<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number 1-13732
SHARED TECHNOLOGIES CELLULAR, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1386411
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109
(Address of principal executive office) (Zip Code)
(860) 258-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X___ No ___
As of May 11, 2000, there were 10,556,620 shares outstanding of the registrant's
Common Stock, $.01 par value
<PAGE> 2
SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PART 1 FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements (Unaudited)
Report of Independent Public Accountants 3
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 4
Consolidated Statements of Operations for the Three Months Ended
March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 6-7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
</TABLE>
<PAGE> 3
1177 Avenue of the Americas 280 Corporate Center, 85 Livingston Avenue
New York, York 10036-2714 Roseland, NJ 07068
212-490-7700 / FAX 212-730-6892 973-994-6666 / FAX 973-994-0337
[ROTHSTEIN, KASS & COMPANY LOGO]
Website: http://www.rkco.com
Independent Accountants' Report
To the Shareholders and Board of Directors of
Shared Technologies Cellular, Inc.
We have reviewed the accompanying consolidated balance sheet and statements of
operations and cash flows of Shared Technologies Cellular, Inc. and Subsidiaries
as of March 31, 2000, and for the three-month period then ended. These
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
May 10, 2000
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 273,000 $ 1,635,000
Accounts receivable, less allowance for doubtful accounts
of $569,000 and $495,000 in 2000 and 1999 3,176,000 3,612,000
Carrier commissions receivable, less unearned income 248,000 178,000
Inventories 1,424,000 2,316,000
Prepaid expenses and other current assets 3,965,000 4,526,000
------------ ------------
Total current assets 9,086,000 12,267,000
------------ ------------
TELECOMMUNICATIONS AND OFFICE EQUIPMENT, NET 1,470,000 1,514,000
------------ ------------
OTHER ASSETS:
Intangible assets, net 6,133,000 6,289,000
Deposits 1,515,000 1,515,000
------------ ------------
Total other assets 7,648,000 7,804,000
------------ ------------
$ 18,204,000 $ 21,585,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations $ 542,000 $ 535,000
Accounts payable 8,888,000 8,580,000
Accrued expenses and other current liabilities 7,658,000 7,045,000
Deferred revenues 4,452,000 4,355,000
------------ ------------
Total current liabilities 21,540,000 20,515,000
------------ ------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 710,000 2,492,000
------------ ------------
REDEEMABLE PUT WARRANT 200,000 200,000
------------ ------------
SERIES C AND D REDEEMABLE PREFERRED STOCK, issued
and outstanding 20,100 shares in 2000 and 1999 21,168,000 20,861,000
------------ ------------
STOCKHOLDERS' DEFICIT:
Preferred Stock,$.01 par value, authorized 5,000,000 shares
Common Stock, $.01 par value, authorized 20,000,000 shares,
issued and outstanding 8,823,000 shares in 2000
and 8,452,000 in 1999 88,000 85,000
Capital in excess of par value 30,298,000 28,437,000
Accumulated deficit (55,800,000) (51,005,000)
------------ ------------
Total stockholders' deficit (25,414,000) (22,483,000)
------------ ------------
$ 18,204,000 $ 21,585,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 5
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended March 31,
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
REVENUES $ 9,744,000 $ 5,621,000
COST OF REVENUES 8,077,000 4,592,000
----------- -----------
GROSS MARGIN 1,667,000 1,029,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,865,000 4,803,000
BAD DEBT EXPENSE 208,000 380,000
----------- -----------
LOSS FROM OPERATIONS (4,406,000) (4,154,000)
INTEREST EXPENSE, NET (77,000) (194,000)
----------- -----------
LOSS BEFORE INCOME TAXES (4,483,000) (4,348,000)
INCOME TAXES (5,000) (7,000)
----------- -----------
NET LOSS (4,488,000) (4,355,000)
PREFERRED STOCK DIVIDENDS (307,000) (4,154,000)
----------- -----------
NET LOSS APPLICABLE TO COMMON STOCK ($4,795,000) ($8,509,000)
=========== ===========
BASIC AND DILUTED LOSS PER COMMON SHARE ($ 0.55) ($ 1.12)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 8,774,000 7,625,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE> 6
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31,
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss, before preferred stock dividend ($ 4,488,000) ($ 4,355,000)
Adjustments to reconcile net loss to net cash
used in operating activities;
Accretion of interest 26,000 25,000
Depreciation and amortization 941,000 324,000
Common stock issued for compensation
and services 44,000 36,000
Change in assets and liabilities:
Accounts receivable 427,000 (137,000)
Carrier commissions receivable (70,000) 343,000
Inventories 892,000 24,000
Prepaid expenses and other current assets (79,000) (1,008,000)
Accounts payable and other current liabilities 921,000 (2,351,000)
Deferred revenues 97,000 (602,000)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,289,000) (7,701,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in deposits 0 (21,000)
Purchases of equipment (118,000) (133,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (118,000) (154,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt and capital lease obligations (75,000) (4,018,000)
Payments to former parent 0 (1,411,000)
Proceeds from issuance of preferred stock 0 14,519,000
Proceeds from exercise of warrants and options 120,000 284,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 45,000 9,374,000
------------ ------------
NET INCREASE (DECREASE) IN CASH (1,362,000) 1,519,000
CASH, BEGINNING OF PERIOD 1,635,000 229,000
------------ ------------
CASH, END OF PERIOD $ 273,000 $ 1,748,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 7
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited) (continued)
For the Three Months Ended March 31,
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest $ 64,000 $ 195,000
========== ==========
Income taxes $ 5,000 $ 7,000
========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of warrants in connection with issuance of
preferred stock $ 0 $ 75,000
========== ==========
Redeemable preferred stock issued as preferred stock dividends $ 301,000 $ 136,000
========== ==========
Conversion of convertible notes into common stock $1,700,000 $ 0
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-7-
<PAGE> 8
Shared Technologies Cellular, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000 (Unaudited)
1. BASIS OF PRESENTATION. The consolidated financial statements included herein
have been prepared by Shared Technologies Cellular, Inc. ("STC" or the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission and reflect all adjustments, consisting only of normal recurring
adjustments, which are, in the opinion of management, necessary to present a
fair statement of the financial position, results of operations and cash flows
for interim periods. Certain information and footnote disclosures have been
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these consolidated financial statements are
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's December 31, 1999 report on Form 10-K. Certain
reclassifications to prior year financial statements were made in order to
conform to the 2000 presentation. The consolidated financial statements included
herein are not necessarily indicative of the results for the fiscal year ending
December 31, 2000.
2. INVENTORIES. Inventories, consisting of telecommunications equipment and
parts expected to be sold to customers, are valued at the lower of cost, on the
first-in, first-out (FIFO) method, or market.
3. REVENUE RECOGNITION. Debit, or prepaid, card revenue is recognized over the
estimated period in which the Company provides debit cellular service to its
customers. Customers purchase debit cellular service by buying debit cards at
various national retailers and calling the Company to activate, or redeem, the
debit cards. Customers may also call the Company directly to purchase debit
cellular service. The Company gives the customer a series of numeric codes that
are input into the customer's phone that allow it to be activated for a specific
number of minutes and days. The actual number of minutes will vary based upon
the denomination of the card and the type of calls made (local or roaming). A
typical debit card with a face value of $30 expires 60 days after redemption.
However, the Company's experience indicates that most of the airtime is used
within the first 30 days of redemption. Rental and activation revenues are
recognized as the services are provided.
4. LOSS PER COMMON SHARE. Basic earnings per share excludes dilution and is
computed by dividing the loss available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock and then shared in the earnings of the
entity. The Company had issued and outstanding unexercised options to purchase
1,217,000 and 1,087,000 shares of Common Stock as of March 31, 2000 and 1999,
respectively, and Common Stock warrants to purchase 3,734,000 and 3,496,000
shares of Common Stock as of March 31,
-8-
<PAGE> 9
2000 and 1999, respectively. The Company also had issued and outstanding 5%
convertible notes which are convertible at any time at the option of the
noteholders into 90,000 and 480,000 shares of the Company's Common Stock as of
March 31, 2000 and 1999, respectively. In addition, the Company had issued and
outstanding 14,000 and 15,000 shares of Series C Convertible Preferred Stock
("Series C Shares") as of March 31, 2000 and 1999, respectively. As of March 31,
2000, the outstanding Series C Shares were convertible into approximately
4,052,000 shares of Common Stock, of which 1,730,000 were converted as of May
11, 2000. The Company also had issued and outstanding 6,100 shares of Series D
Convertible Preferred Stock ("Series D Shares") as of March 31, 2000, which are
currently convertible into approximately 711,000 shares of Common Stock. Diluted
loss per common share was the same as basic loss per common share for the
three-month periods ended March 31, 2000 and 1999 because all other securities
would have been antidilutive as a result of the Company's losses.
5. LITIGATION. In January 1999, the Company filed a lawsuit against SmarTalk
TeleServices, Inc. ("SmarTalk") and certain individuals in the U.S. District
Court for the District of Connecticut. The Company's complaint includes
allegations of breach of contract and fraud in connection with various
agreements between SmarTalk and the Company. SmarTalk subsequently filed for
federal bankruptcy protection. The Company's complaint seeks recovery of $25
million in damages, and the Company has filed a proof of claim with the
bankruptcy court (U.S. Bankruptcy Court, District of Delaware) for $14.4
million. The Company intends to aggressively prosecute its claim, although due
to SmarTalk's impaired financial condition and the number and value of claims
from unsecured creditors, the amount of any recovery against SmarTalk is
questionable. The Company may have some exposure to a preference claim with
respect to certain payments received by the Company from SmarTalk prior to its
bankruptcy filing, although the Company intends to aggressively defend against
any such claim.
The Company is not involved in any other litigation which, individually or in
the aggregate, if resolved against the Company, would be likely to have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
6. LIQUIDITY. Cash requirements for the foreseeable future will include funds
needed to sustain operations and for existing obligations. Management believes
that an infusion of cash from debt or equity financing is required. The Company
is currently in discussions with various financial institutions to raise the
required funding. Pursuant to the Second Amendment to Loan Agreement by and
between the Company and Citizens Bank of Massachusetts dated May 1, 2000, the
Company has committed to obtain $7,500,000 of such funding by June 30, 2000.
7. SEGMENT INFORMATION. Segment information listed below reflects the three
principal business units of the Company. Each segment is managed according to
the products which are provided to the respective customers and information is
reported on the basis of reporting to the Company's
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<PAGE> 10
Chief Operating Decision Maker ("CODM"). The Company's CODM uses segment
information relating to the operations of each segment. However, a segment
balance sheet is not prepared or used by the CODM.
Operating segment information for the three-month periods ended March 31, 2000
and 1999 is summarized as follows:
<TABLE>
Rental Debit Activation Corporate Consolidated
<S> <C> <C> <C> <C> <C>
2000
Revenues $ 2,595,000 $ 7,023,000 $ 126,000 $ 9,744,000
----------- ----------- ----------- -----------
Income (loss) before
income taxes $ (38,000) $(3,075,000) $ 15,000 $(1,385,000) $(4,483,000)
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Rental Debit Activation Corporate Consolidated
<S> <C> <C> <C> <C> <C>
1999
Revenues $ 3,131,000 $ 2,220,000 $ 270,000 $ 5,621,000
----------- ----------- ----------- -----------
Loss before
income taxes $ (55,000) $(2,844,000) $ (50,000) $(1,399,000) $(4,348,000)
----------- ----------- ----------- ----------- -----------
</TABLE>
-10-
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Three Months Ended March 31, 2000 compared to Three Months Ended March 31, 1999
Revenues for the first quarter of 2000 were $9,744,000, compared to $5,621,000
for the first quarter of 1999, an increase of $4,123,000. The net loss
applicable to Common Stock for 2000 was $4,795,000, compared to $8,509,000 for
1999. The net loss applicable to Common Stock for 1999 included a one-time
non-cash preferred stock dividend of $4,018,000, $0.51 per share, attributable
to the beneficial conversion feature in connection with the Company's issuance
of its Series C Convertible Preferred Stock, in February 1999. The net loss per
Common Stock was $0.55 for 2000, compared to a net loss of $1.12 for 1999.
Revenues
Debit, or prepaid, operations had revenues of $7,023,000 for the first quarter
of 2000, compared to $2,220,000 for the first quarter of 1999. The increase in
revenues of $4,803,000 (216%) was due to growth of the private label program,
which is co-branded with MCI WorldCom and the Company's CellEase brand name. In
February 1999, the Company signed an agreement with MCI WorldCom for the retail
distribution of the Company's prepaid cellular services under the MCI WorldCom
brand name, utilizing MCI WorldCom's extensive network of retail distribution
locations. Subsequently, the Company worked closely with MCI WorldCom to
significantly increase its number of prepaid cellular customers. First quarter
of 2000 debit revenues also included the sale of approximately 38,000 prepaid
cellular phones for $1,947,000, compared to the sale of approximately 2,000
prepaid cellular phones for $174,000, in the first quarter of 1999. The first
quarter of 1999 debit revenues were negatively impacted by the Company's
termination of its relationship with SmarTalk TeleServices, Inc. ("SmarTalk") in
December 1998 (see "Legal Proceedings"). Throughout the first quarter of 1999,
the Company's prepaid cellular customer base deteriorated as customers were
unable to purchase debit cards from retailers previously associated with
SmarTalk.
The Company's cellular phone rental operations had revenues of $2,595,000 for
the first quarter of 2000, compared to $3,131,000 for the first quarter of 1999.
The decrease of $536,000 (17%) was attributable to a decrease of 23% in the
number of rentals to 22,000. During the first quarter of 2000, the Company
finalized the conversion of its cellular phone inventory to the Nextel product,
which required a partial reallocation of sales resources. In addition, during
the first quarter of 1999, the Company ran various special promotions, such as
"first 10 minutes free", that increased sales for that period.
The Company's cellular activation operations had revenues of $126,000 for the
first quarter of 2000, compared to $270,000 for the first quarter of 1999. The
decrease of $144,000 (53%) was mainly attributable to the loss of revenues from
the Connecticut activation location which had revenues of $105,000 in the first
quarter of 1999 and was closed in November 1999.
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<PAGE> 12
Gross Margin
Gross margin was 17% of revenues for the first quarter of 2000, compared to 18%
for the first quarter of 1999. The change in gross margin was mainly due to a
change in the revenue mix together with the improvement of gross margin for
debit operations. The following table summarizes the change in the revenues mix
and the corresponding gross margins for the two periods:
<TABLE>
<CAPTION>
2000 1999
Revenues Gross margin Revenues Gross margin
<S> <C> <C> <C> <C>
Debit 72% 1% 40% (40)%
Rental 27% 60% 56% 58%
Activation 1% 32% 4% 40%
100% 17% 100% 18%
</TABLE>
Gross margin for debit operations improved significantly in the first quarter of
2000, compared to the first quarter of 1999. The first quarter of 1999 was
negatively impacted by the termination of the Company's relationship with
SmarTalk, in December 1998. As a result of this termination, during most of
fiscal 1999 the Company had a significant gap between lines under contract with
carriers and such carriers lines that were active with customers, resulting in a
negative margin during that period. Gross margin for the first quarter of 2000
was impacted by a per minute rate reduction. Effective mid-December 1999, the
Company reduced its prepaid cellular rate from $.79 per minute to rates as low
as $.39 per minute, depending on the denomination of the debit card redeemed.
The negative impact on gross margin of the price decrease is expected to be
offset by reductions in future carrier charges and such price decrease should
have a minimal effect on gross margin by the end of the second quarter of 2000.
Gross margin for cellular phone rental operations increased slightly in the
first quarter of 2000, compared to the first quarter of 1999, due to lower
carrier charges. Gross margin for activation operations decreased in the first
quarter of 2000, compared to the first quarter of 1999, due to the national MOVE
program representing all of the activation revenues in 2000, compared to 61% in
1999. The MOVE program historically has had lower gross margins than the
Connecticut activation program. The MOVE program provides cellular service
activations for customers who move from one cellular market to another.
Selling, General & Administrative Expenses
Selling, general and administrative expenses (SG&A) were $5,865,000 for the
first quarter of 2000, compared to $4,803,000 for the first quarter of 1999, an
increase of $1,062,000 (22%). As a percentage of revenues, SG&A decreased to 60%
for 2000, compared to 85% for 1999. The decrease, or improvement, was
attributable to several factors. SG&A for the first quarter of 1999, as a
percentage of revenues, was negatively impacted by SmarTalk. The Company added a
new call center in Hartford and expanded its existing call center in St. Louis
in the fourth quarter of
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<PAGE> 13
1998, in anticipation of the significant growth the Company expected from its
SmarTalk relationship. As previously discussed, the significant growth did not
occur. Consequently, SG&A, as a percentage of revenues, increased dramatically
in the first quarter of 1999 compared to the corresponding period in the prior
year. As revenues increased throughout the remainder of 1999 and the first
quarter of 2000, the Company was able to improve, or reduce, SG&A as a
percentage of revenues. The $1,062,000 increase in SG&A was attributable to
$623,000 related to the services agreement with Retail Distributors, Inc.
entered into in early 1999 and $439,000 mainly due to additional personnel in
the call centers to accommodate the additional call volume.
Bad Debt Expense
Bad debt expense was $208,000 for the first quarter of 2000, compared to
$380,000 for the first quarter of 1999, a decrease of $172,000 (45%). As a
percentage of revenues, bad debt expense was approximately 2% for 2000, compared
to 7% for 1999. The decrease in bad debt expense for 2000, compared to 1999, was
mainly due to an improvement in collection procedures in the Rental Division.
The Company records an allowance for uncollectible receivables from revenues
related to third parties generated through the ordinary course of business. The
Company regularly reviews uncollected receivables and writes off any that are
deemed uncollectible against the allowance.
Interest Expense
Interest expense, net of interest income, was $77,000 for the first quarter of
2000, compared to $194,000 for the first quarter of 1999. Interest expense for
the first quarter of 2000 was mainly due to the Company's revolving credit
facility with Citizens Bank of Massachusetts. Interest expense for the first
quarter of 1999 was mainly due to debt to the Company's former parent and debt
financing completed in May 1998. In February 1999, the Company used a portion of
the $15 million private equity placement proceeds to repay $1,411,000 of the
debt to its former parent and approximately $4 million of the May 1998 debt.
Preferred Stock Dividends
Preferred stock dividends were $307,000 for the first quarter of 2000, compared
to $4,154,000 for the first quarter of 1999. Preferred stock dividends for the
first quarter of 2000 represented the 6% premium on the outstanding Series C and
D Shares. Preferred stock dividends for the first quarter of 1999 represented
the 6% premium on the Series C Shares and the $4,018,000 beneficial conversion
feature associated with the Series C Shares. In accordance with Emerging Issues
Task Force Topic D-60, the Company recognized a beneficial conversion feature as
a one-time non-cash preferred stock dividend. The amount represented the
difference between the conversion price of $7 per share at the date of the
issuance of the Series C Shares, February 5, 1999, and the $8 7/8 market price
of the Common Stock at that date.
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<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES:
The Company had a working capital deficit of $12,454,000 at March 31, 2000,
compared to a deficit of $8,248,000 at December 31, 1999. Stockholders' deficit
at March 31, 2000 was $25,414,000, compared to a deficit of $22,483,000 at
December 31, 1999. Stockholders' deficit at March 31, 2000 and December 31, 1999
did not include $21,168,000 and $20,861,000, respectively, related to the Series
C and D Convertible Preferred Stock, since each shareholder of the Series C and
D Shares has the right, upon the occurrence of certain events, to require the
Company to redeem all or any part of such purchaser's Series C or D Shares. As
of May 11, 2000, an additional 6,300 Series C Shares had been converted into
1,730,000 Common Stock shares, consequently Stockholders' Deficit has been
reduced by $6,735,000 since the end of the first quarter of 2000.
Net cash used in operations for the three-month period ended March 31, 2000 was
$1,289,000. This was mainly due to the operating loss for the period, partially
offset by a reduction of $892,000 in the debit cellular phones purchased in the
fourth quarter of 1999, a $921,000 increase in accounts payable, and a $427,000
decrease in receivables. For the three-month period ended March 31, 1999 net
cash used in operations was $7,701,000. This was primarily due to the operating
loss for period as well as the partial use of the $15 million proceeds to
improve the timeliness of payments to carriers and other vendors.
Net cash used in investing activities for the three-month period ended March 31,
2000 was $118,000, primarily for the purchase of Nextel cellular phones for the
Rental Division. For the three-month period ended March 31, 1999, net cash used
in investing activities was $154,000. This was mainly attributable to the
purchase of computer equipment to handle the CellEase program and security
deposit requirements by carriers for additional lines.
During the three-month period ended March 31, 2000, the Company received
$120,000 from the exercise of 24,000 warrants. The Company continued to make
required payments on its existing debt. For the three-month period ended March
31, 1999, the Company raised $14,519,000, net of expenses, in a private equity
placement. The Company used a portion of the proceeds to repay the debt owed to
its former parent and approximately $4,000,000 of a debt-financing package that
was completed in May 1998.
Cash requirements for the foreseeable future will include funds needed to
sustain operations and for existing obligations. Management believes that an
infusion of cash from debt or equity financing is required. The Company is
currently in discussions with various financial institutions to raise the
required funding. Pursuant to the Second Amendment to Loan Agreement by and
between the Company and Citizens Bank of Massachusetts dated May 1, 2000, the
Company has committed to obtain $7,500,000 of such funding by June 30, 2000.
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<PAGE> 15
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: MANAGEMENT'S DISCUSSION AND ANALYSIS MAY INCLUDE FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN ANY
FORWARD-LOOKING STATEMENT. SUCH RISKS AND UNCERTAINTIES MAY INCLUDE, WITHOUT
LIMITATION, TECHNOLOGICAL OBSOLESCENCE, PRICE AND INDUSTRY COMPETITION,
FINANCING CAPABILITIES, DEPENDENCE ON MAJOR CUSTOMERS AND RELATIONSHIPS,
DEPENDENCE ON RELATIONSHIPS WITH TECHNOLOGY LICENSERS AND TELECOMMUNICATIONS
CARRIERS, AND THE COMPANY'S ABILITY TO EFFECTIVELY EXECUTE ITS BUSINESS PLAN
WITH RESPECT TO SIGNIFICANT PROJECTED GROWTH IN ITS DEBIT SERVICES DIVISION, IN
PARTICULAR, WITH RESPECT TO ITS VENTURE WITH MCI WORLDCOM.
-15-
<PAGE> 16
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In January 1999, the Company filed a lawsuit against SmarTalk TeleServices, Inc.
("SmarTalk") and certain individuals in the U.S. District Court for the District
of Connecticut. The Company's complaint includes allegations of breach of
contract and fraud in connection with various agreements between SmarTalk and
the Company. SmarTalk subsequently filed for federal bankruptcy protection. The
Company's complaint seeks recovery of $25 million in damages, and the Company
has filed a proof of claim with the bankruptcy court (U.S. Bankruptcy Court,
District of Delaware) for $14.4 million. The Company intends to aggressively
prosecute its claim, although due to SmarTalk's impaired financial condition and
the number and value of claims from unsecured creditors, the amount of any
recovery against SmarTalk is questionable. The Company may have some exposure to
a preference claim with respect to certain payments received by the Company from
SmarTalk prior to its bankruptcy filing, although the Company intends to
aggressively defend against any such claim.
The Company is not involved in any other litigation which, individually or in
the aggregate, if resolved against the Company, would be likely to have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
4.1 First Amendment to Loan Agreement by and between the Company
and Citizens Bank of Massachusetts dated December 3, 1999.
4.2 Second Amendment to Loan Agreement by and between the Company
and Citizens Bank of Massachusetts dated May 1, 2000.
10.1 Employment Agreement by and between David Bogue and the
Company, effective April 27, 2000.
27. Financial Data Schedule (filed only electronically with the
SEC)
</TABLE>
(b) REPORTS ON FORM 8-K
None
-16-
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.
SHARED TECHNOLOGIES CELLULAR, INC.
Date: May 11, 2000 By: /s/ Vincent DiVincenzo
Vincent DiVincenzo
Chief Financial Officer
(Chief Accounting Officer and
Duly Authorized Officer)
-17-
<PAGE> 1
Exhibit 4.1
FIRST AMENDMENT AGREEMENT
THIS FIRST AMENDMENT AGREEMENT (the "Agreement") is entered as of
December 3, 1999 between SHARED TECHNOLOGIES CELLULAR, INC., a Delaware
corporation, with its principal place of business at 100 Great Meadow Road,
Suite 104, Wethersfield, Connecticut 06109 (the "Borrower") and CITIZENS BANK OF
MASSACHUSETTS, a Massachusetts Stock Savings Bank, as assignee of STATE STREET
BANK AND TRUST COMPANY, a Massachusetts Trust Company, having an office and
place of business at 28 State Street, Boston, MA 02109 (the "Bank").
RECITALS:
On July 7, 1999, the Bank and the Borrower entered into a Loan
Agreement (referred to herein as the "Credit Agreement") pursuant to which the
Bank extended to the Borrower a Revolving Credit Facility which is presently
existing in the maximum aggregate formula availability of $10,000,000.00. The
Borrower has executed and delivered to the Bank on July 7, 1999 a Secured
Revolving Credit Promissory Note in the original principal amount of Ten Million
Dollars ($10,000,000.00) (the "Original Note").
The Borrower and the Bank have agreed to amend the Credit Agreement
upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the provisions herein contained,
Borrower and the Bank, each intending to be legally bound hereby, agree as
follows:
SECTION I. AMENDMENTS TO CREDIT AGREEMENT.
The Credit Agreement is amended hereby as follows:
1. SECTION 2.1 OF THE CREDIT AGREEMENT IS AMENDED BY DELETING
SUBSECTIONS I) AND II) THEREOF AND REPLACING THEM WITH THE FOLLOWING:
"i) the sum of:
a) seventy percent (70%) of Eligible
Receivables; plus,
b) through March 3, 2000, the lesser of:
1) Five Hundred Thousand Dollars
($500,000.00), or
2) twenty five percent (25%) of the
fair market value of Borrower's
inventory described on that certain
Bill of Sale and Assignment dated
as of November 5, 1999 from DTR
Associates Limited Partnership, a
copy of which has been delivered to
the Bank pursuant to that certain
First
<PAGE> 2
Amendment Agreement dated as of
December 3, 1999 between the Bank
and the Borrower; or
ii) the amount of the Revolving Loan Commitment;"
2. Any and all references in the Credit Agreement to the Bank
shall mean from and after October 1, 1999 "Citizens Bank of Massachusetts as
assignee of State Street Bank and Trust Company".
3. Each and every reference to the "Bank" or the "Lender" or
"Secured Party" or "Assignee" in the Security Documents described in the Credit
Agreement shall hereinafter be deemed to refer to:
"Citizens Bank of Massachusetts with an office and place of Business at
100 Summer Street, Boston, MA 02110, as assignee from State Street Bank
and Trust Company."
4. Whenever notices contemplated to be given to the "Bank" or the
"Lender" or the "Secured Party" or the "Assignee" under the Security Documents,
notice shall be given as follows:
"If to the Bank:
Citizens Bank of Massachusetts
100 Summer Street
Boston, MA 02110
Attention: Michael S. St.Jean, Vice President
with a copy to:
Cameron & Mittleman LLP
56 Exchange Terrace
Providence, RI 02903
Attention: Amy L. Mower, Esquire"
SECTION II. CONDITIONS.
A. CONDITION PRECEDENT - DELIVERY OF DOCUMENTS.
The Bank shall have no obligation to make advances under the
Credit Agreement unless the following conditions are satisfied or waived by the
Bank:
1. The Borrower has delivered to the Bank the following
documents in form and substance satisfactory to the Bank, the receipt
of which is hereby acknowledged (the "Amendment Documents"):
-2-
<PAGE> 3
a) Certificate of No Default from the Borrower,
duly executed by the Borrower' secretary;
b) Corporate Borrowing Authorization and
Certificate of Incumbency of Officers and
Directors - the Borrower;
c) Financing Statements duly executed by the
Borrower filed with the Secretary of State
of Massachusetts and the Town Clerk of
Framingham, Massachusetts;
d) Corporate Guaranty Authorization and
Certificate of Incumbency of Officers and
Directors and Identification of Shareholders
- the Cellular Hotline, Inc.;
e) Notice to National Distribution Center, L.P.
of Bank's security interest in inventory
owned by the Borrower held by National
Distribution Center, L.P., duly executed;
f) Notice Filing Financing Statement executed
by National Distribution Center, L.P., filed
with the Secretary of State of
Massachusetts;
g) Notice Filing Financing Statement executed
by National Distribution Center, L.P., filed
with the Town Clerk of Framingham,
Massachusetts; and
h) Copy of Warehouse Agreement with National
Distribution Center, L.P.;
i) Copy of Bill of Sale and Assignment by DTR
Associates Limited Partnership;
j) Certificate of Liability Insurance with
respect to inventory located at National
Distribution Center, L.P.; and
k) the delivery of such other documents
reflected in that certain Closing Agenda
attached hereto as Exhibit A and
incorporated herein by reference, as may be
reasonably required by the Bank in
connection with the transaction contemplated
hereby.
2. All legal matters incident to this Agreement and the
transactions contemplated hereby shall be satisfactory to the Bank and
its counsel.
B. COVENANTS, REPRESENTATIVES AND WARRANTIES.
-3-
<PAGE> 4
1. The Borrower further reaffirms all of its
obligations, as amended hereby, under the Credit Agreement, and under the
Security Documents.
2. The Borrower acknowledges that upon its delivery to
the Bank of the duly executed Amendment Documents, that all representations,
warranties and covenants set forth in the Credit Agreement are deemed to be made
again as of the date of the delivery hereof, and that the Borrower does not have
any information contrary to (a) any of the conclusions reflected in that certain
set of projections prepared by Borrower and delivered to Lender; or (b) any of
the assumptions or premises upon which said projections were based.
3. The Bank and the Borrower agree that:
a) This Agreement evidences solely the amendment of
the terms and provisions of the Borrower's obligations under the Credit
Agreement and the Original Note, and is not a novation or discharge
thereof;
b) Notwithstanding the terms hereof: the Bank hereby
reserves its rights against the Borrower under the Credit Agreement and
the Original Note, as provided under the Commonwealth of Massachusetts
law and judicial precedent, as in effect from time to time;
c) There are no other understandings, express or
implied between the Bank and the Borrower regarding the Credit
Agreement and the Original Note; and
d) Notwithstanding any prior course of practice or
conduct, the Borrower acknowledges that the Bank has not waived, and
has no obligation to waive, any subsequent Events of Default under the
Credit Agreement and the Original Note, or under this Agreement.
4. The Borrower agrees to pay the Bank the following
fees:
a) a Ten Thousand Dollar ($10,000.00) fee, payable on
even date, for the Waiver by the Bank dated November 15, 1999 of
certain loan covenant defaults; and
b) a Ten Thousand Dollar ($10,000.00) fee each month
for any inventory borrowing under the ninety (90) day Borrowing Base
increase against twenty-five percent (25%) of the inventory acquired
from DTR Associates Limited Partnership, up to a maximum aggregate
advance of Five Hundred Thousand Dollars ($500,000.00) for said ninety
(90) days. The monthly inventory borrowing fee shall be earned whenever
the Borrower uses the inventory availability, and shall be payable at
the end of said month.
C. EFFECT OF AMENDMENT.
-4-
<PAGE> 5
1. Except as amended hereby, the Credit Agreement and
the Original Note and all other documents entered into in connection therewith
shall:
a) remain in full force and effect in accordance with
their original terms and nothing herein shall be deemed to modify, abrogate,
waive or extend any other provision in the Credit Agreement and the Original
Note or in any other document, agreement or instrument executed in connection
therewith or pursuant thereto prior to the execution of this Agreement,
including without limitation any of the Borrower's liabilities to the Bank or
any of the Bank's rights with respect to such liabilities; and
2) be in all respects ratified and affirmed.
Notwithstanding the foregoing, any amendments of the Credit
Agreement and the Original Note to which the parties hereto have agreed
previously and which are not incorporated herein by reference or otherwise,
shall be deemed of no further force and effect upon the execution hereof.
2. The Borrower acknowledges that all of the liabilities
and obligations of the Borrower to the Lender now existing and hereafter
incurred are secured by the security described in the Security Documents defined
in the Credit Agreement and the Original Note and by the security described in
the Amendment Documents; the Borrower further acknowledges that the Bank is
relying upon the security described above, both as entered into on July 9, 1999
and as entered into from time to time thereafter, as security for the financing
represented by the Liabilities and as security for all other obligations of the
Borrower to the Bank.
D. GENERAL.
1. CONSTRUCTION Incorporated herein by reference are the
representations, warranties, agreements, affirmative and negative, definitions,
terms and conditions all as set forth in (i) the Credit Agreement and the
Original Note and all documents executed in connection therewith or pursuant
thereto and (ii) the Amendment Documents. This Agreement and the Credit
Agreement and the Original Note, and the Amendment Documents shall be construed
collectively and in the event that any term, provision or condition of any of
such documents is inconsistent with or contradictory to any term, provision or
condition of any other such document, the terms, provisions and conditions of
this Agreement shall supersede and control the terms, provisions and conditions
of the Credit Agreement and the Original Note and the Amendment Documents.
2. SECURITY DOCUMENTS. The Borrower and The Cellular
Hotline, Inc., by its signature hereto, agree that the Security Documents
(defined in the Credit Agreement) are amended as follows:
-5-
<PAGE> 6
a) Each and every reference to the "Bank" or the
"Lender" or "Secured Party" or "Assignee" in the Security Documents
shall hereinafter be deemed to refer to:
"Citizens Bank of Massachusetts, with an office and
place of business at 100 Summer Street, Boston, MA
02110, as assignee from State Street Bank and Trust
Company."
b) Whenever notice is contemplated to be given to the
Bank or the Lender, or the Secured Party or the Assignee under the
Security Documents, notice shall be given as follows:
"If to the Bank:
Citizens Bank of Massachusetts
100 Summer Street
Boston, MA 02110
Attention: Michael S. St.Jean,
Vice President
with a copy to:
Cameron & Mittleman LLP
56 Exchange Terrace
Providence, RI 02903
Attention: Amy L. Mower, Esquire".
3. WAIVER OF TRIAL BY JURY. BORROWER AND BANK MUTUALLY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY
JURY IN RESPECT OF ANY CLAIM BASED HEREIN, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE
EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO ACCEPT THIS AGREEMENT AND TO AMEND
THE REVOLVING CREDIT FACILITY.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Bank and the Borrower have caused their duly
authorized officers to execute this Agreement as of the day and year first above
written.
WITNESS: SHARED TECHNOLOGIES CELLULAR, INC.
________________________________ By: /s/ Vincent DiVincenzo
Title: CFO
CITIZENS BANK OF MASSACHUSETTS
________________________________ By: /s/ Michael S. St. Jean
Michael S. St.Jean
Title: Vice President
CONSENT AND CONFIRMATION
The undersigned consents to the amendment of the Credit Agreement
pursuant to the First Amendment Agreement, and the terms of the First Amendment
Agreement, including but not limited to Section II D 2 thereof, and of all
underlying documents referred to therein and all documents entered into pursuant
thereto or in connection therewith.
The undersigned confirms its obligations under that certain Guaranty
dated as of July 7, 1999 (the "Guaranty"), executed by the undersigned, of all
Liabilities (as defined in the Guaranty), as amended hereby, of the Borrower to
the Bank, and confirms its obligations under all documents securing the
Guaranty.
IN WITNESS WHEREOF, the undersigned has caused its duly authorized
officer to execute this Consent and Confirmation as of the ____ day of November,
1999.
WITNESS: THE CELLULAR HOTLINE, INC.
________________________________ By:________________________________
Its:
NOTARIZATIONS ON NEXT PAGE
-7-
<PAGE> 8
STATE OF CONNECTICUT
COUNTY OF HARTFORD
In Whethersfield on the ______ day of November 1999, before me
personally appeared the above-named ______________________________________,
_____________________________ of SHARED TECHNOLOGIES CELLULAR, INC. to me known
and known by me to be the party executing the foregoing instrument on behalf of
said corporation and acknowledged said instrument so executed to be his free act
and deed in said capacity and the free act and deed of said corporation.
_____________________________
Notary Public
My Commission Expires:
STATE OF CONNECTICUT
COUNTY OF HARTFORD
In Whethersfield on the _____ day of November 1999, before me
personally appeared the above-named ____________________________________,
_______________________________ of THE CELLULAR HOTLINE, INC. to me known and
known by me to be the party executing the foregoing instrument on behalf of said
corporation and acknowledged said instrument so executed to be his free act and
deed in said capacity and the free act and deed of said corporation.
_____________________________
Notary Public
My Commission Expires:
STATE OF MASSACHUSETTS
COUNTY OF SUFFOLK
In Boston on the ______ day of ______, 1999, before me personally
appeared the above-named Michael S. St.Jean, Vice President of CITIZENS BANK OF
MASSACHUSETTS, of Boston, Massachusetts to me known and known by me to be the
party executing the foregoing instrument on behalf of said Massachusetts Stock
Savings Bank and acknowledged said instrument so executed to be his free act and
deed in said capacity and the free act and deed of said Massachusetts Stock
Savings Bank.
_____________________________
Notary Public
My Commission Expires:
-8-
<PAGE> 1
Exhibit 4.2
SECOND AMENDMENT AGREEMENT
THIS SECOND AMENDMENT AGREEMENT (the "Agreement") is entered as of May
1, 2000 between SHARED TECHNOLOGIES CELLULAR, INC., a Delaware corporation, with
its principal place of business at 100 Great Meadow Road, Suite 104,
Wethersfield, Connecticut 06109 (the "Borrower") and CITIZENS BANK OF
MASSACHUSETTS, a Massachusetts Bank, having an office and place of business at
28 State Street, Boston, MA 02109 (the "Bank").
RECITALS:
On July 7, 1999, the Bank and the Borrower entered into a Loan
Agreement, as amended by that certain First Amendment Agreement dated as of
December 3, 1999 (referred to herein collectively as the "Credit Agreement")
pursuant to which the Bank extended to the Borrower a Revolving Credit Facility
which is presently existing in the maximum aggregate line availability of
$10,000,000.00. The Borrower has executed and delivered to the Bank on July 7,
1999 a Secured Revolving Credit Promissory Note in the original principal amount
of Ten Million Dollars ($10,000,000.00) (the "Original Note").
The Borrower and the Bank have agreed to amend the Credit Agreement
upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the provisions herein contained,
Borrower and the Bank, each intending to be legally bound hereby, agree as
follows:
SECTION I. AMENDMENTS TO CREDIT AGREEMENT.
The Credit Agreement is amended hereby as follows:
1. SECTION 1.1 OF THE CREDIT AGREEMENT IS AMENDED BY AMENDING AND
RESTATING IN ITS ENTIRETY THE DEFINITION OF "REVOLVING CREDIT COMMITMENT" AS
FOLLOWS:
""Revolving Credit Commitment" shall mean Five Million Dollars
($5,000,000.00)."
<PAGE> 2
2. SECTION 5.6 OF THE CREDIT AGREEMENT IS AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
"5.6 Minimum Prepaid Lines. Maintain Minimum Prepaid Lines
commencing May 1, 2000, as follows, to be tested as follows:
<TABLE>
<CAPTION>
Time Period Minimum Prepaid Lines
----------- ---------------------
<S> <C>
as of April 28, 2000 115,000
as of May 31, 2000 130,000
as of June 30, 2000 145,000
</TABLE>
as of the last day of each Fiscal Quarter after June 30, 2000,
the Borrower shall increase its Minimum Prepaid Lines by
25,000 over the amount of Minimum Prepaid Lines for the prior
Fiscal Quarter."
3. SECTION 5.8 OF THE CREDIT AGREEMENT IS AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
"5.8 Maximum Net Loss/Minimum Net Income. Maintain Maximum Net
Loss/Minimum Net Income for each Fiscal Quarter, commencing
with the Fiscal Quarter ending March 30, 2000, as follows, to
be tested quarterly:
<TABLE>
<CAPTION>
Time Period Minimum Net Income
----------- ------------------
<S> <C>
Fiscal Quarter ending March 30, 2000 ($4,500,000.00) Maximum Net Loss
Fiscal Quarter ending June 30, 2000 ($3,000,000.00) Maximum Net Loss
Fiscal Quarter ending September 30, 2000 ($500,000.00) Maximum Net Loss
Each Fiscal Quarter thereafter + $500,000.00 Minimum Net Income"
</TABLE>
-2-
<PAGE> 3
4. SECTION 5.10 OF THE CREDIT AGREEMENT IS AMENDED AND RESTATED
IN ITS ENTIRETY AS FOLLOWS:
"5.10 Minimum Total Stockholder's Equity. Maintain for each
fiscal quarter commencing with the quarter ending March 30,
2000, a Minimum Total Stockholder's Equity as follows, to be
tested quarterly:
<TABLE>
<CAPTION>
Time Period Minimum Total Stockholder's Equity
----------- ----------------------------------
<S> <C>
Fiscal Quarter ending March 30, 2000 ($6,200,000.00)
Fiscal Quarter ending June 30, 2000 ($2,000,000.00)
Fiscal Quarter Ending September 30, 2000 ($2,500,000.00)
</TABLE>
as of the last day of each Fiscal Quarter after September 30,
2000, the Borrower shall increase its Minimum Total
Stockholder's Equity by $500,000.00 over the amount of Minimum
Total Stockholders's Equity for the prior Fiscal Quarter."
5. THE CREDIT AGREEMENT IS FURTHER AMENDED BY ADDING A NEW
SECTION 5.22 THERETO AS FOLLOWS:
"5.22 Minimum Additional Capital. The Borrower shall have
raised from the date hereof through June 30, 2000 a minimum
additional capital and equity contribution of Seven Million
Five Hundred Thousand Dollars ($7,500,000.00), provided
however that evidence thereof to be received by the Bank on or
before June 30, 2000 shall consist of the following:
a) a written agreement by the equity contributor
outlining the terms and conditions of said
contribution; and
b) evidence delivered to the Bank reasonably
satisfactory to it in its sole discretion as to the
financial substance and resources of said equity
contributor; and
c) any and all conditions and contingencies for said
equity contribution shall be reasonably satisfactory
to the Bank in its sole discretion; and
d) the date by which said contingency shall have
satisfied and said funds shall have been contributed
to the Bank shall reasonably acceptable to the Bank
in its sole discretion."
-3-
<PAGE> 4
SECTION II. AMENDMENT TO THE ORIGINAL NOTE.
The Original Note is amended and restated in its entirety by the
Borrower's execution and delivery to the Bank of that certain Amended and
Restated Revolving Credit Promissory Note in the original principal amount of
Five Million Dollars ($5,000,000.00) a form of which is attached hereto as
Exhibit A, with all blanks completed, and duly executed by the Borrower
(referred to herein as the "Successor Note").
SECTION III. CONDITIONS.
A. CONDITION PRECEDENT - DELIVERY OF DOCUMENTS.
The Bank shall have no obligation to make advances under the
Credit Agreement unless the following conditions are satisfied or waived by the
Bank:
1. The Borrower has delivered to the Bank the following
documents in form and substance satisfactory to the Bank, the receipt
of which is hereby acknowledged (the "Amendment Documents"):
a) the Successor Note, duly executed by the
Borrower;
b) Certificate of No Default from the Borrower,
duly executed by the Borrower;
c) Corporate Borrowing Authorization and
Certificate of Incumbency of Officers and
Directors - the Borrower;
d) Corporate Guaranty Authorization and
Certificate of Incumbency of Officers and
Directors and Identification of Shareholders
- The Cellular Hotline, Inc.; and
e) a Fifteen Thousand Dollar ($15,000.00) fee,
payable on even date, for the Waiver by the
Bank dated March 28, 2000 of certain loan
covenant defaults; and
f) the delivery of such other documents
reflected in that certain Closing Agenda
attached hereto as Exhibit A and
incorporated herein by reference, as may be
reasonably required by the Bank in
connection with the transaction contemplated
hereby.
2. All legal matters incident to this Agreement and the
transactions contemplated hereby shall be satisfactory to the Bank and
its counsel.
B. RECONFIRMATION OF COVENANTS, REPRESENTATIVES AND WARRANTIES.
-4-
<PAGE> 5
1. The Borrower further reaffirms all of its
obligations, as amended hereby, under the Credit Agreement, and under the
Security Documents.
2. The Borrower acknowledges that upon its delivery to
the Bank of the duly executed Amendment Documents, that all representations,
warranties and covenants set forth in the Credit Agreement are deemed to be made
again as of the date of the delivery hereof, and that the Borrower does not have
any information contrary to (a) any of the conclusions reflected in that certain
set of projections prepared by Borrower and delivered to Lender; or (b) any of
the assumptions or premises upon which said projections were based.
C. RESERVATION OF RIGHTS.
The Bank and the Borrower agree that:
a) This Agreement evidences solely the amendment of
the terms and provisions of the Borrower's obligations under the Credit
Agreement and the Original Note, and is not a novation or discharge
thereof;
b) Notwithstanding the terms hereof: the Bank hereby
reserves its rights against the Borrower under the Credit Agreement and
the Original Note, as provided under the Commonwealth of Massachusetts
law and judicial precedent, as in effect from time to time;
c) There are no other understandings, express or
implied between the Bank and the Borrower regarding the Credit
Agreement and the Original Note; and d) Notwithstanding any prior
course of practice or conduct, the Borrower acknowledges that the Bank
has not waived, and has no obligation to waive, any subsequent Events
of Default under the Credit Agreement and the Original Note, or under
this Agreement.
D. EFFECT OF AMENDMENT.
1. Except as amended hereby, the Credit Agreement and
the Original Note and all other documents entered into in connection therewith
shall:
a) remain in full force and effect in accordance with
their original terms and nothing herein shall be deemed to modify, abrogate,
waive or extend any other provision in the Credit Agreement and the Original
Note or in any other document, agreement or instrument executed in connection
therewith or pursuant thereto prior to the execution of this Agreement,
including without limitation any of the Borrower's liabilities to the Bank or
any of the Bank's rights with respect to such liabilities; and
2) be in all respects ratified and affirmed.
-5-
<PAGE> 6
Notwithstanding the foregoing, any amendments of the Credit
Agreement and the Original Note to which the parties hereto have agreed
previously and which are not incorporated herein by reference or otherwise,
shall be deemed of no further force and effect upon the execution hereof.
2. The Borrower acknowledges that all of the liabilities
and obligations of the Borrower to the Lender now existing and hereafter
incurred are secured by the security described in the Security Documents defined
in the Credit Agreement and by the security described in the Amendment
Documents; the Borrower further acknowledges that the Bank is relying upon the
security described above, both as entered into on July 9, 1999 and as entered
into from time to time thereafter, as security for the financing represented by
the Liabilities and as security for all other obligations of the Borrower to the
Bank.
E. GENERAL.
1. CONSTRUCTION Incorporated herein by reference are the
representations, warranties, agreements, affirmative and negative, definitions,
terms and conditions all as set forth in (i) the Credit Agreement and the
Original Note and all documents executed in connection therewith or pursuant
thereto and (ii) the Amendment Documents. This Agreement and the Credit
Agreement and the Original Note, and the Amendment Documents shall be construed
collectively and in the event that any term, provision or condition of any of
such documents is inconsistent with or contradictory to any term, provision or
condition of any other such document, the terms, provisions and conditions of
this Agreement shall supersede and control the terms, provisions and conditions
of the Credit Agreement and the Original Note and the Amendment Documents.
2. GOVERNING LAW. This Agreement, the Successor Note,
the Original Note and the Credit Agreement and all Security Documents
thereunder, and the rights and obligations of the parties hereunder, shall in
all respects be governed by, and interpreted and determined in accordance with,
the laws of the Commonwealth of Massachusetts (excluding the laws applicable to
conflicts or choice of law).
-6-
<PAGE> 7
3. SECURITY DOCUMENTS. The Borrower and The Cellular
Hotline, Inc., by its signature hereto, agree that:
a) the Security Documents (defined in the Credit Agreement) are amended
to reflect that the obligations and liabilities secured thereby are
deemed amended pursuant to this Amendment Agreement, as incorporated
therein by reference; and
b) except as specifically amended hereby, the Security Documents, and
all indebtedness incurred pursuant thereto shall remain in full force
and effect, in accordance with their original terms as previously
amended, and nothing herein shall be deemed to modify, abrogate, waive
or extend any other provision in the Security Documents, except as
previously amended, or in any other document, agreement, or instrument
executed in connection therewith or pursuant thereto prior to the
execution of this Agreement, including without limitation any of the
Borrower's or The Cellular Hotline, Inc.'s liabilities to the Bank or
any of the Bank's rights with respect to such liabilities; and
c) the Security Documents, as amended hereby, shall continue to secure
the Borrower's obligations under the Credit Agreement, the Original
Note and all other obligations of the Borrower and of The Cellular
Hotline, Inc. to the Bank, whether now existing or hereafter arising.
3. WAIVER OF TRIAL BY JURY. BORROWER AND BANK MUTUALLY
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY
JURY IN RESPECT OF ANY CLAIM BASED HEREIN, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE
EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO ACCEPT THIS AGREEMENT AND TO AMEND
THE REVOLVING CREDIT FACILITY.
IN WITNESS WHEREOF, the Bank and the Borrower have caused their duly
authorized officers to execute this Agreement as of the day and year first above
written as an instrument under seal.
WITNESS: SHARED TECHNOLOGIES CELLULAR, INC.
________________________________ By: /s/ Vincent DiVincenzo
Title: CFO
SIGNATURES CONTINUED ON THE NEXT PAGE
-7-
<PAGE> 8
SIGNATURES CONTINUED FROM THE PRIOR PAGE
CITIZENS BANK OF MASSACHUSETTS
________________________________ By:/s/ Michael S. St. Jean
Michael S. St.Jean
Title: Vice President
CONSENT AND CONFIRMATION
The undersigned consents to the amendment of the Credit Agreement
pursuant to the Second Amendment Agreement, and the terms of the Second
Amendment Agreement, including but not limited to Section III. E. 3. thereof,
and of all underlying documents referred to therein and all documents entered
into pursuant thereto or in connection therewith.
The undersigned confirms its obligations under that certain Guaranty
dated as of July 7, 1999 (the "Guaranty"), executed by the undersigned, of all
Liabilities (as defined in the Guaranty), as amended hereby, of the Borrower to
the Bank, and confirms its obligations under all documents securing the
Guaranty.
IN WITNESS WHEREOF, the undersigned has caused its duly authorized
officer to execute this Consent and Confirmation as of the ____ day of April,
2000.
WITNESS: THE CELLULAR HOTLINE, INC.
________________________________ By:________________________________
Its:
STATE OF CONNECTICUT
COUNTY OF HARTFORD
In Whethersfield on the ______ day of April, 2000, before me personally
appeared the above-named ________________________________________,
___________________________________ of SHARED TECHNOLOGIES CELLULAR, INC. to me
known and known by me to be the party executing the foregoing instrument on
behalf of said corporation and acknowledged said instrument so executed to be
his free act and deed in said capacity and the free act and deed of said
corporation.
__________________________________
Notary Public
My Commission Expires:
NOTARIZATIONS CONTINUED ON NEXT PAGE
-8-
<PAGE> 9
NOTARIZATIONS CONTINUED FROM PRIOR PAGE
STATE OF CONNECTICUT
COUNTY OF HARTFORD
In Whethersfield on the ______ day of April , 2000, before me
personally appeared the above-named ________________________________________,
________________________________________ of THE CELLULAR HOTLINE, INC. to me
known and known by me to be the party executing the foregoing instrument on
behalf of said corporation and acknowledged said instrument so executed to be
his free act and deed in said capacity and the free act and deed of said
corporation.
__________________________________
Notary Public
My Commission Expires:
STATE OF MASSACHUSETTS
COUNTY OF SUFFOLK
In Boston on the ______ day of April, 2000, before me personally
appeared the above-named Michael S. St. Jean, Vice President of CITIZENS BANK OF
MASSACHUSETTS, of Boston, Massachusetts to me known and known by me to be the
party executing the foregoing instrument on behalf of said Massachusetts Bank
and acknowledged said instrument so executed to be his free act and deed in said
capacity and the free act and deed of said Massachusetts Bank.
__________________________________
Notary Public
My Commission Expires:
-9-
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is entered into as of the 27th day
of April, 2000, by and between SHARED TECHNOLOGIES CELLULAR, INC. ("STC" or the
"Company"), having its principal offices at 100 Great Meadow Road, Suite 104,
Wethersfield, CT 06109, a Delaware corporation, and DAVID BOGUE, residing at 19
Joshua Drive, West Simsbury, CT 06092 ("Employee").
NOW THEREFORE, in consideration of the mutual promises and covenants set forth
herein, the parties agree as follows.
WITNESSETH
WHEREAS, the Company desires to obtain the services of Employee in
accordance with the terms, conditions and provisions of this Agreement;
WHEREAS, Employee desires to provide services to the Company in
accordance with the terms, conditions and provisions of this Agreement; and
WHEREAS, each of the Company and Employee agree that the terms,
conditions and provisions of this Agreement are fair and reasonable and are
necessary to protect the legitimate business interests of each other.
NOW THEREFORE, the parties hereto agree as follows:
1. Employment. The Company hereby employs Employee, and Employee
hereby accepts such employment and agrees to perform his duties and
responsibilities hereunder, in accordance with the terms and conditions
hereinafter set forth.
2. Term. This Agreement shall have a term commencing April 26,
2000 (the "Effective Date") and expiring April 30, 2001, unless earlier
terminated in accordance with Section 9 of this Agreement (the "Term"). Such
Term shall be automatically renewed for successive one-year periods thereafter
unless, at least sixty (60) days before the end of the current Term either
Employee or the Company gives written notice to the other of his or its intent
to terminate this Agreement without Cause (see Section 9(c) for definition of
the term "Cause"), in which event this Agreement and Employee's employment
hereunder shall terminate at the end of the then current Term, except that any
such nonrenewal by the Company shall be subject to Section 9(e) hereof.
3. Duties and Responsibilities. During the Term, Employee shall
be employed in the capacity of PRESIDENT AND CHIEF OPERATING OFFICER of the
Company, and shall perform those duties normally associated with that position,
subject to such policies, guidelines and directions consistent therewith as may
be established from time to time by the Board of Directors of the Company.
During the Term, Employee will utilize a hands-on management approach and will
devote substantially all of his full time, attention and energies to the
business of the Company, and will perform and discharge his duties and
responsibilities under Section 3 hereof faithfully,
<PAGE> 2
diligently, to the best of his efforts and abilities and in a manner consistent
with any and all policies, guidelines and directions, consistent with those
duties normally associated with Employee's position, as may be established from
time to time by the Board of Directors of the Company. Except as provided in
Section 7 hereof, the foregoing shall not be construed as preventing Employee
from making investments in other businesses or enterprises not competitive with
the Company (as defined in Section 7(a) hereof), provided that Employee agrees
not to become engaged in any other business activity which may interfere with
his ability to discharge his duties and responsibilities hereunder. Employee
shall have the right to serve on the boards of directors of other companies,
subject to the prior approval of the Company's Board of Directors. The Company's
Board of Directors shall nominate and recommend Employee for election to the
Company's Board of Directors by the Company's shareholders.
4. Consulting Services. Notwithstanding anything else contained
in this Agreement, during the period commencing as of the date hereof through
April 30, 2000 (the "Consulting Period"), Employee shall serve solely in the
capacity of a consultant to the Company and shall receive no compensation or
benefits of any kind during such Consulting Period. As of May 1, 2000,
Employee's status shall convert from that of consultant to employee, whereupon
Employee's rights to receive all compensation and benefits provided for pursuant
to the terms and conditions of this Agreement shall take effect.
5. Compensation, Benefits and Expenses.
(a) Salary. During the first year of the Term, the Company
shall pay to Employee a base salary at the rate of TWO HUNDRED THOUSAND DOLLARS
($200,000) per annum, less deduction and withholding required by applicable law,
or such greater amount as shall be approved by the Compensation Committee of the
Board of Directors of the Company ("Base Salary"), payable in arrears in
accordance with the Company's regular payroll schedule, which is semimonthly as
of the date hereof. The Base Salary in effect from time to time shall not be
decreased during the Term.
(b) Bonuses. Employee shall be entitled to receive a bonus for
each calendar year based on the attainment of measurable performance objectives
that, if met, will result in a bonus to Employee equal to FIFTY PERCENT (50%) of
Employee's Base Salary in effect as of the end of the applicable year (the
"Target Bonus"). Such performance objectives shall be established by the
Company's Board of Directors within the first quarter of each calendar year and
Employee shall be notified thereof. However, with respect to the Target Bonus
for calendar year 2000, one-half of such Target Bonus shall be payable on the
basis of the Company achieving the performance objectives set forth in the
Performance Plan, receipt of which is hereby acknowledged, and the other half of
such Target Bonus shall be payable on a discretionary basis as determined in the
discretion of the Compensation Committee of the Company's Board of Directors.
Target Bonuses shall be payable, if earned, not later than January 31 of the
year after the year for which they are earned. The Company's Board of Directors
may pay less than the full amount of the Target Bonus if the performance
objectives are not fully met. In addition, Employee shall receive a signing
bonus of $25,000, payable December 31, 2000, which shall be payable regardless
of whether this
2
<PAGE> 3
Agreement is still in effect as of such date.
(c) Equity. Effective as of April 26, 2000, Employee shall
receive a stock option grant for the purchase 300,000 shares of the Company's
common stock, exercisable at $4.00 per share, which options shall vest at the
rate of 100,000 on November 1, 2000, 100,000 on November 1, 2001, and 100,000 on
November 1, 2002, subject to Employee's continued employment and otherwise in
accordance with the Company's 1994 Stock Option Plan (the "Plan"), a copy of
which has been delivered to Employee, but in any case subject to the terms and
conditions of this Agreement, including, without limitation, provisions
concerning the acceleration of vesting of such stock options. Notwithstanding
anything else contained in this Agreement or the Plan, in the event that a
Trigger Event occurs prior to January 1, 2001, then only 100,000 of said 300,000
options shall be subject to accelerated vesting.
(c) Expenses. During the Term, the Company shall reimburse
Employee monthly for his travel (other than commutation) and other reasonable
business expenses incurred in connection with his services under this Agreement
during the preceding month upon submission of written receipts substantiating
such expenses and otherwise in accordance with the Company's expense
reimbursement policies.
(d) Vacation and Personal Days. During the Term, Employee
shall be entitled to paid time off for vacation and personal days in accordance
with the Company's regular vacation policy. Notwithstanding such regular
vacation policy, Employee's vacation allowance shall be four (4) weeks per year,
except that for calendar year 2000 Employee's vacation allowance shall be pro
rated, such that his vacation allowance shall be 14 days for such period.
(e) Other Employee Benefits. During the Term, the Company
shall provide to Employee such fringe benefits, including, without limitation,
paid sick leave, paid holidays, participation in a health insurance plan, and
other employee benefit plans which may be regularly maintained by the Company
for its employees, in accordance with the policies of the Company in effect from
time to time. Employee shall be entitled to participate in or receive benefits
under any employee benefit plan or employee arrangement made available by the
Company to its executives or key management employees. Employee's participation
in such employee benefit plans or arrangements shall be on an appropriate level,
but no less favorable than the level of other peers. However, Employee is not
eligible for split-premium or whole life insurance such as that currently
provided to the Company's Chairman and Chief Executive Officer.
6. Confidential Information.
(a) Information. Employee acknowledges and agrees that all
information relating to STC's existing and prospective customers, distributors,
carriers, suppliers, business partners, trade secrets, business plans, sales and
marketing strategies, contracts, technologies and processes, software, codes,
products, services, product development activities, procurement and sales
records, distribution information, promotion and pricing information, financial
data, and other proprietary data and information of STC (collectively,
"Information") are valuable, special and
3
<PAGE> 4
unique assets of STC. Employee acknowledges that its access to and knowledge of
the Information is essential to the performance of its duties for STC. In light
of the competitive nature of the industry in which the business of STC is
conducted, Employee agrees that all knowledge and information about the
Information known or in the future obtained by Employee will be considered
Information. In recognition of this, Employee represents and agrees that, except
as specifically authorized in writing by STC, Employee will not, either during
or after the Term hereof (i) disclose any Information to any person or entity
for any purpose whatsoever, or (ii) make use of any Information for its own
purposes or for the benefit of any other person or entity, other than STC.
Employee acknowledges that all Information will at all times be subject to the
control of STC, and Employee agrees to surrender and return the same to STC upon
request of STC, and in any event will surrender and return such no later than
the termination of this Agreement for any reason. The obligations of this
Section 6(a) shall survive the termination of this Agreement. This Section 6(a)
shall apply in a reciprocal manner to confidential information of Employee.
(b) Work Product, etc. Employee hereby assigns, transfers and
conveys to STC all of Employee's right, title and interest to all work products
of any type whatsoever generated by Employee in connection with this Agreement,
including, without limitation, all data; software; intellectual property,
business plans, and material, conceived or developed solely, or jointly with
others by Employee during the Term hereof (a) which relate directly or
indirectly to the business of STC; or (b) which result from any work performed
or managed by Employee for STC. The obligations of Employee under this Section
6(b) shall survive the termination of this Agreement. Employee may elect to
disclose to the Company certain information that is proprietary to Employee, and
which was developed prior to the Term hereof, in which event the parties shall
enter into a written nondisclosure agreement with respect to such information.
7. Restrictive Covenant. During the term(s) hereof and for a
period of one (1) year thereafter, Employee shall not, directly or indirectly:
(a) conduct or assist others in conducting or be involved or
interested in any manner in any business relating to the rental of cellular
phones or the sale of prepaid cellular services, or any other business that STC
is engaged in during the Term of this Agreement, within the United States and,
if STC conducts business or develops substantive plans for conducting business
outside of the United States during the Term hereof, then the scope of this
restriction shall extend to outside of the United States wherever STC conducts
or plans to conduct business;
(b) recruit, solicit or hire, or assist any other person or
party in recruiting, soliciting or hiring any Employee (as hereinafter defined),
or induce or attempt to induce or assist any other person or entity in inducing
or attempting to induce any Employee to terminate or alter its relationship with
STC (collectively "Recruiting Activity"). For the purposes of this Section 7(b),
the term "Employee" shall mean any person who is, or within the twelve (12)
month period preceding the date of any such Recruiting Activity was, an employee
or Employee of STC; or
(c) solicit any Customer (as hereinafter defined), or induce,
attempt to induce or assist any other person or entity in inducing or attempting
to induce any Customer to discontinue or alter
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<PAGE> 5
its relationship with (collectively "Solicitation Activity"). For the purposes
of this Section 7(c), the term "Customer" shall mean any individual, firm,
partnership, corporation or other entity which is, or within the twelve (12)
month period immediately preceding the date of such Solicitation Activity was, a
customer, vendor, distributor, dealer, or agent of STC. It is understood and
agreed that the business(es) of STC are national in scope, and that the
geographical scope of the covenants set forth in this Section 7(c) is therefore
appropriate. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT THE SCOPE OF EACH OF THE
COVENANTS CONTAINED IN THIS SECTION 7(c) ARE REASONABLE AS TO TIME, SCOPE OF
ACTIVITIES AND GEOGRAPHIC AREA AND ARE NECESSARY TO PROTECT THE LEGITIMATE
BUSINESS INTERESTS OF STC. It is further agreed that such covenants will be
regarded as divisible and if any such covenant is found by any court of
competent jurisdiction to be unenforceable because it extends for too long a
period of time or over too great a range of activities or persons or in too
broad a geographic area, it shall be interpreted to extend over the maximum
period of time, range of activities or persons, or geographic area as to which
it may be enforceable. The provisions of this Section 7(c) shall survive the
termination of this Agreement.
8. Injunctive Relief. Employee acknowledges that a remedy at law
for any breach or attempted breach of Sections 6 or 7 of this Agreement would be
inadequate, and agrees that the Company will be entitled to specific performance
and injunctive and other equitable relief in case of any breach or attempted
breach and agrees not to use as a defense that any party has an adequate remedy
at law. Sections 6 and 7 of this Agreement shall be enforceable in a court of
equity, or other tribunal with jurisdiction, by a decree of specific
performance, and appropriate injunctive relief may be applied for and granted in
connection herewith. Such remedy shall not be exclusive and shall be in addition
to any other remedies now or hereafter existing at law or in equity, by statute
or otherwise. No delay or omission in exercising any right or remedy set forth
in this Agreement shall operate as a waiver thereof or of any right or remedy
and no single or partial exercise thereof shall preclude any other or further
exercise thereof or the exercise of any other right or remedy.
9. Termination.
(a) Termination upon Death. If Employee dies during the Term hereof,
this Agreement and Employee's employment shall terminate, except that Employee's
legal representative shall be entitled to receive Employee's Base Salary for a
period of ninety (90) days following the date of Employee's death.
(b) Termination upon Disability. If during the Term hereof Employee
shall become physically or mentally disabled, whether totally or partially, so
that he is unable substantially to perform his duties under this Agreement for
ninety (90) consecutive days or one hundred twenty (120) days in the aggregate
in any twelve (12) month period, the Company may at any time after either such
period elapses, as the case may be, by written notice to Employee, but before
Employee has recovered from such disability, terminate the Term hereof, and upon
such termination no further sums shall be due to Employee hereunder.
(c) Termination by the Company for Cause. The Company may at any time
during
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<PAGE> 6
the Term hereof, by written notice to Employee, terminate this Agreement and
Employee's employment for Cause (as hereinafter defined), in which event
Employee shall be entitled to receive his Base Salary accrued through the
effective date of such termination. Employee shall have no right to receive any
other compensation or benefit hereunder after the effective date of such
termination. Employee shall have no right to receive any other compensation or
benefit hereunder after the effective date of such termination, including
without limitation Severance Pay; provided, however, that the foregoing shall
not affect Employee's right to receive any compensation or benefit previously
paid by Employee or the Company under the Company's 401(k) plan. As used herein,
the term for "Cause" shall mean:
(1) the willful and continued failure by Employee to
substantially perform his duties after written notice from the Board of
Directors, which notice specifically states and identifies the manner in which
the Board of Directors believes Employee has failed to substantially perform his
duties hereunder, (ii) Employee being charged with a crime relating to any act
of dishonesty (excluding misdemeanors, other than those involving moral
turpitude) involving or affecting the Company, (iii) any material
misappropriation by Employee of any asset of the Company, (iv) the intentional
engaging by Employee in conduct which is materially injurious to the business or
reputation of the Company, monetarily or otherwise, (v) gross negligence or
recklessness by Employee in the performance of his duties hereunder, (vi) the
conviction of Employee of a felony or crime involving moral turpitude (vii) any
breach by Employee of his obligations under Sections 6 or 7 hereof, (viii) the
engagement in conduct which involves a significant conflict of interest between
Employee and the Company, unless such conduct has been disclosed to and approved
by the Company's Board of Directors, (ix) abuse of alcohol or other substances
so as to interfere with the performance of Employee's duties hereunder or, (x)
the material violation of any Company policy by Employee, but only after
Employee has received notice of the violation and has been provided a fair
opportunity to cure the alleged violation. In the event of termination for
Cause, no payment obligations shall accrue hereunder after the effective date of
such termination.
(2) Any termination for Cause shall require prior approval of
the Company's Board of Directors by a vote of at least three-quarters of the
Company's Directors other than Employee. Prior to the Board taking a vote of
such matter, Employee shall have an opportunity to be heard, with Employee's
counsel, by the Board.
(d) Severance Pay upon Termination without Cause. This Agreement may be
terminated by the Company without Cause upon three (3) months' written notice to
Employee specifying the effective date of termination. In the event of such
termination without Cause, Employee shall be entitled to severance pay in an
amount, exclusive of the notice period, equal to the sum of ONE (1) YEAR'S BASE
SALARY PLUS ONE (1) YEAR'S TARGET BONUS, INCREASED BY A FACTOR OF TWENTY PERCENT
(20%) to account for Employee's loss of benefits ("Severance Pay"). For example,
if Base Salary were $200,000, then Severance Pay would be $360,000; (i.e.
200,000 + 100,000 = 300,000, plus 20% = 360,000). Such Severance Pay shall be
payable in a lump sum within thirty (30) days of the effective date of
termination or, at the option of Employee, over a one (1) year period, following
the effective date of termination, in equal semi-monthly installments or
otherwise in accordance with the Company's regular payroll schedule. Any payment
of Severance
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<PAGE> 7
Pay under this Agreement shall be subject to applicable withholdings. As of the
effective date of termination without Cause, Employee shall become fully vested
in all stock options previously granted to Employee. Such Severance Pay and
vesting of options shall be the Employee's sole and exclusive remedies for such
termination without Cause, provided, however, that if a Trigger Event, as
defined in Section 10(b), is announced or occurs within six (6) months of the
effective date of such notice of termination without Cause, then Employee shall
be entitled to payment of the Additional Payment provided for under Section
10(c) and the Tax Payment provided for under Section 9(g) hereof in addition to
Severance Pay, subject to and payable subsequent to the closing of such Trigger
Event, and otherwise in accordance with the terms of this Agreement.
(e) Severance Pay for Nonrenewal of Agreement by the Company. In the
event that the Company elects not to renew the Term of this Agreement, as
provided under Section 2 hereof, in which event this Agreement and Employee's
employment hereunder shall terminate at the end of the then current term, then
Employee shall be entitled to receive Severance Pay, payable as a lump sum
within thirty (30) days of the termination of the term hereof or, at the option
of Employee, over a one (1) year period, following the effective date of
termination, in equal semi-monthly installments or otherwise in accordance with
the Company's regular payroll schedule. Notwithstanding anything contained in
this Section 9(e), Employee shall not be entitled to Severance Pay in the event
that, in lieu of a renewal of the Term hereof, the Company and Employee mutually
agree to an alternative arrangement.
(f) Effect of Termination. Upon the termination of this Agreement, all
rights and obligations of the parties under this Agreement, except those rights
and obligations set forth in Sections 6, 7 and 8 hereof, shall terminate, except
as otherwise required by law. The provisions of Sections 6, 7 and 8 hereof and
those sections and provisions which by their sense and context are intended to
survive the termination of this Agreement shall survive any termination of this
Agreement, and Employee acknowledges that this Agreement and the compensation
and benefits payable hereunder are fair and adequate consideration, in part, for
the covenants of Employee under Sections 6, 7 and 8 and the survival of such
covenants after the termination of this Agreement.
(g) Tax Payment. In addition to the other payments payable pursuant to
this Agreement, in the event that any payment or benefit received or to be
received by Employee under this Agreement (a "Payment") is subject to the excise
tax ("Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or any successor to such section, as determined by a
nationally recognized independent certified public accounting firm selected by
Employee (the "Tax Advisor"), then the Company shall make an additional payment
(a "Tax Payment") to Employee in a lump sum as soon as the determination of the
Tax Advisor is completed, in an amount such that after receipt of such lump sum
and payment of all excise and income taxes imposed with respect to and receipt
of the Payment, Employee will have received an after-tax amount equal to the
amount Employee would have received had the Excise Tax not been applicable to
the Payment. The determination of the Tax Advisor shall be completed not later
than forty-five (45) days following Employee's date of termination of
employment, and such determination shall be communicated in writing to Company,
with a copy to Employee, within such forty-five (45) day period. The
determination of the Tax Advisor as
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<PAGE> 8
provided herein shall be deemed conclusive and binding on Company and Employee.
Such Tax Payment shall include the fees and other costs of the Tax Advisor
hereunder.
10. Effect of a Trigger Event.
(a) It is the belief of the parties that any transfer of
ownership control of the Company after the date hereof shall be reflective of
Employee's contributions to the performance of the Company, and that Employee
should be compensated accordingly. Therefore, the parties agree that, subject to
the limitations set forth herein, Employee shall receive the Additional Payment
set forth in Section 10(c) below in the event that after the date of this
Agreement, and during the Term(s) hereof, a Trigger Event, as defined in Section
10(b) below, occurs. Employee's eligibility to receive the Additional Payment
shall accrue on a graduated vesting schedule, with vesting at the rate of
one-twelfth (1/12) per month during the Term hereof, but commencing May 1, 2000
rather than the initial day of the Term, subject to pro ration for partial
months. For example, in the event that a Trigger Event were to occur on December
20, 2000, then Employee would receive an Additional Payment of $286,687,
representing 7.645 months' of accrual, as follows: ($300,000 + $150,000) =
$450,000; $450,000/12 months = $37,500; 7 months + 20/31 days = 7.6451612
months; ($37,500 x 7.645 = $286,694.
(b) For purposes of this Agreement, the term "Trigger Event"
shall mean:
(1) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"))(a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 50% or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (1), the
following acquisitions shall not constitute a Trigger Event: (A) any acquisition
directly from the Company; (B) any acquisition by the Company; (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (D)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i) and (ii) subsection 10(b)(2) below; or
(2) Consummation of a reorganization, merger or
consolidation or sale of other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless
immediately following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more
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<PAGE> 9
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination or the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, and (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or any related
corporation or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 50% or more of, respectively, the
then outstanding shares of commons stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination.
(c) Upon the occurrence of a Trigger Event, Employee shall be
entitled to a cash payment from the Company within thirty (30) days of effective
date of the Trigger Event (the "Additional Payment"), and the Company shall pay
to Employee the Additional Payment, less applicable withholdings, in a lump sum
amount equal to EIGHTEEN (18) MONTHS' BASE SALARY PLUS EIGHTEEN (18) MONTHS'
TARGET BONUS. The Additional Payment shall be in addition to, and not in
substitution for, Severance Pay that may be otherwise payable pursuant to the
terms of this Agreement. Employee also shall receive the Additional Payment if
Employee is offered and, in Employee's sole discretion, accepts employment with
the new owner (in which case there would be no Severance Pay).
(d) In the event of a Trigger Event, Employee shall have the
right to terminate his employment with the Company upon 30 days' notice, but in
no event later than six (6) months after the effective date of the Trigger
Event. In the event that Employee gives such notice, Employee shall be entitled
to the Severance Pay as if terminated without Cause pursuant to Section 9(d)
above, including acceleration of the vesting of options as provided in such
Section 9(d), provided, however, that no Severance Pay shall be payable under
such circumstances (although acceleration of the vesting of options shall
nevertheless occur) if (i) Employee has been advised in writing by the Company,
or its successor, that subsequent to the Trigger Event Employee is to be
retained for the remainder of the Term of this Agreement (as extended pursuant
to the last sentence of this paragraph) at the same rate of compensation
(including comparable bonus compensation and comparable fringe benefits, such as
insurance), and that Employee will perform substantially the same functions as
those that Employee performed prior to the Trigger Event, provided that Employee
shall not be required to relocate, and (ii) Employee continues to receive such
compensation and be permitted to perform such functions. In the event of a
Trigger Event, Employee is offered continued employment by the Company or its
successor, such offer shall include, an extension of the then remaining Term of
this Agreement such that the remaining Term hereof shall extend for a period of
not less than one (1) year following the Trigger Date, without in any way
limiting the renewal provisions of Section 2 hereof.
(e) During the term hereof and for a period of twelve (12)
months following the termination of this Agreement (the "Noncompetition
Period"), Employee shall not, except as permitted by the Company upon its
written consent, engage in, be employed by, or in any way advise or act for, or
have any financial interest in any business that is a competitor of the Company.
The ownership of 5% of the outstanding securities of any corporation, even
though such
9
<PAGE> 10
corporation may be a competitor of the Company as specified above, shall not be
deemed as constituting a financial interest in such competitor. In consideration
for Employee's abstention from competitive activities during the Noncompetition
Period, Employee shall be eligible to receive Severance Pay, subject to the
other terms and conditions herein governing the payment of Severance Pay to
Employee.
11. Compliance with Other Agreements. Employee represents and
warrants that the execution and delivery of this Agreement and the performance
of the obligations will not conflict with, result either in the breach of any
provisions or the termination of, or constitute a default under, any agreements
to which he is or may be bound. Employee agrees that he is not presently bound
by, nor will he enter into any agreement, either written or oral, in conflict
with this Agreement.
12. Severability. If any provision of this Agreement is declared
or found to be illegal, unenforceable or void, in whole or in part, then both
parties will be relieved of all obligations arising under such provision, but
only to the extent it is illegal, unenforceable or void. The intent and
agreement of the parties to this Agreement is that this Agreement will be deemed
amended by modifying any such illegal, unenforceable or void provision to the
extent necessary to make it legal and enforceable while preserving its intent,
or if such is not possible, by substituting therefor another provision that is
legal and enforceable and achieves the same objectives. Notwithstanding the
foregoing, if the remainder of this Agreement will not be affected by such
declaration or finding and is capable of substantial performance, then each
provision not so affected will be enforced to the extent permitted by law.
13. Notice. Whenever any notice is required to be given hereunder,
such notice shall be given in writing and personally delivered or sent by
certified or registered mail, return receipt requested, or by overnight courier.
Notice shall be deemed to have been given at the time of receipt, if personally
delivered, or three (3) days after mailing if sent by certified or registered
mail, or upon delivery if sent by overnight courier. Notices shall be delivered
to the parties' respective addresses set forth above. Either party may change
its notice address by giving notice of the change to the other party pursuant to
this Section.
14. General.
(a) No modification or waiver of any provision of this Agreement shall
be valid unless in writing signed by the parties hereto.
(b) Neither party may assign this Agreement to any third party without
the prior written consent of the other party. This Agreement shall be valid and
binding upon the parties hereto and, with respect to the Company, upon its
successors and assigns, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business and/or assets of
the Company by purchase, merger, consolidation or operation of law.
(c) This Agreement shall be governed by the laws of the State of
Connecticut, without giving effect to any principle of conflict-of-laws. Any
claim(s) arising out of or in
10
<PAGE> 11
connection with this Agreement shall be brought in the State of Connecticut,
wherein the parties waive to the fullest extent permitted by applicable law all
objections to personal and subject matter jurisdiction.
(d) In the event of a dispute arising out of this Agreement, the
prevailing party shall be entitled to recovery of its reasonable legal fees and
expenses.
(e) The waiver of any provision of this Agreement shall not be
construed as a continuing waiver of such breach or of other breaches of the same
or of other provisions hereof.
(f) The section headings of this Agreement are for reference purposes
only and shall not constitute a part hereof or affect the meaning or
interpretation of this Agreement. Whether defined terms are stated in the
singular or plural shall not affect their construction as defined terms.
(g) All payment obligations, nondisclosure and noncompete provisions,
and any other provisions that by sense and context are intended to survive the
termination of this Agreement shall so remain in effect after the termination
hereof until the running of the applicable statute of limitations.
(h) The parties acknowledge that they have each read this Agreement in
its entirety, understand it and agree to be bound by its terms and conditions.
(i) This Agreement represents the entire agreement between the parties
with respect to the subject matter hereof and supersedes any and all prior
agreements, discussions and understandings, whether oral or written.
[Remainder of this page intentionally left blank]
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Employee Shared Technologies Cellular, Inc.,
a Delaware corporation
By: /s/ David Bogue By: /s/ Anthony D. Autorino
-------------------------- ---------------------------------------
David Bogue Anthony D. Autorino, Chairman and CEO
Date: April 27, 2000 Date: April 27, 2000
12
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