOR OPTION PLAN
(ITEM 4 ON PROXY CARD)
In 1994, the Board of Directors authorized, and the Company's
stockholders approved, the 1994 Director Option Plan (the "Director Plan"),
pursuant to which the Company grants stock options to directors of the Company
who are not employees of the Company, its subsidiaries or affiliates (each a
"non-employee director"). In 1998, the Company's stockholders approved an
amendment to the Director Plan increasing the number of shares of Common Stock
reserved for issuance upon the exercise of options granted under the Director
Plan from 33,333 to 100,000.
At the Annual Meeting, the Company's stockholders will be asked to
approve a further amendment to the Director Plan to increase the number of
shares of Common Stock issuable under the Director Plan by an additional 100,000
shares, such that the aggregate number of shares of Common Stock issuable upon
the exercise of options granted under the Director Plan, as amended, would be
200,000.
In 1998, the stockholders also approved an amendment to the Director
Plan to increase from 2,000 to 4,000 (i) the number of shares of Common Stock
subject to the option each non-employee director automatically receives upon
being elected as a non-employee director and (ii) the number of shares of Common
Stock subject to the option each non-employee director automatically receives
upon commencement of each subsequent year of service as a non-employee director.
If the stockholders approve Proposal 1 in this Proxy Statement to establish a
classified Board of Directors, the stockholders will be asked at the Annual
Meeting to approve a further amendment to the Director Plan pursuant to which
each non-employee director would automatically receive an option to purchase
15,000 shares of Common Stock at the beginning of each three-year term to which
he is elected to the Board of Directors. During the phase-in period of the
classified Board, these options would be pro-rated such that those directors in
Class I who would be initially elected to a one-year term would receive an
option to purchase 5,000 shares upon their election and those directors in Class
II who would be initially elected to a two-year term would receive an option to
purchase 10,000 shares upon their election. In the event that the stockholders
do not approve Proposal 1 in this Proxy Statement to establish a classified
Board of Directors, the stockholders will still be asked at the Annual Meeting
to approve the amendment to the Director Plan to increase the aggregate number
of shares issuable thereunder, but they will not be asked to approve the latter
amendment to the Director Plan.
All options granted under the Director Plan currently become exercisable
at the rate of one-twelfth (1/12) per full month of service as a director from
the date of grant. If the stockholders approve the amendment to increase the
number of shares subject to each option to 15,000 for each three-year term,
such options will become exercisable at the rate of one thirty-sixth (1/36) per
full month of service from the date of grant (as approximately adjusted during
the phase-in period for the classified Board). In the event of a Change of
Control of the Company (as defined above in Proposal 3 to this Proxy
Statement), subject to certain restrictions described in the next
succeeding sentence, all restrictions and conditions applicable to options
granted under the Director Plan will be deemed satisfied, and the options will
be deemed vested, as of the date of the Change of Control. An option granted
under the Director Plan will only receive the benefit of the removal of
restrictions and accelerated vesting upon a Change of Control if it is held by
the director of the Company and such director's service on the Board of
Directors terminates, for any reason, following such Change of Control. All
options are granted at an exercise price equal to the then fair market value of
the Common Stock.
Currently, five of the seven members of the Company's Board of Directors
are non-employee directors who are eligible to participate under the Director
Plan. Prior to the approval of the proposed amendments, there were 54,000 shares
available for future option awards under the Director Plan. The Company views
such options to be an essential part of compensation necessary to attract and
retain qualified non-employee directors. The Company believes that the proposed
increases in the number of shares of Common Stock available under the Director
Plan and the number of shares subject to each option granted under the Director
Plan are important to provide long-term, equity-based incentives to present and
future non-employee directors. In 1998, options under the Director Plan were
automatically granted to five non-employee directors to purchase 20,000 shares
of Common Stock. The exercise price of each such option was the fair market
value of the Common Stock on the date of the grant.
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<PAGE> 18
This description of the Director Plan is subject to and qualified by the
complete text of the Director Plan, a copy of which is available upon request to
the Company's Legal Department at the Company's address appearing on the front
page of this Proxy Statement.
INTERESTS OF CERTAIN PERSONS
Approval of the amendments to the Director Plan will benefit the
non-employee directors of the Company as they will receive options thereunder in
accordance with the terms of the amendments.
VOTE REQUIRED
Assuming the presence of a quorum, an affirmative vote of a majority of
the shares of Common Stock present in person or by proxy and voting will be
required for the approval of the amendments to the 1994 Director Option Plan.
Abstentions with respect to voting on this matter will have the effect of a
negative vote, and "broker non-votes" with respect to voting on this matter will
have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
PROPOSAL TO APPROVE THE ISSUANCE OF TWENTY PERCENT (20%) OR
MORE OF THE OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK
UPON CONVERSION OF THE SERIES C CONVERTIBLE PREFERRED STOCK OF
THE COMPANY AND THE EXERCISE OF CERTAIN WARRANTS TO PURCHASE
COMMON STOCK OF THE COMPANY BY THE HOLDERS THEREOF, WHICH
APPROVAL IS NECESSARY IN ORDER TO COMPLY WITH THE CORPORATE
GOVERNANCE RULES OF THE NASDAQ SMALLCAP MARKET
(ITEM 5 ON PROXY CARD)
GENERAL
Effective February 5, 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. 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 (the "Warrants") to
purchase an aggregate of 300,000 shares of the Company's Common Stock. Each
share of Series C Convertible Preferred Stock is convertible into Common Stock
in accordance with the formula described below. The Company used and intends to
continue to use the proceeds from the offering to repay approximately $5.5
million of indebtedness and for general corporate purposes.
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<PAGE> 19
The Certificate of Designations, Preferences and Rights of the Series C
Convertible Preferred Stock (the "Certificate of Designation") provides that,
until the Company obtains the approval of the holders of a majority of the
Company's Common Stock, the number of shares of Common Stock issued upon
conversion of the Series C Convertible Preferred Stock or exercise of the
Warrants may not exceed 19.99% of the number of shares outstanding on February
5, 1999, or 1,512,661 shares (the "20% Limit"). But for this limitation
contained in the Certificate of Designation, as of the date of this Proxy
Statement, the 15,000 shares of Series C Convertible Preferred Stock would be
convertible into approximately 2,142,857 shares of Common Stock, or 22% of the
total number of shares 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
Proxy Statement, but for the aforementioned limitation, would be approximately
2,442,857 shares, or 24% of the total number of shares issued and outstanding on
February 5, 1999. The number of shares of Common Stock issuable upon conversion
of the Series C Convertible Preferred Stock may fluctuate from time to time and
be greater than the aforementioned figure due to a variable conversion price
feature of the Series C Convertible Preferred Stock and to an accrued "Premium"
which may be payable at the option of the Company in Common Stock or cash, as
further described below.
NASDAQ REQUIREMENTS
The 20% Limit is contained in the Certificate of Designation due to a
requirement of the NASDAQ Stock Market. The Company's Common Stock is listed on
the NASDAQ SmallCap Market, and NASDAQ's corporate governance rules require
stockholder approval if the Company issues Common Stock or securities
convertible into or exercisable for Common Stock equal to 20% or more of the
Common Stock outstanding before the issuance for less than the market value of
the Common Stock. As the Series C Convertible Preferred Stock was convertible
into more than 20% of the outstanding Common Stock on the date of issuance and
as the conversion price of the Series C Convertible Preferred Stock on the date
of issuance ($7.00 per share) was less than the market value of the Common Stock
on such date (the closing sale price of the Common Stock on February 5, 1999 as
reported by NASDAQ was $9.00), and may be less than the market value of the
Common Stock when and if the Series C Convertible Preferred Stock is converted
to Common Stock, stockholder approval is required in order for the number of
shares of Common Stock issuable upon conversion of the Series C Convertible
Preferred Stock and exercise of the Warrants to exceed the 20% Limit.
THE TRANSACTION
The following is a summary of selected information relating to the
issuance of the Company's Series C Convertible Preferred Stock and the Warrants
(the "Transaction"). Copies of the Securities Purchase Agreement, the
Certificate of Designation, the Form of Warrant and the Registration Rights
Agreement between the Company and the investors (collectively the "Transaction
Documents") are available upon request to the Company's Legal Department at the
Company's address appearing on the front page of this Proxy Statement. The
summary of the
15
<PAGE> 20
Transaction in this Proxy Statement is qualified in its entirety by reference to
the Transaction Documents.
THE SERIES C CONVERTIBLE PREFERRED STOCK
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:
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"), and the Conversion Limit Amount is subject to
adjustment in accordance with the terms of the Certificate of Designation:
Conversion
Period Limit Amount
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
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<PAGE> 21
During the 4th Year Following the Issue Date 4,650,000
Following the 4th Anniversary of the Issue Date 4,875,000
The 20% Issuance. As discussed above, until the Company obtains the
approval of the holders of a majority of the Company's 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.
At the Annual Meeting, the stockholders will be asked to approve the issuance of
all of the shares of Common Stock which are subject to issuance upon conversion
of the Series C Convertible Preferred Stock and exercise of the Warrants, in
order to permit the Series C Convertible Preferred Stock and the Warrants to be
converted and exercised in full in accordance with their terms, which issuance
would result in the Company's issuing more than 20% of the issued and
outstanding Common Stock on February 5, 1999 (the "20% Issuance").
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 stockholder approval of the 20% Issuance
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 "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
17
<PAGE> 22
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.
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.
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
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<PAGE> 23
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").
Preemptive Rights. Pursuant to the Securities Purchase Agreement, until
February 5, 2000, 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.
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.
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 was required to file with the Securities and Exchange
Commission (the "SEC") 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 has filed such Form S-
3 Registration Statement with the SEC and as of the date of this Proxy Statement
was awaiting comments from the SEC on the Form S-3. 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 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.
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<PAGE> 24
BOARD OF DIRECTORS' RECOMMENDATIONS
The Board of Directors unanimously approved the Transaction, including
the 20% Issuance, and unanimously recommends that the stockholders vote for
approval of the 20% Issuance.
CERTAIN CONSIDERATIONS
While the Board of Directors is of the opinion that the 20% Issuance is
advisable and in the best interests of the Company and its stockholders,
stockholders should consider the following possible effects, as well as the
other information contained in this Proxy Statement, in evaluating the 20%
Issuance.
Possible Dilutive Effects. To the extent that the market value of the
Common Stock at the time of the conversion of the Series C Convertible Preferred
Stock, or exercise of the Warrants, is greater than the Conversion Price then in
effect, or the exercise price of the Warrants, then the holders of Common Stock
may suffer dilution in the value of their equity as a result of the conversion
of the Series C Convertible Preferred Stock or exercise of the Warrants.
Interest of Certain Persons in the 20% Issuance. Messrs. Ajit G.
Hutheesing and Nicholas E. Sinacori, nominees for election to the Company's
Board of Directors pursuant to Proposal 1 in this Proxy Statement, also serve as
principals of International Capital Partners, Inc., whose profit sharing plan is
one of the investors in the Transaction described in this Proposal.
CONSEQUENCES IF THE PROPOSAL IS NOT APPROVED
If stockholder approval is not obtained for the 20% Issuance, the Series
C Convertible Preferred Stock issued at the closing of the Transaction will be
redeemable for cash at a premium, at the option of the holders at any time. If
the Company does not receive stockholder approval, there can be no assurance
that the Company would have or be able to obtain adequate sources of additional
capital to so redeem the Series C Convertible Preferred Stock. An obligation to
redeem a significant number of shares of Series C Convertible Preferred Stock
would likely have an adverse effect on the Company and its prospects. In
addition, pursuant to the Certificate of Designation, certain holders of the
Series C Convertible Preferred Stock could require the Company to institute
proceedings and take all other action necessary to delist the Common Stock from
the NASDAQ SmallCap Market, in which case the 20% Limit would not apply at any
time following the delisting.
VOTE REQUIRED
Assuming the presence of a quorum, an affirmative vote of a majority of
the shares of Common Stock present in person or by proxy and voting will be
required for the approval of the 20% Issuance, which approval is necessary in
order to comply with the corporate governance rules of the NASDAQ SmallCap
Market. Abstentions with respect to voting on this matter will
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<PAGE> 25
have the effect of a negative vote, and "broker non-votes" with respect to
voting on this matter will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 6 ON PROXY CARD)
The Board of Directors has appointed Rothstein, Kass & Company, P.C.,
independent auditors, to audit the books, records and accounts of the Company
for the 1999 fiscal year. This appointment is being presented to the
stockholders for ratification at the Annual Meeting.
Rothstein, Kass & Company, P.C. has no direct or indirect material
financial interest in the Company or its subsidiaries. Representatives of
Rothstein, Kass & Company, P.C. are not expected to be present at the Annual
Meeting.
VOTE REQUIRED
Proxies solicited by the Board of Directors will be voted for
ratification unless stockholders specify otherwise. Ratification by the
stockholders is not required. If the stockholders do not approve the proposal,
the Board of Directors will not change the appointment for fiscal year 1999, but
will consider the stockholder vote in appointing auditors for fiscal year 2000.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
executive officers of the Company who are not also directors. The executive
officers are elected annually by the Board of Directors following the Annual
Meeting and serve at the discretion of the Board.
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<TABLE>
<CAPTION>
OFFICER AGE POSITION WITH COMPANY
- ------- --- ---------------------
<S> <C> <C>
Kenneth M. Dorros...................... 39 Senior Vice President, General Counsel
and Secretary
Sean P. Hayes.......................... 34 Executive Vice President
John Lovkay............................ 61 President - Debit Division
Ismael G. Pinho........................ 40 Controller
Jon F. Sorenson........................ 36 President - Rental Division
</TABLE>
KENNETH M. DORROS has been Senior Vice President, General Counsel and
Secretary of the Company since June of 1998. Previously, he served the Company
as Counsel from October, 1997 to June, 1998. From March of 1989 to October of
1997, Mr. Dorros served as Vice President, General Counsel and Secretary of the
Company. Mr. Dorros served as General Counsel and Secretary of Shared
Technologies Fairchild Inc. ("STFI") from June, 1986 to March, 1998, where he
was also a Senior Vice President from April, 1996 to March, 1998. Mr. Dorros
received a bachelor's degree from Lehigh University and a Juris doctor from the
Fordham University School of Law.
SEAN P. HAYES has been an Executive Vice President of the Company since
March, 1993. Between December, 1992 and March, 1993, he served as the Company's
Director of Operations. From March, 1993 to August, 1996, Mr. Hayes served on
the Company's Board of Directors. Prior to joining the Company, Mr. Hayes was
employed by STFI, serving as Director of STFI's Data Division from 1990 to 1992
and as a Regional Business Manager from 1988 to 1990. He received a B.A. degree
in business administration and computer information systems from New Hampshire
College.
JOHN LOVKAY has been President of the Company's Debit Division since
February of 1999, and he served as Senior Vice President -- Corporate Operations
from October of 1996 to February of 1999. From April, 1995 to October, 1996, Mr.
Lovkay held the position of Vice President -- Operations Support. Prior to
joining the Company, Mr. Lovkay was employed by STFI in the position of Senior
Vice President -- Operations Analysis from August, 1994 to April, 1995. From
December of 1992 to August of 1994, he was a software consultant, which position
included work for Integrated Management Systems and DeSai Consulting Group. Mr.
Lovkay was Executive Vice President and Chief Operating Officer of STFI from
January of 1987 to December of 1992. He also served as President of the Hamilton
Standard Division of United Technologies Corporation from 1984 to 1986. Mr.
Lovkay holds a B.S. in electrical engineering from the Massachusetts Institute
of Technology and an M.S. from the University of Connecticut.
ISMAEL G. PINHO joined the Company as its Controller in May of 1995.
From October, 1990 to May, 1995, he was Controller of F.L. Roberts & Company,
Inc. a retailer and distributor
22
<PAGE> 27
of petroleum products. Mr. Pinho was Controller of Shapiro Equipment, a
construction equipment company, from 1986 to 1990. Mr. Pinho holds a B.A. degree
in accounting from the University of Connecticut.
JON F. SORENSON has been President of the Company's Rental Division
since November, 1995. From March, 1994 to November, 1995, Mr. Sorenson served as
Chief Operating Officer of PTC Cellular, Inc. ("PTC"). The Company acquired
substantially all of the assets of PTC in November of 1995. Prior to that, from
December, 1992 to March, 1994, Mr. Sorenson was a Vice President of the S&S
Companies, a national office beverage distribution and real estate company. From
July, 1991 to December, 1992, he served as Executive Vice President of
Cafeccino, Inc., a nationwide provider of office beverage services. Mr. Sorenson
holds a B.A. degree in economics from the University of Maine.
EXECUTIVE COMPENSATION
1. REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is responsible for
establishing the compensation, including bonus and incentive arrangements, of
the Company's Chief Executive Officer and for reviewing the compensation of
other executive officers of the Company, as established by the Chief Executive
Officer. Until April of 1998, the Chief Executive Officer received no cash
compensation from the Company, but was instead paid by Shared Technologies
Fairchild Inc. ("STFI"), which was acquired by Intermedia Communications, Inc.
in March of 1998. Previously, STFI provided certain management services to the
Company pursuant to a management agreement that expired in 1997.
The Compensation Committee makes appropriate recommendations concerning
executive compensation, and it reports to the Company's Board of Directors.
Under the supervision, approval and review of the Compensation Committee, the
Company's compensation policies and programs are designed to motivate, retain
and attract management with incentives linked to the financial performance of
the Company and the value that is delivered to its stockholders. Specifically,
the Company's policies and programs endeavor to (i) link executive compensation
to sustainable increases in the financial performance of the Company, where
possible, and where not possible, preservation or realization of stockholder
value; (ii) provide rewards contingent upon Company performance; (iii)
differentiate compensation based upon individual contributions; (iv) promote
teamwork among executives and other Company employees; and (v) encourage the
retention of a sound management team.
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<PAGE> 28
Cash compensation at the Company consists of two components: (i) a base
salary that is competitive with that of other companies paying at the median
level of the market, and (ii) an annual incentive opportunity that is variable
and is reflective of the financial performance of the Company and the individual
performance of the executive officer. When high levels of performance are
achieved, the level of cash compensation may exceed the median of the market.
Conversely, when the Company or the individual falls short of the predetermined
goals, the level of cash compensation may be substantially below the market
median. The objective of this mix is to deliver total annual cash compensation
competitive with compensation offered at other companies facing similar
challenges for similar positions, while simultaneously linking the payment of
the annual cash incentive to the achievement of specific objectives in the
Company's annual operating plan as approved by the Board of Directors.
The award and size of any performance bonus are based upon (i) the
executive officer's performance against individual goals, and (ii) the
performance of the Company against Company goals. Goals vary from year to year
and, with regard to individual goals of executive officers, usually include both
quantitative and qualitative factors. The Compensation Committee also
occasionally awards special bonuses in connection with extraordinary
transactions by the Company. The bonuses generally are awarded to individuals
who make significant contributions towards consummation of the transactions.
The Compensation Committee believes that stock option grants serve as a
desirable, long-term method of compensation because they closely ally the
interests of management with the preservation, enhancement and realization of
stockholder value and serve as an additional incentive to promote the success of
the Company.
The Compensation Committee believes that the total compensation program
for executives of the Company is on a level with the compensation programs
provided by other companies facing similar challenges.
Respectfully submitted,
THOMAS H. DECKER
WILLIAM A. DIBELLA
AJIT G. HUTHEESING
2. RECOMMENDATIONS OF THE CHIEF EXECUTIVE OFFICER
The Chief Executive Officer recommends to the Compensation Committee the
proposed compensation (other than his own) of each executive officer of the
Company.
In evaluating the performance of an executive officer and in formulating
his recommendation to the Compensation Committee, the Chief Executive Officer
adheres generally to the criteria and principles enunciated in the Compensation
Committee's report set forth above, yet he relies most heavily on the following
criteria employed by the Compensation Committee:
24
<PAGE> 29
(a) the executive officer's influence on the performance of
the Company through his or her management skills;
(b) the executive officer's skill in long range planning for
the Company's future growth and activities; and
(c) the manner in which the executive officer positions the
Company to succeed in the future.
Respectfully submitted,
ANTHONY D. AUTORINO
Chairman and Chief Executive Officer
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation
awarded or paid to or earned by the Company's Chief Executive Officer, as well
as to each of the Company's other most highly paid executive officers who
received compensation in excess of $100,000 for the fiscal year ended 1998 (of
which there were only three such other executive officers). Collectively, the
Chief Executive Officer and such other executive officers are referred to herein
as the "Named Executive Officers."
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL
COMPENSATION SECURITIES
------------ UNDERLYING ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY ($) OPTIONS (#) COMPENSATION ($)
- -------------------------- ---- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Anthony D. Autorino............... 1998 $163,822 150,000 $47,448(a)
Chairman and Chief 1997 (b) -- (b)
Executive Officer 1996 (b) -- (b)
Vincent DiVincenzo................ 1998 $100,609(c) 50,000 (c)
Senior Vice President, Treasurer and
Chief Financial Officer
Sean P. Hayes..................... 1998 $115,102 25,000 --
Executive Vice President 1997 $102,084 -- --
Jon F. Sorenson................... 1998 $105,584 5,000 --
President-Rental Division 1997 $102,300 -- --
</TABLE>
25
<PAGE> 30
(a) Paid as reimbursement for life insurance premiums.
(b) Until April 1998, the Chief Executive Officer, Anthony D. Autorino, was
paid by Shared Technologies Fairchild Inc., of which Mr. Autorino was
Chairman and Chief Executive Officer, in accordance with a Management
Agreement that is no longer in effect. In 1996, Mr. Autorino received
from STFI a warrant to purchase 480,000 shares of the Company's Common
Stock owned by STFI at an exercise price of $1.72 per share.
(c) Until April 1998, the Senior Vice President, Treasurer and Chief
Financial Officer, Vincent DiVincenzo, was paid by Shared Technologies
Fairchild Inc., of which he was Senior Vice President, Treasurer and
Chief Financial Officer, in accordance with a Management Agreement that
is no longer in effect. In 1996, Mr. DiVincenzo received from STFI a
warrant to purchase 144,000 shares of the Company's Common Stock owned
by STFI at an exercise price of $1.72 per share.
26
<PAGE> 31
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information on options granted during the
fiscal year ended December 31, 1998 to the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
@ ASSUMED RATES OF
INDIVIDUAL GRANTS STOCK PRICE APPRECIATION
----------------- FOR OPTION TERM
% OF TOTAL ------------------------
OPTIONS EXERCISE
GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) 1998 ($/SH) DATE 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Anthony D. Autorino ....... 100,000 28% $5.50 3/26/08 $345,892 $876,558
Vincent DiVincenzo ........ 50,000 14% $5.50 3/26/08 $172,946 $438,279
Sean P. Hayes ............. 25,000 7% $5.73 10/27/08 $ 90,089 $228,304
Jon F. Sorenson ........... 5,000 1% $5.50 3/26/08 $ 17,295 $ 43,828
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning outstanding options to
purchase the Company's Common Stock. No stock options were exercised during the
fiscal year ended December 31, 1998 by the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR FISCAL YEAR
END (#) END ($)
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
---------------------- -----------------
<S> <C> <C>
Anthony D. Autorino..................... 91,666/66,667 $360,540/$175,000
Vincent DiVincenzo...................... 38,334/33,333 $142,810/$87,500
Sean P. Hayes........................... 45,000/43,333 $201,449/$99,067
John F. Sorenson........................ 20,000/10,000 $104,769/$44,583
</TABLE>
27
<PAGE> 32
EMPLOYMENT AGREEMENTS
The Company has no employment agreements currently in effect with any of
its employees.
SECURITY OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 5, 1999 by (i)
each of the Company's directors and nominees, (ii) the Named Executive Officers,
(iii) all directors and Executive Officers of the Company as a group, and (iv)
each person known by the Company to own beneficially more than five percent of
the outstanding shares of the Company's Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES COMMON STOCK
NAMES AND ADDRESS(1) BENEFICIALLY OWNED (2) OUTSTANDING
- -------------------- ---------------------- -------------
<S> <C> <C>
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
Anthony D. Autorino 974,196(a) 11.5%
Chief Executive Officer and Director
Bruce Carswell 4,300(b) *
Director
Thomas H. Decker 131,333(c) 1.7%
Director
William A. DiBella 246,666(d) 3.1%
Director
Vincent DiVincenzo 297,049(e) 3.8%
Senior Vice President, Chief Financial
Officer, Treasurer and Director
Victor Grillo, Sr. 0 *
Nominee for Director
150 East Palmetto Park Road
Boca Raton, FL 33432
</TABLE>
28
<PAGE> 33
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES COMMON STOCK
NAMES AND ADDRESS(1) BENEFICIALLY OWNED (2) OUTSTANDING
- -------------------- ---------------------- -------------
<S> <C> <C>
Sean P. Hayes 129,089 (f) 1.7%
Executive Vice President
Ajit G. Hutheesing 830,381 (g) 9.9%
Director
Nicholas E. Sinacori 820,381 (h) 9.8%
Director
John F. Sorenson 21,195 (i) *
President -- Rental Division
All directors and executive officers as a
group (11 persons) 2,847,612 (j) 28.5%
FIVE PERCENT STOCKHOLDERS
Shared Technologies Fairchild Inc. and
Intermedia Communications Inc. 1,804,570 (k) 23.6%
3625 Queen Palm Drive
Tampa, FL 33619
Summit Assurance, Inc. 408,500 (l) 5.2%
777 E. Tahquitz Canyon Way, Suite 333
Palm Springs, CA 92262
George W. Mauerman 526,166(m) 8.6%
6585 S. Yale, Suite 500
Tulsa, OK 74136
The Fairchild Corporation and 750,519 (n) 9.8%
Banner Aerospace, Inc.
45025 Aviation Drive, Suite 400
Dulles, VA 20177
International Capital Partners, Inc. 820,381 (o) 9.8%
300 First Stamford Place
Stamford, CT 06902
Zesiger Capital Group LLC 1,922,742 (p) 22.9%
320 Park Avenue
New York, NY 10022
</TABLE>
29
<PAGE> 34
- ----------
* Less than 1%
(1) The mailing address of each of the Company's directors and executive
officers is c/o the Company, 100 Great Meadow Road, Wethersfield, CT
06109.
(2) Except as otherwise specifically noted, the number of shares stated as
being owned beneficially includes shares held beneficially by spouses
and minor children. The inclusion herein of any shares deemed
beneficially owned does not constitute an admission of beneficial
ownership of those shares. Each stockholder possesses sole voting and
investment power with respect to the shares listed opposite such
stockholder's name, except as otherwise indicated.
(a) Includes 91,666 shares currently issuable upon exercise of
options by Mr. Autorino. Also includes 76,333 shares and 58,333
shares issuable upon the exercise of warrants that are owned
beneficially by the estate of Mr. Autorino's late spouse, as to
which Mr. Autorino disclaims beneficial ownership. Also includes
540,000 shares issuable upon exercise of warrants that were
issued to Mr. Autorino by Shared Technologies Fairchild Inc.
("STFI") on shares owned by STFI ("STFI Warrants"). Also includes
100,000 shares issuable upon exercise of other warrants held by
Mr. Autorino.
(b) Includes 4,000 shares issuable upon exercise of options by Mr.
Carswell.
(c) Includes 10,000 shares currently issuable upon exercise of
options by Mr. Decker. Also includes 33,333 shares issuable upon
exercise of warrants and 45,000 shares issuable upon exercise of
STFI Warrants.
(d) Includes 10,000 shares currently issuable upon exercise of
options by Mr. DiBella. Also includes 58,333 shares, 58,333
shares issuable upon exercise of warrants and 120,000 shares
issuable upon exercise of STFI Warrants, all of which shares
and warrants are beneficially owned by Mr. DiBella's wife, as
to which he disclaims beneficial ownership.
30
<PAGE> 35
(e) Includes 38,334 shares currently issuable upon exercise of
options by Mr. DiVincenzo. Also includes 16,667 shares
issuable upon exercise of warrants and 194,000 shares issuable
upon exercise of STFI Warrants.
(f) Includes 45,000 shares currently issuable upon exercise of
options by Mr. Hayes. Also includes 6,667 shares issuable upon
exercise of warrants, 35,000 shares issuable upon exercise of
STFI Warrants and 3,374 shares owned through the Company's
Savings and Retirement Plan.
(g) Includes 66,667 shares owned by International Capital
Partners, Inc. ("ICP"), of which Mr. Hutheesing is the
Chairman, Chief Executive Officer and a stockholder. Also
includes 18,000 shares currently issuable upon exercise of
options by ICP, 590,000 shares issuable upon exercise of
warrants held by ICP, 65,000 shares issuable upon exercise of
STFI Warrants held by ICP, 35,714 shares issuable upon
conversion of Series C Convertible Preferred Stock held by the
ICP Profit Sharing Plan and 5,000 shares issuable upon
exercise of warrants held by the ICP Profit Sharing Trust.
Also includes 40,000 shares issuable upon conversion of a
convertible promissory note held by ICP Profit Sharing Trust.
(h) Includes 66,667 shares owned by ICP, of which Mr. Sinacori is
Managing Director. Also includes 18,000 shares currently
issuable upon exercise of options by ICP, 590,000 shares
issuable upon exercise of warrants held by ICP, 65,000 shares
issuable upon exercise of STFI Warrants held by ICP, 35,714
shares issuable upon conversion of Series C Convertible
Preferred Stock held by the ICP Profit Sharing plan and 5,000
shares issuable upon exercise of warrants held by the ICP
Profit Sharing Trust. Also includes 40,000 shares issuable
upon conversion of a convertible promissory note held by ICP
Profit Sharing Trust.
(i) Includes 15,000 shares currently issuable upon exercise of
options by Mr. Sorenson. Also includes 1,667 shares issuable
upon exercise of warrants, 2,500 shares issuable upon exercise
of STFI Warrants and 361 shares owned through the Company's
Savings and Retirement Plan.
(j) Includes a total of 289,666 shares currently issuable upon
exercise of options by the Company's directors and executive
officers. Also includes a total of 901,667 shares currently
issuable upon exercise of warrants by such directors and
executive officers, 1,071,500 shares issuable upon exercise of
STFI Warrants by such directors and executive officers, 9,367
shares owned through the Company's Savings and Retirement
Plan and 35,714 shares issuable upon conversion of Series C
Convertible Preferred Stock and 40,000 shares issuable upon
conversion of a convertible promissory note beneficially
owned by certain of such directors.
(k) Owned by Shared Technologies Fairchild Inc., a wholly-owned
subsidiary of Intermedia Communications Inc. Such shares are
subject to purchase from STFI through the exercise of STFI
Warrants held by various parties, including certain directors
and executive officers of the Company.
31
<PAGE> 36
(l) Includes 208,500 shares issuable upon exercise of warrants by
Summit Assurance, Inc.
(m) Includes 83,333 shares issuable upon exercise of warrants by Mr.
Mauerman. Also includes shares beneficially owned by George S.
Mauerman, individually and as Trustee of the Andrien W. Mauerman
Testamentary Trust.
(n) Owned by Banner Aerospace, Inc. a wholly-owned subsidiary of The
Fairchild Corporation.
(o) Includes 18,000 shares currently issuable upon exercise of
options held by ICP. Also includes 590,000 shares issuable upon
exercise of warrants held by ICP, 65,000 shares issuable upon
exercise of STFI Warrants held by ICP, 35,714 shares issuable
upon conversion of Series C Convertible Preferred Stock held by
the ICP Profit Sharing Trust, 5,000 shares issuable upon
exercise of warrants held by the ICP Profit Sharing Trust and
40,000 shares issuable upon conversion of a convertible
promissory note held by the ICP Profit Sharing Trust. (See
notes (g) and (h) with respect to beneficial ownership
attributable to Messrs. Hutheesing and Sinacori.)
(p) Includes 735,000 shares issuable upon exercise of warrants owned
beneficially by Zesiger Capital Group.
CUMULATIVE STOCKHOLDER RETURN
The following graph and chart compare the cumulative annual stockholder
return on the Company's Common Stock over the period commencing April 21, 1995
(the date of the Company's initial public offering and the date that the
Company's Common Stock commenced trading on NASDAQ) through December 31, 1998 to
that of the total return Index for the NASDAQ Stock Market ("NASDAQ") and the
total return Index for the Standard Industrial Classification Codes 4810-4819
Telephone Communications ("'SIC Code Index") assuming the investment of $100 on
April 21, 1995. The total return Index for the Company and the SIC Code Index
were computed using the Compustat database. The first partial year of the NASDAQ
total return Index was computed using Bloomberg, and the subsequent years were
calculated based upon the Center for Research of Securities Prices Total Return
Indices data. In calculating total annual return, reinvestment of dividends is
assumed. The stock performance graph and chart below are not necessarily
indicative of future price performance.
32
<PAGE> 37
[Line Graph]
<TABLE>
<CAPTION>
Company/Index Name 04/21/95 12/31/95 12/31/96 12/31/97 12/31/98
- ------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SHARED TECHNOLOGIES CELLULAR $100.00 $33.70 $30.40 $59.80 $107.67
NASDAQ $100.00 $128.90 $158.60 $194.60 $272.68
SIC CODE INDEX $100.00 $123.90 $145.20 $194.10 $245.45
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April, 1998, the Company and Summit Assurance, Inc. and certain of
its affiliates (the "Summit Entities"), the beneficial owner of more than 5% of
the Company's outstanding Common Stock, and Craig A. Marlar, who is an executive
officer and director of the Summit Entities 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 assets from certain of the Summit Entities in
April, 1996. The terms of the settlement are more fully described in footnote 4
to the Company's financial statements included in the Company's 1998 Annual
Report.
In April 1998, the Company completed a debt financing in the amount of
$4 million from four lenders, including Mr. Autorino, the Company's Chairman and
Chief Executive Officer, and International Capital Partners, Inc. ("ICP"), of
which directors Ajit G. Hutheesing and Nicholas E. Sinacori are principals. Such
debt was issued pursuant to credit agreements with each of the lenders,
providing for a floating interest rate of 2.5% above a rate comparable to the
prime rate. Mr. Autorino and ICP loaned $1,000,000 and $500,000, respectively,
to the Company, pursuant to such credit agreements. In connection therewith, Mr.
Autorino received a warrant for the purchase of 100,000 shares of Common Stock,
and ICP received a warrant for the purchase of 50,000 shares of Common Stock.
Such warrants have an exercise price of $5.00 per share. All such debt was
repaid in February 1999 from the proceeds of the Company's sale of Series C
Convertible Preferred Stock.
33
<PAGE> 38
In May 1998, the Company issued to nine investors $2.4 million of 5%
convertible notes (the "Notes") through a private placement. 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.
In May 1998, the Company issued a promissory note in the principal
amount of $1,693,560 to Shared Technologies Fairchild Inc. ("STFI"), which
beneficially owns 23.6% of the Company's Common Stock, to memorialize
indebtedness of the Company to STFI for certain administrative services and
prior funding of the Company's operations. The note bore interest at the prime
rate plus two percent, the interest was payable quarterly in arrears, and the
note was scheduled to mature in November 1999. In February 1999, the Company
prepaid such indebtedness from the proceeds of the sale of the Company's Series
C Convertible Preferred Stock.
In February 1999, the Company closed the Transaction described in
Proposal 5 in this Proxy Statement, pursuant to which it issued 15,000 shares of
Series C Convertible Preferred Stock and Warrants to purchase 300,000 shares of
Common Stock for an aggregate consideration of $15,000,000. International
Capital Partners Profit Sharing Trust purchased 250 shares of Series C
Convertible Preferred Stock and received Warrants to purchase 5,000 shares of
Common Stock in the Transaction for an aggregate consideration of $250,000. In
addition, ICP received a commission in the amount of $50,000 in connection with
the Transaction as a finder's fee. Messrs. Ajit G. Hutheesing and Nicholas E.
Sinacori, directors of the Company and nominees for election to the Board of
Directors pursuant to Proposal 2 in this Proxy Statement, also serve as
principals of International Capital Partners, Inc. and trustees of the ICP
Profit Sharing Trust.
Victor Grillo, Sr., a nominee for director, is a principal owner of
Retail Distributors, Inc. ("RDI"), which owns all of the outstanding shares of
capital stock of Retail Cellular, Inc. ("RCI"). The Company is in the final
stages of negotiations to acquire RCI, which provides sales support services
that would be utilized by the Company in connection with its Debit Division. In
addition, the Company contemplates entering into a services agreement with RDI,
pursuant to which the Company would obtain similar services from RDI. In
anticipation of entering into such agreements, in February 1999 the Company
provided a loan to RDI in the principal amount of $500,000, which accrues
interest at the rate of prime plus one percent, and matures in September 1999.
The loan was intended as a prepayment of expense reimbursement for RDI, as RDI
commenced providing substantial services for the Company at such time.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly presented
at the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters.
All costs of solicitations of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting material to the owners of stock held in
their names, and the Company will reimburse them for out-of-pocket expenses
thereby incurred.
STOCKHOLDER PROPOSALS
Any stockholder desiring to present a proposal for consideration at the
Company's next annual meeting of stockholders must submit the proposal to the
Company so that it is received at the principal executive offices of the
Company, 100 Great Meadow Road, Wethersfield, Connecticut 06109, on or before
December 30, 1999. Any stockholder desiring to submit a proposal should consult
applicable regulations of the SEC.
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<PAGE> 39
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own more than 10% of the Company's outstanding shares of Common
Stock, to file reports of ownership and changes in ownership with the SEC and
NASDAQ. Executive officers, directors and persons holding greater than ten
percent of the Company's outstanding shares of Common Stock are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
The Company knows of no delinquent filings under Section 16(a) of the
Exchange Act during the fiscal year ended December 31, 1998.
A COPY OF THE COMPANY'S FORM 10-K AS FILED WITH THE SEC WILL BE
FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER AS OF THE RECORD DATE UPON WRITTEN
REQUEST TO THE SECRETARY OF SHARED TECHNOLOGIES CELLULAR, INC., 100 GREAT MEADOW
ROAD, WETHERSFIELD, CONNECTICUT 06109.
35
<PAGE> 40
EXHIBIT I
AMENDMENT PROVIDING FOR CLASSIFIED BOARD OF DIRECTORS
An Article ELEVENTH shall be added to the Company's Restated Certificate
of Incorporation and shall read in its entirety as follows:
The number of directors constituting the entire Board of Directors shall
be as set forth in or pursuant to the Bylaws of the Corporation. The Board of
Directors shall be divided into three classes, designated Classes I, II and III,
which shall be as nearly equal in number as possible. Initially, directors of
Class I shall be elected to hold office for a term expiring at the annual
meeting of stockholders in 2000, directors of Class II shall be elected to hold
office for a term expiring at the annual meeting of stockholders in 2001 and
directors of Class III shall be elected to hold office for a term expiring at
the annual meeting of stockholders in 2002. At each annual meeting of
stockholders following such initial classification and election, the respective
successors of each class shall be elected for three-year terms.
<PAGE> 41
EXHIBIT II
AMENDMENTS TO THE COMPANY'S AMENDED AND RESTATED BYLAWS
PROVIDING FOR CLASSIFIED BOARD OF DIRECTORS AND OTHER MATTERS
Sections 2.1 and 2.2 of Article 2 to the Company's Amended and Restated
Bylaws shall be amended and restated in their entirety to read as follows:
ARTICLE 2 -- DIRECTORS
2.1 General Powers. The business and affairs of the corporation shall
be managed by the Board of Directors. The Board of Directors shall be divided
into three classes, designated Classes I, II and III, which shall be as nearly
equal in number as possible. The initial directors of Class I shall be elected
to hold office for a term expiring at the annual meeting of stockholders in
2000, the initial directors of Class II shall be elected to hold office for a
term expiring at the annual meeting of stockholders in 2001, and the initial
directors of Class III shall be elected to hold office for a term expiring at
the annual meeting of stockholders in 2002. At each annual meeting of
stockholders following such initial classification and election, the respective
successors of each class shall be elected for three-year terms.
2.2 Number, Election and Term of Office. The number of directors shall
be fixed from time to time by resolution of the Board of Directors, but shall
not be less than three (3) nor more than eleven (11). In case of any increase in
the number of directors in advance of an annual meeting of stockholders, each
additional director shall be elected by the directors then in office, although
less than a quorum, to hold office until the next election of the class for
which such director shall have been chosen, and until his successor shall have
been duly elected and qualified (subject to Section 2.3 of this Article 2). No
decrease in the number of directors shall shorten the term of any incumbent
director. Any newly-created or eliminated directorships resulting from an
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly equal as
possible. It shall not be a qualification of office that the directors be
residents of the State of Delaware or stockholders of the corporation.
Sections 2.3 (Enlargement of the Board) and 2.4 (Tenure) will be
deleted in their entirety.
2.3 Vacancies. In case of any vacancy in the Board of Directors through
death, resignation, retirement, removal, disqualification or other cause, the
remaining directors, by vote of a majority thereof, shall elect a successor to
hold office for the unexpired portion of the term of office of the class for
which such vacancy occurs, and until the election of his successor. Any director
elected by the remaining Board of Directors to fill a vacancy created by any of
the foregoing reasons or by an increase in the number of directors constituting
the entire Board of Directors must subsequently be approved or confirmed by the
holders of a majority of the shares of Common Stock of the corporation present
in person, or represented by proxy, and entitled to vote at the next annual
meeting of stockholders. If the director elected to fill such vacancy by the
Board of Directors is not subsequently approved by the stockholders, and if
another candidate is not elected at the annual meeting of stockholders in
accordance with federal securities laws and these bylaws,
<PAGE> 42
then the number of directors constituting the entire Board of Directors will
automatically be reduced and, if necessary, the number of directors serving in
each class will be reapportioned so that the number of directors serving in each
class will be as nearly equal as possible.
Section 2.5 (Vacancies) will be deleted in its entirety.
Section 2.6 to 2.13 will be re-numbered to 2.4 to 2.11, respectively.
Section 2.14 (Removal) will be deleted in its entirety, and Sections
2.15 and 2.16 will be renumbered 2.12 and 2.13, respectively.
2
<PAGE> 43
PROXY
SHARED TECHNOLOGIES CELLULAR, INC.
100 GREAT MEADOW ROAD
WETHERSFIELD, CONNECTICUT 06109
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Anthony D. Autorino and Vincent
DiVincenzo, or either of them, as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
below, all shares of Common Stock of Shared Technologies Cellular, Inc. held of
record by the undersigned on April 26, 1999 at the Annual Meeting of
Stockholders to be held on May 20, 1999, or any adjournment or postponement
thereof.
/X/ Please mark your votes as this
Item 1 To approve an amendment to the Company's Restated Certificate of
Incorporation establishing a classified Board of Directors and to make certain
necessary conforming changes to the Company's Restated Bylaws.
/ / FOR / / AGAINST / / ABSTAIN
Item 2 To elect the directors.
Nominees: Anthony D. Autorino (3 year term), Bruce Carswell (1 year term),
Thomas H. Decker (3 year term), William A. DiBella (2 year term), Vincent
DiVincenzo (2 year term), Victor Grillo, Sr. (2 year term), Ajit G. Hutheesing
(3 year term) and Nicholas E. Sinacori (1 year term)
/ / FOR all nominees. / / WITHHELD from all nominees.
/ / FOR, except vote withheld from the following nominee(s):________________
Item 3 To approve the amendment to the 1994 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
Item 4 To approve the amendments to the 1994 Director Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
(Continued and to be signed and dated on reverse side)
<PAGE> 44
Item 5 To approve the issuance of twenty percent (20%) or more of the
outstanding shares of the Company's Common Stock upon the conversion of
the Series C Convertible Preferred Stock of the Company and the
exercise of certain Warrants to purchase Common Stock of the Company by
the holders thereof, which approval is necessary in order to comply
with the corporate governance requirements of the NASDAQ SmallCap
Market.
/ / FOR / / AGAINST / / ABSTAIN
Item 6 To ratify the appointment of Rothstein, Kaas and Company, P.C. as
auditors for the Company
/ / FOR / / AGAINST / / ABSTAIN
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournment or postponement
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR"
PROPOSALS 1, 2, 3, 4, 5 AND 6.
COMMENTS/ADDRESS If you plan to attend the Annual Meeting,
CHANGE: please check this box [ ]
COMMENTS/ADDRESS CHANGE
Please mark this box if you have written comments/address
change at left. [ ]
Receipt is hereby acknowledged of the Notice of Annual
Meeting and Proxy Statement of Shared Technologies
Cellular, Inc.
Signature(s) Date
Please sign proxy exactly as name appears at left and date and return it
in the enclosed envelope. When shares are held by joint tenants, both should
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title of such. If a corporation, please sign in full corporate
name by president or other authorized officer. If a partnership, please sign in
partnership name by general partner or other authorized person.
